Insurance Last Batch

FIRST DIVISION
G.R. No. L-25317 August 6, 1979

PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY, Plaintiff-Appellee,
vs.WOODWORKS, INC., Defendant-Appellant.
Zosimo Rivas for appellant.chanrobles virtual law library
Manuel O. Chan for appellee.
MELENCIO-HERRERA, J.:
This case was certified to this Tribunal by the Court of Appeals in its Resolution of
October 4, 1965 on a pure question of law and "because the issues raised are
practically the same as those in CA-G.R. No. 32017-R" between the same parties,
which case had been forwarded to us on April 1, 1964. The latter case, "Philippine
Phoenix Surety & Insurance Inc. vs. Woodworks, Inc.," docketed in this Court as L22684, was decided on August 31, 1967 and has been reported in 20 SCRA
1270.chanroblesvirtualawlibrary chanrobles virtual law library
Specifically, this action is for recovery of unpaid premium on a fire insurance policy
issued by plaintiff, Philippine Phoenix Surety & Insurance Company, in favor of
defendant Woodworks, Inc.chanroblesvirtualawlibrary chanrobles virtual law library
The following are the established facts: chanrobles virtual law library
On July 21, 1960, upon defendant's application, plaintiff issued in its favor Fire
Insurance Policy No. 9749 for P500,000.00 whereby plaintiff insured defendant's
building, machinery and equipment for a term of one year from July 21, 1960 to July
21, 1961 against loss by fire. The premium and other charges including the margin
fee surcharge of P590.76 and the documentary stamps in the amount of P156.60
affixed on the Policy, amounted to
P10,593.36.chanroblesvirtualawlibrary chanrobles virtual law library
It is undisputed that defendant did not pay the premium stipulated in the Policy
when it was issued nor at any time thereafter.chanroblesvirtualawlibrarychanrobles
virtual law library
On April 19, 1961, or before the expiration of the one-year term, plaintiff notified
defendant, through its Indorsement No. F-6963/61, of the cancellation of the Policy
allegedly upon request of defendant. 1 The latter has denied having made such a
request. In said Indorsement, plaintiff credited defendant with the amount of
P3,110.25 for the unexpired period of 94 days, and claimed the balance of
P7,483.11 representing ,learned premium from July 21, 1960 to 18th April 1961 or,
say 271 days." On July 6, 1961, plaintiff demanded in writing for the payment of
said amount. 2 Defendant, through counsel, disclaimed any liability in its reply-
letter of August 15, 1961, contending, in essence, that it need not pay premium
"because the Insurer did not stand liable for any indemnity during the period the
premiums were not paid." 3 chanrobles virtual law library
On January 30, 1962, plaintiff commenced action in the Court of First Instance of
Manila, Branch IV (Civil Case No. 49468), to recover the amount of P7,483.11 as
"earned premium." Defendant controverted basically on the theory that its failure
"to pay the premium after the issuance of the policy put an end to the insurance
contract and rendered the policy unenforceable." 4 chanrobles virtual law library
On September 13, 1962, judgment was rendered in plaintiff's favor "ordering
defendant to pay plaintiff the sum of P7,483.11, with interest thereon at the rate of
6%, per annum from January 30, 1962, until the principal shall have been fully paid,
plus the sum of P700.00 as attorney's fees of the plaintiff, and the costs of the suit."
From this adverse Decision, defendant appealed to the Court of Appeals which, as
heretofore stated, certified the case to us on a question of
law.chanroblesvirtualawlibrary chanrobles virtual law library
The errors assigned read:
1. The lower court erred in sustaining that Fire Insurance Policy, Exhibit A, was a
binding contract even if the premium stated in the policy has not been
paid.chanroblesvirtualawlibrary chanrobles virtual law library
2. That the lower court erred in sustaining that the premium in Insurance Policy,
Exhibit B, became an obligation which was demandable even after the period in the
Policy has expired.chanroblesvirtualawlibrary chanrobles virtual law library
3. The lower court erred in not deciding that a premium not paid is not a debt
enforceable by action of the insurer.
We find the appeal meritorious.chanroblesvirtualawlibrary chanrobles virtual law
library
Insurance is "a contract whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent
event." 5 The consideration is the "premium". "The premium must be paid at the
time and in the way and manner specified in the policy and, if not so paid, the policy
will lapse and be forfeited by its own terms." 6chanrobles virtual law library
The provisions on premium in the subject Policy read:
THIS POLICY OF INSURANCE WITNESSETH, THAT in consideration of - MESSRS.
WOODWORKS, INC. - hereinafter called the Insured, paying to the PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC., hereinafter called the Company, the sum
of - PESOS NINE THOUSAND EIGHT HUNDRED FORTY SIX ONLY - the Premium for the
first period hereinafter mentioned. ...chanroblesvirtualawlibrarychanrobles virtual

law library
xxx xxx xxxchanrobles virtual law library
THE COMPANY HEREBY AGREES with the Insured ... that if the Property above
described, or any part thereof, shall be destroyed or damaged by Fire or
Lightning after payment of Premium, at any time between 4:00 o'clock in the
afternoon of the TWENTY FIRST day of JULY One Thousand Nine Hundred and SIXTY
and 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One Thousand
Nine Hundred and SIXTY ONE. ... (Emphasis supplied)
Paragraph "2" of the Policy further contained the following condition:
2. No payment in respect of any premium shall be deemed to be payment to the
Company unless a printed form of receipt for the same signed by an Official or dulyappointed Agent of the Company shall have been given to the Insured.
Paragraph "10" of the Policy also provided:
10. This insurance may be terminated at any time at the request of the Insured, in
which case the Company will retain the customary short period rate for the time the
policy has been in force. This insurance may also at any time be terminated at the
option of the Company, on notice to that effect being given to the Insured, in which
case the Company shall be liable to repay on demand a ratable proportion of the
premium for the unexpired term from the date of the cancelment.
Clearly, the Policy provides for pre-payment of premium. Accordingly; "when the
policy is tendered the insured must pay the premium unless credit is given or there
is a waiver, or some agreement obviating the necessity for prepayment." 7 To
constitute an extension of credit there must be a clear and express agreement
therefor." 8chanrobles virtual law library
From the Policy provisions, we fail to find any clear agreement that a credit
extension was accorded defendant. And even if it were to be presumed that plaintiff
had extended credit from the circumstances of the unconditional delivery of the
Policy without prepayment of the premium, yet it is obvious that defendant had not
accepted the insurer's offer to extend credit, which is essential for the validity of
such agreement.
An acceptance of an offer to allow credit, if one was made, is as essential to make a
valid agreement for credit, to change a conditional delivery of an insurance policy to
an unconditional delivery, as it is to make any other contract. Such an acceptance
could not be merely a mental act or state of mind, but would require a promise to
pay made known in some manner to defendant. 9
In this respect, the instant case differs from that involving the same parties
entitledPhilippine Phoenix Surety & Insurance Inc. vs. Woodworks, Inc., 10 where
recovery of the balance of the unpaid premium was allowed inasmuch as in that
case "there was not only a perfected contract of insurance but a partially performed
one as far as the payment of the agreed premium was concerned." This is not the
situation obtaining here where no partial payment of premiums has been made
whatsoever.chanroblesvirtualawlibrary chanrobles virtual law library
Since the premium had not been paid, the policy must be deemed to have lapsed.
The non-payment of premiums does not merely suspend but put, an end to an
insurance contract, since the time of the payment is peculiarly of the essence of the
contract. 11 chanrobles virtual law library
... the rule is that under policy provisions that upon the failure to make a payment of
a premium or assessment at the time provided for, the policy shall become void or
forfeited, or the obligation of the insurer shall cease, or words to like effect, because
the contract so prescribes and because such a stipulation is a material and essential
part of the contract. This is true, for instance, in the case of life, health and
accident, fire and hail insurance policies. 12
In fact, if the peril insured against had occurred, plaintiff, as insurer, would have had
a valid defense against recovery under the Policy it had issued. Explicit in the Policy
itself is plaintiff's agreement to indemnify defendant for loss by fire only "after
payment of premium," supra. Compliance by the insured with the terms of the
contract is a condition precedent to the right of recovery.
The burden is on an insured to keep a policy in force by the payment of premiums,
rather than on the insurer to exert every effort to prevent the insured from allowing
a policy to elapse through a failure to make premium payments. The continuance of
the insurer's obligation is conditional upon the payment of premiums, so that no
recovery can be had upon a lapsed policy, the contractual relation between the
parties having ceased. 13
Moreover, "an insurer cannot treat a contract as valid for the purpose of collecting
premiums and invalid for the purpose of indemnity." 14 chanrobles virtual law library
The foregoing findings are buttressed by section 77 of the Insurance Code
(Presidential Decree No. 612, promulgated on December 18, 1974), which now
provides that no contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, notwithstanding any
agreement to the contrary.chanroblesvirtualawlibrary chanrobles virtual law library
WHEREFORE, the judgment appealed from is reversed, and plaintiff's complaint
hereby dismissed.
Teehankee (Chairman), Fernandez, Guerrero and De Castro, JJ.,

concur.chanroblesvirtualawlibrary chanrobles virtual law library
Makasiar, J., is on leave.
EN BANC
[G.R. No. 137172. April 4, 2001]
UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA TELAMART,
INC., respondent.
RESOLUTION
DAVIDE, JR., C.J.:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed
decision[1] of the Court of Appeals, which affirmed with modification the judgment of
the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full
payment of the premiums for the renewal of the five insurance policies on
Respondents properties; (b) declaring the replacement-renewal policies effective
and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay
Respondent P18,645,000.00 as indemnity for the burned properties covered by the
renewal-replacement policies. The modification consisted in the (1) deletion of the
trial courts declaration that three of the policies were in force from August 1991 to
August 1992; and (2) reduction of the award of the attorneys fees from 25% to 10%
of the total amount due the Respondent.
The material operative facts upon which the appealed judgment was based are
summarized by the Court of Appeals in its assailed decision as follows:
Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5)
insurance policies (Exhibits "A" to "E", Record, pp. 158-175) on its properties [in
Pasay City and Manila].
All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22
May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiff's properties
located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire. On
July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank
Manager's Checks in the total amount of P225,753.45 as renewal premium
payments for which Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record,
p. 191) was issued by defendant. On July 14, 1992, Masagana made its formal
demand for indemnification for the burned insured properties. On the same day,
defendant returned the five (5) manager's checks stating in its letter (Exhibit
"R"/"8", Record, p. 192) that it was rejecting Masagana's claim on the following
grounds:
"a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal
earlier; and
c) The properties covered by the said policies were burned in a fire that took place
last June 13, 1992, or before tender of premium payment."
(Record, p. 5)
Hence Masagana filed this case.
The Court of Appeals disagreed with Petitioners stand that Respondents tender of
payment of the premiums on 13 July 1992 did not result in the renewal of the
policies, having been made beyond the effective date of renewal as provided under
Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the
end of the policy period mails or delivers to the assured at the address shown in the
policy notice of its intention not to renew the policy or to condition its renewal upon
reduction of limits or elimination of coverages, the assured shall be entitled to
renew the policy upon payment of the premium due on the effective date of
renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that
Respondent, which had procured insurance coverage from Petitioner for a number of
years, had been granted a 60 to 90-day credit term for the renewal of the
policies. Such a practice had existed up to the time the claims were filed. Thus:
Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued
on May 7, 1990 but premium was paid more than 90 days later on August 31, 1990
under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for
Insurance Risk Coverage from May 22, 1990 to May 22, 1991 was issued by UCPB
on May 4, 1990 but premium was collected by UCPB only on July 13, 1990 or more
than 60 days later under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as
other policies: Fire Insurance Policy No. 34657 covering risks from May 22, 1990 to
May 22, 1991 was issued on May 7, 1990 but premium therefor was paid only on
July 19, 1990 under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No.
34661 covering risks from May 22, 1990 to May 22, 1991 was issued on May 3,
1990 but premium was paid only on July 19, 1990 under O.R. No. 46582 (Exhs. "X'
and "X-1"). Fire Insurance Policy No. 34688 for insurance coverage from May 22,
1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid only on
July 19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No.
29126 to cover insurance risks from May 22, 1989 to May 22, 1990 was issued on
May 22, 1989 but premium therefor was collected only on July 25, 1990[sic] under
O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408
covering risks from January 12, 1989 to January 12, 1990 was issued to Intratrade
Phils. (Masagana's sister company) dated December 10, 1988 but premium therefor
was paid only on February 15, 1989 under O.R. No. 38075 (Exhs. "BB" and "BB1"). Fire Insurance Policy No. 29128 was issued on May 22, 1989 but premium was
paid only on July 25, 1989 under O.R. No. 40800 for insurance coverage from May
22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127
was issued on May 22, 1989 but premium was paid only on July 17, 1989 under O.R.
No. 40682 for insurance risk coverage from May 22, 1989 to May 22, 1990 (Exhs.
"DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15,
1989 but premium was paid only on February 13, 1990 under O.R. No. 39233 for
insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE1"). Fire Insurance Policy No. 26303 was issued on November 22, 1988 but
premium therefor was collected only on March 15, 1989 under O.R. NO. 38573 for
insurance risks coverage from December 15, 1988 to December 15, 1989 (Exhs.
"FF" and "FF-1").
Moreover, according to the Court of Appeals the following circumstances constitute
preponderant proof that no timely notice of non-renewal was made by Petitioner:
(1) Defendant-appellant received the confirmation (Exhibit 11, Record, p. 350)
from Ultramar Reinsurance Brokers that plaintiffs reinsurance facility had been
confirmed up to 67.5% only on April 15, 1992 as indicated on Exhibit
11. Apparently, the notice of non-renewal (Exhibit 7, Record, p. 320) was sent
not earlier than said date, or within 45 days from the expiry dates of the policies as
provided under Policy Condition No. 26; (2) Defendant insurer unconditionally
accepted, and issued an official receipt for, the premium payment on July 1[3], 1992
which indicates defendant's willingness to assume the risk despite only a 67.5%
reinsurance cover[age]; and (3) Defendant insurer appointed Esteban Adjusters and
Valuers to investigate plaintiffs claim as shown by the letter dated July 17, 1992
(Exhibit 11, Record, p. 254).
In our decision of 15 June 1999, we defined the main issue to be whether the fire
insurance policies issued by petitioner to the respondent covering the period
from May 22, 1991 to May 22, 1992 had been extended or renewed by an implied
credit arrangement though actual payment of premium was tendered on a later
date and after the occurrence of the (fire) risk insured against. We resolved this
issue in the negative in view of Section 77 of the Insurance Code and our decisions
in Valenzuela v. Court of Appeals[2]; South Sea Surety and Insurance Co., Inc. v.
Court of Appeals[3]; and Tibay v. Court of Appeals.[4] Accordingly, we reversed and
set aside the decision of the Court of Appeals.
Respondent seasonably filed a motion for the reconsideration of the adverse
verdict. It alleges in the motion that we had made in the decision our own findings
of facts, which are not in accord with those of the trial court and the Court of
Appeals. The courts below correctly found that no notice of non-renewal was made
within 45 days before 22 May 1992, or before the expiration date of the fire
insurance policies. Thus, the policies in question were renewed by operation of law
and were effective and valid on 30 June 1992 when the fire occurred, since the
premiums were paid within the 60- to 90-day credit term.
Respondent likewise disagrees with our ruling that parties may neither agree
expressly or impliedly on the extension of credit or time to pay the premium nor
consider a policy binding before actual payment. It urges the Court to take judicial
notice of the fact that despite the express provision of Section 77 of the Insurance
Code, extension of credit terms in premium payment has been the prevalent
practice in the insurance industry. Most insurance companies, including Petitioner,
extend credit terms because Section 77 of the Insurance Code is not a prohibitive
injunction but is merely designed for the protection of the parties to an insurance
contract. The Code itself, in Section 78, authorizes the validity of a policy
notwithstanding non-payment of premiums.
Respondent also asserts that the principle of estoppel applies to Petitioner. Despite
its awareness of Section 77 Petitioner persuaded and induced Respondent to believe
that payment of premium on the 60- to 90-day credit term was perfectly alright; in
fact it accepted payments within 60 to 90 days after the due dates. By extending
credit and habitually accepting payments 60 to 90 days from the effective dates of
the policies, it has implicitly agreed to modify the tenor of the insurance policy and
in effect waived the provision therein that it would pay only for the loss or damage
in case the same occurred after payment of the premium.
Petitioner filed an opposition to the Respondents motion for reconsideration. It
argues that both the trial court and the Court of Appeals overlooked the fact that on
6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal
and sent by personal delivery a copy thereof to Respondents broker, Zuellig. Both
courts likewise ignored the fact that Respondent was fully aware of the notice of
non-renewal. A reading of Section 66 of the Insurance Code readily shows that in
order for an insured to be entitled to a renewal of a non-life policy, payment of the
premium due on the effective date of renewal should first be made. Respondents
argument that Section 77 is not a prohibitive provision finds no authoritative
support.
Upon a meticulous review of the records and reevaluation of the issues raised in the
motion for reconsideration and the pleadings filed thereafter by the parties, we
resolved to grant the motion for reconsideration. The following facts, as found by
the trial court and the Court of Appeals, are indeed duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent, and these
policies were annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term within
which to pay the premiums on the renewed policies.
3. There was no valid notice of non-renewal of the policies in question, as there is
no proof at all that the notice sent by ordinary mail was received by Respondent,
and the copy thereof allegedly sent to Zuellig was ever transmitted to Respondent.
4. The premiums for the policies in question in the aggregate amount

of P225,753.95 were paid by Respondent within the 60- to 90-day credit term and
were duly accepted and received by Petitioners cashier.
The instant case has to rise or fall on the core issue of whether Section 77 of the
Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to Petitioners
advantage despite its practice of granting a 60- to 90-day credit term for the
payment of premiums.
Section 77 of the Insurance Code of 1978 provides:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except in the
case of a life or an industrial life policy whenever the grace period provision applies.
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code)
promulgated on 18 December 1974. In turn, this Section has its source in Section
72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No.
3540, approved on 21 June 1963, which read:
SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured
is exposed to the peril insured against, unless there is clear agreement to grant the
insured credit extension of the premium due. No policy issued by an insurance
company is valid and binding unless and until the premium thereof has been paid.
(Underscoring supplied)
It can be seen at once that Section 77 does not restate the portion of Section 72
expressly permitting an agreement to extend the period to pay the premium. But
are there exceptions to Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or
industrial life policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of
premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until premium is
actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs.
Court of Appeals,[5] wherein we ruled that Section 77 may not apply if the parties
have agreed to the payment in installments of the premium and partial payment
has been made at the time of loss. We said therein, thus:
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that the petitioners and private respondent
intended subject insurance policies to be binding and effective notwithstanding the
staggered payment of the premiums. The initial insurance contract entered into in
1982 was renewed in 1983, then in 1984. In those three years, the insurer
accepted all the installment payments. Such acceptance of payments speaks loudly
of the insurers intention to honor the policies it issued to petitioner. Certainly,
basic principles of equity and fairness would not allow the insurer to continue
collecting and accepting the premiums, although paid on installments, and later
deny liability on the lame excuse that the premiums were not prepaid in full.
Not only that. In Tuscany, we also quoted with approval the following
pronouncement of the Court of Appeals in its Resolution denying the motion for
reconsideration of its decision:
While the import of Section 77 is that prepayment of premiums is strictly required
as a condition to the validity of the contract, We are not prepared to rule that the
request to make installment payments duly approved by the insurer would prevent
the entire contract of insurance from going into effect despite payment and
acceptance of the initial premium or first installment. Section 78 of the Insurance
Code in effect allows waiver by the insurer of the condition of prepayment by
making an acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the
fact that premium is actually unpaid. Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are not paid, but does not
expressly prohibit an agreement granting credit extension, and such an agreement
is not contrary to morals, good customs, public order or public policy (De Leon, The
Insurance Code, p. 175). So is an understanding to allow insured to pay premiums
in installments not so prescribed. At the very least, both parties should be deemed
in estoppel to question the arrangement they have voluntarily accepted.
By the approval of the aforequoted findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the
insurer may grant credit extension for the payment of the premium. This simply
means that if the insurer has granted the insured a credit term for the payment of
the premium and loss occurs before the expiration of the term, recovery on the
policy should be allowed even though the premium is paid after the loss but within
the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance
contract to provide a credit term within which to pay the premiums. That
agreement is not against the law, morals, good customs, public order or public
policy. The agreement binds the parties. Article 1306 of the Civil Code provides:
ART. 1306. The contracting parties may establish such stipulations clauses, terms
and conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy.
Finally in the instant case, it would be unjust and inequitable if recovery on the
policy would not be permitted against Petitioner, which had consistently granted a
60- to 90-day credit term for the payment of premiums despite its full awareness of
Section 77. Estoppel bars it from taking refuge under said Section, since
Respondent relied in good faith on such practice. Estoppel then is the fifth
exception to Section 77.
WHEREFORE, the Decision in this case of 15 June 1999
is RECONSIDERED and SET ASIDE, and a new one is hereby
entered DENYING the instant petition for failure of Petitioner to sufficiently show
that a reversible error was committed by the Court of Appeals in its challenged
decision, which is hereby AFFIRMED in toto.
No pronouncement as to cost.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22684
August 31, 1967
PHILIPPINE PHOENIX SURETY & INSURANCE, INC., plaintiff-appellee,

vs.
WOODWORKS, INC., defendant-appellant.
Zosimo Rivas for defendant-appellant.
Manuel O. Chan for plaintiff-appellee.
DIZON, J.:
Appeal upon a question of law taken by Woodworks, Inc. from the judgment of the
Court of First Instance of Manila in Civil Case No. 50710 "ordering the defendant,
Woodworks, Inc. to pay to the plaintiff, Philippine Phoenix Surety & Insurance, Inc.,
the sum of P3,522.09 with interest thereon at the legal rate of 6% per annum from
the date of the filing of the complaint until fully paid, and costs of the suit."
Appellee Philippine Phoenix Surety & Insurance Co., Inc. commenced this action in
the Municipal Court of Manila to recover from appellant Woodworks, Inc. the sum of
P3,522.09, representing the unpaid balance of the premiums on a fire insurance
policy issued by appellee in favor of appellant for a term of one year from April 1,
1960 to April 1, 1961. From an adverse decision of said court, Woodworks, Inc.
appealed to the Court of First Instance of Manila (Civil Case No. 50710) where the
parties submitted the following stipulation of facts, on the basis of which the
appealed decision was rendered:
That plaintiff and defendant are both corporations duly organized and existing
under and by virtue of the laws of the Philippines;
That on April 1, 1960, plaintiff issued to defendant Fire Policy No. 9652 for the
amount of P300,000.00, under the terms and conditions therein set forth in said
policy a copy of which is hereto attached and made a part hereof as Annex "A";
That the premiums of said policy as stated in Annex "A" amounted to P6,051.95; the
margin fee pursuant to the adopted plan as an implementation of Republic Act 2609
amounted to P363.72, copy of said adopted plan is hereto attached as Annex "B"
and made a part hereof, the documentary stamps attached to the policy was
P96.42;
That the defendant paid P3,000.00 on September 22, 1960 under official receipt No.
30245 of plaintiff;
That plaintiff made several demands on defendant to pay the amount of
P3,522.09.1wph1.t
In the present appeal, appellant claims that the court a quo committed the following
errors:
I. The lower court erred in stating that in fire insurance policies the risk attached
upon the issuance and delivery of the policy to the insured.
II. The lower court erred in deciding that in a perfected contract of insurance nonpayment of premium does not cancel the policy.
III. The lower court erred in deciding that the premium in the policy was still
collectible when the complaint was filed.
IV. The lower court erred in deciding that a partial payment of the premium made
the policy effective during the whole period of the policy.
It is clear from the foregoing that on April 1, 1960 Fire Insurance Policy No. 9652
was issued by appellee and delivered to appellant, and that on September 22 of the
same year, the latter paid to the former the sum of P3,000.00 on account of the
total premium of P6,051.95 due thereon. There is, consequently, no doubt at all
that, as between the insurer and the insured, there was not only a perfected
contract of insurance but a partially performed one as far as the payment of the
agreed premium was concerned. Thereafter the obligation of the insurer to pay the
insured the amount for which the policy was issued in case the conditions therefor
had been complied with, arose and became binding upon it, while the obligation of
the insured to pay the remainder of the total amount of the premium due became
demandable.
We can not agree with appellant's theory that non-payment by it of the premium
due, produced the cancellation of the contract of insurance. Such theory would
place exclusively in the hands of one of the contracting parties the right to decide
whether the contract should stand or not. Rather the correct view would seem to be
this: as the contract had become perfected, the parties could demand from each
other the performance of whatever obligations they had assumed. In the case of the
insurer, it is obvious that it had the right to demand from the insured the completion
of the payment of the premium due or sue for the rescission of the contract. As it
chose to demand specific performance of the insured's obligation to pay the
balance of the premium, the latter's duty to pay is indeed indubitable.
Having thus resolved that the fourth and last assignment of error submitted in
appellant's brief is without merit, the first three assignments of error must likewise
be overruled as lacking in merit.
Wherefore, the appealed decision being in accordance with law and the evidence,
the same is hereby affirmed, with costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro,
Angeles and Fernando, JJ., concur.
FIRST DIVISION
[G.R. No. 119655. May 24, 1996]
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO,
VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and
ROSABELLA M. RORALDO, petitioners, vs. COURT OF APPEALS and
FORTUNE LIFE AND GENERAL INSURANCE CO., INC., respondents.
D E C I S I O N*
BELLOSILLO, J.:
May a fire insurance policy be valid, binding and enforceable upon mere partial
payment of premium?
On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc.
(FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay
and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel
Street, Makati City, together with all their personal effects therein. The insurance
was for P600,000.00 covering the period from 23 January 1987 to 23 January
1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta
Tibay only paid P600.00 thus leaving a considerable balance unpaid.
On 8 March 1987 the insured building was completely destroyed by fire. Two days
later or on 10 March 1987 Violeta Tibay paid the balance of the premium. On the
same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim
was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI),
which immediately wrote Violeta requesting her to furnish it with the necessary
documents for the investigation and processing of her claim. Petitioner forthwith
complied. On 28 March 1987 she signed a non-waiver agreement with GASI to the
effect that any action taken by the companies or their representatives in
investigating the claim made by the claimant for his loss which occurred at 5855
Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of
the amount of actual cash value and loss, shall not waive or invalidate any
condition of the policies of such companies held by said claimant, nor the rights of
either or any of the parties to this agreement, and such action shall not be, or be
claimed to be, an admission of liability on the part of said companies or any of
them.[1]
In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of
Policy Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the
case before the Insurance Commission proved futile. On 3 March 1988 Violeta and
the other petitioners sued FORTUNE for damages in the amount of P600,000.00
representing the total coverage of the fire insurance policy plus 12% interest per
annum, P 100,000.00 moral damages, and attorneys fees equivalent to 20% of the
total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for
the total value of the insured building and personal properties in the amount of
P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the
complaint until full payment, and attorneys fees equivalent to 20% of the total
amount claimed plus costs of suit.[2]
On 24 March 1995 the Court of Appeals reversed the court a quo by declaring
FORTUNE not to be liable to plaintiff-appellees therein but ordering defendantappellant to return to the former the premium of P2,983.50 plus 12% interest from
10 March 1987 until full payment.[3]
Hence this petition for review with petitioners contending mainly that contrary to
the conclusion of the appellate court, FORTUNE remains liable under the subject fire
insurance policy inspite of the failure of petitioners to pay their premium in full.
We find no merit in the petition; hence, we affirm the Court of Appeals.
Insurance is a contract whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent
event.[4] The consideration is the premium, which must be paid at the time and in
the way and manner specified in the policy, and if not so paid, the policy will lapse
and be forfeited by its own terms.[5]
The pertinent provisions in the Policy on premium read
THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company
in accordance with Policy Condition No. 2 of the total premiums by the insured as
stipulated above for the period aforementioned for insuring against Loss or Damage
by Fire or Lightning as herein appears, the Property herein described x x x
2.
This policy including any renewal thereof and/or any endorsement thereon is
not in force until the premium has been fully paid to and duly receipted by the
Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent,
broker or Company official, shall be deemed invalid and of no effect.
xxx
xxx
xxx
Except only in those specific cases where corresponding rules and regulations which
are or may hereafter be in force provide for the payment of the stipulated premiums
in periodic installments at fixed percentage, it is hereby declared, agreed and
warranted that this policy shall be deemed effective, valid and binding upon the
Company only when the premiums therefor have actually been paid in full and duly
acknowledged in a receipt signed by any authorized official or representative/agent

of the Company in such manner as provided herein, (Italics supplied). [6]
Clearly the Policy provides for payment of premium in full. Accordingly, where the
premium has only been partially paid and the balance paid only after the peril
insured against has occurred, the insurance contract did not take effect and the
insured cannot collect at all on the policy. This is fully supported by Sec. 77 of the
Insurance Code which provides
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except in the
case of a life or an industrial life policy whenever the grace period provision applies
(Italics supplied).
Apparently the crux of the controversy lies in the phrase unless and until the
premium thereof has been paid. This leads us to the manner of payment
envisioned by the law to make the insurance policy operative and binding. For
whatever judicial construction may be accorded the disputed phrase must
ultimately yield to the clear mandate of the law. The principle that where the law
does not distinguish the court should neither distinguish assumes that the
legislature made no qualification on the use of a general word or expression.
In Escosura v. San Miguel Brewery, inc., [7] the Court through Mr. Justice Jesus G.
Barrera, interpreting the phrase with pay used in connection with leaves of
absence with pay granted to employees, ruled x x x the legislative practice seems to be that when the intention is to distinguish
between full and partial payment, the modifying term is used x x x
Citing C. A. No. 647 governing maternity leaves of married women in government,
R. A. No. 679 regulating employment of women and children, R.A. No. 843 granting
vacation and sick leaves to judges of municipal courts and justices of the peace,
and finally, Art. 1695 of the New Civil Code providing that every househelp shall be
allowed four (4) days vacation each month, which laws simply stated with pay,
the Court concluded that it was undisputed that in all these laws the phrase with
pay used without any qualifying adjective meant that the employee was entitled to
full compensation during his leave of absence.
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite
partial payment of the premium due and the express stipulation thereof to the
contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and
Insurance Co., Inc. v. Woodworks, Inc. [8] where the Court through Mr. Justice Arsenio
P. Dizon sustained the ruling of the trial court that partial payment of the premium
made the policy effective during the whole period of the policy. In that case, the
insurance company commenced action against the insured for the unpaid balance
on a fire insurance policy. In its defense the insured claimed that nonpayment of
premium produced the cancellation of the insurance contract. Ruling otherwise the
Court held
It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by
appellee and delivered to appellant, and that on September 22 of the same year,
the latter paid to the former the sum of P3,000.00 on account of the total premium
of P6,051.95 due thereon. There is, consequently, no doubt at all that, as between
the insurer and the insured, there was not only a perfected contract of insurance
but a partially performed one as far as the payment of the agreed premium was
concerned. Thereafter the obligation of the insurer to pay the insured the amount,
for which the policy was issued in case the conditions therefor had been complied
with, arose and became binding upon it, while the obligation of the insured to pay
the remainder of the total amount of the premium due became demandable.
The 1967 Phoenix case is not persuasive; neither is it decisive of the instant
dispute. For one, the factual scenario is different. In Phoenix it was the insurance
company that sued for the balance of the premium, i.e., it recognized and admitted
the existence of an insurance contract with the insured. In the case before us, there
is, quite unlike in Phoenix, a specific stipulation that (t)his policy xxx is not in force
until the premium has been fully paid and duly receipted by the Company x x x.
Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial
payment of the premium since the parties had not otherwise stipulated that
prepayment of the premium in full was a condition precedent to the existence of a
contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding
the remainder of the premium without any other precondition to its enforceability as
in the instant case, the insurer in effect had shown its intention to continue with the
existing contract of insurance, as in fact it was enforcing its right to collect
premium, or exact specific performance from the insured. This is not so here. By
express agreement of the parties, no vinculum juris or bond of law was to be
established until full payment was effected prior to the occurrence of the risk
insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals [9] the parties mutually
agreed that the premiums could be paid in installments, which in fact they did for
three (3) years, hence, this Court refused to invalidate the insurance policy. In giving
effect to the policy, the Court quoted with approval the Court of Appeals
The obligation to pay premiums when due is ordinarily an indivisible obligation to
pay the entire premium. Here, the parties x x x agreed to make the premiums
payable in installments, and there is no pretense that the parties never envisioned
to make the insurance contract binding between them. It was renewed for two
succeeding years, the second and third policies being a renewal/replacement for the
previous one. And the insured never informed the insurer that it was terminating
the policy because the terms were unacceptable.
While it maybe true that under Section 77 of the Insurance Code, the parties may
not agree to make the insurance contract valid and binding without payment of
premiums, there is nothing in said section which suggests that the parties may not
agree to allow payment of the premiums in installment, or to consider the contract
as valid and binding upon payment of the first premium. Otherwise we would allow
the insurer to renege on its liability under the contract, had a loss incurred (sic)
before completion of payment of the entire premium, despite its voluntary
acceptance of partial payments, a result eschewed by basic considerations of
fairness and equity x x x.
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver,
either express or implied, of prepayment in full by the insurer: impliedly, by suing
for the balance of the premium as inPhoenix, and expressly, by agreeing to make
premiums payable in installments as in Tuscany. But contrary to the stance taken
by petitioners, there is no waiver express or implied in the case at bench. Precisely,
the insurer and the insured expressly stipulated that (t)his policy including any
renewal thereof and/or any indorsement thereon is not in force until the premium
has been fully paid to and duly receipted by the Company x x x and that this policy
shall be deemed effective, valid and binding upon the Company only when the
premiums therefor have actually been paid in full and duly acknowledged.
Conformably with the aforesaid stipulations explicitly worded and taken in
conjunction with Sec. 77 of the Insurance Code the payment of partial premium by
the assured in this particular instance should not be considered the payment
required by the law and the stipulation of the parties. Rather, it must be taken in
the concept of a deposit to be held in trust by the insurer until such time that the
full amount has been tendered and duly receipted for. In other words, as expressly
agreed upon in the contract, full payment must be made before the risk occurs for
the policy to be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured
according to law ever resulted from the fractional payment of premium. The
insurance contract itself expressly provided that the policy would be effective only
when the premium was paid in full. It would have been altogether different were it
not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not
to be insured by FORTUNE under the terms of its policy and they freely opted to
adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the construction of an
insurance contract is the intention of the parties as expressed in the policy.
[10]
Courts have no other function but to enforce the same. The rule that contracts
of insurance will be construed in favor of the insured and most strongly against the
insurer should not be permitted to have the effect of making a plain agreement
ambiguous and then construe it in favor of the insured. [11] Verily, it is elemental law
that the payment of premium is requisite to keep the policy of insurance in force. If
the premium is not paid in the manner prescribed in the policy as intended by the
parties the policy is ineffective. Partial payment even when accepted as a partial
payment will not keep the policy alive even for such fractional part of the year as
the part payment bears to the whole payment. [12]
Applying further the rules of statutory construction, the position maintained by
petitioners becomes even more untenable. The case of South Sea Surety and
Insurance Company, Inc. v. Court of Appeals, [13] speaks only of two (2) statutory
exceptions to the requirement of payment of the entire premium as a prerequisite
to the validity of the insurance contract. These exceptions are: (a) in case the
insurance coverage relates to life or industrial life (health) insurance when a grace
period applies, and (b) when the insurer makes a written acknowledgment of the
receipt of premium, this acknowledgment being declared by law to, be then
conclusive evidence of the premium payment. [14]
A maxim of recognized practicality is the rule that the expressed exception or
exemption excludes others. Exceptio firm at regulim in casibus non exceptis. The
express mention of exceptions operates to exclude other exceptions; conversely,
those which are not within the enumerated exceptions are deemed included in the
general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and
the law has not expressly excepted partial payments, there is no valid and binding
contract. Hence, in the absence of clear waiver of prepayment in full by the insurer,
the insured cannot collect on the proceeds of the policy.
In the desire to safeguard the interest of the assured, itmust not be ignored that the
contract of insurance is primarily a risk-distributing device, a mechanism by which
all members of a group exposed to a particular risk contribute premiums to an
insurer. From these contributory funds are paid whatever losses occur due to
exposure to the peril insured against. Each party therefore takes a risk: the insurer,
that of being compelled upon the happening of the contingency to pay the entire
sum agreed upon, and the insured, that of parting with the amount required as
premium, without receiving anything therefor in case the contingency does not
happen. To ensure payment for these losses, the law mandates all insurance
companies to maintain a legal reserve fund in favor of those claiming under their
policies.[15] It should be understood that the integrity of this fund cannot be secured
and maintained if by judicial fiat partial offerings of premiums were to be construed
as a legal nexus between the applicant and the insurer despite an express
agreement to the contrary. For what could prevent the insurance applicant from
deliberately or wilfully holding back full premium payment and wait for the risk
insured against to transpire and then conveniently pass on the balance of the
premium to be deducted from the proceeds of the insurance? Worse, what if the
insured makes an initial payment of only 10%, or even 1%, of the required premium,
and when the risk occurs simply points to the proceeds from where to source the
balance? Can an insurance company then exist and survive upon the payment of
1%, or even 10%, of the premium stipulated in the policy on the basis that, after all,
the insurer can deduct from the proceeds of the insurance should the risk insured
against occur?
Interpreting the contract of insurance stringently against the insurer but liberally in
favor of the insured despite clearly defined obligations of the parties to the policy
can be carried out to extremes that there is the danger that we may, so to speak,
kill the goose that lays the golden egg. We are well aware of insurance companies
falling into the despicable habit of collecting premiums promptly yet resorting to all
kinds of excuses to deny or delay payment of just insurance claims. But, in this
case, the law is manifestly on the side of the insurer. For as long as the
current Insurance Code remains unchanged and partial payment of premiums is not
mentioned at all as among the exceptions provided in Secs. 77 and 78, no policy of
insurance can ever pretend to be efficacious or effective until premium has been
fully paid.
And so it must be. For it cannot be disputed that premium is the elixir vitae of the
insurance business because by law the insurer must maintain a legal reserve fund
to meet its contingent obligations to the public, hence, the imperative need for its
prompt payment and full satisfaction. [16] It must be emphasized here that all
actuarial calculations and various tabulations of probabilities of losses under the
risks insured against are based on the sound hypothesis of prompt payment of
premiums. Upon this bedrock insurance firms are enabled to offer the assurance of
security to the public at favorable rates. But once payment of premium is left to the
whim and caprice of the insured, as when the courts tolerate the payment of a mere
P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and
the balance to be paid even after the risk insured against has occurred, as
petitioners have done in this case, on the principle that the strength of
the vinculumjuris is not measured by any specific amount of premium payment, we
will surely wreak havoc on the business and set to naught what has taken
actuarians centuries to devise to arrive at a fair and equitable distribution of risks
and benefits between the insurer and the insured.
The terms of the insurance policy constitute the measure of the insurers liability. 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. [17] The
validity of these limitations is by law passed upon by the Insurance Commissioner
who is empowered to approve all forms of policies, certificates or contracts of
insurance which insurers intend to issue or deliver. That the policy contract in the
case at bench was approved and allowed issuance simply reaffirms the validity of
such policy, particularly the provision in question.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of
Appeals dated 24 March 1995 is AFFIRMED.
SO ORDERED.
Kapunan, and Hermosisima, Jr., JJ., concur.
Padilla (Chairman), J., joins Mr. Justice Vitugs dissent.
Vitug, J., see dissenting opinion.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented
by American International Underwriters (Phils.), Inc., respondent.
BELLOSILLO, J.:
This case involves a purely legal question: whether payment by installment of the
premiums due on an insurance policy invalidates the contract of insurance, in view
of Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as amended, which
provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is
exposed to the peril insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an insurance company is valid
and binding unless and until the premium thereof has been paid, except in the case
of a life or an industrial life policy whenever the grace period provision applies.
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC),
represented by American International Underwriters (Phils.), Inc., issued in favor of
petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy
No. AH-CPP-9210452 on the latter's building and premises, for a period beginning 1
March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The
premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982
and 16 November 1982, all of which were accepted by private respondent.
On 10 February 1983, private respondent issued to petitioner Insurance Policy No.

AH-CPP-9210596, which replaced and renewed the previous policy, for a term
covering 1 March 1983 to 1 March 1984. The premium in the amount of
P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3
August 1983, 9 September 1983, and 21 November 1983. All payments were
likewise accepted by private respondent.
On 20 January 1984, the policy was again renewed and private respondent issued to
petitioner Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1
March 1985. On this renewed policy, petitioner made two installment payments,
both accepted by private respondent, the first on 6 February 1984 for P52,000.00
and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to
pay the balance of the premium.
Consequently, private respondent filed an action to recover the unpaid balance of
P314,103.05 for Insurance Policy No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy
No. AH-CPP-9210651. It explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its favor and the receipts for
the installment payments covering the policy for 1984-85, as well as the two (2)
previous policies, stated the following reservations:
2. Acceptance of this payment shall not waive any of the company rights to deny
liability on any claim under the policy arising before such payments or after the
expiration of the credit clause of the policy; and
3. Subject to no loss prior to premium payment. If there be any loss such is not
covered.
Petitioner further claimed that the policy was never binding and valid, and no risk
attached to the policy. It then pleaded a counterclaim for P152,000.00 for the
premiums already paid for 1984-85, and in its answer with amended counterclaim,
sought the refund of P924,206.10 representing the premium payments for 1982-85.
After some incidents, petitioner and private respondent moved for summary
judgment.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim
upon the following findings:
While it is true that the receipts issued to the defendant contained the
aforementioned reservations, it is equally true that payment of the premiums of the
three aforementioned policies (being sought to be refunded) were made during the
lifetime or term of said policies, hence, it could not be said, inspite of the
reservations, that no risk attached under the policies. Consequently, defendant's
counterclaim for refund is not justified.
As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view

of the reservation in the receipts ordinarily issued by the plaintiff on premium
payments the only plausible conclusion is that plaintiff has no right to demand their
payment after the lapse of the term of said policy on March 1, 1985. Therefore, the
defendant was justified in refusing to pay the same. 1
Both parties appealed from the judgment of the trial court. Thereafter, the Court of
Appeals rendered a decision 2modifying that of the trial court by ordering herein
petitioner to pay the balance of the premiums due on Policy No. AH-CPP-921-651, or
P314,103.05 plus legal interest until fully paid, and affirming the denial of the
counterclaim. The appellate court thus explained
The obligation to pay premiums when due is ordinarily as indivisible obligation to
pay the entire premium. Here, the parties herein agreed to make the premiums
payable in installments, and there is no pretense that the parties never envisioned
to make the insurance contract binding between them. It was renewed for two
succeeding years, the second and third policies being a renewal/replacement for the
previous one. And the insured never informed the insurer that it was terminating the
policy because the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code, the parties may
not agree to make the insurance contract valid and binding without payment of
premiums, there is nothing in said section which suggests that the parties may not
agree to allow payment of the premiums in installment, or to consider the contract
as valid and binding upon payment of the first premium. Otherwise, we would allow
the insurer to renege on its liability under the contract, had a loss incurred (sic)
before completion of payment of the entire premium, despite its voluntary
acceptance of partial payments, a result eschewed by a basic considerations of
fairness and equity.
To our mind, the insurance contract became valid and binding upon payment of the
first premium, and the plaintiff could not have denied liability on the ground that
payment was not made in full, for the reason that it agreed to accept installment
payment. . . . 3
Petitioner now asserts that its payment by installment of the premiums for the
insurance policies for 1982, 1983 and 1984 invalidated said policies because of the
provisions of Sec. 77 of the Insurance Code, as amended, and by the conditions
stipulated by the insurer in its receipts, disclaiming liability for loss for occurring
before payment of premiums.
It argues that where the premiums is not actually paid in full, the policy would only
be effective if there is an acknowledgment in the policy of the receipt of premium
pursuant to Sec. 78 of the Insurance Code. The absence of an express
acknowledgment in the policies of such receipt of the corresponding premium
payments, and petitioner's failure to pay said premiums on or before the effective
dates of said policies rendered them invalid. Petitioner thus concludes that there
cannot be a perfected contract of insurance upon mere partial payment of the
premiums because under Sec. 77 of the Insurance Code, no contract of insurance is
valid and binding unless the premium thereof has been paid, notwithstanding any
agreement to the contrary. As a consequence, petitioner seeks a refund of all
premium payments made on the alleged invalid insurance policies.
installments. The records clearly show that petitioner and private respondent
1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer
of the insurer's intention to honor the policies it issued to petitioner. Certainly, basic
principles of equity and fairness would not allow the insurer to continue collecting
and accepting the premiums, although paid on installments, and later deny liability
on the lame excuse that the premiums were not prepared in full.
We therefore sustain the Court of Appeals. We quote with approval the wellreasoned findings and conclusion of the appellate court contained in its Resolution
denying the motion to reconsider its Decision
request to make installment payments duly approved by the insurer, would prevent
acceptance of the initial premium or first installment. Section 78 of the Insurance
is not contrary to morals, good customs, public order or public policy (De Leon, the
Insurance Code, at p. 175). So is an understanding to allow insured to pay
premiums in installments not so proscribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted. 4
The reliance by petitioner on Arce vs. Capital Surety and Insurance
Co. 5 is unavailing because the facts therein are substantially different from those in
the case at bar. In Arce, no payment was made by the insured at all despite the
grace period given. In the case before Us, petitioner paid the initial installment and
thereafter made staggered payments resulting in full payment of the 1982 and
1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments
although it refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to
make three (3) insurance contracts valid, effective and binding, petitioner may not
be allowed to renege on its obligation to pay the balance of the premium after the
expiration of the whole term of the third policy (No. AH-CPP-9210651) in March
1985. Moreover, as correctly observed by the appellate court, where the risk is
entire and the contract is indivisible, the insured is not entitled to a refund of the
premiums paid if the insurer was exposed to the risk insured for any period,
however brief or momentary.
WHEREFORE, finding no reversible error in the judgment appealed from, the same is
AFFIRMED. Costs against petitioner.
SO ORDERED.
Cruz, Padilla and Grio-Aquino, JJ., concur.
Medialdea, J., is on leave.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 165585
November 20, 2013
GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

vs.
PRUDENTIAL GUARANTEE AND ASSURANCE, INC., DEVELOPMENT BANK OF
THE PHILIPPINES and LAND BANK OF THE PHILIPPINES, Respondents.
x-----------------------x
G.R. No. 176982
GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,
vs.
PRUDENTIAL GUARANTEE AND ASSURANCE, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in these consolidated petitions for review on Certiorari 1 are separate
issuances of the Court of Appeals (CA) in relation to the complaint for sum of money
filed by Prudential Guarantee and Assurance, Inc. (PGAI) against the Government
Service Insurance System (GSIS) before the Regional Trial Court of Makati City,
Branch 149 (RTC), docketed as Civil Case No. 01-1634.
In particular, the petition in G.R. No. 165585 assails the Decision 2 dated May 26,
2004 and Resolution3 dated October 6, 2004 of the CA in CA-G.R. SP No. 69289
which affirmed the Order4 dated February 14, 2002, as well as the Order, 5 Notices of
Garnishment,6 and Writ of Execution,7 all dated February 19, 2002, issued by the
RTC authorizing execution pending appeal.
On the other hand, the petition in G.R. No. 176982 assails the Decision 8 dated
October 30, 2006 and Resolution 9dated March 12, 2007 of the CA in CA-G.R. CV No.
73965 which dismissed the appeal filed by GSIS, affirming with modification the
Order10 dated January 11, 2002 of the RTC rendering judgment on the pleadings.
The Facts
Sometime in March 1999, the National Electrification Administration (NEA) entered
into a Memorandum of Agreement11 (MOA) with GSIS insuring all real and personal
properties mortgaged to it by electrical cooperatives under an Industrial All Risks
Policy (IAR policy).12 The total sum insured under the IAR policy
wasP16,731,141,166.80, out of which, 95% or P15,894,584,108.40 was reinsured by

GSIS with PGAI for a period of one year or from March 5, 1999 to March 5, 2000. 13 As
reflected in Reinsurance Request Note No. 99-150 14(reinsurance cover) and the
Reinsurance Binder15 dated April 21, 1999 (reinsurance binder), GSIS agreed to pay
PGAI reinsurance premiums in the amount of P32,885,894.52 per quarter or a total
of P131,543,578.08.16 While GSIS remitted to PGAI the reinsurance premiums for the
first three quarters, it, however, failed to pay the fourth and last reinsurance
premium due on December 5, 1999 despite demands. This prompted PGAI to file, on
November 15, 2001, a Complaint17 for sum of money (complaint) against GSIS
before the RTC, docketed as Civil Case No. 01-1634.
In its complaint, PGAI alleged, among others, that: (a) after it had issued the IAR
policy, it further reinsured the risks covered under the said reinsurance with
reputable reinsurers worldwide such as Lloyds of London, Copenhagen Re, Cigna
Singapore, CCR, Generali, and Arig;18 (b) the first three reinsurance premiums were
paid to PGAI by GSIS and, in the same vein, NEA paid the first three reinsurance
premiums due to GSIS;19 (c) GSIS failed to pay PGAI the fourth and last reinsurance
premium due on December 5, 1999;20 (d) the IAR policy remained in full force and
effect for the entire insurable period and, in fact, the losses/damages on various
risks reinsured by PGAI were paid and accordingly settled by it; 21 (e) PGAI is under
continuous pressure from its reinsurers in the international market to settle the
matter;22 and (f) GSIS acknowledged its obligation to pay the last reinsurance
premium as it, in turn, demanded from NEA the fourth and last reinsurance
premium.23
In its Answer,24 GSIS admitted, among others, that: (a) its request for reinsurance
cover was accepted by PGAI in a reinsurance binder; 25 (b) it remitted to PGAI the
first three reinsurance premiums which were paid by NEA; 26 and (c) it failed to remit
the fourth and last reinsurance premium to PGAI. 27 It, however, denied, inter alia,
that: (a) it had acknowledged its obligation to pay the last quarters reinsurance
premium to PGAI;28 and (b) the IAR policy remained in full force and effect for the
entire insurable period of March 5, 1999 to March 5, 2000. 29 GSIS also proffered the
following affirmative defenses: (a) the complaint states no cause of action against
GSIS because the non-payment of the last reinsurance premium only renders the
reinsurance contract ineffective, and does not give PGAI a right of action to
collect;30 (b) pursuant to the regulations issued by the Commission on Audit, GSIS is
prohibited from advancing payments to PGAI occasioned by the failure of the
principal insured, NEA, to pay the insurance premium; 31 and (c) PGAIs cause of
action lies against NEA since GSIS merely acted as a conduit. 32 By way of
counterclaim, GSIS prayed that PGAI be ordered to pay exemplary damages,
including litigation expenses, and costs of suit. 33
On December 18, 2001, PGAI filed a Motion for Judgment on the Pleadings 34 averring
that GSIS essentially admitted the material allegations of the complaint, such as: (a)
the existence of the MOA between NEA and GSIS; (b) the existence of the
reinsurance binder between GSIS and PGAI; (c) the remittance by GSIS to PGAI of
the first three quarterly reinsurance premiums; and (d) the failure/refusal of GSIS to
remit the fourth and last reinsurance premium. 35 Hence, PGAI prayed that the RTC
render a judgment on the pleadings pursuant to Section 1, Rule 34 of the Rules of
Court (Rules). GSIS opposed36 the foregoing motion by reiterating the allegations
and defenses in its Answer.
On January 11, 2002, the RTC issued an Order 37 (January 11, 2002 Order) granting
PGAIs Motion for Judgment on the Pleadings. It observed that the admissions of
GSIS that it paid the first three quarterly reinsurance premiums to PGAI affirmed the
validity of the contract of reinsurance between them. As such, GSIS cannot now
renege on its obligation to remit the last and remaining quarterly reinsurance
premium.38 It further pointed out that while it is true that the payment of the
premium is a requisite for the validity of an insurance contract as provided under
Section 77 of Presidential Decree No. (PD) 612, 39 otherwise known as "The Insurance
Code," it was held in Makati Tuscany Condominium Corp. v. CA 40 (Makati Tuscany)
that insurance policies are valid even if the premiums were paid in installments, as
in this case.41 Thus, in view of the foregoing, the RTC ordered GSIS to pay PGAI the
last quarter reinsurance premium in the sum of P32,885,894.52, including interests
amounting toP6,519,515.91 as of July 31, 2000 until full payment, attorneys fees,
and costs of suit.42 Dissatisfied, GSIS filed a notice of appeal. 43
Meanwhile, PGAI filed a Motion for Execution Pending Appeal 44 based on the
following reasons: (a) GSIS appeal was patently dilatory since it already
acknowledged the validity of PGAIs claim;45 (b) GSIS posted no valid defense as its
Answer raised no genuine issues; 46 and (c) PGAI would suffer serious and irreparable
injury as it may be blacklisted as a consequence of the non-payment of premiums
due.47 PGAI also manifested its willingness to post a sufficient surety bond to answer
for any resulting damage to GSIS. 48 The latter opposed49 the motion asserting that
there lies no sufficient ground or urgency to justify execution pending appeal. It also
claimed that all its funds and properties are exempted from execution citing Section
39 of Republic Act No. (RA) 8291,50otherwise known as "The Government Service
Insurance System Act of 1997."51
On February 14, 2002, the RTC issued an Order 52 (February 14, 2002 Order) granting
PGAIs Motion for Execution Pending Appeal, conditioned on the posting of a bond. It
further held that only the GSIS Social Insurance Fund is exempt from execution.
Accordingly, PGAI duly posted a surety bond which the RTC approved through an
Order53 dated February 19, 2002, resulting to the issuance of a writ of
execution54 and notices of garnishment55 (February 19, 2002 issuances), all of even
date, against GSIS.
The CA Proceedings Antecedent to G.R. No. 165585
Aggrieved by the RTCs February 14, 2002 Order, as well as the February 19, 2002
issuances, GSIS without first filing a motion for reconsideration (from the said
order of execution) or a sufficient supersedeas bond 56 filed on February 26, 2002 a
petition for certiorari57 before the CA, docketed as CA-G.R. SP No. 69289, against the
RTC and PGAI. It also impleaded in the said petition the Land Bank of the Philippines
(LBP) and the Development Bank of the Philippines (DBP) as nominal parties so as
to render them subject to the writs and processes of the CA. 58
In its petition, GSIS argued that: (a) none of the grounds proffered by PGAI justifies
the issuance of a writ of execution pending appeal; 59 and (b) all funds and assets of
GSIS are exempt from execution and levy in accordance with RA 8291. 60
On April 4, 2002, the CA issued a temporary restraining order (TRO) 61 enjoining the
garnishment of GSIS funds with LBP and DBP. Nevertheless, since the TROs
effectivity lapsed, GSIS funds with the LBP were eventually garnished. 62
On May 26, 2004, the CA rendered a Decision 63 dismissing GSIS petition, upholding,
among others, the validity of the execution pending appeal pursuant to the RTCs
February 14, 2002 Order as well as the February 19, 2002 issuances. It found that
the impending blacklisting of PGAI constitutes a good reason for allowing the
execution pending appeal (also known as "discretionary execution") considering
that the imposition of international sanctions on any single local insurance company
puts in grave and immediate jeopardy not only the viability of that company but
also the integrity of the entire local insurance system including that of the state
insurance agency. It pointed out that the insurance business thrives on credibility
which is maintained by honoring financial commitments.
On the claimed exemption of GSIS funds from execution, the CA held that such
exemption only covers funds under the Social Insurance Fund which remains liable
for the payment of benefits like retirement, disability and death compensation and
not those covered under the General Insurance Fund, as in this case, which are
meant for investment in the business of insurance and reinsurance. 64
GSIS motion for reconsideration65 was denied by the CA in a Resolution 66 dated
October 6, 2004. Hence, the petition for review on certiorari in G.R. No. 165585. 67
The CA Proceedings Antecedent to G.R. No. 176982
Separately, GSIS also assailed the RTCs January 11, 2002 Order which granted
PGAIs Motion for Judgment on the Pleadings through an appeal 68 filed on October 7,
2002, docketed as CA G.R. CV No. 73965.
GSIS averred that the RTC gravely erred in: (a) rendering judgment on the pleadings
since it specifically denied the material allegations in PGAIs complaint; (b) ordering
execution pending appeal since there are no justifiable reasons for the same; and
(c) effecting execution against funds and assets of GSIS given that RA 8291
exempts the same from levy, execution and garnishment. 69
For its part, PGAI maintained that: (a) the judgment on the pleadings was in order
given that GSIS never disputed the facts as alleged in its complaint; (b) the
discretionary execution was proper in view of the dilatory methods employed by
GSIS in order to evade the payment of a valid obligation; and (c) the general
insurance fund of GSIS, which was attached and garnished by the RTC, is not
exempt from execution.70
In a Decision71 dated October 30, 2006, the CA sustained the RTCs January 11, 2002
Order but deleted the awards of interest and attorneys fees for lack of factual and
legal basis.72
The CA ruled that judgment on the pleadings was proper since GSIS did not
specifically deny the genuineness, due execution, and perfection of its reinsurance
contract with PGAI.73 In fact, PGAI even settled reinsurance claims during the
covering period rendering the reinsurance contract not only perfected but partially
executed as well.74
Passing on the issue of the exemption from execution of GSIS funds, the CA, citing
Rubia v. GSIS75 (Rubia), held that the exemption provided for by RA 8291 is not
absolute since it only pertains to the social security benefits of its members; thus,
funds used by the GSIS for business investments and commercial ventures, as in
this case, may be attached and garnished. 76
GSIS motion for reconsideration77 was denied by the CA in a Resolution 78 dated
March 12, 2007. Hence, the present petition for review on certiorari in G.R. No.
176982.79
The Issues Before the Court
In these consolidated petitions, the essential issues are the following: (a) in G.R. No.
165585, whether the CA erred in (1) upholding the RTCs February 14, 2002 Order
authorizing execution pending appeal, and (2) ruling that only the Social Insurance
Fund and not the General Fund of the GSIS is exempt from garnishment; and (b) in
G.R. No. 176982, whether the CA erred in sustaining the RTCs January 11, 2002
Order rendering judgment on the pleadings.
The Courts Ruling
The petitions are partly meritorious.
A. Good reasons to allow execution pending appeal and the nature of the exemption
under Section 39 of RA 8291.
The execution of a judgment pending appeal is an exception to the general rule that
only a final judgment may be executed.80 In order to grant the same pursuant to
Section 2,81 Rule 39 of the Rules, the following requisites must concur: (a) there
must be a motion by the prevailing party with notice to the adverse party; (b) there
must be a good reason for execution pending appeal; and (c) the good reason must
be stated in a special order.82
Good reasons call for the attendance of compelling circumstances warranting
immediate execution for fear that favorable judgment may yield to an empty
victory. In this regard, the Rules do not categorically and strictly define what
constitutes "good reason," and hence, its presence or absence must be determined
in view of the peculiar circumstances of each case. As a guide, jurisprudence
dictates that the "good reason" yardstick imports a superior circumstance that will
outweigh injury or damage to the adverse party. 83 Corollarily, the requirement of
"good reason" does not necessarily entail unassailable and flawless basis but at the
very least, an invocation thereof must be premised on solid footing. 84
In the case at bar, the RTC, as affirmed by the CA, granted PGAIs motion for
execution pending appeal on the ground that the impending sanctions against it by
foreign underwriters/reinsurers constitute good reasons therefor. It must, however,
be observed that PGAI has not proffered any evidence to substantiate its claim, as it
merely presented bare allegations thereon. It is hornbook doctrine that mere
allegations do not constitute proof. As held in Real v. Belo, 85 "it is basic in the rule of
evidence that bare allegations, unsubstantiated by evidence, are not equivalent to
proof. In short, mere allegations are not evidence." 86 Hence, without any sufficient
basis to support the existence of its alleged "good reasons," it cannot be said that
the second requisite to allow an execution pending appeal exists. To reiterate, the
requirement of "good reasons" must be premised on solid footing so as to ensure
that the "superior circumstance" which would impel immediate execution is not
merely contrived or based on speculation. This, however, PGAI failed to
demonstrate in the present case. In fine, the Court therefore holds that the CAs
affirmance of the RTCs February 14, 2002 Order authorizing execution pending
appeal, as well as the February 19, 2002 issuances related thereto, was improper.
Nevertheless, while an execution pending appeal should not lie in view of the
above-discussed reasons, it must be noted that the funds and assets of GSIS may
after the resolution of the appeal and barring any provisional injunction thereto be
subject to execution, attachment, garnishment or levy since the exemption under
Section 39 of RA 829187 does not operate to deny private entities from properly
enforcing their contractual claims against GSIS. 88 This has been established in the
case of Rubia wherein the Court held as follows:
The declared policy of the State in Section 39 of the GSIS Charter granting GSIS an
exemption from tax, lien, attachment, levy, execution, and other legal processes
should be read together with the grant of power to the GSIS to invest its "excess
funds" under Section 36 of the same Act. Under Section 36, the GSIS is granted the
ancillary power to invest in business and other ventures for the benefit of the
employees, by using its excess funds for investment purposes. In the exercise of
such function and power, the GSIS is allowed to assume a character similar to a
private corporation. Thus, it may sue and be sued, as also explicitly granted by its
charter.
Needless to say, where proper, under Section 36, the GSIS may be held liable for
the contracts it has entered into in the course of its business investments. For GSIS
cannot claim a special immunity from liability in regard to its business ventures
under said Section.
Nor can it deny contracting parties, in our view, the right of redress and the
enforcement of a claim, particularly as it arises from a purely contractual
relationship of a private character between an individual and the GSIS. 89(Emphases
supplied and citations omitted)
Thus, the petition in G.R. No. 165585 is partly granted.
B. Propriety of judgment on the pleadings.
Judgment on the pleadings is appropriate when an answer fails to tender an issue,
or otherwise admits the material allegations of the adverse partys pleading. The
rule is stated in Section 1, Rule 34 of the Rules which reads as follows:
Sec. 1. Judgment on the pleadings. Where an answer fails to tender an issue, or
otherwise admits the material allegations of the adverse partys pleading, the court
may, on motion of that party, direct judgment on such pleading. x x x.
In this relation, jurisprudence dictates that an answer fails to tender an issue if it
does not comply with the requirements of a specific denial as set out in Sections
890 and 10,91 Rule 8 of the Rules, resulting in the admission of the material
allegations of the adverse partys pleadings. 92
As such, it is a form of judgment that is exclusively based on the submitted
pleadings without the introduction of evidence as the factual issues remain
uncontroverted.93
In this case, records disclose that in its Answer, GSIS admitted the material
allegations of PGAIs complaint warranting the grant of the relief prayed for. In
particular, GSIS admitted that: (a) it made a request for reinsurance cover which
PGAI accepted in a reinsurance binder effective for one year; 94 (b) it remitted only
the first three reinsurance premium payments to PGAI; 95 (c) it failed to pay PGAI the
fourth and final reinsurance premium installment; 96 and (d) it received demand
letters from PGAI.97 It also did not refute the allegation of PGAI that it settled
reinsurance claims during the reinsured period. On the basis of these admissions,
the Court finds that the CA did not err in affirming the propriety of a judgment on
the pleadings.
GSIS affirmative defense that the non-payment of the last reinsurance premium
merely rendered the contract ineffective pursuant to Section 77 98 of PD 612 no
longer involves any factual issue, but stands solely as a mere question of law in the
light of the foregoing admissions hence allowing for a judgment on the pleadings.
Besides, in the case of Makati Tuscany, the Court already ruled that the nonpayment of subsequent installment premiums would not prevent the insurance
contract from taking effect; that the parties intended to make the insurance
contract valid and binding is evinced from the fact that the insured paid and the
insurer received several reinsurance premiums due thereon, although the former
refused to pay the remaining balance, viz:
installments. The records clearly show that petitioner and private respondent
1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer
of the insurers intention to honor the policies it issued to petitioner. Certainly, basic
principles of equity and fairness would not allow the insurer to continue collecting
and accepting the premiums, although paid on installments, and later deny liability
on the lame excuse that the premiums were not prepaid in full.
We therefore sustain the Court of Appeals. We quote with approval the wellreasoned findings and conclusion of the appellate court contained in its Resolution
denying the motion to reconsider its Decision
request to make installment payments duly approved by the insurer, would prevent
acceptance of the initial premium or first installment . Section 78 of the Insurance
is not contrary to morals, good customs, public order or public policy (De Leon, the
Insurance Code, at p. 175). So is an understanding to allow insured to pay
premiums in installments not so proscribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted.
[I]n the case before Us, petitioner paid the initial installment and thereafter made
staggered payments resulting in full payment of the 1982 and 1983 insurance
policies.1wphi1 For the 1984 policy, petitioner paid two (2) installments although it
refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to
make three (3) insurance contracts valid, effective and binding, petitioner may not
be allowed to renege on its obligation to pay the balance of the premium after the
expiration of the whole term of the third policy (No. AH-CPP-9210651) in March
1985. Moreover, as correctly observed by the appellate court, where the risk is
entire and the contract is indivisible, the insured is not entitled to a refund of the
premiums paid if the insurer was exposed to the risk insured for any period,
however brief or momentary.99 (Emphases supplied and citation omitted)
Thus, owing to the identical complexion of Makati Tuscany with the present case,
the Court upholds PGAIs right to be paid by GSIS the amount of the fourth and last
reinsurance premium pursuant to the reinsurance contract between them. All told,
the petition in G.R. No. 176982 is denied.
WHEREFORE, the petition in G.R. No. 165585 is PARTLY GRANTED. The Decision
dated May 26, 2004 and Resolution dated October 6, 2004 of the Court of Appeals
in CA-G.R. SP No. 69289 are MODIFIED only insofar as it upheld the validity of
Prudential Guarantee and Assurance, Inc.s execution pending appeal. In this
respect, the Order dated February 14, 2002 of the Regional Trial Court of Makati,
Branch 149 as well as all other issuances related thereto are set aside.
On the other hand, the petition in G.R. No. 176982 is DENIED. The Decision dated
October 30, 2006 and Resolution dated March 12, 2007 in CA-G.R. CV No. 73965 are
hereby AFFIRMED.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. NO. 147039
January 27, 2006
DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner,

vs.
RADIO MINDANAO NETWORK, INC., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking
the review of the Decision1dated November 16, 2000 of the Court of Appeals (CA) in
CA-G.R. CV No. 56351, the dispositive portion of which reads:
Wherefore, premises considered, the appealed Decision of the Regional Trial Court
of Makati City, Branch 138 in Civil Case No. 90-602 is hereby AFFIRMED with
MODIFICATION in that the interest rate is hereby reduced to 6% per annum.
Costs against the defendants-appellants.
SO ORDERED.2
The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao
Network, Inc. (respondent) against DBP Pool of Accredited Insurance Companies
(petitioner) and Provident Insurance Corporation (Provident) for recovery of
insurance benefits. Respondent owns several broadcasting stations all over the
country. Provident covered respondents transmitter equipment and generating set
for the amount ofP13,550,000.00 under Fire Insurance Policy No. 30354, while
petitioner covered respondents transmitter, furniture, fixture and other transmitter
facilities for the amount of P5,883,650.00 under Fire Insurance Policy No. F-66860.
In the evening of July 27, 1988, respondents radio station located in SSS Building,
Bacolod City, was razed by fire causing damage in the amount of P1,044,040.00.
Respondent sought recovery under the two insurance policies but the claims were
denied on the ground that the cause of loss was an excepted risk excluded under
condition no. 6 (c) and (d), to wit:
6. This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly, of any of the following consequences, namely:
(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether
war be declared or not), civil war.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military
or usurped power.3
The insurance companies maintained that the evidence showed that the fire was
caused by members of the Communist Party of the Philippines/New Peoples Army
(CPP/NPA); and consequently, denied the claims. Hence, respondent was
constrained to file Civil Case No. 90-602 against petitioner and Provident.
After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a
decision in favor of respondent. The dispositive portion of the decision reads:
IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant Provident
Insurance Corporation is directed to pay plaintiff the amount of P450,000.00
representing the value of the destroyed property insured under its Fire Insurance
Policy plus 12% legal interest from March 2, 1990 the date of the filing of the
Complaint. Defendant DBP Pool Accredited Insurance Companies is likewise ordered
to pay plaintiff the sum of P602,600.00 representing the value of the destroyed
property under its Fire Insurance Policy plus 12% legal interest from March 2, 1990.
SO ORDERED.4
Both insurance companies appealed from the trial courts decision but the CA
affirmed the decision, with the modification that the applicable interest rate was
reduced to 6% per annum. A motion for reconsideration was filed by petitioner DBP
which was denied by the CA per its Resolution dated January 30, 2001. 5
Hence, herein petition by DBP Pool of Accredited Insurance Companies, 6 with the
following assignment of errors:
Assignment of Errors
THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NO
SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20) ARMED
MEN WHO CUSED [sic] THE FIRE AT RESPONDENTS RMN PROPERTY AT BACOLOD
CITY WERE MEMBERS OF THE CPP-NPA.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT
RESPONDENT RMN CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEYS FEES
FOR INSTITUTING THE PRESENT ACTION AGAINST THE PETITIONER UNDER ARTICLES
21, 2208, 2229 AND 2232 OF THE CIVIL CODE OF THE PHILIPPINES. 7
Petitioner assails the factual finding of both the trial court and the CA that its
evidence failed to support its allegation that the loss was caused by an excepted
risk, i.e., members of the CPP/NPA caused the fire. In upholding respondents claim
for indemnity, the trial court found that:
The only evidence which the Court can consider to determine if the fire was due to
the intentional act committed by the members of the New Peoples Army (NPA), are
the testimony [sic] of witnesses Lt. Col. Nicolas Torres and SPO3 Leonardo Rochar
who were admittedly not present when the fire occurred. Their testimony [sic] was
[sic] limited to the fact that an investigation was conducted and in the course of the
investigation they were informed by bystanders that "heavily armed men entered
the transmitter house, poured gasoline in (sic) it and then lighted it. After that, they
went out shouting "Mabuhay ang NPA" (TSN, p. 12., August 2, 1995). The persons
whom they investigated and actually saw the burning of the station were not
presented as witnesses. The documentary evidence particularly Exhibits "5" and "5C" do not satisfactorily prove that the author of the burning were members of the
NPA. Exhibit "5-B" which is a letter released by the NPA merely mentions some
dissatisfaction with the activities of some people in the media in Bacolod. There was
no mention there of any threat on media facilities. 8
The CA went over the evidence on record and sustained the findings of the trial
court, to wit:
To recapitulate, defendants-appellants presented the following to support its claim,
to wit: police blotter of the burning of DYHB, certification of the Negros Occidental
Integrated National Police, Bacolod City regarding the incident, letter of alleged NPA
members Celso Magsilang claiming responsibility for the burning of DYHB, fire
investigation report dated July 29, 1988, and the testimonies of Lt. Col. Nicolas
Torres and SFO III Leonardo Rochas. We examined carefully the report on the police
blotter of the burning of DYHB, the certification issued by the Integrated National
Police of Bacolod City and the fire investigation report prepared by SFO III Rochas
and there We found that none of them categorically stated that the twenty (20)
armed men which burned DYHB were members of the CPP/NPA. The said documents
simply stated that the said armed men were believed to be or suspected of being
members of the said group. Even SFO III Rochas admitted that he was not sure that
the said armed men were members of the CPP-NPA, thus:
In fact the only person who seems to be so sure that that the CPP-NPA had a hand in
the burning of DYHB was Lt. Col. Nicolas Torres. However, though We found him to
be persuasive in his testimony regarding how he came to arrive at his opinion, We
cannot nevertheless admit his testimony as conclusive proof that the CPP-NPA was
really involved in the incident considering that he admitted that he did not
personally see the armed men even as he tried to pursue them. Note that when Lt.
Col. Torres was presented as witness, he was presented as an ordinary witness only
and not an expert witness. Hence, his opinion on the identity or membership of the
armed men with the CPP-NPA is not admissible in evidence.
Anent the letter of a certain Celso Magsilang, who claims to be a member of NPANIROC, being an admission of person which is not a party to the present action, is
likewise inadmissible in evidence under Section 22, Rule 130 of the Rules of Court.
The reason being that an admission is competent only when the declarant, or
someone identified in legal interest with him, is a party to the action. 9
The Court will not disturb these factual findings absent compelling or exceptional
reasons. It should be stressed that a review by certiorari under Rule 45 is a matter
of discretion. Under this mode of review, the jurisdiction of the Court is limited to
reviewing only errors of law, not of fact. 10
Moreover, when supported by substantial evidence, findings of fact of the trial court
as affirmed by the CA are conclusive and binding on the parties, 11 which this Court
will not review unless there are exceptional circumstances. There are no exceptional
circumstances in this case that would have impelled the Court to depart from the
factual findings of both the trial court and the CA.
Both the trial court and the CA were correct in ruling that petitioner failed to prove
that the loss was caused by an excepted risk.
Petitioner argues that private respondent is responsible for proving that the cause of
the damage/loss is covered by the insurance policy, as stipulated in the insurance
policy, to wit:
Any loss or damage happening during the existence of abnormal conditions

(whether physical or otherwise) which are occasioned by or through in consequence
directly or indirectly, of any of the said occurrences shall be deemed to be loss or
damage which is not covered by the insurance, except to the extent that the
Insured shall prove that such loss or damage happened independently of the
existence of such abnormal conditions.
In any action, suit or other proceeding where the Companies allege that by reason
of the provisions of this condition any loss or damage is not covered by this
insurance, the burden of proving that such loss or damage is covered shall be upon
the Insured.12
An insurance contract, being a contract of adhesion, should be so interpreted as to
carry out the purpose for which the parties entered into the contract which is to
insure against risks of loss or damage to the goods. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude
the insurer from noncompliance with its obligations. 13
The "burden of proof" contemplated by the aforesaid provision actually refers to the
"burden of evidence" (burden of going forward). 14 As applied in this case, it refers to
the duty of the insured to show that the loss or damage is covered by the policy.
The foregoing clause notwithstanding, the burden of proof still rests upon petitioner
to prove that the damage or loss was caused by an excepted risk in order to escape
any liability under the contract.
Burden of proof is the duty of any party to present evidence to establish his claim or
defense by the amount of evidence required by law, which is preponderance of
evidence in civil cases. The party, whether plaintiff or defendant, who asserts the
affirmative of the issue has the burden of proof to obtain a favorable judgment. For
the plaintiff, the burden of proof never parts. 15 For the defendant, an affirmative
defense is one which is not a denial of an essential ingredient in the plaintiffs cause
of action, but one which, if established, will be a good defense i.e. an "avoidance"
of the claim.16
Particularly, in insurance cases, where a risk is excepted by the terms of a policy
which insures against other perils or hazards, loss from such a risk constitutes a
defense which the insurer may urge, since it has not assumed that risk, and from
this it follows that an insurer seeking to defeat a claim because of an

exception or limitation in the policy has the burden of proving that the
loss comes within the purview of the exception or limitation set up. If a
proof is made of a loss apparently within a contract of insurance, the burden is upon
the insurer to prove that the loss arose from a cause of loss which is excepted or for
which it is not liable, or from a cause which limits its liability. 17
Consequently, it is sufficient for private respondent to prove the fact of damage or
loss. Once respondent makes out a prima facie case in its favor, the duty or the
burden of evidence shifts to petitioner to controvert respondents prima facie
case.18 In this case, since petitioner alleged an excepted risk, then the burden of
evidence shifted to petitioner to prove such exception. It is only when petitioner has
sufficiently proven that the damage or loss was caused by an excepted risk does the
burden of evidence shift back to respondent who is then under a duty of producing
evidence to show why such excepted risk does not release petitioner from any
liability. Unfortunately for petitioner, it failed to discharge its primordial burden of
proving that the damage or loss was caused by an excepted risk.
Petitioner however, insists that the evidence on record established the identity of
the author of the damage. It argues that the trial court and the CA erred in not
appreciating the reports of witnesses Lt. Col Torres and SFO II Rochar that the
bystanders they interviewed claimed that the perpetrators were members of the
CPP/NPA as an exception to the hearsay rule as part of res gestae.
A witness can testify only to those facts which he knows of his personal knowledge,
which means those facts which are derived from his perception. 19 A witness may not
testify as to what he merely learned from others either because he was told or read
or heard the same. Such testimony is considered hearsay and may not be received
as proof of the truth of what he has learned. The hearsay rule is based upon serious
concerns about the trustworthiness and reliability of hearsay evidence inasmuch as
such evidence are not given under oath or solemn affirmation and, more
importantly, have not been subjected to cross-examination by opposing counsel to
test the perception, memory, veracity and articulateness of the out-of-court
declarant or actor upon whose reliability on which the worth of the out-of-court
statement depends.20
Res gestae, as an exception to the hearsay rule, refers to those exclamations and
statements made by either the participants, victims, or spectators to a crime
immediately before, during, or after the commission of the crime, when the
circumstances are such that the statements were made as a spontaneous reaction
or utterance inspired by the excitement of the occasion and there was no
opportunity for the declarant to deliberate and to fabricate a false statement. The
rule in res gestae applies when the declarant himself did not testify and provided
that the testimony of the witness who heard the declarant complies with the
following requisites: (1) that the principal act, the res gestae, be a startling
occurrence; (2) the statements were made before the declarant had the time to
contrive or devise a falsehood; and (3) that the statements must concern the
occurrence in question and its immediate attending circumstances. 21
The Court is not convinced to accept the declarations as part of res gestae. While it
may concede that these statements were made by the bystanders during a startling
occurrence, it cannot be said however, that these utterances were
made spontaneously by the bystanders and before they had the time to
contrive or devise a falsehood. Both SFO III Rochar and Lt. Col. Torres received
the bystanders statements while they were making their investigations during and
after the fire. It is reasonable to assume that when these statements were noted
down, the bystanders already had enough time and opportunity to mill around, talk
to one another and exchange information, not to mention theories and speculations,
as is the usual experience in disquieting situations where hysteria is likely to take
place. It cannot therefore be ascertained whether these utterances were the
products of truth. That the utterances may be mere idle talk is not remote.
At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements
were made may be considered as independently relevant statements gathered in
the course of their investigation, and are admissible not as to the veracity thereof
but to the fact that they had been thus uttered. 22
Furthermore, admissibility of evidence should not be equated with its weight and
sufficiency.23 Admissibility of evidence depends on its relevance and competence,
while the weight of evidence pertains to evidence already admitted and its
tendency to convince and persuade.24 Even assuming that the declaration of the
bystanders that it was the members of the CPP/NPA who caused the fire may be
admitted as evidence, it does not follow that such declarations are sufficient proof.
These declarations should be calibrated vis--vis the other evidence on record. And
the trial court aptly noted that there is a need for additional convincing proof, viz.:
The Court finds the foregoing to be insufficient to establish that the cause of the fire
was the intentional burning of the radio facilities by the rebels or an act of
insurrection, rebellion or usurped power. Evidence that persons who burned the
radio facilities shouted "Mabuhay ang NPA" does not furnish logical conclusion that
they are member [sic] of the NPA or that their act was an act of rebellion or
insurrection. Additional convincing proof need be submitted. Defendants failed to
discharge their responsibility to present adequate proof that the loss was due to a
risk excluded.25
While the documentary evidence presented by petitioner, i.e., (1) the police blotter;
(2) the certification from the Bacolod Police Station; and (3) the Fire Investigation
Report may be considered exceptions to the hearsay rule, being entries in official
records, nevertheless, as noted by the CA, none of these documents categorically
stated that the perpetrators were members of the CPP/NPA. 26 Rather, it was stated
in the police blotter that: "a group of persons accompanied by one (1) woman
all believed to be CPP/NPA more or less 20 persons suspected to be
CPP/NPA,"27 while the certification from the Bacolod Police station stated that "
some 20 or more armed menbelieved to be members of the New Peoples Army
NPA,"28 and the fire investigation report concluded that "(I)t is therefore believed by
this Investigating Team that the cause of the fire is intentional, and the armed
mensuspected to be members of the CPP/NPA where (sic) the ones responsible
"29 All these documents show that indeed, the "suspected" executor of the fire
were believed to be members of the CPP/NPA. But suspicion alone is not sufficient,
preponderance of evidence being the quantum of proof.
All told, the Court finds no reason to grant the present petition.
WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated
November 16, 2000 and Resolution dated January 30, 2001 rendered in CA-G.R. CV
No. 56351 are AFFIRMED in toto.
SO ORDERED.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 198588
July 11, 2012
UNITED MERCHANTS CORPORATION, Petitioner,

vs.
COUNTRY BANKERS INSURANCE CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals
Decision2 dated 16 June 2011 and its Resolution3 dated 8 September 2011 in CAG.R. CV No. 85777. The Court of Appeals reversed the Decision 4of the Regional Trial
Court (RTC) of Manila, Branch 3, and ruled that the claim on the Insurance Policy is
void.
The Facts
The facts, as culled from the records, are as follows:
Petitioner United Merchants Corporation (UMC) is engaged in the business of

buying, selling, and manufacturing Christmas lights. UMC leased a warehouse at 19B Dagot Street, San Jose Subdivision, Barrio Manresa, Quezon City, where UMC
assembled and stored its products.
On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in
trade of Christmas lights against fire with defendant Country Bankers Insurance
Corporation (CBIC) for P15,000,000.00. The Fire Insurance Policy No. F-HO/95-576
(Insurance Policy) and Fire Invoice No. 12959A, valid until 6 September 1996, states:
AMOUNT OF INSURANCE:
FIFTEEN
MILLION PESOS
PHILIPPINE
CURRENCY
xxx
PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the
properties of the Assured or held by them in trust, on commissions, or on joint
account with others and/or for which they are responsible in the event of loss and/or
damage during the currency of this policy, whilst contained in the building of one
lofty storey in height, constructed of concrete and/or hollow blocks with portion of
galvanized iron sheets, under galvanized iron rood, occupied as Christmas lights
storage.5
On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No.
16583A to form part of the Insurance Policy. Endorsement F/96-154 provides that
UMCs stocks in trade were insured against additional perils, to wit: "typhoon, flood,
ext. cover, and full earthquake." The sum insured was also increased
toP50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC
issued Endorsement F/96-157 where the name of the assured was changed from
Alfredo Tan to UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM
Adjustment Corporation (CRM) to investigate and evaluate UMCs loss by reason of
the fire. CBICs reinsurer, Central Surety, likewise requested the National Bureau of
Investigation (NBI) to conduct a parallel investigation. On 6 July 1996, UMC, through
CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs of its loss.
On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of
its claim from CBIC. On 25 February 1997, UMC received CBICs letter, dated 10
January 1997, rejecting UMCs claim due to breach of Condition No. 15 of the
Insurance Policy. Condition No. 15 states:
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 devices are used by the Insured or
anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or
damage be occasioned by the willful act, or with the connivance of the Insured, all
the benefits under this Policy shall be forfeited. 6
On 19 February 1998, UMC filed a Complaint7 against CBIC with the RTC of Manila.
UMC anchored its insurance claim on the Insurance Policy, the Sworn Statement of
Formal Claim earlier submitted, and the Certification dated 24 July 1996 made by
Deputy Fire Chief/Senior Superintendent Bonifacio J. Garcia of the Bureau of Fire
Protection. The Certification dated 24 July 1996 provides that:
This is to certify that according to available records of this office, on or about 6:10
P.M. of July 3, 1996, a fire broke out at United Merchants Corporation located at 19-B
Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage of FiftyFive Million Pesos (P55,000,000.00) to the building and contents, while the reported
insurance coverage amounted to Fifty Million Pesos (P50,000,000.00) with Country
Bankers Insurance Corporation.
The Bureau further certifies that no evidence was gathered to prove that the
establishment was willfully, feloniously and intentionally set on fire.
That the investigation of the fire incident is already closed being ACCIDENTAL in
nature.8
In its Answer with Compulsory Counterclaim9 dated 4 March 1998, CBIC admitted
the issuance of the Insurance Policy to UMC but raised the following defenses: (1)
that the Complaint states no cause of action; (2) that UMCs claim has already
prescribed; and (3) that UMCs fire claim is tainted with fraud. CBIC alleged that
UMCs claim was fraudulent because UMCs Statement of Inventory showed that it
had no stocks in trade as of 31 December 1995, and that UMCs suspicious
purchases for the year 1996 did not even amount to P25,000,000.00. UMCs GIS and
Financial Reports further revealed that it had insufficient capital, which meant UMC
could not afford the alleged P50,000,000.00 worth of stocks in trade.
In its Reply10 dated 20 March 1998, UMC denied violation of Condition No. 15 of the
Insurance Policy. UMC claimed that it did not make any false declaration because
the invoices were genuine and the Statement of Inventory was for internal revenue
purposes only, not for its insurance claim.
During trial, UMC presented five witnesses. The first witness was Josie Ebora
(Ebora), UMCs disbursing officer. Ebora testified that UMCs stocks in trade, at the
time of the fire, consisted of: (1) raw materials for its Christmas lights; (2) Christmas
lights already assembled; and (3) Christmas lights purchased from local suppliers.
These stocks in trade were delivered from August 1995 to May 1996. She stated
that Straight Cargo Commercial Forwarders delivered the imported materials to the
warehouse, evidenced by delivery receipts. However, for the year 1996, UMC had
no importations and only bought from its local suppliers. Ebora identified the
suppliers as Fiber Technology Corporation from which UMC bought stocks

worth P1,800,000.00 on 20 May 1996; Fuze Industries Manufacturer Philippines from
which UMC bought stocks worth P19,500,000.00 from 20 January 1996 to 23
February 1996; and Tomco Commercial Press from which UMC bought several
Christmas boxes. Ebora testified that all these deliveries were not yet paid. Ebora
also presented UMCs Balance Sheet, Income Statement and Statement of Cash
Flow. Per her testimony, UMCs purchases amounted to P608,986.00 in
1994;P827,670.00 in 1995; and P20,000,000.00 in 1996. Ebora also claimed that
UMC had sales only from its fruits business but no sales from its Christmas lights for
the year 1995.
The next witness, Annie Pabustan (Pabustan), testified that her company provided
about 25 workers to assemble and pack Christmas lights for UMC from 28 March
1996 to 3 July 1996. The third witness, Metropolitan Bank and Trust Company
(MBTC) Officer Cesar Martinez, stated that UMC opened letters of credit with MBTC
for the year 1995 only. The fourth witness presented was Ernesto Luna (Luna), the
delivery checker of Straight Commercial Cargo Forwarders. Luna affirmed the
delivery of UMCs goods to its warehouse on 13 August 1995, 6 September 1995, 8
September 1995, 24 October 1995, 27 October 1995, 9 November 1995, and 19
December 1995. Lastly, CRMs adjuster Dominador Victorio testified that he
inspected UMCs warehouse and prepared preliminary reports in this connection.
On the other hand, CBIC presented the claims manager Edgar Caguindagan
(Caguindagan), a Securities and Exchange Commission (SEC) representative, Atty.
Ernesto Cabrera (Cabrera), and NBI Investigator Arnold Lazaro (Lazaro).
Caguindagan testified that he inspected the burned warehouse on 5 July 1996, took
pictures of it and referred the claim to an independent adjuster. The SEC
representatives testimony was dispensed with, since the parties stipulated on the
existence of certain documents, to wit: (1) UMCs GIS for 1994-1997; (2) UMCs
Financial Report as of 31 December 1996; (3) SEC Certificate that UMC did not file
GIS or Financial Reports for certain years; and (4) UMCs Statement of Inventory as
of 31 December 1995 filed with the BIR.
Cabrera and Lazaro testified that they were hired by Central Surety to investigate
UMCs claim. On 19 November 1996, they concluded that arson was committed
based from their interview with barangay officials and the pictures showing that
blackened surfaces were present at different parts of the warehouse. On crossexamination, Lazaro admitted that they did not conduct a forensic investigation of
the warehouse, nor did they file a case for arson.
For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the
documents of UCPB General Insurance, the insurer of Perfect Investment Company,
Inc., the warehouse owner. When asked to bring documents related to the insurance
of Perfect Investment Company, Inc., Batallones brought the papers of Perpetual
Investment, Inc.
The Ruling of the Regional Trial Court

On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering
defendant to pay plaintiff:
a) the sum of P43,930,230.00 as indemnity with interest thereon at 6% per
annum from November 2003 until fully paid;
b) the sum of P100,000.00 for exemplary damages;
c) the sum of P100,000.00 for attorneys fees; and
d) the costs of suit.
Defendants counterclaim is denied for lack of merit.
SO ORDERED.11
The RTC found no dispute as to UMCs fire insurance contract with CBIC. Thus, the
RTC ruled for UMCs entitlement to the insurance proceeds, as follows:
Fraud is never presumed but must be proved by clear and convincing evidence. (see
Alonso v. Cebu Country Club, 417 SCRA 115 [2003]) Defendant failed to establish by
clear and convincing evidence that the documents submitted to the SEC and BIR
were true. It is common business practice for corporations to have 2 sets of
reports/statements for tax purposes. The stipulated documents of plaintiff (Exhs. 2
8) may not have been accurate.
The conflicting findings of defendants adjuster, CRM Adjustment [with stress] and
that made by Atty. Cabrera & Mr. Lazaro for Central Surety shall be resolved in favor
of the former. Definitely the formers finding is more credible as it was made soon
after the fire while that of the latter was done 4 months later. Certainly it would be a
different situation as the site was no longer the same after the clearing up operation
which is normal after a fire incident. The Christmas lights and parts could have been
swept away. Hence the finding of the latter appears to be speculative to benefit the
reinsurer and which defendant wants to adopt to avoid liability.
The CRM Adjustment report found no arson and confirmed substantial stocks in the
burned warehouse (Exhs. QQQ) [underscoring supplied]. This is bolstered by the BFP
certification that there was no proof of arson and the fire was accidental (Exhs. PPP).
The certification by a government agency like BFP is presumed to be a regular
performance of official duty. "Absent convincing evidence to the contrary, the
presumption of regularity in the performance of official functions has to be upheld."
(People vs. Lapira, 255 SCRA 85) The report of UCPB General Insurances adjuster
also found no arson so that the burned warehouse owner PIC was indemnified. 12
Hence, CBIC filed an appeal with the Court of Appeals (CA).

The Ruling of the Court of Appeals
On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive
portion of the Decision reads:
WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and
the Decision of the Regional Trial Court, of the National Judicial Capital Region,
Branch 3 of the City of Manila dated June 16, 2005 in Civil Case No. 98-87370 is
REVERSED and SET ASIDE. The plaintiff-appellees claim upon its insurance policy is
deemed avoided.
SO ORDERED.13
The CA ruled that UMCs claim under the Insurance Policy is void. The CA found that
the fire was intentional in origin, considering the array of evidence submitted by
CBIC, particularly the pictures taken and the reports of Cabrera and Lazaro, as
opposed to UMCs failure to explain the details of the alleged fire accident. In
addition, it found that UMCs claim was overvalued through fraudulent transactions.
The CA ruled:
We have meticulously gone over the entirety of the evidence submitted by the
parties and have come up with a conclusion that the claim of the plaintiff-appellee
was indeed overvalued by transactions which were fraudulently concocted so that
the full coverage of the insurance policy will have to be fully awarded to the
plaintiff-appellee.
First, We turn to the backdrop of the plaintiff-appellees case, thus, [o]n September
6, 1995 its stocks-in-trade were insured for Fifteen Million Pesos and on May 7, 1996
the same was increased to 50 Million Pesos. Two months thereafter, a fire gutted the
plaintiff-appellees warehouse.
Second, We consider the reported purchases of the plaintiff-appellee as shown in its
financial report dated December 31, 1996 vis--vis the testimony of Ms. Ebora thus:
1994 - P608,986.00
1995 - P827,670.00
1996 - P20,000,000.00 (more or less) which were purchased for a period of one
month.
Third, We shall also direct our attention to the alleged true and complete purchases
of the plaintiff-appellee as well as the value of all stock-in-trade it had at the time
that the fire occurred. Thus:
Amount
(pesos)
Dates
Covered
Exhibit
Source
Exhs.
"P"-"DD",
inclusive
Fuze
19,550,400 January
Industries
.00
20, 1996
Manufacturer
January
Phils.
31, 1996
February
12, 1996
February
20, 1996
February
23, 1996
Exhs.
"EE"-"HH",
inclusive
Tomco
Commercial
Press
1,712,000.
00
December
19, 1995
January
24, 1996
February
21, 1996
November
24, 1995
Exhs.
"II"-"QQ",
inclusive
Precious
Belen
Trading
2,720,400.
00
January
13, 1996
January
19, 1996
January
26, 1996
February
3, 1996
February
13, 1996
February
20, 1996
February
27, 1996
Exhs. "RR""EEE",
inclusive
Wisdom
Manpower
Services
361,966.00 April 3,
1996
April 12,
1996
April 19,
1996
April 26,
1996
May 3,
1996
May 10,
1996
May 17,
1996
May 24,
1996
June 7,
1996
June 14,
1996
June 21,
1996
June 28,
1996
July 5,
1996
Exhs.
"GGG""NNN",
inclusive
Costs of
15,159,144 May 29,
Letters of
.71
1995
Credit for
June 15,
imported raw
1995
materials
July 5,
1995
Septembe
r 4, 1995
October 2,
1995
October
27, 1995
January 8,
1996
March 19,
1996
Exhs. "GGG- SCCFI

384,794.38 June 15,
11"
statements of
1995
- "GGG-24",
June 28,
"HHH-12",
"HHH-22",
"III-11", "III14",
"JJJ-13",
"KKK-11",
"LLL-5"
account
TOTAL
1995
August 1,
1995
Septembe
r 4, 1995
Septembe
r 8, 1995
Septembe
r 11, 1995
October
30, 199[5]
November
10, 1995
December
21, 1995
44,315,024
.31
Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly

looking through the pieces of evidence that it adduced during the trial. The latter
alleged that fraud is present in the case at bar as shown by the discrepancy of the
alleged purchases from that of the reported purchases made by plaintiff-appellee. It
had also averred that fraud is present when upon verification of the address of Fuze
Industries, its office is nowhere to be found. Also, the defendant-appellant
expressed grave doubts as to the purchases of the plaintiff-appellee sometime in
1996 when such purchases escalated to a high 19.5 Million Pesos without any
contract to back it up.14
On 7 July 2011, UMC filed a Motion for Reconsideration, 15 which the CA denied in its
Resolution dated 8 September 2011. Hence, this petition.
The Issues
UMC seeks a reversal and raises the following issues for resolution:
I.
WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW,
APPLICABLE JURISPRUDENCE AND EVIDENCE AS TO THE EXISTENCE OF ARSON AND
FRAUD IN THE ABSENCE OF "MATERIALLY CONVINCING EVIDENCE."
II.
WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW,

APPLICABLE JURISPRUDENCE AND EVIDENCE WHEN IT FOUND THAT PETITIONER
BREACHED ITS WARRANTY.16
The Ruling of the Court
At the outset, CBIC assails this petition as defective since what UMC ultimately
wants this Court to review are questions of fact. However, UMC argues that where
the findings of the CA are in conflict with those of the trial court, a review of the
facts may be made. On this procedural issue, we find UMCs claim meritorious.
A petition for review under Rule 45 of the Rules of Court specifically provides that
only questions of law may be raised. The findings of fact of the CA are final and
conclusive and this Court will not review them on appeal, 17subject to exceptions as
when the findings of the appellate court conflict with the findings of the trial
court.18Clearly, the present case falls under the exception. Since UMC properly
raised the conflicting findings of the lower courts, it is proper for this Court to
resolve such contradiction.
Having settled the procedural issue, we proceed to the primordial issue which boils
down to whether UMC is entitled to claim from CBIC the full coverage of its fire
insurance policy.
UMC contends that because it had already established a prima facie case against
CBIC which failed to prove its defense, UMC is entitled to claim the full coverage
under the Insurance Policy. On the other hand, CBIC contends that because arson
and fraud attended the claim, UMC is not entitled to recover under Condition No. 15
of the Insurance Policy.
Burden of proof is the duty of any party to present evidence to establish his claim or
defense by the amount of evidence required by law, 19 which is preponderance of
evidence in civil cases.20 The party, whether plaintiff or defendant, who asserts the
affirmative of the issue has the burden of proof to obtain a favorable
judgment.21Particularly, in insurance cases, once an insured makes out a prima facie
case in its favor, the burden of evidence shifts to the insurer to controvert the
insureds prima facie case.22 In the present case, UMC established a prima
facie case against CBIC. CBIC does not dispute that UMCs stocks in trade were
insured against fire under the Insurance Policy and that the warehouse, where
UMCs stocks in trade were stored, was gutted by fire on 3 July 1996, within the
duration of the fire insurance. However, since CBIC alleged an excepted risk, then
the burden of evidence shifted to CBIC to prove such exception.1wphi1
An insurer who seeks to defeat a claim because of an exception or limitation in the
policy has the burden of establishing that the loss comes within the purview of the
exception or limitation.23 If loss is proved apparently within a contract of insurance,
the burden is upon the insurer to establish that the loss arose from a cause of loss
which is excepted or for which it is not liable, or from a cause which limits its
liability.24 In the present case, CBIC failed to discharge its primordial burden of
establishing that the damage or loss was caused by arson, a limitation in the policy.
In prosecutions for arson, proof of the crime charged is complete where the
evidence establishes: (1) the corpus delicti, that is, a fire caused by a criminal act;
and (2) the identity of the defendants as the one responsible for the crime. 25 Corpus
delicti means the substance of the crime, the fact that a crime has actually been
committed.26This is satisfied by proof of the bare occurrence of the fire and of its
having been intentionally caused.27
In the present case, CBICs evidence did not prove that the fire was intentionally
caused by the insured. First, the findings of CBICs witnesses, Cabrera and Lazaro,
were based on an investigation conducted more than four months after the fire. The
testimonies of Cabrera and Lazaro, as to the boxes doused with kerosene as told to
them by barangay officials, are hearsay because the barangay officials were not
presented in court. Cabrera and Lazaro even admitted that they did not conduct a
forensic investigation of the warehouse nor did they file a case for
arson.28 Second, the Sworn Statement of Formal Claim submitted by UMC, through
CRM, states that the cause of the fire was "faulty electrical wiring/accidental in
nature." CBIC is bound by this evidence because in its Answer, it admitted that it
designated CRM to evaluate UMCs loss. Third, the Certification by the Bureau of Fire
Protection states that the fire was accidental in origin. This Certification enjoys the
presumption of regularity, which CBIC failed to rebut.
Contrary to UMCs allegation, CBICs failure to prove arson does not mean that it
also failed to prove fraud. Qua Chee Gan v. Law Union29 does not apply in the
present case. In Qua Chee Gan,30 the Court dismissed the allegation of fraud based
on the dismissal of the arson case against the insured, because the evidence was
identical in both cases, thus:
While the acquittal of the insured in the arson case is not res judicata on the present
civil action, the insurers evidence, to judge from the decision in the criminal case, is
practically identical in both cases and must lead to the same result, since the proof
to establish the defense of connivance at the fire in order to defraud the insurer
"cannot be materially less convincing than that required in order to convict the
insured of the crime of arson" (Bachrach vs. British American Assurance Co., 17 Phil.
536). 31
In the present case, arson and fraud are two separate grounds based on two
different sets of evidence, either of which can void the insurance claim of UMC. The
absence of one does not necessarily result in the absence of the
other. Thus, on the allegation of fraud, we affirm the findings of the Court of
Appeals.
Condition No. 15 of the Insurance Policy provides that all the 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, to wit:
15. 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 devices are used by the
Insured or anyone acting in his behalf to obtain any benefit under this Policy; or if
the loss or damage be occasioned by the willful act, or with the connivance of the
Insured, all the benefits under this Policy shall be forfeited.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that where a
fire insurance policy provides that "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 devices are used by the Insured or anyone acting on his behalf to obtain
any benefit under this Policy," and the evidence is conclusive that the proof of claim
which the insured submitted was false and fraudulent both as to the kind, quality
and amount of the goods and their value destroyed by the fire, such a proof of claim
is a bar against the insured from recovering on the policy even for the amount of his
actual loss.
In the present case, as proof of its loss of stocks in trade amounting
to P50,000,000.00, UMC submitted its Sworn Statement of Formal Claim together
with the following documents: (1) letters of credit and invoices for raw materials,
Christmas lights and cartons purchased; (2) charges for assembling the Christmas
lights; and (3) delivery receipts of the raw materials. However, the charges for
assembling the Christmas lights and delivery receipts could not support its
insurance claim. The Insurance Policy provides that CBIC agreed to insure UMCs
stocks in trade. UMC defined stock in trade as tangible personal property kept for
sale or traffic.33 Applying UMCs definition, only the letters of credit and invoices for
raw materials, Christmas lights and cartons may be considered.
The invoices, however, cannot be taken as genuine. The invoices reveal that the
stocks in trade purchased for 1996 amounts to P20,000,000.00 which were
purchased in one month. Thus, UMC needs to prove purchases amounting
to P30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the
Statement of Inventory it submitted to the BIR, which is considered an entry in
official records,34 UMC stated that it had no stocks in trade as of 31 December 1995.
In its defense, UMC alleged that it did not include as stocks in trade the raw
materials to be assembled as Christmas lights, which it had on 31 December 1995.
However, as proof of its loss, UMC submitted invoices for raw materials, knowing
that the insurance covers only stocks in trade.
Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries
Manufacturer Phils. were suspicious. The purchases, based on the invoices and
without any supporting contract, amounted to P19,550,400.00 worth of Christmas
lights from 20 January 1996 to 23 February 1996. The uncontroverted testimony of

Cabrera revealed that there was no Fuze Industries Manufacturer Phils. located at
"55 Mahinhin St., Teachers Village, Quezon City," the business address appearing in
the invoices and the records of the Department of Trade & Industry. Cabrera
testified that:
A: Then we went personally to the address as I stated a while ago appearing in the
record furnished by the United Merchants Corporation to the adjuster, and the
adjuster in turn now, gave us our basis in conducting investigation, so we went to
this place which according to the records, the address of this company but there
was no office of this company.
Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover
the address indicated by the United Merchants as the place of business of Fuze
Industries Manufacturer, Phils. was a residential place, what then did you do after
determining that it was a residential place?
A: We went to the owner of the alleged company as appearing in the Department of
Trade & Industry record, and as appearing a certain Chinese name Mr. Huang, and
the address as appearing there is somewhere in Binondo. We went personally there
together with the NBI Agent and I am with them when the subpoena was served to
them, but a male person approached us and according to him, there was no Fuze
Industries Manufacturer, Phils., company in that building sir. 35
In Yu Ban Chuan v. Fieldmens Insurance, Co., Inc.,36 the Court ruled that the
submission of false invoices to the adjusters establishes a clear case of fraud and
misrepresentation which voids the insurers liability as per condition of the policy.
Their falsity is the best evidence of the fraudulent character of plaintiffs
claim.37 InVerendia v. Court of Appeals,38 where the insured presented a fraudulent
lease contract to support his claim for insurance benefits, the Court held that by its
false declaration, the insured forfeited all benefits under the policy provision similar
to Condition No. 15 of the Insurance Policy in this case.
Furthermore, UMCs Income Statement indicated that the purchases or costs of
sales are P827,670.00 for 1995 and P1,109,190.00 for 1996 or a total
of P1,936,860.00.39 To corroborate this fact, Ebora testified that:
Q: Based on your 1995 purchases, how much were the purchases made in 1995?
A: The purchases made by United Merchants Corporation for the last year 1995
is P827,670.[00] sir
Q: And how about in 1994?
A: In 1994, its P608,986.00 sir.
Q: These purchases were made for the entire year of 1995 and 1994 respectively,
am I correct?
A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)
In its 1996 Financial Report, which UMC admitted as existing, authentic and duly
executed during the 4 December 2002 hearing, it had P1,050,862.71 as total assets
and P167,058.47 as total liabilities.41
Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five
times the claim UMC seeks to enforce. The RTC itself recognized that UMC padded
its claim when it only allowed P43,930,230.00 as insurance claim. UMC supported
its claim of P50,000,000.00 with the Certification from the Bureau of Fire Protection
stating that "x x x a fire broke out at United Merchants Corporation located at 19-B
Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage of FiftyFive Million Pesos (P55,000,000.00) to the building and contents x x x." However,
this Certification only proved that the estimated damage of P55,000,000.00 is
shared by both the building and the stocks in trade.
It has long been settled that a false and material statement made with an intent to
deceive or defraud voids an insurance policy. 42 In Yu Cua v. South British Insurance
Co.,43 the claim was fourteen times bigger than the real loss; in Go Lu v. Yorkshire
Insurance Co,44 eight times; and in Tuason v. North China Insurance Co., 45 six times.
In the present case, the claim is twenty five times the actual claim proved.
The most liberal human judgment cannot attribute such difference to mere innocent
error in estimating or counting but to a deliberate intent to demand from insurance
companies payment for indemnity of goods not existing at the time of the fire. 46 This
constitutes the so-called "fraudulent claim" which, by express agreement between
the insurers and the insured, is a ground for the exemption of insurers from civil
liability.47
In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in
its statements were not covered by the warranty such that any discrepancy in the
declaration in other instruments or documents as to matters that may have some
relation to the insurance coverage voids the policy." 48
On UMCs allegation that it did not breach any warranty, it may be argued that the
discrepancies do not, by themselves, amount to a breach of warranty. However, the
Insurance Code provides that "a policy may declare that a violation of specified
provisions thereof shall avoid it."49 Thus, in fire insurance policies, which contain
provisions such as Condition No. 15 of the Insurance Policy, a fraudulent
discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer. 50
Considering that all the circumstances point to the inevitable conclusion that UMC
padded its claim and was guilty of fraud, UMC violated Condition No. 15 of the
Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under the
Insurance Policy, including its insurance claim.
While it is a cardinal principle of insurance law that a contract of insurance is to be
construed liberally in favor of the insured and strictly against the insurer
company,51 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.52 If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense. Courts are not permitted to
make contracts for the parties; the function and duty of the courts is simply to
enforce and carry out the contracts actually made. 53
WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision
and the 8 September 2011 Resolution of the Court of Appeals in CA-G.R.
CV No. 85777.
SO ORDERED.
ANTONIO T. CARPIO
Senior Associate Justice

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 184300
July 11, 2012
MALAYAN INSURANCE CO., INC., Petitioner,

vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER
SERVICES, INC., Respondents.
DECISION
REYES, J.:
Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan
Insurance Co., lnc. (Malayan) assailing the Decision 1 dated February 29, 2008 and
Resolution2 dated August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No.
71204 which affirmed with modification the decision of the Regional Trial Court
(RTC), Branch 38 of Manila.
Antecedent Facts
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder
Services, Inc. (Reputable) had been annually executing a contract of carriage,
whereby the latter undertook to transport and deliver the formers products to its
customers, dealers or salesmen.3
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine
Policy) from respondent Philippines First Insurance Co., Inc. (Philippines First) to
secure its interest over its own products. Philippines First thereby insured Wyeths
nutritional, pharmaceutical and other products usual or incidental to the insureds
business while the same were being transported or shipped in the Philippines. The
policy covers all risks of direct physical loss or damage from any external cause, if
by land, and provides a limit of P6,000,000.00 per any one land vehicle.
On December 1, 1993, Wyeth executed its annual contract of carriage with
Reputable. It turned out, however, that the contract was not signed by Wyeths
representative/s.4 Nevertheless, it was admittedly signed by Reputables
representatives, the terms thereof faithfully observed by the parties and, as
previously stated, the same contract of carriage had been annually executed by the
parties every year since 1989.5
Under the contract, Reputable undertook to answer for "all risks with respect to the
goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or
damage of the goods/products due to any and all causes whatsoever, including
theft, robbery, flood, storm, earthquakes, lightning, and other force majeure while
the goods/products are in transit and until actual delivery to the customers,
salesmen, and dealers of the COMPANY".6
The contract also required Reputable to secure an insurance policy on Wyeths
goods.7 Thus, on February 11, 1994, Reputable signed a Special Risk Insurance
Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.
On October 6, 1994, during the effectivity of the Marine Policy and SR Policy,
Reputable received from Wyeth 1,000 boxes of Promil infant formula worth
P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis,
Quezon City. Unfortunately, on the same date, the truck carrying Wyeths products
was hijacked by about 10 armed men. They threatened to kill the truck driver and
two of his helpers should they refuse to turn over the truck and its contents to the
said highway robbers. The hijacked truck was recovered two weeks later without its
cargo.
On March 8, 1995, Philippines First, after due investigation and adjustment, and
pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines
First then demanded reimbursement from Reputable, having been subrogated to the
rights of Wyeth by virtue of the payment. The latter, however, ignored the demand.
Consequently, Philippines First instituted an action for sum of money against
Reputable on August 12, 1996.8 In its complaint, Philippines First stated that
Reputable is a "private corporation engaged in the business of a common carrier." In
its answer,9 Reputable claimed that it is a private carrier. It also claimed that it
cannot be made liable under the contract of carriage with Wyeth since the contract
was not signed by Wyeths representative and that the cause of the loss was force
majeure, i.e., the hijacking incident.
Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to
collect the amount covered in the SR Policy. According to Reputable, "it was validly
insured with Malayan for P1,000,000.00 with respect to the lost products under the
latters Insurance Policy No. SR-0001-02577 effective February 1, 1994 to February
1, 1995" and that the SR Policy covered the risk of robbery or hijacking. 10
Disclaiming any liability, Malayan argued, among others, that under Section 5 of the
SR Policy, the insurance does not cover any loss or damage to property which at the
time of the happening of such loss or damage is insured by any marine policy and
that the SR Policy expressly excluded third-party liability.
After trial, the RTC rendered its Decision 11 finding Reputable liable to Philippines First
for the amount of indemnity it paid to Wyeth, among others. In turn, Malayan was
found by the RTC to be liable to Reputable to the extent of the policy coverage. The
dispositive portion of the RTC decision provides:
WHEREFORE, on the main Complaint, judgment is hereby rendered finding

[Reputable] liable for the loss of the Wyeth products and orders it to pay Philippines
First the following:
1. the amount of P2,133,257.00 representing the amount paid by Philippines First to
Wyeth for the loss of the products in question;
2. the amount of P15,650.00 representing the adjustment fees paid by Philippines
First to hired adjusters/surveyors;
3. the amount of P50,000.00 as attorneys fees; and
4. the costs of suit.
On the third-party Complaint, judgment is hereby rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;
2. the amount of P50,000.00 as attorneys fees; and
3. the costs of suit.
SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC
decision.
Reputable asserted that the RTC erred in holding that its contract of carriage with
Wyeth was binding despite Wyeths failure to sign the same. Reputable further
contended that the provisions of the contract are unreasonable, unjust, and
contrary to law and public policy.
For its part, Malayan invoked Section 5 of its SR Policy, which provides:
Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any
loss or damage to property which at the time of the happening of such loss or
damage is insured by or would but for the existence of this policy, be insured by any
Fire or Marine policy or policies except in respect of any excess beyond the amount
which would have been payable under the Fire or Marine policy or policies had this
insurance not been effected.
Malayan argued that inasmuch as there was already a marine policy issued by
Philippines First securing the same subject matter against loss and that since the
monetary coverage/value of the Marine Policy is more than enough to indemnify the
hijacked cargo, Philippines First alone must bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In the
alternative, it prayed that it be held liable for no more than P468,766.70, its alleged
pro-rata share of the loss based on the amount covered by the policy, subject to the
provision of Section 12 of the SR Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to
any property hereby insured, there be any other subsisting insurance or insurances,
whether effected by the insured or by any other person or persons, covering the
same property, the company shall not be liable to pay or contribute more than its
ratable proportion of such loss or damage.
On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of
the RTC, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September
2000, as modified in the Order dated 21 July 2001, is AFFIRMED with MODIFICATION
in that the award of attorneys fees in favor of Reputable is DELETED.
SO ORDERED.13
The CA ruled, among others, that: (1) Reputable is estopped from assailing the
validity of the contract of carriage on the ground of lack of signature of Wyeths
representative/s; (2) Reputable is liable under the contract for the value of the
goods even if the same was lost due to fortuitous event; and (3) Section 12 of the
SR Policy prevails over Section 5, it being the latter provision; however, since the
ratable proportion provision of Section 12 applies only in case of double insurance,
which is not present, then it should not be applied and Malayan should be held
liable for the full amount of the policy coverage, that is, P1,000,000.00. 14
On March 14, 2008, Malayan moved for reconsideration of the assailed decision but
it was denied by the CA in its Resolution dated August 28, 2008. 15
Hence, this petition.
Malayan insists that the CA failed to properly resolve the issue on the "statutory
limitations on the liability of common carriers" and the "difference between an
other insurance clause and an over insurance clause."
Malayan also contends that the CA erred when it held that Reputable is a private
carrier and should be bound by the contractual stipulations in the contract of
carriage. This argument is based on its assertion that Philippines First judicially
admitted in its complaint that Reputable is a common carrier and as such,
Reputable should not be held liable pursuant to Article 1745(6) of the Civil
Code.16 Necessarily, if Reputable is not liable for the loss, then there is no reason to
hold Malayan liable to Reputable.
Further, Malayan posits that there resulted in an impairment of contract when the
CA failed to apply the express provisions of Section 5 (referred to by Malayan as
over insurance clause) and Section 12 (referred to by Malayan as other insurance
clause) of its SR Policy as these provisions could have been read together there
being no actual conflict between them.
Reputable, meanwhile, contends that it is exempt from liability for acts committed
by thieves/robbers who act with grave or irresistible threat whether it is a common
carrier or a private/special carrier. It, however, maintains the correctness of the CA
ruling that Malayan is liable to Philippines First for the full amount of its policy
coverage and not merely a ratable portion thereof under Section 12 of the SR Policy.
Finally, Philippines First contends that the factual finding that Reputable is a private
carrier should be accorded the highest degree of respect and must be considered
conclusive between the parties, and that a review of such finding by the Court is not
warranted under the circumstances. As to its alleged judicial admission that
Reputable is a common carrier, Philippines First proffered the declaration made by
Reputable that it is a private carrier. Said declaration was allegedly reiterated by
Reputable in its third party complaint, which in turn was duly admitted by Malayan
in its answer to the said third-party complaint. In addition, Reputable even
presented evidence to prove that it is a private carrier.
As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First
reiterated the ruling of the CA. Philippines First, however, prayed for a slight
modification of the assailed decision, praying that Reputable and Malayan be
rendered solidarily liable to it in the amount of P998,000.00, which represents the
balance from the P1,000.000.00 coverage of the SR Policy after deducting
P2,000.00 under Section 10 of the said SR Policy. 17
Issues
The liability of Malayan under the SR Policy hinges on the following issues for
resolution:
1) Whether Reputable is a private carrier;
2) Whether Reputable is strictly bound by the stipulations in its contract of carriage
with Wyeth, such that it should be liable for any risk of loss or damage, for any
cause whatsoever, including that due to theft or robbery and other force majeure;
3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12
of the SR Policy; and
4) Whether Reputable should be held solidarily liable with Malayan for the amount
of P998,000.00 due to Philippines First.
The Courts Ruling
On the first issue Reputable is a private carrier.

The Court agrees with the RTC and CA that Reputable is a private carrier. Wellentrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and considered conclusive between the parties, save for certain exceptional
and meritorious circumstances, none of which are present in this case. 18
Malayan relies on the alleged judicial admission of Philippines First in its complaint
that Reputable is a common carrier.19 Invoking Section 4, Rule 129 of the Rules on
Evidence that "an admission verbal or written, made by a party in the course of the
proceeding in the same case, does not require proof," it is Malayans position that
the RTC and CA should have ruled that
Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the
Civil Code, the liability of Reputable for the loss of Wyeths goods should be
dispensed with, or at least diminished.
It is true that judicial admissions, such as matters alleged in the pleadings do not
require proof, and need not be offered to be considered by the court. "The court, for
the proper decision of the case, may and should consider, without the introduction
of evidence, the facts admitted by the parties." 20 The rule on judicial admission,
however, also states that such allegation, statement, or admission is conclusive as
against the pleader,21 and that the facts alleged in the complaint are deemed
admissions of the plaintiff and binding upon him. 22 In this case, the pleader or the
plaintiff who alleged that Reputable is a common carrier was Philippines First. It
cannot, by any stretch of imagination, be made conclusive as against Reputable
whose nature of business is in question.
It should be stressed that Philippines First is not privy to the SR Policy between
Wyeth and Reputable; rather, it is a mere subrogee to the right of Wyeth to collect
from Reputable under the terms of the contract of carriage. Philippines First is not in
any position to make any admission, much more a definitive pronouncement, as to
the nature of Reputables business and there appears no other connection between
Philippines First and Reputable which suggests mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines First was
essentially disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its
answer that it is actually a private or special carrier. 23In addition, Reputable stated
in paragraph 2 of its third-party complaint that it is "a private carrier engaged in the
carriage of goods."24 Such allegation was, in turn, admitted by Malayan in paragraph
2 of its answer to the third-party complaint.25 There is also nothing in the records
which show that Philippines First persistently maintained its stance that Reputable is
a common carrier or that it even contested or proved otherwise Reputables position
that it is a private or special carrier.
Hence, in the face of Reputables contrary admission as to the nature of its own
business, what was stated by Philippines First in its complaint is reduced to nothing
more than mere allegation, which must be proved for it to be given any weight or
value. The settled rule is that mere allegation is not proof. 26
More importantly, the finding of the RTC and CA that Reputable is a special or
private carrier is warranted by the evidence on record, primarily, the unrebutted
testimony of Reputables Vice President and General Manager, Mr. William Ang Lian
Suan, who expressly stated in open court that Reputable serves only one customer,
Wyeth.27
Under Article 1732 of the Civil Code, common carriers are persons, corporations,
firms, or associations engaged in the business of carrying or transporting passenger
or goods, or both by land, water or air for compensation, offering their services to
the public. On the other hand, a private carrier is one wherein the carriage is
generally undertaken by special agreement and it does not hold itself out to carry
goods for the general public.28 A common carrier becomes a private carrier when it
undertakes to carry a special cargo or chartered to a special person only. 29 For all
intents and purposes, therefore, Reputable operated as a private/special carrier with
regard to its contract of carriage with Wyeth.
On the second issue Reputable is bound by the terms of the contract of carriage.
The extent of a private carriers obligation is dictated by the stipulations of a
contract it entered into, provided its stipulations, clauses, terms and conditions are
not contrary to law, morals, good customs, public order, or public policy. "The Civil
Code provisions on common carriers should not be applied where the carrier is not
acting as such but as a private carrier. Public policy governing common carriers has
no force where the public at large is not involved." 30
Thus, being a private carrier, the extent of Reputables liability is fully governed by
the stipulations of the contract of carriage, one of which is that it shall be liable to
Wyeth for the loss of the goods/products due to any and all causes whatsoever,
including theft, robbery and other force majeure while the goods/products are in
transit and until actual delivery to Wyeths customers, salesmen and dealers. 31
On the third issue other insurance vis--vis over insurance.
Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to
Section 12 as a "modified other insurance clause". 32 In rendering inapplicable said
provisions in the SR Policy, the CA ruled in this wise:
Since Sec. 5 calls for Malayans complete absolution in case the other insurance
would be sufficient to cover the entire amount of the loss, it is in direct conflict with
Sec. 12 which provides only for a pro-rated contribution between the two insurers.
Being the later provision, and pursuant to the rules on interpretation of contracts,
Sec. 12 should therefore prevail.
xxxx
x x x The intention of both Reputable and Malayan should be given effect as against
the wordings of Sec. 12 of their contract, as it was intended by the parties to
operate only in case of double insurance, or where the benefits of the policies of
both plaintiff-appellee and Malayan should pertain to Reputable alone. But since the
court a quo correctly ruled that there is no double insurance in this case inasmuch
as Reputable was not privy thereto, and therefore did not stand to benefit from the
policy issued by plaintiff-appellee in favor of Wyeth, then Malayans stand should be
rejected.
To rule that Sec. 12 operates even in the absence of double insurance would work
injustice to Reputable which, despite paying premiums for a P1,000,000.00
insurance coverage, would not be entitled to recover said amount for the simple
reason that the same property is covered by another insurance policy, a policy to
which it was not a party to and much less, from which it did not stand to benefit.
Plainly, this unfair situation could not have been the intention of both Reputable and
Malayan in signing the insurance contract in question. 33
In questioning said ruling, Malayan posits that Sections 5 and 12 are separate
provisions applicable under distinct circumstances. Malayan argues that "it will not
be completely absolved under Section 5 of its policy if it were the assured itself who
obtained additional insurance coverage on the same property and the loss incurred
by Wyeths cargo was more than that insured by Philippines Firsts marine policy. On
the other hand, Section 12 will not completely absolve Malayan if additional
insurance coverage on the same cargo were obtained by someone besides
Reputable, in which case Malayans SR policy will contribute or share ratable
proportion of a covered cargo loss."34
Malayans position cannot be countenanced.
Section 5 is actually the other insurance clause (also called "additional insurance"
and "double insurance"), one akin to Condition No. 3 in issue in Geagonia v.
CA,35 which validity was upheld by the Court as a warranty that no other insurance
exists. The Court ruled that Condition No. 336 is a condition which is not proscribed
by law as its incorporation in the policy is allowed by Section 75 of the Insurance
Code. It was also the Courts finding that unlike the other insurance clauses,
Condition No. 3 does not absolutely declare void any violation thereof but expressly
provides that the condition "shall not apply when the total insurance or insurances
in force at the time of the loss or damage is not more than P200,000.00."
In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for
the nullity of the SR Policy but simply limits the liability of Malayan only up to the
excess of the amount that was not covered by the other insurance policy. In
interpreting the "other insurance clause" in Geagonia, the Court ruled that the
prohibition applies only in case of double insurance. The Court ruled that in order to
constitute a violation of the clause, the other insurance must be upon same subject
matter, the same interest therein, and the same risk. Thus, even though the
multiple insurance policies involved were all issued in the name of the same
assured, over the same subject matter and covering the same risk, it was ruled that
there was no violation of the "other insurance clause" since there was no double
insurance.
Section 12 of the SR Policy, on the other hand, is the over insurance clause. More
particularly, it covers the situation where there is over insurance due to double
insurance. In such case, Section 15 provides that Malayan shall "not be liable to pay
or contribute more than its ratable proportion of such loss or damage." This is in
accord with the principle of contribution provided under Section 94(e) of the
Insurance Code,37 which states that "where the insured is over insured by double
insurance, each insurer is bound, as between himself and the other insurers, to
contribute ratably to the loss in proportion to the amount for which he is liable
under his contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double insurance.
The pivotal question that now arises is whether there is double insurance in this
case such that either Section 5 or Section 12 of the SR Policy may be applied.
By the express provision of Section 93 of the Insurance Code, double insurance
exists where the same person is insured by several insurers separately in respect to
the same subject and interest. The requisites in order for double insurance to arise
are as follows:38
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
In the present case, while it is true that the Marine Policy and the SR Policy were
both issued over the same subject matter, i.e. goods belonging to Wyeth, and both
covered the same peril insured against, it is, however, beyond cavil that the said
policies were issued to two different persons or entities. It is undisputed that Wyeth
is the recognized insured of Philippines First under its Marine Policy, while Reputable
is the recognized insured of Malayan under the SR Policy. The fact that Reputable
procured Malayans SR Policy over the goods of Wyeth pursuant merely to the
stipulated requirement under its contract of carriage with the latter does not make
Reputable a mere agent of Wyeth in obtaining the said SR Policy.
The interest of Wyeth over the property subject matter of both insurance contracts
is also different and distinct from that of Reputables. The policy issued by
Philippines First was in consideration of the legal and/or equitable interest of Wyeth
over its own goods. On the other hand, what was issued by Malayan to Reputable
was over the latters insurable interest over the safety of the goods, which may
become the basis of the latters liability in case of loss or damage to the property
and falls within the contemplation of Section 15 of the Insurance Code. 39
Therefore, even though the two concerned insurance policies were issued over the
same goods and cover the same risk, there arises no double insurance since they
were issued to two different persons/entities having distinct insurable interests.
Necessarily, over insurance by double insurance cannot likewise exist. Hence, as
correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy
can be applied.
Apart from the foregoing, the Court is also wont to strictly construe the controversial
provisions of the SR Policy against Malayan.1wphi1 This is in keeping with the rule
that:
"Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the
insured and strictly against the insurer. Limitations of liability should be regarded
with extreme jealousy and must be construed in such a way as to preclude the
insurer from noncompliance with its obligations." 40
Moreover, the CA correctly ruled that:
To rule that Sec. 12 operates even in the absence of double insurance would work
injustice to Reputable which, despite paying premiums for a P1,000,000.00
insurance coverage, would not be entitled to recover said amount for the simple
reason that the same property is covered by another insurance policy, a policy to
which it was not a party to and much less, from which it did not stand to benefit. x x
x41
On the fourth issue Reputable is not solidarily liable with Malayan.
There is solidary liability only when the obligation expressly so states, when the law
so provides or when the nature of the obligation so requires.
In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc., 42 the Court ruled that:
Where the insurance contract provides for indemnity against liability to third
persons, the liability of the insurer is direct and such third persons can directly sue
the insurer. The direct liability of the insurer under indemnity contracts against third
party[- ]liability does not mean, however, that the insurer can be held solidarily
liable with the insured and/or the other parties found at fault, since they are being
held liable under different obligations. The liability of the insured carrier or vehicle
owner is based on tort, in accordance with the provisions of the Civil Code; while
that of the insurer arises from contract, particularly, the insurance policy: 43 (Citation
omitted and emphasis supplied)
Suffice it to say that Malayan's and Reputable's respective liabilities arose from
different obligations- Malayan's is based on the SR Policy while Reputable's is based
on the contract of carriage.
All told, the Court finds no reversible error in the judgment sought to be reviewed.
WHEREFORE, premises considered, the petition is DENIED. The Decision dated
February 29, 2008 and Resolution dated August 28, 2008 of the Court of Appeals in
CA-G.R. CV No. 71204 are hereby AFFIRMED.
Cost against petitioner Malayan Insurance Co., Inc.
SO ORDERED.
BIENVENIDO L. REYES
Associate justice
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 85624 June 5, 1989
CATHAY INSURANCE CO., INC., EMPIRE INSURANCE CO., UNION INSURANCE
SOCIETY OF CANTON, LTD., PARAMOUNT INSURANCE CORP., PHILIPPINE
BRITISH INSURANCE CO., & PHILIPPINE FIRST INSURANCE CO., petitioners,
vs.
HON. COURT OF APPEALS & EMILIA CHAN LUGAY, respondents.
Guzman, Lasam & Associates and F. S. Sumulong & Associates Law offices for
petitioners.
Garcia & Pepito Law Offices for private respondent.
GRIO-AQUINO, J.:
It has been the sad experience of many who sought protection from disaster or
tragedy through insurance, to realize that insurance is quite easy to buy but difficult
to collect. Insurance companies are prone to invent excuses to avoid their just
obligations (American Home Ins. Co. vs. Court of Appeals, 109 SCRA 180). This case
is one such instance.
Eight (8) years after Emilia Chan Lugay's Cebu Filipina Press was destroyed by fire in
broad daylight, she is still waiting to collect the proceeds of seven (7) fire policies
which the petitioners sold to her.
The petitioners are the six (6) insurance companies that issued fire insurance
policies for the total sum of P4,000,000 to the Cebu Filipino Press of Cebu City, as
follows:
1. Cathay Insurance Company for P1,000,000 under Fire Insurance Policy No. F31056 dated June 10, 1981 renewing Policy No. F27942 (Exh-B-5), covering the
period from June 20, 1981 to June 20, 1982 (Exh-B);
2. Empire Insurance Company for P500,000 under Fire Insurance Policy No. YASCO/F1101 dated March 7, 1981, renewing Policy No. F-1095 (Exh. C-5), covering the
period from March 19, 1981 to March 19, 1982 (Exh. C);
3. Union Insurance Society of Canton, Ltd, for P500,000 under Fire Insurance Policy
No. NU-0530 dated May 5, 1981, renewing Policy No. MU-223903 (Exh. D-5),
covering the period from May 21, 1981 to May 21, 1982 (Exh. D);
4. Paramount Insurance Corp. for P500,000 under Fire Insurance Policy No. 25311
dated July 1, 1981, covering the period from July 15, 1981 to July 15, 1982 (Exh. E);
5. Philippine British Insurance Company for P500,000 under Fire Insurance Policy No.
PB-107861 dated July 6, 1981, renewing Policy No. PB-933 11 (Exh. F-5), covering
the period from July 10, 1981 to July 10, 1982 (Exh. F).
6. Philippine British Insurance Company for P500,000 under another Fire Insurance
Policy No. PB-107848 dated July 1, 1981, renewing Policy No. PB-102653 (Exh G-5),
covering the period from July 5, 1981 to July 5, 1982 (Exh. G); and
7. Philippine First Insurance Company for P500,000 under Fire Insurance Policy No.
CEB-G-0515 dated January 28, 1981, covering the period from February 15, 1981 to
February 15, 1982 (Exh. H). (p. 76, Rollo.)
The fire policies described the insured property as "stocks of printing materials,
papers and general merchandise usual to the Assured's trade" (p. 53, Rollo) stored
in a one-storey building of strong materials housing the Cebu Filipina Press located
at UNNO Pres. Quirino cor. Don V. Sotto Sts., Mabolo, Cebu City. The co-insurers
were indicated in each of the policies. All, except one policy (Paramount's), were
renewals of earlier policies issued for the same property.
On December 18, 1981, at around ten o'clock in the morning, the Cebu Filipina Press
was razed by electrical fire together with all the stocks and merchandise stored in
the premises.
On January 15, 1982, Mrs. Lugay, owner and operator of the printing press,
submitted sworn Statements of Loss Formal Claims to the insurers, through their
djusters. She claimed a total loss of P4,595,00.
She submitted proofs of loss required by the adjusters. After nearly ten (10) months
of wating for the insurers to pay his claim, she sued to collect on December 15,
1982. The insurance companies denied liability, alleging violation of certain
conditions of the policy, misdeclaration, and even arson which was not seriously
pressed for, come the pre-trial, the petitioners offered to pay 50% of her claim, but
she insisted in full recovery.
After the trial on the merits, the court rendered judgment in her favor, as follows:
... directing payment by Cathay Insurance Company, Inc., the amount of
P1,000,000, by Empire the amount of P5,000,000.00, by Insurance Society of
Canton Limited the amount P5,000,000.00, by Paramount Insurance Company, the
amount P5,000,000.00, by Philippine British Insurance Company Inc., the amount of
P5,000,000.00 by Philippine First Insurance Company, Inc., the amount of
P5,000,000.00; for all the defendants jointly and severaly to pay P48,000.00
representing expenses of the plaintiff, and a separate amount of 20% of the
P4,000,000.00 representing fees of councel; and interests at the rate of twice the
ceiling being prescribe by the Monetary Board starting from the time when the case
was filed; and finally, with costs. (Decision Court of Appeal, pp. 1-3.) (p. 77, Rollo.)
On appeal to the Court of Appeals, the decision was affirmed in toto (pp. 52-67,
Rollo). Hence, this petition for review under Rule 45 of the Rules of Court wherein
the petitioners allege that the Court of Appeals erred:
1. in holding that the private respondent's cause of action had already acrued when
the complaint was filed on December 15, 1982 and in not holding that the action is
premature;
2. in finding that sufficient proofs of loss had been presented by the private
respondent;
3. in not holding that the private respondent's claim for loss was infrated;
4. in awarding damages to the private respondent in the form of interests
equivalent to double the interest ceiling set by the Monetary Board despite absence
of a finding of unreasonable withholding or refusal to pay the claim; and
5. in awarding exorbitant attorney's fees.

It is plain to see that all these grounds of the petition for review present factual
issues which, in view of the provision in Section 2, Rule 45 of the Rules of Court that
"only questions of law may be raised" this Court may not inquire into by conducting
a tedious reassessment of the "maze of testimonial and documentary evidence" (p.
57, Rollo) of the parties. Referring to the evidence presented at the trial of this case,
the Court of Appeals said:
We are impressed indeed with the patience, diligence and perseverance of the trial
judge in wading through the voluminous documents, making an exhaustive
examination and detailed evaluation of the evidence, and thus emerging from the
maze of testimonial and documentary evidence with accuracy of perception in
determining the merits of the respective claims of the litigants. Accordingly, We are
constrained to honor and stamp our imprimatur to the findings of fact and
conclusions of the trial court since, admittedly, it was in a better position than We
are to examine the real evidence, as well as to observe the demeanor of the
witnesses while testifying in the case (Chase vs. Buencamino, Sr., 136 SCRA 365).
(p. 57, Rollo.)
The finding of the trial court and the Court of Appeals that the insured's cause of
action had already accrued before she filed her complaint is supported by Section
243 of the Insurance Code which fixes a maximum period of 90 days after receipt of
the proofs of loss by the insurer for the latter to pay the insured s claim.
Sec. 243. The amount of any loss or damage for which an insurer may be liable,
under any policy other than the insurance policy, shall be paid within thirty days
after proof of loss is received by the insurer and ascertainment of the loss or
damage is made either by agreement between the insured and the insurer or by
arbitration; but if such ascertainiment is not had or made within sixty days after
such receipt by the insurer of the proof of loss, then the loss or damage shall be
paid within ninetydays after such receipt. ... (Insurance Code.)
As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981
and the proofs of loss were submitted from January 15, 1982 through June 21, 1982
in compliance with the adjusters' numerous requests for various documents,
payment should have been made within 90 days thereafter, or on or before
September 21, 1982. Hence, when the assured file her complaint on December 15,
1982, her cause of action had a ready accrued.
There is no merit in the petitioners' contention that the proof of loss were
insufficient because respondent Emilia Chan Luga failed to comply with the
adjuster's request for the submission of her bank statements. Condition No. 13 of
the insurance policy on proofs of loss, provides:
13. The insured shall give immediate written notice to th company of any loss,
protect the property from further damage, forth with separate the damaged and
undamaged personal property, put it in the best possible order, furnish a complete
inventory of the destroyed damaged and undamaged property, showing in detail
quantities, costs, actual cash value and the amount of loss claimed; AN WITHIN
SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE
COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS
signed and sworn to by the insured, stating the knowledge and belief of th insured
as to the following: the time and origin of the loss, the interest of the insured and of
all others in the property, the actual cash value of each item thereof and the
amount of loss thereto, all encumbrances thereon, all other contracts of insurance,
whether valid or not covering any of said property, any changes in the title, use,
occupation, location, possession or exposures of said property since the issuing of
this policy, by whom and for what purpose any buildings herein described and the
several parts thereof were occupied at the time of the loss and whether or not they
stood on leased ground, and shall furnish a copy of all the descriptions and
schedules in all policies and, if required, verified plans and specifications of any
building, fixtures or machine destroyed or damaged. The insured as often as may be
reasonable required shall exhibit to any person designated by the Company all that
remains of any property therein described, and submit to examination under oath
by any person named by the Company, and subscribe the same; as often as may be
reasonably required, shall produce for examination all books of account, bills,
invoices, and other vouchers, or certified copies thereof if originals be lost. At such
reasonable time and place as may be designated by the Company or its
representative, and shall permit extracts and copies thereof to be made.
No claim under this policy shall be payable unless the terms of this condition have
been complied with. (pp. 55-56, Rollo.)
Condition No. 13, as the Court of Appeals observed, does not require the insured to
produce her bank statements. Therefore, the insured was not obligated to produce
them and the insurers had no right to ask for them. Condition No. 13 was prepared
by the insurers themselves, hence, it "should be taken most strongly" (p. 58, Rollo)
against them.
The Court of Appeals found that the insured "fully complied with the requirements of
Condition No. 13" (p. 58, Rollo). The adjuster's demand for the assured's bank
statements (which under the law on the secrecy of bank deposits, she need not
disclose) would add more requirements to Condition No. 13 of the insurance
contract, and, as pointed out by the Appellate Court, "would amount to giving the
insurers limitless latitude in making unreasonable demands if only to evade and
avoid liability" (p. 58, Rollo).
Nor was the claim inflated. Both the trial court and the Court of Appeals noted that
the proofs were ample and "more than enough ... for defendants (insurers) to do a
just assessment supporting the 1981 fire claim for an amount exceeding four million
pesos" (p. 60, Rollo).
The trial court's award (which was affirmed by the Court of Appeals) of double
interest on the private respondent's claim is lawful and justified under Sections 243
and 244 of the Insurance Code which provide:
Sec. 243. ... Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for
the duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, ...
Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may
be, to make a finding as to whether the payment of the claim of the insured has
been unreasonably denied or withheld; and in the affirmative case, the insurance
company shall be adjudged to pay damages which shall consist attorney's fees and
other expenses incurred by the insured person by reason of such unreasonable
denial or withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of claim due the insured, ... (Emphasis supplied; p.
66, Rollo.)
Section 243 of the Insurance Code is in fact embodied in provision No. 29 of the
policies issued by the petitioners to th private respondents (p. 82, Rollo).
The petitioners' contention that the charging of double interest was improper
because no unreasonable delay in the processing of the fire claim was proven, is
refuted by the trial court' explicit finding that "there was a delay that was not
reasonable in processing the claim and doing payments" (p. 81, Rollo). Under
Section 244, a prima facieevidence of unreasonable delay in payment of the claim is
created by the failure of the insurer to pay the claim within the time fixed in both
Section 242 and 243 of the Insurance Code.
As provided in Section 244 also, by reason of the delay and consequent filing of this
suit by the insured, the insurers "shall be adjudged to pay damages which shall
consist of attorney's fees and other expenses incurred by the insured." In view of
the not insubstantial value of the private respondent's claims and the considerable
time and effort expended by them and their counsel in prosecuting these claims for
the past eight (8) years, We hold that attorney's fees were properly awarded to the
private respondents. However, an award equivalent to (10%) percent of the
proceeds of the policies would be more reasonable than the 20% awarded by the
trial court and th Appellate Court.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. CV-12100 is
affirmed, except the award of attorney's fees to the private respondents which is
hereby reduced to ten (10%) percent of the proceeds of the insurance policies sued
upon. Costs against the petitioners.
SO ORDERED.
Narvasa, Cruz and Gancayco, JJ., concur.
Medialdea, J., is on leave.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-66935 November 11, 1985
ISABELA ROQUE, doing busines under the name and style of Isabela Roque
Timber Enterprises and ONG CHIONG, petitioners,
vs.
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND
SURETY CORPORATION,respondent.
GUTIERREZ, JR., J.:

This petition for certiorari asks for the review of the decision of the Intermediate
Appellate Court which absolved the respondent insurance company from liability on
the grounds that the vessel carrying the insured cargo was unseaworthy and the
loss of said cargo was caused not by the perils of the sea but by the perils of the
ship.
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a
common carrier, entered into a contract with the petitioners whereby the former
would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs
from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured
the logs against loss for P100,000.00 with respondent Pioneer Insurance and Surety
Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at
Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of
Manila, but the shipment never reached its destination because Mable 10 sank with
the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila.
As alleged by the petitioners in their complaint and as found by both the trial and
appellate courts, the barge where the logs were loaded was not seaworthy such that
it developed a leak. The appellate court further found that one of the hatches was
left open causing water to enter the barge and because the barge was not provided
with the necessary cover or tarpaulin, the ordinary splash of sea waves brought
more water inside the barge.
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment
of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits
but the latter ignored the demand. Another letter was sent to respondent Pioneer
claiming the full amount of P100,000.00 under the insurance policy but respondent
refused to pay on the ground that its hability depended upon the "Total loss by Total
Loss of Vessel only". Hence, petitioners commenced Civil Case No. 86599 against
Manila Bay and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners. The dispositive portion
of the decision reads:
FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer
Insurance and Surety Corporation to pay plaintiffs, jointly and severally, the sum of
P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in
addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the
former as down payment for transporting the logs in question;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed,
for lack of merit, but as to its cross-claim against its co-defendant Manila Bay
Lighterage Corporation, the latter is ordered to reimburse the former for whatever
amount it may pay the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed
for lack of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary
damages are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's
fees in the sum of P10,000.00 is hereby granted, against both defendants, who are,
moreover ordered to pay the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent
(6%) from March 25, 1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did
not appeal. According to the petitioners, the transportation company is no longer
doing business and is without funds.
During the initial stages of the hearing, Manila Bay informed the trial court that it
had salvaged part of the logs. The court ordered them to be sold to the highest
bidder with the funds to be deposited in a bank in the name of Civil Case No. 86599.
On January 30, 1984, the appellate court modified the trial court's decision and
absolved Pioneer from liability after finding that there was a breach of implied
warranty of seaworthiness on the part of the petitioners and that the loss of the
insured cargo was caused by the "perils of the ship" and not by the "perils of the
sea". It ruled that the loss is not covered by the marine insurance policy.
After the appellate court denied their motion for reconsideration, the petitioners
filed this petition with the following assignments of errors:
I
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF
MARINE CARGO INSURANCE, THERE IS A WARRANTY OF SEAWORTHINESS BY THE
CARGO OWNER.
II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS OF THE
CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND NOT BY "PERILS
OF THE SEA."
III
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE RETURN TO
PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS DEPOSITED IN THE TRIAL
COURT AS SALVAGE VALUE OF THE LOGS THAT WERE RECOVERED.
In their first assignment of error, the petitioners contend that the implied warranty
of seaworthiness provided for in the Insurance Code refers only to the responsibility
of the shipowner who must see to it that his ship is reasonably fit to make in safety
the contemplated voyage.
The petitioners state that a mere shipper of cargo, having no control over the ship,
has nothing to do with its seaworthiness. They argue that a cargo owner has no
control over the structure of the ship, its cables, anchors, fuel and provisions, the
manner of loading his cargo and the cargo of other shippers, and the hiring of a
sufficient number of competent officers and seamen. The petitioners' arguments
have no merit.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did
not bother to appeal the questioned decision. However, the petitioners state that
Manila Bay has ceased operating as a firm and nothing may be recovered from it.
They are, therefore, trying to recover their losses from the insurer.
The liability of the insurance company is governed by law. Section 113 of the
Insurance Code provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
From the above-quoted provisions, there can be no mistaking the fact that the term
"cargo" can be the subject of marine insurance and that once it is so made, the
implied warranty of seaworthiness immediately attaches to whoever is insuring the
cargo whether he be the shipowner or not.
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of
Canton (40 Phil. 40):
The same conclusion must be reached if the question be discussed with reference to
the seaworthiness of the ship. It is universally accepted that in every contract of
insurance upon anything which is the subject of marine insurance, a warranty is
implied that the ship shall be seaworthy at the time of the inception of the voyage.
This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured
is immaterial in ordinary marine insurance and may not be used by him as a
defense in order to recover on the marine insurance policy.
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S.
406):
There was no look-out, and both that and the rate of speed were contrary to the
Canadian Statute. The exception of losses occasioned by unseaworthiness was in
effect a warranty that a loss should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial.
Since the law provides for an implied warranty of seaworthiness in every contract of
ordinary marine insurance, it becomes the obligation of a cargo owner to look for a
reliable common carrier which keeps its vessels in seaworthy condition. The shipper
of cargo may have no control over the vessel but he has full control in the choice of
the common carrier that will transport his goods. Or the cargo owner may enter into
a contract of insurance which specifically provides that the insurer answers not only
for the perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this
case. As stated by the private respondents:
In marine cases, the risks insured against are "perils of the sea" (Chute v. North
River Ins. Co., Minn214 NW 472, 55 ALR 933). The purpose of such insurance is
protection against contingencies and against possible damages and such a policy
does not cover a loss or injury which must inevitably take place in the ordinary
course of things. There is no doubt that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea. They insure against losses from extraordinary
occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the "perils of the sea" referred in the
policy, and not those ordinary perils which every vessel must encounter. "Perils of
the sea" has been said to include only such losses as are of extraordinarynature,
or arise from some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. Damage done to a vessel by perils of
the sea includes every species of damages done to a vessel at sea, as distinguished
from the ordinary wear and tear of the voyage, and distinct from injuries suffered by
the vessel in consequence of her not being seaworthy at the outset of her voyage
(as in this case). It is also the general rule that everything which happens thru the
inherent vice of the thing, or by the act of the owners, master or shipper, shall not
be reputed a peril, if not otherwise borne in the policy. (14 RCL on Insurance, Sec.
384, pp. 1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L.
ed. 787, 48 S. Ct. 459).
With regard to the second assignment of error, petitioners maintain, that the loss of
the cargo was caused by the perils of the sea, not by the perils of the ship because
as found by the trial court, the barge was turned loose from the tugboat east of
Cabuli Point "where it was buffeted by storm and waves." Moreover, petitioners also
maintain that barratry, against which the cargo was also insured, existed when the
personnel of the tugboat and the barge committed a mistake by turning loose the
barge from the tugboat east of Cabuli Point. The trial court also found that the
stranding and foundering of Mable 10 was due to improper loading of the logs as
well as to a leak in the barge which constituted negligence.
On the contention of the petitioners that the trial court found that the loss was
occasioned by the perils of the sea characterized by the "storm and waves" which
buffeted the vessel, the records show that the court ruled otherwise. It stated:
xxx xxx xxx
... The other affirmative defense of defendant Lighterage, 'That the supposed loss of
the logs was occasioned by force majeure... "was not supported by the evidence. At
the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves,
a condition which is natural and normal in the open sea. The evidence shows that
the sinking of Mable 10 was due to improper loading of the logs on one side so that
the barge was tilting on one side and for that it did not navigate on even keel; that
it was no longer seaworthy that was why it developed leak; that the personnel of
the tugboat and the barge committed a mistake when it turned loose the barge
from the tugboat east of Cabuli point where it was buffeted by storm and waves,
while the tugboat proceeded to west of Cabuli point where it was protected by the
mountain side from the storm and waves coming from the east direction. ..."
In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of
defendant carrier developed a leak which allowed water to come in and that one of
the hatches of said barge was negligently left open by the person in charge thereof
causing more water to come in and that "the loss of said plaintiffs' cargo was due to
the fault, negligence, and/or lack of skill of defendant carrier and/or defendant
carrier's representatives on barge Mable 10."
It is quite unmistakable that the loss of the cargo was due to the perils of the ship
rather than the perils of the sea. The facts clearly negate the petitioners' claim
under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins.
Society of Canton, supra, we had occasion to elaborate on the term "perils of the
ship." We ruled:
It must be considered to be settled, furthermore, that a loss which, in the ordinary
course of events, results from the natural and inevitable action of the sea, from the
ordinary wear and tear of the ship, or from the negligent failure of the ship's owner
to provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
called the "peril of the ship." The insurer undertakes to insure against perils of the
sea and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C.,
503, 509), there must, in order to make the insurer liable, be some casualty,
something which could not be foreseen as one of the necessary incidents of the
adventure. The purpose of the policy is to secure an indemnity against accidents
which may happen, not against events which must happen.
In the present case the entrance of the sea water into the ship's hold through the
defective pipe already described was not due to any accident which happened
during the voyage, but to the failure of the ship's owner properly to repair a defect
of the existence of which he was apprised. The loss was therefore more analogous
to that which directly results from simple unseaworthiness than to that which result
from the perils of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room to doubt the
liability of the shipowner for such a loss as occurred in this case. By parity of
reasoning the insurer is not liable; for generally speaking, the shipowner excepts
the perils of the sea from his engagement under the bill of lading, while this is the
very perils against which the insurer intends to give protection. As applied to the
present case it results that the owners of the damaged rice must look to the
shipowner for redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing
negligence on the part of the vessel's crew.
Barratry as defined in American Insurance Law is "any willful misconduct on the part
of master or crew in pursuance of some unlawful or fraudulent purpose without the
consent of the owners, and to the prejudice of the owner's interest." (Sec. 171, U.S.
Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1951, p. 929.)
Barratry necessarily requires a willful and intentional act in its commission. No
honest error of judgment or mere negligence, unless criminally gross, can be
barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or
fraudulent acts of the vessel's crew. There was only simple negligence or lack of
skill. Hence, the second assignment of error must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners that the amount
of P8,000.00 representing the amount of the salvaged logs should have been
awarded to them. However, this should be deducted from the amounts which have
been adjudicated against Manila Bay Lighterage Corporation by the trial court.
WHEREFORE, the decision appealed from is AFFIRMED with the modification that the
amount of P8,000.00 representing the value of the salvaged logs which was ordered
to be deposited in the Manila Banking Corporation in the name of Civil Case No.
86599 is hereby awarded and ordered paid to the petitioners. The liability adjudged
against Manila Bay Lighterage Corporation in the decision of the trial court is
accordingly reduced by the same amount.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.
Relova, J., is on leave.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 94052 August 9, 1991
ORIENTAL ASSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS AND PANAMA SAW MILL CO., INC., respondents.
Alejandro P. Ruiz, Jr. for petitioner.
Federico R. Reyes for private respondent.
MELENCIO-HERRERA, J:p
An action to recover on a marine insurance policy, issued by petitioner in favor of
private respondent, arising from the loss of a shipment of apitong logs from Palawan
to Manila.
The facts relevant to the present review disclose that sometime in January 1986,
private respondent Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208
pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired
Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it
against loss for P1-M with petitioner Oriental Assurance Corporation (Oriental
Assurance). There is a claim by Panama, however, that the insurance coverage
should have been for P3-M were it not for the fraudulent act of one Benito Sy Yee
Long to whom it had entrusted the amount of P6,000.00 for the payment of the
premium for a P3-M policy.
Oriental Assurance issued Marine Insurance Policy No. OACM 86/002, which
stipulated, among others:
Name of Insured:
Panama Sawmill, Inc.
Karuhatan, Valenzuela
Metro Manila
Vessel:
MT. 'Seminole' Barge PCT 7,000-1,000 cubic meter apitong Logs
Barge Transpac 1,000-1,000 cubic meter apitong Logs
Voyage or Period of Insurance:
From Palawan-ETD January 16, 1986
To: Manila
Subject matter Insured:
2,000 cubic meters apitong Logs
Agreed Value
Amount Insured Hereunder:

Pesos: One Million Only (P1,000,000.00)
Philippine Currency
Premium P2,500.00 rate 0.250%
Doc. stamps 187.60 Invoice No. 157862
l % P/tax 25.00
TOTAL P2,712.50
CLAUSES, ENDORSEMENTS, SPECIAL CONDITIONS and WARRANTIES
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following
clauses:
Civil Code Article 1250 Waiver clause
Typhoon warranty clause
Omnibus clause.
The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces of logs
with a volume of 1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of
logs, also with a volume of 1,000 cubic meters.
On 28 January 1986, the two barges were towed by one tug-boat, the MT 'Seminole'
But, as fate would have it, during the voyage, rough seas and strong winds caused
damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of the
598 pieces loaded thereon.
Panama demanded payment for the loss but Oriental Assurance refuse on the
ground that its contracted liability was for "TOTAL LOSS ONLY." The rejection was
upon the recommendation of the Tan Gatue Adjustment Company.
Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint
for Damages against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee
Yong and Oriental Assurance, before the Regional Trial Court, Kalookan, Branch 123,
docketed as Civil Case No. C-12601.
After trial on the merit, the RTC
portion:
rendered its Decision, with the following dispositive
WHEREFORE, upon all the foregoing premises, judgment is hereby rendered:
1. Ordering the defendant Oriental Assurance Corporation to pay plaintiff Panama

Saw Mill Inc. the amount of P415,000.00 as insurance indemnity with interest at the
rate of 12% per annum computed from the date of the filing of the complaint;
2. Ordering Panama Saw Mill to pay defendant Ever Insurance Agency or Antonio Sy
Lee Yong, owner thereof, (Ever being a single proprietorship) for the amount of
P20,000.00 as attorney's fee and another amount of P20,000.00 as moral damages.
3. Dismissing the complaint against defendant Benito Sy Lee Yong.
SO ORDERED.
On appeal by both parties, respondent Appellate Court 2 affirmed the lower Court
judgment in all respects except for the rate of interest, which was reduce from
twelve (12%) to six (6%) per annum.
Both Courts shared the view that the insurance contract should be liberally
construed in order to avoid a denial of substantial justice; and that the logs loaded
in the two barges should be treated separately such that the loss sustained by the
shipment in one of them may be considered as "constructive total loss" and
correspondingly compensable.
In this Petition for Review on Certiorari, Oriental Assurance challenges the aforesaid
dispositions. In its Comment, Panama, in turn, maintains that the constructive total
loss should be based on a policy value of P3-M and not P1-M, and prays that the
award to Ever Insurance Agency or Antonio Sy Lee Yong of damages and attorney's
fees be set aside.
The question for determination is whether or not Oriental Assurance can be held
liable under its marine insurance policy based on the theory of a divisible contract
of insurance and, consequently, a constructive total loss.
Our considered opinion is that no liability attaches.
The terms of the contract constitute the measure of the insurer liability and
compliance therewith is a condition precedent to the insured's right to recovery
from the insurer (Perla Compania de Seguros, Inc. v. Court of Appeals, G.R. No.
78860, May 28, 1990, 185 SCRA 741). Whether a contract is entire or severable is a
question of intention to be determined by the language employed by the parties.
The policy in question shows that the subject matter insured was the entire
shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded
on two different barges did not make the contract several and divisible as to the
items insured. The logs on the two barges were not separately valued or separately
insured. Only one premium was paid for the entire shipment, making for only one
cause or consideration. The insurance contract must, therefore, be considered
indivisible.
More importantly, the insurer's liability was for "total loss only." A total loss may be
either actual or constructive (Sec. 129, Insurance Code). An actual total loss is
caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose
for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the
port of destination, of the thing insured. (Section 130, Insurance Code).
A constructive total loss is one which gives to a person insured a right to abandon,
under Section 139 of the Insurance Code. This provision reads:
SECTION 139. A person insured by a contract of marine insurance may abandon the
thing insured, or any particular portion thereof separately valued by the policy, or
otherwise separately insured, and recover for a total loss thereof, when the cause of
the loss is a peril injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be
expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
xxx xxx xxx
(Emphasis supplied)
Respondent Appellate Court treated the loss as a constructive total loss, and for the
purpose of computing the more than three-fourths value of the logs actually lost,
considered the cargo in one barge as separate from the logs in the other. Thus, it
concluded that the loss of 497 pieces of logs from barge TPAC-1000, mathematically
speaking, is more than three-fourths () of the 598 pieces of logs loaded in that
barge and may, therefore, be considered as constructive total loss.
The basis thus used is, in our opinion, reversible error. The requirements for the
application of Section 139 of the Insurance Code, quoted above, have not been met.
The logs involved, although placed in two barges, were not separately valued by the
policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 in
relation to the total number of logs loaded on the same barge can not be made the
basis for determining constructive total loss. The logs having been insured as one
inseparable unit, the correct basis for determining the existence of constructive
total loss is the totality of the shipment of logs. Of the entirety of 1,208, pieces of
logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the
cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of
logs, the shipment can not be said to have sustained a constructive total loss under
Section 139(a) of the Insurance Code.
In the absence of either actual or constructive total loss, there can be no recovery
by the insured Panama against the insurer, Oriental Assurance.
By reason of the conclusions arrived at, Panama's asseverations in its Comment
need no longer be passed upon, besides the fact that no review, in proper form, has
been sought by it.
WHEREFORE, the judgment under review is hereby SET ASIDE and petitioner,
Oriental Assurance Corporation, is hereby ABSOLVED from liability under its marine
insurance policy No. OAC-M-86/002. No costs.
SO ORDERED.
Paras, Padilla, Sarmiento and Regalado, JJ., concur.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 200784
August 7, 2013
MALAYAN INSURANCE COMPANY, INC., PETITIONER,

vs.
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
DECISION
MENDOZA, J.:
Challenged in this petition for review on certiorari under Rule 45 of the Rules of
Court is the October 27, 2011 Decision1 of the Court of Appeals (CA), which affirmed
with modification the September 17, 2009 Decision 2 of the Regional Trial Court,
Branch 15, Manila (RTC), and its February 24, 2012 Resolution 3 denying the motion
for reconsideration filed by petitioner Malayan Insurance Company., Inc. (Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by the CA as
follows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance
Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the latters machineries and
equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA,
Rosario, Cavite (Sanyo Building). The insurance, which was for Fifteen Million Pesos
(?15,000,000.00) and effective for a period of one (1) year, was procured by PAP Co.
for Rizal Commercial Banking Corporation (RCBC), the mortgagee of the insured
machineries and equipment.
After the passage of almost a year but prior to the expiration of the insurance
coverage, PAP Co. renewed the policy on an "as is" basis. Pursuant thereto, a
renewal policy, Fire Insurance Policy No. F-00227-000079, was issued by Malayan to
PAP Co. for the period May 13, 1997 to May 13, 1998.
On October 12, 1997 and during the subsistence of the renewal policy, the insured
machineries and equipment were totally lost by fire. Hence, PAP Co. filed a fire
insurance claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the ground
that, at the time of the loss, the insured machineries and equipment were
transferred by PAP Co. to a location different from that indicated in the policy.
Specifically, that the insured machineries were transferred in September 1996 from
the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA,
Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that Malayan
cannot avoid liability as it was informed of the transfer by RCBC, the party dutybound to relay such information. However, Malayan reiterated its denial of PAP Co.s
claim. Distraught, PAP Co. filed the complaint below against Malayan. 4
Ruling of the RTC
On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay
PAP Company Ltd (PAP) an indemnity for the loss under the fire insurance policy as
well as for attorneys fees. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff. Defendant is hereby ordered:
a)
To pay plaintiff the sum of FIFTEEN MILLION PESOS (P15,000,000.00) as and for
indemnity for the loss under the fire insurance policy, plus interest thereon at the
rate of 12% per annum from the time of loss on October 12, 1997 until fully paid;
b)
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (PhP500,000.00) as
and by way of attorneys fees; [and,]
c)
To pay the costs of suit.
SO ORDERED.5
The RTC explained that Malayan is liable to indemnify PAP for the loss under the
subject fire insurance policy because, although there was a change in the condition
of the thing insured as a result of the transfer of the subject machineries to another
location, said insurance company failed to show proof that such transfer resulted in
the increase of the risk insured against. In the absence of proof that the alteration of
the thing insured increased the risk, the contract of fire insurance is not affected per
Article 169 of the Insurance Code.
The RTC further stated that PAPs notice to Rizal Commercial Banking Corporation
(RCBC) sufficiently complied with the notice requirement under the policy
considering that it was RCBC which procured the insurance. PAP acted in good faith
in notifying RCBC about the transfer and the latter even conducted an inspection of
the machinery in its new location.
Not contented, Malayan appealed the RTC decision to the CA basically arguing that
the trial court erred in ordering it to indemnify PAP for the loss of the subject
machineries since the latter, without notice and/or consent, transferred the same to
a location different from that indicated in the fire insurance policy.
Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC
decision but deleted the attorneys fees. The decretal portion of the CA decision
reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan
Insurance Company must indemnify PAP Co. Ltd the amount of Fifteen Million Pesos
(PhP15,000,000.00) for the loss under the fire insurance policy, plus interest
thereon at the rate of 12% per annum from the time of loss on October 12, 1997
until fully paid. However, the Five Hundred Thousand Pesos (PhP500,000.00)
awarded to PAP Co., Ltd. as attorneys fees is DELETED. With costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a prohibition on the
transfer of the insured properties during the efficacy of the insurance policy.
Malayan also failed to show that its contractual consent was needed before carrying
out a transfer of the insured properties. Despite its bare claim that the original and
the renewed insurance policies contained provisions on transfer limitations of the
insured properties, Malayan never cited the specific provisions.
The CA further stated that even if there was such a provision on transfer restrictions
of the insured properties, still Malayan could not escape liability because the
transfer was made during the subsistence of the original policy, not the renewal
policy. PAP transferred the insured properties from the Sanyo Factory to the Pace
Pacific Building (Pace Factory) sometime in September 1996. Therefore, Malayan
was aware or should have been aware of such transfer when it issued the renewal
policy on May 14, 1997. The CA opined that since an insurance policy was a
contract of adhesion, any ambiguity must be resolved against the party that
prepared the contract, which, in this case, was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of the insured
properties increased the risk of the loss. It, thus, could not use such transfer as an
excuse for not paying the indemnity to PAP. Although the insurance proceeds were
payable to RCBC, PAP could still sue Malayan to enforce its rights on the policy
because it remained a party to the insurance contract.
Not in conformity with the CA decision, Malayan filed this petition for review
anchored on the following
GROUNDS
I
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE
COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING
IN THE QUESTIONED DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS
LIABLE UNDER THE INSURANCE CONTRACT BECAUSE:
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER MALAYAN
WAS ABLE TO PROVE AND IT IS NOT DENIED, THAT ON THE FACE OF THE RENEWAL
POLICY ISSUED TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR
A REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS
AT THE SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN THE RENEWAL
POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED PROPERTIES WERE
NOT AT THE SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION, THAT IS, AT
THE PACE FACTORY AND IT WAS IN THIS DIFFERENT LOCATION WHEN THE LOSS
INSURED AGAINST OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF
ALREADY ENTITLES PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS
AVOIDED OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY UNDER
SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF THE INSURANCE CODE,
RESPECTIVELY.
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT
CONCEALMENT, MISREPRESENTATION OR BREACH OF AN AFFIRMATIVE WARRANTY
WHEN IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE
INSURED PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM
WHAT WAS INDICATED IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE
CONDITIONS AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE THE REASONS
WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT
RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE
FACT THAT ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL ASSERTION THAT IT
SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY
THE INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN
INCREASE IN RISK BECAUSE OF THE UNILATERAL TRANSFER OF THE INSURED
PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY RESPONDENT
PAP CO.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND
ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT IMPOSED INTEREST
AT THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS
UNTIL FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A
LOAN OR FORBEARANCE OF MONEY FROM WHICH A BREACH ENTITLES A PLAINTIFF
TO AN AWARD OF INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD
NOT HAVE BEEN APPLIED BY THE COURT OF APPEALS BECAUSE THERE WAS NEVER
ANY FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD
THE PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE
WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER
RESPONDENT PAP CO. COMMITTED CONCEALMENT, MISREPRESENTATION AND
BREACH OF AN AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER MALAYAN TO
RESCIND THE INSURANCE POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED.
III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE
COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED
DECISION THAT THE PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO
RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE
INSURANCE POLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED DECISION AND RESOLUTION
THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE

ADOPTED.7
Malayan basically argues that it cannot be held liable under the insurance contract
because PAP committed concealment, misrepresentation and breach of an
affirmative warranty under the renewal policy when it transferred the location of the
insured properties without informing it. Such transfer affected the correct estimation
of the risk which should have enabled Malayan to decide whether it was willing to
assume such risk and, if so, at what rate of premium. The transfer also affected
Malayans ability to control the risk by guarding against the increase of the risk
brought about by the change in conditions, specifically the change in the location of
the risk.
Malayan claims that PAP concealed a material fact in violation of Section 27 of the
Insurance Code8 when it did not inform Malayan of the actual and new location of
the insured properties. In fact, before the issuance of the renewal policy on May 14,
1997, PAP even informed it that there would be no changes in the renewal policy.
Malayan also argues that PAP is guilty of breach of warranty under the renewal
policy in violation of Section 74 of the Insurance Code 9 when, contrary to its
affirmation in the renewal policy that the insured properties were located at the
Sanyo Factory, these were already transferred to the Pace Factory. Malayan adds
that PAP is guilty of misrepresentation upon a material fact in violation of Section 45
of the Insurance Code10 when it informed Malayan that there would be no changes
in the original policy, and that the original policy would be renewed on an "as is"
basis.
Malayan further argues that PAP failed to discharge the burden of proving that the
transfer of the insured properties under the insurance policy was with its knowledge
and consent. Granting that PAP informed RCBC of the transfer or change of location
of the insured properties, the same is irrelevant and does not bind Malayan
considering that RCBC is a corporation vested with separate and distinct juridical
personality. Malayan did not consent to be the principal of RCBC. RCBC did not also
act as Malayans representative.
With regard to the alleged increase of risk, Malayan insists that there is evidence of
an increase in risk as a result of the unilateral transfer of the insured properties.
According to Malayan, the Sanyo Factory was occupied as a factory of
automotive/computer parts by the assured and factory of zinc & aluminum die cast
and plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of
0.449% under 6.1.2 A, while Pace Factory was occupied as factory that repacked
silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.
PAPs position
On the other hand, PAP counters that there is no evidence of any misrepresentation,
concealment or deception on its part and that its claim is not fraudulent. It insists
that it can still sue to protect its rights and interest on the policy notwithstanding
the fact that the proceeds of the same was payable to RCBC, and that it can collect
interest at the rate of 12% per annum on the proceeds of the policy because its
claim for indemnity was unduly delayed without legal justification.
The Courts Ruling
The Court agrees with the position of Malayan that it cannot be held liable for the
loss of the insured properties under the fire insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP
obtained a ?15,000,000.00 fire insurance policy from Malayan covering its
machineries and equipment effective for one (1) year or until May 13, 1997; that
the policy expressly stated that the insured properties were located at "Sanyo
Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite"; that
before its expiration, the policy was renewed 11 on an "as is" basis for another year
or until May 13, 1998; that the subject properties were later transferred to the Pace
Factory also in PEZA; and that on October 12, 1997, during the effectivity of the
renewal policy, a fire broke out at the Pace Factory which totally burned the insured
properties.
The policy forbade the removal of the insured properties unless sanctioned by
Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to attach as
regards the property affected unless the insured, before the occurrence of any loss
or damage, obtains the sanction of the company signified by endorsement upon the
policy, by or on behalf of the Company:
xxx
xxx
xxx
(c) If property insured be removed to any building or place other than in that which
is herein stated to be insured.12
Evidently, by the clear and express condition in the renewal policy, the removal of
the insured property to any building or place required the consent of Malayan. Any
transfer effected by the insured, without the insurers consent, would free the latter
from any liability.
The respondent failed to notify, and to obtain the consent of, Malayan regarding the
removal
The records are bereft of any convincing and concrete evidence that Malayan was
notified of the transfer of the insured properties from the Sanyo factory to the Pace
factory. The Court has combed the records and found nothing that would show that
Malayan was duly notified of the transfer of the insured properties.
What PAP did to prove that Malayan was notified was to show that it relayed the fact
of transfer to RCBC, the entity which made the referral and the named beneficiary in
the policy. Malayan and RCBC might have been sister companies, but such fact did
not make one an agent of the other. The fact that RCBC referred PAP to Malayan did
not clothe it with authority to represent and bind the said insurance company. After
the referral, PAP dealt directly with Malayan.
The respondent overlooked the fact that during the November 9, 2006 hearing, 13 its
counsel stipulated in open court that it was Malayans authorized insurance agent,
Rodolfo Talusan, who procured the original policy from Malayan, not RCBC. This was
the reason why Talusans testimony was dispensed with.
Moreover, in the previous hearing held on November 17, 2005, 14 PAPs hostile
witness, Alexander Barrera, Administrative Assistant of Malayan, testified that he
was the one who procured Malayans renewal policy, not RCBC, and that RCBC
merely referred fire insurance clients to Malayan. He stressed, however, that no
written referral agreement exists between RCBC and Malayan. He also denied that
PAP notified Malayan about the transfer before the renewal policy was issued. He
added that PAP, through Maricar Jardiniano (Jardiniano), informed him that the fire
insurance would be renewed on an "as is basis." 15
Granting that any notice to RCBC was binding on Malayan, PAPs claim that it
notified RCBC and Malayan was not indubitably established. At best, PAP could only
come up with the hearsay testimony of its principal witness, Branch Manager
Katsumi Yoneda (Mr. Yoneda), who testified as follows:
Q
What did you do as Branch Manager of Pap Co. Ltd.?
A
What I did I instructed my Secretary, because these equipment was bank loan and
because of the insurance I told my secretary to notify.
Q
To notify whom?
A
I told my Secretary to inform the bank.
Q
You are referring to RCBC?

A
Yes, sir.
xxxx
Q
After the RCBC was informed in the manner you stated, what did you do regarding
the new location of these properties at Pace Pacific Bldg. insofar as Malayan
Insurance Company is concerned?
A
After that transfer, we informed the RCBC about the transfer of the equipment and
also Malayan Insurance but we were not able to contact Malayan Insurance so I
instructed again my secretary to inform Malayan about the transfer.
Q
Who was the secretary you instructed to contact Malayan Insurance, the defendant
in this case?
A
Dory Ramos.
Q
How many secretaries do you have at that time in your office?
A
Only one, sir.
Q
Do you know a certain Maricar Jardiniano?
A
Yes, sir.
Q
Why do you know her?
A
Because she is my secretary.

Q
So how many secretaries did you have at that time?
A
Two, sir.
Q
What happened with the instruction that you gave to your secretary Dory Ramos
about the matter of informing the defendant Malayan Insurance Co of the new
location of the insured properties?
A
She informed me that the notification was already given to Malayan Insurance.
Q
Aside from what she told you how did you know that the information was properly
relayed by the said secretary, Dory Ramos, to Malayan Insurance?
A
I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.
Q
Now after you were told by your secretary, Dory Ramos, that she was able to inform
Malayan Insurance Company about the transfer of the properties insured to the new
location, do you know what happened insofar this information was given to the
defendant Malayan Insurance?
A
I heard that someone from Malayan Insurance came over to our company.
Q
Did you come to know who was that person who came to your place at Pace Pacific?
A
I do not know, sir.
Q
How did you know that this person from Malayan Insurance came to your place?
A
It is according to the report given to me.
Q
Who gave that report to you?
A
Dory Ramos.
Q
Was that report in writing or verbally done?
A
Verbal.16 [Emphases supplied]
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no
personal knowledge of the notice to either Malayan or RCBC. PAP should have
presented his secretaries, Dory Ramos and Maricar Jardiniano, at the witness stand.
His testimony alone was unreliable.
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured
properties were transferred to a different location only after the renewal of the fire
insurance policy.
COURT
Q
When did you transfer the machineries and equipments before the renewal or after
the renewal of the insurance?
A
After the renewal.
COURT
Q
You understand my question?
A
Yes, Your Honor.17 [Emphasis supplied]
This enfeebles PAPs position that the subject properties were already transferred to
the Pace factory before the policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of
the insured properties to the Pace Factory was insignificant as it did not increase the
risk.
Malayan argues that the change of location of the subject properties from the Sanyo
Factory to the Pace Factory increased the hazard to which the insured properties
were exposed. Malayan wrote:
With regards to the exposure of the risk under the old location, this was occupied as
factory of automotive/computer parts by the assured, and factory of zinc &
aluminum die cast, plastic gear for copy machine by Sanyo Precision Phils., Inc. with
a rate of 0.449% under 6.1.2 A. But under Pace Pacific Mfg. Corporation this was
occupied as factory that repacks silicone sealant to plastic cylinders with a rate of
0.657% under 6.1.2 A. Hence, there was an increase in the hazard as indicated by
the increase in rate.18
The Court agrees with Malayan that the transfer to the Pace Factory exposed the
properties to a hazardous environment and negatively affected the fire rating stated
in the renewal policy. The increase in tariff rate from 0.449% to 0.657% put the
subject properties at a greater risk of loss. Such increase in risk would necessarily
entail an increase in the premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial point.
Despite the importance of the issue, PAP failed to refute Malayans argument on the
increased risk.
Malayan is entitled to rescind the insurance contract
Considering that the original policy was renewed on an "as is basis," it follows that
the renewal policy carried with it the same stipulations and limitations. The terms
and conditions in the renewal policy provided, among others, that the location of
the risk insured against is at the Sanyo factory in PEZA. The subject insured
properties, however, were totally burned at the Pace Factory. Although it was also
located in PEZA, Pace Factory was not the location stipulated in the renewal policy.
There being an unconsented removal, the transfer was at PAPs own risk.
Consequently, it must suffer the consequences of the fire. Thus, the Court agrees
with the report of Cunningham Toplis Philippines, Inc., an international loss adjuster
which investigated the fire incident at the Pace Factory, which opined that "[g]iven
that the location of risk covered under the policy is not the location affected, the
policy will, therefore, not respond to this loss/claim." 19
It can also be said that with the transfer of the location of the subject properties,
without notice and without Malayans consent, after the renewal of the policy, PAP
clearly committed concealment, misrepresentation and a breach of a material
warranty. Section 26 of the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party
to rescind a contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind
the insurance contract in case of an alteration in the use or condition of the thing
insured. Section 168 of the Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to
which it is limited by the policy made without the consent of the insurer, by means
within the control of the insured, and increasing the risks, entitles an insurer to
rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when
the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insureds control; and
5) the alteration increases the risk of loss. 20
In the case at bench, all these circumstances are present. It was clearly established
that the renewal policy stipulated that the insured properties were located at the
Sanyo factory; that PAP removed the properties without the consent of Malayan;
and that the alteration of the location increased the risk of loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby
REVERSED and SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby
declared NOT liable for the loss of the insured machineries and equipment suffered
by PAP Co., Ltd.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-36480 May 31, 1988
ANDREW PALERMO, plaintiff-appellee,
vs.
PYRAMID INSURANCE CO., INC., defendant- appellant.
GRIO-AQUINO, J:
The Court of Appeals certified this case to Us for proper disposition as the only
question involved is the interpretation of the provision of the insurance contract
regarding the "authorized driver" of the insured motor vehicle.
On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the
Court of First Instance of Negros Occidental against Pyramid Insurance Co., Inc., for
payment of his claim under a Private Car Comprehensive Policy MV-1251 issued by
the defendant (Exh. A).
In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed
the claim because at the time of the accident, the insured was driving his car with
an expired driver's license.
After the trial, the court a quo rendered judgment on October 29, 1969 ordering the
defendant "to pay the plaintiff the sum of P20,000.00, value of the insurance of the
motor vehicle in question and to pay the costs."
On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution
Pending Appeal." It was opposed by the defendant, but was granted by the trial
court on December 15, 1969.
The trial court found the following facts to be undisputed:
On October 12,1968, after having purchased a brand new Nissan Cedric de Luxe
Sedan car bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod
City, plaintiff insured the same with the defendant insurance company against any
loss or damage for P 20,000.00 and against third party liability for P 10,000.00.
Plaintiff paid the defendant P 361.34 premium for one year, March 12, 1968 to
March 12, 1969, for which defendant issued Private Car Comprehensive Policy No.
MV-1251, marked Exhibit "A."
The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam
Bok Motors Co., to secure the payment of the balance of the purchase price, which
explains why the registration certificate in the name of the plaintiff remains in the
hands of the mortgagee, Ng Sam Bok Motors Co.
On April 17, 1968, while driving the automobile in question, the plaintiff met a
violent accident. The La Carlota City fire engine crashed head on, and as a
consequence, the plaintiff sustained physical injuries, his father, Cesar Palermo, who
was with am in the car at the time was likewise seriously injured and died shortly
thereafter, and the car in question was totally wrecked.
The defendant was immediately notified of the occurrence, and upon its orders, the
damaged car was towed from the scene of the accident to the compound of Ng Sam
Bok Motors in Bacolod City where it remains deposited up to the present time.
The insurance policy, Exhibit "A," grants an option unto the defendant, in case of
accident either to indemnify the plaintiff for loss or damage to the car in cash or to
replace the damaged car. The defendant, however, refused to take either of the
above-mentioned alternatives for the reason as alleged, that the insured himself
had violated the terms of the policy when he drove the car in question with an
expired driver's license. (Decision, Oct. 29, 1969, p. 68, Record on Appeal.)
Appellant alleges that the trial court erred in interpreting the following provision of
the Private Car Comprehensive Policy MV-1251:
AUTHORIZED DRIVER:
Any of the following:
(a) The Insured.
(b) Any person driving on the Insured's order or with his permission. Provided that
the person driving is permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such
motor vehicle by order of a Court of law or by reason of any enactment or regulation
in that behalf. (Exh. "A.")
There is no merit in the appellant's allegation that the plaintiff was not authorized to
drive the insured motor vehicle because his driver's license had expired. The driver
of the insured motor vehicle at the time of the accident was, the insured himself,
hence an "authorized driver" under the policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on
the highway without a license or with an expired license, an infraction of the Motor
Vehicle Law on the part of the insured, is not a bar to recovery under the insurance
contract. It however renders him subject to the penal sanctions of the Motor Vehicle
Law.
The requirement that the driver be "permitted in accordance with the licensing or
other laws or regulations to drive the Motor Vehicle and is not disqualified from
driving such motor vehicle by order of a Court of Law or by reason of any enactment
or regulation in that behalf," applies only when the driver" is driving on the insured's
order or with his permission." It does not apply when the person driving is the
insured himself.
This view may be inferred from the decision of this Court in Villacorta vs. Insurance
Commission, 100 SCRA 467, where it was held that:
The main purpose of the "authorized driver" clause, as may be seen from its text, is
that a person other than the insured owner, who drives the car on the insured's
order, such as his regular driver, or with his permission, such as a friend or member
of the family or the employees of a car service or repair shop, must be duly licensed
drivers and have no disqualification to drive a motor vehicle.
In an American case, where the insured herself was personally operating her
automobile but without a license to operate it, her license having expired prior to
the issuance of the policy, the Supreme Court of Massachusetts was more explicit:
... Operating an automobile on a public highway without a license, which act is a
statutory crime is not precluded by public policy from enforcing a policy
indemnifying her against liability for bodily injuries The inflicted by use of the
automobile." (Drew C. Drewfield McMahon vs. Hannah Pearlman, et al., 242 Mass.
367, 136 N.E. 154, 23 A.L.R. 1467.)
WHEREFORE, the appealed decision is affirmed with costs against the defendantappellant.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-54171 October 28, 1980
JEWEL VILLACORTA, assisted by her husband, GUERRERO
VILLACORTA, petitioner,
vs.
THE INSURANCE COMMISSION and EMPIRE INSURANCE
COMPANY, respondents.
TEEHANKEE, Acting C.J.:

The Court sets aside respondent Insurance Commission's dismissal of petitioner's
complaint and holds that where the insured's car is wrongfully taken without the
insured's consent from the car service and repair shop to whom it had been
entrusted for check-up and repairs (assuming that such taking was for a joy ride, in
the course of which it was totally smashed in an accident), respondent insurer is
liable and must pay insured for the total loss of the insured vehicle under the theft
clause of the policy.
The undisputed facts of the case as found in the appealed decision of April 14, 1980
of respondent insurance commission are as follows:
Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with
respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00
Own Damage; P30,000.00 Theft; and P30,000.00 Third Party Liability, effective
May 16, 1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the
Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978,
while it was in the custody of the Sunday Machine Works, the car was allegedly
taken by six (6) persons and driven out to Montalban, Rizal. While travelling along
Mabini St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car
figured in an accident, hitting and bumping a gravel and sand truck parked at the
right side of the road going south. As a consequence, the gravel and sand truck
veered to the right side of the pavement going south and the car veered to the right
side of the pavement going north. The driver, Benito Mabasa, and one of the
passengers died and the other four sustained physical injuries. The car, as well,
suffered extensive damage. Complainant, thereafter, filed a claim for total loss with
the respondent company but claim was denied. Hence, complainant, was compelled
to institute the present action.
The comprehensive motor car insurance policy for P35,000.00 issued by respondent
Empire Insurance Company admittedly undertook to indemnify the petitionerinsured against loss or damage to the car (a) by accidental collision or overturning,
or collision or overturning consequent upon mechanical breakdown or consequent
upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or
burglary, housebreaking or theft; and (c) by malicious act.
Respondent insurance commission, however, dismissed petitioner's complaint for
recovery of the total loss of the vehicle against private respondent, sustaining
respondent insurer's contention that the accident did not fall within the provisions of
the policy either for the Own Damage or Theft coverage, invoking the policy
provision on "Authorized Driver" clause. 1
Respondent commission upheld private respondent's contention on the "Authorized
Driver" clause in this wise: "It must be observed that under the above-quoted
provisions, the policy limits the use of the insured vehicle to two (2) persons only,
namely: the insured himself or any person on his (insured's) permission. Under the
second category, it is to be noted that the words "any person' is qualified by the
phrase
... on the insured's order or with his permission.' It is therefore clear that if the
person driving is other than the insured, he must have been duly authorized by the
insured, to drive the vehicle to make the insurance company liable for the driver's
negligence. Complainant admitted that she did not know the person who drove her
vehicle at the time of the accident, much less consented to the use of the same
(par. 5 of the complaint). Her husband likewise admitted that he neither knew this
driver Benito Mabasa (Exhibit '4'). With these declarations of complainant and her
husband, we hold that the person who drove the vehicle, in the person of Benito
Mabasa, is not an authorized driver of the complainant. Apparently, this is a
violation of the 'Authorized Driver' clause of the policy.
Respondent commission likewise upheld private respondent's assertion that the car
was not stolen and therefore not covered by the Theft clause, ruling that "The
element of 'taking' in Article 308 of the Revised Penal Code means that the act of
depriving another of the possession and dominion of a movable thing is coupled ...
with the intention. at the time of the 'taking', of withholding it with the character of
permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In other words, there must
have been shown a felonious intent upon the part of the taker of the car, and the
intent must be an intent permanently to deprive the insured of his car," and that
"Such was not the case in this instance. The fact that the car was taken by one of
the residents of the Sunday Machine Works, and the withholding of the same, for a
joy ride should not be construed to mean 'taking' under Art. 308 of the Revised
Penal Code. If at all there was a 'taking', the same was merely temporary in nature.
A temporary taking is held not a taking insured against (48 A LR 2d., page 15)."
The Court finds respondent commission's dismissal of the complaint to be contrary
to the evidence and the law.
First, respondent commission's ruling that the person who drove the vehicle in the
person of Benito Mabasa, who, according to its finding, was one of the residents of
the Sunday Machine Works, Inc. to whom the car had been entrusted for general
check-up and repairs was not an "authorized driver" of petitioner-complainant is too
restrictive and contrary to the established principle that insurance contracts, being
contracts of adhesion where the only participation of the other party is the signing
of his signature or his "adhesion" thereto, "obviously call for greater strictness and
vigilance on the part of courts of justice with a view of protecting the weaker party
from abuse and imposition, and prevent their becoming traps for the unwary. 2
The main purpose of the "authorized driver" clause, as may be seen from its
text, supra, is that a person other than the insured owner, who drives the car on the
insured's order, such as his regular driver, or with his permission, such as a friend or
member of the family or the employees of a car service or repair shop must be duly
licensed drivers and have no disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop
necessarily entrusts his car key to the shop owner and employees who are
presumed to have the insured's permission to drive the car for legitimate purposes
of checking or road-testing the car. The mere happenstance that the employee(s) of
the shop owner diverts the use of the car to his own illicit or unauthorized purpose
in violation of the trust reposed in the shop by the insured car owner does not mean
that the "authorized driver" clause has been violated such as to bar recovery,
provided that such employee is duly qualified to drive under a valid driver's license.
The situation is no different from the regular or family driver, who instead of
carrying out the owner's order to fetch the children from school takes out his girl
friend instead for a joy ride and instead wrecks the car. There is no question of his
being an "authorized driver" which allows recovery of the loss although his trip was
for a personal or illicit purpose without the owner's authorization.
Secondly, and independently of the foregoing (since when a car is unlawfully taken,
it is the theft clause, not the "authorized driver" clause, that applies), where a car is
admittedly as in this case unlawfully and wrongfully taken by some people, be they
employees of the car shop or not to whom it had been entrusted, and taken on a
long trip to Montalban without the owner's consent or knowledge, such taking
constitutes or partakes of the nature of theft as defined in Article 308 of the Revised
Penal Code, viz. "Who are liable for theft. Theft is committed by any person who,
with intent to gain but without violence against or intimidation of persons nor force
upon things, shall take personal property of another without the latter's consent,"
for purposes of recovering the loss under the policy in question.
The Court rejects respondent commission's premise that there must be an intent on
the part of the taker of the car "permanently to deprive the insured of his car" and
that since the taking here was for a "joy ride" and "merely temporary in nature," a
"temporary taking is held not a taking insured against."
The evidence does not warrant respondent commission's findings that it was a mere
"joy ride". From the very investigator's report cited in its comment, 3 the police
found from the waist of the car driver Benito Mabasa Bartolome who smashed the
car and was found dead right after the incident "one cal. 45 Colt. and one apple
type grenade," hardly the materials one would bring along on a "joy ride". Then,
again, it is equally evident that the taking proved to be quite permanent rather than
temporary, for the car was totally smashed in the fatal accident and was never
returned in serviceable and useful condition to petitioner-owner.
Assuming, despite the totally inadequate evidence, that the taking was "temporary"
and for a "joy ride", the Court sustains as the better view that which holds that
when a person, either with the object of going to a certain place, or learning how to
drive, or enjoying a free ride, takes possession of a vehicle belonging to another,

without the consent of its owner, he is guilty of theft because by taking possession
of the personal property belonging to another and using it, his intent to gain is
evident since he derives therefrom utility, satisfaction, enjoyment and pleasure.
Justice Ramon C. Aquino cites in his work Groizard who holds that the use of a thing
constitutes gain and Cuello Calon who calls it "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total loss of the
insured car in the sum of P35,000.00 under the theft clause of the policy, subject to
the filing of such claim for reimbursement or payment as it may have as subrogee
against the Sunday Machine Works, Inc.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered
sentencing private respondent to pay petitioner the sum of P35,000.00 with legal
interest from the filing of the complaint until full payment is made and to pay the
costs of suit.
SO ORDERED.
Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.
FIRST DIVISION
FIRST LEPANTO-TAISHO
INSURANCE CORPORATION (now
known as FLT PRIME
INSURANCE
CORPORATION),
P
etitioner,
G.R. No. 177839
Present:
CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
- versus -
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.
CHEVRON PHILIPPINES,
INC. (formerly known as CALTEX
[PHILIPPINES],
Promulgated:
INC.),
dent.
Respon
January 18, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:

Before this Court is a Rule 45 Petition assailing the Decision[1] dated
November 20, 2006 and Resolution[2] dated May 8, 2007 of the Court of Appeals
(CA) in CA-G.R. CV No. 86623, which reversed the Decision [3] dated August 5, 2005
of the Regional Trial Court (RTC) of Makati City, Branch 59 in Civil Case No 02-857.
Respondent Chevron Philippines, Inc., formerly Caltex Philippines, Inc., sued
petitioner First Lepanto-Taisho Insurance Corporation (now known as FLT Prime
Insurance Corporation) for the payment of unpaid oil and petroleum purchases
made by its distributor Fumitechniks Corporation (Fumitechniks).
Fumitechniks, represented by Ma. Lourdes Apostol, had applied for and was
issued Surety Bond FLTICG (16) No. 01012 by petitioner for the amount
of P15,700,000.00. As stated in the attached rider, the bond was in compliance with
the requirement for the grant of a credit line with the respondent to guarantee
payment/remittance of the cost of fuel products withdrawn within the stipulated
time in accordance with the terms and conditions of the agreement. The surety
bond was executed on October 15, 2001 and will expire on October 15, 2002.[4]
Fumitechniks defaulted on its obligation. The check dated December 14,
2001 it issued to respondent in the amount of P11,461,773.10, when presented for
payment, was dishonored for reason of Account Closed. In a letter dated February
6, 2002, respondent notified petitioner of Fumitechniks unpaid purchases in the
total amount ofP15,084,030.30. In its letter-reply dated February 13, 2002,
petitioner through its counsel, requested that it be furnished copies of the
documents such as delivery receipts.[5]Respondent complied by sending copies of
invoices showing deliveries of fuel and petroleum products between November 11,
2001 and December 1, 2001.
Simultaneously, a letter[6] was sent to Fumitechniks demanding that the latter
submit to petitioner the following: (1) its comment on respondents February 6,
2002 letter; (2) copy of the agreement secured by the Bond, together with copies of
documents such as delivery receipts; and (3) information on the particulars,
including the terms and conditions, of any arrangement that [Fumitechniks] might
have made or any ongoing negotiation with Caltex in connection with the
settlement of the obligations subject of the Caltex letter.
In its letter dated March 1, 2002, Fumitechniks through its counsel wrote
petitioners counsel informing that it cannot submit the requested agreement since
no such agreement was executed between Fumitechniks and
respondent. Fumitechniks also enclosed a copy of another surety bond issued by
CICI General Insurance Corporation in favor of respondent to secure the obligation
of Fumitechniks and/or Prime Asia Sales and Services, Inc. in the amount
of P15,000,000.00.[7] Consequently, petitioner advised respondent of the nonexistence of the principal agreement as confirmed by Fumitechniks. Petitioner
explained that being an accessory contract, the bond cannot exist without a
principal agreement as it is essential that the copy of the basic contract be
submitted to the proposed surety for the appreciation of the extent of the obligation
to be covered by the bond applied for. [8]
On April 9, 2002, respondent formally demanded from petitioner the payment
of its claim under the surety bond. However, petitioner reiterated its position that
without the basic contract subject of the bond, it cannot act on respondents claim;
petitioner also contested the amount of Fumitechniks supposed obligation. [9]
Alleging that petitioner unjustifiably refused to heed its demand for payment,
respondent prayed for judgment ordering petitioner to pay the sum
of P15,080,030.30, plus interest, costs and attorneys fees equivalent to ten percent
of the total obligation.[10]
Petitioner, in its Answer with Counterclaim, [11] asserted that the Surety Bond
was issued for the purpose of securing the performance of the obligations embodied
in the Principal Agreement stated therein, which contract should have been
attached and made part thereof.
After trial, the RTC rendered judgment dismissing the complaint as well as
petitioners counterclaim. Said court found that the terms and conditions of the oral
credit line agreement between respondent and Fumitechniks have not been relayed
to petitioner and neither were the same conveyed even during trial. Since the
surety bond is a mere accessory contract, the RTC concluded that the bond cannot
stand in the absence of the written agreement secured thereby. In holding that
petitioner cannot be held liable under the bond it issued to Fumitechniks, the RTC
noted the practice of petitioner, as testified on by its witnesses, to attach a copy of
the written agreement (principal contract) whenever it issues a surety bond, or to
be submitted later if not yet in the possession of the assured, and in case of failure
to submit the said written agreement, the surety contract will not be binding despite
payment of the premium.
Respondent filed a motion for reconsideration while petitioner filed a motion for
partial reconsideration as to the dismissal of its counterclaim. With the denial of
their motions, both parties filed their respective notice of appeal.
The CA ruled in favor of respondent, the dispositive portion of its decision reads:
WHEREFORE, the appealed Decision is REVERSED and SET ASIDE. A new judgment
is hereby entered ORDERING defendant-appellant First Lepanto-Taisho Insurance
Corporation to pay plaintiff-appellant Caltex (Philippines) Inc. now Chevron
Philippines, Inc. the sum of P15,084,030.00.
SO ORDERED.[12]
According to the appellate court, petitioner cannot insist on the submission of a
written agreement to be attached to the surety bond considering that respondent
was not aware of such requirement and unwritten company policy. It also declared
that petitioner is estopped from assailing the oral credit line agreement, having
consented to the same upon presentation by Fumitechniks of the surety bond it
issued. Considering that such oral contract between Fumitechniks and respondent
has been partially executed, the CA ruled that the provisions of the Statute of
Frauds do not apply.
With the denial of its motion for reconsideration, petitioner appealed to this
Court raising the following issues:
I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ITS
INTERPRETATION OF THE PROVISIONS OF THE SURETY BOND WHEN IT HELD THAT
THE SURETY BOND SECURED AN ORAL CREDIT LINE AGREEMENT
NOTWITHSTANDING THE STIPULATIONS THEREIN CLEARLY SHOWING BEYOND
DOUBT THAT WHAT WAS BEING SECURED WAS A WRITTEN AGREEMENT,
PARTICULARLY, THE WRITTEN AGREEMENT A COPY OF WHICH WAS EVEN REQUIRED
TO BE ATTACHED TO THE SURETY BOND AND MADE A PART THEREOF.
II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING
OUT THE QUESTIONED RESPONDENTS EVIDENCE FOR BEING CONTRARY TO THE
PAROL EVIDENCE RULE, IMMATERIAL AND IRRELEVANT AND CONTRARY TO THE
STATUTE OF FRAUDS.
III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING
OUT THE RESPONDENTS MOTION FOR RECONSIDERATION OF THE RTC DECISION
FOR BEING A MERE SCRAP OF PAPER AND PRO FORMA AND, CONSEQUENTLY, IN
NOT DECLARING THE RTC DECISION AS FINAL AND EXECUTORY IN SO FAR AS IT
DISMISSED THE COMPLAINT.
IV. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN REVERSING
THE RTC DECISION AND IN NOT GRANTING PETITIONERS COUNTERCLAIM. [13]
The main issue to be resolved is one of first impression: whether a surety is

liable to the creditor in the absence of a written contract with the principal.
Section 175 of the Insurance Code defines a suretyship as a contract or agreement
whereby a party, called the surety, guarantees the performance by another party,
called the principal or obligor, of an obligation or undertaking in favor of a third
party, called the obligee. It includes official recognizances, stipulations, bonds or
undertakings issued under Act 536,[14] as amended. Suretyship arises upon the
solidary binding of a person deemed the surety with the principal debtor, for the
purpose of fulfilling an obligation.[15] Such undertaking makes a surety agreement
an ancillary contract as it presupposes the existence of a principal
contract. Although the contract of a surety is in essence secondary only to a valid
principal obligation, the surety becomes liable for the debt or duty of another
although it possesses no direct or personal interest over the obligations nor does it
receive any benefit therefrom. And notwithstanding the fact that the surety
contract is secondary to the principal obligation, the surety assumes liability as a
regular party to the undertaking.[16]
The extent of a suretys liability is determined by the language of the
suretyship contract or bond itself. It cannot be extended by implication, beyond the
terms of the contract.[17] Thus, to determine whether petitioner is liable to
respondent under the surety bond, it becomes necessary to examine the terms of
the contract itself.
Surety Bond FLTICG (16) No. 01012 is a standard form used by petitioner,
which states:
That we, FUMITECHNIKS CORP. OF THE PHILS. of #154 Anahaw St., Project 7,
Quezon City as principal and First Lepanto-Taisho Insurance Corporation a
corporation duly organized and existing under and by virtue of the laws of the
Philippines as Surety, are held firmly bound unto CALTEX PHILIPPINES, INC. of
______ in the sum of FIFTEEN MILLION SEVEN HUNDRED THOUSAND
ONLY PESOS (P15,700,000.00), Philippine Currency, for the payment of which sum,
well and truly to be made, we bind ourselves, our heirs, executors, administrators,
successors, and assigns, jointly and severally, firmly by these presents:
The conditions of this obligation are as follows:
WHEREAS, the above-bounden principal, on 15th day of October, 2001 entered into
[an] agreement with CALTEX PHILIPPINES, INC. of ________________ to fully and
faithfully
a copy of which is attached hereto and made a part hereof:
WHEREAS, said Obligee__ requires said principal to give a good and sufficient bond
in the above stated sum to secure the full and faithful performance on his part of
said agreement__.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all the
undertakings, covenants, terms, conditions, and agreements stipulated in
said agreement__ then this obligation shall be null and void; otherwise it shall
remain in full force and effect.
The liability of First Lepanto-Taisho Insurance Corporation under this bond will expire
on October 15, 2002__.
x x x x[18]
(Emphasis supplied.)
The rider attached to the bond sets forth the following:

WHEREAS, the Principal has applied for a Credit Line in the amount of
PESOS: Fifteen Million Seven Hundred thousand only ( P15,700,000.00), Philippine
Currency with the Obligee for the purchase of Fuel Products;
WHEREAS, the obligee requires the Principal to post a bond to guarantee
payment/remittance of the cost of fuel products withdrawn within the
stipulated time in accordance with terms and conditions of the agreement;
IN NO CASE, however, shall the liability of the Surety hereunder exceed the sum of
PESOS: Fifteen million seven hundred thousand only ( P15,700,000.00), Philippine
Currency.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all the
undertakings, covenants, terms and conditions and agreements stipulated in said
undertakings, then this obligation shall be null and void; otherwise, it shall remain in
full force and effect.
The liability of FIRST LEPANTO-TAISHO INSURANCE CORPORATION, under this Bond
will expire on 10.15.01_. Furthermore, it is hereby understood that FIRST
LEPANTO-TAISHO INSURANCE CORPORATION will not be liable for any claim not
presented to it in writing within fifteen (15) days from the expiration of this bond,
and that the Obligee hereby waives its right to claim or file any court action against
the Surety after the termination of fifteen (15) days from the time its cause of action
accrues.[19]
Petitioner posits that non-compliance with the submission of the written
agreement, which by the express terms of the surety bond, should be attached and
made part thereof, rendered the bond ineffective. Since all stipulations and
provisions of the surety contract should be taken and interpreted together, in this
case, the unmistakable intention of the parties was to secure only those terms and
conditions of the written agreement. Thus, by deleting the required submission and
attachment of the written agreement to the surety bond and replacing it with the
oral credit agreement, the obligations of the surety have been extended beyond the
limits of the surety contract.
On the other hand, respondent contends that the surety bond had been
delivered by petitioner to Fumitechniks which paid the premiums and delivered the
bond to respondent, who in turn, opened the credit line which Fumitechniks availed
of to purchase its merchandise from respondent on credit. Respondent points out
that a careful reading of the surety contract shows that there is no such
requirement of submission of the written credit agreement for the bonds
effectivity. Moreover, respondents witnesses had already explained that
distributorship accounts are not covered by written distribution agreements.
Supplying the details of these agreements is allowed as an exception to the parol
evidence rule even if it is proof of an oral agreement. Respondent argues that by
introducing documents that petitioner sought to exclude, it never intended to
change or modify the contents of the surety bond but merely to establish the actual
terms of the distribution agreement between Fumitechniks and respondent, a
separate agreement that was executed shortly after the issuance of the surety
bond. Because petitioner still issued the bond and allowed it to be delivered to
respondent despite the fact that a copy of the written distribution agreement was
never attached thereto, respondent avers that clearly, such attaching of the copy of
the principal agreement, was for evidentiary purposes only. The real intention of
the bond was to secure the payment of all the purchases of Fumitechniks from
respondent up to the maximum amount allowed under the bond.
A reading of Surety Bond FLTICG (16) No. 01012 shows that it secures the
payment of purchases on credit by Fumitechniks in accordance with the terms and
conditions of the agreement it entered into with respondent. The word
agreement has reference to the distributorship agreement, the principal contract
and by implication included the credit agreement mentioned in the rider. However,
it turned out that respondent has executed written agreements only with its direct
customers but not distributors like Fumitechniks and it also never relayed the terms
and conditions of its distributorship agreement to the petitioner after the delivery of
the bond. This was clearly admitted by respondents Marketing Coordinator, Alden
Casas Fajardo, who testified as follows:
Atty. Selim:
Q : Mr. Fajardo[,] you mentioned during your cross-examination that the surety
bond as part of the requirements of [Fumitechniks] before the Distributorship
Agreement was approved?
A :
Yes Sir.
xxxx
Q :
Is it the practice or procedure at Caltex to reduce distributorship account into
writing?
xxxx
A :
No, its not a practice to make an agreement.

xxxx
Atty. Quiroz:
Q :
What was the reason why you are not reducing your agreement with your
client into writing?
A :
Well, of course as I said, there is no fix pricing in terms of distributorship
agreement, its usually with regards to direct service to the customers which have
direct fixed price.
xxxx
Q :
These supposed terms and conditions that you agreed with [Fumitechniks],
did you relay to the defendant
A :
Yes Sir.
xxxx
Q :
How did you relay that, how did you relay the terms and conditions to the
defendant?
A :
I dont know, it was during the time for collection because I collected them
and explain the terms and conditions.
Q :
You testified awhile ago that you did not talk to the defendant First LepantoTaisho Insurance Corporation?
A :
I was confused with the question. Im talking about Malou Apostol.
Q :
So, in your answer, you have not relayed those terms and conditions to the
defendant First Lepanto, you have not?
A :
Yes Sir.
Q :
And as of this present, you have not yet relayed the terms and conditions?
A :
Yes Sir.
xxxx
[20]
Respondent, however, maintains that the delivery of the bond and

acceptance of premium payment by petitioner binds the latter as surety,
notwithstanding the non-submission of the oral distributorship and credit agreement
which understandably cannot be attached to the bond.
The contention has no merit.
The law is clear that a surety contract should be read and interpreted
together with the contract entered into between the creditor and the
principal. Section 176 of theInsurance Code states:
Sec. 176. The liability of the surety or sureties shall be joint and several with the
obligor and shall be limited to the amount of the bond. It is determined strictly by
the terms of the contract of suretyship in relation to the principal contract
between the obligor and the obligee. (Emphasis supplied.)
A surety contract is merely a collateral one, its basis is the principal contract
or undertaking which it secures. [21] Necessarily, the stipulations in such principal
agreement must at least be communicated or made known to the surety
particularly in this case where the bond expressly guarantees the payment of
respondents fuel products withdrawn by Fumitechniks in accordance with the terms
and conditions of their agreement. The bond specifically makes reference to
a written agreement. It is basic that if the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.[22] Moreover, being an onerous undertaking, a surety
agreement is strictly construed against the creditor, and every doubt is resolved in
favor of the solidary debtor.[23] Having accepted the bond, respondent as creditor
must be held bound by the recital in the surety bond that the terms and conditions
of its distributorship contract be reduced in writing or at the very least
communicated in writing to the surety. Such non-compliance by the creditor
(respondent) impacts not on the validity or legality of the surety contract but on the
creditors right to demand performance.
It bears stressing that the contract of suretyship imports entire good faith and
confidence between the parties in regard to the whole transaction, although it has
been said that the creditor does not stand as a fiduciary in his relation to the surety.
The creditor is generally held bound to a faithful observance of the rights of the
surety and to the performance of every duty necessary for the protection of those
rights.[24] Moreover, in this jurisdiction, obligations arising from contracts have the
force of law between the parties and should be complied with in good faith.
[25]
Respondent is charged with notice of the specified form of the agreement or at
least the disclosure of basic terms and conditions of its distributorship and credit
agreements with its client Fumitechniks after its acceptance of the bond delivered
by the latter. However, it never made any effort to relay those terms and conditions
of its contract with Fumitechniks upon the commencement of its transactions with
said client, which obligations are covered by the surety bond issued by
petitioner. Contrary to respondents assertion, there is no indication in the records
that petitioner had actual knowledge of its alleged business practice of not
havingwritten contracts with distributors; and even assuming petitioner was aware
of such practice, the bond issued to Fumitechniks and accepted by respondent
specifically referred to a written agreement.
As to the contention of petitioner that respondents motion for
reconsideration filed before the trial court should have been deemed not filed for
being pro forma, the Court finds it to be without merit. The mere fact that a motion
for reconsideration reiterates issues already passed upon by the court does not, by
itself, make it a pro forma motion. Among the ends to which a motion for
reconsideration is addressed is precisely to convince the court that its ruling is
erroneous and improper, contrary to the law or evidence; the movant has to dwell of
necessity on issues already passed upon.[26]
Finally, we hold that the trial court correctly dismissed petitioners
counterclaim for moral damages and attorneys fees. The filing alone of a civil
action should not be a ground for an award of moral damages in the same way that
a clearly unfounded civil action is not among the grounds for moral damages.
[27]
Besides, a juridical person is generally not entitled to moral damages because,
unlike a natural person, it cannot experience physical suffering or such sentiments
as wounded feelings, serious anxiety, mental anguish or moral shock. [28] Although
in some recent cases we have held that the Court may allow the grant of moral
damages to corporations, it is not automatically granted; there must still be proof of
the existence of the factual basis of the damage and its causal relation to the
defendants acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the wrongdoer. [29] There
is no evidence presented to establish the factual basis of petitioners claim for moral
damages.
Petitioner is likewise not entitled to attorneys fees. The settled rule is that no
premium should be placed on the right to litigate and that not every winning party
is entitled to an automatic grant of attorneys fees. [30] In pursuing its claim on the
surety bond, respondent was acting on the belief that it can collect on the obligation
of Fumitechniks notwithstanding the non-submission of the written principal
contract.
WHEREFORE, the petition for review on certiorari is PARTLY
GRANTED. The Decision dated November 20, 2006 and Resolution dated May 8,
2007 of the Court of Appeals in CA-G.R. CV No. 86623, are REVERSED and SET
ASIDE. The Decision dated August 5, 2005 of
the Regional Trial Court of Makati City, Branch 59 in Civil Case No. 02-857 dismissing
respondents complaint as well as petitioners counterclaim, is hereby REINSTATED

and UPHELD.
No pronouncement as to costs.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 152505-06
September 13, 2007
PRUDENTIAL GUARANTEE and ASSURANCE, INC., petitioner,

vs.
EQUINOX LAND CORPORATION, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us for resolution is the instant Petition for Review on Certiorari assailing the
Decision1 of the Court of Appeals (Third Division) dated November 23, 2001 in CAG.R. SP No. 56491 and CA-G.R. SP No. 57335.
The undisputed facts of the case, as established by the Construction Industry
Arbitration Commission (CIAC) and affirmed by the Court of Appeals, are:
Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to
construct five (5) additional floors to its existing building, the Eastgate Centre,
located at 169 EDSA, Mandaluyong City. It then sent invitations to bid to various
building contractors. Four (4) building contractors, including JMarc Construction &
Development Corporation (JMarc), responded.
Finding the bid of JMarc to be the most advantageous, Equinox offered the
construction project to it. On February 22, 1997, JMarc accepted the offer. Two days
later, Equinox formally awarded to JMarc the contract to build the extension for a
consideration of P37,000,000.00.
On February 24, 1997, JMarc submitted to Equinox two (2) bonds, namely: (1) a
surety bond issued by Prudential Guarantee and Assurance, Inc. (Prudential), herein
petitioner, in the amount of P9,250,000.00 to guarantee the unliquidated portion of
the advance payment payable to JMarc; and (2) a performance bond likewise issued
by Prudential in the amount of P7,400,000.00 to guarantee JMarcs faithful
performance of its obligations under the construction agreement.
On March 17, 1997, Equinox and JMarc signed the contract and related documents.
Under the terms of the contract, JMarc would supply all the labor, materials, tools,
equipment, and supervision required to complete the project.
In accordance with the terms of the contract, Equinox paid JMarc a downpayment
of P9,250,000.00 equivalent to 25% of the contract price.
JMarc did not adhere to the terms of the contract. It failed to submit the required
monthly progress billings for the months of March and April 1997. Its workers
neglected to cover the drainpipes, hence, they were clogged by wet cement. This
delayed the work on the project.
On May 23, 1997, JMarc requested an unscheduled cash advance of P300,000.00
from Equinox, explaining it had encountered cash problems. Equinox granted
JMarcs request to prevent delay.
On May 31, 1997, JMarc submitted its first progress billing showing that it had
accomplished only 7.3825% of the construction work estimated at P2,731,535.00.
After deducting the advanced payments, the net amount payable to JMarc was
only P1,285,959.12. Of this amount, Equinox paid JMarc only P697,005.12 because
the former paid EXAN P588,954.00 for concrete mix.
Shortly after Equinox paid JMarc based on its first progress billing, the latter again
requested an advanced payment of P150,000.00. Again Equinox paid JMarc this
amount. Eventually, Equinox found that the amount owing to JMarcs laborers was
only P121,000.00, not P150,000.00.
In June 1997, EXAN refused to deliver concrete mix to the project site due to
JMarcs recurring failure to pay on time. Faced with a looming delay in the project
schedule, Equinox acceded to EXANs request that payments for the concrete mix
should be remitted to it directly.
On June 30, 1997, JMarc submitted its second progress billing showing that it
accomplished only 16.0435% of the project after 4 months of construction work.
Based on the contract and its own schedule, JMarc should have accomplished at
least 37.70%.
Faced with the problem of delay, Equinox formally gave JMarc one final chance to
take remedial steps in order to finish the project on time. However, JMarc failed to
undertake any corrective measure. Consequently, on July 10, 1997, Equinox
terminated its contract with JMarc and took over the project. On the same date,
Equinox sent Prudential a letter claiming relief from JMarcs violations of the
contract.
On July 11, 1997, the work on the project stopped. The personnel of both Equinox
and JMarc jointly conducted an inventory of all materials, tools, equipment, and
supplies at the construction site. They also measured and recorded the amount of
work actually accomplished. As of July 11, 1997, JMarc accomplished only

19.0573% of the work or a shortage of 21.565% in violation of the contract.
The cost of JMarcs accomplishment was only P7,051,201.00. In other words,
Equinox overpaid JMarc in the sum of P3,974,300.25 inclusive of the 10% retention
on the first progress billing amounting to P273,152.50. In addition, Equinox also
paid the wages of JMarcs laborers, the billings for unpaid supplies, and the
amounts owing to subcontractors of JMarc in the total sum of P664,998.09.
On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch 214,
Mandaluyong City a complaint for sum of money and damages against JMarc and
Prudential. Equinox prayed that JMarc be ordered to reimburse the amounts
corresponding to its (Equinox) advanced payments and unliquidated portion of its
downpayment; and to pay damages. Equinox also prayed that Prudential be ordered
to pay its liability under the bonds.
In its answer, JMarc alleged that Equinox has no valid ground for terminating their
contract. For its part, Prudential denied Equinoxs claims and instituted a cross-claim
against JMarc for any judgment that might be rendered against its bonds.
During the hearing, Prudential filed a motion to dismiss the complaint on the ground
that pursuant to Executive Order No. 1008, it is the CIAC which has jurisdiction over
it.
On February 12, 1999, the trial court granted Prudentials motion and dismissed the
case.
On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed as
CIAC Case No. 17-99. Prudential submitted a position paper contending that the
CIAC has no jurisdiction over it since it is not a privy to the construction contract
between Equinox and JMarc; and that its surety and performance bonds are not
construction agreements, thus, any action thereon lies exclusively with the proper
court.
On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and
against JMarc and Prudential, thus:
AWARD
After considering the evidence and the arguments of the parties, we find that:
1. JMarc has been duly notified of the filing and pendency of the arbitration
proceeding commenced by Equinox against JMarc and that CIAC has acquired
jurisdiction over JMarc;
2. The construction Contract was validly terminated by Equinox due to JMarcs
failure to provide a timely supply of adequate labor, materials, tools, equipment,
and technical services and to remedy its inability to comply with the construction
schedule;
3. Equinox is not entitled to claim liquidated damages, although under the
circumstances, in the absence of adequate proof of actual and compensatory
damages, we award to Equinox nominal or temperate damages in the amount
of P500,000.00;
4. The percentage of accomplishment of JMarc at the time of the termination of the
Contract was 19.0573% of the work valued at P7,051,201.00. This amount should
be credited to JMarc. On the other hand, Equinox [i] had paid JMarc 25% of the
contract price as down or advance payment, [ii] had paid JMarc its first progress
billing, [iii] had made advances for payroll of the workers, and for unpaid supplies
and the works of JMarcs subcontractors, all in the total sum of P11,690,483.34.
Deducting the value of JMarcs accomplishment from these advances and payment,
there is due from JMarc to Equinox the amount of P4,639,285.34. We hold JMarc
liable to pay Equinox this amount of P4,639,285.34.
5. If JMarc had billed Equinox for its accomplishment as of July 11, 1997, 25% of
the P7,051,201.00 would have been recouped as partial payment of the advanced
or down payment. This would have resulted in reducing Prudentials liability on the
Surety Bond from P8,250,000.00 to P7,487,199.80. We, therefore, find that
Prudential is liable to Equinox on its Surety Bond the amount of P7,487,199.80;
6. Prudential is furthermore liable on its Performance Bond for the following
amounts: the advances made by Equinox on behalf of JMarc to the workers,
suppliers, and subcontractors amounting to P664,985.09, the nominal damages of
P500,000.00 and attorneys fees of P100,000.00 or a total amount ofP1,264,985.00;
7. All other claims and counterclaims are denied;
8. JMarc shall pay the cost of arbitration and shall indemnify Equinox the total
amount paid by Equinox as expenses of arbitration;
9. The total liability of JMarc to Equinox is determined to be P5,139,285.34 plus
attorneys fees ofP100,000.00. The suretys liability cannot exceed that of the
principal debtor [Art. 2054, Civil Code}. We hold that, notwithstanding our finding in
Nos. 5 and 6 of this Award, Prudential is liable to Equinox on the Surety Bond and
Performance Bond an amount not to exceed P5,239,285.34. The cost of arbitration
shall be paid by JMarc alone.
The amount of P5,239,285.34 shall be paid by respondent JMarc and respondent
Prudential, jointly and severally, with interest at six percent [6%] per annum from
promulgation of this award. This amount, including accrued interest, shall earn
interest at the rate of 12% per annum from the time this decision becomes final and
executory until the entire amount is fully paid or judgment fully satisfied. The
expenses of arbitration, which shall be paid by JMarc alone, shall likewise earn
interest at 6% per annum from the date of promulgation of the award, and 12%
from the date the award becomes final until this amount including accrued interest
is fully paid.
SO ORDERED.
Thereupon, Prudential filed with the Court of Appeals a petition for review, docketed
as CA-G.R. SP No. 56491. Prudential alleged that the CIAC erred in ruling that it is
bound by the terms of the construction contract between Equinox and JMarc and
that it is solidarily liable with JMarc under its bonds.
Equinox filed a motion for reconsideration on the ground that there is an error in the
computation of its claim for unliquidated damages; and that it is entitled to an
award of liquidated damages.
On February 2, 2000, the CIAC amended its Award by reducing the total liability of
JMarc to Equinox toP4,060,780.21, plus attorneys fees of P100,000
or P4,160,780.21, and holding that Prudentials liability to Equinox on the surety and
performance bonds should not exceed the said amount of P4,160,780.21, payable
by JMarc and Prudential jointly and severally.
Dissatisfied, Equinox filed with the Court of Appeals a petition for review, docketed
as CA-G.R. SP No. 57335. This case was consolidated with CA-G.R. SP No. 56491
filed by Prudential.
On November 23, 2001, the Court of Appeals rendered its Decision in CA-G.R. SP No.
57335 and CA-G.R. SP No. 56491, the dispositive portion of which reads:
WHEREFORE, the Amended Decision dated February 2, 2000 is AFFIRMED with
MODIFICATION in paragraph 4 in the Award by holding JMarc liable for unliquidated
damages to Equinox in the amount ofP5,358,167.09 and in paragraph 9 thereof by
increasing the total liability of JMarc to Equinox toP5,958,167.09 (in view of the
additional award of P500,000.00 as nominal and temperate damages
andP100,000.00 in attorneys fees), and AFFIRMED in all other respects.
SO ORDERED.
Prudential seasonably filed a motion for reconsideration but it was denied by the
Court of Appeals.
The issue raised before us is whether the Court of Appeals erred in (1) upholding the
jurisdiction of the CIAC over the case; and (2) finding Prudential solidarily liable with
JMarc for damages.
On the first issue, basic is the rule that administrative agencies are tribunals of
limited jurisdiction and as such, can only wield such powers as are specifically
granted to them by their enabling statutes. 2
Section 4 of Executive Order No. 1008,3 provides:
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over
disputes arising from, or connected with contracts entered into by parties involved
in construction in the Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach thereof. These
disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary
arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of
specifications for materials and workmanship, violation of the terms of agreement,
interpretation and/or application of contractual time and delays, maintenance and
defects, payment, default of employer or contractor and changes in contract cost.
Excluded from the coverage of the law are disputes arising from employer-employee
relationships which continue to be covered by the Labor Code of the Philippines.
In David v. Construction Industry and Arbitration Commission,4 we ruled that Section
4 vests upon the CIAC original and exclusive jurisdiction over disputes arising from
or connected with construction contracts entered into by parties who have agreed
to submit their case for voluntary arbitration.
As earlier mentioned, when Equinox lodged with the RTC its complaint for a sum of
money against JMarc and Prudential, the latter filed a motion to dismiss on the
ground of lack of jurisdiction, contending that since the case involves a construction
dispute, jurisdiction lies with CIAC. Prudentials motion was granted. However, after
the CIAC assumed jurisdiction over the case, Prudential again moved for its
dismissal, alleging that it is not a party to the construction contract between
Equinox and JMarc; and that the surety and performance bonds it issued are not
construction agreements.
After having voluntarily invoked before the RTC the jurisdiction of
CIAC, Prudential is estopped to question its jurisdiction. As we held
in Lapanday Agricultural & Development Corporation v. Estita,5 the active
participation of a party in a case pending against him before a court or a quasijudicial body is tantamount to a recognition of that courts or quasi-judicial bodys
jurisdiction and a willingness to abide by the resolution of the case and will bar said
party from later on impugning the courts or quasi-judicial bodys jurisdiction.
Moreover, in its Reply to Equinoxs Opposition to the Motion to Dismiss before the
RTC, Prudential, citingPhilippine National Bank v. Pineda6 and Finman General
Assurance Corporation v. Salik,7 argued that as a surety, it is considered under the

law to be the same party as the obligor in relation to whatever is adjudged
regarding the latters obligation. Therefore, it is the CIAC which has jurisdiction over
the case involving a construction contract between Equinox and JMarc. Such an
admission by Prudential binds it and it cannot now claim otherwise.
Anent the second issue, it is not disputed that Prudential entered into a suretyship
contract with JMarc. Section 175 of the Insurance Code defines a suretyship as "a
contract or agreement whereby a party, called the suretyship, guarantees the
performance by another party, called the principal or obligor, of an obligation or
undertaking in favor of a third party, called the obligee. It includes official
recognizances, stipulations, bonds, or undertakings issued under Act 536 8, as
amended." Corollarily, Article 2047 of the Civil Code provides that suretyship arises
upon the solidary binding of a person deemed the surety with the principal debtor
for the purpose of fulfilling an obligation.
In Castellvi de Higgins and Higgins v. Seliner,9 we held that while a surety and a
guarantor are alike in that each promises to answer for the debt or default of
another, the surety assumes liability as a regular party to the undertaking
and hence its obligation is primary.
In Security Pacific Assurance Corporation v. Tria-Infante,10 we reiterated the rule that
while a contract of surety is secondary only to a valid principal obligation, the
suretys liability to the creditor is said to be direct, primary, and absolute. In other
words, the surety is directly and equally bound with the principal. Thus, Prudential is
barred from disclaiming that its liability with JMarc is solidary.
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals
(Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP
No. 57355 is AFFIRMED in toto. Costs against petitioner.
SO ORDERED.
SECOND DIVISION
AFP GENERAL INSURANCE
CORPORATION,
Petitioner,
G.R. No. 151133
Present:
QUISUMBING, J.,
Chairperson,
CARPIO MORALES,
- versus -
TINGA,
VELASCO, JR., and
BRION, JJ.
NOEL MOLINA, JUANITO ARQUEZA,

LEODY VENANCIO, JOSE OLAT, ANGEL
CORTEZ, PANCRASIO
SIMPAO, CONRADO CALAPON AND
NATIONAL LABOR RELATIONS
COMMISSION (FIRST DIVISION),
Promulgated:
Respondents.
June 30, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
This is a petition for review on certiorari of the Decision [1] dated August 20,
2001 of the Court of Appeals in CA-G.R. SP No. 58763 which dismissed herein
petitioners special civil action for certiorari. Before the appellate court, petitioner
AFP General Insurance Corporation (AFPGIC) sought to reverse the
Resolution[2] dated October 5, 1999of the National Labor Relations Commission
(NLRC) in NLRC NCR CA-011705-96 for having been issued with grave abuse of
discretion. The NLRC affirmed the Order[3]dated March 30, 1999 of Labor Arbiter
Edgardo Madriaga in NLRC NCR Case No. 02-00672-90 which had
denied AFPGICs Omnibus Motion to Quash Notice/Writ of Garnishment and
Discharge AFPGICs appeal bond for failure of Radon Security & Allied Services
Agency (Radon Security) to pay the premiums on said bond. Equally challenged is
the Resolution[4] dated December 14, 2001 of the appellate court in CA-G.R. SP No.
58763 which denied herein petitioners motion for reconsideration.
The facts of this case are not disputed.
The private respondents are the complainants in a case for illegal dismissal,
docketed as NLRC NCR Case No. 02-00672-90, filed against Radon Security & Allied
Services Agency and/or Raquel Aquias and Ever Emporium, Inc. In his Decision
dated August 20, 1996, the Labor Arbiter ruled that the private respondents were
illegally dismissed and ordered Radon Security to pay them separation pay,
backwages, and other monetary claims.
Radon Security appealed the Labor Arbiters decision to public respondent

NLRC and posted a supersedeas bond, issued by herein petitioner AFPGIC as
surety. The appeal was docketed as NLRC NCR CA-011705-96.
On April 6, 1998, the NLRC affirmed with modification the decision of the
Labor Arbiter. The NLRC found the herein private respondents constructively
dismissed and ordered Radon Security to pay them their separation pay, in lieu of
reinstatement with backwages, as well as their monetary benefits limited to three
years, plus attorneys fees equivalent to 10% of the entire amount, with Radon
Security and Ever Emporium, Inc. adjudged jointly and severally liable.
Radon Security duly moved for reconsideration, but this was denied by the
NLRC in its Resolution dated June 22, 1998.
Radon Security then filed a Petition for Certiorari docketed as G.R. No. 134891
with this Court, but we dismissed this petition in our Resolution of August 31, 1998.
When the Decision dated April 6, 1998 of the NLRC became final and
executory, private respondents filed an Urgent Motion for Execution. As a result,
the NLRC Research and Information Unit submitted a Computation of the Monetary
Awards in accordance with the NLRC decision. Radon Security opposed said
computation in its Motion for Recomputation.
On February 5, 1999, the Labor Arbiter issued a Writ of
Execution[5] incorporating the computation of the NLRC Research and Information
Unit. That same date, the Labor Arbiter dismissed the Motion for Recomputation
filed by Radon Security. By virtue of the writ of execution, the NLRC Sheriff issued a
Notice of Garnishment[6] against the supersedeas bond.
Both Ever Emporium, Inc. and Radon Security moved to quash the writ of
execution.
On March 30, 1999, the Labor Arbiter denied both motions, and Radon
Security appealed to the NLRC.
On April 14, 1999, AFPGIC entered the fray by filing before the Labor Arbiter
an Omnibus Motion to Quash Notice/Writ of Garnishment and to Discharge AFPGICs
Appeal Bond on the ground that said bond has been cancelled and thus nonexistent in view of the failure of Radon Security to pay the yearly premiums. [7]
On April 30, 1999, the Labor Arbiter denied AFPGICs Omnibus Motion for lack
of merit.[8] The Labor Arbiter pointed out that the question of non-payment of
premiums is a dispute between the party who posted the bond and the insurer; to
allow the bond to be cancelled because of the non-payment of premiums would
result in a factual and legal absurdity wherein a surety will be rendered nugatory by
the simple expedient of non-payment of premiums.
The petitioner then appealed the Labor Arbiters order to the NLRC. The
appeals of Radon Security and AFPGIC were jointly heard as NLRC NCR CA-01170596.
On October 5, 1999, the NLRC disposed of NLRC NCR CA-011705-96 in this
wise:
WHEREFORE, premises considered, the appeals under consideration are hereby
DISMISSED for lack of merit.
SO ORDERED.[9]
In dismissing the appeal of AFPGIC, the NLRC pointed out that AFPGICs
theory that the bond cannot anymore be proceeded against for failure of Radon
Security to pay the premium is untenable, considering that the bond is effective
until the finality of the decision.[10] The NLRC stressed that a contrary ruling would
allow respondents to simply stop paying the premium to frustrate satisfaction of the
money judgment.[11]
AFPGIC then moved for reconsideration, but the NLRC denied the motion in its
Resolution[12] dated February 29, 2000.
AFPGIC then filed a special civil action for certiorari, docketed as CA-G.R. SP
No. 58763, with the Court of Appeals, on the ground that the NLRC committed a
grave abuse of discretion in affirming the Order dated March 30, 1999 of the Labor
Arbiter.
On August 20, 2001, the appellate court dismissed CA-G.R. SP No. 58763,
disposing as follows:
WHEREFORE, the foregoing considered, the petition is denied due
course and accordingly DISMISSED.
SO ORDERED.[13]
AFPGIC seasonably moved for reconsideration, but this was denied by the
appellate court in its Resolution[14] of December 14, 2001.
Hence, the instant case anchored on the lone assignment of error that:
THE COURT OF APPEALS SERIOUSLY ERRED IN SUSTAINING THE PUBLIC
RESPONDENT NLRC ALTHOUGH THE LATTER GRAVELY ABUSED ITS DISCRETION
WHEN IT ARBITRARILY IGNORED THE FACT THAT SUBJECT APPEAL BOND WAS
ALREADY CANCELLED FOR NON-PAYMENT OF PREMIUM AND THUS IT COULD NOT BE
SUBJECT OF EXECUTION OR GARNISHMENT. [15]
The petitioner contends that under Section 64 [16] of the Insurance Code,
which is deemed written into every insurance contract or contract of surety, an
insurer may cancel a policy upon non-payment of the premium. Said cancellation is
binding upon the beneficiary as the right of a beneficiary is subordinate to that of
the insured. Petitioner points out that in South Sea Surety & Insurance Co., Inc. v.
CA,[17] this Court held that payment of premium is a condition precedent to and
essential for the efficaciousness of a contract of insurance. [18] Hence,
following UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc., [19] no insurance
policy, other than life, issued originally or on renewal is valid and binding until
actual payment of the premium.[20] The petitioner also points to Malayan Insurance
Co., Inc. v. Cruz Arnaldo,[21] which reiterated that an insurer may cancel an
insurance policy for non-payment of premium. [22] Hence, according to petitioner,
the Court of Appeals committed a reversible error in not holding that under Section
77[23] of the Insurance Code, the surety bond between it and Radon Security was not
valid and binding for non-payment of premiums, even as against a third person who
was intended to benefit therefrom.
The private respondents adopted in toto the ratiocinations of the Court of
Appeals that inasmuch as a supersedeas bond was posted for the benefit of a third
person to guarantee that the money judgment will be satisfied in case it is affirmed on
appeal, the third person who stands to benefit from said bond is entitled to notice of its
cancellation for any reason. Likewise, the NLRC should have been notified to enable it
to take the proper action under the circumstances. The respondents submit that from
its very nature, a supersedeas bond remains effective and the surety liable thereon
until formally discharged from said liability. To hold otherwise would enable a losing
party to frustrate a money judgment by the simple expedient of ceasing to pay
premiums.
We find merit in the submissions of the private respondents.
The controversy before the Court involves more than just the mere
application of the provisions of the Insurance Code to the factual
circumstances. This instant case, after all, traces its roots to a labor controversy
involving illegally dismissed workers. It thus entails the application of labor laws
and regulations. Recall that the heart of the dispute is not an ordinary contract of
property or life insurance, but an appeal bond required by both substantive and
adjective law in appeals in labor disputes, specifically Article 223 [24]of the Labor
Code, as amended by Republic Act No. 6715, [25] and Rule VI, Section 6[26] of the
Revised NLRC Rules of Procedure. Said provisions mandate that in labor cases
where the judgment appealed from involves a monetary award, the appeal may be
perfected only upon the posting of a cash or surety bond issued by a reputable
bonding company accredited by the NLRC.[27] The perfection of an appeal by an
employer only upon the posting of a cash or surety bond clearly and categorically
shows the intent of the lawmakers to make the posting of a cash or surety bond by
the employer to be the exclusive means by which an employers appeal may be
perfected.[28] Additionally, the filing of a cash or surety bond is a jurisdictional
requirement in an appeal involving a money judgment to the NLRC. [29] In addition,
Rule VI, Section 6 of the Revised NLRC Rules of Procedure is a contemporaneous

construction of Article 223 by the NLRC. As an interpretation of a law by the
implementing administrative agency, it is accorded great respect by this Court.
[30]
Note that Rule VI, Section 6 categorically states that the cash or surety bond
posted in appeals involving monetary awards in labor disputes shall be in effect
until final disposition of the case. This could only be construed to mean that the
surety bond shall remain valid and in force until finality and execution of judgment,
with the resultant discharge of the surety company only thereafter, if we are to give
teeth to the labor protection clause of the Constitution. To construe the provision
any other way would open the floodgates to unscrupulous and heartless employers
who would simply forego paying premiums on their surety bond in order to evade
payment of the monetary judgment. The Court cannot be a party to any such
iniquity.
Moreover, the Insurance Code supports the private respondents arguments. The
petitioners reliance on Sections 64 and 77 of the Insurance Code is misplaced. The
said provisions refer to insurance contracts in general. The instant case pertains to
a surety bond; thus, the applicable provision of the Insurance Code is Section 177,
[31]
which specifically governs suretyship. It provides that a surety bond, once
accepted by the obligee becomes valid and enforceable, irrespective of whether or
not the premium has been paid by the obligor. The private respondents, the
obligees here, accepted the bond posted by Radon Security and issued by the
petitioner. Hence, the bond is both valid and enforceable. A verbis legis non est
recedendum (from the language of the law there must be no departure).[32]
When petitioner surety company cancelled the surety bond because Radon Security
failed to pay the premiums, it gave due notice to the latter but not to the NLRC. By
its failure to give notice to the NLRC, AFPGIC failed to acknowledge that the NLRC
had jurisdiction not only over the appealed case, but also over the appeal
bond. This oversight amounts to disrespect and contempt for a quasi-judicial
agency tasked by law with resolving labor disputes. Until the surety is formally
discharged, it remains subject to the jurisdiction of the NLRC.
Our ruling, anchored on concern for the employee, however, does not in any way
seek to derogate the rights and interests of the petitioner as against Radon
Security. The former is not devoid of remedies against the latter. Under Section
176[33] of the Insurance Code, the liability of petitioner and Radon Security is
solidary in nature. There is solidary liability only when the obligation expressly so
states, or when the law so provides, or when the nature of the obligation so
requires.[34] Since the law provides that the liability of the surety company and the
obligor or principal is joint and several, then either or both of them may be
proceeded against for the money award.
The Labor Arbiter directed the NLRC Sheriff to garnish the surety bond issued by the
petitioner. The latter, as surety, is mandated to comply with the writ of
garnishment, for as earlier pointed out, the bond remains enforceable and under the
jurisdiction of the NLRC until it is discharged. In turn, the petitioner may proceed to
collect the amount it paid on the bond, plus the premiums due and demandable,
plus any interest owing from Radon Security. This is pursuant to the principle of
subrogation enunciated in Article 2067[35] of the Civil Code which we apply to the
suretyship agreement between AFPGIC and Radon Security, in accordance with
Section 178[36] of the Insurance Code. Finding no reversible error committed by the
Court of Appeals in CA-G.R. SP No. 58763, we sustain the challenged decision.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed
Decision dated August 20, 2001 of the Court of Appeals in CA-G.R. SP No. 58763
and the Resolution dated December 14, 2001, of the appellate court denying the
herein petitioners motion for reconsideration are AFFIRMED. Costs against the
petitioner.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,
vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.
CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face
value of P200,000.00. Two months later, he was dead with a bullet wound in his
head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her
claim was rejected. The petitioner agreed that there was no suicide. It argued,
however that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on
October 6, 1982, at about 10 o'clock in the evening, after his mother's birthday
party. According to Nalagon, Lim was in a happy mood (but not drunk) and was
playing with his handgun, from which he had previously removed the magazine. As
she watched television, he stood in front of her and pointed the gun at her. She
pushed it aside and said it might he loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and Lim slumped
to the floor. He was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and
was sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing
the face value of the policy, with interest at the legal rate; P10,000.00 as moral
damages; P5,000.00 as exemplary damages; P5,000.00 as actual and compensatory
damages; and P5,000.00 as attorney's fees, plus the costs of the suit. This decision
was affirmed on appeal, and the motion for reconsideration was denied. 3 The
petitioner then came to this Court to fault the Court of Appeals for approving the
payment of the claim and the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical
signification in law, and when used in an insurance contract are to be construed and
considered according to the ordinary understanding and common usage and speech
of people generally. In-substance, the courts are practically agreed that the words
"accident" and "accidental" mean that which happens by chance or fortuitously,
without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that 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 case, and
therefore not expected. 4
An accident is an event which happens without any human agency or, if happening
through human agency, an event which, under the circumstances, is unusual to and
not expected by the person to whom it happens. It has also been defined as an
injury which happens by reason of some violence or casualty to the injured without
his design, consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in
Lim's death was indeed an accident. The petitioner, invoking the case of De la Cruz
v. Capital Insurance, 6 says that "there is no accident when a deliberate act is
performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury or death." There was
such a happening. This was the firing of the gun, which was the additional
unexpected and independent and unforeseen occurrence that led to the insured
person's death.
The petitioner also cites one of the four exceptions provided for in the insurance
contract and contends that the private petitioner's claim is barred by such provision.
It is there stated:
Exceptions
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit suicide or willfully exposing himself to
needless peril except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the
petitioner contends that the insured willfully exposed himself to needless peril and
thus removed himself from the coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless peril
are in pari materia because they both signify a disregard for one's life. The only
difference is in degree, as suicide imports a positive act of ending such life whereas
the second act indicates a reckless risking of it that is almost suicidal in intent. To
illustrate, a person who walks a tightrope one thousand meters above the ground
and without any safety device may not actually be intending to commit suicide, but
his act is nonetheless suicidal. He would thus be considered as "willfully exposing
himself to needless peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim
had willfully exposed himself to needless peril and so came under the exception.
The theory is that a gun is per se dangerous and should therefore be handled
cautiously in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had
removed the magazine from the gun and believed it was no longer dangerous. He
expressly assured her that the gun was not loaded. It is submitted that Lim did not
willfully expose himself to needless peril when he pointed the gun to his temple
because the fact is that he thought it was not unsafe to do so. The act was precisely
intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never intended to reward the insured for his
tendency to show off or for his miscalculations. They were intended to provide for
contingencies. Hence, when I miscalculate and jump from the Quezon Bridge into
the Pasig River in the belief that I can overcome the current, I have wilfully exposed
myself to peril and must accept the consequences of my act. If I drown I cannot go
to the insurance company to ask them to compensate me for my failure to swim as
well as I thought I could. The insured in the case at bar deliberately put the gun to
his head and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance company
to ask for compensation. That might frighten the insurance people to death. We also
agree that under the circumstances narrated, his beneficiary would not be able to
collect on the insurance policy for it is clear that when he braved the currents
below, he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the
analogy fails. The petitioner's hypothetical swimmer knew when he dived off the
Quezon Bridge that the currents below were dangerous. By contrast, Lim did not
know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it
should not prevent his widow from recovering from the insurance policy he obtained
precisely against accident. There is nothing in the policy that relieves the insurer of
the responsibility to pay the indemnity agreed upon if the insured is shown to have
contributed to his own accident. Indeed, most accidents are caused by negligence.
There are only four exceptions expressly made in the contract to relieve the insurer
from liability, and none of these exceptions is applicable in the case at bar. **
It bears noting that insurance contracts are as a rule supposed to be interpreted
liberally in favor of the assured. There is no reason to deviate from this rule,
especially in view of the circumstances of this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the
petitioner. The basic issue raised in this case is, as the petitioner correctly observed,
one of first impression. It is evident that the petitioner was acting in good faith then
it resisted the private respondent's claim on the ground that the death of the
insured was covered by the exception. The issue was indeed debatable and was
clearly not raised only for the purpose of evading a legitimate obligation. We hold
therefore that the award of moral and exemplary damages and of attorney's fees is
unjust and so must be disapproved.
In order that a person may be made liable to the payment of moral damages, the
law requires that his act be wrongful. The adverse result of an action does not per
se make the act wrongful and subject the act or to the payment of moral damages.
The law could not have meant to impose a penalty on the right to litigate; such right
is so precious that moral damages may not be charged on those who may exercise
it erroneously. For these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not alone make his
act in bringing the action wrongful because in most cases one party will lose; we
would be imposing an unjust condition or limitation on the right to litigate. We hold
that the award of moral damages in the case at bar is not justified by the facts had
circumstances as well as the law.
If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses,
since it is not the fact of winning alone that entitles him to recover such damages of
the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a
defendant wins, automatically the plaintiff must pay attorney's fees thereby putting
a premium on the right to litigate which should not be so. For those expenses, the
law deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far
as it holds the petitioner liable to the private respondent in the sum of P200,000.00
representing the face value of the insurance contract, with interest at the legal rate
from the date of the filing of the complaint until the full amount is paid, but
MODIFIED with the deletion of all awards for damages, including attorney's fees,
except the costs of the suit.
SO ORDERED.
Grio-Aquino, Medialdea and Bellosillo, JJ., concur.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 175773
June 17, 2013
MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION

(MMPSEU), Petitioner,
vs.
MITSUBISHI MOTORS PHILIPPINES CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
The Collective Bargaining Agreement (CBA) of the parties in this case provides that
the company shoulder the hospitalization expenses of the dependents of covered
employees subject to certain limitations and restrictions. Accordingly, covered
employees pay part of the hospitalization insurance premium through monthly
salary deduction while the company, upon hospitalization of the covered
employees' dependents, shall pay the hospitalization expenses incurred for the
same. The conflict arose when a portion of the hospitalization expenses of the
covered employees' dependents were paid/shouldered by the dependent's own
health insurance. While the company refused to pay the portion of the hospital
expenses already shouldered by the dependents' own health insurance, the union
insists that the covered employees are entitled to the whole and undiminished
amount of said hospital expenses.
By this Petition for Review on Certiorari,1 petitioner Mitsubishi Motors Philippines
Salaried Employees Union (MMPSEU) assails the March 31, 2006 Decision 2 and
December 5, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 75630,
which reversed and set aside the Voluntary Arbitrators December 3, 2002
Decision4 and declared respondent Mitsubishi Motors Philippines Corporation
(MMPC) to be under no legal obligation to pay its covered employees dependents
hospitalization expenses which were already shouldered by other health insurance
companies.
Factual Antecedents
The parties CBA5 covering the period August 1, 1996 to July 31, 1999 provides for
the hospitalization insurance benefits for the covered dependents, thus:
SECTION 4. DEPENDENTS GROUP HOSPITALIZATION INSURANCE The COMPANY
shall obtain group hospitalization insurance coverage or assume under a selfinsurance basis hospitalization for the dependents of regular employees up to a
maximum amount of forty thousand pesos (P40,000.00) per confinement subject to

the following:
a. The room and board must not exceed three hundred pesos (P300.00) per day up
to a maximum of thirty-one (31) days. Similarly, Doctors Call fees must not exceed
three hundred pesos (P300.00) per day for a maximum of thirty-one (31) days. Any
excess of this amount shall be borne by the employee.
b. Confinement must be in a hospital designated by the COMPANY. For this purpose,
the COMPANY shall designate hospitals in different convenient places to be availed
of by the dependents of employees. In cases of emergency where the dependent is
confined without the recommendation of the company doctor or in a hospital not
designated by the COMPANY, the COMPANY shall look into the circumstances of
such confinement and arrange for the payment of the amount to the extent of the
hospitalization benefit.
c. The limitations and restrictions listed in Annex "B" must be observed.
d. Payment shall be direct to the hospital and doctor and must be covered by actual
billings.
Each employee shall pay one hundred pesos (P100.00) per month through salary
deduction as his share in the payment of the insurance premium for the above
coverage with the balance of the premium to be paid by the COMPANY. If the
COMPANY is self-insured the one hundred pesos (P100.00) per employee monthly
contribution shall be given to the COMPANY which shall shoulder the expenses
subject to the above level of benefits and subject to the same limitations and
restrictions provided for in Annex "B" hereof.
The hospitalization expenses must be covered by actual hospital and doctors bills
and any amount in excess of the above mentioned level of benefits will be for the
account of the employee.
For purposes of this provision, eligible dependents are the covered employees
natural parents, legal spouse and legitimate or legally adopted or step children who
are unmarried, unemployed who have not attained twenty-one (21) years of age
and wholly dependent upon the employee for support.
This provision applies only in cases of actual confinement in the hospital for at least
six (6) hours.
Maternity cases are not covered by this section but will be under the next
succeeding section on maternity benefits.6
When the CBA expired on July 31, 1999, the parties executed another CBA 7 effective
August 1, 1999 to July 31, 2002 incorporating the same provisions on dependents
hospitalization insurance benefits but in the increased amount of P50,000.00. The
room and board expenses, as well as the doctors call fees, were also increased
toP375.00.
On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida),
Hermie Juan Oabel (Oabel) and Jocelyn Martin (Martin), filed claims for
reimbursement of hospitalization expenses of their dependents.
MMPC paid only a portion of their hospitalization insurance claims, not the full
amount. In the case of Calida, his wife, Lanie, was confined at Sto. Tomas University
Hospital from September 4 to 9, 1998 due to Thyroidectomy. The medical expenses
incurred totalled P29,967.10. Of this amount, P9,000.00 representing professional
fees was paid by MEDICard Philippines, Inc. (MEDICard) which provides health
maintenance to Lanie.8 MMPC only paid P12,148.63.9 It did not pay the P9,000.00
already paid by MEDICard and the P6,278.47 not covered by official receipts. It
refused to give to Calida the difference between the amount of medical expenses
ofP27,427.1010 which he claimed to be entitled to under the CBA and
the P12,148.63 which MMPC directly paid to the hospital.
In the case of Martin, his father, Jose, was admitted at The Medical City from March
26 to 27, 2000 due to Acid Peptic Disease and incurred medical expenses
amounting to P9,101.30.14 MEDICard paid P8,496.00.15Consequently, MMPC only
paid P288.40,16 after deducting from the total medical expenses the amount paid by
MEDICard and the P316.90 discount given by the hospital.
Claiming that under the CBA, they are entitled to hospital benefits amounting
to P27,427.10, P6,769.35 andP8,123.80, respectively, which should not be reduced
by the amounts paid by MEDICard and by Prosper, Calida, Oabel and Martin asked
for reimbursement from MMPC. However, MMPC denied the claims contending that
double insurance would result if the said employees would receive from the
company the full amount of hospitalization expenses despite having already
received payment of portions thereof from other health insurance providers.
This prompted the MMPSEU President to write the MMPC President 17 demanding full
payment of the hospitalization benefits. Alleging discrimination against MMPSEU
union members, she pointed out that full reimbursement was given in a similar
claim filed by Luisito Cruz (Cruz), a member of the Hourly Union. In a letterreply,18 MMPC, through its Vice-President for Industrial Relations Division, clarified
that the claims of the said MMPSEU members have already been paid on the basis
of official receipts submitted. It also denied the charge of discrimination and
explained that the case of Cruz involved an entirely different matter since it
concerned the admissibility of certified true copies of documents for reimbursement
purposes, which case had been settled through voluntary arbitration.
On August 28, 2000, MMPSEU referred the dispute to the National Conciliation and
Mediation Board and requested for preventive mediation. 19
Proceedings before the Voluntary Arbitrator

On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando
Capocyan for resolution of the issue involving the interpretation of the subject CBA
provision.20
MMPSEU alleged that there is nothing in the CBA which prohibits an employee from
obtaining other insurance or declares that medical expenses can be reimbursed
only upon presentation of original official receipts. It stressed that the
hospitalization benefits should be computed based on the formula indicated in the
CBA without deducting the benefits derived from other insurance providers.
Besides, if reduction is permitted, MMPC would be unjustly benefited from the
monthly premium contributed by the employees through salary deduction. MMPSEU
added that its members had legitimate claims under the CBA and that any doubt as
to any of its provisions should be resolved in favor of its members. Moreover, any
ambiguity should be resolved in favor of labor. 21
On the other hand, MMPC argued that the reimbursement of the entire amounts
being claimed by the covered employees, including those already paid by other
insurance companies, would constitute double indemnity or double insurance, which
is circumscribed under the Insurance Code. Moreover, a contract of insurance is a
contract of indemnity and the employees cannot be allowed to profit from their
dependents loss.22
Meanwhile, the parties separately sought for a legal opinion from the Insurance
Commission relative to the issue at hand. In its letter 23 to the Insurance
Commission, MMPC requested for confirmation of its position that the covered
employees cannot claim insurance benefits for a loss that had already been covered
or paid by another insurance company. However, the Office of the Insurance
Commission opted not to render an opinion on the matter as the same may become
the subject of a formal complaint before it.24 On the other hand, when queried by
MMPSEU,25 the Insurance Commission, through Atty. Richard David C. Funk II (Atty.
Funk) of the Claims Adjudication Division, rendered an opinion contained in a
letter,26 viz:
Ms. Cecilia L. ParasPresident
Mitsubishi Motors Phils.
[Salaried] Employees Union
Ortigas Avenue Extension,
Cainta, Rizal
Madam:
We acknowledge receipt of your letter which, to our impression, basically poses the
question of whether or not recovery of medical expenses from a Health
Maintenance Organization bars recovery of the same reimbursable amount of

medical expenses under a contract of health or medical insurance.
We wish to opine that in cases of claims for reimbursement of medical expenses
where there are two contracts providing benefits to that effect, recovery may be
had on both simultaneously. In the absence of an Other Insurance provision in these
coverages, the courts have uniformly held that an insured is entitled to receive the
insurance benefits without regard to the amount of total benefits provided by other
insurance. (INSURANCE LAW, A Guide to Fundamental Principles, Legal Doctrines,
and Commercial Practices; Robert E. Keeton, Alau I. Widiss, p. 261). The result is
consistent with the public policy underlying the collateral source rule that is, x x x
the courts have usually concluded that the liability of a health or accident insurer is
not reduced by other possible sources of indemnification or compensation. (ibid).
Very truly yours,
RICHARD DAVID C. FUNK II
Officer-in-Charge
Claims Adjudication Division
(SGD.)
Attorney IV
On December 3, 2002, the Voluntary Arbitrator rendered a Decision 27 finding MMPC
liable to pay or reimburse the amount of hospitalization expenses already paid by
other health insurance companies. The Voluntary Arbitrator held that the employees
may demand simultaneous payment from both the CBA and their dependents
separate health insurance without resulting to double insurance, since separate
premiums were paid for each contract. He also noted that the CBA does not prohibit
reimbursement in case there are other health insurers.
Proceedings before the Court of Appeals
MMPC filed a Petition for Review with Prayer for the Issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction 28 before the CA. It claimed
that the Voluntary Arbitrator committed grave abuse of discretion in not finding that
recovery under both insurance policies constitutes double insurance as both had the
same subject matter, interest insured and risk or peril insured against; in relying
solely on the unauthorized legal opinion of Atty. Funk; and in not finding that the
employees will be benefited twice for the same loss. In its Comment, 29 MMPSEU
countered that MMPC will unjustly enrich itself and profit from the monthly
premiums paid if full reimbursement is not made.
On March 31, 2006, the CA found merit in MMPCs Petition. It ruled that despite the
lack of a provision which bars recovery in case of payment by other insurers, the
wordings of the subject provision of the CBA showed that the parties intended to
make MMPC liable only for expenses actually incurred by an employees qualified
dependent. In particular, the provision stipulates that payment should be made
directly to the hospital and that the claim should be supported by actual hospital
and doctors bills. These mean that the employees shall only be paid amounts not
covered by other health insurance and is more in keeping with the principle of
indemnity in insurance contracts. Besides, a contrary interpretation would "allow
unscrupulous employees to unduly profit from the x x x benefits" and shall "open
the floodgates to questionable claims x x x." 30
The dispositive portion of the CA Decision 31 reads:
WHEREFORE, the instant petition is GRANTED. The decision of the voluntary
arbitrator dated December 3, 2002 is REVERSED and SET ASIDE and judgment is
rendered declaring that under Art. XI, Sec. 4 of the Collective Bargaining Agreement
between petitioner and respondent effective August 1, 1999 to July 31, 2002, the
formers obligation to reimburse the Union members for the hospitalization
expenses incurred by their dependents is exclusive of those paid by the Union
members to the hospital.
SO ORDERED.32
In its Motion for Reconsideration, 33 MMPSEU pointed out that the alleged oppression
that may be committed by abusive employees is a mere possibility whereas the
resulting losses to the employees are real. MMPSEU cited Samsel v. Allstate
Insurance Co.,34 wherein the Arizona Supreme Court explicitly ruled that an insured
may recover from separate health insurance providers, regardless of whether one of
them has already paid the medical expenses incurred. On the other hand, MMPC
argued in its Comment35 that the cited foreign case involves a different set of facts.
The CA, in its Resolution36 dated December 5, 2006, denied MMPSEUs motion.
Hence, this Petition.
Issues
MMPSEU presented the following grounds in support of its Petition:
A.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION
DATED 03 [DECEMBER] 2002 OF THE VOLUNTARY ARBITRATOR BELOW WHEN THE
SAME WAS SUPPORTED BY SUBSTANTIAL EVIDENCE, INCLUDING THE OPINION OF
THE INSURANCE COMMISSION THAT RECOVERY FROM BOTH THE CBA AND SEPARATE
HEALTH CARDS IS NOT PROHIBITED IN THE ABSENCE OF ANY SPECIFIC PROVISION IN
THE CBA.
B.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN OVERTURNING THE

DECISION OF THE VOLUNTARY ARBITRATOR WITHOUT EVEN GIVING ANY LEGAL OR
JUSTIFIABLE BASIS FOR SUCH REVERSAL.
C.
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO CONSIDER OR
EVEN MENTION ANYTHING ABOUT THE AMERICAN AUTHORITIES CITED IN THE
RECORDS THAT DO NOT PROHIBIT, BUT IN FACT ALLOW, RECOVERY FROM TWO
SEPARATE HEALTH PLANS.
D.
THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE TO A
POSSIBLE, HENCE MERELY SPECULATIVE, ABUSE BY EMPLOYEES OF THE BENEFITS IF
DOUBLE RECOVERY WERE ALLOWED INSTEAD OF THE REAL INJURY TO THE
EMPLOYEES WHO ARE PAYING FOR THE CBA HOSPITALIZATION BENEFITS THROUGH
MONTHLY SALARY DEDUCTIONS BUT WHO MAY NOT BE ABLE TO AVAIL OF THE SAME
IF THEY OR THEIR DEPENDENTS HAVE OTHER HEALTH INSURANCE. 37
MMPSEU avers that the Decision of the Voluntary Arbitrator deserves utmost respect
and finality because it is supported by substantial evidence and is in accordance
with the opinion rendered by the Insurance Commission, an agency equipped with
vast knowledge concerning insurance contracts. It maintains that under the CBA,
member-employees are entitled to full reimbursement of medical expenses incurred
by their dependents regardless of any amounts paid by the latters health insurance
provider. Otherwise, non-recovery will constitute unjust enrichment on the part of
MMPC. It avers that recovery from both the CBA and other insurance companies is
allowed under their CBA and not prohibited by law nor by jurisprudence.
Our Ruling
The Petition has no merit.
Atty. Funk erred in applying the
collateral source rule.
The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the
employees may recover benefits from different insurance providers without regard
to the amount of benefits paid by each. According to him, this view is consistent
with the theory of the collateral source rule.
As part of American personal injury law, the collateral source rule was originally
applied to tort cases wherein the defendant is prevented from benefiting from the
plaintiffs receipt of money from other sources. 38 Under this rule, if an injured person
receives compensation for his injuries from a source wholly independent of the
tortfeasor, the payment should not be deducted from the damages which he would
otherwise collect from the tortfeasor. 39 In a recent Decision40 by the Illinois Supreme
Court, the rule has been described as "an established exception to the general rule
that damages in negligence actions must be compensatory." The Court went on to
explain that although the rule appears to allow a double recovery, the collateral
source will have a lien or subrogation right to prevent such a double recovery. 41 In
Mitchell v. Haldar,42 the collateral source rule was rationalized by the Supreme Court
of Delaware:
The collateral source rule is predicated on the theory that a tortfeasor has no
interest in, and therefore no right to benefit from monies received by the injured
person from sources unconnected with the defendant. According to the collateral
source rule, a tortfeasor has no right to any mitigation of damages because of
payments or compensation received by the injured person from an independent
source. The rationale for the collateral source rule is based upon the quasi-punitive
nature of tort law liability. It has been explained as follows:
The collateral source rule is designed to strike a balance between two competing
principles of tort law: (1) a plaintiff is entitled to compensation sufficient to make
him whole, but no more; and (2) a defendant is liable for all damages that
proximately result from his wrong. A plaintiff who receives a double recovery for a
single tort enjoys a windfall; a defendant who escapes, in whole or in part, liability
for his wrong enjoys a windfall. Because the law must sanction one windfall and
deny the other, it favors the victim of the wrong rather than the wrongdoer.
Thus, the tortfeasor is required to bear the cost for the full value of his or her
negligent conduct even if it results in a windfall for the innocent plaintiff. (Citations
omitted)
As seen, the collateral source rule applies in order to place the responsibility for
losses on the party causing them.43 Its application is justified so that "'the
wrongdoer should not benefit from the expenditures made by the injured party or
take advantage of contracts or other relations that may exist between the injured
party and third persons."44 Thus, it finds no application to cases involving no-fault
insurances under which the insured is indemnified for losses by insurance
companies, regardless of who was at fault in the incident generating the
losses.45 Here, it is clear that MMPC is a no-fault insurer. Hence, it cannot be obliged
to pay the hospitalization expenses of the dependents of its employees which had
already been paid by separate health insurance providers of said dependents.
The Voluntary Arbitrator therefore erred in adopting Atty. Funks view that the
covered employees are entitled to full payment of the hospital expenses incurred by
their dependents, including the amounts already paid by other health insurance
companies based on the theory of collateral source rule.
The conditions set forth in the CBA provision indicate an intention to limit MMPCs
liability only to actual expenses incurred by the employees dependents, that is,
excluding the amounts paid by dependents other health insurance providers.
The Voluntary Arbitrator ruled that the CBA has no express provision barring claims
for hospitalization expenses already paid by other insurers. Hence, the covered
employees can recover from both. The CA did not agree, saying that the conditions
set forth in the CBA implied an intention of the parties to limit MMPCs liability only
to the extent of the expenses actually incurred by their dependents which excludes
the amounts shouldered by other health insurance companies.
We agree with the CA. The condition that payment should be direct to the hospital
and doctor implies that MMPC is only liable to pay medical expenses actually
shouldered by the employees dependents. It follows that MMPCs liability is limited,
that is, it does not include the amounts paid by other health insurance providers.
This condition is obviously intended to thwart not only fraudulent claims but also
double claims for the same loss of the dependents of covered employees.
It is well to note at this point that the CBA constitutes a contract between the
parties and as such, it should be strictly construed for the purpose of limiting the
amount of the employers liability.46 The terms of the subject provision are clear and
provide no room for any other interpretation. As there is no ambiguity, the terms
must be taken in their plain, ordinary and popular sense. 47 Consequently, MMPSEU
cannot rely on the rule that a contract of insurance is to be liberally construed in
favor of the insured. Neither can it rely on the theory that any doubt must be
resolved in favor of labor.
Samsel v. Allstate Insurance Co. is not
on all fours with the case at bar.
MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court
of Arizona allowed the insured to enjoy medical benefits under an automobile policy
insurance despite being able to also recover from a separate health insurer. In that
case, the Allstate automobile policy does not contain any clause restricting medical
payment coverage to expenses actually paid by the insured nor does it specifically
provide for reduction of medical payments benefits by a coordination of
benefits.48 However, in the case before us, the dependents group hospitalization
insurance provision in the CBA specifically contains a condition which limits MMPCs
liability only up to the extent of the expenses that should be paid by the covered
employees dependent to the hospital and doctor. This is evident from the portion
which states that "payment by MMPC shall be direct to the hospital and doctor." 49 In
contrast, the Allstate automobile policy expressly gives Allstate the authority to pay
directly to the insured person or on the latters behalf all reasonable expenses
actually incurred. Therefore, reliance on Samsel is unavailing because the facts
therein are different and not decisive of the issues in the present case.
To allow reimbursement of amounts paid

under other insurance policies shall
constitute double recovery which is not
sanctioned by law.
MMPSEU insists that MMPC is also liable for the amounts covered under other
insurance policies; otherwise, MMPC will unjustly profit from the premiums the
employees contribute through monthly salary deductions.
This contention is unmeritorious.
To constitute unjust enrichment, it must be shown that a party was unjustly
enriched in the sense that the term unjustly could mean illegally or unlawfully. 50 A
claim for unjust enrichment fails when the person who will benefit has a valid claim
to such benefit.51
The CBA has provided for MMPCs limited liability which extends only up to the
amount to be paid to the hospital and doctor by the employees dependents,
excluding those paid by other insurers. Consequently, the covered employees will
not receive more than what is due them; neither is MMPC under any obligation to
give more than what is due under the CBA.
Moreover, since the subject CBA provision is an insurance contract, the rights and
obligations of the parties must be determined in accordance with the general
principles of insurance law.52 Being in the nature of a non-life insurance contract and
essentially a contract of indemnity, the CBA provision obligates MMPC to indemnify
the covered employees medical expenses incurred by their dependents but only up
to the extent of the expenses actually incurred. 53 This is consistent with the
principle of indemnity which proscribes the insured from recovering greater than the
loss.54 Indeed, to profit from a loss will lead to unjust enrichment and therefore
should not be countenanced. As aptly ruled by the CA, to grant the claims of
MMPSEU will permit possible abuse by employees.
WHEREFORE, the Petition is DENIED. The Decision dated March 31, 2006 and
Resolution dated December 5, 2006 of the Court of Appeals in CA-G.R. SP No.
75630, are AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

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FIRST DIVISION

G.R. No. L-25317 August 6, 1979

first period hereinafter mentioned. ...chanroblesvirtualawlibrarychanrobles virtual

Teehankee (Chairman), Fernandez, Guerrero and De Castro, JJ.,

4. The premiums for the policies in question in the aggregate amount

August 31, 1967

PHILIPPINE PHOENIX SURETY & INSURANCE, INC., plaintiff-appellee,

acknowledged in a receipt signed by any authorized official or representative/agent

G.R. No. 95546 November 6, 1992

On 10 February 1983, private respondent issued to petitioner Insurance Policy No.

As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view

Republic of the Philippines

November 20, 2013

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

wasP16,731,141,166.80, out of which, 95% or P15,894,584,108.40 was reinsured by

January 27, 2006

DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner,

Any loss or damage happening during the existence of abnormal conditions

this it follows that an insurer seeking to defeat a claim because of an

July 11, 2012

UNITED MERCHANTS CORPORATION, Petitioner,

Petitioner United Merchants Corporation (UMC) is engaged in the business of

suppliers as Fiber Technology Corporation from which UMC bought stocks

The Ruling of the Regional Trial Court

Hence, CBIC filed an appeal with the Court of Appeals (CA).

Exhs. "GGG- SCCFI

Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly

WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW,

lights from 20 January 1996 to 23 February 1996. The uncontroverted testimony of

Republic of the Philippines

July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

WHEREFORE, on the main Complaint, judgment is hereby rendered finding

On the first issue Reputable is a private carrier.

5. in awarding exorbitant attorney's fees.

GUTIERREZ, JR., J.:

G.R. No. 94052 August 9, 1991

ORIENTAL ASSURANCE CORPORATION, petitioner,

Amount Insured Hereunder:

rendered its Decision, with the following dispositive

WHEREFORE, upon all the foregoing premises, judgment is hereby rendered:

1. Ordering the defendant Oriental Assurance Corporation to pay plaintiff Panama

MALAYAN INSURANCE COMPANY, INC., PETITIONER,

THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE

You are referring to RCBC?

Because she is my secretary.

Republic of the Philippines

TEEHANKEE, Acting C.J.:

drive, or enjoying a free ride, takes possession of a vehicle belonging to another,

G.R. No. 177839

VILLARAMA, JR., J.:

The main issue to be resolved is one of first impression: whether a surety is

a copy of which is attached hereto and made a part hereof:

The rider attached to the bond sets forth the following:

No, its not a practice to make an agreement.

I was confused with the question. Im talking about Malou Apostol.

Respondent, however, maintains that the delivery of the bond and

respondents complaint as well as petitioners counterclaim, is hereby REINSTATED

September 13, 2007

PRUDENTIAL GUARANTEE and ASSURANCE, INC., petitioner,

work actually accomplished. As of July 11, 1997, JMarc accomplished only

Assurance Corporation v. Salik,7 argued that as a surety, it is considered under the

G.R. No. 151133

NOEL MOLINA, JUANITO ARQUEZA,