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NOTES INSURANCE Kenneth & King Hizon (2A)- UST Faculty of Civil Law
MALAYAN INSURANCE CORPORATION v. THE HON. COURT OF APPEALS and TKC MARKETING CORPORATION G.R. No. 119599, 20 March 1997, SECOND DIVISION (Romero, J.)
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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.
Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya bean meal which was loaded on board the ship MV Al Kaziemah in September 1989 for carriage from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss by petitioner Malayan Insurance Corporation for which it issued two (2) Marine Cargo Policy Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45, both dated September 1989. While the vessel was docked in Durban, South Africa enroute to Manila, the civil authorities arrested and detained it because of a lawsuit on a question of ownership and possession. As a result, private respondent notified petitioner on October 1989 of the arrest of the vessel and made a formal claim for the amount of US$916,886.66, representing the dollar equivalent on the policies, for non-delivery of the cargo. Private respondent likewise sought the assistance of petitioner on what to do with the cargo. Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies. Private respondent, accordingly, advised petitioner that it might tranship the cargo and requested an extension of the insurance coverage until actual transhipment, which extension was approved upon payment of additional premium. The insurance coverage was extended under the same terms and conditions embodied in the original policies while in the process of making arrangements for the transhipment of the cargo from Durban to Manila, covering the period October 4-December 19, 1989. However, in December 1989, the cargo was sold in Durban, South Africa, for US$154.40 per metric ton or a total of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty days to Manila and another twenty days for the discharge thereof. In January 1990, private respondent forthwith reduced its claim to US$448,806.09 (or its peso equivalent of P9,879,928.89 at the exchange rate of P22.0138 per $1.00) representing private respondent's loss after the proceeds of the sale were deducted from the original claim of $916,886.66 or P20,184,159.55. Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership was an excepted risk under the marine insurance policies. This prompted private respondent to file a complaint for damages praying that aside from its claim, it be reimbursed the amount of P128,770.88 as legal expenses and the interest it paid for the loan it obtained to finance the shipment totalling P942,269.30. In addition, private respondent asked for moral, exemplary damages as well as attorneys fees equivalent to 30% of what will be awarded by the court. The lower court decided in favor of private respondent. On private respondent's motion for reconsideration, petitioner was also required to further pay interest at the rate of 12% per annum on all amounts due and owing to the private respondent by virtue of the lower court decision counted from the inception of this case until the same is paid. On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the deletion of Clause 12 of the policies issued to private respondent, the same became automatically covered under subsection 1.1 of Section 1 of the Institute War Clauses. The arrests, restraints or detainments contemplated in the former clause were those effected by political or executive acts. Losses occasioned by riot or ordinary judicial processes were not covered therein. In other words, arrest, restraint or detainment within the meaning of Clause 12 (or F.C. & S. Clause) rules out detention by ordinary legal processes. Hence, arrests by civil authorities, such as what happened in the instant case, is an excepted risk under Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause. However, with the deletion of Clause 12 of the Institute Cargo Clause and the consequent adoption or institution of the Institute War Clauses (Cargo), the arrest and seizure by judicial processes which were excluded under the former policy became one of the covered risks. The appellate court added that the failure to deliver the consigned goods in the port of destination is a loss compensable, not only under the Institute War Clause but also under the Theft, Pilferage, and Non-delivery Clause (TNPD) of the insurance policies, as read in relation to Section 130 of the Insurance Code and as held in Williams v. Cole. Furthermore, the appellate court contended that since the vessel was prevented at an intermediate port from completing the voyage due to its seizure by civil authorities, a peril insured against, the liability of petitioner continued until the goods could have been transhipped. But
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due to the perishable nature of the goods, it had to be promptly sold to minimize loss. Accordingly, the sale of the goods being reasonable and justified, it should not operate to discharge petitioner from its contractual liability. ISSUE: Whether or not the arrest of the vessel was a risk covered under the subject insurance policies HELD: Petition DENIED. The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies in relation to the excluded risks or warranty specifically stated therein. By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase "perils of the sea" to encompass the wide and varied range of risks that were covered. The subject policies contain the "Perils" clause which is a standard form in any marine insurance policy. Said clause reads:
"Touching the adventures which the said MALAYAN INSURANCE CO., are content to bear, and to take upon them in this voyage; they are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons, Letters of Mart and Counter Mart, Suprisals, Takings of the Sea, Arrests, Restraints and Detainments of all Kings, Princess and Peoples, of what Nation, condition, or quality soever, Barratry of the Master and Mariners, and of all other Perils, Losses, and Misfortunes, that have come to hurt, detriment, or damage of the said goods and merchandise or any part thereof . AND in case of any loss or misfortune it shall be lawful to the ASSURED, their factors, servants and assigns, to sue, labour, and travel for, in and about the defence, safeguards, and recovery of the said goods and merchandises, and ship, & c., or any part thereof, without prejudice to this INSURANCE; to the charges whereof the said COMPANY, will contribute according to the rate and quantity of the sum herein INSURED. AND it is expressly declared and agreed that no acts of the Insurer or Insured in recovering, saving, or preserving the Property insured shall be considered as a Waiver, or Acceptance of Abandonment. And it is agreed by the said COMPANY, that this writing or Policy of INSURANCE shall be of as much Force and Effect as the surest Writing or Policy of INSURANCE made in LONDON. And so the said MALAYAN INSURANCE COMPANY, INC., are contented, and do hereby promise and bind themselves, their Heirs, Executors, Goods and Chattel, to the ASSURED, his or their Executors, Administrators, or Assigns, for the true Performance of the Premises; confessing themselves paid the Consideration due unto them for this INSURANCE at and after the rate arranged." (Underscoring supplied)
The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F.C. & S. Clause which reads, thus:
"Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt thereat; also from the consequences of hostilities and warlike operations, whether there be a declaration of war or not; but this warranty shall not exclude collision, contact with any fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature of the voyage or service which the vessel concerned or, in the case of a collision, any other vessel involved therein is performing) by a hostile act by or against a belligerent power and for the purpose of this warranty 'power' includes any authorities maintaining naval, military or air forces in association with power. Further warranted free from the consequences of civil war, revolution, insurrection, or civil strike arising therefrom or piracy. Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form part of this insurance." (Underscoring supplied)
However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War Clauses (Cargo) was deemed incorporated which, in subsection 1.1 of Section 1, provides: "1. This insurance covers: 1.1 The risks excluded from the standard form of English Marine Policy by the clause warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof of hostilities or warlike operations, whether there be a declaration of war or not; but this warranty shall not exclude collision, contact with any fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature on voyage or service which the vessel concerned or, in the case of a collision any other vessel involved therein is performing) by a hostile act by or against a belligerent power; and for the purpose of this warranty 'power' includes any authority maintaining naval, military or air forces in association with a power. Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or civil strike arising therefrom, or piracy." According to petitioner, the automatic incorporation of subsection 1.1 of section 1 of the Institute War Clauses (Cargo), among others, means that any "capture, arrest, detention, etc." pertained exclusively to warlike operations if this Court strictly
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construes the heading of the said Clauses. However, it also claims that the parties intended to include arrests, etc. even if it were not the result of hostilities or warlike operations. It further claims that on the strength of jurisprudence on the matter, the term "arrests" would only cover those arising from political or executive acts, concluding that whether private respondent's claim is anchored on subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) or the F.C. & S. Clause, the arrest of the vessel by judicial authorities is an excluded risk. This Court cannot agree with petitioner's assertions, particularly when it alleges that in the "Perils" Clause, it assumed the risk of arrest caused solely by executive or political acts of the government of the seizing state and thereby excludes "arrests" caused by ordinary legal processes, such as in the instant case. With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this Court agrees with the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial process is deemed included among the covered risks. This interpretation becomes inevitable when subsection 1.1 of Section 1 of the Institute War Clauses provided that "this insurance covers the risks excluded from the Standard Form of English Marine Policy by the clause 'Warranted free of capture, seizure, arrest, etc. x x x'" or the F.C. & S. Clause. Jurisprudentially, "arrests" caused by ordinary judicial process is also a risk excluded from the Standard Form of English Marine Policy by the F.C. & S. Clause. Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in the covered risk simply because the F.C. & S. Clause under the Institute War Clauses can only be operative in case of hostilities or warlike operations on account of its heading "Institute War Clauses." This Court agrees with the Court of Appeals when it held that ". . . Although the F.C. & S. Clause may have originally been inserted in marine policies to protect against risks of war, (see generally G. Gilmore & C. Black, The Law of Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation in recent years to include seizure or detention by civil authorities seems consistent with the general purposes of the clause, x x x" In fact, petitioner itself averred that subsection 1.1 of Section 1 of the Institute War Clauses included "arrest" even if it were not a result of hostilities or warlike operations. In this regard, since what was also excluded in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial process, logically, such "arrest" would now become a covered risk under subsection 1.1 of Section 1 of the Institute War Clauses, regardless of whether or not said "arrest" by civil authorities occurred in a state of war. Petitioner itself seems to be confused about the application of the F.C. & S. Clause as well as that of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was "originally incorporated in insurance policies to eliminate the risks of warlike operations". It also averred that the F.C. & S. Clause applies even if there be no war or warlike operations x x x." In the same vein, it contended that subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) was to include "arrest, etc. even if it were not a result of hostilities or warlike operations." This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions of the policy in order to avoid being liable for private respondent's claim. This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest" occasioned by executive or political acts of government which is interpreted as not referring to those caused by ordinary legal processes as contained in the "Perils" Clause; deletes the F.C. & S. Clause which excludes risks of arrest occasioned by executive or political acts of the government and naturally, also those caused by ordinary legal processes; and, thereafter incorporates subsection 1.1 of Section 1 of the Institute War Clauses which now includes in the coverage risks of arrest due to executive or political acts of a government but then still excludes "arrests" occasioned by ordinary legal processes when subsection 1.1 of Section 1 of said Clauses should also have included "arrests" previously excluded from the coverage of the F.C. & S. Clause. It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or to render the policy nonsensical, should, by all means, be avoided. Likewise, it must be borne in mind that such contracts are invariably prepared by the companies and must be accepted by the insured in the form in which they are written. Any construction of a marine policy rendering it void should be avoided. Such policies will, therefore, be construed strictly against the company in order to avoid a forfeiture, unless no other result is possible from the language used. If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract by special proviso, exception, or exemption, it should express such limitation in clear and unmistakable language. Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo)
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gave rise to ambiguity. If the risk of arrest occasioned by ordinary judicial process was expressly indicated as an exception in the subject policies, there would have been no controversy with respect to the interpretation of the subject clauses. Be that as it may, exceptions to the general coverage are construed most strongly against the company. Even an express exception in a policy is to be construed against the underwriters by whom the policy is framed, and for whose benefit the exception is introduced. An insurance contract should be so interpreted as to carry out the purpose for which the parties entered into the contract which is, to insure against risks of loss or damage to the goods. Such interpretation should result from the natural and reasonable meaning of language in the policy.[16] Where restrictive provisions are open to two interpretations, that which is most favorable to the insured is adopted. Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. [18] A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations.[19]
SIMEON DEL ROSARIO v. THE EQUITABLE INSURANCE AND CASUALTY CO., INC. G.R. No. L-16215, 29 June 1963, EN BANC (Paredes, J.) Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which allows the greater indemnity will prevail. In 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of the insured. The pertinent provisions of the Policy, recite:
Part I. Indemnity For Death If the insured sustains any bodily injury which is effected solely through violent, external, visible and accidental means, and which shall result, independently of all other causes and within sixty (60) days from the occurrence thereof, in the Death of the Insured, the Company shall pay the amount set opposite such injury: Section 1. Injury sustained other than those specified below unless excepted hereinafter. . . . . . . . P1,000.00 Section 2. Injury sustained by the wrecking or disablement of a railroad passenger car or street railway car in or on which the Insured is travelling as a farepaying passenger. . . . . . . . P1,500.00 Section 3. Injury sustained by the burning of a church, theatre, public library or municipal administration building while the Insured is therein at the commencement of the fire. . . . . . . . P2,000.00 Section 4. Injury sustained by the wrecking or disablement of a regular passenger elevator car in which the Insured is being conveyed as a passenger (Elevator in mines excluded) P2,500.00 Section 5. Injury sustained by a stroke of lightning or by a P3,000.0 cyclone. . . . . . . . 0 Part VI. Exceptions This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability, Hospital fees, or Loss of Time, caused to the insured: . . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of a passenger steam or motor vessel in which the Insured is travelling as a farepaying passenger; . . . .
A rider to the Policy contained the following:

IV. DROWNING
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It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby waived by the company, and to form a part of the provision covered by the policy. Subsequently, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump off said launch on account of fire which broke out on said vessel, resulting in the death of drowning, of the insured and beneficiary in the waters of Jolo. As such, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with defendant company, and on September 13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. On the same date, Atty. Vicente J. Francisco, wrote defendant company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing said company that said amount was not the correct one. Atty. Francisco claimed The amount payable under the policy, I believe should be P1,500.00 under the provision of Section 2, part 1 of the policy, based on the rule of pari materia as the death of the insured occurred under the circumstances similar to that provided under the aforecited section. Defendant company, upon receipt of the letter, referred the matter to the Insurance Commissioner, who rendered an opinion that the liability of the company was only P1,000.00, pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because of the above opinion, defendant insurance company refused to pay more than P1,000.00. In the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery of the balance of P2,000.00 more was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII), praying for it further sum of P10,000.00 as attorney's fees, expenses of litigation and costs. Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or claim is set forth in the complaint had already been released, plaintiff having received the full amount due as appearing in policy and as per opinion of the Insurance Commissioner. An opposition to the motion to dismiss, was presented by plaintiff, and other pleadings were subsequently file by the parties. The trial court the deferred action on the motion to dismiss until termination of the trial of the case, it appearing that the ground thereof was not indubitable. In the Answer to the complaint, defendant company practically admitted all the allegations therein, denying only those which stated that under the policy its liability was P3,000.00. In September, 1958, the trial court promulgated an Amended Decision, the pertinent portions of which read
". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to P3,000.00 as indemnity for the death of the insured. The insured died of drowning. Death by drowning is covered by the policy the pertinent provisions of which reads as follows: "Part I of the policy fixes specific amounts as indemnities in case of death resulting from "bodily injury which is effected solely thru violence, external, visible and accidental means" but, Part I of the Policy is not applicable in case of death by drowning because death by drowning is not one resulting from "bodily injury which is affected solely thru violent, external, visible and accidental means" as "Bodily Injury" means a cut, a bruise, or a wound and drowning is death due to suffocation and not to any cut, bruise or wound." Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for recovery apart from the bodily injury because death by bodily injury is covered by Part I of the policy while death by drowning is covered by Part VI thereof. But while the policy mentions specific amounts that may be recovered for death for bodily injury, yet, there is not specific amount mentioned in the policy for death thru drowning although the latter is, under Part VI of the policy, a ground for recovery thereunder. Since the defendant has bound itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does not positively state any definite amount that may be recovered in case of death by drowning, there is an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured and strictly against the insurer so as to allow greater indemnity. xxx xxx xxx . . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the amount of P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the amount to which plaintiff is entitled to recover under the policy Exhibit "A".
The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a Resolution dated September 29, 1959, elevated the case to this Court, stating that the genuine issue is purely legal in nature. ISSUE: Whether or not the plaintiff is entitled to recover P 3,000.00 as indemnification HELD:
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Petition GRANTED. All the parties agree that indemnity has to be paid. The conflict centers on how much should the indemnity be. We believe that under the proven facts and circumstances, the findings and conclusions of the trial court, are well taken, for they are supported by the generally accepted principles or rulings on insurance, which enunciate that where there is an ambiguity with respect to the terms and conditions of the policy, the same will be resolved against the one responsible thereof. It should be recalled in this connection, that generally, the insured, has little, if any, participation in the preparation of the policy, together with the drafting of its terms and Conditions. The interpretation of obscure stipulations in a contract should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the insurance company. . . . . And so it has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal or uncertain . . . are to be construed strictly against, the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved," (29 Am. Jur. 181) and the reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955. . . . . Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).
FORTUNE INSURANCE AND SURETY CO., INC., v. COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES G.R. No. 115278, 23 May 1995, FIRST DIVISION (Davide, Jr. J.) This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its head office in Makati. After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation of facts: The plaintiff was insured by the defendants and an insurance policy was issued. An armored car of the plaintiff, while in the process of transferring cash in the sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The robbery took place while the armored car was traveling along Taft Avenue in Pasay City; The said armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard Saturnino Atiga Y Rosete. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. Then, the Fiscal of Pasay City then filed an information charging the aforesaid persons with the said crime before Branch 112 of the Regional Trial Court of Pasay City. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the insurance policy which reads as follows:
GENERAL EXCEPTIONS The company shall not be liable under this policy in report of (b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others. . . . 8. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its "officer, employee, . . . trustee or authorized representative . . . at the time of the robbery.
In April 1990, the trial court rendered its decision in favor of Producers. The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It Said:
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The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga, their services as armored car driver and as security guard having been merely offered by PRC Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields the power to dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to provide driving services and property protection as such in a context which does not impress the Court as translating into plaintiff's power to control the conduct of any assigned driver or security guard, beyond perhaps entitling plaintiff to request are replacement for such driver guard. The finding is accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance of defendant's liability under the policy, particularly the general exceptions therein embodied. Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the "authorized representatives" of plaintiff. They were merely an assigned armored car driver and security guard, respectively, for the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being transferred along a specified money route, and hence plaintiff's then designated "messenger" adverted to in the policy.
The Court of Appeals affirmed in toto the said decision. The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither employees nor authorized representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193). The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple. No other interpretation is necessary. The word "employee" must be taken to mean in the ordinary sense. The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and therefore its definition as to employer-employee relationships insofar as the application/enforcement of said Code is concerned must necessarily be inapplicable to an insurance contract which defendant-appellant itself had formulated. Had it intended to apply the Labor Code in defining what the word "employee" refers to, it must/should have so stated expressly in the insurance policy. Said driver and security guard cannot be considered as employees of plaintiff-appellee bank because it has no power to hire or to dismiss said driver and security guard under the contracts (Exhs. 8 and C) except only to ask for their replacements from the contractors.
In June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the Court of Appeals erred in holding it liable under the insurance policy because the loss falls within the general exceptions clause considering that driver Magalong and security guard Atiga were Producers' authorized representatives or employees in the transfer of the money and payroll from its branch office in Pasay City to its head office in Makati. According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one branch to another, they effectively and necessarily became its authorized representatives in the care and custody of the money. Assuming that they could not be considered authorized representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an employer-employee relationship "is determined by law and being such, it cannot be the subject of agreement." Thus, if there was in reality an employer-employee relationship between Producers, on the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers with PRC Management System for Magalong and with Unicorn Security Services for Atiga which state that Producers is not their employer and that it is absolved from any liability as an employer, would not obliterate the relationship. Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power to dismiss; and (4) the presence and absence of a power to control the putative employee's conduct. Of the four, the right-of-control test has been held to be the decisive factor. It asserts that the power of control over Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security Services are but "laboronly" contractors under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
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Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling in International Timber Corp. vs. NLRC that a finding that a contractor is a "labor-only" contractor is equivalent to a finding that there is an employeremployee relationship between the owner of the project and the employees of the "labor-only" contractor. On the other hand, Producers contends that Magalong and Atiga were not its employees since it had nothing to do with their selection and engagement, the payment of their wages, their dismissal, and the control of their conduct. Producers argued that the rule in International Timber Corp. is not applicable to all cases but only when it becomes necessary to prevent any violation or circumvention of the Labor Code, a social legislation whose provisions may set aside contracts entered into by parties in order to give protection to the working man. Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn Security Services which provides that the guards of the latter "are in no sense employees of the CLIENT." ISSUE: Whether or not Fortune Insurance and Surety Co. Inc. is liable under the Money, Security, and Payroll Robbery policy it issued to Producers Bank of the Philippines HELD: Petition GRANTED. It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer the moral hazard is so great that insurers have found it necessary to fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured against." Persons frequently excluded under such provisions are those in the insured's service and employment. The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property. In such cases, the terms specifying the excluded classes are to be given their meaning as understood in common speech. The terms "service" and "employment" are generally associated with the idea of selection, control, and compensation. A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, or it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way, as to preclude the insurer from non-compliance with its obligation. It goes without saying then that if the terms of the contract are clear and unambiguous, there is no room for construction and such terms cannot be enlarged or diminished by judicial construction. An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is settled that the terms of the policy constitute the measure of the insurer's 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.
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With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or authorized representatives of Producers under paragraph (b) of the general exceptions clause of the policy? There is marked disagreement between the parties on the correct meaning of the terms "employee" and "authorized representatives." Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services are "labor-only" contracts. Producers, however, insists that by the express terms thereof, it is not the employer of Magalong. Notwithstanding such express assumption of PRC Management Systems and Unicorn Security Services that the drivers and the security guards each shall supply to Producers are not the latter's employees, it may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the case for judgment on the basis of their stipulation of facts which are strictly limited to the insurance policy, the contracts with PRC Management Systems and Unicorn Security Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between Producers and PRC Management Systems and Unicorn Security Services are "labor-only" contracts. But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its "authorized representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of Producers. A "representative" is defined as one who represents or stands in the place of another; one who represents others or another in a special capacity, as an agent, and is interchangeable with "agent."
RAFAEL (REX) VERENDIA v. COURT OF APPEALS and FIDELITY & SURETY CO. OF THE PHILIPPINES G.R. No. 75605, 22 January 1993, THIRD DIVISION (Melo, J.) As the insurance contract is the law between the parties, Verendia is deemed to have forfeited his right to claim by the misrepresentation he made. The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety Insurance Company of the Philippines (Fidelity), effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia also insured the same building with two other companies, namely, The Country Bankers Insurance for P56,000.00 expiring on May 12, 1981, and The Development Insurance for P400,000.00,expiring on June 30, 198l. While the three fire insurance policies were in force, the insured property was completely destroyed by fire on the early morning of December 28, 1980. Fidelity was accordingly informed of the loss and despite demands, refused payment under its policy, thus prompting Verendia to file a complaint with the then Court of First Instance of Quezon City, praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation expenses. The complaint was later amended to include Monte de Piedad as an "unwilling defendant" Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of over-insurance; that Verendia maliciously represented that the building at the time of the fire was leased under a contract executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee. The Trial Cpurt ruled in favor of Fidelity. Accordingly, Paragraph 3 of the policy was also violated by Verendia in that the insured failed to inform Fidelity of his other insurance coverages with Country Bankers Insurance and Development Insurance. Upon appeal, Intermediate Appellate Court reversed the decision for the following reasons: (a) there was no misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity of other contracts of insurance was waived by Fidelity as shown by its conduct in attempting to settle the claim of Verendia.
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Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of directly filing a motion for reconsideration within 15 days therefrom, Fidelity filed on April 21, 1986, a motion for extension of 3 days within which to file a motion for reconsideration. The motion for extension was not filed on April 19, 1986 which was the 15th day after receipt of the decision because said 15th day was a Saturday and of course, the following day was a Sunday. The motion for extension was granted by the appellate court on April 30, 1986, but Fidelity had in the meantime filed its motion for reconsideration on April 24, 1986. Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground that the motion for extension was filed out of time because the 15th day from receipt of the decision which fell on a Saturday was ignored by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate Court has personnel receiving pleadings even on Saturdays. The same was denied. ISSUE: Whether or not Fidelity as liable to Verendia HELD: Petition DENIED. The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered into between him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980, a couple of days after the effectivity of the insurance policy. When the rented residential building was razed to the ground on December 28, 1980, it appears that Robert Garcia (or Roberto Garcia) was still within the premises. However, according to the investigation report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to have "no occupant" and that Mr. Roberto Garcia was "renting on the otherside portion of said compound". These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia, whom he considered as the real lessee, was occupying the building when it was burned. Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to locate him. Robert Garcia then executed an affidavit before the National Intelligence and Security Authority (NISA) to the effect that he was not the lessee of Verendia's house and that his signature on the contract of lease was a complete forgery. Thus, on the strength of these facts, the adjuster submitted a report dated December 4, 1981 recommending the denial of Verendia's claim. Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract. According to Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had been paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his cousin's name when he in fact was paying for the rent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to have sufficient bases; Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had assessed the property's fair market value to be only P40,300.00, insured the same property with two other insurance companies for a total coverage of around P900,000, and created a dead-end for the adjuster by the disappearance of Robert Garcia. Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery from the insurer (Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion, an insurance contract should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it (Western Guaranty Corporation vs. Court of Appeals, 187 SCRA 652 [1980]). Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein
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by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision (Pacific Banking Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false lease contract, Verendia, reprehensibly disregarded the principle that insurance contracts areuberrimae fidae and demand the most abundant good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]). There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete as the blank spaces for a witness and his address are not filled up. More significantly, the same receipt states that Verendia had received the aforesaid amount. However, that Verendia had not received the amount stated therein, is proven by the fact that Verendia himself filed the complaint for the full amount of P385,000.00 stated in the policy. It might be that there had been efforts to settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational basis but would be substituting the will of the Court for that of the parties.
NEW LIFE ENTERPRISES and JULIAN SY v. HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN GUARANTY CORPORATION G.R. No. 94071, 31 March 1992, SECOND DIVISION (Regalado, J.) The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a business partnership in the City of Lucena. Under the business name of New Life Enterprises, the partnership engaged in the sale of construction materials at its place of business, a two storey building situated at Iyam, Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life Enterprises with Western Guaranty Corporation, Reliance Surety and Insurance. Co., Inc., and Equitable Insurance Corporation. In May 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the amount of P350,000.00. This policy was renewed on May, 13, 1982.In July 981, Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy No. 69135 in the amount of P300,000.00 (Renewed under Renewal Certificate No. 41997) An additional insurance was issued by the same company on November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of P700,000.00. In February 1982, Equitable Insurance Corporation issued Fire Insurance Policy No. 39328 in the amount of P200,000.00. Thus when the building occupied by the New Life Enterprises was gutted by fire at about 2:00 o'clock in the morning of October 19, 1982, the stocks in the trade inside said building were insured against fire in the total amount of P1,550,000.00. According to the certification issued by the Headquarters, Philippine Constabulary /Integrated National Police, Camp Crame, the cause of fire was electrical in nature. According to the plaintiffs, the building and the stocks inside were burned. After the fire, Julian Sy went to the agent of Reliance Insurance whom he asked to accompany him to the office of the company so that he can file his claim. He averred that in support of his claim, he submitted the fire clearance, the insurance policies and inventory of stocks. He further testified that the three insurance companies are sister companies, and as a matter of fact when he was following-up his claim with Equitable Insurance, the Claims Manager told him to go first to Reliance Insurance and if said company agrees to pay, they would also pay. The same treatment was given him by the other insurance companies. Ultimately, the three insurance companies denied plaintiffs' claim for payment. In its letter of denial, Western Guaranty Corporationthrough Claims Manager Bernard S. Razon told the plaintiff that his claim "is denied for breach ofpolicy conditions." Reliance Insurance purveyed the same message in its letter dated November 23, 1982 and signed by Executive Vice-President Mary Dee Co which said that "plaintiff's claim is denied for breach of policy conditions." The letter of denial received by the plaintiff from Equitable Insurance Corporation was of the same tenor, as said letter dated February 22, 1983, and signed by Vice-President Elma R. Bondad, said "we find that certain policy conditions were violated, therefore, we regret, we have to deny your claim, as it is hereby denied in its entirety." In relation to the case against Reliance Surety and Insurance Company, a certain Atty. Serafin D. Dator, actingin behalf of the plaintiff, sent a letter dated February 13, 1983 to Executive Vice-President Mary Dee Co asking that he be informed as to the specific policy conditions allegedly violated by the plaintiff. In her reply-letter dated March 30, 1983, Executive Vice-
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President Mary Dee Co informed Atty. Dator that Julian Sy violated Policy Condition No. "3" which requires the insured to give notice of any insurance or insurances already effected covering the stocks in trade. Because of the denial of their claims for payment by the three (3) insurance companies, petitioner filed separate civil actions against the former before the Regional Trial Court of Lucena City, which cases were consolidated for trial, and thereafter the court below rendered its decision on December 19, l986. The RTC ruled in favor of the petitioner. However, the Court of Appeals reversed the trial courts decision, found petitioner to have violated Clauses 3 and 27 of the separate insurance policies issued by the 3 companies, and exonerated the insurance companies from liability. ISSUE: Whether or not the petitioners violated the other insurance clause HELD: Petition DENIED. Condition No. 3 of said insurance policies, otherwise known as the "Other Insurance Clause," is uniformly contained in all the aforestated insurance contracts of herein petitioners, as follows:
3. The insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated therein or endorsed on this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of loss or damage not more than P200,000.00.
Petitioners admit that the respective insurance policies issued by private respondents did not state or endorse thereon the other insurance coverage obtained or subsequently effected on the same stocks in trade for the loss of which compensation is claimed by petitioners. The policy issued by respondent Western Guaranty Corporation (Western) did not declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent Equitable Insurance Corporation (Equitable) as co-insurers on the same stocks, while Reliance'sPolicies covering the same stocks did not likewise declare Western and Equitable as such coinsurers. It is further admitted by petitioners that Equitable's policy stated "nil" in the space thereon requiring indication of any co-insurance although there were three (3) policies subsisting on the same stocks in trade at the time of the loss,namely, that of Western in the amount of P350,000.00 and two (2) policies of Reliance in the total amount of P1,000,000.00. In other words, the coverage by other insurance or co-insurance effected or subsequently arranged by petitioners were neither stated nor endorsed in the policies of the three (3) private respondents, warranting forfeiture of all benefits there under if we are to follow the express stipulation in the aforequoted Policy Condition No. 3. Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the existence of the additional insurance coverage and that they were not informed about the requirement that such other or additional insurance should be stated in the policy, as they have not even read policies. These contentions cannot pass judicial muster. The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject matter. The knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is not the "notice" that would estop the insurers from denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being of dubious applicability here has likewise been roundly refuted by respondent court whose factual findings we find acceptable. Thus, it points out that while petitioner Julian Sy claimed that he had informed insurance agent Alvarez regarding the coinsurance on the property, he contradicted himself by inexplicably claiming that he had not read the terms of the policies; that Yap Dam Chuan could not likewise have obtained such knowledge for the same reason, aside from the fact that
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the insurance with Western was obtained before those of Reliance and Equitable; and that the conclusion of the trial court that Reliance and Equitable are "sister companies" is an unfounded conjecture drawn from the mere fact that Yap Kam Chuan was an agent for both companies which also had the same insurance claims adjuster. Availment of the services of the same agents and adjusters by different companies is a common practice in the insurance business and such facts do not warrant the speculative conclusion of the trial court. Furthermore, when the words and language of documents are clear and plain or readily understandable by an ordinary reader thereof, there is absolutely no room for interpretation or construction anymore. 9 Courts are not allowed to make contracts for the parties; rather, they will intervene only when the terms of the policy are ambiguous, equivocal, or uncertain. The parties must abide by the terms of the contract because such terms constitute the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right of recovery from the insurer. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally infavor of the insured and strictly against the insurer company, yet contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If suchterms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Moreover, obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care and prudence that would be exacted in relation to other contracts. The conformity of the insured to the terms of the policy is implied from his failure to express any disagreement with what is provided for. It may be true that the majority rule, as cited by petitioners, is that injured persons may accept policies without reading them, and that this is not negligence per se. But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering that he has been a businessman since 1965 and the contract concerns indemnity in case of loss in his money-making trade of which important consideration he could not have been unaware as it was pre-in case of loss in his money-making trade of which important consideration he could not have been unaware as it was precisely the reason for his procuring the same. We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. Yap:
The materiality of non-disclosure of other insurance policies is not open to doubt. xxx xxx xxx The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation in which a fire would be profitable to the insured. According to Justice Story: "The insured has no right to complain, for he assents to comply with all the stipulations on his side, in order toentitle himself to the benefit of the contract, which, upon reason or principle, he has no right to askthe court to dispense with the performance of his own part of the agreement, and yet to bind the otherparty to obligations, which, but for those stipulations, would not have been entered into."
Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al., we held:
It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many co-insurances, it could have hesitated or plainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25). Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are materially different from the actual number of coinsurances taken over the subject property. Consequently, "the whole foundation of the contract fails, the risk does not attach and the policy never becomes a contract between the parties." Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such representations is not shown to vary or add to the contract, or to terminate a contract which has once been made, but to show that no contract has ever existed (Tolentino,Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification (Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).
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As the insurance policy against fire expressly required that notice should be other insurance upon the same property, the total absence of such notice nullifies the policy.
given
by
the insured of
To further warrant and justify the forfeiture of the benefits under the insurance contracts involved, we need to turn to Policy Condition No. 15 thereof, which reads in part:
merely
15. . . . if any false declaration be made or used in support thereof, . . . all benefits under this Policy shall be forfeited . ... Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the complaint for recovery was filed in court by petitioners only on January 31, 1984, or after more than one (1) year had elapsed from petitioners' receipt of the insurers' letter of denial on November 29, 1982. The condition contained in an insurance policy that claims must be presented within one year after rejection is not merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance companies as it demands that insurance suits be brought by the insured while the evidence as to the origin and cause of destruction have not yet disappeared.
NATIONAL POWER CORPORATION v. COURT OF APPEALS and PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. G.R. No. L-43706, 14 November 1986, SECOND DIVISION (Paras, J.) The National Power Corporation (NPC) entered into a contract with the Far Eastern Electric, Inc. (FFEI) on December 26, 1962 for the erection of the Angat Balintawak 115-KW-3-Phase transmission lines for the Angat Hydroelectric Project. FEEI agreed to complete the work within 120 days from the signing of the contract, otherwise it would pay NPC P200.00 per calendar day as liquidated damages, while NPC agreed to pay the sum of P97,829.00 as consideration. On the other hand, Philippine American General Insurance Co., Inc. (Philamgen) issued a surety bond in the amount of P30,672.00 for the faithful performance of the undertaking by FEEI, as required. The condition of the bond reads:
The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. under this bond will expire One (1) year from final Completion and Acceptance and said bond will be cancelled 30 days after its expiration, unless surety is notified of any existing obligation thereunder. (Exhibit 1-a)
in correlation with the provisions of the construction contract between Petitioner and Far Eastern Electric, Inc. particularly the following provisions of the Specifications. to wit:
1. Par. 1B-2l Release of Bond 1B-21 Release of Bond The Contractor's performance bond will be released by the National Power Corporation at the expiration of one (1) year from the completion and final acceptance of the work, pursuant to the provisions of Act No. 3959, and subject to the General Conditions of this contract. (Page 49, Printed Record on Appeal); and 2. GP-19 of Specifications, which reads: (a) Should the Contractor fail to complete the construction of the work as herein specified and agreed upon, or if the work is abandoned, ... the Corporation shall have the power to take over the work by giving notice in writing to that effect to the Contractor and his sureties of its intention to take over the construction work. (b) ... It is expressly agreed that in the event the corporation takes over the work from the Contractor, the latter and his bondsmen shall continue to be liable under this contract for any expense in the completion of the work in excess of the contract price and the bond filed by the Contractor shall be answerable for the same and for any and all damages that the Corporation may suffer as a result thereof. (pp. 76-78, Printed Record on Appeal)
FEEI started construction on December 26, 1962 but on May 30, 1963, both FEEI and Philamgen wrote NPC requesting the assistance of the latter to complete the project due to unavailability of the equipment of FEEI. The work was abandoned on June 26, 1963, leaving the construction unfinished. On July 19, 1963, in a joint letter, Philamgen and FEEI informed NPC that FEEI was giving up the construction due to financial difficulties. On the same date, NPC wrote Philamgen informing it of the withdrawal of FEEI from the work and formally holding both FEEI and Philamgen liable for the cost of the work to be completed as of July 20, 1962 plus damages.
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The work was completed by NPC on September 30, 1963. On January 1967 NPC notified Philamgen that FEEI had an outstanding obligation in the amount of P75,019.85, exclusive of interest and damages, and demanded the remittance of the amount of the surety bond to answer for the cost of completion of the work. In reply, Philamgen requested for a detailed statement of account, but after receipt of the same, Philamgen did not pay as demanded but contended instead that its liability under the bond has expired on September 20, 1964 and claimed that no notice of any obligation of the surety was made within 30 days after its expiration. NPC filed then Civil Case No. 70811 for collection of the amount of P75,019.89 spent to complete the work abandoned; P144,000.00 as liquidated damages and P20,000.00 as attorney's fees. Only Philamgen answered while FEEI was declared in default. The trial court favored NPC. It ordered FEFI and Philamgen to pay jointly and severally the amount of P30,672.00 covered by Surety Bond No. 26268, dated December 26, 1962, plus interest at the legal rate from September 21, 1967 until fully paid, both defendants are also ordered to pay plaintiff the sum of P3,000.00 as attorney's fees and costs. On appeal by Philamgen, the Court of Appeals reversed the lower court's decision and dismissed the complaint. ISSUE: Whether or not there is compliance by Philamgen with the notice requirement as a condition in order to hold the surety liable HELD: Petition GRANTED. Petitioner claims that it has already complied with such requirement by virtue of its notice dated July 19, 1963 of abandonment of work by FEEI and of its takeover to finish the construction, at the same time formally holding both FEEI and Philamgen liable for the uncompleted work and damages. It further argued that the notice required in the bond within 30 days after its expiration of any existing obligation, is applicable only in case the contractor itself had completed the contract and not when the contractor failed to complete the work, from which arises the continued liability of the surety under its bond as expressly provided for in the contract. Petitioner's contention was sustained by the trial court. On the other hand, private respondent insists that petitioner's notice dated July 19, 1983 is not sufficient despite previous events that it had knowledge of FEEI's failure to comply with the contract and claims that it cannot be held liable under the bond without notice within thirty days from the expiration of the bond, that there is a subsisting obligation. Private respondent's contention is sustained by the Court of Appeals. The petition is impressed with merit. As correctly assessed by the trial court, the evidence on record shows that as early as May 30, 1963, Philamgen was duly informed of the failure of its principal to comply with its undertaking. In fact, said notice of failure was also signed by its Assistant Vice President. On July 19, 1963, when FEEI informed NPC that it was abandoning the construction job, the latter forthwith informed Philamgen of the fact on the same date. Moreover, on August 1, 1963, the fact that Philamgen was seasonably notified, was even bolstered by its request from NPC for information of the percentage completed by the bond principal prior to the relinquishment of the job to the latter and the reason for said relinquishment. (Record on Appeal, pp. 193-195). The 30-day notice adverted to in the surety bond applies to the completion of the work by the contractor. This completion by the contractor never materialized. The surety bond must be read in its entirety and together with the contract between NPC and the contractors. The provisions must be construed together to arrive at their true meaning. Certain stipulations cannot be segregated and then made to control. Furthermore, it is well settled that contracts of insurance are to be construed liberally in favor of the insured and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of its beneficiary. (Serrano v. Court of Appeals, 130 SCRA 327, July 16, 1984). In the case at bar, it cannot be denied that the breach of contract in this case, that is, the abandonment of the unfinished work of the transmission line of the petitioner by the contractor Far Eastern Electric, Inc. was within the effective date of the contract and the surety bond. Such abandonment gave rise to the continuing liability of the bond as provided for in the contract which is deemed incorporated in the surety bond executed for its completion. To rule therefore that private respondent was not properly notified would be gross error.
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GREAT PACIFIC LIFE ASSURANCE COMPANY v.. HONORABLE COURT OF APPEALS LAPU-LAPU v. HON. COURT OF APPEALS and NGO HING G.R. No. L-31845, 30 April 1979, FIRST DIVISION (De Castro, J.) It appears that on March 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting. Mondragon finally type-wrote the data on the application form which was signed by private respondent Ngo Hing. The latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he reatined the amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life. Upon the payment of the insurance premuim, the binding deposit receipt was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance application. Then on April 1957, Mondragon received a letter from Pacific Life disapproving the insurance application. The letter stated that the said life insurance application for 20-year endowment plan is not available for minors below seven years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile NonMedical Declaration be sent to the company. The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon to private respondent Ngo Hing. Instead, on May 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage. It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of bronchopneumonia. Thereupon, private respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same before the Court of First Instance of Cebu, which rendered the adverse decision as earlier referred to against both petitioners. ISSUE: Whether or not the insurance company is liable HELD: Petition GRANTED. The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life insurance in question; and (2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void. Accordingly, the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant. Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.
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Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure outright. As held by this Court, where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264). It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance application in question on the ground that it is not offering the twenty-year endowment insurance policy to children less than seven years of age. What it offered instead is another plan known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life. As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents ... The contract, to be binding from the date of the application, must have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement." We are not impressed with private respondent's contention that failure of petitioner Mondragon to communicate to him the rejection of the insurance application would not have any adverse effect on the allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first place, there was no contract perfected between the parties who had no meeting of their minds. Private respondent, being an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company does not offer the life insurance applied for. When he filed the insurance application in dispute, private respondent was, therefore, only taking the chance that Pacific Life will approve the recommendation of Mondragon for the acceptance and approval of the application in question along with his proposal that the insurance company starts to offer the 20-year endowment insurance plan for children less than seven years. Nonetheless, the record discloses that Pacific Life had rejected the proposal and recommendation. Secondly, having an insurable interest on the life of his one-year old daughter, aside from being an insurance agent and an offense associate of petitioner Mondragon, private respondent Ngo Hing must have known and followed the progress on the processing of such application and could not pretend ignorance of the Company's rejection of the 20-year endowment life insurance application. 2. Relative to the second issue of alleged concealment. This Court is of the firm belief that private respondent had deliberately concealed the state of health and physical condition of his daughter Helen Go. Where private respondent supplied the required essential data for the insurance application form, he was fully aware that his oneyear old daughter is typically a mongoloid child. Such a congenital physical defect could never be ensconced nor disguised. Nonetheless, private respondent, in apparent bad faith, withheld the fact material to the risk to be assumed by the insurance company. As an insurance agent of Pacific Life, he ought to know, as he surely must have known his duty and responsibility to such a material fact. Had he diamond said significant fact in the insurance application form Pacific Life would have verified the same and would have had no choice but to disapprove the application outright. We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined, having been committed by herein private respondent.
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT v. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION G.R. No. 124050, 19 June 1997, SECOND DIVISION (Puno, J.) In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to October, 1983, Mayer shipped the pipes and fittings to Hongkong. Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp.
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(Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of US$212,772.09 were insured with respondent South Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of US$149,470.00 were insured with respondent Charter. Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party inspector to examine whether the pipes and fittings are manufactured in accordance with the specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good order condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a substantial portion thereof was damaged. Petitioners filed a claim against private respondents for indemnity under the insurance contract. Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private respondents refused to pay because the insurance surveyor's report allegedly showed that the damage is a factory defect. Thus, in 1986, petitioners filed an action against private respondents to recover the sum of HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay the amount claimed by petitioners because the damage to the goods is due to factory defects which are not covered by the insurance policies. The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and private respondents are "all risks" policies which insure against all causes of conceivable loss or damage. The only exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the insured. Private respondents elevated the case to respondent Court of Appeals. Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and that it was covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer. However, it set aside the decision of the trial court and dismissed the complaint on the ground of prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more than two years from the time the goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered." Respondent court ruled that this provision applies not only to the carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. vs. Alejandro. ISSUE: Whether or not the action had already prescribed HELD: Petition GRANTED. The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of Goods by Sea Act. Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered. Under this provision, only the carrier's liability is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer's liability is based not on the contract of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The latter case is governed by the Insurance Code. Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and the other cases[ cited therein does not support respondent court's view that the insurer's liability prescribes after one year if no action for indemnity is filed against the carrier or the insurer. In that case, the shipper filed a complaint against the insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured goods. The insurer, in turn, filed a third-party complaint against the carrier for reimbursement of the amount it paid to the shipper. The insurer filed the third-party complaint on January 9, 1978, more than one year after delivery of the goods on December 17, 1977. The court held that the Insurer was already barred from filing a claim against the carrier because under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within one
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year after delivery of the goods or the date when the goods should have been delivered. The court said that "the coverage of the Act includes the insurer of the goods." The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim is the "all risks" insurance policies issued by private respondents to petitioner Mayer. The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper, the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim against the carrier beyond the oneyear period provided in the law. But it does not mean that the shipper may no longer file a claim against the insurer because the basis of the insurer's liability is the insurance contract. An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril. An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured. Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code.
PARAMOUNT INSURANCE CORPORATION. v. HON. MAXIMO M. JAPZON, Presiding Judge, Br. 36, RTC, Manila; City Sheriff and Deputy Sheriffs Nestor Macabilin & Teodoro Episcope, public respondents, JOSE LARA and ARSENIO PAED G.R. No. L-68037, 29 July 1992, THIRD DIVISION (Romero, J.) In May 27, 1978, Jose Lara contracted the services of a passenger jeepney with Plate No. PUJ K5-826, owned and operated by Willy Garcia (Garcia for brevity), to transport his family, relatives and friends from Manila to Pangasinan. The said jeepney was then driven by Emilio Macasieb (Macasieb for brevity). On the very same date, within the vicinity of Barangay Parsolingan in Gerona, Tarlac, a Ford truck F-600 with Plate No. WL-628, then driven by Willy Manuel (Manuel for brevity) while cruising the National Highway on its way to Manila, overtook an unidentified motor vehicle and in the process hit and sideswept the said passenger jeepney then driven by Macasieb. As a consequence of such mishap, the two (2) passengers of the jeepney, namely: Jose Lara (Lara for brevity) and Arsenio Paed (Paed for brevity) sustained physical injuries of varying degrees. Specifically, Lara suffered serious physical injuries resulting in the amputation of his right arm while Paed suffered serious physical injuries which incapacitated him to work for more than two (2) weeks. Aside from bodily injuries suffered by its passengers, both vehicles suffered minor damages at their respective points of impact. The insurer of said truck is herein petitioner Paramount Surety and Insurance Co. Inc. After the said accident, Natividad filed a notice of claim with Paramount and the latter lost no time in dispatching and/or contracting an independent adjuster handling casualty and marine claims, the EM Salvatierra Adjustment Office. Thereafter, the adjustment of Natividad's claims were transferred to Speedway Adjustment and Appraisal Corporation which investigated the facts surrounding the incident and recommended petitioner to pay Natividad under its policy, using the "no fault" clause under the Insurance Code as its basis of liability. Thus, a check in the amount of Eight Hundred Pesos (P800.00) was paid to Paed's wife, Priscilla Paed. In addition to said amount, another check in the amount of Five Thousand Pesos (P5,000.00) was paid by Paramount to Central Luzon Doctor's Hospital covering the expense for medical treatment and hospitalization of the victims, Lara and Paed. In June 1978, Lara and Paed filed a criminal case against Manuel for Reckless Imprudence resulting in Damage to Property before the Municipal Trial Court of Gerona, Tarlac. During the pendency of said criminal case, Lara filed a manifestation reserving the right to file a separate civil action against the operators of the two (2) vehicles, namely: Natividad and Garcia as well as the two (2) drivers, Manuel and Macasieb. Accordingly, Lara and Paed filed on September 17, 1978 a civil case for damages against Garcia, Macasieb, Manuel, Natividad, and impleaded Paramount, the latter as insurer of the Ford truck. A certain Atty. Segundo Gloria filed a notice of appearance where he informed the court that he was appearing for and in behalf of the defendants Natividad, Manuel and Paramount. Subsequently, on December 1978, he filed an answer with crossclaim and counterclaim.
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During the trial of the criminal case for Reckless Imprudence resulting in Damage to Property, accused Manuel pleaded guilty to the crime charged and was accordingly, sentenced to imprisonment of six months of arresto mayor maximum under Article 365 of the Revised Penal Code. In the interim period, a fire gutted the City Hall of Manila on November 19, 1981 and the records of the case were burned to ashes. Subsequently, plaintiffs (herein private respondents Lara and Paed) filed a petition for reconstitution of the judicial records of the case which was approved without any opposition in the order of the court. On February 1983, the court reiterated its order before the reconstitution of the judicial records declaring defendants Natividad, Manuel and Paramount in default in view of their continued failure to appear during the trial of the case and allowed the plaintiffs (Lara and Paed) to make a formal offer of exhibits and considered the case submitted for decision. The RTC of Manila rendered a decision in favor of Lara and Paed and against the defendants ordering the latter to pay jointly and severally plaintiff Jose Lara, the amount of P15,000.00 for medical and hospitalization expenses; the sum of P80,000.00 as moral and exemplary damages; the sum of P50,000.00 as compensatory damages; to pay jointly and severally plaintiff Arsenio Paed the sum of P20,000.00 as moral and actual damages and to pay the sum of P10,000.00 by way of attorney's fees and the costs of suit. A copy of the said decision was served on the petitioner's counsel, Atty. Segundo Gloria, No appeal from the judgment having been filed within the reglementary period or up to October 20, 1983, the same became final and executory. So, in March 1984, Lara and Paed, now private respondents, filed an ex-parte motion for execution of the said judgment and the trial court granted the same in July 1984. It was only on March 3, 1984 that Paramount, now petitioner, filed a motion to set aside the Decision raising the issue that the court has not validly acquired jurisdiction over its person. Petitioner now claims that the Decision of the trial court dated August 30, 1983, should be set aside since the court has not validly acquired jurisdiction over its person, not having been validly served with summons and a copy of the complaint nor did it actively participate in the said proceedings. It alleged that Atty. Segundo Gloria was not its retained counsel at that time nor was he authorized by petitioner to act for and in its behalf; and that private respondents' claims for moral, exemplary and compensatory damages as well as attorney's fees are not recoverable from petitioner. ISSUE: Whether or not the court validly acquired jurisdiction over Paramount HELD: Petition DENIED. Jurisdiction is the power with which courts are invested for administering justice, that is, for hearing and deciding cases. In order for the court to have authority to dispose of the case on the merits, it must acquire jurisdiction over the subject matter and the parties. Jurisdiction over the person of the defendant in civil cases is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons. The service of summons is intended to give notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff or the petitioner. Consequently, petitioner's contentions that it was not properly served with summons and that Atty. Segundo Gloria was not authorized to appear for and in its behalf are untenable. In the case at bar, although petitioner questioned the propriety of the service of summons, it however failed to substantiate its allegation that it was not properly served with summons. Hence, the disputable presumption that official duty has been regularly performed prevails. The records of the case, however, showed that all the pleadings, including the answer with crossclaim and counterclaim filed by Atty. Segundo Gloria stated that he represented the defendants Natividad, Manuel and Paramount. In fact, he even filed a notice of appearance informing the court that he is representing the said defendants. It is worth noting that this is not the first time petitioner raised the issue of warrant of jurisdiction over its person as well as warrant of authority of a lawyer to appear for and in its behalf. In the case docketed as G.R. No. 68066 entitled "Paramount Insurance Corp. v. Luna," this Court had the opportunity to rule that "the mere filling of the answer with crossclaim raised
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a presumption of authority to appear for petitioner Paramount Insurance Corporation . . . in accordance with Section 21, Rule 138 of the Rules of Court. Such presumption is rebuttable, but only by clear and positive proof. In the absence of such clear and positive proof, the presumption of authority . . . should prevail over the petitioner's selfserving denial of such authority. It strains credulity that a counsel who has no personal interest in the case would fight for and defend a case with persistence and vigor if he has not been authorized or employed by the party concerned. To the mind of the Court, the instant petition is filed merely to derail its execution. It took Paramount almost six years to question the jurisdiction of the lower court. Moreover, as earlier adverted to, the controverted Decision of August 30, 1983, became final and executory on October 20, 1983. In any event, it is axiomatic that there is no justification in law and in fact for the reopening of a case which has long become final and which in fact was already executed on July 18, 1984. Time and again, this Court has said that the doctrine of finality of judgment is grounded on fundamental considerations of public policy and sound practice and at the risk of occasional error, the judgments of courts must become final at some definite date fixed by law. However, there is merit in petitioner's contention that its liability is limited only to P50,000.00 as expressed in Insurance Policy No. CV-3466 issued on February 23, 1978. The said insurance policy clearly and categorically placed the petitioners liability for all damages arising out of death or bodily injury sustained by one person as a result of any one accident at P50,000.00. Said amount complied with the minimum fixed by law then prevailing, Section 377 of Presidential Decree No. 6123 (which was retained by P.D. No. 1460, the Insurance Code of 1978), which provided that the liability of land transportation vehicle operators for bodily injuries sustained by a passenger arising out of the use of their vehicles shall not be less than P12,000.00. Since the petitioner's liability under the insurance contract is neither less than P12,000.00 nor contrary to law, morals, good customs, public order or public policy, said stipulation must be upheld as effective and binding between the parties. Therefore, the terms of the contract constitute the measure of the insurer's liability.
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. v. COURT OF APPEALS and FELMAN SHIPPING LINES G.R. No. 116940, 11 June 1997, FIRST DIVISION This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be subrogated to the rights of the insured upon payment of the insurance claim. In July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu. The shipment was insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity). MV Asilda left the port of Zamboanga in fine weather at eight oclock in the evening of the same day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles. Consequently, the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with MV Asilda. Respondent denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its claim of P755,250.00. Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed any liability for the loss. Consequently, in November 1983 PHILAMGEN sued the shipowner for sum of money and damages. In its complaint PHILAMGEN alleged that the sinking and total loss of MV Asilda and its cargo were due to the vessels unseaworthiness as she was put to sea in an unstable condition. It further alleged that the vessel was improperly manned and that its officers were grossly negligent in failing to take appropriate measures to proceed to a nearby port or beach after the vessel started to list.
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In February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its rights, interests and ownership over MV Asilda together with her freight and appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of Commerce. The Trial Court dismissed the complaint of Philamgen. The CA however set aside the dismissal and remanded the case to the lower court for trial. In 1992, the trial court rendered judgment in favor of FELMAN. It ruled that MV Asilda was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and the shipowners surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire shipment could only be attributed to either a fortuitous event, in which case, no liability should attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should apply. The lower court further ruled that assuming MV Asilda was unseaworthy, still PHILAMGEN could not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the vessels seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken payment. Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit it to bring an action in court as a subrogee. On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent appellate court rendered judgment finding MV Asilda unseaworthy for being top- heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stored on deck. In other words, while the vessel possessed the necessary Coast Guard certification indicating its seaworthiness with respect to the structure of the ship itself, it was not seaworthy with respect to the cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assureds implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests of the shipper. Furthermore, respondent court held that the filing of notice of abandonment had absolved the shipowner/agent from liability under the limited liability rule. ISSUE: Whether or not Philamgen was properly subrogated top the rights and legal actions which the shipper has against Felman HELD: Petition GRANTED. MV Asilda was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well as the chief mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for eggs and about 500 cases of CocaCola bottles on deck. The ship captain stated that around four oclock in the morning of 7 July 1983 he was awakened by the officer on duty to inform him that the vessel had hit a floating log. At that time he noticed that the weather had deteriorated with strong southeast winds inducing big waves. After thirty minutes he observed that the vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and pitching. He then ordered his crew to shift the cargo from starboard to portside until the vessel was balanced. At about seven oclock in the morning, the master of the vessel stopped the engine because the vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to starboard. The shifting of cargo took about an hour afterwhich he rang the engine room to resume full speed. At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his next move, some of the cargo on deck were thrown overboard and seawater entered the engine room and cargo holds of the vessel. At that instance, the master of the vessel ordered his crew to abandon ship. Shortly thereafter, MV Asilda capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the hull caused by the vessels collision with a partially submerged log. The Elite Adjusters, Inc., submitted a report regarding the sinking of MV Asilda. The report, which was adopted by the Court of Appeals, reads We found in the course of our investigation that a reasonable explanation for the series of lists experienced by the vessel that eventually led to her capsizing and sinking, was that the vessel was top-heavy which is to say that while the vessel may not have been overloaded, yet the
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distribution or stowage of the cargo on board was done in such a manner that the vessel was in top-heavy condition at the time of her departure and which condition rendered her unstable and unseaworthy for that particular voyage. In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel x x x x and it was not designed to carry a substantial amount or quantity of cargo on deck. Therefore, we believe strongly that had her cargo been confined to those that could have been accommodated under deck, her stability would not have been affected and the vessel would not have been in any danger of capsizing, even given the prevailing weather conditions at that time of sinking. But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy for the purpose of carrying the type of cargo because the weight of the deck cargo so decreased the vessels metacentric height as to cause it to become unstable. Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships are precisely designed to be able to navigate safely even during heavy weather and frequently we hear of ships safely and successfully weathering encounters with typhoons and although they may sustain some amount of damage, the sinking of ship during heavy weather is not a frequent occurrence and is not likely to occur unless they are inherently unstable and unseaworthy x x x x We believe, therefore, and so hold that the proximate cause of the sinking of the M/V Asilda was her condition of unseaworthiness arising from her having been top-heavy when she departed from the Port of Zamboanga. Her having capsized and eventually sunk was bound to happen and was therefore in the category of an inevitable occurrence (underscoring supplied).
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the sinking of MV Asilda was its being top-heavy. Contrary to the ship captains allegations, evidence shows that approximately 2,500 cases of softdrink bottles were storeD on deck. Several days after MV Asilda sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking. Considering that the ships hatches were properly secured, the empty Coca-Cola cases recovered could have come only from the vessels deck cargo. It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown that the deck cargo will not interfere with the proper management of the ship. However, in this case it was established that MV Asilda was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease of the vessels metacentric height[7] thus making it unstable. The strong winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and unseaworthy condition. On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar. Simply put, the ship agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This liability however can be limited through abandonment of the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment, as where the loss or injury was due to the fault of the shipowner and the captain. The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowners liability, does not apply to cases where the injury or average was occasioned by the shipowners own fault. It must be stressed at this point that Art. 587 speaks only of situations where the fault or negligence is committed solely by the captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the Civil Code on common carrier. It was already established at the outset that the sinking of MV Asilda was due to its unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN was equally negligent. It cannot therefore escape liability through the expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce. Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case x x x x" In the event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption. In relation to the question of subrogation, respondent appellate court found MV Asilda unseaworthy with reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the assured not entitled to the payment of is claim under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a voluntary payment and no right of subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk. It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy. Thus Sec. 113 of the Insurance Code provides that (i)n every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a warranty is implied that the ship is seaworthy. Under Sec. 114, a ship is
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seaworthy when reasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy. Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. He may have no control over the vessel but he has full control in the selection of the common carrier that will transport his goods. He also has full discretion in the choice of assurer that will underwrite a particular venture. We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed out by FELMAN to stress that subrogation will not work in this case. In policies where the law will generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language. And where the policy stipulates that the seaworthiness of the vessel as between the assured and the assurer is admitted, the question of seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation by the assured. The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads (t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as between the Assured and the Company shall not prejudice the insurance. The seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted. The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states (t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted x x x x"The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the insurance company.] The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable. Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGENs action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, we said that payment by the assurer to the assured operates as an equitable assignment to the assurer of all the remedies which the assured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay. Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER COMPANY OF THE PHILIPPINES v. JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE CO., INC. G.R. No. L-27427, 7 April 1976, SECOND DIVISION (Aquino, J.) Fireman's Fund and Insurance Company (Fireman's Fund for short) and Firestone Tire and Rubber Company of the Philippines appealed from the order of the Court of First Instance of Manila, dismissing their complaint against Jamila & Co., Inc. (hereinafter called Jamila) for the recovery of the sum of P11,925.00 plus interest, damages and attorney's fees (Civil Case No. 65658). The gist of the complaint is that Jamila or the Veterans Philippine Scouts Security Agency contracted to supply security guards to Firestone; that Jamila assumed responsibility for the acts of its security guards; that First Quezon City Insurance
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Co., Inc. executed a bond in the sum of P20,000.00 to guarantee Jamila's obligations under that contract; that on May 18, 1963 properties of Firestone valued at P11,925.00 were lost allegedly due to the acts of its employees who connived with Jamila's security guard; that Fireman's Fund, as insurer, paid to Firestone the amount of the loss; that Fireman's Fund was subrogated to Firestone's right to get reimbursement from Jamila, and that Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay the amount of the loss in spite of repeated demands. The lower court dismissed the complaint as to Jamilia on the ground that there was no allegation that it had consented to the subrogation and, therefore, Fireman's Fund had no cause of action against it. In the same order the lower court dismissed the complaint as to First Quezon City Insurance Co., Inc. on the ground of res judicata. It appears that the same action was previously filed in Civil Case No. 56311 which was dismiss because of the failure of the same plaintiffs and their counsel to appear at the pre trial. Firestone and Fireman's Fund moved for the reconsideration of the order of dismissal. The lower court on September 3, 1966 set aside its order of dismissal. It sustained plaintiffs' contention that there was no res judicataas to First Quezon City Insurance Co., Inc. because Civil Case No. 56311 was dismissed without prejudice. Later, First Quezon City Insurance Co., Inc. filed its answer to the complaint. However, due to inadvertence, the lower court did not state in its order of September 3, 1966 why it set aside its prior order dismissing the complaint with respect to Jamila. Jamila, upon noticing that the order of September 3, 1966 had obliterated its victory without any reason therefor, filed a motion for reconsideration. It had originally moved for the dismissal of the complaint on the ground of lack of cause of action. Its contention was based on two grounds, to wit: (1) that the complaint did not allege that Firestone had investigated the loss and that Jamila was represented in the investigation and (2) that Jamila did not consent to the subrogation of Fireman's Fund to Firestone's right to get reimbursement from Jamila and its surety. The lower court in its order of dismissal had sustained the second ground. Jamila in its motion for the reconsideration invoked the first ground which had never been passed upon by the lower court. Firestone and Fireman's Fund in their opposition joined battle, in a manner of speaking, on that first ground. But the lower court in its order of October 18, 1966, granting Jamila's motion for reconsideration, completely ignored that first ground. It reverted to the second ground which was relied upon in its order of September 3, 1966. The lower court reiterated its order of July 22, 1966 that Fireman's Fund had no cause of action against Jamila because Jamila did not consent to the subrogation. The court did not mention Firestone, the co-plaintiff of Fireman's Fund. Firestone and Fireman's Fund filed a motion for the reconsideration of the lower court's order of October 18, 1966 on the ground that Fireman's Fund Insurance Company was suing on the basis of legal subrogation whereas the lower court erroneously predicated its dismissal order on the theory that there was no conventional subrogation because the debtor's consent was lacking. The plaintiffs cited article 2207 of the Civil Code which provides that "if the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract". The lower court denied plaintiffs' motion. They filed a second motion for reconsideration. In that motion they sensibly called the lower court's attention to the fact that the issue of subrogation was of no moment because Firestone, the subrogor, is a party-plaintiff and could sue directly Jamila in its own right. Without resolving that contention, the lower court denied plaintiffs' second motion for reconsideration. In this appeal Firestone and Fireman's Fund contend that the trial court's dismissal of their complaint is contrary to the aforementioned article 2207 which provides for legal subrogation. Jamila, in reply, stubbornly argues that legal subrogation under article 2207 requires the debtor's consent; that legal subrogation takes place in the cases mentioned in article 1302 of the Civil Code and the instant case is not among the three cases enumerated in that article, and that there could be no subrogation in this case because according to the plaintiffs the contract between. Jamila and Firestone was entered into on June 1, 1965 but the loss complained of occurred on May 18, 1963. With respect to the factual point raised by Jamila, it should be stated that plaintiffs' counsel gratuitously alleged in their brief that Firestone and Jamila entered into a "contract of guard services" on June 1, 1965. That allegation, which was uncalled for because it is not found in the complaint, created confusion which heretofore did not exist. No copy of the contract was annexed to the complaint. That confusing statement was an obvious error since it was expressly alleged in the complaint that the loss occurred on May 18, 1963. The fact that such an error was committed is another instance substantiating our previous observation that plaintiffs' counsel had not exercised due care in the presentation of his case.
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ISSUE: Whether or not there is a cause of action against Jamila HELD: Petition GRANTED. We hold that Firestone is really a nominal, party in this case. It had already been indemnified for the loss which it had sustained. Obviously, it joined as a party-plaintiff in order to help Fireman's Fund to recover the amount of the loss from Jamila and First Quezon City Insurance Co., Inc. Firestone had tacitly assigned to Fireman's Fund its cause of action against Jamila for breach of contract. Sufficient ultimate facts are alleged in the complaint to sustain that cause of action. On the other hand, Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As the insurer, Fireman's Fund is entitled to go after the person or entity that violated its contractual commitment to answer for the loss insured against. The trial court erred in applying to this case the rules on novation. The plaintiffs in alleging in their complaint that Fireman's Fund "became a party in interest in this case by virtue of a subrogation right given in its favor by" Firestone, were not relying on the novation by change of creditors as contemplated in articles 1291 and 1300 to 1303 of the Civil Code but rather on article 2207. Article 2207 is a restatement of a settled principle of American jurisprudence. Subrogation has been referred to as the doctrine of substitution. It "is an arm of equity that may guide or even force one to pay a debt for which an obligation was incurred but which was in whole or in part paid by another". "Subrogation is founded on principles of justice and equity, and its operation is governed by principles of equity. It rests on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties without regard to form." Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose. negligence or wrongful act caused the loss. The right of subrogation is of the highest equity. The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer. "Although many policies including policies in the standard form, now provide for subrogation, and thus determine the rights of the insurer in this respect, the equitable right of subrogation as the legal effect of payment inures to the insurer without any formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof. That right is not dependent upon, nor does it grow out of, any privity of contract, or upon written assignment of claim, and payment to the insured makes the insurer an assignee in equity.
FILIPINAS COMPAIA DE SEGUROS v. CHRISTERN, HUENEFELD and CO., INC. G.R. No. L-2294, 25 May 1951, EN BANC (Paras, J.) In October 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding premium, obtained from the petitioner, Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. In 1942, or during the Japanese military occupation, the building and insured merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy. The salvage goods were sold at public auction and, after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States declared war against Germany, the respondent Corporation (though organized under and by virtue of the laws of the Philippines) being controlled by the German subjects and the petitioner being a company under American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943. The present action was filed in 1946, in the Court of First Instance of Manila for the purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has ceased to be effective because of
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the outbreak of the war between the United States and Germany and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was under pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. ISSUE: Whether or not the policy in question became null and void upon the declaration of war between the United States and Germany HELD: Petition GRANTED. The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy when the United States declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected the theory that nationality of private corporation is determine by the character or citizenship of its controlling stockholders. There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany. The English and American cases relied upon by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation, which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second International Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been discussion in many countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely managed under the influence of individuals or corporations, themselves considered as enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after the First World War. The United States of America did not adopt the control test during the First World War. Courts refused to recognize the concept whereby American-registered corporations could be considered as enemies and thus subject to domestic legislation and administrative measures regarding enemy property. World War II revived the problem again. It was known that German and other enemy interests were cloaked by domestic corporation structure. It was not only by legal ownership of shares that a material influence could be exercised on the management of the corporation but also by long term loans and other factual situations. For that reason, legislation on enemy property enacted in various countries during World War II adopted by statutory provisions to the control test and determined, to various degrees, the incidents of control. Court decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy character of domestic corporation. The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as did other legislations the applications of the control test and again, as in World War I, courts refused to apply this concept whereby the enemy character of an American or neutral-registered corporation is determined by the enemy nationality of the controlling stockholders. Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the treatment of foreign-owned property in the United States allowed to large degree the determination of enemy interest in domestic corporations and thus the application of the control test. Court decisions sanctioned such administrative practice enacted under the First War Powers Act of 1941, and more recently, on December 8, 1947, the Supreme Court of the United States definitely approved of the control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court: "The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country or national so that no innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision. However, we may add that, in Haw Pia vs. China Banking Corporation, we already held that China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated under the laws of an enemy country but because it was controlled by enemies. The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.
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Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary submission to it; or receiving its protection; also all acts concerning the transmission of money or goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce or property of belligerent, alien subjects, or to do anything detrimental to their country's interest. The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful. All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.) In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforceable, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner. The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in question became null and void upon the declaration of war between the United States and Germany on December 10, 1941, and its judgment in favor of the respondent corporation was predicated on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to payment from the appellant was, well founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military Administration, as may be seen from the following: "In view of the findings and conclusion of this office contained in its decision on Administrative Case dated February 9, 1943 copy of which was sent to your office and the concurrence therein of the Financial Department of the Japanese Military Administration, and following the instruction of said authority, you are hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of crossed check." (Emphasis supplied.) It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.
PEOPLE OF THE PHILIPPINES v. YIP WAI MING G.R. No. 120959, 14 November 1996, THIRD DIVISION (Melo, J.)
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong nationals, came to Manila on vacation on July, 1993. The two were engaged to be married. Hardly a day had passed when Lam Po Chun was brutally beaten up and strangled to death in their hotel room. On the day of the killing, July 11, 1993, Yip Wai Ming, was touring Metro Manila with Filipino welcomers while Lam Po Chun was left in the hotel room allegedly because she had a headache and was not feeling well enough to do the sights. For the slaying, an Information was lodged against Yip Wai Ming on July 19, 1991, which averred :
That on or about July 11, 1993, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously with intent to kill with treachery and evident premeditation, did then and there attack, assault and use personal violence upon one Lam Po Chun by then and there mauling and strangling the latter, thereby inflicting upon her mortal and fatal wounds which were the direct and immediate cause of her death thereafter.
In May 1995, Branch 44 of the Regional Trial Court of the National Capital Judicial Region stationed in Manila and presided over by the Honorable Lolita O. Gal-lang rendered a decision in essence finding that Yip Wai Ming killed his fiancee before he left for the Metro Manila tour. Accused is likewise ordered to pay the heirs of the deceased Lam Po Chun of Hongkong the death indemnity for damages at
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Fifty Thousand (P50,000.00) Pesos; Moral and compensatory damages of Fifty Thousand (P50,000.00) Pesos each or a total of One Hundred Thousand Pesos (P100,000.00); plus costs of suit. There was no eyewitness to the actual killing of Lam Po Chun. All the evidence about the killing is circumstantial. The key issue in the instant appeal is, therefore, whether or not the circumstantial evidence linking accused-appellant to the killing is sufficient to sustain a judgment of conviction beyond reasonable doubt. The evidence upon which the prosecution convinced the trial court of accused-appellant's guilt beyond reasonable doubt is summarized in the Solicitor-General's brief as follows:
On or about 7 o'clock in the evening of July 10, 1993, appellant and his fiancee Lam Po Chun who are both Hongkong nationals, checked in at Park Hotel located at No. 1032-34 Belen St., Paco, Manila. They were billeted at Room 210. Angel Gonzaga, the roomboy on duty, assisted the couple in going up to their room located at the second floor of the hotel (p. 14, tsn, October 13, 1993, p. 66, tsn, September 1, 1993). When they reached Room 210, appellant got the key from Angel Gonzaga and informed the latter that they do not need any room service, particularly the bringing of foods and other orders to their room (pp. 67-69, tsn, September 1, 1993). After staying for about an hour inside Room 210, the couple went down to the lobby of the hotel. Appellant asked the front desk receptionist on duty to call a certain Gwen delos Santos and to instruct her to pick them up the following day, July 11, 1993, a Sunday at 10 o' clock in the morning (pp. 21-25, tsn, September 8, 1993). At about past 8 o'clock in the same evening of July 10, 1993, Cariza Destresa, occupant of Room 211 which is adjacent to Room 210, heard a noise which sounds like a heated argument between a man and a woman coming from the room occupied by appellant and Lam Po Chun. The heated discussions lasted for thirty (30) minutes and thereafter subsided. In the following morning, that is, July 11, 1993, at around 9:15, the same Cariza Destreza again heard a banging which sounds like somebody was thrown and stomped on the floor inside Room 210. Cariza, who became curious, went near the wall dividing her room and Room 210. She heard a cry of a woman as if she cannot breathe. At about 10 o'clock a.m., Gwen delos Santos, together with two lady companions, arrived at the lobby of the Park Hotel. The receptionist informed appellant by telephone of her arrival. In response, appellant came down without his fiancee Lam Po Chun. After a while, he together with Gwen delos Santos and the latter's companions, left the hotel. Before leaving, he gave instruction to the front desk receptionist not to disturb his fiancee at Room 210. He also ordered not to accept any telephone calls, no room cleaning and no room service. When appellant left, the front desk receptionist, Enriquieta Patria, noticed him to be in a hurry, perspiring and looking very scared. During the whole morning of July 11, 1993, after appellant left the hotel until his return at 11 o'clock in the evening, he did not call his fiancee Lam Po Chun to verify her physical condition. When appellant arrived at 11 o'clock p.m. on that day, he asked the receptionist for the key of his room. Then together with Fortunato Villa, the roomboy, proceeded to Room 210. When the lock was opened and the door was pushed, Lam Po Chun was found dead lying face down on the bed covered with a blanket. Appellant removed the blanket and pretended to exclaim "My God, she is dead" but did not even embrace his fiancee. Instead, appellant asked the room boy to go down the hotel to inform the front desk, the security guard and other hotel employees to call the police. When the police arrived, they conducted an examination of the condition of the doors and windows of the room as well as the body of the victim and the other surroundings. They found no signs of forcible entry and they observed that no one can enter from the outside except the one who has the key. The police also saw the victim wrapped in a colored blanket lying face down. When they removed the blanket and tried to change the position of her body, the latter was already in state of rigor mortis, which indicates that the victim has been dead for ten (10) to twelve (12) hours. The police calculated that Lam Po Chun must have died between 9 to 10 in the morning of July 11, 1993. Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted an autopsy of the body of the victim. His examination revealed that the cause of death was "asphyxia by strangulation." Dr. Lagonera explained that asphyxia is caused by lack of oxygen entering the body when the entrance of air going to the respiratory system is blocked. Prior to the death of the victim, her brother, Lam Chi Keung, learned that her life was insured with the Insurance Company of New Zealand in Causeway Bay, Hongkong, with appellant as the beneficiary. The premium paid for the insurance was more than the monthly salary of the deceased as an insurance underwriter in Hongkong. It was on the bases of the foregoing facts that appellant was charged before the Regional Trial Court in Manila for the crime of murder committed against the person of Lam Po Chun.
Accused-appellant, at the time of the commission of the crime, was a customer relations officer of Well Motors Company in Kowloon, Hongkong. He met Lam Po Chun at a party in 1991. Both were sports minded and after a short courtship, the two began to have a relationship, living together in the same apartment. The two toured China and Macao together in 1992. In April, 1993 the two decided to get married. In May 1993, they registered with the Hongkong Marriage Registry. The wedding was set for August 29, 1993. An office-mate of accused-appellant named Tessie "Amay" Ticar encouraged him and Lam Po Chun to tour the Philippines in celebration of their engagement. After finishing the travel arrangements, the two were given by Ticar the names (Toots, Monique, and Gwen) of her cousins in Manila and their telephone number. Photos of their Manila contacts were shown to them. In addition to his Citibank credit card, accused-appellant brought P24,000.00 secured at a Hongkong money exchange and HK$4,000.00. Lam Po Chun had HK$3,000.00. The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on board Cathay Pacific Flight CX 903. They arrived at Park Hotel around 7 P.M. From their hotel room, accused-appellant called their contact, Gwen delos Santos, by telephone informing her of their arrival. The two ate outside at McDonald's restaurant. Accused-appellant woke up the following morning Sunday, July 11, 1993 at around 8 o'clock. After the usual amenities, including a shower, the two had breakfast in the hotel restaurant, then they went back to their room. At around 10 o'clock that same morning, accused-appellant received a phone call from the hotel staff telling him that their visitors had arrived.
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He then went to the lobby ahead of Lam Po Chun, introduced himself to the delos Santos sisters, Gwen and Monique, and their mother. A few minutes later, Lom Po Chun joined them. Two bottles of perfume were given to the sisters as arrival gifts. Gwen delos Santos invited the couple to tour the city but Lam Po Chun decided to stay behind as it was very hot and she had a headache. She excused herself and went up to her room, followed later by accused-appellant to get another bottle of perfume. Accused-appellant claims that before leaving, he instructed the clerk at the front desk to give Lam Po Chun some medicine for headache and, as much as possible, not to disturb her. Accused-appellant, Gwen, Monique, and the sisters' mother took a taxicab to Landmark Department Store where they window shopped. Accused-appellant states that from a telephone booth in the store, he called Lam Po Chun but no one answered his call. From Landmark where they had lunch, the four went to Shoemart Department Store in Makati. Accused-appellant bought a Giordano T-shirt at Landmark and chocolates at Shoemart. Gwen delos Santos brought the group to the house of her aunt, Edna Bayona, at Roces, Quezon City. From Roces St., Gwen delos Santos brought the group to her home in Balut, Tondo. Using the delos Santos telephone, accusedappellant called his office in Hongkong. The PLDT receipt showed that the call was made at 6:44 P.M. on July 11, 1993. Accused-appellant claims that, afterwards, he called up Lam Po Chun at their hotel room but the phone just kept on ringing with nobody answering it. The group had dinner at the delos Santos house in Tondo. After dinner, Gwen delos Santos' brother and sister-in-law arrived. They insisted in bringing their guest to a restaurant near Manila Bay for coffee, but it was full so they proceeded to Tia Maria, a Mexican restaurant in Makati. Finally, the delos Santos family brought Andy Yip back to the Park Hotel, arriving there at around 10:30 PM. Before the delos Santos group left, there was an agreement that the following morning accused-appellant and Lam Po Chun would join them in another city tour. After accused-appellant's knocks at the door of their room remained unanswered, he went back to the hotel front desk and asked the hotel staff to open the door for him. The room was dark. Accused-appellant put on the light switch. He wanted to give the roomboy who accompanied him a P20 or P30 tip but his smallest bill was P100. He went to a side table to get some smaller change. It was then when he noticed the disordered room, a glass case and wallet on the floor, and Lam Po Chun lying face down on one of the beds. Accused-appellant tried to wake Lam Po Chun up by calling her name but when she did not respond, he lifted up her face, moving her body sidewards. He saw blood. Shocked, he shouted at the roomboy to call a doctor. Several people rushed to Room 210. A foreigner looked at Lam Po Chun and said she was dead. The foreigner placed his arms around accused-appellant who was slumped on the floor and motioned for him to leave the room. Accused-appellant refused, but he was made to move out and to go to the lobby, at which place, dazed and crying, he called up Gwen delos Santos to inform her of what happened. Gwen could not believe what she heard, but she assured accused-appellant that they were going to the hotel. Policemen then arrived.
HLED: A key element in the web of circumstantial evidence is motive which the prosecution tried to establish. Accused-appellant and Lam Po Chun were engaged to be married. They had toured China and Macao together. They were living together in one apartment. They were registered with the Hongkong Marriage Registry in May 1993. Marriage date was set for August 29, 1993. This date was only a month and a half away from the date of death of Lam Po Chun. In the absence of direct evidence indubitably showing that accused-appellant was the perpetrator of the killing, motive becomes important. The theory developed by the prosecution was not only of a cold-blooded crime but a well-planned one, including its timing up to the half hour. It is not the kind of crime that a man would commit against his wife-to-be unless a strong motive for it existed. The trial court would have been justified in finding that there was evident premeditation of murder if the story is proved that Lam Po Chun insured herself for the amounts of US $498,750.00 and US $249,375.00 naming accused-appellant as the beneficiary. There is, however, no evidence that the victim secured an insurance policy for a big amount in US dollars and indicated accused-appellant as the beneficiary. The prosecution presented Exhibit "X", a mere xerox copy of a document captioned "Proposal for Life Insurance" as proof the alleged insurance. It is not a certified copy, nor was the original first identified. The authenticity of the document has thus not been duly established. Exhibit "X" was secured in Hongkong when Lam Chi Keung, the brother of the victim, learned that his sister was murdered in Manila. It is not shown how and from whom the information about any alleged insurance having been secured came. There is no signature indicating that the victim herself applied for the insurance. There is no marking in Exhibit "X" of any entry which purports to be the victim's signature. There is a signature of Apple Lam which is most unusual for an insurance application because the victim's name is Lam Po Chun. To be sure nobody insures himself or herself under a nickname. The entries in the form are in block letters uniformly written by one hand. Below the printed name "Lam Po Chun" are Chinese characters which presumably are the Chinese translation of her name. Nobody was presented to identify the author of the "block" handwriting. Neither the prosecution nor the trial court made any comparisons, such as the signature of Lam Po Chun on her passport (Exh. "C"),with her purported signature or any other entry in the form.
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It needs not much emphasis to say that an application form does not prove that insurance was secured. Anybody can get an application form for insurance, fill it up at home before filing it with the insurance company. In fact, the very first sentence of the form states that it merely "forms the basis of a contract between you and NZI Life." There was no contract yet. There is evidence in the record that the family of Lam Po Chun did not like her relationship with accused-appellant. After all the trouble that her brother went through to gather evidence to pin down accused-appellant, the fact that all he could come up with is an unsigned insurance application form shows there was no insurance money forthcoming for accused-appellant if Lam Po Chun died. There is no proof that the insurance company approved the proposal, no proof that any premium payments were made, and no proof from the record of exhibits as to the date it was accomplished. It appearing that no insurance was issued to Lam Po Chun with accused-appellant as the beneficiary, the motive capitalized upon by the trial court vanishes. Thus, the picture changes to one of the alleged perpetrator killing his fiancee under cold-blooded circumstances for nothing. There are other suspicious circumstances about the insurance angle. Lam Po Chun was working for the National Insurance Company. Why then should she insure her life with the New Zealand Insurance Company? Lam's monthly salary was only HK $5,000.00. The premiums for the insurance were HK $5,400.00 or US $702.00 per month. Why should Lam insure herself with the monthly premiums exceeding her monthly salary? And why should any insurance company approve insurance, the premiums of which the supposed insured obviously con not afford to pay, in the absence of any showing that somebody else is paying for said premiums. It is not even indicated whether or not there are rules in Hongkong allowing a big amount of insurance to be secured where the beneficiary is not a spouse, a parent, a sibling, a child, or other close relative. Accused-appellant points out an apparent lapse of the trial court related to the matter of insurance. At page 33 of the decision, the trial court stated:
Indeed, Yip Wai Ming testified that he met Andy Kwong in a restaurant in Hongkong and told Yip and Lam Po Chun should be married and there must be an insurance for her life . . . .
Lam Po Chun must have been unbelievably trusting or stupid to follow the alleged advice of Andy Kwong. It is usually the man who insures himself with the wife or future wife or beneficiary instead of the other way around. Why should Lam Po Chun, with her relatively small salary which is not even enough to pay for the monthly premiums, insure herself for such a big amount. This is another reason why doubts arise as to the truth of the insurance angle. Another key factor which we believe was not satisfactorily established is the time of death. This element is material because from 10 A.M. of July 11, 1993 up to the time the body was discovered late that evening, accused-appellant was in the company of Gwen delos Santos, her sister Monique, and their mother, touring Metro Manila and going from place to place. This much is established. The prosecution alleges that at 10 A.M., Lam Po Chun was already dead. However, Gwen delos Santos who never saw the couple before was categorical in declaring that she met both of them at the lobby before the group left for the tour but Lam Po Chun asked to be excused because of a headache. In fact, delos Santos was able to identify Lam Po Chun from pictures shown during the trial. She could not have done this unless she really saw and met the victim at the hotel lobby at around 10 A.M. of July 11, 1993. Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn, Dec. 14, 1993, p. 108). It is undisputed that at around 8:30 A.M. of July 11, 1993 accused-appellant and Lam Po Chun took breakfast together at the hotel restaurant. She could not have been killed on July 10, 1993. The autopsy conducted by Dr. Lagonera and the testimony of accused-appellant coincided insofar as the food taken at breakfast is concerned. The couple ate eggs, bacon, and toasted bread. But the doctor was insistent that the death occurred the previous day. Where a medico-legal expert of the police department could not, with any measure of preciseness, fix the time of death, the police investigator was bold and daring enough to establish it. Surprisingly, the trial court accepted this kind of evidence. SP02 Alejandro Yanquiling testified that he arrived at the Park Hotel at about 11:25 o'clock on the evening of July 11, 1993 to conduct the investigation of the crime. At the time, the victim showed signs of rigor mortis, stiffening of the muscle joints, with liquid and blood oozing from the nose and mouth. On the basis of his observations, he declared that the victim had been dead for 10 to 12 hours. The trial court stated that if the victim had been dead from 10 to 12 hours at 11:35 o'clock in the evening, it is safe to conclude that she was killed between 9 and 10 o'clock on the morning of July 11, 1993. The mathematics of the trial court is faulty. Twelve hours before 11:35 P.M. would be 11:35 A.M.. Ten hours earlier would even be later 1.35 P.M. Since accused-
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appellant was unquestionably with Gwen delos Santos and her group touring and shopping in megamalls between 10 A.M. and 11:35 P.M., the assailant or assailants must have been other people who were able to gain entry into the hotel room at that time. The trial court stated that there was no sign of any forcible entry into the room, no broken locks, windows, etc. The answer is simple. Somebody could have knocked on the door and Lam Po Chun could have opened it thinking they were hotel staff. Unfortunately, Detective Yanquiling was so sure of himself that after pinpointing accused-appellant as the culprit, he did not follow any other leads. In the course of his interviews with witnesses, his purpose was simply to nail down one suspect. His investigation was angled towards pinning down Yip Wai Ming. In fact, Gwen delos Santos testified that Yanquiling talked to her over the telephone almost daily urging her to change her testimony. Before a conviction can be had upon circumstantial evidence, the circumstances should constitute an unbroken chain which leads to but one fair and reasonable conclusion, which points to the accused, to the exclusion of all others, of the guilty person (U.S. vs. Villos, 6 Phil. 510 [1906]; People vs. Subano, 73 Phil. 692 [1942]). Every hypothesis consistent with innocence must be excluded if guilt beyond reasonable doubt is based on circumstantial evidence (U.S. vs. Cajayon, 2 Phil. 570 [1903]; U.S. vs. Tan Chian, 17 Phil. 209 [1910]; U.S. vs. Levente, 18 Phil. 439 [1911]). All the evidence must be consistent with the hypothesis that the accused is guilty, and at the same time inconsistent with the hypothesis that he is innocent, and with every other rational hypothesis except that of guilt (People vs. Andia, 2 SCRA 423 [1961]).
THE PHILIPPINE AMERICAN INSURANCE COMPANY, HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of First Instance of Rizal, and RODOLFO C. DIMAYUGA G.R. No. L-54216, 19 July 1989, SECOND DIVISION (Paras, J.) In January 1968, private respondent procured an ordinary life insurance policy from the petitioner company and designated his wife and children as irrevocable beneficiaries of said policy. In 1980 private respondent filed a petition with the then Court of First Instance of Rizal to amend the designation of the beneficiaries in his life policy from irrevocable to revocable. When the petition was called for hearing on March 19, 1980, the respondent Judge Gregorio G. Pineda, presiding Judge of the then Court of First Instance of Rizal, Pasig Branch XXI, denied petitioner's Urgent Motion, thus allowing the private respondent to adduce evidence, the consequence of which was the issuance of the questioned Order granting the petition. Petitioner promptly filed a Motion for Reconsideration but the same was denied in an Order June 10, 1980. ISSUE: Whether or not the designation of the irrevocable beneficiaries could be changed or amended without the consent of all the beneficiaries HELD: Petition GRANTED. We are of the opinion that his Honor, the respondent Judge, was in error in issuing the questioned Orders. Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act No. 2427 as amended, the policy having been procured in 1968. Under the said law, the beneficiary designated in a life insurance contract cannot be changed without the consent of the beneficiary because he has a vested interest in the policy. In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy which forms part of Policy Number 0794461 in the name of Rodolfo Cailles Dimayuga states that the designation of the beneficiaries is irrevocable, to wit:
It is hereby understood and agreed that, notwithstanding the provisions of this policy to the contrary, inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in this Policy has been made without reserving the right to change said beneficiary/ beneficiaries, such designation may not be surrendered to the Company, released or assigned; and no right or privilege under the Policy may be exercised, or agreement made with the Company to any change in or amendment to the Policy, without the consent of the said beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72, Rollo)
Be it noted that the foregoing is a fact which the private respondent did not bother to disprove. Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law then applicable, it is only with the consent of all the beneficiaries that any change or amendment in the policy concerning the irrevocable beneficiaries may be legally and validly effected. Both the law and the policy do not provide for any other exception, thus,
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abrogating the contention of the private respondent that said designation can be amended if the Court finds a just, reasonable ground to do so. Similarly, the alleged agreement of the six (6) children beneficiaries of the policy (the beneficiary-wife predeceased the insured) cannot be considered an effective ratification to the change of the beneficiaries from irrevocable to revocable. Indubitable is the fact that all the six (6) children named as beneficiaries were minors at the time,** for which reason, they could not validly give their consent. Neither could they act through their father insured since their interests are quite divergent from one another. In point is an excerpt from the Notes and Cases on Insurance Law by Campos and Campos, 1960, readingThe insured ... can do nothing to divest the beneficiary of his rights without his consent. He cannot assign his policy, nor even take its cash surrender value without the consent of the beneficiary. Neither can the insured's creditors seize the policy or any right thereunder. The insured may not even add another beneficiary because by doing so, he diminishes the amount which the beneficiary may recover and this he cannot do without the beneficiary's consent.
Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the insurance contract, for otherwise, the vested rights of the irrevocable beneficiaries would be rendered inconsequential. Of equal importance is the well-settled rule that the contract between the parties is the law binding on both of them and for so many times, this court has consistently issued pronouncements upholding the validity and effectivity of contracts. Where there is nothing in the contract which is contrary to law, good morals, good customs, public policy or public order the validity of the contract must be sustained. Likewise, contracts which are the private laws of the contracting parties should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter in what form they may be, whenever the essential requisites for their validity are present (Phoenix Assurance Co., Ltd. vs. United States Lines, 22 SCRA 675, Phil. American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.) In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA 385, this Court ruled that: ... it is settled that the parties may establish such stipulations, clauses, terms, and conditions as they may want to include; and as long as such agreements are not contrary to law, good morals, good customs, public policy or public order, they shall have the force of law between them. Undeniably, the contract in the case at bar, contains the indispensable elements for its validity and does not in any way violate the law, morals, customs, orders, etc. leaving no reason for Us to deny sanction thereto. Finally, the fact that the contract of insurance does not contain a contingency when the change in the designation of beneficiaries could be validly effected means that it was never within the contemplation of the parties. The lower court, in gratuitously providing for such contingency, made a new contract for them, a proceeding which we cannot tolerate. Ergo, We cannot help but conclude that the lower court acted in excess of its authority when it issued the Order dated March 19, 1980 amending the designation of the beneficiaries from "irrevocable" to "revocable" over the disapprobation of the petitioner insurance company.

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NOTES INSURANCE Kenneth & King Hizon (2A)- UST Faculty of Civil Law

A rider to the Policy contained the following:

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