Insurance Kaso

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G.R. No. 166245 April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,vs.THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

D E C I S I O N

VELASCO, JR., J.:

The Case

Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on theinsurance application be considered as approval of the application?

The Facts

On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreementdenominated as Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal).

Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife.

The amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be

effective for a period of one year, renewable on a yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured forthe unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage by the Company on itseffective date is eligible for insurance under the Policy.

EVIDENCE OF INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of goodhealth shall be required for all Lot Purchasers as part of the application. The Company reserves the right to requirefurther evidence of insurability satisfactory to the Company in respect of the following:

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan

(including arrears up to but not exceeding 2 months) as reported by the Assured to the Company or the sum ofP100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while insuredunder the Policy.

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured.However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.3

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of theapplication of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to

the instant petition, Eternal complied by submitting a letter dated December 29, 1982,4containing a list of insurable balances

of its lot buyers for October 1982. One of those included in the list as "new business" was a certain John Chuang. His balanceof payments was PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuang’s death. Attachedto the claim were the following documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate stating that Chu angis a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring Eternal to submit the following documents relative

to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form attached); (2) Assured’s Certificate (with formattached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statementof Account showing the unpaid balance of Chuang before his death.

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Eternal transmitted the required documents through a letter dated November 14, 1984,7 which was received by Philamlife onNovember 15, 1984.

After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim. This promptedEternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20, 1986,9 a portion ofwhich reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Parkin October 1982 for the total maximum insurable amount of P100,000.00 each. No application for Group Insurancewas submitted in our office prior to his death on August 2, 1984.

In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of Insurability provision, "a

declaration of good health shall be required for all Lot Purchasers as party of the application." We cite further the

provision on Effective Date of Coverage under the policy which states that "there shall be no insurance if theapplication is not approved by the Company." Since no application had been submitted by the Insured/Assured, priorto his death, for our approval but was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuangwas not covered under the Policy. We wish to point out that Eternal Gardens being the Assured was a party to the

Contract and was therefore aware of these pertinent provisions.

With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage butare held by us in trust for the payor until the prerequisites for insurance coverage shall have been met. We will

however, return all the premiums which have been paid in behalf of John Uy Chuang.

Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife,docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against DefendantPHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of thePolicy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorney’s

fees.

SO ORDERED.

The RTC found that Eternal submitted Chuang’s application for insurance which he accomplished before his death, astestified to by Eternal’s witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: Phil-AmLife Insurance Application Forms & Cert."10 It further ruled that due to Philamlife’s inaction from the submission of therequirements of the group insurance on December 29, 1982 to Chuang’s death on August 2, 1984, as well as Philamlife’sacceptance of the premiums during the same period, Philamlife was deemed to have approved Chuang’s application. TheRTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow.

Philamlife appealed to the CA, which ruled, thus:

WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SETASIDE, and the complaint is DISMISSED. No costs.

SO ORDERED.11

The CA based its Decision on the factual finding that Chuang’s application was not enclosed in Eternal’s letter datedDecember 29, 1982. It further ruled that the non-accomplishment of the submitted application form violated Section 26 of the

Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not covered by Philamlife’sinsurance.

Hence, we have this petition with the following grounds:

The Honorable Court of Appeals has decided a question of substance, not therefore determined by this HonorableCourt, or has decided it in a way not in accord with law or with the applicable jurisprudence, in holding that:

I. The application for insurance was not duly submitted to respondent PhilamLife before the death of JohnChuang;

II. There was no valid insurance coverage; and

III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.

The Court’s Ruling























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As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first levelcourts, considering their findings of facts are conclusive and binding on this Court. However, such rule is subject toexceptions, as enunciated in Sampayan v. Court of Appeals :

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made ismanifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment isbased on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the

[CA] went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the

appellee; (7) when the findings [of the CA] are contrary to the trial court; (8) when the findings are conclusionswithout citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as inthe petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premisedon the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of

Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.12 (Emphasis supplied.)

In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.

Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of theinsurance application of Chuang before his death. In Eternal’s letter dated December 29, 1982, a list of insurable interests ofbuyers for October 1982 was attached, including Chuang in the list of new businesses. Eternal added it was noted at thebottom of said letter that the corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter thatwas apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy of the insuranceapplication which was signed by Chuang himself and executed before his death.

On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must presentevidence showing that Philamlife received a copy of Chuang’s insurance application.

The evidence on record supports Eternal’s position.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insuranceforms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect ofacknowledging receipt of the letter together with the attachments. Such receipt is an admission by Philamlife against its own

interest.13 The burden of evidence has shifted to Philamlife, which must prove that the letter did not contain Chuang’s

insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang’s insuranceapplication.

To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped as received, thecontents of the letter are correct and accounted for.

Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to inconsistencies is groundless. Thetrial court is in the best position to determine the reliability and credibility of the witnesses, because it has the opportunity to

observe firsthand the witnesses’ demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and conclusive on the appellate court, unless some facts or circumstances of weight and substance have been overlooked,misapprehended, or misinterpreted,14 that, if considered, might affect the result of the case.15

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts ofsubstance and value.

Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as shown

by the testimony of Edilberto Mendoza:

Atty. Arevalo:

Q Where is the original of the application form which is required in case of new coverage?

[Mendoza:]

A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of this issubmitted to Philamlife together with the monthly remittances and the second copy is remained or retained with themarketing department of Eternal Gardens.

Atty. Miranda:

We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does not

[ask] for the number of copy.

Atty. Arevalo:



















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Q Where is the original?

[Mendoza:]

A As far as I remember I do not know where the original but when I submitted with that payment together with the new

clients all the originals I see to it before I sign the transmittal letter the originals are attached therein.16

In other words, the witness admitted not knowing where the original insurance application was, but believed that the

application was transmitted to Philamlife as an attachment to a transmittal letter.

As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance applicationforms were accomplished and the testimony of Mendoza on who actually filled out the application form, these are minorinconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes that minorinconsistencies are too trivial to affect the credibility of witnesses, and these may even serve to strengthen their credibility asthese negate any suspicion that the testimonies have been rehearsed.17

We reiterated the above ruling in Merencillo v. People :

Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution’s evidence as a wholeor reflect on the witnesses’ honesty. The test is whether the testimonies agree on essential facts and whether the

respective versions corroborate and substantially coincide with each other so as to make a consistent and coherentwhole.18

In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither iswhether the insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlifeare minor and do not affect the credibility of Eternal’s witnesses.

However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.

This question must be answered in the affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920

dated December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured.However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.

An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to statethat the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the

second sentence appears to require Philamlife to approve the insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the

insured and strictly against the insurer in order to safeguard the latter’s interest. Thu s, in Malayan Insurance Corporation v.

Court of Appeals , this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguitytherein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance,being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in

other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations ofliability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurerfrom noncompliance with its obligations.19 (Emphasis supplied.)

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals , we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as topreclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance

contract are to be construed strictly against the party which prepared the contract, the insurer. By reason of the

exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity mustbe strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.20

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be

construed in favor of the insured and in favor of the effectivity of the insurance contract.

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase of amemorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is

effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of























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Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which wouldlead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance application must

not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the

insurance contract by the insurer must be explicit and unambiguous.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best.Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its

advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of

the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. Assuch, insurance contracts are imbued with public interest that must be considered whenever the rights and obligations of theinsurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance

companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise

be bound to honor the application as a valid, binding, and effective insurance contract.21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810

isREVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife ishereby ORDERED:

(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang;

(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra- judicial demand by Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17, 1996;

(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996until full payment of this award; and

(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.

No costs.

SO ORDERED.

G.R. No. 125678 March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,vs. COURT OF APPEALS and JULITA TRINOS, respondents.

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare

Health Systems, Inc. In the standard application form, he answered no to the following question:

Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble,

diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).1

The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health

Care Agreement No. P010194. Under the agreement, respondent’s husband was entitled to avail of hospitalization benefits,

whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical

examinations, preventive health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then

from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability.2

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one

month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health

care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner,there was a concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’sconfinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondentpaid the hospitalization expenses herself, amounting to about P76,000.00.

After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted atthe Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the







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morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to theChinese General Hospital where he died on the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages againstpetitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked forreimbursement of her expenses plus moral damages and attorney’s fees. Af ter trial, the lower court ruled againstpetitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.

SO ORDERED.3

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolvedpetitioner Reverente.4 Petitioner’s motion for reconsideration was denied.5 Hence, petitioner brought the instant petition forreview, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestabilityclause" under the Insurance Code6 does not apply.1âwphi1.nêt

Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a membermay immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter.Petitioner also points out that only medical and hospitalization benefits are given under the agreement without anyindemnification, unlike in an insurance contract where the insured is indemnified for his loss. Moreover, since Health CareAgreements are only for a period of one year, as compared to insurance contracts which last longer,7 petitioner argues that the

incontestability clause does not apply, as the same requires an effectivity period of at least two years. Petitioner further argues

that it is not an insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organizationunder the authority of the Department of Health.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a

consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurancecontract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of personsbearing a similar risk; and

5. In consideration of the insurer’s promise, the insured pays a premium.8

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a

person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life

and health of himself. Section 10 provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniaryinterest;

(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of whichdeath or illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own health.

The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. 9 Once themember incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the healthcare provider must pay for the same to the extent agreed upon under the contract.



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Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that in the application forhealth coverage, petitioners required respondent’s husband to sign an express authorization for any person, organization orentity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization,consultation, treatment or any other medical advice or examination.10 Specifically, the Health Care Agreement signed by

respondent’s husband states:

We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this

application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there

shall be no contract of health care coverage unless and until an Agreement is issued on this application and the full

Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members; that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCareunless set out in writing in the application;that any physician is, by these presents, expressly authorized to disclose or

give testimony at anytime relative to any information acquired by him in his professional capacity upon any question

affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any Agreement

issued on this application shall be a ratification of any correction in or addition to this application as stated in the space

for Home Office Endorsement.11 (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for author ization to inquire about the applicant’smedical history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any hospitalization,

consultation, treatment or any other medical advice or examination. This authorization is in connection with the

application for health care coverage only. A photographic copy of this authorization shall be as valid as the

original.12 (Underscoring ours)

Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:

Failure to disclose or misrepresentation of any material information by the member in the application or medicalexamination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginningand liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented

information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or

the assessment of a higher Membership Fee for the benefit or benefits applied for.13

The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely

depends on opinion rather than fact, especially coming from respondent’s husband who was not a medical doctor. Where

matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policyeven though they are untrue.14 Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid

the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium,and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoingcharacter, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further

inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally

states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or theimpossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer isobvious and amounts to actual fraud.15 (Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance

contract.16 Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and theduty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or

without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility

under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health

care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever heavails of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right

to rescind should be exercised previous to the commencement of an action on the contract.17 In this case, no rescission wasmade. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the followingconditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish factson which cancellation is based.18

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability,courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. 19 Being acontract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared thecontract – the insurer.20 By reason of the exclusive control of the insurance company over the terms and phraseology of theinsurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to



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avoid forfeiture.21 This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital servicecontracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonablysusceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtfulimport should be strictly construed against the provider.22

Anent the incontestability of the membership of respondent’s husband, we quote with approval the following findings of the tr ialcourt:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from

the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailmentof asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The

periods having expired, the defense of concealment or misrepresentation no longer lie. 23

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their

marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the

nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not

controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The

records adequately prove the expenses incurred by respondent for the deceased’s hospitalization, medication and theprofessional fees of the attending physicians.24

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December

14, 1995 is AFFIRMED.

SO ORDERED.

G.R. No. 85141 November 28, 1989

FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,vs. COURT OF APPEALS and CHOA TIEK SENG,

respondents.

REGALADO, J.:

This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive part of which reads:

WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino MerchantsInsurance Company to pay the plaintiff the sum of P51,568.62 with interest at legal rate from the date of filingof the complaint, and is modified with respect to the third party complaint in that (1) third party defendant E.Razon, Inc. is ordered to reimburse third party plaintiff the sum of P25,471.80 with legal interest from the dateof payment until the date of reimbursement, and (2) the third-party complaint against third party defendant

Compagnie Maritime Des Chargeurs Reunis is dismissed. 1

The facts as found by the trial court and adopted by the Court of Appeals are as follows:

This is an action brought by the consignee of the shipment of fishmeal loaded on board the vessel SSBougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover from the

defendant insurance company the amount of P51,568.62 representing damages to said shipment which has

been insured by the defendant insurance company under Policy No. M-2678. The defendant brought a third

party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc.

seeking judgment against the third (sic) defendants in case Judgment is rendered against the third party

plaintiff. It appears from the evidence presented that in December 1976, plaintiff insured said shipment withdefendant insurance company under said cargo Policy No. M-2678 for the sum of P267,653.59 for the goodsdescribed as 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila

against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship onDecember 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor ascertained

and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent

and the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of Bad

Order cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5and 6- Razon. The cargo was also surveyed by the arrastre contractor before delivery of the cargo to theconsignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad Order Certificate No.14859, 14863 and 14869 covering a total of 227 bags in bad order condition. Defendant's surveyor hasconducted a final and detailed survey of the cargo in the warehouse for which he prepared a survey reportExhibit F with the findings on the extent of shortage or loss on the bad order bags totalling 227 bags amounting

to 12,148 kilos, Exhibit F-1. Based on said computation the plaintiff made a formal claim against the defendant

Filipino Merchants Insurance Company for P51,568.62 (Exhibit C) the computation of which claim is contained

therein. A formal claim statement was also presented by the plaintiff against the vessel dated December 21,1976, Exhibit B, but the defendant Filipino Merchants Insurance Company refused to pay the claim.Consequently, the plaintiff brought an action against said defendant as adverted to above and defendantpresented a third party complaint against the vessel and the arrastre contractor. 2



9

The court below, after trial on the merits, rendered judgment in favor of private respondent, the decretal portion whereof reads:

WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff and against thedefendant Filipino Merchant's (sic) Insurance Co., ordering the defendants to pay the plaintiff the followingamount:

The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint;

On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third

party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff jointly and severally reimbursementof the amounts paid by the third party plaintiff with legal interest from the date of such payment until the dateof such reimbursement.

Without pronouncement as to costs. 3

On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the complaint is concerned and

modified the same with regard to the adjudication of the third-party complaint. A motion for reconsideration of the aforesaid

decision was denied, hence this petition with the following assignment of errors:

1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of the marine

insurance policy when it held the petitioner liable to the private respondent for the partial loss of the cargo,

notwithstanding the clear absence of proof of some fortuitous event, casualty, or accidental cause to which theloss is attributable, thereby contradicting the very precedents cited by it in its decision as well as a prior decisionof the same Division of the said court (then composed of Justices Cacdac, Castro-Bartolome, and Pronove);

2. The Court of Appeals erred in not holding that the private respondent had no insurable interest in the subjectcargo, hence, the marine insurance policy taken out by private respondent is null and void;

3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in not disclosing the

fact, it being bound out of utmost good faith to do so, that it had no insurable interest in the subject cargo,which bars its recovery on the policy. 4

On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical meaning in insurance inthat before a claim can be compensable it is essential that there must be "some fortuity, " "casualty" or "accidental cause" towhich the alleged loss is attributable and the failure of herein private respondent, upon whom lay the burden, to adduce

evidence showing that the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover fromthe insurance policy. We find said contention untenable.

The "all risks clause" of the Institute Cargo Clauses read as follows:

5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no case bedeemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of percentage. 5

An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of anykind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They areconstrued by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that whichhappens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident

is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is anunusual effect of a known cause and, therefore, not expected. 6

The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other than awillful and fraudulent act of the insured. 7 This is pursuant to the very purpose of an "all risks" insurance to give protection tothe insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to

property. 8 An "all asks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to

assure that no loss can happen through the incidence of a cause neither insured against nor creating liability in the ship; it is

written against all losses, that is, attributable to external causes. 9

The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo Clauses

being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo except (a) loss or

damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or

nature of the subject matter insured.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all risks" policy

the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The insured

under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy

attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer toshow the exception to the coverage. 10 As we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. 11 the basicrule is that the insurance company has the burden of proving that the loss is caused by the risk excepted and for want of suchproof, the company is liable.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverageto risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to theperil falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly



10

excludes the loss from coverage. 12 A marine insurance policy providing that the insurance was to be "against all risks" must beconstrued as creating a special insurance and extending to other risks than are usually contemplated, and covers all lossesexcept such as arise from the fraud of the insured. 13 The burden of the insured, therefore, is to prove merely that the goods hetransported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was

due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would beinconsistent with the broad protective purpose of "all risks" insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable under

the policy. As aptly stated by the respondent Court of Appeals, upon due consideration of the authorities and jurisprudence it

discussed —

... it is believed that in the absence of any showing that the losses/damages were caused by an excepted peril,

i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing, the lower

court did not err in holding that the loss was covered by the policy.

There is no evidence presented to show that the condition of the gunny bags in which the fishmeal was packed

was such that they could not hold their contents in the course of the necessary transit, much less any evidence

that the bags of cargo had burst as the result of the weakness of the bags themselves. Had there been such ashowing that spillage would have been a certainty, there may have been good reason to plead that there was norisk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims, Ibid , p. 125). Under an

'all risks' policy, it was sufficient to show that there was damage occasioned by some accidental cause of anykind, and there is no necessity to point to any particular cause. 14

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement has theforce of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such terms are clearand unambiguous, they must be taken and understood in their plain, ordinary and popular sense. 15

Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent, as consignee of thegoods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal,or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify theinsured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer lossfrom its destruction whether he has or has not any title in, or lien upon or possession of the property y. 16 Insurable interest inproperty may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy,

coupled with an existing interest in that out of which the expectancy arises. 17

Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be the subjectof a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. 18 The perfected contract

of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before be

performed the conditions of the sale. 19 The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, isimmaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfectedcontract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to bethe subject of insurance.

Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized orrequired to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purposeof transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining inthe present case. The Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the

nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurancepremium covering them. 20

C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods andfreight to the named destination. 21 It simply means that the seller must pay the costs and freight necessary to bring the goods

to the named destination but the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods

pass the ship's rail in the port of shipment. 22

Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners answer. It was neither anissue agreed upon by the parties at the pre-trial conference nor was it raised during the trial in the court below. It is a settled

rule that an issue which has not been raised in the court a quo cannot be raised for the first time on appeal as it would be

offensive to the basic rules of fair play, justice and due process. 23 This is but a permuted restatement of the long settled rule

that when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he

will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair to the adverse party.

24

If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the issue of insurable

interest raised by petitioner, it was to put at rest all doubts on the matter under the facts in this case and also to dispose of petitioner's third assignment of error which consequently needs no further discussion.

WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is AFFIRMED in toto.

SO ORDERED.

G.R. No. L-41014 November 28, 1988



11

PACIFIC BANKING CORPORATION, petitioner,vs. COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision of respondent Court of Appeals * in CA-G.R. No. 41735-R, entitled"Pacific Banking Corporation vs. Oriental Assurance Corporation", which set aside the decision of the Court of First Instance(CFI) of Manila, ** which had in turn granted the complaint for a sum of money in Civil Case No. 56889.

As gathered from the records, the undisputed facts of this case are as follows:

On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the Paramount Shirt Manufacturing Co.

(hereinafter referred to as the insured, for brevity), by which private respondent Oriental Assurance Corporation bound itself to

indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by fire to its property consisting of stocks,materials and supplies usual to a shirt factory, including furniture, fixtures, machinery and equipment while contained in theground, second and third floors of the building situated at number 256 Jaboneros St., San Nicolas, Manila, for a period of oneyear commencing from that date to October 21, 1964.

The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner in the amount of not lessthan Eight Hundred Thousand Pesos (P800,000.00) and the goods described in the policy were held in trust by the insured forthe petitioner under thrust receipts (Record on Appeal, p. 4).

Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured, with the knowledge and consent of private respondent to the effect that "loss if any under this policy is payable to the Pacific Banking Corporation".

On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the subject premises destroyingthe goods contained in its ground and second floors (Record on Appeal, p.5)

On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for indemnity due to the loss of

property by fire under the endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17).

On January 28, 1964, private respondent informed counsel for the petitioner that it was not yet ready to accede to the latter's

demand as the former is awaiting the final report of the insurance adjuster, H.H. Bayne Adjustment Company (Brief for Plaintiff-Appellee, pp. 17-18).

On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the insured under the policy had not filed

any claim with it, nor submitted proof of loss which is a clear violation of Policy Condition No.11, and for which reason,

determination of the liability of private respondent could not be had (Supra, pp. 19-20).

On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance adjuster to verify from the records of the

Bureau of Customs the entries of merchandise taken into the customs bonded warehouse razed by fire as a reliable proof of loss(Supra, pp. 21-22). For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff therein) on April 28,1 964, filed in the court a quo an action for a sum of money against the private respondent, Oriental Assurance Corporation, inthe principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-36).

On May 25, 1964, private respondent raised the following defenses in its answer to wit: (a) lack of formal claim by insured overthe loss and (b) premature filing of the suit as neither plaintiff nor insured had submitted any proof of loss on the basis of whichdefendant would determine its liability and the amount thereof, either to the private respondent or its ad . adjuster H.H. Bayne

Adjustment Co., both in violation of Policy Condition No.11 (Record on Appeal, pp. 37-38).

At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated December 22, 1965 of the insuranceadjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc., revealing undeclared co-insurances with thefollowing: P30,000.00 with Wellington Insurance; P25,000. 00 with Empire Surety and P250,000.00 with Asian Surety ;undertaken by insured Paramount on the same property covered by its policy with private respondent whereas the only co-

insurances declared in the subject policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 with

Victory (Brief for the Defendant pp. 13-14).

It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in the form of non-declaration of co-

insurances which was not pleaded in the answer was also not pleaded in the Motion to Dismiss.

At any rate, on June 30, 1967, the trial court denied private respondent's motion on the ground that the defense of lack of proof

of loss or defects therein was raised for the first time after the commencement of the suit and that it must be deemed to havewaived the requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61).

On September 9, 1967, the case was considered submitted for decision from which order private respondent filed a motion forreconsideration to set the case or further reception of private respondent's additional evidence, "in order to prove that 'insured

has committed a violation of condition No. 3 of the policy in relation to the other Insurance Clause.' " (Record on Appeal, pp.61-69).

On September 30,1967, the case was set for the continuation of the hearing for the reception merely of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co., over the vehement opposition of the petitioner (Record on Appeal, p.

129).



12

On April 18, 1 968, the trial court rendered a decision adjudging private respondent liable to the petitioner under the saidcontract of insurance, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff P61,000.00, with interestat the rate of 8% per annum from January 4, 1964, to April 28, 1964, and 12% from April 29, 1964, until theamount is fully paid, P6,100.00, as attorney's fees, and the costs.

SO ORDERED. (Record on Appeal, pp. 140-141)

On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated on April 23, 1975, Rollo, pp. 21-33).

Petitioner filed a motion for reconsideration of the said decision of the respondent Court of Appeals, but this was denied on July

3,1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition with the following assigned errors;

I. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING FRAUD FROM THEBARE FACT THAT THE INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES OTHER THAN THOSESTATED IN THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY PRESUMPTIONS AND ADMITTED FACT ANDCIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF SAID CONCLUSION.

(a) The respondent Court did not consider the legal presumption against the existence of fraud, which should be established

with such quantum of proof as is required for any crime.

(b) The record of the case is bereft of proof of such fraud.

(c) The private respondent insurer did not even plead or in anywise raise fraud as a defense in its answer or motion to dismissand, therefore, it should have been considered waived.

(d) The total amount of insurance procured by the insured from the different companies amounted to hardly onehalf (½) of thevalue of the goods insured.

II. RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON THE PARTICULARQUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT THEREON SHOULD BE CONSIDERED AFFIRMED.

III. THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN HOLDING THAT THEACTION WAS PREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE INSURANCE LAW HAS NOTBEEN FILED, NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF PETITIONER-APPELLANT'S LAWYER WHICH ISA SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS AND NOT HOLDING THAT PRIVATE RESPONDENTINSURER HAD ALREADY WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER-APPELLANTFOR ITS FAILURE TO CALL THE ATTENTION OF THE LAYER TO SUCH ALLEGED DEFECTS AND FOR ENDORSINGTHE CLAIM TO ITS ADJUSTER FOR PROCESSING.

IV. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT INTERPRETING THE

PROVISIONS OF THE POLICY LIBERALLY IN FAVOR OF THE HEREIN PETITIONER-APPELLANT, WHO IS NOT THE

INSURED BUT ONLY THE ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED.

V. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN DISMISSING THE CASE AND INNOT AFFIRMING THE APPEALED DECISION OF THE TRIAL COURT. (Brief for Petitioners, pp. 1-3)

The crux of the controversy centers on two points: (a) unrevealed co-insurances which violated policy conditions No. 3 and (b)

failure of the insured to file the required proof of loss prior to court action. Policy Condition No. 3 explicitly provides:

3. The Insured shall give notice to the Company of any insurance already effected, or which may subsequentlybe effected, covering any of the property hereby insured, and unless such notice be given and the particulars of

such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the

occurrence of any loss or damage, all benefit under this policy shall be forfeited. (Record on Appeal, p. 12)

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 underclauses "Co-Insurances Declared" and "Other Insurance Clause" are materially different from the actual number of co-insurances taken over the subject property. Consequently, "the whole foundation of the contract fails, the risk does not attachand the policy never becomes a contract between the parties. Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such representations is not shown to vary or addto 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 v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]).



13

As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon thesame property, the total absence of such notice nullifies the policy (Sta. Ana v. Commercial Union Assurance Co., 55 Phil. 333[1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. & Surety Corp., v.Yap, 61 SCRA 432 [1974]).

The argument that notice of co-insurances may be made orally is preposterous and negates policy condition No. 20 whichrequires every notice and other communications to the insurer to be written or printed.

Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance clause" supposedly to have been

violated, cannot certainly defeat the right of the petitioner to recover the insurance as mortgagee/assignee. Particularlyreferring to the mortgage clause of the policy, petitioner argues that considering the purpose for which the endorsement or

assignment was made, that is, to protect the mortgagee/assignee against any untoward act or omission of the insured, it would

be absurd to hold that petitioner is barred from recovering the insurance on account of the alleged violation committed by the

insured (Rollo, Brief for the petitioner, pp, 33-35).

It is obvious that petitioner has missed all together the import of subject mortgage clause which specifically provides:

Mortgage Clause

Loss, if any, under this policy, shall be payable to the PACIFIC BANKING CORPORATION Manilamortgagee/trustor as its interest may appear, it being hereby understood and agreed that this insurance as tothe interest of the mortgagee/trustor only herein, shall not be invalidated by any act or neglect —except fraud or

misrepresentation, or arson—of the mortgagor or owner/trustee of the property insured; provided, that in case

the mortgagor or owner/ trustee neglects or refuses to pay any premium, the mortgagee/ trustor shall, on

demand pay the same. (Rollo, p. 26)

The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the mortgagee, cannot be

invalidated; namely: fraud, or misrepresentation or arson. As correctly found by the Court of Appeals, concealment of theaforecitedco-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27).

Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by

its fraud and/or misrepresentation, forfeited said right, with more reason petitioner which is merely claiming as indorsee of said

insured, cannot be entitled to such proceeds.

Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's answer or motion to dismiss,should be deemed to have been waived.

It will be noted that the fact of fraud was tried by express or at least implied consent of the parties. Petitioner did not only

object to the introduction of evidence but on the contrary, presented the very evidence that proved its existence.

Be that as it may, it is established that the Supreme Court has ample authority to give beyond the pleadings where in theinterest of justice and the promotion of public policy, there is a need to make its own finding to support its conclusion.

Otherwise stated, the Court can consider a fact which surfaced only after trial proper (Maharlika Publishing Corp. v. Tagle, 142

SCRA 561 [1986]).

Generally, the cause of action on the policy accrues when the loss occurs, But when the policy provides that no action shall be

brought unless the claim is first presented extrajudicially in the manner provided in the policy, the cause of action will accrue

from the time the insurer finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]).

In the case at bar, policy condition No. 11 specifically provides that the insured shall on the happening of any loss or damage

give notice to the company and shall within fifteen (15) days after such loss or damage deliver to the private respondent (a) a

claim in writing giving particular account as to the articles or goods destroyed and the amount of the loss or damage and (b)particulars of all other insurances, if any. Likewise, insured was required "at his own expense to produce, procure and give tothe company all such further particulars, plans, specifications, books, vouchers, invoices, duplicates or copies thereof,documents, proofs and information with respect to the claim". (Record on Appeal, pp. 18-20).

The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote letters to private respondent toserve as a notice of loss, thereafter, the former did not furnish the latter whatever pertinent documents were necessary toprove and estimate its loss. Instead, petitioner shifted upon private respondent the burden of fishing out the necessaryinformation to ascertain the particular account of the articles destroyed by fire as well as the amount of loss. It is noteworthythat private respondent and its adjuster notified petitioner that insured had not yet filed a written claim nor submitted thesupporting documents in compliance with the requirements set forth in the policy. Despite the notice, the latter remained

unheedful. Since the required claim by insured, together with the preliminary submittal of relevant documents had not been

complied with, it follows that private respondent could not be deemed to have finally rejected petitioner's claim and therefore

the latter's cause of action had not yet arisen. Compliance with condition No. 11 is a requirement sine qua non to the right to

maintain an action as prior thereto no violation of petitioner's right can be attributable to private respondent. This is so, asbefore such final rejection, there was no real necessity for bringing suit. Petitioner should have endeavored to file the formalclaim and procure all the documents, papers, inventory needed by private respondent or its adjuster to ascertain the amount of loss and after compliance await the final rejection of its claim. Indeed, the law does not encourage unnecessary litigation (EagleStar Insurance Co., Ltd., et al. v. Chia Yu, p. 701, supra).<äre||anº•1àw>

Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was warranted under the circumstances. While itis a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insuredand strictly as against the insurer company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co.,



14

Inc. v. The Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v. CA, 145 SCRA 533 [1986]), yet,contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which theparties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain,ordinary and popular sense (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc. v. Phil.

Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA,

145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385 [1986]).

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right

to impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary. The

agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability, andin order to recover, the insured must show himself within those terms. The compliance of the insured with the terms of the

policy is a condition precedent to the light of recovery (Stokes v. Malayan Insurance Co., Inc ., 127 SCRA 766 [1984]).

It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the contract, and such violationor want of performance has not been waived by the insurer, the insured cannot recover, much less the herein petitioner. Courtsare not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out thecontracts actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union Manufacturing Co. Inc. v. Phil. GuarantyCo. Inc., p. 276 supra).

Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals when supported by substantial

evidence, are not reviewable on appeal by certiorari, deserves reiteration. Said findings of the appellate court are final andcannot be disturbed by the Supreme Court except in certain cases Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA

480 [1982] Director of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v. Sandiganbayan,

142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]).

PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision appealed from is AFFIRMED. No costs.

SO ORDERED.

Insular Life v. Ebrado - Insurance Proceeds

80 SCRA 181Facts:> Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with a rider for AccidentalDeath Benefits for the same amount.> Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife.

> Ebrado died when he was accidentally hit by a falling branch of tree.

> Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although she admitted that she and

the insured were merely living as husband and wife without the benefit of marriage.> Pascuala Ebrado also filed her claim as the widow of the deceased insured.> Insular life filed an interpleader case and the lower court found in favor of Pascuala.

Issue:Between Carponia and Pascuala, who is entitled to the proceeds?

Held:Pascuala. It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain a specific provision grossly resolutoryof the prime question at hand. Rather, the general rules of civil law should be applied to resolve this void in the insurance law.Art. 2011 of the NCC states: The contract of insurance is governed by special laws. Matters not expressly provided for in suchspecial laws shall be regulated by this Code. When not otherwise specifically provided for in the insurance law, the contract of life insurance is governed by the general rules of civil law regulating contracts.

Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of

a life insurance policy by a person who cannot make any donation to him, according to said article . Under Art. 739, donationsbetween persons who were guilty of adultery or concubinage at the time of the donation shall be void.

In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is concerned. Both are foundedon the same consideration of liberality. A beneficiary is like a donee because from the premiums of the policy which the insuredpays, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Art. 739

should equally operate in life insurance contracts.

Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from receiving proceeds of

a life insurance contract.

Vda. De Consuegra v. GSIS - Retirement Insurance Benefits

37 SCRA 315Facts:> Jose Consuegra was employed as a shop foreman of the Office of the District Engineer in Surigao Del Norte.> When he was still alive, he contracted two marriages:o First – Rosario Diaz; 2 children = Jose Consuegra Jr. and Pedro but both predeceased himo 2nd – Basilia Berdin; 7 children. (this was contracted in GF while the first marriage subsisted) > Being a GSIS member when he died, the proceeds of his life insurance were paid by the GSIS to Berdin and her children whowere the beneficiaries named in the policy.

> Since he was in the gov’t service for 22.5028 years, he was entitled to retirement insurance benefits, for which no

beneficiary was designated.



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> Both families filed their claims with the GSIS, which ruled that the legal heirs were Diaz who is entitled to one-half or 8/16 of the retirement benefits and Berdin and her children were entitled to the remaining half, each to receive an equal share of 1/16.> Berdin went to CFI on appeal. CFI affirmed GSIS decision.

Issue:To whom should the retirement insurance benefits be paid?

Held:Both families are entitled to half of the retirement benefits.

The beneficiary named in the life insurance does NOT automatically become the beneficiary in the retirement insurance. WhenConsuegra, during the early part of 1943, or before 1943, designated his beneficiaries in his life insurance, he could NOT haveintended those beneficiaries of his life insurance as also the beneficiaries of his retirement insurance because the provisions on

retirement insurance under the GSIS came about only when CA 186 was amended by RA 660 on June 18, 1951.

Sec. 11(b) clearly indicates that there is need for the employee to file an application for retirement insurance benefits when hebecomes a GSIS member and to state his beneficiary. The life insurance and the retirement insurance are two separate anddistinct systems of benefits paid out from 2 separate and distinct funds.

In case of failure to name a beneficiary in an insurance policy, the proceeds will accrue to the estate of the insured. And when

there exists two marriages, each family will be entitled to one-half of the estate.

G.R. No. L-22796 June 26, 1967

DELFIN NARIO, and ALEJANDRA SANTOS-NARIO, plaintiffs-appellants,

vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.

REYES, J.B.L., J.:

Direct appeal, on pure question of law, from a decision of the Court of First Instance of Manila, in its Civil Case No. 54942,dismissing plaintiffs' complaint as well as from a later order of the same court, denying a motion to set aside and/or reconsidersaid decision of dismissal.

The facts of this case may be stated briefly as follows:

Mrs. Alejandra Santos-Mario was, upon application, issued, on June 12, 1959, by the Philippine American Life Insurance Co., alife insurance policy (No. 503617) under a 20-year endowment plan, with a face value of P5,000.00. She designated thereonher husband, Delfin Nario, and their unemancipated minor son, Ernesto Nario, as her irrevocable beneficiaries.

About the middle of June, 1963, Mrs. Nario applied for a loan on the above stated policy with the Insurance Company, whichloan she, as policy-holder, has been entitled to avail of under one of the provisions of said policy after the same has been inforce for three (3) years, for the purpose of using the proceeds thereof for the school expenses of her minor son, Ernesto Nario.

Said application bore the written signature and consent of Delfin Nario in two capacities: first, as one of the irrevocable

beneficiaries of the policy; and the other, as the father-guardian of said minor son and irrevocable beneficiary, Ernesto Nario,

and as the legal administrator of the minor's properties, pursuant to Article 320 of the Civil Code of the Philippines.

The Insurance Company denied said application, manifesting to the policy holder that the written consent for the minor son

must not only be given by his father as legal guardian but it must also be authorized by the court in a competent guardianship

proceeding.

After the denial of said policy loan application, Mrs. Nario signified her decision to surrender her policy to the Insurance

Company, which she was also entitled to avail of under one of the provisions of the same policy, and demanded its cash value

which then amounted to P520.00.

The Insurance Company also denied the surrender of the policy, on the same ground as that given in disapproving the policy

loan application; hence, on September 10, 1963, Mrs. Alejandra Santos-Nario and her husband, Delfin Nario, brought suit

against the Philippine American Life Insurance Co. in the above mentioned court of first instance, seeking to compel the latter

(defendant) to grant their policy loan application and/or to accept the surrender of said policy in exchange for its cashvalue.1äwphï1.ñët

Defendant Insurance Company answered the complaint, virtually admitting its material allegations, but it set up the affirmative

defense that inasmuch as the policy loan application and the surrender of the policy involved acts of disposition and alienation

of the property rights of the minor, said acts are not within the powers of the legal administrator, under article 320 in relation toarticle 326 of the Civil Code; hence, mere written consent given by the father-guardian, for and in behalf of the minor son,without any court authority therefor, was not a sufficient compliance of the law, and it (defendant Insurance Company) was,therefore, justified in refusing to grant and in disapproving the proposed transactions in question.

There having been no substantial disagreement or dispute as to any material fact, the parties, upon joint motion which thelower court granted, dispensed with the presentation of evidence and submitted their respective memoranda, after which thecase was considered submitted for decision.

The lower court found and opined that since the parties expressly stipulated in the endorsement attached to the policy andwhich formed part thereof that —



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It is hereby understood and agreed that, notwithstanding the provisions of this Policy to the contrary, inasmuch as thedesignation of the beneficiaries have been made by the Insured without reserving the right to change said beneficiaries,the Insured may not designate a new beneficiary or assign, release or surrender this Policy to the Company andexercise any and all other rights and privileges hereunder or agree with the Company to any change in or amendment

to this Policy, without the consent of the beneficiaries originally designated;

that under the above quoted provision, the minor son, as one of the designated irrevocable beneficiaries, "acquired a vested

right to all benefits accruing to the policy, including that of obtaining a policy loan to the extent stated in the schedule of values

attached to the policy (Gercio vs. Sun Life Assurance of Canada, 48 Phil. 53, 58)"; that the proposed transactions in question

(policy loan and surrender of policy) involved acts of disposition or alienation of the minor's properties for which the consentgiven by the father-guardian for and in behalf of the minor son, must be with the requisite court authority (U.S.V.A. vs. Bustos,92 Phil. 327; Visaya vs. Suguitan, G.R. No. L-8300, November 18, 1955; 99 Phil. 1004 [unrep] and in the case at bar, suchconsent was given by the father-guardian without any judicial authority; said court, agreeing with defendant's contention,sustained defendant's affirmative defense, and rendered, on January 28, 1964, its decision dismissing plaintiffs' complaint.

Unable to secure reconsideration of the trial Court's ruling, petitioner appealed directly to this Court, contending that theminor's interest amounted to only one-half of the policy's cash surrender value of P520.00; that under Rule 96, Section 2 of theRevised Rules of Court, payment of the ward's debts is within the powers of the guardian, where no realty is involved; hence,there is no reason why the father may not validly agree to the proposed transaction on behalf of the minor without need of

court authority.

The appeal is unmeritorious. We agree with the lower court that the vested interest or right of the beneficiaries in the policy

should be measured on its full face value and not on its cash surrender value, for in case of death of the insured, said

beneficiaries are paid on the basis of its face value and in case the insured should discontinue paying premiums, the

beneficiaries may continue paying it and are entitled to automatic extended term or paid-up insurance options, etc. and that

said vested right under the policy cannot be divisible at any given time. We likewise agree with the conclusion of the lower courtthat the proposed transactions in question (policy loan and surrender of policy) constitute acts of disposition or alienation of property rights and not merely of management or administration because they involve the incurring or termination of contractual obligations.

As above noted, the full face value of the policy is P5,000.00 and the minor's vested interest therein, as one of the two (2)irrevocable beneficiaries, consists of one-half (½) of said amount or P2,500.00.

Article 320 of the Civil Code of the Philippines provides —

The father, or in his absence the mother, is the legal administrator of the property pertaining to the child under parental

authority. If the property is worth more than two thousand pesos, the father or mother shall give a bond subject to theapproval of the Court of First Instance.

and article 326 of the same Code reads —

When the property of the child is worth more than two thousand pesos, the father or mother shall be considered aguardian of the child's property, subject to the duties and obligations of guardians under the Rules of Court.

The above quoted provisions of the Civil Code have already been implemented and clarified in our Revised Rules of Court whichprovides —

SEC. 7. Parents as guardians. — When the property of the child under parental authority is worth two thousand pesos or

less, the father or the mother, without the necessity of court appointment, shall be his legal guardian. When theproperty of the child is worth more than two thousand pesos, the father or the mother shall be considered guardian of

the child's property, with the duties and obligations of guardians under these rules, and shall file the petition required by

Section 2 hereof. For good reasons the court may, however, appoint another suitable person. (Rule 93).

It appearing that the minor beneficiary's vested interest or right on the policy exceeds two thousand pesos (P2,000.00); that

plaintiffs did not file any guardianship bond to be approved by the court; and as later implemented in the abovequoted Section

7, Rule 93 of the Revised Rules of Court, plaintiffs should have, but, had not, filed a formal application or petition for

guardianship, plaintiffs-parents cannot possibly exercise the powers vested on them, as legal administrators of their child's

property, under articles 320 and 326 of the Civil Code. As there was no such petition and bond, the consent given by the father-guardian, for and in behalf of the minor son, without prior court authorization, to the policy loan application and the surrenderof said policy, was insufficient and ineffective, and defendant-appellee was justified in disapproving the proposed transactions inquestion.

The American cases cited by appellants are not applicable to the case at bar for lack of analogy. In those cases, there werepending guardianship proceedings and the guardians therein were covered by bonds to protect the wards' interests, whichcircumstances are wanting in this case.

The result would be the same even if we regarded the interest of the ward to be worth less than P2,000.00. While the father ormother would in such event be exempt from the duty of filing a bond, and securing judicial appointment, still the parent'sauthority over the estate of the ward as a legal-guardian would not extend to acts of encumbrance or disposition, asdistinguished from acts of management or administration. The distinction between one and the other kind of power is too basicin our law to be ignored. Thus, under Article 1877 of the Civil Code of the Philippines, an agency in general terms does not

include power to encumber or dispose of the property of the principal; and the Code explicitly requires a special power or

authority for the agent "to loan or borrow money, unless the latter act be urgent or indispensable for the preservation of thething under administration" (Art. 1878 no. 7). Similarly, special powers are required to required to effect novations, to waiveany obligation gratuitously or obligate the principal as a guarantor or surety (Do., nos. 2, 4 and 11). By analogy, since the law



17

merely constitutes the parent as legal administrator of the child's property (which is a general power), the parent requiresspecial authority for the acts above specified, and this authority can be given only by a court. This restricted interpretation of the parent's authority becomes all the more necessary where as in the case before us, there is no bond to guarantee the wardagainst eventual losses.

Appellants seek to bolster their petition by invoking the parental power (patria potestas) under the Civil Code of 1889, whichthey claim to have been revived by the Civil Code of the Philippines (Rep. Act 386). The appeal profits them nothing. For the

new Civil Code has not effected a restitutio in integrum of the Spanish patria potestas; the revival has been only in part. And,

significantly, the Civil Code now in force did not reenact Article 164 of the Civil Code of 1889, that prohibited the alienation by

the parents of the real property owned by the child without court authority and led the commentators and interpreters of saidCode to infer that the parents could by themselves alienate the child's movable property. The omission of any equivalentprecept in the Civil Code now in force proves the absence of any authority in the parents to carry out now acts of disposition oralienation of the child's goods without court approval, as contended by the appellee and the court below.

Wherefore, the decision appealed from is affirmed. Costs against appellants Nario. So ordered.

Philamlife v. Pineda - Life Insurance175 SCRA 416

Facts:> On Jan. 15 1963, Dimayuga processed an ordinary life insurance policy from Philamlife and designated his wife and childrenas irrevocable beneficiaries.

> On Feb. 22, 1980, Dimayuga filed a petition in court to amend the designation of the beneficiaries in his policy from

irrevocable to revocable.> Lower Court granted the petition.

Issue:Whether or not the court erred in granting Dimayuga’s petition.

Held:YES. Under the Insurance Act, 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. The policy contract states that the designation of the beneficiaries is

irrevocable. Therefore, based on the said provision of the contract, not to mention the law then applicable, it is only with theconsent of all the beneficiaries that any change or amendment in the poicy may be legally and validly effected. The contractbetween the parties is the law binding on them. (This case rule is no longer controlling under the Insurance Code.)

SSS v. Davac - SSS Benefits17 SCRA 863

Facts:> Davac was an SSS member, and designated Candelaria Davac, his alleged wife, as his beneficiary.> When he died, both his first wife, Lourdes and his second wife, Candelaria filed claims for the death benefits.> Due to the conflicting claims, the SSS filed a petition praying that both of them be required to interplead and litigate theconflicting claims.> The death benefits were awarded to Candelaria Davac.

Issue:Who is entitled to the SSS benefits?

Held:

Candelaria. Under the SSS Act, the beneficiary as recorded by the employee’s employer is the one entitled to the death benefits, hence they

should go to Candelaria. Lourdes contends that the designation made in the person of Candelaria who is party in a bigamous

marriage is null and void for being against Art. 739 of the CC. SC held that the disqualification mentioned in Art. 739 is NOT

applicable to Candelaria, because she was not guilty of concubinage , there bieing NO proof that she had actual knowledge of the previous marriage of her husband.

Nario v. Philamlife Insurance Company - Loan Application and Surrender of Policy

20 SCRA 434

Facts:> Mrs. Nario applied for and was issued a life Insurance policy (no. 503617) by PHILAMLIFE under a 20-yr endowment plant,with a face value of 5T. Her husband Delfin and their unemancipated son Ernesto were her revocable beneficiaries.> Mrs. Nario then applied for a loan on the above policy with PHILAMLIFE w/c she is entitled to as policy holder, after the policyhas been in force for 3 years. The purpose of such loan was for the school expenses of Ernesto.> The application bore the written signature and consent of Delfin in 2 capacities

o As one of the irrevocable beneficiaries of the policy

o As father-guardian of Ernesto and also the legal administrator of the minor’s properties pursuant to Art. 320 of the CC.

> PHILAMLIFE denied the loan application contending that written consent of the minor son must not only be given by hisfather as legal guardian but it must also be authorized by the court in a competent guardianship proceeding.> Mrs. Nario then signified her decision to surrender her policy and demand its cash value which then amounted to P 520.> PHILAMLIFE also denied the surrender of the policy on the same ground as that given in disapproving the loan application.



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> Mrs. Nario sued PHILAMLIFE praying that the latter grant their loan application and/or accept the surrender of said policy inexchange for its cash value.> PHILAMLIFE contends that the loan application and the surrender of the policy involved acts of disposition and alienation of the property rights of the minor, said acts are not within the power of administrator granted under Art. 320 in relation to art.

326 CC, hence court authority is required.

Issue:Whether or not PHILAMLIFE was justified in refusing to grant the loan application and the surrender of the policy.Held:

YES.

SC agreed with the trial court that the vested interest or right of the beneficiaries in the policy should be measured on its full

face value and not on its cash surrender value, for in case of death of the insured, said beneficiaries are paid on the basis of its

face value and in case the insured should discontinue paying premiums, the beneficiaries may continue paying it and areentitled to automatic extended term or paid-up insurance options and that said vested right under the policy cannot be divisibleat any given time.

SC also agreed with TC that the said acts (loan app and surrender) constitute acts of disposition or alienation of property rightsand not merely management or administration because they involve the incurring or termination of contractual obligations.

Under the laws (CC and rules of Court) The father is constituted as the minor’s legal administrator of the propty, and when t he

propty of the child is worth more than P2T (as in the case at bar, the minor’s propty was worth 2,500 his ½ share asbeneficiary), the father a must file a petition for guardianship and post a guardianship bond. In the case at bar, the father did

not file any petition for guardianship nor post a guardianship bond, and as such cannot possibly exercise the powers vested onhim as legal administrator of the minor’s property. The consent give for and in behalf of the son without prior courtauthorization to the loan application and the surrender was insufficient and ineffective and PHILAMLIFE was justified indisapproving the said applications.

Assuming that the propty of the ward was less than 2T, the effect would be the same, since the parents would only be

exempted from filing a bond and judicial authorization, but their acts as legal administrators are only limited to acts of

management or administration and not to acts of encumbrance or disposition.

Southern Luzon Employee’s Association v. Golpeo - Insurance Beneficiaries

96 PHIL 83

Facts:> SLEA is composed of laborers and employees of the LTBC and BTC (now BLTB Co.), and one of its purposes is mutual aid of its members and their dependents in case of death.> Roman Concepcion was a member until his death in 1950.> In 1949, SLEA adopted a resolution providing that: A member may, if he chooses, put down his common law wife and/or children he had with her as his beneficiaries; and such person so named by the member will be the sole persons to berecognized by SLEA regarding claims for condolence contributions.

> Roman listed as his beneficiaries Aquilina Maloles and their 4 children. After his death, SLEA was able to collect voluntary

contribution from its members amounting to P2,205.> Three sets of claimants to the amount presented themselves to the association namely:o Juanita Golpeo, legal wife, and her childreno Aquilina Maloles, the common law wife, and her childreno Elsie Hicban, another common law wife of Roman, and her child.> SLEA then filed an action for interpleader against the 3 conflicting claimants.

> Trial court rendered a decision declaring Maloles and her children the sole beneficiaries of the amount citing Del Val v. Del

Val.> Only Golpeo appealed. She argues that:> The insurance code does not apply since the association is not an insurance company but a mutual benefit association.> The stipulation between SLEA and Roman was void for being contrary to law, public morals and public policy, pursuant toArt. 739 of the CC ( donations between persons guilty of concubinage at the time of donation are void)

Issue:

Whether or not Golpeo, the legal wife is entitled to the amount.

Held:NO. First of all, the lower court did not consider the association as a regular insurance company, but merely ruled that the death

benefit in question is analogous to insurance. Besides, even the Administrative Code describes a mutual benefit company asone which provides any method of life insurance among its members out of dues or assessments collected from its membership.

Secondly, without considering the intimation in the brief for Maloles that Golpeo, by her silence and actions had acquiesced in

the illicit relations between her husband and Maloles, Golpeo’s argument would certainly NOT apply to the children of Maloles

likewise named beneficiaries by the deceased. As a matter of fact, the NCC recognizes certain successional rights of illegitimatechildren.

El Oriente v. Posadas - Taxability of Insurance Proceeds56 PHIL 147 (1931)

Facts:



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> El Oriente in order to protect itself against the loss that it might suffer by reason of the death of its manager, A. Velhagen,who had had more than thirty-five (35) years of experience in the manufacture of cigars in the Philippines, procured from theManufacturers Life Insurance Co., of Toronto, Canada, thru its local agent E. E. Elser, an insurance policy on the life of the saidA. Velhagen for the sum of $50,000, United States currency designating itself as the beneficiary.

> El Oriente paid for the premiums due thereon and charged as expenses of its business all the said premiums and deductedthe same from its gross incomes as reported in its annual income tax returns, which deductions were allowed upon a showingthat such premiums were legitimate expenses of its business.> Upon the death of A. Velhagen in 1929, the El Oriente received all the proceeds of the said life insurance policy, togetherwith the interests and the dividends accruing thereon, aggregating P104,957.88

> CIR assessed El Oriente for deficiency taxes because El Oriente did not include as income the proceeds received from theinsurance.

Issue:Whether or not the proceeds of insurance taken by a corporation on the life of an important official to indemnify it against loss

in case of his death, are taxable as income under the Philippine Income Tax LawHeld:NOT TAXABLE. In Chapter I of the Tax Code, is to be found section 4 which provides that, "The following incomes shall be exempt from the

provisions of this law: (a) The proceeds of life insurance policies paid to beneficiaries upon the death of the insured . . ." Section10, as amended, in Chapter II On Corporations, provides that, "There shall be levied, assessed, collected, and paid annually

upon the total net income received in the preceding calendar year from all sources by every corporation . . .a tax of three per

centum upon such income . . ." Section 11 in the same chapter, provides the exemptions under the law, but neither here nor in

any other section is reference made to the provisions of section 4 in Chapter I.

Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous and vague condition of the law. It is certain that the proceeds of life insurance policies paid to individual beneficiaries upon the death of the insured areexempt. It is not so certain that the proceeds of life insurance policies paid to corporate beneficiaries upon the death of theinsured are likewise exempt. But at least, it may be said that the law is indefinite in phraseology and does not permit us

unequivocally to hold that the proceeds of life insurance policies received by corporations constitute income which is taxable

It will be recalled that El Oriente, took out the insurance on the life of its manager, who had had more than thirty-five years'

experience in the manufacture of cigars in the Philippines, to protect itself against the loss it might suffer by reason of the death

of its manager. We do not believe that this fact signifies that when the plaintiff received P104,957.88 from the insurance on thelife of its manager, it thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting individualbeneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very slight indication of legislativeintention. In reality, what the plaintiff received was

Filipino Merchants v. CA- Insurable Interest179 SCRA 638

Facts:> The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at thePort of Manila on or about December 11, 1976 and seeks to recover from Filipino the amount of P51,568.62 representingdamages to said shipment which has been insured by Filipino.> Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is rendered against it.> It appears from the evidence presented that Chao insured said shipment with Filipino for the sum of P267,653.59 for the

goods described as 600 metric tons of fishmeal in gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks

under warehouse to warehouse terms.> Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.> The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the arrastre contractorE. Razon, Inc. and Filipino’s surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor.> Based on said computation the Chao made a formal claim against the Filipino for P51,568.62. A formal claim statement wasalso presented by the plaintiff against the vessel, but the Filipino refused to pay the claim.

Issues & Resolutions:Filipino contends that an "all risks" marine policy has a technical meaning in insurance in that before a claim can becompensable it is essential that there must be "some fortuity," "casualty" or "accidental cause" to which the alleged loss isattributable and the failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that thealleged loss to the cargo in question was due to a fortuitous event precludes his right to recover from the insurance policy.

SC did not uphold this contention. An "all risks policy" should be read literally as meaning all risks whatsoever and covering all

losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not

acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms

have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected,unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceedsfrom an unknown cause, or is an unusual effect of a known cause and, therefore, not expected.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverageto risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the

peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly

excludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be

construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses



20

except such as arise from the fraud of the insured. The burden of the insured, therefore, is to prove merely that the goods hetransported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss wasdue to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would beinconsistent with the broad protective purpose of "all risks" insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable underthe policy

Filipino contends that Chao does not have insurable interest, being only a consignee of the goods.

Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as consignee of the goods in transit under aninvoice containing the terms under "C & F Manila," has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal,or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify theinsured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer lossfrom its destruction whether he has or has not any title in, or lien upon or possession of the property. Insurable interest inproperty may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy,coupled with an existing interest in that out of which the expectancy arises.

Chao, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of

insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between himand the shipper of the goods operates to vest in him an equitable title even before delivery or before he performed the

conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in thedetermination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale evenwithout delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance

G.R. No. 147839 June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,vs. INSURANCE COMPANY OF NORTH AMERICA, Respondent.

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of the Court of Appeals (CA) inCA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati(RTC) in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance Company of North America(respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's

motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the localdistributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fireinsurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection withready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in

the Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45

days after the time of the loss covered under this Policy."

3

The policies also provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and

delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date

of the covering invoice or actual delivery of the merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar

month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers

and dealers. x x x4

Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in

Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks

of ready-made clothing materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with

respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25,

1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00

while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was

subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but thesewent unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the propertycovered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which itcould not prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it neverconsented to paying the claim of the insured.6

http://www.lawphil.net/judjuris/juri2006/jun2006/gr_147839_2006.html#fnt1


























21

At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint .8 It held that the fire was purelyaccidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not been establishedthat petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that merely forpurpose of securing the payment of purchase price, the above-described merchandise remains the property of the vendor untilthe purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting aside the decision of the

RTC. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is entered orderingdefendant-appellee Gaisano Cagayan, Inc. to pay:

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol

Marketing Corporation, plus legal interest from the time of demand until fully paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss Phil.,

Inc., plus legal interest from the time of demand until fully paid.

With costs against the defendant-appellee. SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing

sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales invoices is an

exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is

borne by the owner of the thing at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC

and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is notextinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go againstpetitioner; that, being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a creditor.11

Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11, 2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE HADTRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVILCODE IN FAVOR OF RESPONDENT.14

Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since aninsurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it was not credit thatwas insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of the non-paymentby petitioner of any obligation; that, even if the insurance is deemed as one over credit, there was no loss as the accounts werenot yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such demands

came from respondent only after it had already paid IMC and LSPI under the fire insurance policies.15

As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of

loss when they secured fire insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurance couldbe maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; that petitioner

was not privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval

ever secured; that this lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its

interest to keeping the insured goods safe from fire.

For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon delivery to

petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct pecuniary loss from its

destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the

presumption of liability under Article 126516 of the Civil Code; that the fire was caused through petitioner's negligence in failingto provide stringent measures of caution, care and maintenance on its property because electric wires do not usually shortcircuit unless there are defects in their installation or when there is lack of proper maintenance and supervision of the property;that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be liable torespondent for contracted lawyer's fees, litigation expenses and cost of suit .17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited toreviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants orany of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all overagain.19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court.20



























































22

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as:(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestlymistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on amisapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the

issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findingsare contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they arebased; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by therespondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidenceon record; and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly

considered, would justify a different conclusion.

21

Exceptions (4), (5), (7), and (11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing a fireinsurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of theready-made clothing materials sold and delivered to petitioner.

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction.22 In thiscase, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothing materialswhich have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines. "23 ; and defined

book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the losscovered under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the

goods sold and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any allegedintention of the parties, the terms are to be understood literally just as they appear on the face of the contract .25 Thus, whatwere insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through

fire, and not the loss or destruction of the goods delivered.

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the salesinvoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described

merchandise remains the property of the vendor until the purchase price thereof is fully paid."26

The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to thebuyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery hasbeen made or not , except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and theownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under thecontract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by thebuyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of whobears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured hassubstantial economic interest in the property.28

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or anyrelation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured."Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest;(b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of whichthe expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of,the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such aninterest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it beinjured or destroyed by the peril against which it is insured.29 Anyone has an insurable interest in property who derives a benefit

from its existence or would suffer loss from its destruction.30Indeed, a vendor or seller retains an insurable interest in the

property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he

has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in theirBooks of Account 45 days after the time of the loss covered by the policies.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the Civil Code is

misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.





























































23

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts withIMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. Ascorrectly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make thepayment even by reason of a fortuitous event shall not relieve him of his liability.33 The rationale for this is that the rule that an

obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligationconsists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. Itdoes not apply when the obligation is pecuniary in nature.34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the

same kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designatedmerely by its class or genus without any particular designation or physical segregation from all others of the same class, theloss or destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not havethe effect of extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never perish. Genusnunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here iswhether it has been established that petitioner has outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show that petitioner has an

outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC.

Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these

documents have been properly identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is

sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to

settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance

claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:

Art. 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. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given toExhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is

not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount

of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence.

Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to

substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated April 11,

2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATIONthat the order to pay the

amount of P535,613.00 to respondent is DELETED for lack of factual basis.

No pronouncement as to costs. SO ORDERED.

San Miguel Brewery v. Law Union Rock Insurance Company - Insurance Proceeds

40 PHIL 674

Facts:> On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.> Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose theinsurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt.> Dunn likewise authorized SMB to take out the insurance policy for him.> Brias, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon the property. In theapplication, Brias stated that SMB’s interest in the property was merely that of a mortgagee.

> Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal

amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any

other interests in the propty. Both policies required assignments to be approved and noted on the policy.

> Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.> In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter.> Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendantbecause by virtue of the sale, he became the owner of the property, although the policies were issued in SMB’s name. > SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding.

> Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to

the insurable interests of SMB only.> SMB eventually reached a settlement with the insurance companies and was paid the balance of it’s mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal.

Issue:

Whether or not the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies.











































24

Held:NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might bedaminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper

interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interesttherein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit.

By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding,when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been

worded differently so as to protect the owner, but this was not done.

If the wording had been: ―Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the

continuance of the risk, may become owner of the interest insured” , it would have proved an intention to insure the entire

interest in the property, NOT merely SMB’s and would have shown to whom the money, in case of loss, should be paid.Unfortunately, this was not what was stated in the policies.

If during the negotiation for the policies, the parties had agreed that even the owner’s interest would be covered by the policies,and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would havebeen able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound.

However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that

would justify the reformation of these two contracts.

Palilieo v. Cosio - Insurance Proceeds

97 PHIL 919

Facts:> On Dec. 18, 1951, Palileo obtained from Cosio a loan of P12T.

> To secure payment, Cosio required Palileo to sign a document known as ―conditional sale of residential building‖, purportingto convey to Cosio, with a right to repurchase (on the part of Palileo), a two-story building of strong materials belonging toPalileo.> After execution of the document, Cosio insured the building against fire with Associated Insurance & Surety Co. (Associated)for 15T.> The insurance policy was issued in the name of Cosio.> The building was partly destroyed by fire and after proper demand, Cosio was able to collect from the insurance company an

indemnity of P13,107.

> Palileo demanded from Cosio that she be credited with the necessary amount to pay her obligation out of the insuranceproceeds, but Cosio refused to do so.> Trial Court found that the debt had an unpaid balance of P12T. It declared the obligation of Palileo to Cosio fullycompensated by virtue of the proceeds collected by Cosio and further held that the excess of P1,107 (13,107 – 12,000) berefunded to Palileo

Issue:Whether or not the trial court was justified in considering the obligation of Palileo fully compensated by the insurance amount

that Cosio was able to collect from Associated, and whether or not the trial court was correct in requiring Cosio to refund theexcess of P1,107 to Palileo.

Held:NO and NO. The rule is that ―where a mortgagee, independently of the mortgagor, insures the mortgaged property in his own name and for

his own interest, he is entitled to the insurance proceeds in case of loss, but in such case, he is not allowed to retain his claim

against the mortgagor, but is passed by subrogation to the insurer to the extent of the money paid.‖

The lower court erred in declaring that the proceeds of the insurance taken out by Cosio on the property insured to the benefitof Palileo and in ordering the former to deliver to the latter, the difference between the indebtedness and the amount of insurance received by Cosio. In the light of this ruling, the correct solution would be that the proceeds of the Insurance bedelivered to Cosio, but her claim against Palileo should be considered assigned to the insurance company who is deemed

subrogated to the rights of Cosio to the extent of the money paid as indemnity.

Grepalife v. CA - Real Party In Interest

316 SCRA 677

Facts:> A contract of group life insurance was executed between Grepalife and DBP. Grepalife agreed to insure the lives of eligible

housing loan mortgagors of DBP.

> Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan.

> In an application form, Dr. Leuterio answered questions concerning his health stating that he is in good health and has neverconsulted a physician for or a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or anyother physical impairment.> Grepalife issued the insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting toeighty-six thousand, two hundred (P86,200.00) pesos.> Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife.

> Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage

and insisted that Dr. Leuterio did not disclose that he had been suffering from hypertension, which caused his death. Allegedly,

such non-disclosure constituted concealment that justified the denial of the claim.



25

> The widow of the late Dr. Leuterio, filed a complaint against Grepalife for "Specific Performance with Damages." During thetrial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia’s findings, based partly from t heinformation given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. Theinference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.

> RTC ruled in favor of widow and against Grepalife. Grepalife appealed contending that the wife was not the proper party ininterest to file the suit, since it is DBP who insured the life of Dr. Leuterio.

Issue:Whether or not the widow is the real party in interest, (not DBP) and has legal standing to file the suit.

Held:

YES. Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial

court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial court’s judgment,Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not joinedin the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract.The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device

for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of

contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the

proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagorfrom paying the obligation.

In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death; the mortgageobligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. Consequently, wherethe mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the

insurance is on the mortgagor’s interest, and the mortgagor continues to be a party to the contract. In this type of policy

insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee

a party to the contract.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy statingthat: "In the event of the debtor’s death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall thenbe paid to the beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against petitioner, the latterdenied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt

from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has aninsurable interest or not, and such person may recover it whatever the insured might have recovered, 14 the widow of thedecedent Dr. Leuterio may file the suit against the insurer, Grepalife.

As to the question of whether there was concealment, CA held as affirmed by the SC that contrary to Grepalife’s allegations,there was no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insured’s wido w

who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced

any witness who could attest to Dr. Leuterio’s medical history.

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defenseby satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly andsatisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance

Harding v. Commercial Union Assurance Company- Willful Misstatement38 PHIL 464

Facts:> Henry Harding bought a car for 2T in 1915. He then gave the car to his wife Mrs. Harding.

> While Mrs. Harding was having the car repaired at the Luneta Garage (Luneta was an agent of Smith Bell and Co., which in

turn is Commercial Union’s agent), the latter induced Mrs. Harding to insure the care with Commercial.

> Mrs. Harding agreed, and Smith Bell sent an agent to Luneta Garage, who together with the manager of LUneta, appraised

the car and declared that its present value was P3T. This amt was written in the proposal form which Mrs. Harding signed.

> Subsequently, the car was damaged by fire. Commercial refused to pay because the car’s present value was only 2.8T andnot 3T.

Issue:Whether or not Commercial is liable.

Held:Commercial is liable. Where it appears that the proposal form, while signed by the insured was made out by the person authorized to solicit theinsurance (Luneta and Smith Bell) the facts stated in the proposal, even if incorrect, will not be regarded as warranted by theinsured, in the absence of willful misstatement. Under such circumstances, the proposal is to be regarded as the act of theinsurer.

Philamcare v. CA- Health Care Agreement



26

379 SCRA 356 (2002)

Facts:> Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the

following question: ―Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details)” > The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health CareAgreement, and under such, he was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein.He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other

out-patient services.> Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, thenfrom March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability.

> During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for

one month beginning March 9, 1990.> While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However,Philamcare denied her claim saying that the Health Care Agreement was void.> According to Philamcare, there was concealment regarding Ernani's medical history.

Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic andasthmatic, contrary to his answer in the application form.

> Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00

> After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted

at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained to bring him back to the CGH where he died

on the same day.> Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moraldamages and attorney's fees. RTC decided in favor of Julita. CA affirmed.

Issues and Resolutions:

Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an

insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply.

SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was hisown health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Oncethe member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, thehealth care provider must pay for the same to the extent agreed upon under the contract.

Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within whichto contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of theagreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment ormisrepresentation no longer lie.Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization,consultation, treatment or any other medical advice or examination.

Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads:Failure to disclose or misrepresentation of any material information by the member in the application or medical examination,whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher

Membership Fee for the benefit or benefits applied for.

The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely

depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Wherematters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policyeven though they are untrue. Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this islikewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in

such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear

distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of

expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts withinhis knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.

Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty toestablish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or withoutthe authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the

agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care

provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of

the covered benefits which he has prepaid.Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The rightto rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission wasmade. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the followingconditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;



27

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnishfacts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability,

courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contractof adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract — theinsurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract,ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as

the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of twointerpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should bestrictly construed against the provider.

G.R. No. 124520 August 18, 1997

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners,vs. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents.

PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent Court of

Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKSDevelopment Corporation (hereinafter CKS), as lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any

stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If

the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned andtransferred to the LESSOR for its own benefit; . . . 1

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire the merchandise

inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United)

without the written consent of private respondent CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a

demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to

CKS, based on its lease contract with the Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein defendant United to payCKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 asattorney's fees and costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11 January 1996, affirming thetrial court decision, deleting however the awards for exemplary damages and attorney's fees. A motion for reconsideration byUnited was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court of Appeals:

I. THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THECONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOIDFOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY

II. THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTEREDINTO AS A CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION THEREIN

TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OFPETITIONER

III. THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TOAPPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW

IV. THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON THEBASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLYDEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. 2

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract entered intobetween CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha



28

spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policyis obtained without the prior written consent of the latter.

It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals,good customs, public order or public policy. 3

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person

having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a

contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the

time the loss occurs. 4 The basis of such requirement of insurable interest in property insured is based on sound public policy: toprevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting theproceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is voidunder Section 25 of the Insurance Code, which provides:

Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has notany interest in the property insured, or that the policy shall be received as proof of such interest, and every policyexecuted by way of gaming or wagering, is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leasedpremises under the provisions of Section 17 of the Insurance Code which provide:

Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by lossof injury thereof.

Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire insurance

policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the

insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previouslyquoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong tothe spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceedsof the fire insurance policy to a person (CKS) who has no insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a fire insurance policyover their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision is hereby entered,awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha. SO ORDERED.

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,vs. CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J .:

This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a legallymarried man claim the proceeds thereof in case of death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T. Ebrado as therevocable beneficiary in his policy. He to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As thepolicy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73,

representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the

amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums andinterest thereon due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, althoughshe admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled tothe insurance proceeds, not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced anaction for Interpleader before the Court of First Instance of Rizal on April 29, 1970.



29

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was enteredreading as follows: ñé+.£ªwph!1

During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicablesettlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pre-trial and make admissions for the purpose of pretrial. During this conference, parties Carponia T. Ebrado andPascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married to PascualaEbrado with whom she has six — (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen,

all surnamed Ebrado; 2) that during the lifetime of the deceased, he was insured with Insular Life Assurance Co.

Under Policy No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider foraccidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala andExhibit 7 for Carponia Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with hiscommon-wife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from hislegal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3 and

affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the

Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the proceeds of said

policy 6) that in view ofthe adverse claims the insurance company filed this action against the two herein

claimants Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. asproceeds of the policy P11,745.73; 8) that the beneficiary designated by the insured in the policy is CarponiaEbrado and the insured made reservation to change the beneficiary but although the insured made the option to

change the beneficiary, same was never changed up to the time of his death and the wife did not have anyopportunity to write the company that there was reservation to change the designation of the parties agreedthat a decision be rendered based on and stipulation of facts as to who among the two claimants is entitled to

the policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receiptof this order.

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified frombecoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to theestate of the deceased insured. The trial court held: ñé+.£ªwph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery orconcubinage is not essential in order to establish the disqualification mentioned therein. Neither is it also

necessary that a finding of such guilt or commission of those acts be made in a separate independent actionbrought for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of evidence inthe same proceeding (the action brought to declare the nullity of the donation).

It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado wasmade beneficiary in the policy in question for the disqualification and incapacity to exist and that it is onlynecessary that such fact be established by preponderance of evidence in the trial. Since it is agreed in their

stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado were living together as

husband and wife without being legally married and that the marriage of the insured with the other defendant

Pascuala Vda. de Ebrado was valid and still existing at the time the insurance in question was purchased there isno question that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the policy inquestion and as such she is not entitled to the proceeds of the insurance upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified

the case to Us as involving only questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as

amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance

Act which provides that "(t)he insurance shag be applied exclusively to the proper interest of the person in whose name it is

made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests thatthe provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal incharacter. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered

nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should beapplied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance isgoverned by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code ." When not

otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the

civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any

donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to

him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Codeprovides: ñé+.£ªwph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;

Those made between persons found guilty of the same criminal offense, in consideration thereof;



30

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donoror donee; and the guilt of the donee may be proved by preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both arefounded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy whichthe insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, theproscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012

cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation.5 Under American law, a policy of life insurance is considered as a testament and in

construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating the beneficiary

by rules under which wins are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in record

to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family There is

every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be

enforced in life insurance policies since the same are based on similar consideration As above pointed out, a beneficiary in a fifeinsurance policy is no different from a donee. Both are recipients of pure beneficence. So long as manage remains the thresholdof family laws, reason and morality dictate that the impediments imposed upon married couple should likewise be imposed upon

extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason should an illicitrelationship be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,

said: ñé+.£ªwph!1

If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue andimproper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se

enganen desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas (Part IV, Tit.

XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De

donat, inter virum et uxorem); then there is very reason to apply the same prohibitive policy to persons livingtogether as husband and wife without the benefit of nuptials. For it is not to be doubted that assent to suchirregular connection for thirty years bespeaks greater influence of one party over the other, so that the dangerthat the law seeks to avoid is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib.32 ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest the condition 6f those whoincurred guilt should turn out to be better.' So long as marriage remains the cornerstone of our family law,

reason and morality alike demand that the disabilities attached to marriage should likewise attach to

concubinage.

It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion cannotstand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a laudable rule

to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be differentiated thepolicy of the law which embodies a deeply rooted notion of what is just and what is right would be nullified if such irregular relationship instead of being visited with disabilities would be attended with benefits. Certainly alegal norm should not be susceptible to such a reproach. If there is every any occasion where the principle of statutory construction that what is within the spirit of the law is as much a part of it as what is written, this is it.Otherwise the basic purpose discernible in such codal provision would not be attained. Whatever omission maybe apparent in an interpretation purely literal of the language used must be remedied by an adherence to itsavowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 mayeffectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the time of

the donation," Article 739 itself provides: ñé+.£ªwph!1

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donoror donee; and the guilty of the donee may be proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannoteven be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the guilt of theparty may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if evidence

preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has beenconveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon and

stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six

legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with

whom he has two children. These stipulations are nothing less than judicial admissions which, as a consequence, no longer

require proof and cannot be contradicted. 8 A fortiori , on the basis of these admissions, a judgment may be validly renderedwithout going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and thebeneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on this agreement andstipulation of facts as to who among the two claimants is entitled to the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualifiedto be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of thepolicy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado. SO ORDERED.



31

G.R. No. L-41014 November 28, 1988

PACIFIC BANKING CORPORATION, petitioner,vs. COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents

PARAS, J.:

This is a petition for review on certiorari of the decision of respondent Court of Appeals * in CA-G.R. No. 41735-R, entitled

"Pacific Banking Corporation vs. Oriental Assurance Corporation", which set aside the decision of the Court of First Instance(CFI) of Manila, ** which had in turn granted the complaint for a sum of money in Civil Case No. 56889.

As gathered from the records, the undisputed facts of this case are as follows:

On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the Paramount Shirt Manufacturing Co.

(hereinafter referred to as the insured, for brevity), by which private respondent Oriental Assurance Corporation bound itself to

indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by fire to its property consisting of stocks,

materials and supplies usual to a shirt factory, including furniture, fixtures, machinery and equipment while contained in theground, second and third floors of the building situated at number 256 Jaboneros St., San Nicolas, Manila, for a period of oneyear commencing from that date to October 21, 1964.

The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner in the amount of not lessthan Eight Hundred Thousand Pesos (P800,000.00) and the goods described in the policy were held in trust by the insured forthe petitioner under thrust receipts (Record on Appeal, p. 4).

Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured, with the knowledge and consent of private respondent to the effect that "loss if any under this policy is payable to the Pacific Banking Corporation".

On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the subject premises destroying

the goods contained in its ground and second floors (Record on Appeal, p.5)

On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for indemnity due to the loss of

property by fire under the endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17).

On January 28, 1964, private respondent informed counsel for the petitioner that it was not yet ready to accede to the latter's

demand as the former is awaiting the final report of the insurance adjuster, H.H. Bayne Adjustment Company (Brief for Plaintiff-Appellee, pp. 17-18).

On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the insured under the policy had not filed

any claim with it, nor submitted proof of loss which is a clear violation of Policy Condition No.11, and for which reason,

determination of the liability of private respondent could not be had (Supra, pp. 19-20).

On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance adjuster to verify from the records of the

Bureau of Customs the entries of merchandise taken into the customs bonded warehouse razed by fire as a reliable proof of loss

(Supra, pp. 21-22). For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff therein) on April 28,1 964, filed in the court a quo an action for a sum of money against the private respondent, Oriental Assurance Corporation, in

the principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-36).

On May 25, 1964, private respondent raised the following defenses in its answer to wit: (a) lack of formal claim by insured overthe loss and (b) premature filing of the suit as neither plaintiff nor insured had submitted any proof of loss on the basis of whichdefendant would determine its liability and the amount thereof, either to the private respondent or its ad . adjuster H.H. BayneAdjustment Co., both in violation of Policy Condition No.11 (Record on Appeal, pp. 37-38).

At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated December 22, 1965 of the insuranceadjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc., revealing undeclared co-insurances with thefollowing: P30,000.00 with Wellington Insurance; P25,000. 00 with Empire Surety and P250,000.00 with Asian Surety ;undertaken by insured Paramount on the same property covered by its policy with private respondent whereas the only co-insurances declared in the subject policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 with

Victory (Brief for the Defendant pp. 13-14).

It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in the form of non-declaration of co-insurances which was not pleaded in the answer was also not pleaded in the Motion to Dismiss.

At any rate, on June 30, 1967, the trial court denied private respondent's motion on the ground that the defense of lack of proof of loss or defects therein was raised for the first time after the commencement of the suit and that it must be deemed to havewaived the requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61).

On September 9, 1967, the case was considered submitted for decision from which order private respondent filed a motion forreconsideration to set the case or further reception of private respondent's additional evidence, "in order to prove that 'insuredhas committed a violation of condition No. 3 of the policy in relation to the other Insurance Clause.' " (Record on Appeal, pp.61-69).



32

On September 30,1967, the case was set for the continuation of the hearing for the reception merely of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co., over the vehement opposition of the petitioner (Record on Appeal, p.129).

On April 18, 1 968, the trial court rendered a decision adjudging private respondent liable to the petitioner under the saidcontract of insurance, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff P61,000.00, with interestat the rate of 8% per annum from January 4, 1964, to April 28, 1964, and 12% from April 29, 1964, until the

amount is fully paid, P6,100.00, as attorney's fees, and the costs.

SO ORDERED. (Record on Appeal, pp. 140-141)

On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated on April 23, 1975, Rollo, pp. 21-33).

Petitioner filed a motion for reconsideration of the said decision of the respondent Court of Appeals, but this was denied on July

3,1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition with the following assigned errors;

I. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING FRAUD FROM THEBARE FACT THAT THE INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES OTHER THAN THOSESTATED IN THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY PRESUMPTIONS AND ADMITTED FACT ANDCIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF SAID CONCLUSION.

(a) The respondent Court did not consider the legal presumption against the existence of fraud, which should be established

with such quantum of proof as is required for any crime.

(b) The record of the case is bereft of proof of such fraud.

(c) The private respondent insurer did not even plead or in anywise raise fraud as a defense in its answer or motion to dismissand, therefore, it should have been considered waived.

(d) The total amount of insurance procured by the insured from the different companies amounted to hardly onehalf (½) of thevalue of the goods insured.

II. RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON THE PARTICULAR QUESTION OFFRAUD, THE FINDING OF THE TRIAL COURT THEREON SHOULD BE CONSIDERED AFFIRMED.

III. THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN HOLDING THAT THE ACTION WASPREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE INSURANCE LAW HAS NOT BEEN FILED,NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF PETITIONER-APPELLANT'S LAWYER WHICH IS A SUBSTANTIALCOMPLIANCE OF THE LEGAL REQUIREMENTS AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY WAIVEDTHE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER-APPELLANT FOR ITS FAILURE TO CALL THE ATTENTION OF THELAYER TO SUCH ALLEGED DEFECTS AND FOR ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING.

IV. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT INTERPRETING THE PROVISIONS OF THEPOLICY LIBERALLY IN FAVOR OF THE HEREIN PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT ONLY THE

ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED.

V. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN DISMISSING THE CASE AND IN NOT AFFIRMINGTHE APPEALED DECISION OF THE TRIAL COURT. (Brief for Petitioners, pp. 1-3)

The crux of the controversy centers on two points: (a) unrevealed co-insurances which violated policy conditions No. 3 and (b)failure of the insured to file the required proof of loss prior to court action. Policy Condition No. 3 explicitly provides:

3. The Insured shall give notice to the Company of any insurance already effected, or which may subsequentlybe effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the

occurrence of any loss or damage, all benefit under this policy shall be forfeited. (Record on Appeal, p. 12)

It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals, byreason 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 co-insurances taken over the subject property. Consequently, "the whole foundation of the contract fails, the risk does not attachand the policy never becomes a contract between the parties. Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such representations is not shown to vary or addto the contract, or to terminate a contract which has once been made, but to show that no contract has ever existed (Tolentino,



33

Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent contract is one which has no force and effectfrom the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratificationTongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]).

As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon thesame property, the total absence of such notice nullifies the policy (Sta. Ana v. Commercial Union Assurance Co., 55 Phil. 333[1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. & Surety Corp., v.Yap, 61 SCRA 432 [1974]).

The argument that notice of co-insurances may be made orally is preposterous and negates policy condition No. 20 whichrequires every notice and other communications to the insurer to be written or printed.

Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance clause" supposedly to have beenviolated, cannot certainly defeat the right of the petitioner to recover the insurance as mortgagee/assignee. Particularly

referring to the mortgage clause of the policy, petitioner argues that considering the purpose for which the endorsement or

assignment was made, that is, to protect the mortgagee/assignee against any untoward act or omission of the insured, it would

be absurd to hold that petitioner is barred from recovering the insurance on account of the alleged violation committed by the

insured (Rollo, Brief for the petitioner, pp, 33-35).

It is obvious that petitioner has missed all together the import of subject mortgage clause which specifically provides:

Mortgage Clause

Loss, if any, under this policy, shall be payable to the PACIFIC BANKING CORPORATION Manilamortgagee/trustor as its interest may appear, it being hereby understood and agreed that this insurance as tothe interest of the mortgagee/trustor only herein, shall not be invalidated by any act or neglect —except fraud ormisrepresentation, or arson—of the mortgagor or owner/trustee of the property insured; provided, that in case

the mortgagor or owner/ trustee neglects or refuses to pay any premium, the mortgagee/ trustor shall, on

demand pay the same. (Rollo, p. 26)

The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the mortgagee, cannot be

invalidated; namely: fraud, or misrepresentation or arson. As correctly found by the Court of Appeals, concealment of theaforecitedco-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27).

Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by

its fraud and/or misrepresentation, forfeited said right, with more reason petitioner which is merely claiming as indorsee of said

insured, cannot be entitled to such proceeds.

Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's answer or motion to dismiss,should be deemed to have been waived.

It will be noted that the fact of fraud was tried by express or at least implied consent of the parties. Petitioner did not onlyobject to the introduction of evidence but on the contrary, presented the very evidence that proved its existence.

Be that as it may, it is established that the Supreme Court has ample authority to give beyond the pleadings where in theinterest of justice and the promotion of public policy, there is a need to make its own finding to support its conclusion.

Otherwise stated, the Court can consider a fact which surfaced only after trial proper (Maharlika Publishing Corp. v. Tagle, 142

SCRA 561 [1986]).

Generally, the cause of action on the policy accrues when the loss occurs, But when the policy provides that no action shall be

brought unless the claim is first presented extrajudicially in the manner provided in the policy, the cause of action will accrue

from the time the insurer finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]).

In the case at bar, policy condition No. 11 specifically provides that the insured shall on the happening of any loss or damage

give notice to the company and shall within fifteen (15) days after such loss or damage deliver to the private respondent (a) a

claim in writing giving particular account as to the articles or goods destroyed and the amount of the loss or damage and (b)

particulars of all other insurances, if any. Likewise, insured was required "at his own expense to produce, procure and give tothe company all such further particulars, plans, specifications, books, vouchers, invoices, duplicates or copies thereof,documents, proofs and information with respect to the claim". (Record on Appeal, pp. 18-20).

The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote letters to private respondent toserve as a notice of loss, thereafter, the former did not furnish the latter whatever pertinent documents were necessary toprove and estimate its loss. Instead, petitioner shifted upon private respondent the burden of fishing out the necessaryinformation to ascertain the particular account of the articles destroyed by fire as well as the amount of loss. It is noteworthythat private respondent and its adjuster notified petitioner that insured had not yet filed a written claim nor submitted thesupporting documents in compliance with the requirements set forth in the policy. Despite the notice, the latter remained

unheedful. Since the required claim by insured, together with the preliminary submittal of relevant documents had not been

complied with, it follows that private respondent could not be deemed to have finally rejected petitioner's claim and thereforethe latter's cause of action had not yet arisen. Compliance with condition No. 11 is a requirement sine qua non to the right tomaintain an action as prior thereto no violation of petitioner's right can be attributable to private respondent. This is so, asbefore such final rejection, there was no real necessity for bringing suit. Petitioner should have endeavored to file the formalclaim and procure all the documents, papers, inventory needed by private respondent or its adjuster to ascertain the amount of loss and after compliance await the final rejection of its claim. Indeed, the law does not encourage unnecessary litigation (EagleStar Insurance Co., Ltd., et al. v. Chia Yu, p. 701, supra).<äre||anº•1àw>



34

Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was warranted under the circumstances. While itis a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insuredand strictly as against the insurer company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co.,Inc. v. The Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v. CA, 145 SCRA 533 [1986]), yet,

contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which theparties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain,ordinary and popular sense (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc. v. Phil.Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA,145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385 [1986]).

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have a rightto impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary. Theagreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability, andin order to recover, the insured must show himself within those terms. The compliance of the insured with the terms of thepolicy is a condition precedent to the light of recovery (Stokes v. Malayan Insurance Co., Inc ., 127 SCRA 766 [1984]).

It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the contract, and such violationor want of performance has not been waived by the insurer, the insured cannot recover, much less the herein petitioner. Courtsare not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the

contracts actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union Manufacturing Co. Inc. v. Phil. Guaranty

Co. Inc., p. 276 supra).

Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals when supported by substantial

evidence, are not reviewable on appeal by certiorari, deserves reiteration. Said findings of the appellate court are final and

cannot be disturbed by the Supreme Court except in certain cases Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA

480 [1982] Director of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v. Sandiganbayan,

142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]).

PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision appealed from is AFFIRMED. No costs.

SO ORDERED.

Argente v. West Coast Life Insurance Co.- Misrepresentation51 PHIL 725

Facts:> A joint life insurance policy was issued to Bernardo Argente and his wife Vicenta upon payment of premium, by West Coast.> On Nov. 18, 1925, during the effectivity of the policy, Vicenta died of cerebral apoplexy. Thereafter, Bernardo claimedpayment but was refused.> It is admitted that in the Medical Examiner’s report, Vicenta, in response to the question asked by the medical examiner, her replies were as follows:

o ―How frequently do you use beer, wine, spirits and other intoxicants?‖ she answered ―beer only in small quantities‖.

o ―What physician have you consulted or been treated by within the last 5 years and for what illness or ailment?‖ sheanswered ―none‖ > It is however, not disputed that in 1924, Vicenta was taken to a hospital for what was first diagnosed as alcoholism and laterchanged to manic-depressive psychosis and then again changed to pscyhonuerosis.

Issue:Whether or not on the basis of the misrepresentations of Vicenta, Bernardo is barred from recovery.

Held:YES. The court found that the representations made by Vicenta in his application for life insurance were false with respect to herstate of health and that she knew and was aware that the representations so made by her were false. In an action on a lifeinsurance policy where the evidence conclusively shows that the answers to questions concerning diseases were untrue, thetruth or falsity of the answer becomes the determining factor.

If the policy was procured by fraudulent misrepresentations, the contract of insurance apparently set forth therein was never

legally existent. It can be fairly assumed that had the true facts been disclosed by the insured, the insurance would never have

been granted.

Tang v. CA- Insurance Fraud or Mistake90 SCRA 236

Facts:> On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only Chinese, applied for life insurance for 60T

with Philamlife. The application was in two parts, both in English.> The second part dealt with her state of health. Her answers having shown that she was health, Philamlife issued her a policyeffective Oct. 23, 1965 with her nephew Vicente Tang as beneficiary.

> On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it was only recent from the time shefirst applied, no further medical exam was made but she accomplished Part 1 (which certified the truthfulness of statementsmade in Part. 2)

> The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung cancer.



35

> Tang claimed the amount o 100T but Philamlife refused to pay on the ground that the insured was guilty of concealment andmisrepresentation.> Both trial court and CA ruled that Lee was guilty of concealment.> Tang’s position, however, is that because Lee was illiterate and spoke only Chinese, she could not be held guilty of

concealment of her health history because the application for insurance was English, and the insurer has not proven that theterms thereof had been fully explained to her as provided by Art. 1332 of CC.

Issue:

Whether or not Art. 1332 applies.

Held:NO. Art. 1332 is NOT applicable. Under said article, the obligation to show that the terms of the contract had been fully explained tothe party who is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves on theparty seeking to enforce it. Here, the insurance company is NOT seeking to enforce the contract; on the contrary, it is seekingto avoid its performance.

It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged. Accordingly, Philamlife was under no

obligation to prove that the terms of the insurance contract were fully explained to the other party. Even if we were to say that

the insurer is the one seeking the performance of the cont contracts by avoiding paying the claim, it has to be noted as above

stated that there has been NO imputation of mistake of fraud by the illiterate insured whose personality is represented by herbeneficiary. In sum, Art. 1332 is inapplicable, and considering the findings of both the trial court and the CA as to the

Concealment of Lee, the SC affirms their decisions.

Concurring: J., AntonioIn a contract of insurance, each party must communicate to the other, in good faith, all facts within his knowledge which are

material to the contract, and which the other has no means of ascertaining. As a general rule, the failure by the insured to

disclose conditions affecting the risk of which he is aware makes the contract voidable at the option of the insurer.

The reason for this rule is that insurance policies are traditionally contracts uberrimae fidei, which means ―most abundant g ood

faith‖, ―absolute and perfect candor or openness and honesty,‖ ―absence of any concealment or deception however slight.‖ Here the CA found that the insured deliberately concealed material facts about her physical condition and history and/orconcealed with whoever assisted her in relaying false information to the medical examiner. Certainly, the petitioner cannotassume inconsistent positions by attempting to enforce the contract of insurance for the purpose of collecting the proceeds of the policy and at the same time nullify the contract by claiming that it was executed through fraud or mistake.

NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a language not understood by him, andmistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained tohim.

Soliman v. US Life- Rescind Contract of Insurance104 PHIL 1046

Facts:> US Life issued a 20 yr endowment life policy on the joint lives of Patricio Soliman and his wife Rosario, each of them beingthe beneficiary of the other.> In Mar. 1949, the spouses were informed that the premium for Jan 1949 was still unpaid notwithstanding that the 31-daygrace period has already expired, and they were furnished at the same time long-form health certificates for the reinstatementof the policies.

> In Apr 1949, they submitted the certificates and paid the premiums.

> In Jan. 1950, Rosario died of acute dilation of the heart, and thereafter, Patricio filed a claim for the proceeds of the

insurance.> US life denied the claim and filed for the rescission of the contract on the ground that the certificates failed to disclose thatRosario had been suffering from bronchial asthma for 3 years prior to their submission.

Issue:Whether or not the contract can still be rescinded.

Held:

Yes. The insurer is once again given two years from the date of reinstatement to investigate into the veracity of the factsrepresented by the insured in the application for reinstatement. When US life sought to rescind the contract on the ground of

concealment/misrepresentation, two years had not yet elapsed. Hence, the contract can still be rescinded.

Soliman v. US Life - Endowment Life Policy104 PHIL 1046

Facts:> US Life issued a 20yr endowment life policy on the joint lives of Patricio Soliman and his wife Rosario, each of them being thebeneficiary of the other.> In March 1949, the spouses were informed that the premium for Jan 1949 was still unpaid notwithstanding that the 31-day

grace period had already expired, and they were furnished at the same time long-form health certificates for the reinstatement

of the policies.

> In Aprl 1949, they submitted the health certificates and paid the premium due up to said month.



36

> In Jan. 1950, Rosario died of acute dilatation of the heart, and thereafter Patricio filed a claim for the proceeds of theinsurance.> US Life denied the claim and it filed a case for rescission on the ground that the health certificates failed to disclose thatRosario had been suffering from bronchial asthma for three years prior to the submission.

> Patricio claims that the answers to the questions in the health certificates were made by US Life’s agent.

Issue:Whether or not the policy can be rescinded.

Held:YES. The spouses in ing the agent to answer some of the blanks in the certificates and afterwards stamping their signature thereon

are presumed to have at least acquiesced in and approved all that had bee stated therein in their behalf.

Ng Gan Zee v. Asian Crusader Life - Imperfection in the Application Form122 SCRA 61

Facts:> In 1962, Kwon Nam applied for a 20yr endowment insurance on his life with his wife, Ng Gan Zee as the beneficiary.

> He stated in his application that he was operated on for tumor of the stomach associated with ulcer.

> In 1963, Kwong died of cancer of the liver with metastasis. Asian refused to pay on the ground of alse information.> It was found that prior to his application, Kwong was diagnosed to have peptic ulcers, and that during the operation what

was removed from Kwong’s body was actually a portion of the stomach and not tumor.

Issue:Whether or not the contract may be rescinded on the ground of the imperfection in the application form.

Held:NO. Kwong did not have sufficient knowledge as to distinguish between a tumor and a peptic ulcer. His statement therefore wasmade in good faith. Asian should have made an inquiry as to the illness and operation of Kwong when it appeared on the faceof the application that a question appeared to be imperfectly answered. Asian’s failure to inquire constituted a waiver of theimperfection in the answer

Insular Life v. Feliciano - Concealment

73 PHIL 201

Facts:> Evaristo Feliciano filed an application with Insular Life upon the solicitation of one of its agents.> It appears that during that time, Evaristo was already suffering from tuberculosis. Such fact appeared during the medicalexam, but the examiner and the company’s agent ignored it.

> After that, Evaristo was made to sign an application form and thereafter the blank spaces were filled by the medical

examiner and the agent making it appear that Evaristo was a fit subject of insurance. (Evaristo could not read and understand

English)> When Evaristo died, Insular life refused to pay the proceeds because of concealment.

Issue:Whether or not Insular Life was bound by their agent’s acts.

Held:Yes. The insurance business has grown so vast and lucrative within the past century. Nowadays, even people of modest meansenter into insurance contracts. Agents who solicit contracts are paid large commissions on the policies secured by them. Theyact as general representatives of insurance companies.

IN the case at bar, the true state of health of the insured was concealed by the agents of the insurer. The insurer’s medicalexaminer approved the application knowing fully well that the applicant was sick. The situation is one in which of two innocentparties must bear a loss for his reliance upon a third person. In this case, it is the one who drafted and accepted the policy and

consummated the contract. It seems reasonable that as between the two of them, the one who employed and gave character

to the third person as its agent should be the one to bear the loss. Hence, Insular is liable to the beneficiaries.

Saturnino v. Philamlife - False Representation

7 SCRA 316

Facts:> 2 months prior to the insurance of the policy, Saturnino was operated on for cancer, involving complete removal of the right

breast, including the pectoral muscles and the glands, found in the right armpit.> Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her application for insurance.> She stated therein that she did not have, nor had she ever had, among others listed in the application, cancer or othertumors; that she had not consulted any physician, undergone any operation or suffered any injury within the preceding 5 years.> She also stated that she had never been treated for, nor did she ever have any illness or disease peculiar to her sex,particularly of the breast, ovaries, uterus and menstrual disorders.

> The application also recited that the declarations of Saturnino constituted a further basis for the issuance of the policy.

Issue:



37

Whether or not the insured made such false representation of material facts as to avoid the policy.

Held:YES. There can be no dispute that the information given by her in the application for insurance was false, namely, that she never hadcancer or tumors or consulted any physician or undergone any operation within the preceding period of 5 years.

The question to determine is: Are the facts then falsely represented material? The Insurance Law provides that ―materiality is

to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom thecommunication is due, in forming his estimate of the proposed contract, or making his inquiries.

The contention of appellants is that the facts subject of the representation were not material in view of the non-medical nature

of the insurance applied for, which does away with the usual requirement of medical examination before the policy is issued.The contention is without merit. If anything, the waiver of medical examination renders even more material the informationrequired of the applicant concerning previous condition of health and diseases suffered, for such information necessarilyconstitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not.

Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured herself did not know,

since her doctor never told her, that the disease for which she had been operated on was cancer. In the first place,

concealment of the fact of the operation itself was fraudulent, as there could not have been any mistake about it, no matter

what the ailment.

Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. In this jurisdiction,concealment, whether intentional or unintentional entitled the insurer to rescind the contract of insurance, concealment beingdefined as ―negligence to communicate that which a party knows and ought to communicate.‖ The basis of the rule vitiating thecontract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at a rate of

premium agreed upon. The insurer, relying upon the belief that the insured will disclose every material fact within his actual or

presumed knowledge, is misled into a belief that the circumstances withheld does not exist, and he is thereby induced to

estimate the risk upon a false basis that it does not exist.

Tan v. CA - Rescission of the contract of insurance

174 SCRA 403

Facts:> Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.> On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with Philamlife for the proceeds of theinsurance.> Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding the contract on the ground of

misrepresentation. The beneficiaries contend that Philamlife can no longer rescind the contract on the ground of

misrepresentation as rescission must allegedly be done ―during the lifetime of the insured‖ within two years and prior to thecommencement of the action following the wording of Sec. 48, par. 2.

Issue:Whether or not Philamlife can rescind the contract.

Held:YES. The phrase ―during the lifetime‖ found in Sec. 48 simply means that the policy is no longer in force after the insured has died.

The key phrase in the second paragraph is ―for a period of two years‖.

What is a simpler illustration of the ruling in Tan v. CA?

The period to consider in a life insurance poiicy is ―two years‖ from the date of issue or of the last reinstatement. So if forexample the policy was issued/reinstated on Jan 1, 2000, the insurer can still exercise his right to rescind up to Jan. 1, 2003 ortwo years from the date of issue/reinstatement, REGARDLESS of whether the insured died before or after Jan. 1, 2003.

Pacific Timber v. CA112 SCRA 199

Facts:> On March 13, 1963, Pacific secured temporary insurance from the Workemen’s Insurance Co. for its exportation of logs to

Japan. Workmen issued on said date Cover Note 1010 insuring said cargo.

> The regular marine policies were issued by the company in favor of Pacific on Apr 2, 1963. The 2 marine policies bore the

number 53H01032 and 53H01033.> After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the logs intended to be exportedwere lost due to a typhoon.> Pacific filed its claim with the company, but the latter refused, contending that said loss may not be considered as coveredunder the cover note because such became null and void by virtue of the issuance of the marine policies.

Issue:

Whether or not the cover not was without consideration, thus null and void.



38

Held:It was with consideration. SC upheld Pacific’s contention that said cover not was with consideration. The fact that no separate premium was paid on the

cover note before the loss was insured against occurred does not militate against the validity of Pacific’s contention, for no suchpremium could have been paid, since by the nature of the cover note, it did not contain, as all cover notes do not contain,particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, noseparate premiums are required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, its purposewould be meaningless for it is in a real sense a contract, not a mere application.

G.R. No. L-20853 May 29, 1967

BONIFACIO BROS., INC., ET AL., plaintiffs-appellants,

vs. ENRIQUE MORA, ET AL., defendants-appellees.

CASTRO, J.:

This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case 48823, affirming the decisionof the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a better right than the Bonifacio Bros., Inc. and the

Ayala Auto Parts Company, appellants herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73,issued by the State Bonding & Insurance Co. Inc., and directing payment of the said amount to the H. Reyes, Inc.

Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the same to the H.S. Reyes, Inc., withthe condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insuredon June 23, 1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A-0615 was issued to Enrique

Mora, the pertinent provisions of which read:

1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to the Limits of Liability, indemnifythe Insured against loss of or damages to the Motor Vehicle and its accessories and spare parts whilst thereon; (a) by

accidental collision or overturning or collision or overturning consequent upon mechanical breakdown or consequent

upon wear and tear,

2. At its own option the Company may pay in cash the amount of the loss or damage or may repair, reinstate, or

replace the Motor Vehicle or any part thereof or its accessories or spare parts. The liability of the Company shall not

exceed the value of the parts whichever is the less. The Insured's estimate of value stated in the schedule will be themaximum amount payable by the Company in respect of any claim for loss or damage.1äwphï1.ñët

4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the Company may be

liable under this Policy provided that: — (a) The estimated cost of such repair does not exceed the Authorized RepairLimit, (b) A detailed estimate of the cost is forwarded to the Company without delay, subject to the condition that "Loss,if any is payable to H.S. Reyes, Inc.," by virtue of the fact that said Oldsmobile sedan was mortgaged in favor of thesaid H.S. Reyes, Inc. and that under a clause in said insurance policy, any loss was made payable to the H.S. Reyes,Inc. as Mortgagee;

During the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the

accident to the Bayne Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, without the knowledge andconsent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which weresupplied by the Ayala Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H.

Bayne Adjustment Co. The insurance company after claiming a franchise in the amount of P100, drew a check in the amount of

P2,002.73, as proceeds of the insurance policy, payable to the order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the

check to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered

to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the AyalaAuto Parts Co. of the cost of repairs and materials.

Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto PartsCo. filed on May 8, 1961 a complaint with the Municipal Court of Manila against Enrique Mora and the State Bonding & Insurance Co., Inc. for the collection of the sum of P2,002.73 The insurance company filed its answer with a counterclaim forinterpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better rightto the insurance proceeds in question. Enrique Mora was declared in default for failure to appear at the hearing, and evidence

against him was received ex parte. However, the counsel for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the basis of which are Municipal Court rendered a decision declaring the

H.S. Reyes, Inc. as having a better right to the disputed amount and ordering State Bonding & Insurance Co. Inc. to pay to the

H. S. Reyes, Inc. the said sum of P2,002.73. From this decision, the appellants elevated the case to the Court of First Instanceof Manila which the stipulation of facts was reproduced. On October 19, 1962 the latter court rendered a decision, affirming thedecision of the Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision,but the trial court denied the motion. Hence, this appeal.

The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. onthe one hand and the insurance company on the other. The appellants argue that the insurance company and Enrique Mora areparties to the repair of the car as well as the towage thereof performed. The authority for this assertion is to be found, it isalleged, in paragraph 4 of the insurance contract which provides that "the insured may authorize the repair of the Motor Vehiclenecessitated by damage for which the company may be liable under the policy provided that (a) the estimated cost of such



39

repair does not exceed the Authorized Repair Limit, and (b) a detailed estimate of the cost is forwarded to the company withoutdelay." It is stressed that the H.H. Bayne Adjustment Company's recommendation of payment of the appellants' bill formaterials and repairs for which the latter drew a check for P2,002.73 indicates that Mora and the H.H. Bayne Adjustment Co.acted for and in representation of the insurance company.

This argument is, in our view, beside the point, because from the undisputed facts and from the pleadings it will be seen thatthe appellants' alleged cause of action rests exclusively upon the terms of the insurance contract. The appellants seek to

recover the insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance contract document executed

by and between the State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned in the

contract as parties thereto nor is there any clause or provision thereof from which we can infer that there is an obligation on thepart of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take effect onlybetween the parties thereto, except in some specific instances provided by law where the contract contains some stipulation infavor of a third person.1Such stipulation is known as stipulation pour autrui or a provision in favor of a third person not a pay tothe contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the

contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person.2 Consequently,

a third person not a party to the contract has no action against the parties thereto, and cannot generally demand the

enforcement of the same.3 The question of whether a third person has an enforcible interest in a contract, must be settled by

determining whether the contracting parties intended to tender him such an interest by deliberately inserting terms in theiragreement with the avowed purpose of conferring a favor upon such third person. In this connection, this Court has laid downthe rule that the fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or

merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. 4 In the instant case theinsurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen ormaterialmen in case of repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a

circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates

that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit.

We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or

pretension of the appellants that they are privy to the contract. If it were the intention of the insurance company to make itself

liable to the repair shop or materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now

that the original parties to the insurance contract intended to confer upon the appellants the benefit claimed by them wouldrequire us to ignore the indespensable requisite that a stipulation pour autrui must be clearly expressed by the parties, which wecannot do.

As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between theappellants and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in orderto be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of the

appellants a right of action against the insurance company as such intention can never be inferred therefrom.

Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in acourt of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied betweenthe insured and third person."5 In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trialcourt that no cause of action exists in favor of the appellants in so far as the proceeds of insurance are concerned. Theappellants' claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a

contract with the Bonifacio Bros. Inc. This conclusion is deducible not only from the principle governing the operation and effect

of insurance contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read:

The insurance shall be applied exclusively to the proper interests of the person in whose name it is made unless

otherwise specified in the policy.

The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.," which unmistakably shows the

intention of the parties.

The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance proceeds arises only if there wasloss and not where there is mere damage as in the instant case. Suffice it to say that any attempt to draw a distinction between

"loss" and "damage" is uncalled for, because the word "loss" in insurance law embraces injury or damage.

Loss in insurance, defined . — The injury or damage sustained by the insured in consequence of the happening of one ormore of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to

indemnify the insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary, cited in Martin's Phil.

Commercial Laws, Vol. 1, 1961 ed. p. 608).

Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.

Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.

G.R. No. 101439 June 21, 1999

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner,vs. COURT OF APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for herself and minor ROYROLAND, GLORIA KHO VDA. DE CALABIA for herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, andMAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA KHO, EMERITA KHO APEGO, ANTONIO KHO and TERESITAKHO, respondents.

QUISUMBING, J.



40

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Government Service Insurance System(GSIS) assails the January 15, 1991 Decision 1 of the Court of Appeals in CA-G.R. No. 19849, which affirmed in toto the judgment of the Regional Trial Court of Butuan City, Branch II, dated April 30, 1985, stating in part:

WHEREFORE, judgment is hereby rendered, as follows:

In Civil Case No. 2256:

a) Dismissing the complaint against defendant Victor Uy;

b) Ordering defendants Mabuhay Insurance and Guaranty Company, Inc., Guillermo Corbeta, NFA and GSIS to pay jointly and severally the following sums of money:

i. to pay plaintiff Gloria Kho Vda. de Calabia, the sum of P8,935.06 for doctor's fees, medicines, hospitalizations and medicalexpenses; P2,319.00 for transportation expenses; and P53.30 for telegrams; P10,000.00 for the injuries she sustained;P12,000.00 loss of income for six months.

ii. to plaintiff Victoria Kho, the sum P832.00 for hospitalization and medicines; P10,000.00 for the injuries she sustained;

iii. to the heirs of Wellie [Willie] Calabia, Roland Kho and Maxima Uhmad [Ugmad] Vda. de Kho, the sum of P7,500.00 as funeralexpenses less P5,000.00 advanced by defendant Victor Uy.

iv. to the heirs of Wellie [Willie] Calabia, Sr., heirs of Roland Kho and heirs of Maxima Ugmad Vda. de Kho; P30,000.00 each ascompensatory damages.

c) To pay plaintiff the sum of P10,000.00 as attorney's fees and expenses of litigation;

d) Dismissing defendants counterclaim, and cross-claim; and

e) To pay the costs.

That this decision is without prejudice as to the right Mabuhay Insurance & Guaranty Co., Inc., and NFA torecover from Guillermo Corbeta and GSIS the amounts they may have paid by virtue hereof. 2

For purposes of this review, we deem as also assailed the disposition by the trial court in its Order issued on July 12, 1985,modifying its original decision, by awarding moral damages to the heirs of the deceased victims, as follows:

Considering that the dispositive portion of the decision in this case, an award of P10,000.00 each made toplaintiffs Gloria Kho Vda. de Calabia . . ., for injuries they sustained, this award, through [sic] not clearly statedin the decision, is the moral damages the instant motion seeks to obtain. However, the prayer for moraldamages for the death of the three (3) persons above-mentioned is proper. (citation omitted)

In view of the foregoing, the prayer of plaintiffs Gloria Kho Vda. de Calabia and Victoria Kho for an award of moral damages in their favor is hereby denied. However, as for the death of Wellie [Willie] Calabia, Sr., RolandoKho and Maxima Ugmad Vda. de Kho, an award of moral damages is hereby made, and ordering and directingdefendants Mabuhay Insurance and Guaranty Company Inc., Guillermo Corbeta, National Food Authority andGovernment Service Insurance System to pay jointly and severally the following sums to wit :

P10,000.00 to the heirs of Wellie [Willie]Calabia, Sr.

P10,000.00 to the heirs of Rolando Kho and

P10,000.00 to the heirs of Maxima Ugmad Vda. de Kho.

IT IS SO ORDERED. 3

The relevant facts as found by the trial court are as follows:

National Food Authority (NFA, formerly National Grains Authority) was the owner of a Chevrolet truck which was insured against

liabilities for death of and injuries to third persons with the GSIS.

On May 9, 1979, at about 7:00 in the evening at Tabon-Tabon, Butuan City, the said truck driven by Guillermo Corbeta collidedwith a public utility vehicle, a Toyota Tamaraw. The Toyota Tamaraw was owned and operated by Victor Uy, under the nameand style of "Victory Line." The Tamaraw was a total wreck.

All the collision victims were passengers of the Toyota Tamaraw. Five (5) passengers died 4 while ten (10) others sustainedbodily injuries. Among those injured were private respondents, Victoria Jaime Vda. de Kho and Gloria Kho Vda. de Calabia.Among the dead were Maxima Ugmad Vda. de Kho, Roland Kho and Willie Calabia, Sr.

Three (3) cases were filed with the Court of First Instance of Agusan del Norte and Butuan City. The first , Civil Case No. 2196for quasi-delict , damages and attorney's fees, was commenced by Uy on June 5, 1979 against NFA and Corbeta. On August 27,1979, the second , Civil Case No. 2225 for damages, was filed by an injured passenger, Librado Taer, against Uy, the operator of



41

the public utility vehicle, and insurer, Mabuhay Insurance and Guaranty Co. (MIGC). In turn, Uy filed a cross-claim against MIGCand a third-party complaint against Corbeta and NFA. The third , Civil Case No. 2256, was instituted by herein privaterespondents on November 26, 1979 against the following: NFA and Corbeta for damages due to quasi-delict ; GSIS as insurer of the truck; Uy for breach of contract of carriage; and MIGC as insurer of the Toyota Tamaraw. These cases were consolidatedand partially tried by Judge Fortunate A. Vailoces, of the then Court of First Instance of Agusan del Norte and Butuan City.

These cases were later on transferred to Branch II of the Regional Trial Court of Butuan City. Trial ensued and on April 30,

1985, the court rendered its decision 5 holding that Corbeta's negligence was the proximate cause of the collision. The findingsof the trial court stated that the truck which crossed over to the other lane was speeding because after the collision, its left front

wheel was detached and the truck traveled for about fifty (50) meters and fell into a ravine. 6 Likewise, the court concluded thatif both vehicles had traveled in their respective lanes, the incident would not have occurred. 7 However, the Chevy cargo truckhad crossed over to the other lane which, under traffic rules, was the lane of the Toyota Tamaraw. 8

In Civil Case No. 2196, the trial court awarded Uy the total amount of one hundred nine thousand one hundred (P109,100.00)pesos for damages. In Civil Case No. 2225, said court dismissed the case against Uy and ordered MIGC, Corbeta and NFA to payplaintiff Taer, jointly and severally, the total amount of forty thousand five hundred fifty-nine pesos and ninety four centavos(P40,559.94) for actual, compensatory, and moral damages plus attorney's fees. Damages were likewise awarded to the hereinprivate respondents in Civil Case No. 2256, as earlier mentioned.

Corbeta and NFA appealed the decision of the trial court in Civil Case Nos. 2196, 2225, and 2256 to the Court of Appeals. GSIS

also elevated the decision in Civil Case No. 2256 to the same appellate court. The appeals were docketed as C.A.-G.R. Nos.19847, 19848, and 19849.

The Court of Appeals agreed with the conclusions of the trial court and ruled as follows:

WHEREFORE, in view of the foregoing considerations, and finding no reversible error, the decisions of theCourt a quo in Civil Cases Nos. 2196, 2225 and 2256 are hereby AFFIRMED in toto, with costs against theappellants.

SO ORDERED. 9

On February 5 and 6, 1991, GSIS and NFA filed their motions for reconsideration respectively, which were denied by therespondent court in its Resolution 10 dated August 13, 1991.

On October 4, 1991, only GSIS filed this petition for review on certiorari based on the following assigned errors:

1. The respondent court erred in holding GSIS solidarily liable with NFA.

2. The respondent court erred in holding GSIS liable beyond the terms and conditions of the contract of insurance and thelimitations under Insurance Memorandum Circular (IMC) No. 5-78.

3. The respondent court erred in holding GSIS liable without proof that a notice of claim had been filed within six (6) monthsfrom the date of the accident.

We find pertinent the following issues:

1) Whether the respondent court erred in holding GSIS solidarily liable with the negligent insured/owner-operator of theChevrolet truck for damages awarded to private respondents which are beyond the limitations of the insurance policy and theInsurance Memorandum Circular No. 5-78.

2) Whether the respondent court failed to consider that the private respondents have no cause of action against the petitioner,allegedly for failure of the victims to file an insurance claim within six (6) months from the date of the accident.

Petitioner denies solidary liability with the NFA or the negligent operator of the cargo truck because it claims that they are liableunder different obligations. It asserts that the NFA's liability is based on quasi-delict , while petitioner's liability is based on thecontract of insurance. Citing articles 1207 11 and 1208 12 of the Civil Code of the Philippines, petitioner states that when thereare two or more debtors or two or more creditors, the obligation as a general rule is joint. It claims that the only exceptionsare: (1) when there is a stipulation for solidary obligation; (2) when the nature of the obligation requires solidary liability; and(3) when the law declares the obligation to be solidary. However, since neither the provision of the contract nor the insurancelaw provides for solidary liability, petitioner asserts that the presumption is that its obligation arising from a contract of insurance is joint.

Petitioner's position insofar as joint liability is concerned is not tenable. It is now established that the injured or the heirs of adeceased victim of a vehicular accident may sue directly the insurer of the vehicle. Note that common carriers are required tosecure Compulsory Motor Vehicle Liability Insurance [CMVLI] coverage as provided under Sec. 374 13 of the Insurance Code,precisely for the benefit of victims of vehicular accidents and to extend them immediate relief. 14 As this Court held in Shafter vs. Judge, RTC of Olongapo City, Br . 75:15

Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to providecompensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of anegligent operation and use of motor vehicles. The victims and/or their defendants [dependents] are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners.



42

The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons againstthe insolvency of the insured who causes such injury, and to give such injured person a certain beneficialinterest in the proceeds of the policy, and statutes are to be liberally construed so that their intended purposemay be accomplished. It has even been held that such a provision creates a contractual relation which injures tothe benefit of any and every person who may be negligently injured by the named insured as if such injuredperson were specifically named in the policy. (S 449 7 Am. Jur., 2d, pp. 118-119) 16

However, although the victim may proceed directly against the insurer for indemnity, the third party liability is only up to the

extent of the insurance policy and those required by law. While it is true that where the insurance contract provides forindemnity against liability to third persons, and such third persons can directly 17 sue the insurer, the direct liability of theinsurer under indemnity contracts against third party liability does not mean that the insurer can be held liable in solidum withthe insured and/or the other parties found at fault. 18 For the liability of the insurer is based on contract; that of the insuredcarrier or vehicle owner is based on tort. 19 The liability of GSIS based on the insurance contract is direct, but not solidary withthat of the NFA. The latter's liability is based separately on Article 2180 20 of the Civil Code. 21

Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract of insurance, inaccordance with CMVLI law. At the time of the incident, the schedule of indemnities for death and/or bodily injuries, professionalfees, hospital and other charges payable under a CMVLI coverage was provided under the Insurance Memorandum Circular(IMC) No. 5-78 which was approved on November 10, 1978. As therein provided, the maximum indemnity for death was twelvethousand (P12,000.00) pesos per victim. 22 The schedules for medical expenses were also provided by said IMC, specifically inparagraphs (C) to (G).

Consequently, heirs of the victims who died in the May 9, 1979 vehicular incident, could proceed (1) against GSIS for theindemnity of P12,000 for each dead victim, and against NFA and Guillermo Corbeta for any other damages or expenses claimed;or (2) against NFA and Corbeta to pay them all their claims in full.

It follows also that injured victims, Gloria Kho Vda. de Calabia and Victoria Kho, could claim their medical expenses for eightthousand nine hundred thirty-five pesos and six centavos (P8,935.06) and eight hundred thirty-two (P832.00) pesos, from anyof the following: GSIS, NFA, or Corbeta. As to the other damages, only NFA or Corbeta may be held liable therefor.

Computation of hospital charges and fees for the services rendered to the injured victims was conclusively established by thetrial court. The petitioner failed to object to the evidence thereon, when presented by the private respondents during the trial.

Thus, these factual bases for the award of damages may no longer be attacked. For generally, findings of the judge who triedthe case and heard the witnesses could not be disturbed on appeal, unless there are substantial facts and particularcircumstances which have been overlooked but which, if properly considered, might affect the result of the case. 23 Thus,

considering the evidence on record including the schedule of indemnities provided under IMC No. 5-78, we find no cogentreason to disturb the computation of medical charges and expenses that justify the award of damages by the trial court.

As to the second issue, the petitioner contends that it cannot be held liable without proof nor allegation that the privaterespondents filed before its office a notice of claim within six (6) months from the date of the accident. This requirement,according to the petitioner, gives the insurer the opportunity to investigate the veracity of the claim, and non-compliancetherewith constitutes waiver. Since the claim was not reported to the insurer, the petitioner avers that the presumption is thatthe victim opted to pursue his claim against the motor vehicle owner or against the tortfeasor.

However, in this case the records reveal that on September 7, 1979, the private respondents sent a notice of loss to thepetitioner informing the latter of the accident. Included as "Exihibit J'' 24 in the records, this notice constitutes evidence of theloss they suffered by reason of the vehicular collision. They stressed further that the petitioner did not deny receipt of notice of claim during the trial, and it would be too late now to state otherwise.

Although merely factual, we need to emphasize that the alleged delay in reporting the loss by the insured and/or by thebeneficiaries must be promptly raised by the insurer 25 in objecting to the claims. When the insured presented proof of lossbefore the trial court, the insurer failed to object to said presentation. The petitioner should have promptly interposed thedefense of delay, or belated compliance, concerning the notice of claim. Moreover, the petitioner merely waited for the victimsor beneficiaries to file their complaint. As matters stand now, the defense of laches or prescription is deemed waived because of petitioner's failure to raise it not only before but also during the hearing. 26

To recapitulate, petitioner seeks a definitive ruling only on the extent of its liability, as insurer of NFA, to those injured or killedin the May 9, 1979 vehicular collision.

As found by the trial court, the driver (Guillermo Corbeta), the operator (NFA), and MIGC, are solidarily liable for damages ascomputed below:

SCHEDULE A

I. For the Injured Victims.

1) Gloria Kho Vda. de Calabia.

a) Medical expenses P8,935.06

b) Transportation and Telegraph Expenses 2,372.30

c) Other Compensatory/Moral Damages 10,000.00



43

d) Loss of Income 12,000.00

Total P33,307.36

2) Victoria Kho.

a) Medical expenses P832.00

b) Other Compensatory/Moral Damages 10,000.00

Total P10,832.00

II. For the Heirs of the Deceased Victims:

Compensatory/

Funeral Death Moral

Expenses Indemnity Damages Total

1) Heirs of Willie Calabia, Sr. P2,500.00 P30,000.00 P10,000.00 42,500.00

2) Heirs of Roland Kho 2,500.00 30,000.00 10,000.00 42,500.00

3) Heirs of Maxima Ugmad Vda.de Kho 2,500.00 30,000.00 10,000.00 42,500.00

Sub-Total P7,500.00 P90,000.00 P30,000.00 P127,500.00

Less: Advances by Victor Uy (5,000.00) NIL (5,000.00)

Balance P2,500.00 P90,000.00 P30,000.00 122,500.00

III. Total Amount of Attorney's Fees P10,000.00

Note that, the petitioner (GSIS) was impleaded as insurer of NFA. But under the CMVLI law, the petitioner could only be heldliable under its contract of insurance. And pursuant to the CMVLI law, its liability is primary, and not dependent on the recoveryof judgment from the insured. Hence, GSIS is directly liable to the private respondents, in the following amounts.

SCHEDULE B

I. Injured Victims Medical Expenses

——————— —————————

1) Victoria Jaime Vda. de Kho P832.00

2) Gloria Kho Vda. de Calabia P8,935.00

II. Heirs of Deceased Victims Death Indemnity

———————————— ————————

1) Heirs of Willie Calabia, Sr. P12,000.00

2) Heirs of Roland Kho P12,000.00

3) Heirs of Maxima Ugmad Vda. de Kho P12,000.00

The balance of the private respondents' claims as shown on Schedule A above, must be paid by Corbeta or NFA, or MIGC, theparties found solidarily liable. 27

WHEREFORE, the instant petition is hereby GRANTED, but the decision of the trial court as affirmed by the Court of Appeals ishereby. MODIFIED, as follows:

1. Petitioner Government Service Insurance System is ordered to pay (a) twelve thousand pesos (P12,000.00) as deathindemnity to each group of heirs of the deceased, Willie Calabia Sr., Roland Kho and Maxima Ugmad Vda. de Kho; (b) eighthundred thirty-two (P832.00) pesos for medical expenses of Victoria Jaime Vda. de Kho; and (c) eight thousand, nine hundredthirty-five pesos and six centavos (P8,935.06) for medical expenses of Gloria Kho Vda. de Calabia.



44

2. Guillermo Corbeta, National Foods Authority, and Mabuhay Insurance & Guaranty Co., Inc., jointly and severally, are orderedto pay private respondents' claims 28 as adjudged by the Regional Trial Court of Butuan City, minus the amounts that GSISmust pay to the injured victims and the heirs of the deceased victims as above stated.

This decision is immediately executory. No pronouncement as to cost. SO ORDERED.

July 29, 1968

G.R. No. L-24566

AGRICULTURAL CREDIT & COOPERATIVE FINANCING ADMINISTRATION (ACCFA), plaintiff-appellant,

vs. ALPHA INSURANCE & SURETY CO., INC., defendant-appellee, RICARDO A. LADINES, ET AL., third party-

defendants-appellees.

Appeal, on points of law, against a decision of the Court of First Instance of Manila, in its Case No. 43372, upholding a motion to

dismiss.

At issue is the question whether or not the provision of a fidelity bond that no action shall be had or maintained thereon unless

commenced within one year from the making of a claim for the loss upon which the action is based, is valid or void, in view of Section 61-A of the Insurance Act invalidating stipulations limiting the time for commencing an action thereon to less than one

year from the time the cause of action accrues.

Material to this decision are the following facts:

According to the allegations of the complaint, in order to guarantee the Asingan Farmers' Cooperative Marketing Association,

Inc. (FACOMA) against loss on account of "personal dishonesty, amounting to larceny or estafa of its Secretary-Treasurer,

Ricardo A. Ladines, the appellee, Alpha Insurance & Surety Company had issued, on 14 February 1958, its bond, No. P-FID-15-

58, for the sum of Five Thousand Pesos (P5,000.00) with said Ricardo Ladines as principal and the appellee as solidary surety.

On the same date, the Asingan FACOMA assigned its rights to the appellant, Agricultural Credit Cooperative and Financing

Administration (ACCFA for short), with approval of the principal and the surety.

During the effectivity of the bond, Ricardo Ladines converted and misappropriated, to his personal benefit, some P11,513.22 of

the FACOMA funds, of which P6,307.33 belonged to the ACCFA. Upon discovery of the loss, ACCFA immediately notified in

writing the survey company on 10 October 1958, and presented the proof of loss within the period fixed in the bond; but

despite repeated demands the surety company refused and failed to pay. Whereupon, ACCFA filed suit against appellee on 30

May 1960.

Defendant Alpha Insurance & Surety Co., Inc., (now appellee) moved to dismiss the complaint for failure to state a cause of

action, giving as reason that (1) the same was filed more than one year after plaintiff made claim for loss, contrary to the

eighth condition of the bond, providing as follows: .

EIGHT LIMITATION OF ACTION

No action, suit or proceeding shall be had or maintained upon this Bond unless the same be commenced within one year from

the time of making claim for the loss upon which such action, suit or proceeding, is based, in accordance with the fourth section

hereof.

(2) the complaint failed to show that plaintiff had filed civil or criminal action against Ladines, as required by conditions 4 and

11 of the bond; and (3) that Ladines was a necessary and indispensable party but had not been joined as such.

At first, the Court of First Instance denied dismissal; but, upon reconsideration, the court reversed its original stand, and

dismissed the complaint on the ground that the action was filed beyond the contractual limitation period (Record on Appeal,

pages 56-59).

Hence, this appeal TJxbrhkl3G.

We find the appeal meritorious.

A fidelity bond is, in effect, in the nature of a contract of insurance against loss from misconduct, and is governed by the same

principles of interpretation: Mechanics Savings Bank & Trust Co. vs. Guarantee Company, 68 Fed. 459; Pao Chan Wei vs.

Nemorosa, 103 Phil. 57. Consequently, the condition of the bond in question, limiting the period for bringing action thereon, is

subject to the provisions of Section 61-A of the Insurance Act (No. 2427), as amended by Act 4101 of the pre-Commonwealth

Philippine Legislature, prescribing that —

SEC. 61-A — A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an action

thereunder to a period of less than one year from the time when the cause of action accrues is void.

http://philippinelaw.info/jurisprudence/103-phil-57.html




Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a correlative obligation of the

defendant but also "an act or omission of the defendant in violation of said legal right" (Maao Sugar Central vs. Barrios, 79 Phil.

666), the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty (in

this case, to pay the amount of the bond). The year for instituting action in court must be reckoned, therefore, from the time of

appellee's refusal to comply with its bond; it can not be counted from the creditor's filing of the claim of loss, for that does not

import that the surety company will refuse to pay. In so far, therefore, as condition eight of the bond requires action to be filed

within one year from the filing of the claim for loss, such stipulation contradicts the public policy expressed in Section 61-A of

the Philippine Insurance Act. Condition eight of the bond, therefore, is null and void, and the appellant is not bound to complywith its provisions.

In Eagle Star Insurance Co. vs. Chia Yu, 96 Phil. 696, 701, this Court ruled: .

It may perhaps be suggested that the policy clause relied on by the insurer for defeating plaintiff's action should be given the

construction that would harmonize it with section 61-A of the Insurance Act by taking it to mean that the time given the insured

for bringing his suit is twelve months after the cause of action accrues. But the question then would be: When did the cause of

action accrue? On that question we agree with the court below that plaintiff's cause of action did not accrue until his claim was

finally rejected by the insurance company. This is because, before such final rejection, there was no real necessity for bringing

suit. As the policy provides that the insured should file his claim, first, with the carrier and then with the insurer, he had a right

to wait for his claim to be finally decided before going to court. The law does not encourage unnecessary litigation.

The discouraging of unnecessary litigation must be deemed a rule of public policy, considering the unrelieved congestion in the

courts. As a consequence of the foregoing, condition eight of the Alpha bond is null and void, and action may be brought within

the statutory period of limitation for written contracts (New Civil Code, Article 1144). The case of Ang vs. Fulton Fire Insurance

Co., 2 S.C.R.A. 945 (31 July 1961), relied upon by the Court a quo, is no authority against the views herein expressed, since

the effect of Section 61-A of the Insurance Law on the terms of the Policy or contract was not there considered.

The condition of previous conviction (paragraph b, clause 4, of the contract) having been deleted by express agreement and the

surety having assumed solidary liability, the other grounds of the motion to dismiss are equally untenable. A creditor may

proceed against any one of the solidary debtors, or some or all of them simultaneously (Article 1216, New Civil Code).

WHEREFORE, the appealed order granting the motion to dismiss is reversed and set aside, and the records are remanded to the

Court of First Instance, with instructions to require defendant to answer and thereafter proceed in conformity with the law and

the Rules of Court. Costs against appellee. So ordered.







Date post:	06-Apr-2018
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