THIRD DIVISION

[G.R. No. 181132. June 5, 2009.]

HEIRS OF LORETO C. MARAMAG, represented by surviving

spouse VICENTA PANGILINAN MARAMAG, petitioners, vs. EVA

VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN

MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA

ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE

COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE

CORPORATION, respondents.

D E C I S I O N

NACHURA, J p:

This is a petition 1 for review on certiorari under Rule 45 of the Rules, seeking

to reverse and set aside the Resolution 2 dated January 8, 2008 of the Court of

Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners' appeal for lack of

jurisdiction.

The case stems from a petition 3 filed against respondents with the Regional

Trial Court, Branch 29, for revocation and/or reduction of insurance proceeds for

being void and/or inofficious, with prayer for a temporary restraining order (TRO)

and a writ of preliminary injunction.

The petition alleged that: (1) petitioners were the legitimate wife and children

of Loreto Maramag (Loreto), while respondents were Loreto's illegitimate family; (2)

Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the

killing of the latter, thus, she is disqualified to receive any proceeds from his

insurance policies from Insular Life Assurance Company, Ltd. (Insular) 4 and Great

Pacific Life Assurance Corporation (Grepalife); 5 (3) the illegitimate children of

Loreto — Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of

the legitime of the legitimate children, thus, the proceeds released to Odessa and those

to be released to Karl Brian and Trisha Angelie were inofficious and should be

reduced; and (4) petitioners could not be deprived of their legitimes, which should be

satisfied first.

In support of the prayer for TRO and writ of preliminary injunction, petitioners

alleged, among others, that part of the insurance proceeds had already been released

in favor of Odessa, while the rest of the proceeds are to be released in favor of Karl

Brian and Trisha Angelie, both minors, upon the appointment of their legal guardian.

Petitioners also prayed for the total amount of P320,000.00 as actual litigation

expenses and attorney's fees. DAaEIc

In answer, 6 Insular admitted that Loreto misrepresented Eva as his legitimate

wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that

they filed their claims for the insurance proceeds of the insurance policies; that when

it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a

beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie,

as the remaining designated beneficiaries; and that it released Odessa's share as she

was of age, but withheld the release of the shares of minors Karl Brian and Trisha

Angelie pending submission of letters of guardianship. Insular alleged that the

complaint or petition failed to state a cause of action insofar as it sought to declare as

void the designation of Eva as beneficiary, because Loreto revoked her designation as

such in Policy No. A001544070 and it disqualified her in Policy No. A001693029;

and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and

Trisha Angelie, considering that no settlement of Loreto's estate had been filed nor

had the respective shares of the heirs been determined. Insular further claimed that it

was bound to honor the insurance policies designating the children of Loreto with Eva

as beneficiaries pursuant to Section 53 of the Insurance Code.

In its own answer 7 with compulsory counterclaim, Grepalife alleged that Eva

was not designated as an insurance policy beneficiary; that the claims filed by Odessa,

Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for

insurance due to a misrepresentation in his application for that he was born on

December 10, 1936 and, thus, not more than 65 years old when he signed it in

September 2001; that the case was premature, there being no claim filed by the

legitimate family of Loreto; and that the law on succession does not apply where the

designation of insurance beneficiaries is clear.

As the whereabouts of Eva, Odessa, Karl were not known to petitioners,

summons by publication was resorted to. Still, the Brian, and Trisha Angelie

illegitimate family of Loreto failed to file their answer. Hence, the trial court, upon

motion of petitioners, declared them in default in its Order dated May 7, 2004.

During the pre-trial on July 28, 2004, both Insular and Grepalife moved that

the issues raised in their respective answers be resolved first. The trial court ordered

petitioners to comment within 15 days. EHaASD

In their comment, petitioners alleged that the issue raised by Insular and

Grepalife was purely legal — whether the complaint itself was proper or not — and

that the designation of a beneficiary is an act of liberality or a donation and, therefore,

subject to the provisions of Articles 752 8 and 772 9 of the Civil Code.

In reply, both Insular and Grepalife countered that the insurance proceeds

belong exclusively to the designated beneficiaries in the policies, not to the estate or

to the heirs of the insured.

Grepalife also reiterated that it had disqualified Eva as a beneficiary when it

ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.

On September 21, 2004, the trial court issued a Resolution, the dispositive

portion of which reads —

WHEREFORE, the motion to dismiss incorporated in the answer of defendants

Insular Life and Grepalife is granted with respect to defendants Odessa, Karl

Brian and Trisha Maramag. The action shall proceed with respect to the other

defendants Eva Verna de Guzman, Insular Life and Grepalife.

SO ORDERED. 10

In so ruling, the trial court ratiocinated thus —

Art. 2011 of the Civil Code provides that the contract of insurance is governed

by the (sic) special laws. Matters not expressly provided for in such special laws

shall be regulated by this Code. The principal law on insurance is the Insurance

Code, as amended. Only in case of deficiency in the Insurance Code that the

Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil.

269.)

The Insurance Code, as amended, contains a provision regarding to whom the

insurance proceeds shall be paid. It is very clear under Sec. 53 thereof that the

insurance proceeds shall be applied exclusively to the proper interest of the

person in whose name or for whose benefit it is made, unless otherwise

specified in the policy. Since the defendants are the ones named as the primary

beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C.

Maramag and there is no showing that herein plaintiffs were also included as

beneficiary (sic) therein the insurance proceeds shall exclusively be paid to

them. This is because the beneficiary has a vested right to the indemnity, unless

the insured reserves the right to change the beneficiary. (Grecio v. Sunlife

Assurance Co. of Canada, 48 Phil. [sic] 63).

Neither could the plaintiffs invoked (sic) the law on donations or the rules on

testamentary succession in order to defeat the right of herein defendants to

collect the insurance indemnity. The beneficiary in a contract of insurance is not

the donee spoken in the law of donation. The rules on testamentary succession

cannot apply here, for the insurance indemnity does not partake of a donation.

As such, the insurance indemnity cannot be considered as an advance of the

inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534).

In the case of Southern Luzon Employees' Association v. Juanita Golpeo, et al.,

the Honorable Supreme Court made the following pronouncements[:] ECcTaH

"With the finding of the trial court that the proceeds to the Life

Insurance Policy belongs exclusively to the defendant as his individual

and separate property, we agree that the proceeds of an insurance policy

belong exclusively to the beneficiary and not to the estate of the person

whose life was insured, and that such proceeds are the separate and

individual property of the beneficiary and not of the heirs of the person

whose life was insured, is the doctrine in America. We believe that the

same doctrine obtains in these Islands by virtue of Section 428 of the

Code of Commerce . . . ."

In [the] light of the above pronouncements, it is very clear that the plaintiffs has

(sic) no sufficient cause of action against defendants Odessa, Karl Brian and

Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness

of donation as primary beneficiary (sic) in the insurances (sic) of the late Loreto

C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action. One of

the named beneficiary (sic) in the insurances (sic) taken by the late Loreto C.

Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden

from receiving any donation under Article 739 cannot be named beneficiary of a

life insurance policy of the person who cannot make any donation to him,

according to said article (Art. 2012, Civil Code). If a concubine is made the

beneficiary, it is believed that the insurance contract will still remain valid, but

the indemnity must go to the legal heirs and not to the concubine, for evidently,

what is prohibited under Art. 2012 is the naming of the improper beneficiary. In

such case, the action for the declaration of nullity may be brought by the spouse

of the donor or donee, and the guilt of the donor and donee may be proved by

preponderance of evidence in the same action (Comment of Edgardo L. Paras,

Civil Code of the Philippines, page 897). Since the designation of defendant

Eva Verna de Guzman as one of the primary beneficiary (sic) in the insurances

(sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil

Code, the insurance indemnity that should be paid to her must go to the legal

heirs of the deceased which this court may properly take cognizance as the

action for the declaration for the nullity of a void donation falls within the

general jurisdiction of this Court. 11

Insular 12 and Grepalife 13 filed their respective motions for reconsideration,

arguing, in the main, that the petition failed to state a cause of action. Insular further

averred that the proceeds were divided among the three children as the remaining

named beneficiaries. Grepalife, for its part, also alleged that the premiums paid had

already been refunded.

Petitioners, in their comment, reiterated their earlier arguments and posited that

whether the complaint may be dismissed for failure to state a cause of action must be

determined solely on the basis of the allegations in the complaint, such that the

defenses of Insular and Grepalife would be better threshed out during trial.

On June 16, 2005, the trial court issued a Resolution, disposing, as follows:

WHEREFORE, in view of the foregoing disquisitions, the Motions for

Reconsideration filed by defendants Grepalife and Insular Life are hereby

GRANTED. Accordingly, the portion of the Resolution of this Court dated 21

September 2004 which ordered the prosecution of the case against defendant

Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and

the case against them is hereby ordered DISMISSED.

SO ORDERED. 14 TADcCS

In granting the motions for reconsideration of Insular and Grepalife, the trial

court considered the allegations of Insular that Loreto revoked the designation of Eva

in one policy and that Insular disqualified her as a beneficiary in the other policy such

that the entire proceeds would be paid to the illegitimate children of Loreto with Eva

pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases where

there are no beneficiaries designated, or when the only designated beneficiary is

disqualified, that the proceeds should be paid to the estate of the insured. As to the

claim that the proceeds to be paid to Loreto’s illegitimate children should be reduced

based on the rules on legitime, the trial court held that the distribution of the insurance

proceeds is governed primarily by the Insurance Code, and the provisions of the Civil

Code are irrelevant and inapplicable. With respect to the Grepalife policy, the trial

court noted that Eva was never designated as a beneficiary, but only Odessa, Karl

Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the

illegitimate children. It further held that the matter of Loreto's misrepresentation was

premature; the appropriate action may be filed only upon denial of the claim of the

named beneficiaries for the insurance proceeds by Grepalife.

Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed

the appeal for lack of jurisdiction, holding that the decision of the trial court

dismissing the complaint for failure to state a cause of action involved a pure question

of law. The appellate court also noted that petitioners did not file within the

reglementary period a motion for reconsideration of the trial court's Resolution, dated

September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and

Trisha Angelie; thus, the said Resolution had already attained finality.

Hence, this petition raising the following issues:

a.In determining the merits of a motion to dismiss for failure to state a cause of

action, may the Court consider matters which were not alleged in the

Complaint, particularly the defenses put up by the defendants in their Answer?

b.In granting a motion for reconsideration of a motion to dismiss for failure to

state a cause of action, did not the Regional Trial Court engage in the

examination and determination of what were the facts and their probative value,

or the truth thereof, when it premised the dismissal on allegations of the

defendants in their answer — which had not been proven?

c.. . . (A)re the members of the legitimate family entitled to the proceeds of the

insurance for the concubine? 15

In essence, petitioners posit that their petition before the trial court should not

have been dismissed for failure to state a cause of action because the finding that Eva

was either disqualified as a beneficiary by the insurance companies or that her

designation was revoked by Loreto, hypothetically admitted as true, was raised only

in the answers and motions for reconsideration of both Insular and Grepalife. They

argue that for a motion to dismiss to prosper on that ground, only the allegations in

the complaint should be considered. They further contend that, even assuming Insular

disqualified Eva as a beneficiary, her share should not have been distributed to her

children with Loreto but, instead, awarded to them, being the legitimate heirs of the

insured deceased, in accordance with law and jurisprudence.

The petition should be denied.

The grant of the motion to dismiss was based on the trial court's finding that

the petition failed to state a cause of action, as provided in Rule 16, Section 1 (g), of

the Rules of Court, which reads —

SEC. 1.Grounds. — Within the time for but before filing the answer to the

complaint or pleading asserting a claim, a motion to dismiss may be made on

any of the following grounds: SEIcHa

xxx xxx xxx

(g)That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of

another. 16 A complaint states a cause of action when it contains the three (3)

elements of a cause of action — (1) the legal right of the plaintiff; (2) the correlative

obligation of the defendant; and (3) the act or omission of the defendant in violation

of the legal right. If any of these elements is absent, the complaint becomes vulnerable

to a motion to dismiss on the ground of failure to state a cause of action. 17

When a motion to dismiss is premised on this ground, the ruling thereon should

be based only on the facts alleged in the complaint. The court must resolve the issue

on the strength of such allegations, assuming them to be true. The test of sufficiency

of a cause of action rests on whether, hypothetically admitting the facts alleged in the

complaint to be true, the court can render a valid judgment upon the same, in

accordance with the prayer in the complaint. This is the general rule.

However, this rule is subject to well-recognized exceptions, such that there is

no hypothetical admission of the veracity of the allegations if:

1.the falsity of the allegations is subject to judicial notice;

2.such allegations are legally impossible;

3.the allegations refer to facts which are inadmissible in evidence;

4.by the record or document in the pleading, the allegations appear

unfounded; or

5.there is evidence which has been presented to the court by stipulation of

the parties or in the course of the hearings related to the case. 18

In this case, it is clear from the petition filed before the trial court that,

although petitioners are the legitimate heirs of Loreto, they were not named as

beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of

petitioners' claim is that Eva, being a concubine of Loreto and a suspect in his murder,

is disqualified from being designated as beneficiary of the insurance policies, and that

Eva's children with Loreto, being illegitimate children, are entitled to a lesser share of

the proceeds of the policies. They also argued that pursuant to Section 12 of the

Insurance Code, 19 Eva's share in the proceeds should be forfeited in their favor, the

former having brought about the death of Loreto. Thus, they prayed that the share of

Eva and portions of the shares of Loreto's illegitimate children should be awarded to

them, being the legitimate heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a

favorable judgment in light of Article 2011 of the Civil Code which expressly

provides that insurance contracts shall be governed by special laws, i.e., the Insurance

Code. Section 53 of the Insurance Code states —

SEC. 53.The insurance proceeds shall be applied exclusively to the proper

interest of the person in whose name or for whose benefit it is made unless

otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the

insurance proceeds are either the insured, if still alive; or the beneficiary, if the

insured is already deceased, upon the maturation of the policy. 20 The exception to

this rule is a situation where the insurance contract was intended to benefit third

persons who are not parties to the same in the form of favorable stipulations or

indemnity. In such a case, third parties may directly sue and claim from the insurer.

21 CTDHSE

Petitioners are third parties to the insurance contracts with Insular and

Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly, respondents

Insular and Grepalife have no legal obligation to turn over the insurance proceeds to

petitioners. The revocation of Eva as a beneficiary in one policy and her

disqualification as such in another are of no moment considering that the designation

of the illegitimate children as beneficiaries in Loreto's insurance policies remains

valid. Because no legal proscription exists in naming as beneficiaries the children of

illicit relationships by the insured, 22 the shares of Eva in the insurance proceeds,

whether forfeited by the court in view of the prohibition on donations under Article

739 of the Civil Code or by the insurers themselves for reasons based on the insurance

contracts, must be awarded to the said illegitimate children, the designated

beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has

not designated any beneficiary, 23 or when the designated beneficiary is disqualified

by law to receive the proceeds, 24 that the insurance policy proceeds shall redound to

the benefit of the estate of the insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be

upheld. In the same light, the Decision of the CA dated January 8, 2008 should be

sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the

appeal; the issue of failure to state a cause of action is a question of law and not of

fact, there being no findings of fact in the first place. 25

WHEREFORE, the petition is DENIED for lack of merit. Costs against

petitioners.

SO ORDERED.

Ynares-Santiago, Carpio, * Corona ** and Peralta, JJ., concur.

THIRD DIVISION

[G.R. No. 183526. August 25, 2009.]

VIOLETA R. LALICAN, petitioner, vs. THE INSULAR LIFE

ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE

PRESIDENT VICENTE R. AVILON, respondent.

DECISION

CHICO-NAZARIO, ** J p:

Challenged in this Petition for Review on Certiorari 1 under Rule 45 of the Rules of

Court are the Decision 2 dated 30 August 2007 and the Orders dated 10 April 2008 3 and

3 July 2008 4 of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case

No. 2177. In its assailed Decision, the RTC dismissed the claim for death benefits filed

by petitioner Violeta R. Lalican (Violeta) against respondent Insular Life Assurance

Company Limited (Insular Life); while in its questioned Orders dated 10 April 2008 and

3 July 2008, respectively, the RTC declared the finality of the aforesaid Decision and

denied petitioner's Notice of Appeal.

The factual and procedural antecedents of the case, as culled from the records, are as

follows:

Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).

During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24

April 1997, Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan

City, issued in favor of Eulogio Policy No. 9011992, 5 which contained a 20-Year

Endowment Variable Income Package Flexi Plan worth P500,000.00, 6 with two riders

valued at P500,000.00 each. 7 Thus, the value of the policy amounted to P1,500,000.00.

Violeta was named as the primary beneficiary.

Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly

basis in the amount of P8,062.00, payable every 24 April, 24 July, 24 October and 24

January of each year, until the end of the 20-year period of the policy. According to the

Policy Contract, there was a grace period of 31 days for the payment of each premium

subsequent to the first. If any premium was not paid on or before the due date, the policy

would be in default, and if the premium remained unpaid until the end of the grace

period, the policy would automatically lapse and become void. 8

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he

failed to pay the premium due on 24 January 1998, even after the lapse of the grace

period of 31 days. Policy No. 9011992, therefore, lapsed and became void. EScAHT

Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan,

on 26 May 1998, an Application for Reinstatement 9 of Policy No. 9011992, together

with the amount of P8,062.00 to pay for the premium due on 24 January 1998. In a letter

10 dated 17 July 1998, Insular Life notified Eulogio that his Application for

Reinstatement could not be fully processed because, although he already deposited

P8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue

interest thereon amounting to P322.48. Thus, Insular Life instructed Eulogio to pay the

amount of interest and to file another application for reinstatement. Eulogio was likewise

advised by Malaluan to pay the premiums that subsequently became due on 24 April

1998 and 24 July 1998, plus interest.

On 17 September 1998, Eulogio went to Malaluan's house and submitted a second

Application for Reinstatement 11 of Policy No. 9011992, including the amount of

P17,500.00, representing payments for the overdue interest on the premium for 24

January 1998, and the premiums which became due on 24 April 1998 and 24 July 1998.

As Malaluan was away on a business errand, her husband received Eulogio's second

Application for Reinstatement and issued a receipt for the amount Eulogio deposited.

A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory

arrest secondary to electrocution.

Without knowing of Eulogio's death, Malaluan forwarded to the Insular Life Regional

Office in the City of San Fernando, on 18 September 1998, Eulogio's second Application

for Reinstatement of Policy No. 9011992 and P17,500.00 deposit. However, Insular Life

no longer acted upon Eulogio's second Application for Reinstatement, as the former was

informed on 21 September 1998 that Eulogio had already passed away.

On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full

proceeds of Policy No. 9011992.

In a letter 12 dated 14 January 1999, Insular Life informed Violeta that her claim could

not be granted since, at the time of Eulogio's death, Policy No. 9011992 had already

lapsed, and Eulogio failed to reinstate the same. According to the Application for

Reinstatement, the policy would only be considered reinstated upon approval of the

application by Insular Life during the applicant's "lifetime and good health", and

whatever amount the applicant paid in connection thereto was considered to be a deposit

only until approval of said application. Enclosed with the 14 January 1999 letter of

Insular Life to Violeta was DBP Check No. 0000309734, for the amount of P25,417.00,

drawn in Violeta's favor, representing the full refund of the payments made by Eulogio

on Policy No. 9011992.

On 12 February 1998, Violeta requested a reconsideration of the disallowance of her

claim. In a letter 13 dated 10 March 1999, Insular Life stated that it could not find any

reason to reconsider its decision rejecting Violeta's claim. Insular Life again tendered to

Violeta the above-mentioned check in the amount of P25,417.00.

Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the

Cabanatuan District Office of Insular Life. Violeta's counsel subsequently sent a letter 14

dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy No.

9011992. On 11 August 1999, Insular Life responded to the said demand letter by

agreeing to conduct a re-evaluation of Violeta's claim. IASTDE

Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the

RTC, on 11 October 1999, a Complaint for Death Claim Benefit, 15 which was docketed

as Civil Case No. 2177. Violeta alleged that Insular Life engaged in unfair claim

settlement practice and deliberately failed to act with reasonable promptness on her

insurance claim. Violeta prayed that Insular Life be ordered to pay her death claim

benefits on Policy No. 9011992, in the amount of P1,500,000.00, plus interests, attorney's

fees, and cost of suit.

Insular Life filed with the RTC an Answer with Counterclaim, 16 asserting that Violeta's

Complaint had no legal or factual bases. Insular Life maintained that Policy No. 9011992,

on which Violeta sought to recover, was rendered void by the non-payment of the 24

January 1998 premium and non-compliance with the requirements for the reinstatement

of the same. By way of counterclaim, Insular Life prayed that Violeta be ordered to pay

attorney's fees and expenses of litigation incurred by the former.

Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the

reinstatement of Policy No. 9011992 had been complied with and the defenses put up by

Insular Life were purely invented and illusory.

After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.

The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have

the same reinstated:

[The] arguments [of Insular Life] are not without basis. When the premiums for

April 24 and July 24, 1998 were not paid by [Eulogio] even after the lapse of

the 31-day grace period, his insurance policy necessarily lapsed. This is clear

from the terms and conditions of the contract between [Insular Life] and

[Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 . .

. . 17

The RTC, taking into account the clear provisions of the Policy Contract between

Eulogio and Insular Life and the Application for Reinstatement Eulogio subsequently

signed and submitted to Insular Life, held that Eulogio was not able to fully comply with

the requirements for the reinstatement of Policy No. 9011992:

The well-settled rule is that a contract has the force of law between the parties.

In the instant case, the terms of the insurance contract between [Eulogio] and

[Insular Life] were spelled out in the policy provisions of Insurance Policy No.

9011992. There is likewise no dispute that said insurance contract is by nature a

contract of adhesion[,] which is defined as "one in which one of the contracting

parties imposes a ready-made form of contract which the other party may

accept or reject but cannot modify". (Polotan, Sr. vs. CA, 296 SCRA 247). ECaSIT

xxx xxx xxx

The New Lexicon Webster's Dictionary defines ambiguity as the "quality of

having more than one meaning" and "an idea, statement or expression capable

of being understood in more than one sense". In Nacu vs. Court of Appeals,

231 SCRA 237 (1994), the Supreme Court stated that[:]

"Any ambiguity in a contract, whose terms are susceptible of different

interpretations as a result thereby, must be read and construed against

the party who drafted it on the assumption that it could have been

avoided by the exercise of a little care."

In the instant case, the dispute arises from the afore-quoted provisions

written on the face of the second application for reinstatement. Examining

the said provisions, the court finds the same clearly written in terms that

are simple enough to admit of only one interpretation. They are clearly not

ambiguous, equivocal or uncertain that would need further construction.

The same are written on the very face of the application just above the

space where [Eulogio] signed his name. It is inconceivable that he signed it

without reading and understanding its import.

Similarly, the provisions of the policy provisions (sic) earlier mentioned are

written in simple and clear layman's language, rendering it free from any

ambiguity that would require a legal interpretation or construction. Thus, the

court believes that [Eulogio] was well aware that when he filed the said

application for reinstatement, his lapsed policy was not automatically reinstated

and that its approval was subject to certain conditions. Nowhere in the policy

or in the application for reinstatement was it ever mentioned that the

payment of premiums would have the effect of an automatic and immediate

renewal of the lapsed policy. Instead, what was clearly stated in the

application for reinstatement is that pending approval thereof, the

premiums paid would be treated as a "deposit only and shall not bind the

company until this application is finally approved during my/our" lifetime

and good health[.]" HSATIC

Again, the court finds nothing in the aforesaid provisions that would even

suggest an ambiguity either in the words used or in the manner they were

written. [Violeta] did not present any proof that [Eulogio] was not conversant

with the English language. Hence, his having personally signed the application

for reinstatement[,] which consisted only of one page, could only mean that he

has read its contents and that he understood them. . . .

Therefore, consistent with the above Supreme Court ruling and finding no

ambiguity both in the policy provisions of Policy No. 9011992 and in the

application for reinstatement subject of this case, the court finds no merit in

[Violeta's] contention that the policy provision stating that [the lapsed policy of

Eulogio] should be reinstated during his lifetime is ambiguous and should be

construed in his favor. It is true that [Eulogio] submitted his application for

reinstatement, together with his premium and interest payments, to [Insular

Life] through its agent Josephine Malaluan in the morning of September 17,

1998. Unfortunately, he died in the afternoon of that same day. It was only on

the following day, September 18, 1998 that Ms. Malaluan brought the said

document to [the regional office of Insular Life] in San Fernando, Pampanga for

approval. As correctly pointed out by [Insular Life] there was no more

application to approve because the applicant was already dead and no

insurance company would issue an insurance policy to a dead person. 18

(Emphases ours.)

The RTC, in the end, explained that:

While the court truly empathizes with the [Violeta] for the loss of her husband,

it cannot express the same by interpreting the insurance agreement in her favor

where there is no need for such interpretation. It is conceded that [Eulogio's]

payment of overdue premiums and interest was received by [Insular Life]

through its agent Ms. Malaluan. It is also true that [the] application for

reinstatement was filed by [Eulogio] a day before his death. However, there is

nothing that would justify a conclusion that such receipt amounted to an

automatic reinstatement of the policy that has already lapsed. The evidence

suggests clearly that no such automatic renewal was contemplated in the

contract between [Eulogio] and [Insular Life]. Neither was it shown that

Ms. Malaluan was the officer authorized to approve the application for

reinstatement and that her receipt of the documents submitted by [Eulogio]

amounted to its approval. 19 (Emphasis ours.)

The fallo of the RTC Decision thus reads:

WHEREFORE, all the foregoing premises considered and finding that

[Violeta] has failed to establish by preponderance of evidence her cause of

action against the defendant, let this case be, as it is hereby DISMISSED. 20 cIDHSC

On 14 September 2007, Violeta filed a Motion for Reconsideration 21 of the afore-

mentioned RTC Decision. Insular Life opposed 22 the said motion, averring that the

arguments raised therein were merely a rehash of the issues already considered and

addressed by the RTC. In an Order 23 dated 8 November 2007, the RTC denied Violeta's

Motion for Reconsideration, finding no cogent and compelling reason to disturb its

earlier findings. Per the Registry Return Receipt on record, the 8 November 2007 Order

of the RTC was received by Violeta on 3 December 2007.

In the interim, on 22 November 2007, Violeta filed with the RTC a Reply 24 to the

Motion for Reconsideration, wherein she reiterated the prayer in her Motion for

Reconsideration for the setting aside of the Decision dated 30 August 2007. Despite

already receiving on 3 December 2007, a copy of the RTC Order dated 8 November

2007, which denied her Motion for Reconsideration, Violeta still filed with the RTC, on

26 February 2008, a Reply Extended Discussion elaborating on the arguments she had

previously made in her Motion for Reconsideration and Reply.

On 10 April 2008, the RTC issued an Order, 25 declaring that the Decision dated 30

August 2007 in Civil Case No. 2177 had already attained finality in view of Violeta's

failure to file the appropriate notice of appeal within the reglementary period. Thus, any

further discussions on the issues raised by Violeta in her Reply and Reply Extended

Discussion would be moot and academic.

Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion, 26 praying

that the Order dated 10 April 2008 be set aside and that she be allowed to file an appeal

with the Court of Appeals.

In an Order 27 dated 3 July 2008, the RTC denied Violeta's Notice of Appeal with

Motion given that the Decision dated 30 August 2007 had long since attained finality.

Violeta directly elevated her case to this Court via the instant Petition for Review on

Certiorari, raising the following issues for consideration:

1.Whether or not the Decision of the court a quo dated August 30, 2007, can

still be reviewed despite having allegedly attained finality and despite

the fact that the mode of appeal that has been availed of by Violeta is

erroneous?

2.Whether or not the Regional Trial Court in its original jurisdiction has decided

the case on a question of law not in accord with law and applicable

decisions of the Supreme Court?

Violeta insists that her former counsel committed an honest mistake in filing a Reply,

instead of a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the

computation of the reglementary period for appealing the said judgment. Violeta claims

that her former counsel suffered from poor health, which rapidly deteriorated from the

first week of July 2008 until the latter's death just shortly after the filing of the instant

Petition on 8 August 2008. In light of these circumstances, Violeta entreats this Court to

admit and give due course to her appeal even if the same was filed out of time. IDTcHa

Violeta further posits that the Court should address the question of law arising in this case

involving the interpretation of the second sentence of Section 19 of the Insurance Code,

which provides:

Section. 19.. . . [I]nterest in the life or health of a person insured must exist

when the insurance takes effect, but need not exist thereafter or when the loss

occurs.

On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own

life when he reinstated Policy No. 9011992 just before he passed away on 17 September

1998. The RTC should have construed the provisions of the Policy Contract and

Application for Reinstatement in favor of the insured Eulogio and against the insurer

Insular Life, and considered the special circumstances of the case, to rule that Eulogio

had complied with the requisites for the reinstatement of Policy No. 9011992 prior to his

death, and that Violeta is entitled to claim the proceeds of said policy as the primary

beneficiary thereof.

The Petition lacks merit.

At the outset, the Court notes that the elevation of the case to us via the instant Petition

for Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court, 28

provides that no appeal may be taken from an order disallowing or dismissing an appeal.

In such a case, the aggrieved party may file a Petition for Certiorari under Rule 65 of the

Rules of Court. 29

Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long

become final and executory. Violeta filed a Motion for Reconsideration thereof, but the

RTC denied the same in an Order dated 8 November 2007. The records of the case reveal

that Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus,

Violeta had 15 days 30 from said date of receipt, or until 18 December 2007, to file a

Notice of Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five

months after receipt of the RTC Order dated 8 November 2007 denying her Motion for

Reconsideration.

Violeta's claim that her former counsel's failure to file the proper remedy within the

reglementary period was an honest mistake, attributable to the latter's deteriorating

health, is unpersuasive.

Violeta merely made a general averment of her former counsel's poor health, lacking

relevant details and supporting evidence. By Violeta's own admission, her former

counsel's health rapidly deteriorated only by the first week of July 2008. The events

pertinent to Violeta's Notice of Appeal took place months before July 2008, i.e., a copy of

the RTC Order dated 8 November 2007, denying Violeta's Motion for Reconsideration of

the Decision dated 30 August 2007, was received on 3 December 2007; and Violeta's

Notice of Appeal was filed on 20 May 2008. There is utter lack of proof to show that

Violeta's former counsel was already suffering from ill health during these times; or that

the illness of Violeta's former counsel would have affected his judgment and competence

as a lawyer. aCTHEA

Moreover, the failure of her former counsel to file a Notice of Appeal within the

reglementary period binds Violeta, which failure the latter cannot now disown on the

basis of her bare allegation and self-serving pronouncement that the former was ill. A

client is bound by his counsel's mistakes and negligence. 31

The Court, therefore, finds no reversible error on the part of the RTC in denying Violeta's

Notice of Appeal for being filed beyond the reglementary period. Without an appeal

having been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177

already became final and executory.

A judgment becomes "final and executory" by operation of law. Finality becomes a fact

when the reglementary period to appeal lapses and no appeal is perfected within such

period. As a consequence, no court (not even this Court) can exercise appellate

jurisdiction to review a case or modify a decision that has become final. 32 When a final

judgment is executory, it becomes immutable and unalterable. It may no longer be

modified in any respect either by the court, which rendered it or even by this Court. The

doctrine is founded on considerations of public policy and sound practice that, at the risk

of occasional errors, judgments must become final at some definite point in time. 33

The only recognized exceptions to the doctrine of immutability and unalterability are the

correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice

to any party, and void judgments. 34 The instant case does not fall under any of these

exceptions.

Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve

the substantive issues raised, the Petition must still fail.

Violeta makes it appear that her present Petition involves a question of law, particularly,

whether Eulogio had an existing insurable interest in his own life until the day of his

death.

An insurable interest is one of the most basic and essential requirements in an insurance

contract. In general, an insurable interest is that interest which a person is deemed to have

in the subject matter insured, where he has a relation or connection with or concern in it,

such that the person will derive pecuniary benefit or advantage from the preservation of

the subject matter insured and will suffer pecuniary loss or damage from its destruction,

termination, or injury by the happening of the event insured against. 35 The existence of

an insurable interest gives a person the legal right to insure the subject matter of the

policy of insurance. 36 Section 10 of the Insurance Code indeed provides that every

person has an insurable interest in his own life. 37 Section 19 of the same code also states

that an interest in the life or health of a person insured must exist when the insurance

takes effect, but need not exist thereafter or when the loss occurs. 38 aATHES

Upon more extensive study of the Petition, it becomes evident that the matter of insurable

interest is entirely irrelevant in the case at bar. It is actually beyond question that while

Eulogio was still alive, he had an insurable interest in his own life, which he did insure

under Policy No. 9011992. The real point of contention herein is whether Eulogio was

able to reinstate the lapsed insurance policy on his life before his death on 17 September

1998.

The Court rules in the negative.

Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30

August 2007 Decision that Policy No. 9011992 lapsed because of Eulogio's non-payment

of the premiums which became due on 24 April 1998 and 24 July 1998. Policy No.

9011992 had lapsed and become void earlier, on 24 February 1998, upon the expiration

of the 31-day grace period for payment of the premium, which fell due on 24 January

1998, without any payment having been made.

That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio's filing of

his first Application for Reinstatement with Insular Life, through Malaluan, on 26 May

1998, constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life

did not act on Eulogio's first Application for Reinstatement, since the amount Eulogio

simultaneously deposited was sufficient to cover only the P8,062.00 overdue premium

for 24 January 1998, but not the P322.48 overdue interests thereon. On 17 September

1998, Eulogio submitted a second Application for Reinstatement to Insular Life, again

through Malaluan, depositing at the same time P17,500.00, to cover payment for the

overdue interest on the premium for 24 January 1998, and the premiums that had also

become due on 24 April 1998 and 24 July 1998. On the very same day, Eulogio passed

away.

To reinstate a policy means to restore the same to premium-paying status after it has been

permitted to lapse. 39 Both the Policy Contract and the Application for Reinstatement

provide for specific conditions for the reinstatement of a lapsed policy.

The Policy Contract between Eulogio and Insular Life identified the following conditions

for reinstatement should the policy lapse:

10.REINSTATEMENT

You may reinstate this policy at any time within three years after it lapsed if the

following conditions are met: (1) the policy has not been surrendered for its

cash value or the period of extension as a term insurance has not expired; (2)

evidence of insurability satisfactory to [Insular Life] is furnished; (3) overdue

premiums are paid with compound interest at a rate not exceeding that which

would have been applicable to said premium and indebtedness in the policy

years prior to reinstatement; and (4) indebtedness which existed at the time of

lapsation is paid or renewed. 40

Additional conditions for reinstatement of a lapsed policy were stated in the Application

for Reinstatement which Eulogio signed and submitted, to wit:

I/We agree that said Policy shall not be considered reinstated until this

application is approved by the Company during my/our lifetime and good

health and until all other Company requirements for the reinstatement of

said Policy are fully satisfied. EcHIAC

I/We further agree that any payment made or to be made in connection with

this application shall be considered as deposit only and shall not bind the

Company until this application is finally approved by the Company during

my/our lifetime and good health. If this application is disapproved, I/We also

agree to accept the refund of all payments made in connection herewith, without

interest, and to surrender the receipts for such payment. 41 (Emphases ours.)

In the instant case, Eulogio's death rendered impossible full compliance with the

conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death,

managed to file his Application for Reinstatement and deposit the amount for payment of

his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992

could only be considered reinstated after the Application for Reinstatement had been

processed and approved by Insular Life during Eulogio's lifetime and good health.

Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life

Insurance Company, 42 citing McGuire v. The Manufacturer's Life Insurance Co.: 43

"The stipulation in a life insurance policy giving the insured the privilege to

reinstate it upon written application does not give the insured absolute right to

such reinstatement by the mere filing of an application. The insurer has the

right to deny the reinstatement if it is not satisfied as to the insurability of the

insured and if the latter does not pay all overdue premium and all other

indebtedness to the insurer. After the death of the insured the insurance

Company cannot be compelled to entertain an application for

reinstatement of the policy because the conditions precedent to reinstatement

can no longer be determined and satisfied." (Emphases ours.)

It does not matter that when he died, Eulogio's Application for Reinstatement and

deposits for the overdue premiums and interests were already with Malaluan. Insular

Life, through the Policy Contract, expressly limits the power or authority of its insurance

agents, thus:

Our agents have no authority to make or modify this contract, to extend the

time limit for payment of premiums, to waive any lapsation, forfeiture or any of

our rights or requirements, such powers being limited to our president, vice-

president or persons authorized by the Board of Trustees and only in writing. 44

(Emphasis ours.)

Malaluan did not have the authority to approve Eulogio's Application for Reinstatement.

Malaluan still had to turn over to Insular Life Eulogio's Application for Reinstatement

and accompanying deposits, for processing and approval by the latter.

The Court agrees with the RTC that the conditions for reinstatement under the Policy

Contract and Application for Reinstatement were written in clear and simple language,

which could not admit of any meaning or interpretation other than those that they so

obviously embody. A construction in favor of the insured is not called for, as there is no

ambiguity in the said provisions in the first place. The words thereof are clear,

unequivocal, and simple enough so as to preclude any mistake in the appreciation of the

same.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand

the import and meaning of the provisions of his Policy Contract and/or Application for

Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of

insurance law that a policy or contract of insurance is to be construed liberally in favor of

the insured and strictly as against the insurer company, yet, contracts of insurance, like

other contracts, are to be construed according to the sense and meaning of the terms,

which the parties themselves have used. If such terms are clear and unambiguous, they

must be taken and understood in their plain, ordinary and popular sense. 45 cISAHT

Eulogio's death, just hours after filing his Application for Reinstatement and depositing

his payment for overdue premiums and interests with Malaluan, does not constitute a

special circumstance that can persuade this Court to already consider Policy No. 9011992

reinstated. Said circumstance cannot override the clear and express provisions of the

Policy Contract and Application for Reinstatement, and operate to remove the prerogative

of Insular Life thereunder to approve or disapprove the Application for Reinstatement.

Even though the Court commiserates with Violeta, as the tragic and fateful turn of events

leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with

the payment of proceeds on a lapsed insurance policy. Justice and fairness must equally

apply to all parties to a case. Courts are not permitted to make contracts for the parties.

The function and duty of the courts consist simply in enforcing and carrying out the

contracts actually made. 46

Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance

with the Policy Contract and Application for Reinstatement before Eulogio's death.

Violeta, therefore, cannot claim any death benefits from Insular Life on the basis of

Policy No. 9011992; but she is entitled to receive the full refund of the payments made

by Eulogio thereon.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review

on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated

10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No.

2177, denying petitioner Violeta R. Lalican's Notice of Appeal, on the ground that the

Decision dated 30 August 2007 subject thereof, was already final and executory. No

costs. SHTaID

SO ORDERED.

Carpio Morales, * Velasco, Jr., Nachura and Peralta, JJ., concur.

FIRST DIVISION

[G.R. No. 147839. June 8, 2006.]

GAISANO CAGAYAN, INC., petitioner, vs. INSURANCE

COMPANY OF NORTH AMERICA, respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J p:

Before the Court is a petition for review on certiorari of the Decision 1 dated October 11,

2000 of the Court of Appeals (CA) in CA-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 local distributor of products bearing trademarks owned

by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance

policies with book debt endorsements. The insurance policies provide for coverage on

"book debts in connection with ready-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. . . . 4

xxx xxx xxx

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

these went unheeded. 5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not

be held liable because the property covered 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 it could not prevent or foresee; that IMC and LSPI never communicated to it

that they insured their properties; that it never consented to paying the claim of the

insured. 6

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

trial on the merits ensued. TADaCH

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8

It held that the fire was purely accidental; that the cause of the fire was not attributable to

the negligence of the petitioner; that it has not been established that petitioner is the

debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that

merely for purpose of securing the payment of purchase price, the above-described

merchandise remains the property of the vendor until the 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 ordering defendant-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 not extinguished, even if the fire is considered a fortuitous event; that

by subrogation, the insurer has the right to go against petitioner; 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 reconsideration 12 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 HAD TRANSFERRED

TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS

AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE

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 an insurance "on credit" belies not only the nature of fire

insurance but the express terms of the policies; that it was not credit that was insured

since respondent paid on the occasion of the loss of the insured goods to fire and not

because of the non-payment by petitioner of any obligation; that, even if the insurance is

deemed as one over credit, there was no loss as the accounts were not 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 could be 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 1265 16 of the Civil

Code; that the fire was caused through petitioner's negligence in failing to provide

stringent measures of caution, care and maintenance on its property because electric

wires do not usually short circuit 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 to respondent 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 to reviewing questions of law which involves no

examination of the probative value of the evidence presented by the litigants or any of

them. 18 The Supreme Court is not a trier of facts; it is not its function to analyze or

weigh evidence all over again. 19 Accordingly, findings of fact of the appellate court are

generally conclusive on the Supreme Court. 20

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 manifestly mistaken,

absurd or impossible; (3) when there is grave abuse of discretion; (4) when the

judgment is based 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 are contrary to the trial court; (8) when the findings are conclusions

without citation of specific evidence on which they are based; (9) when the facts set forth

in the petition as well as in the petitioner's main and reply briefs are not disputed by the

respondent; (10) when the findings of fact are premised on the supposed absence of

evidence and contradicted by the evidence on 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. cATDIH

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims

that the CA erred in construing a fire insurance policy on book debts as one covering the

unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-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 this case, the questioned insurance policies provide

coverage for "book debts in connection with ready-made clothing materials which 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 loss covered 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 alleged intention of the parties, the terms are to be understood

literally just as they appear on the face of the contract. 25 Thus, what were 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 sales invoices 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 the buyer, but when the ownership

therein is transferred to the buyer the goods are at the buyer's risk whether

actual delivery has been 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 the ownership in the goods has been

retained by the seller merely to secure performance by the buyer of his

obligations under the contract, the goods are at the buyer's risk from the

time of such delivery; (Emphasis supplied)

xxx xxx xxx

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the

risk of loss is borne by the buyer. 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 who bears

the risk of loss, in property insurance, one's interest is not determined by concept of title,

but whether insured has substantial 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 any relation 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 which the 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 an interest, it is sufficient

that the insured is so situated with reference to the property that he would be liable to loss

should it be injured 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. 30 Indeed, 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 their Books 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 1174 32 of the Civil Code is misplaced. As held earlier, petitioner bears the loss

under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by

fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after

the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly

stated by the CA, where the obligation consists in the payment of money, the failure of

the debtor to make the payment 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 obligation consists in the delivery of a determinate thing and there is no stipulation

holding him liable even in case of fortuitous event. It does 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 designated merely by its class

or genus without any particular designation or physical segregation from all others of the

same class, the loss or destruction of anything of the same kind even without the debtor's

fault and before he has incurred in delay will not have the effect of extinguishing the

obligation. 35 This rule is based on the principle that the genus of a thing can never

perish. Genus nunquan 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 is whether it has been established that petitioner has

outstanding accounts with IMC and LSPI. HcSETI

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. . . .

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 to Exhibit "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 MODIFICATION that 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.

Panganiban, C.J., Callejo, Sr. and Chico-Nazario, JJ., concur.

Ynares-Santiago, J., is on leave.

FIRST DIVISION

[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.

D E C I S I O N

MARTIN, J p:

This is a novel question in insurance law: Can a common-law wife named as beneficiary

in the life insurance policy of a legally married man claim the proceeds thereof in case of

death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Insular Life

Assurance Co., Ltd., Policy No. 009929 on a whole-life plan for P5,882.00 with a rider

for Accidental Death Benefits for the same amount. Buenaventura C. Ebrado designated

Carponia T. Ebrado as the revocable beneficiary in his policy. He referred to her as his

wife.

On October 21, 1969, Buenventura C. Ebrado died as a result of an accident when he was

hit by a falling branch of a tree. As the insurance policy was in force, The Insular Life

Assurance Co., Ltd. stands liable to pay the coverage of the policy in an amount of

P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the

additional benefits for accidental death also in the amount of P5,882.00 and the refund of

P18.00 paid for the premium due November, 1969, minus the unpaid premiums and

interest thereon due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the policy as the

designated beneficiary therein, although she admits that she and the insured

Buenaventura C. Ebrado were merely living as husband and wife without the benefit of

marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased

insured. She asserts that she is the one entitled to the insurance proceeds, not the

common-law wife, Carponia T. Ebrado. LLjur

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life

Assurance Co., Ltd. commenced an action for Interpleader before the Court of First

Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after

which, a pre-trial order was entered reading as follows:

"During the pre-trial conference, the parties manifested to the court that there is

no possibility of amicable settlement. Hence, the Court proceeded to have the

parties submit their evidence for the purposes of the pre-trial and make

admissions for the purpose of pre-trial. During this conference, parties Carponia

T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased

Buenaventura Ebrado was married to Pascuala Ebrado with whom she has six

— (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and

Helen, all surnamed Ebrado; 2) that during the lifetime of the deceased, he was

insured with Insular Life Assurance Co. Under Policy No. 009929 whole life

plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for

accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1

for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the

lifetime of Buenaventura Ebrado, he was living with his common-law wife,

Carponia Ebrado, with whom she had 2 children although he was not legally

separated from his legal wife; 4) that Buenaventura Ebrado died by accident on

October 21, 1969 as evidenced by the death certificate 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 of the adverse claims the insurance company filed this action against the

two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due

from the Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8)

that the beneficiary designated by the insured in the policy is Carponia Ebrado

and the insured made reservation to change the beneficiary but although the

insured made the option to change the beneficiary, same was never changed up

to the time of his death and the legal wife did not have any opportunity to write

the company that there was reservation to change the designation of the

beneficiary; 9) the parties agreed that a decision be rendered based on this

agreement and stipulation of facts as to who among the two claimants is entitled

to the policy.

"Upon motion of the parties, they are given ten (10) days to file their

simultaneous memoranda from the receipt of this order.

SO ORDERED."

On September 25, 1972, the trial court rendered judgment declaring, among others,

Carponia T. Ebrado disqualified from becoming beneficiary of the insured Buenaventura

Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the

deceased insured. The trial court held:

"It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal

conviction for adultery or concubinage is not essential in order to establish the

disqualification mentioned therein. Neither is it also necessary that a finding of

such guilt or commission of those acts be made in a separate independent action

brought for the purpose. The guilt of the donee (beneficiary) may be proved by

preponderance of evidence in the same proceeding (the action brought to

declare the nullity of the donation).

It is, however, essential that such adultery or concubinage exists at the time

defendant Carponia T. Ebrado was made beneficiary in the policy in question

for the disqualification and incapacity to exist and that it is only necessary that

such fact be established by preponderance of evidence in the trial. Since it is

agreed in their stipulation above-quoted that the deceased insured and defendant

Carponia T. Ebrado were living together as husband and wife without being

legally married and that the marriage of the insured with the other defendant

Pascuala Vda. de Ebrado was valid and still existing at the time the insurance in

question was purchased there is no question that defendant Carponia T. Ebrado

is disqualified from becoming the beneficiary of the policy in question and as

such she is not entitled to the proceeds of the insurance upon the death of the

insured." Cdpr

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 shall 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 same

includes the beneficiary. The word interest" highly suggests that the provision refers only

to the insured" and not to the beneficiary, since a contract of insurance is personal in

character. 2 Otherwise, the prohibitory laws against illicit relationships especially on

property and descent will be rendered nugatory, as the same could easily be circumvented

by modes of insurance. Rather, the general rules of civil law should be applied to resolve

this void in the Insurance Law Article 2011 of the New Civil Code states: "The contract

of insurance is governed by special laws. Matters not expressly provided for in such

special laws shall be regulated by this Code." When not otherwise specifically provided

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

of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any

person who is forbidden from receiving any donation under Article 739 cannot be named

beneficiary of a life insurance policy by the person who cannot make a donation to him."

4 Common-law spouses are, definitely, barred from receiving donations from each other.

Article 739 of the new Civil Code provides:

"The following donations shall be void:

"1.Those made between persons who were guilty of adultery or concubinage at

the time of donation;

"Those made between persons found guilty of the same criminal offense, in

consideration thereof;

"3.Those made to a public officer or his wife, descendants or ascendants by

reason of his office.

"In the case referred to in No. 1, the action for declaration of nullity may be

brought by the spouse of the donor or donee; and the guilt of the donee may be

proved by preponderance of evidence in the same action."

2.In essence, a life insurance policy is no different from a civil donation insofar as the

beneficiary is concerned. Both are founded upon the same consideration: liberality. A

beneficiary is like a donee, because from the premiums of the policy which the insured

pays out of liberality, the beneficiary will receive the proceeds or profits of said

insurance. As a consequence, the proscription in Article 739 of the new Civil Code

should equally operate in life insurance contracts. The mandate of Article 2012 cannot be

laid aside: any person who cannot receive a donation cannot be named as beneficiary in

the life insurance policy of the person who cannot make the donation. 5 Under American

law, a policy of life insurance is considered as a testament and in construing it, the courts

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

the beneficiary by rules under which wills are interpreted. 6

3.Policy considerations and dictates of morality rightly justify the institution of a barrier

between common-law spouses in regard to property relations since such relationship

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 life insurance

policy is no different from a donee. Both the recipients of pure beneficence. So long as

marriage remains the threshold of family laws, reason and morality dictate that the

impediments imposed upon married couple should likewise be imposed upon extra-

marital relationship. If legitimate relationship is circumscribed by these legal disabilities,

with more reason should an illicit relationship be restricted by these disabilities. Thus, in

Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said:

"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 fear and undue and improper

pressure and influence upon the donor, a prejudice deeply rooted in our ancient

law;" por-que no se enganen desponjandose el uno al otro por amor que han de

consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the

rationale `No Mutuato amore invicem spoliarentur' of the Pandects (Bk, 24, Titl.

1 De donat, inter virum et uxorem); then there is very reason to apply the same

prohibitive policy to persons living together as husband and wife without the

benefit of nuptials. For it is not to be doubted that assent to such irregular

connection for thirty years bespeaks greater influence of one party over the

other, so that the danger that the law seeks to avoid is correspondingly

increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad

Sabinum, fr. 1), `it would not be just that such donations should subsist, lest the

condition of those who incurred guilt should turn out to be better.' So long as

marriage remains the cornerstone of our family law, reason and morality alike

demand that the disabilities attached to marriage should likewise attach to

concubinage.

It is hardly necessary to add that even in the absence of the above

pronouncement, any other conclusion cannot stand the test of scrutiny. It would

be to indict the framers of the Civil Code for a failure to apply a laudable rule to

a situation which in its essentials cannot be distinguished. Moreover, if it is at

all to be differentiated the policy of the law which embodies a deeply rooted

notion of what is just and what is right would be nullified if such irregular

relationship instead of being visited with disabilities would be attended with

benefits. Certainly a legal norm should not be susceptible to such a reproach. If

there is every any occasion where the principle of statutory construction that

what is within the spirit of the law is as much a part of it as what is written, this

is it. Otherwise the basic purpose discernible in such codal provision would not

be attained. Whatever omission may be apparent in an interpretation purely

literal of the language used must be remedied by an adherence to its avowed

objective." LLphil

4.We do not think that a conviction for adultery or concubinage is exacted before the

disabilities mentioned in Article 739 may effectuate. More specifically, with regard to the

disability on "persons who were guilty of adultery or concubinage at the time of the

donation," Article 739 itself provides:

"In the case referred to in No. 1, the action for declaration of nullity may be

brought by the spouse of the donor or donee; and the guilt of the donee may be

proved by preponderance of evidence in the same action."

The underscored clause neatly conveys that no criminal conviction for the disqualifying

offense is a condition precedent. In fact, it cannot even be gleaned from the aforequoted

provision that a criminal prosecution is needed. On the contrary, the law plainly states

that the guilt of the party may be proved "in the same action" 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 case before Us, the requisite proof of common-law relationship between the

insured and the beneficiary has been conveniently supplied by the stipulations between

the parties in the pre-trial conference of the case. It case agreed upon and stipulated

therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala

Ebrado with whom she has six legitimate children; that during his lifetime, the deceased

insured was living with his common-law wife, Carponia Ebrado, with whom he has two

children. These stipulations are nothing less 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 rendered without going through the

rigors of a trial for the sole purpose of proving the illicit liaison between the insured and

the beneficiary. In fact, in that pre-trial, the parties even agreed "that a decision be

rendered based on this agreement and stipulation of facts as to who among the two

claimants is entitled to the policy." Cdpr

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia

T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura

C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are

hereby held payable to the estate of the deceased insured. Costs against Carponia T.

Ebrado.

SO ORDERED.

Teehankee (Chairman), Makasiar, Muñoz Palma, Fernandez and Guerrero, JJ., concur.

ONG LIM SING, JR. vs. FEB LEASING AND FINANCE CORPORATION G.R. No. 168115 - June 8, 2007 FACTS: On March 9, 1995, FEB Leasing and Finance Corporation entered into a lease of equipment and motor vehicles with

JVL Food Products. On the same date, Vicente Ong Lim Sing, Jr. executed an Individual Guaranty Agreement with

FEB to guarantee the prompt and faithful performance of the terms and conditions of the aforesaid lease agreement.

Corresponding Lease Schedules with Delivery and Acceptance Certificates over the equipment and motor vehicles

formed part of the agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross monthly rental of

One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos (P170,494.00). JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears, including the

penalty charges and insurance premiums, amounted to Three Million Four Hundred Fourteen Thousand Four

Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding

payment of the said amount. However, JVL failed to pay. On December 6, 2000, FEB filed a Complaint with the Regional Trial Court of Manila for sum of money, damages,

and replevin against JVL, Lim, and John Doe. In an Amended Answer, JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality a

sale of equipment on instalment basis, with FEB acting as the financier. On November 22, 2002, the trial court ruled

in favor of JVL and Lim and stressed the contradictory terms found in the lease agreement. The trial court stated,

among others, that if JVL and Lim (then defendants) were to be regarded as only a lessee, logically the lessor who

asserts ownership will be the one directly benefited or injured and therefore the lessee is not supposed to be the

assured as he has no insurable interest. On December 27, 2002, FEB filed its Notice of Appeal. Accordingly, on January 17, 2003, the court issued an Order

elevating the entire records of the case to the Court of Appeals. On March 15, 2005, the Court of Appeals issued its

Decision declaring the transaction between the parties as a financial lease agreement. The said decision reversed and

set aside the trial court’s decision dated November 22, 2002. Hence, Lim filed the present Petition for Review on

Certiorari. ISSUE: Whether or not petitioner has an insurable interest in the equipment and motor vehicles leased. RULING: Yes. The stipulation in Section 14 of the leased contract, that the equipment shall be insured at the cost and expense of

the lessee against loss, damage, or destruction from fire, theft, accident, or other insurable risk for the full term of

the lease, is a binding and valid stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and

motor vehicles leased. Section 17 of the Insurance Code provides that the measure of an insurable interest in

property is the extent to which the insured might be damnified by loss or injury thereof. It cannot be denied that JVL

will be directly damnified in case of loss, damage, or destruction of any of the properties leased.

THIRD DIVISION

[G.R. No. 168115. June 8, 2007.]

VICENTE ONG LIM SING, JR., petitioner, vs. FEB LEASING &

FINANCE CORPORATION, respondent.

D E C I S I O N

NACHURA, J p:

This is a petition for review on certiorari assailing the Decision 1 dated March 15, 2005

and the Resolution 2 dated May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV

No. 77498.

The facts are as follows:

On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease 3 of

equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente

Ong Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement 4 with FEB to

guarantee the prompt and faithful performance of the terms and conditions of the

aforesaid lease agreement. Corresponding Lease Schedules with Delivery and

Acceptance Certificates 5 over the equipment and motor vehicles formed part of the

agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross monthly

rental of One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos

(P170,494.00).

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in

arrears, including penalty charges and insurance premiums, amounted to Three Million

Four Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos

(P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding payment of

the said amount. However, JVL failed to pay. 6

On December 6, 2000, FEB filed a Complaint 7 with the Regional Trial Court of Manila,

docketed as Civil Case No. 00-99451, for sum of money, damages, and replevin against

JVL, Lim, and John Doe. IcTEaC

In the Amended Answer, 8 JVL and Lim admitted the existence of the lease agreement

but asserted that it is in reality a sale of equipment on installment basis, with FEB acting

as the financier. JVL and Lim claimed that this intention was apparent from the fact that

they were made to believe that when full payment was effected, a Deed of Sale will be

executed by FEB as vendor in favor of JVL and Lim as vendees. 9 FEB purportedly

assured them that documenting the transaction as a lease agreement is just an industry

practice and that the proper documentation would be effected as soon as full payment for

every item was made. They also contended that the lease agreement is a contract of

adhesion and should, therefore, be construed against the party who prepared it, i.e., FEB.

In upholding JVL and Lim's stance, the trial court stressed the contradictory terms it

found in the lease agreement. The pertinent portions of the Decision dated November 22,

2002 read:

A profound scrutiny of the provisions of the contract which is a contract of

adhesion at once exposed the use of several contradictory terms. To name a few,

in Section 9 of the said contract — disclaiming warranty, it is stated that the

lessor is not the manufacturer nor the latter's agent and therefore does not

guarantee any feature or aspect of the object of the contract as to its

merchantability. Merchantability is a term applied in a contract of sale of goods

where conditions and warranties are made to apply. Article 1547 of the Civil

Code provides that unless a contrary intention appears an implied warranty on

the part of the seller that he has the right to sell and to pass ownership of the

object is furnished by law together with an implied warranty that the thing shall

be free from hidden faults or defects or any charge or encumbrance not known

to the buyer.

In an adhesion contract which is drafted and printed in advance and parties are

not given a real arms' length opportunity to transact, the Courts treat this kind of

contract strictly against their architects for the reason that the party entering into

this kind of contract has no choice but to accept the terms and conditions found

therein even if he is not in accord therewith and for that matter may not have

understood all the terms and stipulations prescribed thereat. Contracts of this

character are prepared unilaterally by the stronger party with the best legal

talents at its disposal. It is upon that thought that the Courts are called upon to

analyze closely said contracts so that the weaker party could be fully protected.

Another instance is when the alleged lessee was required to insure the thing

against loss, damage or destruction.

In property insurance against loss or other accidental causes, the assured must

have an insurable interest, 32 Corpus Juris 1059.

xxx xxx xxx

It has also been held that the test of insurable interest in property is whether the

assured has a right, title or interest therein that he will be benefited by its

preservation and continued existence or suffer a direct pecuniary loss from its

destruction or injury by the peril insured against. If the defendants were to be

regarded as only a lessee, logically the lessor who asserts ownership will be the

one directly benefited or injured and therefore the lessee is not supposed to be

the assured as he has no insurable interest. DaESIC

There is also an observation from the records that the actual value of each object

of the contract would be the result after computing the monthly rentals by

multiplying the said rentals by the number of months specified when the rentals

ought to be paid.

Still another observation is the existence in the records of a Deed of Absolute

Sale by and between the same parties, plaintiff and defendants which was an

exhibit of the defendant where the plaintiff sold to the same defendants one unit

1995 Mitsubishi L-200 STRADA DC PICK UP and in said Deed, The Court

noticed that the same terms as in the alleged lease were used in respect to

warranty, as well as liability in case of loss and other conditions. This action of

the plaintiff unequivocally exhibited their real intention to execute the

corresponding Deed after the defendants have paid in full and as heretofore

discussed and for the sake of emphasis the obscurity in the written contract

cannot favor the party who caused the obscurity.

Based on substantive Rules on Interpretation, if the terms are clear and leave no

doubt upon the intention of the contracting parties, the literal meaning of its

stipulations shall control. If the words appear to be contrary to the evident

intention of the parties, their contemporaneous and subsequent acts shall be

principally considered. If the doubts are cast upon the principal object of the

contract in such a way that it cannot be known what may have been the

intention or will of the parties, the contract shall be null and void. 10

Thus, the court concluded with the following disposition:

In this case, which is held by this Court as a sale on installment there is no

chattel mortgage on the thing sold, but it appears amongst the Complaint's

prayer, that the plaintiff elected to exact fulfillment of the obligation.

For the vehicles returned, the plaintiff can only recover the unpaid balance of

the price because of the previous payments made by the defendants for the

reasonable use of the units, specially so, as it appears, these returned vehicles

were sold at auction and that the plaintiff can apply the proceeds to the balance.

However, with respect to the unreturned units and machineries still in the

possession of the defendants, it is this Court's view and so hold that the

defendants are liable therefore and accordingly are ordered jointly and severally

to pay the price thereof to the plaintiff together with attorney's fee and the costs

of suit in the sum of Php25,000.00.

SO ORDERED. 11

On December 27, 2002, FEB filed its Notice of Appeal. 12 Accordingly, on January 17,

2003, the court issued an Order 13 elevating the entire records of the case to the CA. FEB

averred that the trial court erred:

A.When it ruled that the agreement between the Parties-Litigants is one of sale

of personal properties on installment and not of lease;

B.When it ruled that the applicable law on the case is Article 1484 (of the Civil

Code) and not R.A. No. 8556;

C.When it ruled that the Plaintiff-Appellant can no longer recover the unpaid

balance of the price because of the previous payments made by the defendants

for the reasonable use of the units;

D.When it failed to make a ruling or judgment on the Joint and Solidary

Liability of Vicente Ong Lim, Jr. to the Plaintiff-Appellant. 14

On March 15, 2005, the CA issued its Decision 15 declaring the transaction between the

parties as a financial lease agreement under Republic Act (R.A.) No. 8556. 16 The fallo of

the assailed Decision reads:

WHEREFORE, the instant appeal is GRANTED and the assailed Decision

dated 22 November 2002 rendered by the Regional Trial Court of Manila,

Branch 49 in Civil Case No. 00-99451 is REVERSED and SET ASIDE, and a

new judgment is hereby ENTERED ordering appellees JVL Food Products and

Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing and Finance

Corporation the amount of Three Million Four Hundred Fourteen Thousand

Four Hundred Sixty Eight Pesos and 75/100 (Php3,414,468.75), with interest

at the rate of twelve percent (12%) per annum starting from the date of judicial

demand on 06 December 2000, until full payment thereof. Costs against

appellees. ETDSAc

SO ORDERED. 17

Lim filed the instant Petition for Review on Certiorari under Rule 45 contending that:

I

THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO

CONSIDER THAT THE UNDATED COMPLAINT WAS FILED BY

SATURNINO J. GALANG, JR., WITHOUT ANY AUTHORITY FROM

RESPONDENT'S BOARD OF DIRECTORS AND/OR SECRETARY'S

CERTIFICATE.

II

THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO

STRICTLY APPLY SECTION 7, RULE 18 OF THE 1997 RULES OF CIVIL

PROCEDURE AND NOW ITEM 1, A(8) OF A.M. NO. 03-1-09 SC (JUNE 8,

2004).

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING

THE APPEAL FOR FAILURE OF THE RESPONDENT TO FILE ON TIME

ITS APPELLANT'S BRIEF AND TO SEPARATELY RULE ON THE

PETITIONER'S MOTION TO DISMISS.

IV

THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT

THE CONTRACT BETWEEN THE PARTIES IS ONE OF A FINANCIAL

LEASE AND NOT OF A CONTRACT OF SALE.

V

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE

PAYMENTS PAID BY THE PETITIONER TO THE RESPONDENT ARE

"RENTALS" AND NOT INSTALLMENTS PAID FOR THE PURCHASE

PRICE OF THE SUBJECT MOTOR VEHICLES, HEAVY MACHINES AND

EQUIPMENT.

VI

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE

PREVIOUS CONTRACT OF SALE INVOLVING THE PICK-UP VEHICLE

IS OF NO CONSEQUENCE.

VII

THE HONORABLE COURT OF APPEALS FAILED TO TAKE INTO

CONSIDERATION THAT THE CONTRACT OF LEASE, A CONTRACT OF

ADHESION, CONCEALED THE TRUE INTENTION OF THE PARTIES,

WHICH IS A CONTRACT OF SALE.

VIII

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE

PETITIONER IS A LESSEE WITH INSURABLE INTEREST OVER THE

SUBJECT PERSONAL PROPERTIES.

IX

THE HONORABLE COURT OF APPEALS ERRED IN CONSTRUING THE

INTENTIONS OF THE COURT A QUO IN ITS USAGE OF THE TERM

MERCHANTABILITY. 18

We affirm the ruling of the appellate court.

First, Lim can no longer question Galang's authority as FEB's authorized representative

in filing the suit against Lim. Galang was the representative of FEB in the proceedings

before the trial court up to the appellate court. Petitioner never placed in issue the validity

of Galang's representation before the trial and appellate courts. Issues raised for the first

time on appeal are barred by estoppel. Arguments not raised in the original proceedings

cannot be considered on review; otherwise, it would violate basic principles of fair play. 19

Second, there is no legal basis for Lim to question the authority of the CA to go beyond

the matters agreed upon during the pre-trial conference, or in not dismissing the appeal

for failure of FEB to file its brief on time, or in not ruling separately on the petitioner's

motion to dismiss.

Courts have the prerogative to relax procedural rules of even the most mandatory

character, mindful of the duty to reconcile both the need to speedily put an end to

litigation and the parties' right to due process. In numerous cases, this Court has allowed

liberal construction of the rules when to do so would serve the demands of substantial

justice and equity. 20 In Aguam v. Court of Appeals, the Court explained: THaDAE

The court has the discretion to dismiss or not to dismiss an appellant's appeal. It

is a power conferred on the court, not a duty. The "discretion must be a sound

one, to be exercised in accordance with the tenets of justice and fair play,

having in mind the circumstances obtaining in each case." Technicalities,

however, must be avoided. The law abhors technicalities that impede the cause

of justice. The court's primary duty is to render or dispense justice. "A litigation

is not a game of technicalities." "Lawsuits unlike duels are not to be won by a

rapier's thrust. Technicality, when it deserts its proper office as an aid to justice

and becomes its great hindrance and chief enemy, deserves scant consideration

from courts." Litigations must be decided on their merits and not on

technicality. Every party litigant must be afforded the amplest opportunity for

the proper and just determination of his cause, free from the unacceptable plea

of technicalities. Thus, dismissal of appeals purely on technical grounds is

frowned upon where the policy of the court is to encourage hearings of appeals

on their merits and the rules of procedure ought not to be applied in a very rigid,

technical sense; rules of procedure are used only to help secure, not override

substantial justice. It is a far better and more prudent course of action for the

court to excuse a technical lapse and afford the parties a review of the case on

appeal to attain the ends of justice rather than dispose of the case on technicality

and cause a grave injustice to the parties, giving a false impression of speedy

disposal of cases while actually resulting in more delay, if not a miscarriage of

justice. 21

Third, while we affirm that the subject lease agreement is a contract of adhesion, such a

contract is not void per se. It is as binding as any ordinary contract. A party who enters

into an adhesion contract is free to reject the stipulations entirely. 22 If the terms thereof

are accepted without objection, then the contract serves as the law between the parties.

In Section 23 of the lease contract, it was expressly stated that:

SECTION 23.ENTIRE AGREEMENT; SEVERABILITY CLAUSE

23.1.The LESSOR and the LESSEE agree this instrument constitute the entire

agreement between them, and that no representations have been made other than

as set forth herein. This Agreement shall not be amended or altered in any

manner, unless such amendment be made in writing and signed by the parties

hereto.

Petitioner's claim that the real intention of the parties was a contract of sale of

personal property on installment basis is more likely a mere afterthought in order to

defeat the rights of the respondent.

The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance

Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556.

Section 3 (d) thereof defines "financial leasing" as:

[A] mode of extending credit through a non-cancelable lease contract under

which the lessor purchases or acquires, at the instance of the lessee, machinery,

equipment, motor vehicles, appliances, business and office machines, and other

movable or immovable property in consideration of the periodic payment by the

lessee of a fixed amount of money sufficient to amortize at least seventy (70%)

of the purchase price or acquisition cost, including any incidental expenses and

a margin of profit over an obligatory period of not less than two (2) years during

which the lessee has the right to hold and use the leased property with the right

to expense the lease rentals paid to the lessor and bears the cost of repairs,

maintenance, insurance and preservation thereof, but with no obligation or

option on his part to purchase the leased property from the owner-lessor at the

end of the lease contract. aTADCE

FEB leased the subject equipment and motor vehicles to JVL in consideration of a

monthly periodic payment of P170,494.00. The periodic payment by petitioner is

sufficient to amortize at least 70% of the purchase price or acquisition cost of the said

movables in accordance with the Lease Schedules with Delivery and Acceptance

Certificates. "The basic purpose of a financial leasing transaction is to enable the

prospective buyer of equipment, who is unable to pay for such equipment in cash in one

lump sum, to lease such equipment in the meantime for his use, at a fixed rental sufficient

to amortize at least 70% of the acquisition cost (including the expenses and a margin of

profit for the financial lessor) with the expectation that at the end of the lease period the

buyer/financial lessee will be able to pay any remaining balance of the purchase price." 23

The allegation of petitioner that the rent for the use of each movable constitutes the value

of the vehicle or equipment leased is of no moment. The law on financial lease does not

prohibit such a circumstance and this alone does not make the transaction between the

parties a sale of personal property on installment. In fact, the value of the lease, usually

constituting the value or amount of the property involved, is a benefit allowed by law to

the lessor for the use of the property by the lessee for the duration of the lease. It is

recognized that the value of these movables depreciates through wear and tear upon use

by the lessee. In Beltran v. PAIC Finance Corporation, 24 we stated that:

Generally speaking, a financing company is not a buyer or seller of goods; it is

not a trading company. Neither is it an ordinary leasing company; it does not

make its profit by buying equipment and repeatedly leasing out such equipment

to different users thereof. But a financial lease must be preceded by a purchase

and sale contract covering the equipment which becomes the subject matter of

the financial lease. The financial lessor takes the role of the buyer of the

equipment leased. And so the formal or documentary tie between the seller and

the real buyer of the equipment, i.e., the financial lessee, is apparently severed.

In economic reality, however, that relationship remains. The sale of the

equipment by the supplier thereof to the financial lessor and the latter's legal

ownership thereof are intended to secure the repayment over time of the

purchase price of the equipment, plus financing charges, through the payment of

lease rentals; that legal title is the upfront security held by the financial lessor, a

security probably superior in some instances to a chattel mortgagee's lien. 25

Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL

entered into the lease contract with full knowledge of its terms and conditions. The

contract was in force for more than four years. Since its inception on March 9, 1995, JVL

and Lim never questioned its provisions. They only attacked the validity of the contract

after they were judicially made to answer for their default in the payment of the agreed

rentals.

It is settled that the parties are free to agree to such stipulations, clauses, terms, and

conditions as they may want to include in a contract. As long as such agreements are not

contrary to law, morals, good customs, public policy, or public order, they shall have the

force of law between the parties. 26 Contracting parties may stipulate on terms and

conditions as they may see fit and these have the force of law between them. 27 HcTIDC

The stipulation in Section 14 28 of the lease contract, that the equipment shall be insured

at the cost and expense of the lessee against loss, damage, or destruction from fire, theft,

accident, or other insurable risk for the full term of the lease, is a binding and valid

stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and motor

vehicles leased. Section 17 of the Insurance Code provides that the measure of an

insurable interest in property is the extent to which the insured might be damnified by

loss or injury thereof. It cannot be denied that JVL will be directly damnified in case of

loss, damage, or destruction of any of the properties leased.

Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not

warrant the merchantability of the equipment is a valid stipulation. Section 9.1 of the

lease contract is stated as:

9.1IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS

NOT THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT NOR

THE AGENT OF THE MANUFACTURER OR SUPPLIER THEREOF. THE

LESSEE HEREBY ACKNOWLEDGES THAT IT HAS SELECTED THE

EQUIPMENT AND THE SUPPLIER THEREOF AND THAT THERE ARE

NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR

INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR

OTHERWISE, MADE BY OR ON BEHALF OF THE LESSOR AS TO ANY

FEATURE OR ASPECT OF THE EQUIPMENT OR ANY PART THEREOF,

OR AS TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR

MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT WILL

MEET THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS

OR CONTRACT WHICH PROVIDE FOR SPECIFIC MACHINERY OR

APPARATUS OR SPECIAL METHODS. 29 DHIETc

In the financial lease agreement, FEB did not assume responsibility as to the quality,

merchantability, or capacity of the equipment. This stipulation provides that, "in case of

defect of any kind that will be found by the lessee in any of the equipment, recourse

should be made to the manufacturer." The financial lessor, being a financing company,

i.e., an extender of credit rather than an ordinary equipment rental company, does not

extend a warranty of the fitness of the equipment for any particular use. Thus, the

financial lessee was precisely in a position to enforce such warranty directly against the

supplier of the equipment and not against the financial lessor. We find nothing contra

legem or contrary to public policy in such a contractual arrangement. 30

Fifth, petitioner further proffers the view that the real intention of the parties was to enter

into a contract of sale on installment in the same manner that a previous transaction

between the parties over a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially

covered by an agreement denominated as a lease and eventually became the subject of a

Deed of Absolute Sale.

We join the CA in rejecting this view because to allow the transaction involving the pick-

up to be read into the terms of the lease agreement would expand the coverage of the

agreement, in violation of Article 1372 of the New Civil Code. 31 The lease contract

subject of the complaint speaks only of a lease. Any agreement between the parties after

the lease contract has ended is a different transaction altogether and should not be

included as part of the lease. Furthermore, it is a cardinal rule in the interpretation of

contracts that if the terms of a contract are clear and leave no doubt as to the intention of

the contracting parties, the literal meaning of its stipulations shall control. No amount of

extrinsic aid is necessary in order to determine the parties' intent. 32

WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of

the CA in CA-G.R. CV No. 77498 dated March 15, 2005 and Resolution dated May 23,

2005 are AFFIRMED. Costs against petitioner. ICAcaH

SO ORDERED.

Ynares-Santiago, Austria-Martinez and Chico-Nazario, JJ., concur.