Republic of the PhilippinesSUPREME COURTManilaSECOND DIVISIONG.R. No. 136914 January 25, 2002COUNTRY BANKERS INSURANCE CORPORATION, petitioner, vs.LIANGA BAY AND COMMUNITY MULTI-PURPOSE COOPERATIVE, INC., respondent.DE LEON, JR., J.:Before us is a petition for review on certiorari of the Decision of the Court of Appeals dated December 29, 1998 in CA-G.R. CV Case No. 36902 affirming in toto the Decision dated December 26, 1991 of the Regional Trial Court of Lianga, Surigao del Sur, Branch 28, in Civil Case No. L-518 which ordered petitioner Country Bankers Insurance Corporation to fully pay the insurance claim of respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc., under Fire Insurance Policy No. F-1397, for loss sustained as a result of the fire that occurred on July 1, 1989 in the amount of Two Hundred Thousand Pesos (P200,000.00), with interest at twelve percent (12%) per annum from the date of filing of the complaint until fully paid, as well as Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, Ten Thousand Pesos (P10,000.00) as attorneys fees, and the costs of suit.The facts are undisputed:The petitioner is a domestic corporation principally engaged in the insurance business wherein it undertakes, for a consideration, to indemnify another against loss, damage or liability from an unknown or contingent event including fire while the respondent is a duly registered cooperative judicially declared insolvent and represented by the elected assignee, Cornelio Jamero. It appears that sometime in 1989, the petitioner and the respondent entered into a contract of fire insurance. Under Fire Insurance Policy No. F-1397, the petitioner insured the respondents stocks-in-trade against fire loss, damage or liability during the period starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred Thousand Pesos (P200,000.00). On July 1, 1989, at or about 12:40 a.m., the respondents building located at Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and reduced to ashes, resulting in the total loss of the respondents stocks-in-trade, pieces of furnitures and fixtures, equipments and records.Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Insurance Policy No. F-1397, submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989; (b) the Sworn Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo. The petitioner, however, denied the insurance claim on the ground that, based on the submitted documents, the building was set on fire by two (2) NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their comrades in the forest, and that such loss was an excepted risk under paragraph No. 6 of the policy conditions of Fire Insurance Policy No. F-1397, which provides:This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following occurrences, namely:xxx xxx xxx(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through or in consequence, directly or indirectly, of any of said occurrences shall be deemed to be loss or damage which is not covered by this insurance, except to the extent that the Insured shall prove that such loss or damage happened independently of the existence of such abnormal conditions.Finding the denial of its claim unacceptable, the respondent then instituted in the trial court the complaint for recovery of "loss, damage or liability" against petitioner. The petitioner answered the complaint and reiterated the ground it earlier cited to deny the insurance claim, that is, that the loss was due to NPA rebels, an excepted risk under the fire insurance policy. In due time, the trial court rendered its Decision dated December 26, 1991 in favor of the respondent, declaring that:Based on its findings, it is therefore the considered opinion of this Court, as it so holds, that the defenses raised by defendant-Country Bankers has utterly crumbled on account of its inherent weakness, incredibility and unreliability, and after applying those helpful tools like common sense, logic and the Courts honest appraisal of the real and actual situation obtaining in this area, such defenses remains (sic) unimpressive and unconvincing, and therefore, the defendant-Country Bankers has to be irreversibly adjudged liable, as it should be, to plaintiff-Insolvent Cooperative, represented in this action by its Assignee, Cornelio Jamero, and thus, ordering said defendant-Country Bankers to pay the plaintiff-Insolvent Cooperative, as follows:1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fire under its Fire Insurance Policy No. F-1397 in its full face value of P200,000.00 with interest of 12% per annum from date of filing of the complaint until the same is fully paid;2. To pay as and in the concept of actual or compensatory damages in the total sum of P50,000.00;3. To pay as and in the concept of exemplary damages in the total sum of P50,000.00;4. To pay in the concept of litigation expenses the sum of P5,000.00;5. To pay by way of reimbursement the attorneys fees in the sum of P10,000.00; and 6. To pay the costs of the suit.For being unsubstantiated with credible and positive evidence, the "counterclaim" is dismissed.IT IS SO ORDERED.Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the appellate court affirmed the challenged decision of the trial court in its entirety. Petitioner now comes before us via the instant petition anchored on three (3) assigned errors, to wit:1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE CREDENCE TO THE SPOT REPORT OF PFC. ARTURO JUARBAL (EXH. 3) AND THE SWORN STATEMENT OF JOSE LOMOCSO (EXH. 4) THAT THE RESPONDENTS STOCK-IN-TRADE WAS BURNED BY THE NPA REBELS, HENCE AN EXCEPTED RISK UNDER THE FIRE INSURANCE POLICY.2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE FOR 12% INTEREST PER ANNUM ON THE FACE VALUE OF THE POLICY FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID.3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER LIABLE FOR ACTUAL AND EXEMPLARY DAMAGES, LITIGATION EXPENSES, ATTORNEYS FEES AND COST OF SUIT.A party is bound by his own affirmative allegations. This is a well-known postulate echoed in Section 1 of Rule 131 of the Revised Rules of Court. Each party must prove his own affirmative allegations by the amount of evidence required by law which in civil cases, as in this case, is preponderance of evidence, to obtain a favorable judgment. In the instant case, the petitioner does not dispute that the respondents stocks-in-trade were insured against fire loss, damage or liability under Fire Insurance Policy No. F- 1397 and that the respondent lost its stocks-in-trade in a fire that occurred on July 1, 1989, within the duration of said fire insurance. The petitioner, however, posits the view that the cause of the loss was an excepted risk under the terms of the fire insurance policy. Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of the exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability. Stated else wise, since the petitioner in this case is defending on the ground of non-coverage and relying upon an exemption or exception clause in the fire insurance policy, it has the burden of proving the facts upon which such excepted risk is based, by a preponderance of evidence. But petitioner failed to do so.The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on the Spot Report of Pfc. Arturo V. Juarbal dated July 1, 1989, more particularly the following statement therein:xxx investigation revealed by Jose Lomocso that those armed men wanted to get can goods and rice for their consumption in the forest PD investigation further disclosed that the perpetrator are member (sic) of the NPA PD end x x xA witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived from his perception. Consequently, a witness may not testify as to what he merely learned from others either because he was told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. Such is the hearsay rule which applies not only to oral testimony or statements but also to written evidence as well. The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose reliability on which the worth of the out-of-court statement depends. Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay, inasmuch as they did not take the witness stand and could not therefore be cross-examined.There are exceptions to the hearsay rule, among which are entries in official records. To be admissible in evidence, however, three (3) requisites must concur, to wit:(a) that the entry was made by a public officer, or by another person specially enjoined by law to do so;(b) that it was made by the public officer in the performance of his duties, or by such other person in the performance of a duty specially enjoined by law; and(c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must have been acquired by him personally or through official information. The third requisite was not met in this case since no investigation, independent of the statements gathered from Jose Lomocso, was conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed out, citing the testimony of Pfc. Arturo Juarbal, the latters Spot Report "was based on the personal knowledge of the caretaker Jose Lomocso who witnessed every single incident surrounding the facts and circumstances of the case." This argument undeniably weakens the petitioners defense, for the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose Lomocso to the effect that NPA rebels allegedly set fire to the respondents building is inadmissible in evidence, for the purpose of proving the truth of the statements contained in the said report, for being hearsay. The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. Arturo V. Juarbal since he himself took the witness stand and was available for cross-examination. The portions of his Spot Report which were of his personal knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest of the said report relative to the statement of Jose Lomocso may be considered as independently relevant statements gathered in the course of Juarbals investigation and may be admitted as such but not necessarily to prove the truth thereof. The petitioners evidence to prove its defense is sadly wanting and thus, gives rise to its liability to the respondent under Fire Insurance Policy No. F-1397. Nonetheless, we do not sustain the trial courts imposition of twelve percent (12%) interest on the insurance claim as well as the monetary award for actual and exemplary damages, litigation expenses and attorneys fees for lack of legal and valid basis. Concerning the application of the proper interest rates, the following guidelines were set in Eastern Shipping Lines, Inc. v. Court of Appeals and Mercantile Insurance Co., Inc.: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts, is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.In the said case of Eastern Shipping, the Court further observed that a "forbearance" in the context of the usury law is a "contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable." Considering the foregoing, the insurance claim in this case is evidently not a forbearance of money, goods or credit, and thus the interest rate should be as it is hereby fixed at six percent (6%) computed from the date of filing of the complaint. We find no justification for the award of actual damages of Fifty Thousand Pesos (P50,000.00). Well-entrenched is the doctrine that actual, compensatory and consequential damages must be proved, and cannot be presumed. That part of the dispositive portion of the Decision of the trial court ordering the petitioner to pay actual damages of Fifty Thousand Pesos (P50,000.00) has no basis at all. The justification, if any, for such an award of actual damages does not appear in the body of the decision of the trial court. Neither is there any testimonial and documentary evidence on the alleged actual damages of Fifty Thousand Pesos (P50,000.00) to warrant such an award. Thus, the same must be deleted. Concerning the award of exemplary damages for Fifty Thousand Pesos (P50,000.00), we likewise find no legal and valid basis for granting the same. Article 2229 of the New Civil Code provides that exemplary damages may be imposed by way of example or correction for the public good. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. They are designed to permit the courts to mould behavior that has socially deleterious consequences, and its imposition is required by public policy to suppress the wanton acts of an offender. However, it cannot be recovered as a matter of right. It is based entirely on the discretion of the court. We find no cogent and valid reason to award the same in the case at bar.With respect to the award of litigation expenses and attorneys fees, Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted. Attorneys fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. The award of attorneys fees is the exception rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. We find none in this case to warrant the award by the trial court of litigation expenses and attorneys fees in the amounts of Five Thousand Pesos (P5,000.00) and Ten Thousand Pesos (P10,000.00), respectively, and therefore, the same must also be deleted. WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on the adjudged principal amount of Two Hundred Thousand Pesos (P200,000.00) shall be six percent (6%) per annum computed from the date of filing of the Complaint in the trial court. The awards in the amounts of Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, and Ten Thousand Pesos (P10,000.00) as attorneys fees are hereby DELETED. Costs against the petitioner. SO ORDERED.Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

Republic of the PhilippinesSUPREME COURTManilaFIRST DIVISIONG.R. No. 169737 February 12, 2008BLUE CROSS HEALTH CARE, INC., petitioner, vs.NEOMI* and DANILO OLIVARES, respondents.DECISIONCORONA, J.:This is a petition for review on certiorari of a decision and resolution of the Court of Appeals (CA) dated July 29, 2005 and September 21, 2005, respectively, in CA-G.R. SP No. 84163 which affirmed the decision of the Regional Trial Court (RTC), Makati City, Branch 61 dated February 2, 2004 in Civil Case No. 03-1153, which in turn reversed the decision of the Metropolitan Trial Court (MeTC), Makati City, Branch 66 dated August 5, 2003 in Civil Case No. 80867. Respondent Neomi T. Olivares applied for a health care program with petitioner Blue Cross Health Care, Inc., a health maintenance firm. For the period October 16, 2002 to October 15, 2003, she paid the amount of P11,117. For the same period, she also availed of the additional service of limitless consultations for an additional amount of P1,000. She paid these amounts in full on October 17, 2002. The application was approved on October 22, 2002. In the health care agreement, ailments due to "pre-existing conditions" were excluded from the coverage. On November 30, 2002, or barely 38 days from the effectivity of her health insurance, respondent Neomi suffered a stroke and was admitted at the Medical City which was one of the hospitals accredited by petitioner. During her confinement, she underwent several laboratory tests. On December 2, 2002, her attending physician, Dr. Edmundo Saniel, informed her that she could be discharged from the hospital. She incurred hospital expenses amounting to P34,217.20. Consequently, she requested from the representative of petitioner at Medical City a letter of authorization in order to settle her medical bills. But petitioner refused to issue the letter and suspended payment pending the submission of a certification from her attending physician that the stroke she suffered was not caused by a pre-existing condition. She was discharged from the hospital on December 3, 2002. On December 5, 2002, she demanded that petitioner pay her medical bill. When petitioner still refused, she and her husband, respondent Danilo Olivares, were constrained to settle the bill. They thereafter filed a complaint for collection of sum of money against petitioner in the MeTC on January 8, 2003. In its answer dated January 24, 2003, petitioner maintained that it had not yet denied respondents' claim as it was still awaiting Dr. Saniel's report. In a letter to petitioner dated February 14, 2003, Dr. Saniel stated that:This is in response to your letter dated February 13, 2003. [Respondent] Neomi T. Olivares called by phone on January 29, 2003. She stated that she is invoking patient-physician confidentiality. That she no longer has any relationship with [petitioner]. And that I should not release any medical information concerning her neurologic status to anyone without her approval. Hence, the same day I instructed my secretary to inform your office thru Ms. Bernie regarding [respondent's] wishes.xxx xxx xxxIn a decision dated August 5, 2003, the MeTC dismissed the complaint for lack of cause of action. It held:xxx the best person to determine whether or not the stroke she suffered was not caused by "pre-existing conditions" is her attending physician Dr. Saniel who treated her and conducted the test during her confinement. xxx But since the evidence on record reveals that it was no less than [respondent Neomi] herself who prevented her attending physician from issuing the required certification, petitioner cannot be faulted from suspending payment of her claim, for until and unless it can be shown from the findings made by her attending physician that the stroke she suffered was not due to pre-existing conditions could she demand entitlement to the benefits of her policy. On appeal, the RTC, in a decision dated February 2, 2004, reversed the ruling of the MeTC and ordered petitioner to pay respondents the following amounts: (1) P34,217.20 representing the medical bill in Medical City and P1,000 as reimbursement for consultation fees, with legal interest from the filing of the complaint until fully paid; (2) P20,000 as moral damages; (3) P20,000 as exemplary damages; (4) P20,000 as attorney's fees and (5) costs of suit. The RTC held that it was the burden of petitioner to prove that the stroke of respondent Neomi was excluded from the coverage of the health care program for being caused by a pre-existing condition. It was not able to discharge that burden. Aggrieved, petitioner filed a petition for review under Rule 42 of the Rules of Court in the CA. In a decision promulgated on July 29, 2005, the CA affirmed the decision of the RTC. It denied reconsideration in a resolution promulgated on September 21, 2005. Hence this petition which raises the following issues: (1) whether petitioner was able to prove that respondent Neomi's stroke was caused by a pre-existing condition and therefore was excluded from the coverage of the health care agreement and (2) whether it was liable for moral and exemplary damages and attorney's fees. The health care agreement defined a "pre-existing condition" as: x x x a disability which existed before the commencement date of membership whose natural history can be clinically determined, whether or not the Member was aware of such illness or condition. Such conditions also include disabilities existing prior to reinstatement date in the case of lapse of an Agreement. Notwithstanding, the following disabilities but not to the exclusion of others are considered pre-existing conditions including their complications when occurring during the first year of a Members coverage:I. Tumor of Internal OrgansII. Hemorrhoids/Anal FistulaIII. Diseased tonsils and sinus conditions requiring surgeryIV. Cataract/GlaucomaV. Pathological Abnormalities of nasal septum or turbinatesVI. Goiter and other thyroid disordersVII. Hernia/Benign prostatic hypertrophyVIII. EndometriosisIX. Asthma/Chronic Obstructive Lung diseaseX. EpilepsyXI. Scholiosis/Herniated disc and other Spinal column abnormalitiesXII. TuberculosisXIII. CholecysitisXIV. Gastric or Duodenal ulcerXV. Hallux valgusXVI. Hypertension and other Cardiovascular diseasesXVII. CalculiXVIII. Tumors of skin, muscular tissue, bone or any form of blood dyscraciasXIX. Diabetes MellitusXX. Collagen/Auto-Immune diseaseAfter the Member has been continuously covered for 12 months, this pre-existing provision shall no longer be applicable except for illnesses specifically excluded by an endorsement and made part of this Agreement. Under this provision, disabilities which existed before the commencement of the agreement are excluded from its coverage if they become manifest within one year from its effectivity. Stated otherwise, petitioner is not liable for pre-existing conditions if they occur within one year from the time the agreement takes effect.Petitioner argues that respondents prevented Dr. Saniel from submitting his report regarding the medical condition of Neomi. Hence, it contends that the presumption that evidence willfully suppressed would be adverse if produced should apply in its favor. Respondents counter that the burden was on petitioner to prove that Neomi's stroke was excluded from the coverage of their agreement because it was due to a pre-existing condition. It failed to prove this.We agree with respondents.In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a non-life insurance. It is an established rule in insurance contracts that when their terms contain limitations on liability, they should be construed strictly against the insurer. These are contracts of adhesion the terms of which must be interpreted and enforced stringently against the insurer which prepared the contract. This doctrine is equally applicable to health care agreements. Petitioner never presented any evidence to prove that respondent Neomi's stroke was due to a pre-existing condition. It merely speculated that Dr. Saniel's report would be adverse to Neomi, based on her invocation of the doctor-patient privilege. This was a disputable presumption at best.Section 3 (e), Rule 131 of the Rules of Court states:Sec. 3. Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence:xxx xxx xxx(e) That evidence willfully suppressed would be adverse if produced.Suffice it to say that this presumption does not apply if (a) the evidence is at the disposal of both parties; (b) the suppression was not willful; (c) it is merely corroborative or cumulative and (d) the suppression is an exercise of a privilege. Here, respondents' refusal to present or allow the presentation of Dr. Saniel's report was justified. It was privileged communication between physician and patient.Furthermore, as already stated, limitations of liability on the part of the insurer or health care provider must be construed in such a way as to preclude it from evading its obligations. Accordingly, they should be scrutinized by the courts with "extreme jealousy" and "care" and with a "jaundiced eye." Since petitioner had the burden of proving exception to liability, it should have made its own assessment of whether respondent Neomi had a pre-existing condition when it failed to obtain the attending physician's report. It could not just passively wait for Dr. Saniel's report to bail it out. The mere reliance on a disputable presumption does not meet the strict standard required under our jurisprudence.Next, petitioner argues that it should not be held liable for moral and exemplary damages, and attorney's fees since it did not act in bad faith in denying respondent Neomi's claim. It insists that it waited in good faith for Dr. Saniel's report and that, based on general medical findings, it had reasonable ground to believe that her stroke was due to a pre-existing condition, considering it occurred only 38 days after the coverage took effect. We disagree.The RTC and CA found that there was a factual basis for the damages adjudged against petitioner. They found that it was guilty of bad faith in denying a claim based merely on its own perception that there was a pre-existing condition: [Respondents] have sufficiently shown that [they] were forced to engage in a dispute with [petitioner] over a legitimate claim while [respondent Neomi was] still experiencing the effects of a stroke and forced to pay for her medical bills during and after her hospitalization despite being covered by [petitioners] health care program, thereby suffering in the process extreme mental anguish, shock, serious anxiety and great stress. [They] have shown that because of the refusal of [petitioner] to issue a letter of authorization and to pay [respondent Neomi's] hospital bills, [they had] to engage the services of counsel for a fee of P20,000.00. Finally, the refusal of petitioner to pay respondent Neomi's bills smacks of bad faith, as its refusal [was] merely based on its own perception that a stroke is a pre-existing condition. (emphasis supplied)This is a factual matter binding and conclusive on this Court. We see no reason to disturb these findings.WHEREFORE, the petition is hereby DENIED. The July 29, 2005 decision and September 21, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 84163 are AFFIRMED. Treble costs against petitioner.SO ORDERED.

Republic of the PhilippinesSUPREME COURTManilaFIRST DIVISIONG.R. No. 153587 February 27, 2008GLORIA SONDAYON, petitioner, vs.P.J. LHUILLER, INC. and RICARDO DIAGO, respondents.DECISIONAZCUNA, J.:This is a petition for review on certiorari seeking the nullification of the Decision rendered by the Court of Appeals (CA) on December 21, 2001, and its Resolution denying reconsideration, dated May 14, 2002, in CA-G.R. CV No. 67514, entitled "Gloria Sondayon v. P.J. Lhuillier, Inc. and Ricardo Diago." The facts are:Respondent P.J. Lhuillier, Inc. is a domestic corporation that owns and operates pawnshops under the business name "La Cebuana Pawnshop." Respondent Ricardo Diago acts as manager in one of its pawnshops located at Maywood, President Avenue, B.F. Homes Subdivision, Paraaque, Metro Manila.Respondent company contracted the services of the Sultan Security Agency. The security agency assigned Guimad Mantung to guard the La Cebuana Pawnshop in Maywood.On June 6, 1996, petitioner Gloria Sondayon, a store manager of Shekinah Jewelry & Boutique, secured a loan from La Cebuana and pledged her Patek Philippe solid gold watch worth P250,000. The watch was given to her as part of her commission by the owner of the shop where she works. She had pawned the watch to La Cebuana a few times in the past and, each time, she was able to redeem it.On August 10, 1996, Guimad Mantung, employing force and violence, robbed La Cebuana, resulting in the deaths of respondent company's appraiser and vault custodian. An information for Robbery with Homicide was filed against Mantung before the Regional Trial Court (RTC) of Paraaque, docketed as Criminal Case No. 96-761. The information alleged that Mantung divested the pawnshop of P62,000 in cash and several pieces of jewelry amounting to P5,300,000.On December 10, 1996, respondent company received a letter from petitioner's counsel demanding for the gold watch that she had pawned. Respondent company, however, failed to comply with the demand letter because the watch was among the articles of jewelry stolen by Mantung.Petitioner filed a complaint with the RTC of Paraaque for recovery of possession of personal property with prayer for preliminary attachment against respondent company and its Maywood branch manager, Ricardo Diago.In their Answer, respondents averred that petitioner had no cause of action against them because the incident was beyond their control.On August 18, 1997, the RTC, stating that the loss of the thing pledged was due to a fortuitous event, rendered a Decision dismissing petitioner's complaint as well as respondents' counterclaim. The pertinent portions of the Decision read:Culled from the testimonies of all the witnesses presented as well as the pieces of documentary evidence offered, this Court, after a thorough and careful evaluation and deliberation thereof is of the honest and firm belief that plaintiff failed to establish a sufficient cause of action against defendant as to warrant the recovery of the pledged Patek Philippe Solid Gold Watch which was allegedly concealed, removed or disposed of by the latter defendants as the facts and evidence proved otherwise as said watch was lost on account of a robbery with double homicide that happened on August 10, 1996 perpetrated by one Guimad Mantung, the security guard of defendant employed by Sultan Security Agency as found out by the Court (Exh. "7"); thus, defendants were not negligent in the safekeeping of the watch of plaintiff.Not only that. The pledge bears the terms and conditions which the parties should adhere being the law between them pursuant to Art. 1159 of the New Civil Code.Paragraph 13 of Exhibits "A" and "B" specifically provides:The pawnee shall not be liable for the loss or damage of the article pawned due to fortuitous events or force majeure such as fire, robbery, theft, hold-ups and other similar acts. When the loss is due to the fault and/or negligence of the pawnee, the amount of its liability, if any, shall be limited to the appraised value appearing on the face hereof.Said provision is not violative of law, customs, public policy or tradition, hence, has the force of law between the plaintiff and defendants, and the incident that happened which led to the loss of the thing pledged cannot be considered as negligence but more of a fortuitous event which the defendants could not have foreseen or which though foreseen, was inevitable. This finds support in Art. 1174 of the Civil Code.The defendants, therefore, are not bound to return the thing pledged nor the Court to fix its value. There was no unjustifiable refusal on the part of the defendants to return the thing pledged because, as testified by plaintiff herself, she has pawned the watch at least five (5) times to defendant corporation. Appeal was taken to the CA.On December 21, 2001, the CA rendered a Decision affirming the ruling of the trial court. Petitioner's motion for reconsideration was denied in the Resolution dated May 14, 2002. Petitioner contends that the CA erred:1) in considering the loss of the thing pledged a fortuitous event although the robbery was caused by respondents' own employees;2) in disregarding the legal principle that existing laws, rules and regulations in relation to the operation and regulation of pawnshops are part and parcel of the contract of pledge between petitioner and respondents;3) in affirming the ruling of the trial court that paragraph 13 of Exhibits "A" and "B" binds the parties and the courts as to the limitation on the value of the thing pledged; and4) in affirming the ruling of the trial court that paragraph 13 of Exhibits "A" and "B" is not violative of laws, customs, public policy or tradition when it is clearly a contract of adhesion.Petitioner argues that respondents have not shown that the incident constitutes a fortuitous event; that the security guard was an employee of respondent corporation regardless of the existence of a contract of employment because the latter had supervision and control over the former; that respondents were negligent because they did not insure the articles of jewelry including petitioner's watch against fire and burglary as required under the Pawnshop Regulation Act; that the provision in the pawnshop ticket limiting the value of the thing pledged is not binding on petitioner and the courts because the appraised value was very low and was not reached voluntarily by the parties but was merely imposed on the former; and that paragraph 13 of the pawnshop ticket limiting the liability of respondents to the appraised value is a contract of adhesion, and thus, should be declared void.The Court will only resolve issues of law in this proceeding under Rule 45.Accordingly, the existence or non-existence of an employer-employee relationship between respondent company and the security guard is a factual issue on which the Court defers to the findings of the CA. So, also, on the issue of the voluntariness of the agreement on the valuation of the thing pledged, the Court is not wont to disturb the finding of the appellate court.However, on the issue of the legal effect of the failure of respondents to insure the article pledged against burglary, the Court finds a reversible error in the appealed decision.Said the CA:Equally barren of merit is the Appellant's claim that the Appellee should bear the loss of the watch because of the failure of the Appellee to insure the watch by an insurance company accredited by the Insurance Commission, as required by Section 17 of the Rules and Regulations Implementing Presidential Decree No. 114, quoted, infra: "Sec. 17. Insurance of office building and pawns. - The place of business of a pawnshop and the pawns pledged to it must be insured against fire, and against burglary as well for the latter, by an insurance company accredited by the Insurance Commission." (idem supra) Even if We assume, for the nonce, that, indeed, the Appellee failed to comply with the aforequoted "Rule & Regulation," nevertheless, the Appellant was burdened to prove the causal connection between the violation, by the Appellee, of the aforequoted "Rule/Regulation" and the heist-homicide committed by the security guard:"First of all, it has not been shown how the alleged negligence of the Cimarron driver contributed to the collision between the vehicles. Indeed, petitioner has the burden of showing a causal connection between the injury received and the violation of the Land Transportation and Traffic Code. He must show that the violation of the statute was the proximate or legal cause of the injury or that it substantially contributed thereto. Negligence, consisting in whole or in part, of violation of law, like any other negligence, is without legal consequence unless it is a contributing cause of the injury. Petitioner says that 'driving an overloaded vehicle with only one functioning headlight during nighttime certainly increases the risk of accident,' that because the Cimarron had only one headlight, there was 'decreased visibility,' and that the fact that the vehicle was overloaded and its front seat overcrowded 'decreased [its] maneuverability.' However, mere allegations such as these are no sufficient to discharge its burden of proving clearly that such alleged negligence was the contributing cause of injury." (Sanitary Steam Laundry, Inc. versus Court of Appeals, et al., 300 SCRA 20, at pages 27-28, supra)The Appellant failed to discharge her burden. Indeed, the Appellant failed to allege, in her "Complaint," the causal connection of the loss of the watch and the violation by the Appellee, of the aforequoted "Rule/Regulation." Additionally, the appellant never invoked the aforequoted "Rule/Regulation" as anchor for her claim for damages against the Appellee. It was only, in the present recourse, in her "Brief," when the appellant invoked the aforequoted "Rule/Regulation." The Appellant is, thus, estopped from so doing. As our Supreme Court declared:"The issue of minority was first raised only on petitioners' Motion for Reconsideration of the Court of Appeals' Decision; thus, it is as if it was never duly raised in that court at all.' Hence, this Court cannot now, for the first time on appeal, entertain this issue, for to do so would plainly violate the basic rule of fair play, justice and due process. We take this opportunity to reiterate and emphasize the well-settled rule that '(a)n issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal." (Rolando Sanchez, et al. versus Court of Appeals, et al., 279 SCRA 647, at pages 678-679, supra) The records show that the matter of the insurance of the article pledged was taken up during the trial with no objection by respondents (Petition, p. 17, citing the testimony of Mr. Anthony Erenea, Area Manager of respondent company, on September 8, 1999):Q: Now, you said, Mr. Witness, you said that there were items lost?A: Yes, sir.Q: As a result of the robbery?A: Yes, sir.Q: Were those jewelry insured?A: At the time we were self-insured, sir.Q: I mean an independent Insurance Company accredited by the Insurance Commission?A: At that time, sir I have no knowledge of any insurance sir.Hence, petitioner correctly raised it in her brief in the CA.As to the causal connection between respondent company's violation of the legal obligation to insure the articles pledged and the heist-homicide committed by the security guard, the answer is simple: had respondent company insured the articles pledged against burglary, petitioner would have been compensated for the loss from the burglary. Respondent company's failure to insure the article is, therefore, a contributory cause to petitioner's loss.Considering, however, that petitioner agreed to a valuation of P15,000 for the article pledged in case of a loss, the replacement value for failure to insure is likewise limited to P15,000.Nevertheless, this Court, taking into account all the circumstances of this case, deems it fair and just to award exemplary damages against respondent company for its failure to comply with the rule and regulation requiring it to insure the articles pledged against fire and burglary, in the amount of Twenty Five Thousand (P25,000) Pesos.This Decision is without prejudice to appropriate proceedings to recover any excess value of the article pledged from amounts that may be or have been awarded payable by third parties answerable for the loss arising from the robbery. WHEREFORE, the petition is partly GRANTED and the Decision and Resolution of the Court of Appeals dated December 21, 2001 and May 14, 2002 in CA-G.R. CV No. 67514 are MODIFIED in that respondent company is ordered to pay petitioner the sum of Fifteen Thousand (P15,000) Pesos representing the agreed value of the watch pledged and Twenty Five Thousand (P25,000) Pesos as, and by way of, exemplary damages.No costs.SO ORDERED.

Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISIONG.R. No. 161539 April 24, 2009INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., Petitioner, vs.FGU INSURANCE CORPORATION, HAPAG-LLOYD, HAPAG-LLOYD PHILS., INC., and DESMA CARGO HANDLERS, INC., Respondents.RESOLUTIONAUSTRIA-MARTINEZ, J.:In a Decision dated June 27, 2008, the Court denied the petition filed in this case and affirmed the CA Decision dated October 22, 2003 and Resolution dated January 8, 2004, finding petitioner liable for the full amount of the shipment which was lost while in its charge. Petitioner filed a motion for reconsideration, which was denied by the Court with finality per Resolution dated August 27, 2008.Undaunted, petitioner filed the present second motion for partial reconsideration where it solely assails the award and reckoning date of the 12% interest imposed by the RTC on it adjudged liability. Petitioner contends that the complaint filed before the RTC is not one for loan or forbearance of money, but one for breach of contract or damages; hence, petitioner insists that the interest rate should be the legal rate of 6%, and not 12%. Petitioner also argues that the RTC reckoned the date when interest should accrue on the date when respondent FGU Insurance Corporation paid the amount insured, or on January 3, 1995. Petitioner contends that this is erroneous and the date should be reckoned from the time when respondent filed the complaint with the RTC, which is on April 10, 1995.A second look at petitioners arguments shows that indeed, the interest rate of 6% should have been imposed, and not 12%, as affirmed by the Court. Also, it should have been reckoned from April 10, 1995, when respondent filed by the complaint for sum of money, and not January 3, 1995, which was the date respondent paid the amount insured to the Republic Asahi Glass Corporation (RAGC).The claim in this case is one for reimbursement of the sum of money paid by FGU Insurance Corporation to RAGC. This is not one for forbearance of money, goods or credit. Forbearance in the context of the usury law is a contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable. Thus the interest rate should be as it is hereby fixed at 6%. Moreover, the interest rate of 6% shall be computed from the date of filing of the complaint, i.e., April 10, 1995. This is in accordance with the ruling that where the demand cannot be established with reasonable certainty, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.WHEREFORE, the second motion for partial reconsideration is GRANTED. The Decision dated June 27, 2008 is MODIFIED. The rate of interest on the principal amount of P1,875,068.88, as adjudged in the Regional Trial Court Decision dated July 1, 1999 in Civil Case No. 95-73532, and affirmed in the Courts Decision dated June 27, 2008, shall be six percent (6%) per annum computed from the date of filing of the complaint or April 10, 1995 until finality of this judgment. From the time this Decision becomes final and executory and the judgment amount remains unsatisfied, the same shall earn interest at the rate of 12% per annum until its satisfaction.SO ORDERED.

Republic of the PhilippinesSUPREME COURTManilaSECOND DIVISIONG.R. No. 156571 July 9, 2008INTRA-STRATA ASSURANCE CORPORATION and PHILIPPINE HOME ASSURANCE CORPORATION, Petitioners, vs.REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF CUSTOMS, Respondent.DECISIONBRION, J.:Before this Court is the Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by Intra-Strata Assurance Corporation (Intra-Strata) and Philippine Home Assurance Corporation (PhilHome), collectively referred to as "petitioners."The petition seeks to set aside the decision dated November 26, 2002 of the Court of Appeals (CA) that in turn affirmed the ruling of the Regional Trial Court (RTC), Branch 20, Manila in Civil Case No. 83-15071. In its ruling, the RTC found the petitioners liable as sureties for the customs duties, internal revenue taxes, and other charges due on the importations made by the importer, Grand Textile Manufacturing Corporation (Grand Textile). BACKGROUND FACTSGrand Textile is a local manufacturing corporation. In 1974, it imported from different countries various articles such as dyestuffs, spare parts for textile machinery, polyester filament yarn, textile auxiliary chemicals, trans open type reciprocating compressor, and trevira filament. Subsequent to the importation, these articles were transferred to Customs Bonded Warehouse No. 462. As computed by the Bureau of Customs, the customs duties, internal revenue taxes, and other charges due on the importations amounted to P2,363,147.00. To secure the payment of these obligations pursuant to Section 1904 of the Tariff and Customs Code (Code), Intra-Strata and PhilHome each issued general warehousing bonds in favor of the Bureau of Customs. These bonds, the terms of which are fully quoted below, commonly provide that the goods shall be withdrawn from the bonded warehouse "on payment of the legal customs duties, internal revenue, and other charges to which they shall then be subject." Without payment of the taxes, customs duties, and charges due and for purposes of domestic consumption, Grand Textile withdrew the imported goods from storage. The Bureau of Customs demanded payment of the amounts due from Grand Textile as importer, and from Intra-Strata and PhilHome as sureties. All three failed to pay. The government responded on January 14, 1983 by filing a collection suit against the parties with the RTC of Manila.LOWER COURT DECISIONSAfter hearing, the RTC rendered its January 4, 1995 decision finding Grand Textile (as importer) and the petitioners (as sureties) liable for the taxes, duties, and charges due on the imported articles. The dispositive portion of this decision states: WHEREFORE, premises considered, the Court RESOLVES directing:(1) the defendant Grand Textile Manufacturing Corporation to pay plaintiff, the sum of P2,363,174.00, plus interests at the legal rate from the filing of the Complaint until fully paid;(2) the defendant Intra-Strata Assurance Corporation to pay plaintiff, jointly and severally, with defendant Grand, the sum of P2,319,211.00 plus interest from the filing of the Complaint until fully paid; and the defendant Philippine Home Assurance Corporation to pay plaintiff the sum of P43,936.00 plus interests to be computed from the filing of the Complaint until fully paid;(3) the forfeiture of all the General Warehousing Bonds executed by Intra-Strata and PhilHome; and(4) all the defendants to pay the costs of suit.SO ORDERED.The CA fully affirmed the RTC decision in its decision dated November 26, 2002. From this CA decision, the petitioners now come before this Court through a petition for review on certiorari alleging that the CA decided the presented legal questions in a way not in accord with the law and with the applicable jurisprudence.ASSIGNED ERRORSThe petitioners present the following points as the conclusions the CA should have made:1. that they were released from their obligations under their bonds when Grand Textile withdrew the imported goods without payment of taxes, duties, and other charges; and2. that their non-involvement in the active handling of the warehoused items from the time they were stored up to their withdrawals substantially increased the risks they assumed under the bonds they issued, thereby releasing them from liabilities under these bonds. In their arguments, they essentially pose the legal issue of whether the withdrawal of the stored goods, wares, and merchandise without notice to them as sureties released them from any liability for the duties, taxes, and charges they committed to pay under the bonds they issued. They additionally posit that they should be released from any liability because the Bureau of Customs, through the fault or negligence of its employees, allowed the withdrawal of the goods without the payment of the duties, taxes, and other charges due.The respondent, through the Solicitor General, maintains the opposite view.THE COURTS RULINGWe find no merit in the petition and consequently affirm the CA decision.Nature of the Suretys ObligationsSection 175 of the Insurance Code defines a contract of suretyship as an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of another party called the obligee, and includes among its various species bonds such as those issued pursuant to Section 1904 of the Code. Significantly, "pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship." By its very nature under the terms of the laws regulating suretyship, the liability of the surety is joint and several but limited to the amount of the bond, and its terms are determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. The definition and characteristics of a suretyship bring into focus the fact that a surety agreement is an accessory contract that introduces a third party element in the fulfillment of the principal obligation that an obligor owes an obligee. In short, there are effectively two (2) contracts involved when a surety agreement comes into play a principal contract and an accessory contract of suretyship. Under the accessory contract, the surety becomes directly, primarily, and equally bound with the principal as the original promissor although he possesses no direct or personal interest over the latters obligations and does not receive any benefit therefrom. The Bonds Under ConsiderationThat the bonds under consideration are surety bonds (and hence are governed by the above laws and rules) is not disputed; the petitioners merely assert that they should not be liable for the reasons summarized above. Two elements, both affecting the suretyship agreement, are material in the issues the petitioners pose. The first is the effect of the law on the suretyship agreement; the terms of the suretyship agreement constitute the second.A feature of the petitioners bonds, not stated expressly in the bonds themselves but one that is true in every contract, is that applicable laws form part of and are read into the contract without need for any express reference. This feature proceeds from Article 1306 of the Civil Code pursuant to which we had occasion to rule:It is to be recognized that a large degree of autonomy is accorded the contracting parties. Not that it is unfettered. They may, according to Article 1306 of the Civil Code "establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided that they are not contrary to law, morals, good customs, public order, or public policy." The law thus sets limits. It is a fundamental requirement that the contract entered into must be in accordance with, and not repugnant to, an applicable statute. Its terms are embodied therein. The contracting parties need not repeat them. They do not even have to be referred to. Every contract thus contains not only what has been explicitly stipulated but also the statutory provisions that have any bearing on the matter."Two of the applicable laws, principally pertaining to the importer, are Sections 101 and 1204 of the Tariff and Customs Code which provide that:Sec 101. Imported Items Subject to Duty All articles when imported from any foreign country into the Philippines shall be subject to duty upon such importation even though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in clear laws.x x x xSec. 1204. Liability of Importer for Duties Unless relieved by laws or regulations, the liability for duties, taxes, fees, and other charges attaching on importation constitutes a personal debt due from the importer to the government which can be discharged only by payment in full of all duties, taxes, fees, and other charges legally accruing. It also constitutes a lien upon the articles imported which may be enforced which such articles are in custody or subject to the control of the government.The obligation to pay, principally by the importer, is shared by the latter with a willing third party under a suretyship agreement under Section 1904 of the Code which itself provides:Section 1904. Irrevocable Domestic Letter of Credit or Bank Guarantee or Warehousing Bond After articles declared in the entry of warehousing shall have been examined and the duties, taxes, and other charges shall have been determined, the Collector shall require from the importer, an irrevocable domestic letter of credit, bank guarantee, or bond equivalent to the amount of such duties, taxes, and other charges conditioned upon the withdrawal of the articles within the period prescribed by Section 1908 of this Code and for payment of any duties, taxes, and other charges to which the articles shall then be subject and upon compliance with all legal requirements regarding their importation.We point these out to stress the legal basis for the submission of the petitioners bonds and the conditions attaching to these bonds. As heretofore mentioned, there is, firstly, a principal obligation belonging to the importer-obligor as provided under Section 101; secondly, there is an accessory obligation, assumed by the sureties pursuant to Section 1904 which, by the nature of a surety agreement, directly, primarily, and equally bind them to the obligee to pay the obligors obligation.The second element to consider in a suretyship agreement relates to the terms of the bonds themselves, under the rule that the terms of the suretyship are determined by the suretyship contract itself. The General Warehousing Bond that is at the core of the present dispute provides:KNOW ALL MEN BY THESE PRESENTS:That I/we GRAND TEXTILE MANUFACTURING CORPORATION Km. 21, Marilao, Bulacan, as Principal, and PHILIPPINE HOME ASSURANCE as the latter being a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, as Surety, are held and firmly bound unto the Republic of the Philippines, in the sum of PESOS TWO MILLION ONLY (P2,000,000.00), Philippine Currency, to be paid to the Republic of the Philippines, for the payment whereof, we bind ourselves, our heirs, executors, administrators and assigns, jointly and severally, firmly by these presents:WHEREAS, the above-bounden Principal will from time to time make application to make entry for storing in customs-internal revenue bonded warehouse certain goods, wares, and merchandise, subject to customs duties and special import tax or internal revenue taxes or both;WHEREAS, the above principal in making application for storing merchandise in customs-internal revenue bonded warehouse as above stated, will file this in his name as principal, which bond shall be approved by the Collector of Customs or his Deputy; andWHEREAS, the surety hereon agrees to accept all responsibility jointly and severally for the acts of the principal done in accordance with the terms of this bond.NOW THEREFORE, the condition of this obligation is such that if within six (6) months from the date of arrival of the importing vessel in any case, the goods, wares, and merchandise shall be regularly and lawfully withdrawn from public stores or bonded warehouse on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall then be subject; or if at any time within six (6) months from the said date of arrival, or within nine (9) months if the time is extended for a period of three (3) months, as provided in Section 1903 of the Tariff and Customs Code of the Philippines, said importation shall be so withdrawn for consumption, then the above obligation shall be void, otherwise, to remain in full force and effect.Obligations hereunder may only be accepted during the calendar year 1974 and the right to reserve by the corresponding Collector of Customs to refuse to accept further liabilities under this general bond, whenever, in his opinion, conditions warrant doing so.IN WITNESS WHEREOF, we have signed our names and affixed our seals on this 20th day of September, 1974 at Makati, Rizal, Philippines.Considered in relation with the underlying laws that are deemed read into these bonds, it is at once clear that the bonds shall subsist that is, "shall remain in full force and effect" unless the imported articles are "regularly and lawfully withdrawn. . .on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall be subject." Fully fleshed out, the obligation to pay the duties, taxes, and other charges primarily rested on the principal Grand Textile; it was allowed to warehouse the imported articles without need for prior payment of the amounts due, conditioned on the filing of a bond that shall remain in full force and effect until the payment of the duties, taxes, and charges due. Under these terms, the fact that a withdrawal has been made and its circumstances are not material to the sureties liability, except to signal both the principals default and the elevation to a due and demandable status of the sureties solidary obligation to pay. Under the bonds plain terms, this solidary obligation subsists for as long as the amounts due on the importations have not been paid. Thus, it is completely erroneous for the petitioners to say that they were released from their obligations under their bond when Grand Textile withdrew the imported goods without payment of taxes, duties, and charges. From a commonsensical perspective, it may well be asked: why else would the law require a surety when such surety would be bound only if the withdrawal would be regular due to the payment of the required duties, taxes, and other charges?We note in this regard the rule that a surety is released from its obligation when there is a material alteration of the contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract and not merely its form. A surety, however, is not released by a change in the contract which does not have the effect of making its obligation more onerous. We find under the facts of this case no significant or material alteration in the principal contract between the government and the importer, nor in the obligation that the petitioners assumed as sureties. Specifically, the petitioners never assumed, nor were any additional obligation imposed, due to any modification of the terms of importation and the obligations thereunder. The obligation, and one that never varied, is on the part of the importer, to pay the customs duties, taxes, and charges due on the importation, and on the part of the sureties, to be solidarily bound to the payment of the amounts due on the imported goods upon their withdrawal or upon expiration of the given terms. The petitioners lack of consent to the withdrawal of the goods, if this is their complaint, is a matter between them and the principal Grand Textile; it is a matter outside the concern of government whose interest as creditor-obligee in the importation transaction is the payment by the importer-obligor of the duties, taxes, and charges due before the importation process is concluded. With respect to the sureties who are there as third parties to ensure that the amounts due are paid, the creditor-obligee's active concern is to enforce the sureties solidary obligation that has become due and demandable. This matter is further and more fully explored below.The Need for Notice to BondsmenTo support the conclusion that they should be released from the bonds they issued, the petitioners argue that upon the issuance and acceptance of the bonds, they became direct parties to the bonded transaction entitled to participate and actively intervene, as sureties, in the handling of the imported articles; that, as sureties, they are entitled to notice of any act of the bond obligee and of the bond principal that would affect the risks secured by the bond; and that otherwise, the door becomes wide open for possible fraudulent conspiracy between the bond obligee and principal to defraud the surety. In taking these positions, the petitioners appear to misconstrue the nature of a surety relationship, particularly the fact that two types of relationships are involved, that is, the underlying principal relationship between the creditor (government) and the debtor (importer), and the accessory surety relationship whereby the surety binds itself, for a consideration paid by the debtor, to be jointly and solidarily liable to the creditor for the debtors default. The creditor in this latter relationship accepts the suretys solidary undertaking to pay if the debtor does not pay. Such acceptance, however, does not change in any material way the creditors relationship with the principal debtor nor does it make the surety an active party to the principal creditor-debtor relationship. The contract of surety simply gives rise to an obligation on the part of the surety in relation with the creditor and is a one-way relationship for the benefit of the latter. In other words, the surety does not, by reason of the surety agreement, earn the right to intervene in the principal creditor-debtor relationship; its role becomes alive only upon the debtors default, at which time it can be directly held liable by the creditor for payment as a solidary obligor. A surety contract is made principally for the benefit of the creditor-obligee and this is ensured by the solidary nature of the sureties undertaking. Under these terms, the surety is not entitled as a rule to a separate notice of default, nor to the benefit of excussion, and may be sued separately or together with the principal debtor. The words of this Court in Palmares v. CA are worth noting:Demand on the surety is not necessary before bringing the suit against them. On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of the principals default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The surety is bound to take notice of the principals default and to perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship.Significantly, nowhere in the petitioners bonds does it state that prior notice is required to fix the sureties liabilities. Without such express requirement, the creditors right to enforce payment cannot be denied as the petitioners became bound as soon as Grand Textile, the principal debtor, defaulted. Thus, the filing of the collection suit was sufficient notice to the sureties of their principals default.The petitioners reliance on Visayan Surety and Insurance Corporation v. Pascual and Aguasin v. Velasquez does not appear to us to be well taken as these cases do not squarely apply to the present case. These cases relate to bonds issued as a requirement for the issuance of writs of replevin. The Rules of Court expressly require that before damages can be claimed against such bonds, notice must be given to the sureties to bind them to the award of damages. No such requirement is evident in this case as neither the Tariff and Customs Code nor the issued bonds require prior notice to sureties.The petitioners argument focusing on the additional risks they incur if they cannot intervene in the handling of the warehoused articles must perforce fail in light of what we have said above regarding the nature of their obligation as sureties and the relationships among the parties where a surety agreement exists. We add that the petitioners have effectively waived as against the creditor (the government) any such claim in light of the provision of the bond that "the surety hereon agrees to accept all responsibility jointly and severally for the acts of the principal done in accordance with the terms of this bond." Any such claim including those arising from the withdrawal of the warehoused articles without the payment of the requisite duties, taxes and charges is for the principal and the sureties to thresh out between or among themselves.Government is Not Bound by EstoppelAs its final point, the petitioners argue that they cannot be held liable for the unpaid customs duties, taxes, and other charges because it is the Bureau of Customs duty to ensure that the duties and taxes are paid before the imported goods are released from its custody and they cannot be made to pay for the error or negligence of the Bureaus employees in authorizing the unlawful and irregular withdrawal of the goods.It has long been a settled rule that the government is not bound by the errors committed by its agents. Estoppel does not also lie against the government or any of its agencies arising from unauthorized or illegal acts of public officers. This is particularly true in the collection of legitimate taxes due where the collection has to be made whether or not there is error, complicity, or plain neglect on the part of the collecting agents. In CIR v. CTA, we pointedly said:It is axiomatic that the government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. Thus, it should be collected without unnecessary hindrance or delay.We see no reason to deviate from this rule and we shall not do so now.WHEREFORE, premises considered, we hereby DENY the petition and AFFIRM the Decision of the Court of Appeals. Costs against the petitioners.SO ORDERED.

Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISIONG.R. No. 168402 August 6, 2008ABOITIZ SHIPPING CORPORATION, petitioner, vs.INSURANCE COMPANY OF NORTH AMERICA, respondent.DECISIONREYES, R.T., J.:THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the assured may have against the wrongdoer who caused the damage.Before Us is a petition for review on certiorari of the Decision of the Court of Appeals (CA) which reversed the Decision of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest and attorney's fees in favor of respondent Insurance Company of North America (ICNA).The FactsCulled from the records, the facts are as follows:On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines. ICNA issued an "all-risk" open marine policy, stating:This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title holder: - Loss, if any, payable to the Assured or order. The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City.The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993, the ship arrived and docked at the Manila International Container Port where the container van was again off-loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz Transport System. The bill of lading issued by Aboitiz contained the notation "grounded outside warehouse."The container van was stripped and transferred to another crate/container van without any notation on the condition of the cargo on the Stuffing/Stripping Report. On August 1, 1993, the container van was loaded on board petitioner's vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993.On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping Report dated August 5, 1993, petitioner's checker noted that the crates were slightly broken or cracked at the bottom.On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig informing him that the cargo sustained water damage. Perez, upon receiving the call, immediately went to the bonded warehouse and checked the condition of the container and other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there were completely dry and showed no sign of wetness. Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He further explained that the "grounded outside warehouse" notation in the bill of lading referred only to the container van bearing the cargo. In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo. The letter stated that the crate was broken at its bottom part such that the contents were exposed. The work tools and workbenches were found to have been completely soaked in water with most of the packing cartons already disintegrating. The crate was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the edges. The letter concluded that apparently, the damage was caused by water entering through the broken parts of the crate.The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee. On September 21, 1993, the consignee filed a formal claim with Aboitiz in the amount of P276,540.00 for the damaged condition of the following goods:ten (10) wooden workbenchesthree (3) carbide-tipped saw bladesone (1) set of ball-bearing guidesone (1) set of overarm router bitstwenty (20) rolls of sandpaper for stroke sander In a Supplemental Report dated October 20, 1993, CAC reported to ICNA that based on official weather report from the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July 28 and 29, 1993 caused water damage to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation "grounded outside warehouse." It was only on July 31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu.Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz.RTC DispositionICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus interest and attorney's fees. ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about by the fault and negligence of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery.Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was barred, and the suit was premature there being no claim made upon Aboitiz.On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision states:WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the complaint for being baseless and without merit. The complaint is hereby DISMISSED. The defendant's counterclaims are, likewise, DISMISSED for lack of basis. The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA. However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils.' claim that it had been subrogated to the rights of the consignee must fail because the subrogation receipt had no probative value for being hearsay evidence. The RTC reasoned:While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.) Limited (ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced which would show that ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that ICNA UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies. Plaintiff's witness, Francisco B. Francisco, claims that the signature below the name MSAS Cargo International is an endorsement of the marine policy in favor of Science Teaching Improvement Project. Plaintiff's witness, however, failed to identify whose signature it was and plaintiff did not present on the witness stand or took (sic) the deposition of the person who made that signature. Hence, the claim that there was an endorsement of the marine policy has no probative value as it is hearsay.Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement Project as shown by the Subrogation Form (Exhibit "K") allegedly signed by a representative of Science Teaching Improvement Project. Such representative, however, was not presented on the witness stand. Hence, the Subrogation Form is self-serving and has no probative value. (Emphasis supplied)The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit:Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly authorized to do business in the Philippines. This allegation was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the issues defined by the court is whether or not the plaintiff has legal capacity to sue and be sued. Under Philippine law, the condition is that a foreign insurance company must obtain licenses/authority to do business in the Philippines. These licenses/authority are obtained from the Securities and Exchange Commission, the Board of Investments and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign corporation doing business in the Philippines cannot sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)CA DispositionICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as made known in the dorsal portion of the Open Policy. On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not filed within the period required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation because the subrogation receipt should have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the representative of the consignee.On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the Regional Trial Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North America the sum of P280,176.92 with interest thereon at the legal rate from the date of the institution of this case until fully paid, and attorney's fees in the sum of P50,000, plus the costs of suit. The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign corporation. The CA ruled:At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even assuming arguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not bar it from claiming reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance and as recognized by Philippine courts. x x xx x x xPlaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as subrogee of the claim of the insured under the subject marine policy, is therefore the real party in interest to bring this suit and recover the full amount of loss of the subject cargo shipped by it from Manila to the consignee in Cebu City. x x xThe CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the evidence on record and relevant provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.IssuesThe following issues are up for Our consideration:(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT.(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME.(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF ABOITIZ. (Underscoring supplied)Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-in-interest that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice of claim as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the claim for damages?Our RulingWe answer the triple questions in the affirmative.A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is "transacting" or "doing business" in the country will a license be necessary before it can institute suits. It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law. Thus, this Court has held that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our courts. In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy, the present suit was filed by the said company's authorized agent in Manila. It was the domestic corporation that brought the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes the ICNA office in the Philippines as one of the foreign company's agents.As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the consignee.The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the company who issued the insurance, or against any of its listed agents worldwide. MSAS accepted said provision when it signed and accepted the policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a formal indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer.Likewise, the Open Policy expressly provides that:The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: - Loss, if any, payable to the Assured or Order.The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the assured. This is in keeping with Section 57 of the Insurance Code which states:A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may become the owner of the interest insured. (Emphasis added)Respondent's cause of action is founded on it being subrogated to the rights of the consignee of the damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states:Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. (Emphasis added)As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals, payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to subrogation equipped it with a cause of action against petitioner in case of a contractual breach or negligence. This right of subrogation, however, has its limitations. First, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading. Second, the insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving payment from the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim against the latter. The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to enforce the carrier's liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement was complied with. As held in the case of Philippine American