[G.R. No. 33131. December 13, 1930.] EMILIO GONZALEZ LA O, plaintiff-appellee, vs.

THE YEK TONG LIN FIRE & MARINE INSURANCE CO., LTD., defendant-appellant.

Araneta & Zaragoza for appellant. Feria & La O for appellee.

SYLLABUS 1.FIRE INSURANCE; POLICIES MORTGAGED TO A THIRD PARTY; REAL PARTY IN INTEREST. The fact that the plaintiff himself presented in evidence the policies mortgaged to the Bank of the Philippine Islands gives rise to the presumption that the debt secured by the mortgage has been paid, in accordance with article 1191 of the Civil Code. On the other hand, "Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain." (33 C. J., pp. 82 et seq.) 2.ID.; INSURANCE IN VARIOUS COMPANIES. The tobacco insured in the other companies was different from that insured with the defendant, since the number of bales of tobacco in the warehouse greatly exceeded that insured with the defendant and the other companies put together. And according to the doctrine enunciated in 26 Corpus Juris, 188, "to be insurance of the sort prohibited the prior policy must have been insurance upon the same subject matter, and upon the same interest therein." 3.ID.; ID.; WAIVER TO AN ACTION FOR ANNULMENT OF CONTRACT. If, with the knowledge of the existence of other insurances which the defendant deemed violations of the contract, it has preferred to continue the policy, its action amounts to a waiver of the annulment of the contract (19 Cyc., 791, 792).

DECISION

VILLAMOR, J :
p

This is an action to recover of the defendant the Yek Tong Lin Fire & Marine Insurance Co., Ltd., the amount of two insurance policies totalling P100,000 upon leaf tobacco belonging to the plaintiff, which was damaged by the fire that destroyed the building on Soler Street No. 188, where said tobacco was stored, on January 11, 1928. The defendant filed a general and specific denial of each and every allegation of the complaint, set up three special defenses, and prayed to be absolved from the complaint with costs against the plaintiff. After the case was tried, the court below rendered judgment as follows:
"In this case and in Nos. 33458, 33868, and 33480 of this court, which, by agreement of the interested parties, were jointly tried, the plaintiff demands P290,000 from the defendant assurance companies, alleging that to be the amount of the insurance on his leaf tobacco which was damaged by the fire that destroyed the warehouse at No. 188 Soler Street, Manila, where it was stored, on January 11,1928, the plaintiff's claim against the herein defendant, the Yek Tong Lin Fire & Marine Insurance Co. being for P100,000, and against the defendants in the three other cases mentioned above, for P190,000.

"After the plaintiff had presented his evidence, the defendant companies in cases Nos. 33458, 33868, and 33480, offered to compromise with him by paying eighty-five per cent of his claim against them. In view of the fact that said defendants had in their answer raised the question of warranties A and G of the plaintiff's policies, providing that the building used for the effects insured would not be occupied by any other lessee, nor would be used for the deposit of other goods, without the consent of said defendants, and inasmuch as the latter alleged in their answer that the owner of the burnt building had leased the warehouse to several persons for the storage of sundry articles, the plaintiff had to accept the proposed compromise, and in consequence thereof, the three cases aforesaid were dismissed. "The present case followed the usual course of procedure because the plaintiff refused to accept the compromise which, in the same terms as those made by the defendants in the three cases mentioned, was proposed to him by the defendant the Yek Tong Lin Fire & Marine Insurance Company, the plaintiff contending that said defendant did not, nor could, raise the question of warranties A and G heretofore mentioned for the simple reason that it was the defendant itself, as owner, who had leased the building which later was destroyed by fire, to another person after having already ceded a portion of it to said plaintiff. "The only question to be determined, having been raised in the defendant's answer both parties agreeing that the plaintiff insured his leaf tobacco with the defendant assurance company, and that said goods were damaged by the fire which destroyed the warehouse where they were stored, on January 11, 1928 is whether said goods were worth what the plaintiff claims, that is, about equal to the amount for which they were insured in the four above-mentioned assurance companies, including the defendant in this case. "The plaintiff has conclusively shown by the Official Register Book (Exhibit I) and the Official Guide (Exhibit J), furnished by the Bureau of Internal Revenue, and kept under the supervision thereof in the usual form, in accordance with articles 10, 34 to 38 of the Regulations of the same promulgated under No. 17, by the Secretary of Finance; the Stock Book for recording the quantity of tobacco, Exhibit K, kept by the plaintiff and presented as part of the testimony of witnesses Claveria, Bonete, and Leoncio Jose; the testimony of Estanislao Lopez, Inspector of Internal Revenue, and the latter's report (Exhibit N), submitted to the Collector of Internal Revenue in pursuance of article 33 of the aforementioned Regulations; the tobacco invoices of stock damaged by the fire, Exhibits L and L-1 to L20; and by the testimony of Clemente Uson who went over the plaintiff's books as auditor and public accountant, and also prepared Exhibits T and U, attached to the record, that the plaintiff had in the warehouse at No. 188 Soler at the time of the fire, not less, but rather more, than 6,200 bales of leaf tobacco worth over P300,000, which is of course more than the sum total of all the insurances taken out with the defendant herein and the defendants in the three aforementioned cases Nos. 33458, 33868, and 33480. "The reason why the entry showing that 258 bales of tobacco had been removed from the warehouse, appearing in the Official Register Book, Exhibit I, was not posted in the Stock Book, Exhibit K, has been satisfactorily explained by the plaintiff's witnesses, who stated that it was due to the fact that there was no time to post it in the Stock Book, because the fire took place and the plaintiff told them not to touch, and to make no further entries in the books. Witness White, the defendant company's adjuster, who carefully examined the plaintiff's books not only immediately after the fire, but also during the hearing of this case, seems not to have found any irregularity therein; at least he said nothing on the point when he took the witness stand. On the contrary, in his report Exhibit UU sent to the defendant herein in his capacity as adjuster, appointed by the latter, and in Exhibits WW and XX, admitted by the Yek Tong Lin Ins. Co., Ltd., he admitted that the leaf tobacco belonging to the plaintiff in the warehouse when the fire took place exceeded, in quantity and value, the amount of the insurance. "The defendant did not present any evidence to rebut the plaintiff's evidence, but only presented witness Rowlands, whose testimony or opinion as to the probable number of bales of tobacco in the warehouse at the date of the fire does not deserve serious consideration, not only because of the plaintiff's evidence, but because his opinion or estimate is based solely upon photographs of the place taken after the fire.

"In view of the foregoing, the court hereby sentences the defendant the Yek Tong Lin Fire and Marine Insurance Company, Ltd., to pay the plaintiff Emilio Gonzalez La O, the amount of one hundred thousand pesos (P100,000), for which it had accepted the insurance on the leaf tobacco belonging to said plaintiff, damaged by fire which destroyed the warehouse at No. 188 Soler Street, where it was stored, on January 11, 1928, and legal interest upon said amount from June 27, 1928, when the complaint was filed in this case, plus the costs. "So ordered. "Manila, P. I., this 24th day of December, 1929. "ANACLETO DIAZ

"Judge"

The defendant duly appealed from this judgment, alleging that the trial court erred in making reference to the settlement arrived at by the plaintiff and other insurance companies, and in declaring that the only question involved in the case is whether or not the tobacco damaged by the fire is worth at least P290,000. There is no merit in these assignments of error. Since the settlement between the plaintiff and the other defendant companies was reached after the plaintiff had presented his evidence, and as those three cases were tried jointly with the instant case, there is no valid reason why the trial court should not refer to it in deciding this case. Furthermore, the court's holding here assigned as error, granting there were other incidental matters to be decided by the court, does not in itself constitute a reversible error. In the third assignment of error, the defendant contends that the plaintiff cannot recover under the policy as he has failed to prove that the Bank of the Philippine Islands, to whom the policy was made payable, no longer has any rights and interests in it. It should be noted that the defendant did not in its answer allege defect of parties plaintiff, and, besides, it does not appear that the plaintiff ceded to the bank all his rights or interests in the insurance, the note attached to the policies merely stating: "There shall be paid to the Bank of the Philippine Islands an indemnity for any loss caused by fire, according to the interest appearing in its favor." And the fact that the plaintiff himself presented in evidence the policies mortgaged to the Bank of the Philippine Islands gives rise to the presumption that the debt thus secured has been paid, in accordance with article 1191 of the Civil Code. Corpus Juris, volume 26, pages 483 et seq., states:
"Insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. . . . Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person named or unnamed, and although it is expressly made payable to another as his interest may appear or otherwise. . . . Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagee's interest is less than the full amount recoverable under the policy, . . .."

And in volume 33, page 82, of the same work, we read the following:
"Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain."

It is also contended that the trial court erred in not declaring that inasmuch as the plaintiff failed to notify the defendant corporation in writing, of other insurance policies obtained by him, he has violated article 3 of the conditions of the policies in question, thereby rendering these policies null and void. Article 3 of the conditions of the policies in question prescribes:
"ART. 3.Any insurance in force upon all or part of the things insured must be declared in writing by the insured and he should cause the company to insert or mention it in the policy, and without such requisite said policy will be regarded as null and void, and the assured deprived of all rights of indemnity in case of loss."

The following clause has been inserted with a typewriter in the policies: "Subject to clauses G and A and other insurances with a special short period attached to this policy." And attached to said policies issued by the defendant there is a sheet of "Other insurances" with the amount and the assurance companies in blank, which, according to the appellee, constitutes a notification that there were other insurances existing at the time. In the case of Benedict vs. Ocean Insurance Co. (31 N. Y., 391-393), the construction of the clause, "privilege for $4,500 additional insurance," was discussed. One of the printed clauses of the policy reads as follows:
"If said assured, or his assigns, shall hereafter make any other insurance upon the same property, and shall not, with all reasonable diligence, give notice to this corporation, and have the same indorsed on this instrument, or otherwise acknowledged by them, in writing, this policy shall cease and be of no further effect."

The Supreme Court of New York held that the words "Privilege for $4,500 additional insurance" made it unnecessary for the assured to inform the insurer of any other policy up to that amount. In the case cited the same goods insured by the defendant company were reinsured to the amount of $4,500 in accordance with the clause "privilege for $4,500 additional insurance," but in the instant case it may be said that the tobacco insured in the other companies was different from that insured with the defendant, since the number of bales of tobacco in the warehouse greatly exceeded that insured with the defendant and the other companies put together. And according to the doctrine enunciated in 26 Corpus Juris, 188, "to be insurance of the sort prohibited the prior policy must have been insurance upon the same subject matter, and upon the same interest therein." Furthermore, the appellant cannot invoke the violation of article 3 of the conditions of the insurance policies for the first time on appeal, having failed to do so in its answer; besides, as the appellee correctly contends in his brief, Guillermo Cu Unjieng, who was then president and majority shareholder of the appellant company, the Yek Tong Lin Fire & Marine Insurance Co., knew that there were other insurances, at least from the attempt to raise the insurance premium on the warehouse and the appellee's tobacco deposited therein to 1 per centum, and it was later reduced upon petition of the appellant itself and other assurance companies to 0.75 per centum presented to the association of assurance companies in the year 1927, and notwithstanding this, said appellant did not rescind the insurance policies in question, but demanded and collected from the appellee the increased premium. That the defendant had knowledge of the existence of other policies obtained by the plaintiff from other insurance companies, is specifically shown by the defendant's answer wherein it alleges, by way of special defense, the fact that there exist other policies issued by the companies mentioned therein. If, with the knowledge of the existence of other insurances which the defendant deemed violations of the contract, it has preferred to continue the policy, its action amounts to a waiver of the annulment of the contract, in accordance with the following doctrine in 19 Cyc., 791, 792:
"FAILURE TO ASSERT FORFEITURE IN GENERAL. While the weight of authority is that a policy conditioned to become void upon a breach of a warranty is void ipso facto upon such a breach without formal proceedings on the part of the insurer, yet it is true that such conditions are inserted for the benefit of the insurer and may be waived, and that the insurer may elect to continue the policy despite the breach. If it does the policy is revived and restored. Its failure to assert a forfeiture therefore is at least evidence tending to show a waiver thereof. Many authorities go further, however, and hold that the failure to assert a forfeiture after knowledge of a ground thereof will amount of itself to a waiver. . . ."

The fifth and sixth assignments of error refer to the quantity of tobacco in the Soler warehouse at the time of the fire, which, according to the appellant, did not exceed 4,930 bales. As may be seen, these assignments of error by the appellant involved purely questions of fact, and it is for this court to decide whether the findings of the trial court are supported by the evidence. The judgment appealed from sets forth clearly the evidence presented to the court in order to determine the quantity of tobacco in the 4

warehouse at the time of the fire. We have studied the evidence aforesaid, and are fully convinced that the court's findings are well supported by the same. Inasmuch as it has not, in our opinion, been shown that the trial judge overlooked any fact, which, if duly considered would have changed the result of the case, we do not feel justified in altering or modifying his findings. Finally, the appellant contends that the trial court erred in arriving at the damages that plaintiff may recover under the policies in question by the cost price of the tobacco damaged by the fire, instead of computing the same on the market price of the said tobacco at the time of the fire; and in declaring that the tobacco damaged was worth more than P300,000. This error is not well taken, for it is clear that the cost price is competent evidence tending to show the value of the article in question. And it was so held the case of Glaser vs. Home Ins. Co. (47 Misc. Rep., 89; 93 N. Y. Supp., 524; Abbott's Proof of Facts, 3d ed., p. 874), where it was declared that the cost of the goods destroyed by fire is some evidence of value, in an action against the insurance company. Exhibits L to L-20, which are invoices for tobacco purchased by the appellee, and the testimony of the public accountant Clemente Uson, who went over them and the rest of the appellee's books after the fire, taken in connection with reports T and Z, adduced as part of his testimony, show that the cost price of each bale of tobacco belonging to the appellee, damaged by the fire, was P51.8544, which, multiplied by 6,264, the number of bales, yields a total of over P320,000. The adjusters of the appellant, White & Page, in ascertaining the market price of the plaintiff's tobacco deposited in the burnt warehouse, taking the information furnished by the Tabacalera and by M. Pujalte, S. en C., as a basis, thus conclude their report: "We therefore are obliged to the conclusion that the value of the tobacco destroyed was not less than P290,000." And, indeed, said adjusters, in behalf of the appellant, appraised the appellee's tobacco assured and damaged by the fire at P303,052.32, collecting from the proceeds of the sale of the tobacco saved from the fire P3,000, the appellant's share in proportion to the insurance of P100,000 belonging to it, and P190,000 belonging to the other assurance companies, and considered the appellee himself as his own assurer in the amount of P13,052.32 which was the difference between the total value of the tobacco damaged and the total amount of the insurance, P290,000, for which reason the appellee received P129.21, as his proportionate share of the tobacco saved, as shown by Exhibits UU, WW, and XX. Hence the last assignment of error is without merit. Wherefore, the judgment appealed from is in accordance with law, and must be, as it is hereby, affirmed, with costs against the appellant. So ordered.

Johnson, Street, Malcolm, Ostrand, Johns, Romualdez and Villa- Real, JJ., concur.

[G.R. No. L-41014. November 28, 1988.] PACIFIC BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents.

Flores, Ocampo, Dizon and Domingo Law Office for petitioner. Cabochan and Reyes Law Office for respondents.

DECISION

PARAS, J :
p

This is a petition for review on certiorari of the decision of respondent Court of Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Oriental Assurance Corporation", which set aside the decision of the Court of First Instance (CFI) of Manila, ** which had in turn granted the complaint for a sum of money in Civil Case No. 56889. As gathered from the records, the undisputed facts of this case are as follows: On October 21, 1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured, for brevity), by which private respondent Oriental Assurance Corporation bound itself to indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by fire to its property consisting of stocks, materials and supplies usual to a shirt factory, including furniture, fixtures, machinery and equipment while contained in the ground, second and third floors of the building situated at number 256 Jaboneros St., San Nicolas, Manila, for a period of one year commencing from that date to October 21, 1964. The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner in the amount of not less than Eight Hundred Thousand Pesos (P800,000.00) and the goods described in the policy were held in trust by the insured for the petitioner under thrust receipts (Record on Appeal, p. 4).
cdrep

Said policy was duly endorsed to petitioner as mortgagee/trustor of the properties insured, with the knowledge and consent of private respondent to the effect that "loss if any under this policy is payable to the Pacific Banking Corporation". On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the subject premises destroying the goods contained in its ground and second floors (Record on Appeal, p. 5). On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for indemnity due to the loss of property by fire under the endorsement of said policy (Brief for Plaintiff-Appellee, pp. 1617). On January 28, 1964, private respondent informed counsel for the petitioner that it was not yet ready to accede to the latter's demand as the former is awaiting the final report of the insurance adjuster, H.H. Bayne Adjustment Company (Brief for Plaintiff-Appellee, pp. 17-18). On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the insured under the policy had not filed any claim with it, nor submitted proof of loss which is a clear violation of Policy Condition No. 11, and for which reason, determination of the liability of private respondent could not be had (Supra, pp. 19-20). On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance adjuster to verify from the records of the Bureau of Customs the entries of merchandise taken into the customs bonded warehouse razed by fire as a reliable proof of loss (Supra, pp. 21-22). For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff therein) on April 28, 1964, filed in the court a quo an action for a sum of money against the private respondent, Oriental Assurance Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-36). On May 25, 1964, private respondent raised the following defenses in its answer to wit: (a) lack of formal claim by insured over the loss and (b) premature filing of the suit as neither plaintiff nor insured had submitted any proof of loss on the basis of which defendant would determine its liability and the amount thereof, either

to the private respondent or its adjuster H.H. Bayne Adjustment Co., both in violation of Policy Condition No. 11 (Record on Appeal, pp. 37-38).
cdll

At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated December 22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc., revealing undeclared co-insurances with the following: P30,000.00 with Wellington Insurance; P25,000.00 with Empire Surety andP260,000.00 with Asian Surety; undertaken by insured Paramount on the same property covered by its policy with private respondent whereas the only co-insurances declared in the subject policy are those of P30,000.00 with Malayan, P50,000.00 with South Sea and P25,000.00 with Victory (Brief for the Defendant pp. 13-14). It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in the form of nondeclaration of co-insurances which was not pleaded in the answer was also not pleaded in the Motion to Dismiss. At any rate, on June 30, 1967, the trial court denied private respondent's motion on the ground that the defense of lack of proof of loss or defects therein was raised for the first time after the commencement of the suit and that it must be deemed to have waived the requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61). On September 9, 1967, the case was considered submitted for decision from which order private respondent filed a motion for reconsideration to set the case or further reception of private respondent's additional evidence, "in order to prove that 'insured has committed a violation of condition No. 3 of the policy in relation to the other Insurance Clause.'" (Record on Appeal, pp. 61-69). On September 30, 1967, the case was set for the continuation of the hearing for the reception merely of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co., over the vehement opposition of the petitioner (Record on Appeal, p. 129). On April 18, 1968, the trial court rendered a decision adjudging private respondent liable to the petitioner under the said contract of insurance, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff P61,000.00, with interest at the rate of 8% per annum from January 4, 1964, to April 28, 1964, and 12% from April 29, 1964, until the amount is fully paid, P6,100.00, as attorney's fees, and the costs. SO ORDERED." (Record on Appeal, pp. 140-141)

On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated on April 23, 1975, Rollo, pp. 21-33). Petitioner filed a motion for reconsideration of the said decision of the respondent Court of Appeals, but this was denied on July 3, 1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition with the following assigned errors;.
I RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING FRAUD FROM THE BARE FACT THAT THE INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES OTHER THAN THOSE STATED IN THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY

PRESUMPTIONS AND ADMITTED FACT AND CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF SAID CONCLUSION. (a)The respondent Court did not consider the legal presumption against the existence of fraud, which should be established with such quantum of proof as is required for any crime. (b)The record of the case is bereft of proof of such fraud. (c)The private respondent insurer did not even plead or in anywise raise fraud as a defense in its answer or motion to dismiss and, therefore, it should have been considered waived. (d)The total amount of insurance procured by the insured from the different companies amounted to hardly one-half (1/2) of the value of the goods insured. II RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON THE PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT THEREON SHOULD BE CONSIDERED AFFIRMED. III THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN HOLDING THAT THE ACTION WAS PREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE INSURANCE LAW HAS NOT BEEN FILED, NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF PETITIONERAPPELLANT'S LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER-APPELLANT FOR ITS FAILURE TO CALL THE ATTENTION OF THE LATTER TO SUCH ALLEGED DEFECTS AND FOR ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING. IV RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT INTERPRETING THE PROVISIONS OF THE POLICY LIBERALLY IN FAVOR OF THE HEREIN PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT ONLY THE ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED. V RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN DISMISSING THE CASE AND IN NOT AFFIRMING THE APPEALED DECISION OF THE TRIAL COURT. (Brief for Petitioners, pp. 13)

The crux of the controversy centers on two points: (a) unrevealed co-insurances which violated policy conditions No. 3 and (b) failure of the insured to file the required proof of loss prior to court action. Policy Condition No. 3 explicitly provides:
"3.The Insured shall give notice to the Company of any insurance already effected, or which may subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on

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

It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many co-insurances, it could have hesitated or plainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25).
cdrep

Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are materially different from the actual number of co-insurances taken over the subject property. Consequently, "the whole foundation of the contract fails, the risk does not attach and the policy never becomes a contract between the parties. Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such representations is not shown to vary or add to the contract, or to terminate a contract which has once been made, but to show that no contract has ever existed (Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification (Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A., 145 SCRA [1986]). As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon the same property, the total absence of such notice nullifies the policy (Sta. Ana v. Commercial Union Assurance Co., 55 Phil. 333 [1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA 432 [1974]). The argument that notice of co-insurances may be made orally is preposterous and negates policy condition No. 20 which requires every notice and other communications to the insurer to be written or printed. Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance clause" supposedly to have been violated, cannot certainly defeat the right of the petitioner to recover the insurance as mortgagee/assignee. Particularly referring to the mortgage clause of the policy, petitioner argues that considering the purpose for which the endorsement or assignment was made, that is, to protect the mortgagee/assignee against any untoward act or omission of the insured, it would be absurd to hold that petitioner is barred from recovering the insurance on account of the alleged violation committed by the insured (Rollo, Brief for the petitioner, pp. 33-35). It is obvious that petitioner has missed all together the import of subject mortgage clause which specifically provides:
"Mortgage Clause" "Loss, if any, under this policy, shall be payable to the PACIFIC BANKING CORPORATION Manila mortgagee/trustor, as its interest may appear, it being hereby understood and agreed that this insurance as to the interest of the mortgagee/trustor only herein, shall not be invalidated by any act or neglect except fraud or misrepresentation, or arson of the mortgagor or owner/trustee of the property insured; provided, that in case the mortgagor or owner/trustee neglects or refuses to pay any premium, the mortgagee/trustor shall, on demand pay the same." (Rollo, p. 26)

The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or arson. As correctly found by the Court of Appeals, concealment of the aforecited co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27). Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by its fraud and/or misrepresentation, forfeited said right, with more reason, petitioner which is merely claiming as indorsee of said insured, cannot be entitled to such proceeds. Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's answer or motion to dismiss, should be deemed to have been waived.
LLpr

It will be noted that the fact of fraud was tried by express or at least implied consent of the parties. Petitioner did not only object to the introduction of evidence but on the contrary, presented the very evidence that proved its existence. Be that as it may, it is established that the Supreme Court has ample authority to go beyond the pleadings where in the interest of justice and the promotion of public policy, there is a need to make its own finding to support its conclusion. Otherwise stated, the Court can consider a fact which surfaced only after trial proper (Maharlika Publishing Corp. v. Tagle, 142 SCRA 561 [1986]). Generally, the cause of action on the policy accrues when the loss occurs. But when the policy provides that no action shall be brought unless the claim is first presented extrajudicially in the manner provided in the policy, the cause of action will accrue from the time the insurer finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]). In the case at bar, policy condition No. 11 specifically provides that the insured shall on the happening of any loss or damage give notice to the company and shall within fifteen (15) days after such loss or damage deliver to the private respondent (a) a claim in writing giving particular account as to the articles or goods destroyed and the amount of the loss or damage and (b) particulars of all other insurances, if any. Likewise, insured was required "at his own expense to produce, procure and give to the company all such further particulars, plans, specifications, books, vouchers, invoices, duplicates or copies thereof, documents, proofs and information with respect to the claim". (Record on Appeal, pp. 18-20). The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote letters to private respondent to serve as a notice of loss, thereafter, the former did not furnish the latter whatever pertinent documents were necessary to prove and estimate its loss. Instead, petitioner shifted upon private respondent the burden of fishing out the necessary information to ascertain the particular account of the articles destroyed by fire as well as the amount of loss. It is noteworthy that private respondent and its adjuster notified petitioner that insured had not yet filed a written claim nor submitted the supporting documents in compliance with the requirements set forth in the policy. Despite the notice, the latter remained unheedful. Since the required claim by insured, together with the preliminary submittal of relevant documents had not been complied with, it follows that private respondent could not be deemed to have finally rejected petitioner's claim and therefore the latter's cause of action had not yet arisen. Compliance with condition No. 11 is a requirement sine qua non to the right to maintain an action as prior thereto no violation of petitioner's right can be attributable to private respondent. This is so, as before such final rejection, there was no real necessity for bringing suit. Petitioner should have endeavored to file the formal claim and procure all the documents, papers, inventory needed by private respondent or its adjuster to ascertain the amount of loss and after compliance await the final rejection of its claim. Indeed, the law does not encourage unnecessary litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 701, supra). 10

Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was warranted under the circumstances. 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 (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co., Inc. v. The Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968];National Power Corp. v. CA, 145 SCRA 533 [1986]), yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which 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 (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, 111 SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385 [1986]). Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability, and in order to recover, the insured must show himself within those terms. The compliance of the insured with the terms of the policy is a condition precedent to the right of recovery (Stokes v. Malayan Insurance Co., Inc., 127 SCRA 766 [1984]).
LLjur

It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the contract, and such violation or want of performance has not been waived by the insurer, the insured cannot recover, much less the herein petitioner. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p. 276 supra). Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals when supported by substantial evidence, are not reviewable on appeal by certiorari, deserves reiteration. Said findings of the appellate court are final and cannot be disturbed by the Supreme Court except in certain cases (Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA 480 [1982]; Director of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v. Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]).

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

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

[G.R. No. L-27932. October 30, 1972.] UNION MANUFACTURING CO., INC. and the REPUBLIC BANK, plaintiffs, REPUBLIC BANK, plaintiff-appellant, vs. PHILIPPINE GUARANTY CO., INC., defendant-appellee.

11

Armando L. Abad, Sr. for plaintiff-appellant. Gamelo, Francisco & Aquino for defendant-appellee.

DECISION

FERNANDO, J :
p

In a suit arising from a fire insurance policy, the insurer, Philippine Guaranty Co., Inc., defendant in the lower court and now appellee, was able to avoid liability upon proof that there was a violation of a warranty. There was no denial thereof from the insured, Union Manufacturing Co., Inc. With such a legally crippling blow, the effort of the Republic Bank, the main plaintiff and now the sole appellant, to recover on such policy as mortgagee, by virtue of the cover note in the insurance policy providing that it is entitled to the payment of loss or damages as its interest may appear, was in vain. The defect being legally incurable, its appeal is likewise futile. We affirm. As noted in the decision, the following facts are not disputed: "(1) That on January 12, 1962, the Union Manufacturing Co., Inc. obtained certain loans, overdrafts and other credit accommodations from the Republic Bank in the total sum of P415,000.00 with interest at 9% per annum from said date and to secure the payment thereof, said Union Manufacturing Co., Inc. executed a real and chattel mortgages on certain properties, which are more particularly described and listed at the back of the mortgage contract . . .; (2) That as additional condition of the mortgage contract, the Union Manufacturing Co., Inc. undertook to secure insurance coverage over the mortgaged properties for the same amount of P415,000.00 distributed as follows: (a) Buildings, P30,000.00; (b) Machineries, P300,000.00; and (c) Merchandise Inventory, P85,000.00, giving a total of P415,000.00; (3) That as Union Manufacturing Co., Inc. failed to secure insurance coverage on the mortgaged properties since January 12, 1962, despite the fact that Cua Tok, its general manager, was reminded of said requirement, the Republic Bank procured from the defendant, Philippine Guaranty Co., Inc. an insurance coverage on loss against fire for P500,000.00 over the properties of the Union Manufacturing Co., Inc., as described in defendant's 'Cover Note' dated September 25, 1962, with the annotation that loss or damage, if any, under said Cover Note is payable to Republic Bank as its interest may appear, subject however to the printed conditions of said defendant's Fire Insurance Policy Form; (4) That on September 27, 1962, Fire Insurance Policy No. 43170 . . . was issued for the sum of P500,000.00 in favor of the assured, Union Manufacturing Co., Inc., for which the corresponding premium in the sum of P8,328.12, which was reduced to P6,688.12, was paid by the Republic Bank to the defendant, Philippine Guaranty Co., Inc. . . .; (5) That upon the expiration of said fire policy on September 25, 1963, the same was renewed by the Republic Bank upon payment of the corresponding premium in the same amount of P6,663.52 on September 26, 1963; (6) That in the corresponding voucher . . ., it appears that although said renewal premium was paid by the Republic Bank, such payment vas for the account of Union Manufacturing Co., Inc. and that the cash voucher for the payment of the first premium was paid also by the Republic Bank but for the account of Union Manufacturing Co., Inc.; (7) That sometime on September 6, 1964, a fire occurred in the premises of the Union Manufacturing Co., Inc.; (8) That on October 6, 1964, the Union Manufacturing Co., Inc. filed its fire claim with the defendant Philippine Guaranty Co., Inc., thru its adjuster, H. H. Bayne Adjustment Co., which was denied by said defendant in its letter dated November 27, 1964 . . ., on the following grounds: 'a. Policy Condition No. 3 and/or the 'Other Insurance Clause' of the policy was violated because you did not give ,notice to us the other insurance which you had taken from New India for P80,000.00, Sincere Insurance for P25,000.00 and Manila Insurance for P200,000.00 with the result that these insurances, of which we became aware of only after the fire, were not endorsed on our policy; and (b) Policy Condition No. 11 was not complied with because you have failed to give to our representatives the required documents and other proofs with respect to your claim 12

and matters touching on our liability, if any, and the amount of such liability'; (9) That as of September, 1962, when the defendant Philippine Guaranty Co., issued Fire Insurance Policy No. 43170 . . . in the sum of P500,000.00 to cover the properties of the Union Manufacturing Co., Inc., the same properties were already covered by Fire Policy No. 1533 of the Sincere Insurance Company for P25,000.00 for the period from October 7, 1961 to October 7, 1962 . . .; and by insurance policies Nos. F-2314 . . . and F-2590 . . . of the Oceanic Insurance Agency for the total sum of P300,000.00 and for periods respectively, from January 27, 1962 to January 27, 1963, and from June 1, 1962 to June 1, 1963; and (10) That when said defendant's Fire Insurance Policy No. 43170 was already in full force and effect, the Union Manufacturing Co., Inc. without the consent of the defendant, Philippine Guaranty Co., Inc., obtained other insurance policies totalling P305,000.00 over the same properties prior to the fire, to wit: (1) Fire Policy No. 250 of New India Assurance Co., Ltd., for P80,000.00 for the period from May 27, 1964 to May 27, 1965 . . .; (2) Fire Policy No. 3702 of the Sincere Insurance Company for P25,000.00 for the period from October 7, 1963 to October 7, 1964 . . .; and (3) Fire Policy No. 6161 of Manila Insurance Co. for P200,000.00 for the period from May 15, 1964 to May 15, 1965 . . . ." 1 There is in the cover note 2 and in the fire insurance policy 3 the following warranty: "[CoInsurance Declared]: Nil." 4 Why the appellant Republic Bank could not recover, as payee, in case of loss as its "interest may appear subject to the terms and conditions, clauses and warranties" of the policy was expressed in the appealed decision thus: "However, inasmuch as the Union Manufacturing Co., Inc. has violated the condition of the policy to the effect that it did not reveal the existence of other insurance policies over the same properties, as required by the warranty appearing on the face of the policy issued by the defendant and that on the other hand said Union Manufacturing Co., Inc. represented that there were no other insurance policies at the time of the issuance of said defendant's policy, and it appearing furthermore that while the policy of the defendant was in full force and effect the Union Manufacturing Co., Inc. secured other fire insurance policies without the written consent of the defendant endorsed on the policy, the conclusion is inevitable that both the Republic Bank and Union Manufacturing Co., Inc. cannot recover from the same policy of the defendant because the same is null and void." 5 The tone of confidence apparent in the above excerpts from the lower court decision is understandable. The conclusion reached by the lower court finds support in authoritative precedents. It is far from easy, therefore, for appellant Republic Bank to impute to such a decision a failure to abide by the law. Hence, as noted at the outset, the appeal cannot prosper. An affirmance is indicated. It is to Santa Ana v. Commercial Union Assurance Co., 6 a 1930 decision, that one turns to for the first explicit formulation as to the controlling principle. As was made clear in the opinion of this Court, penned by Justice Villa-Real: "Without deciding whether notice of other insurance upon the same property must be given in writing, or whether a verbal notice is sufficient to render an insurance valid which requires such notice, whether oral or written, we hold that in the absolute absence of such notice when it is one of the conditions specified in the fire insurance policy, the policy is null and void." 7 The next year, in Ang Giok Chip v. Springfield Fire & Marine Ins. Co., 8 the conformity of the insured to the terms of the policy, implied from the failure to express any disagreement with what is provided for, was stressed in these words of the ponente, Justice Malcolm: "It is admitted that the policy before us was accepted by the plaintiff. The receipt of this policy by the insured without objection binds both the acceptor and the insured to the terms thereof. The insured may not thereafter be heard to say that he did not read the policy or know its terms, since it is his duty to read his policy and it will be assumed that he did so." 9 As far back as 1915, in Young v. Midland Textile Insurance Company,10 it was categorically set forth that as a condition precedent to the right of recovery, there must be compliance on the part of the insured with the terms of the policy. As stated in the opinion of the Court through Justice Johnson: "If the insured has violated or failed to perform the conditions of the contract, and such a violation or want of performance has not been waived by the insurer, then the insured cannot recover. 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. While it is true, as a general rule, that contracts of insurance are construed most favorably to the insured, yet contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which 13

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." 11More specifically, there was a reiteration of this Santa Ana ruling in a decision by the then Justice, later Chief Justice, Bengzon, in General Insurance & Surety Corp. v. Ng Hua. 12 Thus: "The annotation then, must be deemed to be a warranty that the property was not insured by any other policy. Violation thereof entitles the insurer to rescind. (Sec. 69, Insurance Act) Such misrepresentation is fatal in the light of our views in Santa Ana v. Commercial Union Assurance Company, Ltd. . . . The materiality of non-disclosure of other insurance policies is not open to doubt." 13 As a matter of fact, in a 1966 decision, Misamis Lumber Corp. v. Capital Ins. & Surety Co., Inc., 14 Justice J.B.L. Reyes, for this Court, made manifest anew its adherence to such a principle in the face of an assertion that thereby a highly unfavorable provision for the insured would be accorded recognition. This is the language used: "The insurance contract may be rather ponerous ('one sided', as the lower court put it), but that in itself does not justify the abrogation of its express terms, terms which the insured accepted or adhered to and which is the law between the contracting parties." 15

There is no escaping the conclusion then that the lower court could not have disposed of this case in a way other than it did. Had it acted otherwise, it clearly would have disregarded pronouncements of this Court, the compelling force of which cannot be denied. There is, to repeat, no justification for a reversal. WHEREFORE, the decision of the lower court of March 31, 1967 is affirmed. No costs.

Concepcion, C.J., Zaldivar, Barredo, Makasiar, Antonio and Esguerra, JJ., concur. Castro and Teehankee, JJ., reserve their votes. Makalintal, J., is on official leave.

[G.R. No. L-41432. July 30, 1979.] IVOR ROBERT DAYTON GIBSON, petitioner, vs. HON. PEDRO A. REVILLA, in his official capacity as Presiding Judge of Branch XII, Court of First Instance of Rizal, and LEPANTO CONSOLIDATED MINING COMPANY, respondents.

Quasha, Asperilla, Ancheta, Valmonte, Pea & Marcos for petitioner. Sycip, Salazar, Feliciano, Hernandez & Castillo for respondents.

DECISION

GUERRERO, J :
p

This is a petition for review 1 seeking to set aside the Order of the Court of First Instance of Rizal, Branch XIII, presided by respondent Judge Pedro A. Revilla, in Civil Case No. 20046 entitled "Lepanto Consolidated Mining Company versus Malayan Insurance Company, Inc. " denying the motion of the petitioner Ivor Robert Dayton 14

Gibson for leave to intervene in said case, and to order the respondent Judge to admit him as intervenor therein.
cdll

The antecedent facts of this case are as follows: Lepanto Consolidated Mining Company (hereinafter referred to as Lepanto) filed on September 27, 1974 in the Court of First Instance of Rizal, Branch XIII a complaint with a plea for preliminary mandatory injunction against Malayan Insurance Company, Inc., (hereinafter referred to as Malayan), docketed as Civil Case No. 20046 seeking the following relief:
"(a)upon the filing of this complaint, a writ of preliminary mandatory injunction be issued directing defendant to advance to plaintiff an interest-free loan of P1,831,695.75; and (b)upon trial on the merits (i)an accounting or average adjustments be made for the liquidation of the general average losses, damages and expenses arising from the marine accidents subject of this action and the determination of the contributions due from subject cargoes under the Policy; (ii)defendant be ordered to pay plaintiff the amounts under item (i) above, with interest thereon at the rate of 12% per annum, from February 20, 1972 as to the cargo's contribution relative to the 'Hermonsa' and from March 27, 1972 as to the cargo's contribution relative to the 'General Aguinaldo;' (iii)the amount of P1,831,695.75 as interest-free loan due plaintiff from defendant be declared repayable upon and only to the extent of any corresponding recovery from the owners of the 'Hermosa' and 'General Aguinaldo;'"

Lepanto also sought payment of interest on delayed loan amounts, exemplary damages of at least P500,000.00, attorney's fees and other litigation expenses, and other cumulative and/or alternative reliefs as may be lawful, just or equitable in the premises. The civil suit thus instituted by Lepanto against Malayan was founded on the fact that on Sept. 9, 1971, Malayan issued Marine Open Policy No. LIDC-MOP-001171 covering all shipments of copper, gold and silver concentrates in bulk from Poro, San Fernando, La Union to Tacoma, Washington or to other places in the United States which Lepanto may make on and after August 1, 1971 and until the cancellation of the policy upon thirty (30) days' written notice. Thereafter, Malayan obtained reinsurance abroad through Sedgwick, Collins & Co., Limited, a London insurance brokerage. The Memorandum of Insurance issued by Sedgwick to Malayan on September 24, 1971 listed three groups of underwriters or reinsurers and their reinsurance interest are as follows:
Lloyds62.808% Companies (I.L.U.)34.705% Other Companies2.487% 100.000%

At the top of the list of underwriting members of Lloyds is Syndicate No. 448, assuming 2.48% of the risk assumed by the reinsurer, which syndicate number petitioner Ivor Robert Dayton Gibson claims to be himself. In November, 1971, a cargo of concentrates was shipped by Lepanto on the M/V Hermosa at Poro, San Fernando, La Union destined for Tacoma, Washington. During the sea voyage, while the vessel was in the 15

Northern Pacific Ocean south of Japan on or about Nov. 11, 1971, it encountered heavy weather and rough seas which caused it to roll, pitch and vibrate heavily so that certain shifting boards in the vessel broke and part of the cargo shifted transversely, thereby causing a list. The vessel deviated to Moji, Japan and after the shifting boards were repaired and/or replaced, it proceeded on its trip to Tacoma, but about the end of the month, the ship once again met with strong winds, monsoon rains, severe winter and very rough seas and it rolled, pitched and vibrated heavily so other shifting boards broke and part of the cargo also shifted causing a heavier list. The captain of the boat, fearing that the vessel might sink, sailed to Osaka and unloaded the cargo. Expenses were incurred by Lepanto relative to the cargo while in Japan but eventually the cargo was transhipped to Tacoma via another vessel.
llcd

Also in November, 1971, another cargo of concentrates was shipped by Lepanto on board the M/V General Aguinaldo at Poro, San Fernando, La Union and destined for Tacoma, Washington. Similarly, during the sea voyage on or about November 30, 1971 in the Northern Pacific Ocean southeast of Japan, it met with heavy weather and rough seas, causing it to pitch, roll and vibrate heavily so that certain shifting boards in the vessel broke and part of the cargo shifted transversely which caused the listing of the vessel. The captain, fearing also that the vessel might sink, sailed for Miyako, Japan, unloaded the cargo and expenses were incurred relative to the cargo while in Japan. Thereafter, the cargo was transhipped to Tacoma on board another vessel. Lepanto notified Malayan and another insurer, Commercial Union in London in November and December, 1971 of the accidents. Formal claims under the open policy were also filed by Lepanto with Malayan in March and July, 1972 upon the conclusion of the voyages and the determination of the shortweight. The claims were denied by Malayan tentatively at first claiming that it needed time to determine whether or not the marine accidents resulted from the inherent vice or nature of the cargo and finally Malayan rejected Lepanto's insurance claim for the reason that the cargoes were inherently vicious on loading and such condition caused the listing of the vessel. Hence, the complaint filed by Lepanto against Malayan in Civil Case No. 20046 for the interest-free loan to Lepanto as stipulated in the policy computed at P1,831,695.75. Malayan filed a motion to dismiss the case on three grounds: 1. that the instant case has been brought in the name of other than the real party in interest; 2. that the complaint states no cause of action; and 3. that the claim set forth in the complaint has been extinguished. On December 4, 1974, Malayan's motion to dismiss was denied. On January 17, 1975, Malayan filed its Answers incorporating as part of its special and affirmative defenses the following allegations:
"(5)Defendant acted in good faith in rejecting plaintiff's insurance claims, not only because of the circumstances and reasons set forth in the preceding sub-paragraphs (1) to (4) which defendant had been reasonably led to believe by reports of reputed experts and or by legal advice as justifying rejection, but also because, as plaintiff had been repeatedly told, it is under constraint, on one hand, by customs of the insurance trade to adhere to the decisions of the lead insurers, and on another hand, by its contract with its reinsurer which among others, prohibit settlement of the reinsured claims without the reinsurer's assent."

On January 27, 1975, Lepanto filed its reply. On January 30, 1975, the Court denied Lepanto's motion for mandatory preliminary injunction "without prejudice to reconsider the said motion after the pre-trial of this case shall have been concluded." On March 19, 1975, the first pre-trial conference was held and on March 25, 1975, the parties filed their Stipulation of Facts and Issues, which Stipulations was approved en toto in the trial court's order of April 1, 1975. 16

Subsequently, pre-trial conferences were held on April 3, 1975, May 21, 1975, and June 19, 1975 when Lepanto concluded its evidence. Defendant through counsel reserved its right to make a formal offer of its evidence at the continuation of the hearing scheduled on July 16, 1975. Then on June 25, 1975, petitioner Ivor Robert Dayton Gibson filed a motion to intervene as defendant, which motion is as follows:
"MOTION TO INTERVENE COMES NOW Ivor Robert Dayton Gibson, Reinsurer in the above entitled case, through undersigned counsel, and to this Honorable Court respectfully alleges that: 1.Movant is of legal age, a British citizen, with address at Lloyd's Lime Street, London, EC3: 2.Movant is the leading re-insurer of the risks and liabilities assumed by defendant Malayan Insurance Co., Inc. in a contract of marine insurance involving two (2) separate shipments of copper concentrates aboard the MV "Hermosa" and the MV "General Aguinaldo" shipped by Lepanto Consolidated Mining Co., Inc. to American Smelting & Refining Co. from Poro Point, San Fernando, La Union, to Tacoma, Washington for which defendant issued Policy No. LIDC-MOP-001/71 dated September 9, 1971, in the amount of 20% of the declared value of each shipment but not to exceed US$2,000,000 per shipment. 3.Prior to these two shipments and after defendant Malayan contracted with Lepanto to insure these two (2) copper concentrates shipments against risks of loss and damage, defendant Malayan, in turn, re-insured its liabilities for losses and damages in accordance with the terms of their reinsurance contract. 4.After the defendant Malayan filed Answer to this suit, movant was informed that defendant made express reservations 'to file in due time a third-party complaint against the lead insurers and/or its reinsurers' (par. XVIII, Answer). 5.Movant has a legal interest in the subject matter of litigation in that he stands to be held liable to pay on its re-insurance contract should judgment be rendered requiring the defendant to pay the claim of the plaintiff. 6.To avoid multiplicity of suits and allow all parties who have any relation to the cause of action, whether legally or in equity, to ventilate expeditiously every issue relevant to the suit, it is respectfully submitted that movant be allowed to intervene as a defendant in the interest of justice.

7.By the very nature of a contract of reinsurance and considering that the reinsurer is obliged 'to pay as may be paid thereon' (referring to the original policies), although this is subject to other stipulations and conditions of the re-insurance contract, it will serve better the ends of justice if a full disclosure of all pertinent facts and issues is made with the participation of the movant at this trial where his interests have been and are already inevitably at stake."

Counsel for the movant submitted the foregoing motion for the consideration and resolution of the Court on June 30, 1975. The motion to intervene was opposed by Lepanto on the following grounds: 1. Movant Ivor Robert Dayton Gibson has no legal interest in the matter in litigation or in the success of either plaintiff or defendant; 2. Movant is estopped by his laches from intervening in this action; 3. The intervention is intended for delay and if allowed, will unduly delay the proceedings between plaintiff and defendant; and 4. The rights, if any, of movant are not prejudiced by the present suit and will be fully protected in a separate action against him and his co-insurers by defendant herein.
prcd

17

Replying to Lepanto's opposition, movant Ivor Robert Dayton Gibson contended that 1. Contrary to oppositor's contention, movant Gibson has a legal interest in the matter in litigation because a contract of reinsurance between the defendant Malayan Insurance Company, Inc. and the movant herein is a contract of indemnity against liability, and 'not merely against damage, and therefore, movant has a direct and immediate interest in the success of defendant Malayan Insurance Company, Inc.; 2. Neither estoppel nor laches applies to the movant since the motion to intervene was filed seasonably on June 25, 1975 during the period of introduction of evidence by defendant Malayan; 3. The intervention is not intended for delay; movant is merely asserting a legal right or interest in the pending case with the request for opportunity to appear and be joined so that he could protect or assert such right or interest; and 4. The filing of an independent and separate suit proposed by the plaintiff is condemned by the basic and fundamental principles against multiplicity of suits.
LexLib

On July 26, 1975, Lepanto filed a Rejoinder to the movant's "Reply to Opposition." On July 28, 1975, Malayan made a manifestation that it had no objection to the "Motion to Intervene" of Ivor Robert Dayton Gibson and on July 31, 1975, movant made a Sur-Rejoinder to Lepanto's Rejoinder. On August 18, 1975, the Court a quo resolved to deny the Motion for Intervention in the following:
"ORDER Ivor Robert Dayton Gibson, thru counsel, has presented before this Court a motion to intervene on June 25, 1975. In his motion, he alleges that he is a British citizen with address at Lloyd's Lime Street, London, EC3; that he is the leading re-insurer of the risks and liabilities assumed by defendant Malayan Insurance Company, Inc. in the contract of manner insurance involving the shipments subject of the instant suit. He further contends that he has a legal interest in the subject matter of litigation for he stands liable on his reinsurances contract should judgment be rendered against the defendant and that this intervention would avoid a multiplicity of suits. Plaintiff vigorously opposed the motion contending that movant Ivor Robert Dayton Gibson has no legal interest in the matter in litigation or in the success of either parties in this suit; that he is estopped by laches; that the intervention is intended for delay and will unduly delay the proceedings between plaintiff and defendant; and that movant will not be prejudiced by the present suit and can be fully protected in any separate action which defendant may file against him and his co-insurers. Considering the grounds of the opposition, the Court believes that the third and fourth grounds raised in the opposition appear highly meritorious. Since movant Ivor Robert Dayton Gibson appears to be only one of several re insurers of the risks and liabilities assumed by Malayan Insurance Company, Inc., it is highly probable that other re-insurers may likewise intervene. This would definitely disrupt the trial between plaintiff and defendant, the principal protagonists in this suit. To allow the intervention would certainly unduly delay the proceedings between plaintiff and defendant especially at this stage where plaintiff had already rested its case. It would also compound the issues as more parties and more matters will have to be litigated. At any rate, Ivor Robert Dayton Gibson may protect whatever interest he has in a separate action. IN VIEW OF ALL THE FOREGOING, the Court resolves to deny the motion for intervention. SO ORDERED. Pasig, Rizal, August 18, 1975. (SGD) PEDRO A. REVILLA Judge"

Not satisfied with the denial of his Motion to Intervene, petitioner now comes before Us seeking to set aside the order of denial and to order the respondent Judge to admit him as intervenor. By resolution of this Court 18

dated November 17, 1975, the petition was denied due course for lack of merit, but upon petitioner's motion for reconsideration, the petition was allowed in the Resolution of February 18, 1976, treating it as a special civil action.
LLpr

The principal issue is whether the lower court committed, reversible error in refusing the intervention of petitioner Ivor Robert Dayton Gibson in the suit between Lepanto and Malayan. We lay down the law on Intervention as found in Sec. 2, Rule 12 of the Rules of Court:
"Section 2.Intervention. A person may, before or during a trial, be permitted by the court, in its discretion, to intervene in an action, if he has legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or when he is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof. (a)Motion for intervention. A person desiring to intervene shall file a motion for leave of court with notice upon all the parties to the action. (b)Discretion of court. In allowing or disallowing a motion for intervention, the court, in the exercise of discretion, shall consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties and whether or not the intervenor's rights may be fully protected in a separate proceeding. (c)Complaint or answer in intervention. The intervention shall be made by complaint filed and served in a regular form, and may be answered as if it were an original complaint; but where intervenor unites with the defendant in resisting the claims of the plaintiff, the intervention may be made in the form of an answer to the complaint. (d)Time. Unless a different period is filed by the court, the complaint or answer in intervention shall be filed within ten (10) days from notice of the order permitting such intervention."

According to pertinent jurisprudence, the term "intervention" refers to the proceeding by which one not originally a party to an action is permitted, on his own application, to appear therein and join one of the original parties in maintaining the action or defense, or to assert a claim or defense against some or all of the parties to the proceeding as originally instituted. Such a third party may, upon the discretion of the court, become a party to a pending proceedings between others for the protection of some rights or interest alleged by him to be affected by such proceedings. 2 Intervention is not a matter of absolute right but may be permitted by the court when the applicant shows facts which satisfy the requirements of the statute authorizing intervention. 3 Under our rules of Court, what qualifies a person to intervene is his possession of a legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both; or when he is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or an officer thereof 4 As regards the legal interest as qualifying factor, this Court has ruled that such interest must be of a direct and immediate character so that the intervenor will either gain or lose by the direct legal operation of the judgment. The interest must be actual and material, a concern which is more than mere curiosity, or academic or sentimental desire; it must not be indirect and contingent, indirect and remote, conjectural, consequential or collateral. 5 However, notwithstanding the presence of a legal interest, permission to intervene is subject to the sound discretion of the court, the exercise of which is limited by considering "whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties and whether or not the intervenor's rights may be fully protected in a separate proceeding" 6 Once judicial discretion is exercised, the action of the court cannot be reviewed or controlled by mandamus however erroneous it may 19

be, except only when there is an arbitrary or capricious exercise of discretion, in which case, the fault is correctible by mandamus if there be no other adequate and speedy remedy. 7 As may be noted in the questioned Order, respondent Judge denied the Motion to Intervene on the last two grounds of Lepanto's Opposition, namely: "3. The intervention is intended for delay and if allowed, will unduly delay the proceedings between plaintiff and defendant; and 4. The rights, if any, of movant are not prejudiced by the present suit and will be fully protected in a separate action against him and his co-insurers by defendant herein. Respondent Judge, reasoning out his Order, ruled that "(s)ince movant Ivor Robert Dayton Gibson appears to be only one of several co-insurers of the risks and liabilities assumed by Malayan Insurance Company, Inc., it is highly probable that other re-insurers may likewise intervene. This would definitely disrupt the trial between plaintiff and defendant, the principal protagonists in this suit. To allow the intervention would certainly unduly delay the proceedings between plaintiff and defendant especially at this stage where plaintiff had already rested its case. It would also compound the issues as more parties and more matters will have to be litigated. At any rate, Ivor Robert Dayton Gibson may protect whatever interest he has in a separate action."

In his petition, petitioner submits that the respondent Judge, in refusing to permit/allow him to intervene in Civil Case No. 20046, incorrectly interpreted and/or appreciated the purpose/intent of the pertinent rules of procedure that govern intervention of parties in a given action and that the respondent Judge erred: (1) In concluding that to allow the intervention of herein petitioner "would definitely disrupt the trial" and "would certainly unduly delay the proceedings," when such apprehension appears to be clearly immaterial in determining when intervention is proper or not; (2) In viewing the alleged availability of another recourse on the part of herein petitioner to protect his interest, i.e. separate action, as an added justification to deny his intervention, despite the fact that the applicable rule of procedure in this regard (Section 2, Rule 12) does not preclude intervention even if another separate action is appropriate and/or available; and (3) In its obvious disregard of the very rule (Section 2, Rule 12) precisely designed to apply on cases where intervention is sought, thereby departing from the accepted and usual procedure under the premises. After carefully considering the arguments of both the petitioner and Lepanto, the facts and circumstances obtaining in the case at bar and applying Rule 12, Sec. 2 of the Rules of Court and the doctrines enunciated by the Supreme Court on the matter, We rule that the respondent Judge committed no error of law in denying petitioner's Motion to Intervene. And neither has he abused his discretion in his denial of petitioner's Motion for Intervention. It is quite crystal clear that the questioned Order of the respondent Court was based strictly and squarely on Section 2(b) of Rule 12 which specifically directs the Court in allowing or disallowing a motion for intervention in the exercise of discretion to consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties and whether or not the intervenor's rights may be fully protected in a separate proceeding. The Court a quo has specifically and correctly complied with the Rule's mandate and We cannot fault the respondent Judge therefore. We reject the contention of the petitioner that the question regarding delay in the adjudication of the rights of the original contending parties, while recognized as factors in allowing or disallowing intervention, should assume a secondary role to the primary and imperative requirement that the legal interest of the would-be intervenor in the matter under litigation must be clearly shown and that once the legal interest of the would be intervenor is clearly shown, the fact that his intervention may work to delay a little the main conflict between the parties should not by itself justify the denial of intervention.
llcd

20

Petitioner's contention is untenable. The first paragraph of Section 2, Rule 12 prescribes the time to intervene and also who may intervene, that is, one who has legal interest in the matter in litigation, or in the success of either of the parties or an interest against both or when he is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof Paragraph (b) of the same section directs what matters are to be considered in exercising discretion to allow or disallow a motion for intervention, which are whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties and whether or not the intervenor's rights may be fully protected in a separate proceeding. Clearly, for the Court to permit intervention, it must be shown that movant is possessed of legal interest in the matter in litigation or otherwise qualified under the first paragraph of Section 2, and the Court must also consider the matters mentioned in paragraph (b) thereof. The latter are not and should not be taken as secondary to the former for both must concur since they are equally important, requisite and necessary for consideration in the exercise of discretion by the Court to allow or disallow intervention. We cannot invest nor render primary or secondary importance to either of 'these requirements for the law does not make any distinction. Each case must be decided according to its facts and merits, subject to the discretion of the Court.
prcd

From the particular facts and circumstances of the case at bar, We are satisfied that the respondent Judge has not abused his discretion in denying petitioner's Motion to Intervene. We agree with the holding of the respondent Court that since movant Ivor Robert Dayton Gibson appears to be only one of several re-insurers of the risks and liabilities assumed by Malayan Insurance Company, Inc., it is highly probable that other reinsurers may likewise intervene. The record shows that aside from the petitioner there are sixty-three (63) other syndicate members of Lloyds, the twenty-six (26) companies in the "I.L.U." group holding a 34.705% reinsurance interest and the two (2) "Other Companies" holding the balance of the reinsurances, as listed in Annex "A", Sur-Rejoinder to Lepanto's Rejoinder, pp. 136-138, Records. The high probability that these other re-insurers like the petitioner herein may likewise intervene if the latter's motion is granted is not an arbitrary assumption of the Court. Considering petitioner's assertion that he will have the opportunity to show, among others, that the losses and damages purportedly sustained by Lepanto occurred not from the perils of the seas but from perils of the ships; that Lepanto is not the real party in interest; that it has no cause of action; and, neither has it complied with its obligations under the policy which makes the filing of the complaint premature (p. 118, Records, Reply to Opposition) if petitioner is allowed to intervene, We hold that there is good and sufficient basis for the Court a quo to declare that the trial between Lepanto and Malayan would be definitely disrupted and would certainly unduly delay the proceedings between the parties especially at the stage where Lepanto had already rested its case and that the issues would also be compounded as more parties and more matters will have to be litigated. In other words, the Court's discretion is justified and reasonable.
prLL

We also hold that respondent Judge committed no reversible error in further sustaining the fourth ground of Lepanto's Opposition to the Motion to Intervene that the rights, if any, of petitioner are not prejudiced by the present suit and will be fully protected in a separate action against him and his co-insurers by Malayan. Petitioner contends that this rights would not be fully protected in a separate proceeding because "(a) decision in favor of Lepanto, declaring Malayan liable on its insurance policies would necessarily and injuriously affect the interests of petitioner, (which) interest as a re-insurer of Malayan's risk is not only indicate but material, direct and immediate and for such interest to be in any manner prejudiced without first giving petitioner a chance to be heard would be violative of due process. Upon the other hand, a decision in favor of Malayan, recognizing it as not liable under its insurance policies, could subject petitioner to the danger of having to admit that Malayan had not breached its insurance contract with the entity (Lloyds) of which petitioner is the leading syndicate member." (Petitioner's Memorandum p. 230, Records). Petitioner also asserts that "by the very nature of a contract of reinsurance and considering that the re-insurer is obliged 'to pay as may be paid thereon' (referring to the original policies), although this is subject to other stipulations and conditions of the reinsurance contract, it will serve better the ends of justice if a full disclosure of all pertinent facts and issues is 21

made with the participation of the movant at this trial where his interests have been and are already inevitably at stake." (Petition, p. 18, Records) On the contrary, Lepanto insists that petitioner will have his day in court and his rights can be fully protected in a separate proceeding. According to Lepanto, if it loses the case against Malayan, petitioner cannot possibly be liable to Malayan for indemnity on the reinsurances. If Lepanto wins, then petitioner, the sixty-three (63) other syndicate members of Lloyds, the twenty-six (26) companies in the "I.L.U." group holding a 34.705% reinsurance interest and the two (2) "Other Companies" holding the balance of the reinsurances are free either to pay Malayan or to resist Malayan and thus force Malayan to sue in whatever country most of them, qualitatively and not quantitatively, may be served with summons. Petitioner's contention that he has to pay once Malayan is finally adjudged to pay Lepanto because of the very nature of a contract of reinsurance and considering that the re-insurer is obliged 'to pay as may be paid thereon' (referring to the original policies), although this is subject to other stipulations and conditions of the reinsurance contract, is without merit. The general rule in the law of reinsurance is that the re-insurer is entitled to avail itself of every defense which the re-insured (which is Malayan) might urge in an action by the person originally insured (which is Lepanto). Specifically, the rule is stated thus
"Sec. 1238. In an action on a contract of reinsurance, as a general rule the reinsurer is entitled to avail itself of every defense which the reinsured might urge in an action by the person originally insured; . . ."

The same rule is stated otherwise in 44 Am. Jur. 2d, Sec. 1862, p. 793, as follows:
"Moreover, where an action is brought against the reinsurer by the reinsured, the former may assert any defense that the latter might have made in an action on the policy of original insurance." (Eagle Ins. Co. vs. Lafayette Ins. Co., 91 Ind. 443)

As to the effect of the clause "to pay as may be paid thereon" contained in petitioner's re-insurance contract, Arnould, on the Law of Marine Insurance and Average, 13th Ed., Vol. 1, Section 327, p. 315, states the rule, thus:
"It has been decided that this clause does not preclude the reinsurer from insisting upon proper proof that a loss strictly within the terms of the original policy has taken place." "This clause does not enable the original underwriter to recover from his re-insurer to an extent beyond the subscription of the latter."

It is significant and revealing that petitioner himself admits in his Memorandum, p. 231, Records, that "(o)f course, petitioner, if finally sued in London, (he) could avail himself of remedies available to him." He adds that "such a procedure, if not entirely time-consuming, would actually beg the issue on hand. Petitioner believes that his defenses on the claims ventilated in the court a quo can be appreciated only here; elsewhere in view of the peculiar circumstances surrounding Lepanto's claims the basic issue will be obfuscated and perhaps even obliterated by arguments on procedural niceties." However, such a procedural problem is no legal ground to compel allowance of and insist on his intervention. WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby dismissed. No costs. SO ORDERED. 22

Teehankee (Chairman), Makasiar, Fernandez, De Castro and Melencio-Herrera, JJ., concur.

[G.R. No. 97642. August 29, 1997.] AVON INSURANCE PLC, BRITISH RESERVE INSURANCE CO. LTD., CORNHILL INSURANCE PLC, IMPERIO REINSURANCE CO. (UK) LTD., INSTITUTE DE RESERGURROS DO BRAZIL, INSURANCE CORPORATION OF IRELAND PLC, LEGAL AND GENERAL ASSURANCE SOCIETY LTD., PROVINCIAL INSURANCE PLC, QBL INSURANCE (UK) LTD., ROYAL INSURANCE CO. LTD., TRINITY INSURANCE CO. LTD., GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORP. LTD., COOPERATIVE INSURANCE SOCIETY and PEARL ASSURANCE CO. LTD., petitioners, vs. COURT OF APPEALS, REGIONAL TRIAL COURT OF MANILA, BRANCH 51, YUPANGCO COTTON MILLS, WORLDWIDE SURETY & INSURANCE CO., INC., respondents.

Syquia Law Offices for petitioners. O.F. Santos & P.C. Nolasco for Yupangco Cotton Mills. Ricardo E. Reyes for World-Wide Insurance & Surety.
SYNOPSIS This is a petition for certiorari filed by herein petitioners questioning the decision of respondent Court of Appeals dated October 11, 1990 finding that the summons were properly served to petitioners and whatever defects, if any, in the service of summons were cured by their voluntary appearance in the lower court, via a motion to dismiss. It appears in the records of the case that it all started when private respondent filed a collection suit against herein petitioners being the reinsurers of the property owned by private respondents. Petitioners, by way of a motion to dismiss, questioned the jurisdiction of the lower court alleging that being a foreign company not doing business in the Philippines, the court did not acquire jurisdiction on its person, even though the summons where served to the insurance commissioner. The lower court denied the motion. Thereafter, petitioner filed a petition to the Court of Appeals but likewise respondent court denied the petition. Henceforth, petitioner brought the matter to the Supreme Court. In its petition, herein petitioners maintained that the trial court's jurisdiction does not extend to them, since they are foreign reinsurance companies that are not doing business in the Philippines. Moreover, petitioners assert that since the complaint for sum of money filed by private respondent was a personal action not affecting status or relating to property, extraterritorial service of summons on petitioners all not doing business in the Philippines is null and void. The Honorable Supreme Court ruled that there is no sufficient basis in the records which would merit the institution of this collection suit in the Philippines. More specifically, there is nothing to substantiate the private respondent's submission that petitioners had engaged in business activities in this country. This is not an instance where the erroneous service of summons upon the defendant can be cured by the issuance and service of alias summons, as in the absence of showing that petitioners had been doing business in the country, they cannot be summoned to answer for the charges leveled against them. Moreover, the fact that herein petitioners voluntarily appeared in the lower court does not mean that they voluntarily submitted to the jurisdiction of the court because petitioners, from time to time filed their motion to dismiss, their submissions have been consistently and unfailingly to object to the trial court's assumption of jurisdiction, anchored on the 23

fact that they are all foreign corporations not doing business in the Philippines. Accordingly, the decision appealed from is set aside and the petition is hereby granted. SYLLABUS 1.COMMERCIAL LAW; OMNIBUS INVESTMENTS CODE OF 1987; DOING OR ENGAGING IN OR TRANSACTING BUSINESS IN THE PHILIPPINES; CONSTRUED. In Communication Materials and Design, Inc. et. al. vs. Court of Appeals, G.R. No. 102223, August 22, 1996, it was observed that: "There is no exact rule or governing principle as to what constitutes doing or engaging in or transacting business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the language of the statute applicable. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized. Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include: 'soliciting orders, purchases, service contracts, opening offices, whether called 'liaison' offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity or commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.'" The term ordinarily implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution of the purpose and object of its organization. A single act or transaction made in the Philippines, however, could qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but indicates the foreign corporation's intention to do business in the Philippines.
HECTaA

2.ID.; CORPORATION CODE; FOREIGN CORPORATION; STATUS THEREOF, CONSTRUED. A foreign corporation, is one which owes its existence to the laws of another state, [Section 123, Corporation Code of the Philippines] and generally, has no legal existence within the state in which it is foreign. In Marshall Wells Co. vs. Elser, No. 22015, September 1, 1924, 46 Phil. 70, it was held that corporations have no legal status beyond the bounds of the sovereignty by which they are created. Nevertheless, it is widely accepted that foreign corporations are, by reason of state comity, allowed to transact business in other states and to sue in the courts of such fora. In the Philippines foreign corporations are allowed such privileges, subject to certain restrictions, arising from the state's sovereign right of regulation. Before a foreign corporation can transact business in the country, it must first obtain a license to transact business here [Section 125, 126, Corporation Code of the Philippines] and secure the proper authorizations under existing law. If a foreign corporation engages in business activities without the necessary requirements, it opens itself to court actions against it, but it shall not be allowed to maintain or intervene in an action, suit or proceeding for its own account in any court or tribunal or agency in the Philippines. [Section 133, id.] 3.ID.; ID.; ID.; WHEN REQUIRED TO BE LICENSED; RATIONALE. The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so, is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts, otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts. The same danger does not exist among foreign corporations that are indubitably not doing business in the Philippines. Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the State's regulation. As we observed, in so far as the State is concerned, such foreign corporation has no legal existence. Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of sovereignty. 24

4.REMEDIAL LAW; JURISDICTION OVER DEFENDANT WHEN ACQUIRED. In civil cases, jurisdiction over the person of the defendant is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons. Fundamentally, the service of summons is intended to give official notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff as stated in the complaint. The service of summons upon the defendant becomes an important element in the operation of a court's jurisdiction upon a party to a suit, as service of summons upon the defendant is the means by which the court acquires jurisdiction over his person. Without service of summons, or when summons are improperly made, both the trial and the judgment, being in violation of due process, are null and void, unless the defendant waives the service of summons by voluntarily appearing and answering the suit. The Court is cognizant of the doctrine in Signetics Corp. vs. Court of Appeals G.R. No. 105141, August 31, 1993, 225 SCRA 737, that for the purpose of acquiring jurisdiction by way of summons on a defending foreign corporation, there is no need to prove first the fact that defendant is doing business in the Philippines. The plaintiff only has to allege in the complaint that the defendant has an agent in the Philippines for summons to be validly served thereto, even without prior evidence advancing such factual allegation. 5.ID.; ID.; MAYBE ACQUIRED THRU VOLUNTARY APPEARANCE; EXCEPTION. When defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. This is not, however, always the case. Admittedly, and without subjecting himself to the court's jurisdiction, the defendant in an action can, by special appearance object to the court's assumption on the ground of lack of jurisdiction. If he so wishes to assert this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court, otherwise, he shall be deemed to have submitted himself to that jurisdiction. In the case of foreign corporations, it has been held that they may seek relief against the wrongful assumption of jurisdiction by local courts. In Time, Inc. vs. Reyes, G.R. No. L-28882, May 31, 1971, 39 SCRA 303, it was held that the action of a court in refusing to rule or deferring its ruling on a motion to dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in the appellate court even before trial on the merits is had. The same remedy is available should the motion to dismiss be denied, and the court, over the foreign corporation's objections, threatens to impose its jurisdiction upon the same. If the defendant, besides setting up in a motion to dismiss his objection to the jurisdiction of the court, alleges at the same time any other ground for dismissing the action, or seeks an affirmative relief in the motion, he is deemed to have submitted himself to the jurisdiction of the court. As was consistently held, if the appearance of a party in a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant, then this appearance is not equivalent to service of summons, nor does it constitute an acquiescence to the court's jurisdiction.
TADIHE

DECISION

TORRES, JR., J :
p

Just how far can our courts assert jurisdiction over the persons of foreign entities being charged with contractual liabilities by residents of the Philippines? Appealing from the Court of Appeals' October 11, 1990 Decision 1 in CA-G.R. No. 22005, petitioners claim that the trial court's jurisdiction does not extend to them, since they are foreign reinsurance companies that are not doing business in the Philippines. Having entered into reinsurance contracts abroad, petitioners are beyond the jurisdictional ambit of our courts and cannot be served summons through extraterritorial service, as under Section 17, Rule 14 of the Rules of Court, nor through the Insurance Commissioner, under Section 14. Private 25

respondent Yupangco Cotton Mills contends on the other hand that petitioners are within our courts' cognitive powers, having submitted voluntarily to their jurisdiction by filing motions to dismiss 2 the private respondent's suit below.
cdtech

The antecedent facts, as found by the appellate court, are as follows:

"Respondent Yupangco Cotton Mills filed a complaint against several foreign reinsurance companies (among which are petitioners) to collect their alleged percentage liability under contract treaties between the foreign insurance companies and the international insurance broker C.J. Boatright, acting as agent for respondent Worldwide Surety and Insurance Company. Inasmuch as petitioners are not engaged in business in the Philippines with no offices, places of business or agents in the Philippines, the reinsurance treaties having been entered abroad, service of summons upon motion of respondent Yupangco, was made upon petitioners through the Office of the Insurance Commissioner. Petitioners, by counsel on special appearance, seasonably filed motions to dismiss disputing the jurisdiction of respondent Court and the extra-territorial service of summons. Respondent Yupangco filed its opposition to the motions to dismiss, petitioners filed their reply, and respondent Yupangco filed its rejoinder. In an Order dated April 30, 1990, respondent Court denied the motions to dismiss and directed petitioners to file their answer. On May 29, 1990, petitioners filed their notice of appeal. In an order dated June 4, 1990, respondent court denied due course to the appeal." 3

To this day, trial on the merits of the collection suit has not proceeded as in the present petition, petitioners continue vigorously to dispute the trial court's assumption of jurisdiction over them. It will be remembered that in the plaintiff's complaint, 4 it was contended that on July 6, 1979 and on October 1, 1980, Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., several of its properties for the periods July 6, 1979 to July 6, 1980 as under Policy No. 20719 for a coverage of P100,000,000.00 and from October 1, 1980 to October 1, 1981, under Policy No. 25896, also for P100,000,000.00. Both contracts were covered by reinsurance treaties between Worldwide Surety and Insurance and several foreign reinsurance companies, including the petitioners. The reinsurance arrangements had been made through international broker C.J. Boatwright and Co. Ltd., acting as agent of Worldwide Surety and Insurance. As fate would have it, on December 16, 1979 and May 2, 1981, within the respective effectivity periods of Policies 20719 and 25896, the properties therein insured were razed by fire, thereby giving rise to the obligation of the insurer to indemnify the Yupangco Cotton Mills. Partial payments were made by Worldwide Surety and Insurance and some of the reinsurance companies. On May 2, 1983, Worldwide Surety and Insurance, in a Deed of Assignment, acknowledged a remaining balance of P19,444,447.75 still due Yupangco Cotton Mills, and assigned to the latter all reinsurance proceeds still collectible from all the foreign reinsurance companies. Thus, in its interest as assignee and original insured, Yupangco Cotton Mills instituted this collection suit against the petitioners. Service of summons upon the petitioners was made by notification to the Insurance Commissioner, pursuant to Section 14, Rule 14 of the Rules of Court. 5 In a Petition for Certiorari filed with the Court of Appeals, petitioners submitted that respondent Court has no jurisdiction over them, being all foreign corporations not doing business in the Philippines with no office, place of business or agents in the Philippines. The remedy of Certiorari was resorted to by the petitioners on the premise that if petitioners had filed an answer to the complaint as ordered by the respondent court, they would risk abandoning the issue of jurisdiction. Moreover, extra-territorial service of summons on petitioners is null and void because the complaint for collection is not one affecting plaintiff's status and not relating to property within the Philippines. 26

The Court of Appeals found the petition devoid of merit, stating that: 1.Petitioners were properly served with summons and whatever defect, if any, in the service of summons were cured by their voluntary appearance in court, viamotion to dismiss. 2.Even assuming that petitioners have not yet voluntarily appeared as co-defendants in the case below even after having filed the motions to dismiss adverted to, still the situation does not deserve dismissal of the complaint as far as they are concerned, since as held by this Court in Lingner Fisher GMBH vs. IAC, 125 SCRA 523;
"A case should not be dismissed simply because an original summons was wrongfully served. It should be difficult to conceive for example, that when a defendant personally appears before a court complaining that he had not been validly summoned, that the case filed against him should be dismissed. An alias summons can be actually served on said defendant."

3.Being reinsurers of respondent Worldwide Surety and Insurance of the risk which the latter assumed when it issued the fire insurance policies in dispute in favor of respondent Yupangco, petitioners cannot now validly argue that they do not do business in this country. At the very least, petitioners must be deemed to have engaged in business in the Philippines no matter how isolated or singular such business might be, even on the assumption that among the local domestic insurance corporations of this country, it is only in favor of Worldwide Surety and Insurance that they have ever reinsured any risk arising from any reinsurance within the territory. 4.The issue of whether or not petitioners are doing business in the country is a matter best referred to a trial on the merits of the case, and so should be addressed there. Maintaining its submission that they are beyond the jurisdiction of Philippine Courts, petitioners are now before us, stating:
"Petitioners, being foreign corporations, as found by the trial court, not doing business in the Philippines with no office, place of business or agents in the Philippines, are not subject to the jurisdiction of Philippine courts. The complaint for sum of money being a personal action not affecting status or relating to property, extraterritorial service of summons on petitioners all not doing business in the Philippines is null and void. The appearance of counsel for petitioners being explicitly 'by special appearance without waiving objections to the jurisdiction over their persons or the subject matter' and the motions to dismiss having excluded non-jurisdictional grounds, there is no voluntary submission to the jurisdiction of the trial court." 6

For its part, private respondent Yupangco counter-submits:

"1.Foreign corporations, such as petitioners, not doing business in the Philippines, can be sued in Philippine Courts, not withstanding petitioners' claim to the contrary. 2.While the complaint before the Honorable Trial Court is for a sum of money, not affecting status or relating to property, petitioners (then defendants) can submit themselves voluntarily to the jurisdiction of Philippine Courts, even if there is no extra-judicial (sic) service of summons upon them.

27

3.The voluntary appearance of the petitioners (then defendants) before the Honorable Trial Court amounted, in effect, to voluntary submission to its jurisdiction over their persons." 7

In the decisions of the courts below, there is much left to speculation and conjecture as to whether or not the petitioners were determined to be "doing business in the Philippines" or not. To qualify the petitioners' business of reinsurance within the Philippine forum, resort must be made to the established principles in determining what is meant by "doing business in the Philippines." In Communication Materials and Design, Inc. et. al. vs. Court of Appeals, 8 it was observed that:
"There is no exact rule or governing principle as to what constitutes doing or engaging in or transacting business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the language of the statute applicable. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized.
cdtech

Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include: 'soliciting orders, purchases, service contracts, opening offices, whether called 'liaison' offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity or commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.'"

The term ordinarily implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution of the purpose and object of its organization. 9 A single act or transaction made in the Philippines, however, could qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but indicates the foreign corporation's intention to do business in the Philippines. 10 There is no sufficient basis in the records which would merit the institution of this collection suit in the Philippines. More specifically, there is nothing to substantiate the private respondent's submission that the petitioners had engaged in business activities in this country. This is not an instance where the erroneous service of summons upon the defendant can be cured by the issuance and service of alias summons, as in the absence of showing that petitioners had been doing business in the country, they cannot be summoned to answer for the charges leveled against them. The Court is cognizant of the doctrine in Signetics Corp. vs. Court of Appeals 11 that for the purpose of acquiring jurisdiction by way of summons on a defendant foreign corporation, there is no need to prove first the fact that defendant is doing business in the Philippines. The plaintiff only has to allege in the complaint that the defendant has an agent in the Philippines for summons to be validly served thereto, even without prior evidence advancing such factual allegation.

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As it is, private respondent has made no allegation or demonstration of the existence of petitioners' domestic agent, but avers simply that they are doing business not only abroad but in the Philippines as well. It does not appear at all that the petitioners had performed any act which would give the general public the impression that it had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an international insurance broker, and not through any entity or means remotely connected with the Philippines. Moreover, there is authority to the effect that a reinsurance company is not doing business in a certain state merely because the property or lives which are insured by the original insurer company are located in that state. 12 The reason for this is that a contract of reinsurance is generally a separate and distinct arrangement from the original contract of insurance, whose contracted risk is insured in the reinsurance agreement. 13 Hence, the original insured has generally no interest in the contract of reinsurance. 14 A foreign corporation, is one which owes its existence to the laws of another state, 15 and generally, has no legal existence within the state in which it is foreign. In Marshall Wells Co. vs. Elser, 16 it was held that corporations have no legal status beyond the bounds of the sovereignty by which they are created. Nevertheless, it is widely accepted that foreign corporations are, by reason of state comity, allowed to transact business in other states and to sue in the courts of such fora. In the Philippines foreign corporations are allowed such privileges, subject to certain restrictions, arising from the state's sovereign right of regulation. Before a foreign corporation can transact business in the country, it must first obtain a license to transact business here 17 and secure the proper authorizations under existing law. If a foreign corporation engages in business activities without the necessary requirements, it opens itself to court actions against it, but it shall not be allowed to maintain or intervene in an action, suit or proceeding for its own account in any court or tribunal or agency in the Philippines. 18 The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so, is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts, 19 otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts. The same danger does not exist among foreign corporations that are indubitably not doing business in the Philippines. Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the State's regulation. As we observed, in so far as the State is concerned, such foreign corporation has no legal existence. Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of sovereignty. In the alternative, private respondent submits that foreign corporations not doing business in the Philippines are not exempt from suits leveled against them in courts, citing the case of Facilities Management Corporation vs. Leonardo Dela Osa, et. al. 20 where we ruled "that indeed, if a foreign corporation, not engaged in business in the Philippines, is not barred from seeking redress from Courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine Courts for acts done against a person or persons in the Philippines." We are not persuaded by the position taken by the private respondent. In Facilities Management case, the principal issue presented was whether the petitioner had been doing business in the Philippines, so that service of summons upon its agent as under Section 14, Rule 14 of the Rules of Court can be made in order that the Court of First Instance could assume jurisdiction over it. The Court ruled that the petitioner was doing business in the Philippines, and that by serving summons upon its resident agent, the trial court had effectively acquired jurisdiction. In that case, the court made no prescription as the absolute suability of foreign 29

corporations not doing business in the country, but merely discounts the absolute exemption of such foreign corporations from liabilities particularly arising from acts done against a person or persons in the Philippines. As we have found, there is no showing that petitioners had performed any act in the country that would place it within the sphere of the court's jurisdiction. A general allegation standing alone, that a party is doing business in the Philippines does not make it so. A conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties, notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness. In addition, the assertion that a resident of the Philippines will be inconvenienced by an out-of-town suit against a foreign entity, is irrelevant and unavailing to sustain the continuance of a local action, for jurisdiction is not dependent upon the convenience or inconvenience of a party. 21 It is also argued that having filed a motion to dismiss in the proceedings before the trial court, petitioners have thus acquiesced to the court's jurisdiction, and they cannot maintain the contrary at this juncture. This argument is at the most, flimsy.
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In civil cases, jurisdiction over the person of the defendant is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons. 22 Fundamentally, the service of summons is intended to give official notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff as stated in the complaint. 23 The service of summons upon the defendant becomes an important element in the operation of a court's jurisdiction upon a party to a suit, as service of summons upon the defendant is the means by which the court acquires jurisdiction over his person. 24 Without service of summons, or when summons are improperly made, both the trial and the judgment, being in violation of due process, are null and void, 25 unless the defendant waives the service of summons by voluntarily appearing and answering the suit. 26 When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. 27 This is not, however, always the case. Admittedly, and without subjecting himself to the court's jurisdiction, the defendant in an action can, by special appearance object to the court's assumption on the ground of lack of jurisdiction. If he so wishes to assert this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court, otherwise, he shall be deemed to have submitted himself to that jurisdiction. 28 In the case of foreign corporations, it has been held that they may seek relief against the wrongful assumption of jurisdiction by local courts. In Time, Inc. vs. Reyes, 29 it was held that the action of a court in refusing to rule or deferring its ruling on a motion to dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in the appellate court even before trial on the merits is had. The same remedy is available should the motion to dismiss be denied, and the court, over the foreign corporation's objections, threatens to impose its jurisdiction upon the same. If the defendant, besides setting up in a motion to dismiss his objection to the jurisdiction of the court, alleges at the same time any other ground for dismissing the action, or seeks an affirmative relief in the motion, 30 he is deemed to have submitted himself to the jurisdiction of the court.

In this instance, however, the petitioners from the time they filed their motions to dismiss, their submissions have been consistently and unfailingly to object to the trial court's assumption of jurisdiction, anchored on the fact that they are all foreign corporations not doing business in the Philippines. 30

As we have consistently held, if the appearance of a party in a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant, then this appearance is not equivalent to service of summons, nor does it constitute an acquiescence to the court's jurisdiction. 31 Thus, it cannot be argued that the petitioners had abandoned their objections to the jurisdiction of the court, as their motions to dismiss in the trial court, and all their subsequent posturings, were all in protest of the private respondent's insistence on holding them to answer a charge in a forum where they believe they are not subject to. Clearly, to continue the proceedings in a case such as those before Us would just "be useless and a waste of time." 32 ACCORDINGLY, the decision appealed from dated October 11, 1990, is SET ASIDE and the instant petition is hereby GRANTED. The respondent Regional Trial Court of Manila, Branch 51 is declared without jurisdiction to take cognizance of Civil Case No. 86-37932, and all its orders and issuances in connection therewith are hereby ANNULLED and SET ASIDE. The respondent court is hereby ORDERED to DESIST from maintaining further proceeding in the case aforestated.
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SO ORDERED.

Romero, Puno and Mendoza, JJ ., concur. Regalado, J ., is on leave.

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