COMM REV I: TO BE DIGESTED (Due July 12, 2014)

1. G.R. No. 168115 June 8, 2007

VICENTE ONG LIM SING, JR., petitioner,
vs.
FEB LEASING & FINANCE CORPORATION, respondent.
D E C I S I O N
NACHURA, J.:
This is a petition for review on certiorari assailing the
Decision
1
dated March 15, 2005 and the Resolution
2
dated May 23,
2005 of the Court of Appeals (CA) in CA-G.R. CV No. 77498.
The facts are as follows:
On March 9, 1995, FEB Leasing and Finance Corporation (FEB)
entered into a lease
3
of equipment and motor vehicles with JVL Food
Products (JVL). On the same date, Vicente Ong Lim Sing, Jr. (Lim)
executed an Individual Guaranty Agreement
4
with FEB to guarantee
the prompt and faithful performance of the terms and conditions of
the aforesaid lease agreement. Corresponding Lease Schedules with
Delivery and Acceptance Certificates
5
over the equipment and motor
vehicles formed part of the agreement. Under the contract, JVL was
obliged to pay FEB an aggregate gross monthly rental of One
Hundred Seventy Thousand Four Hundred Ninety-Four Pesos
(P170,494.00).
JVL defaulted in the payment of the monthly rentals. As of July 31,
2000, the amount in arrears, including penalty charges and
insurance premiums, amounted to Three Million Four Hundred
Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos
(P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL
demanding payment of the said amount. However, JVL failed to pay.
6

On December 6, 2000, FEB filed a Complaint
7
with the Regional Trial
Court of Manila, docketed as Civil Case No. 00-99451, for sum of
money, damages, and replevin against JVL, Lim, and John Doe.
In the Amended Answer,
8
JVL and Lim admitted the existence of the
lease agreement but asserted that it is in reality a sale of equipment
on installment basis, with FEB acting as the financier. JVL and Lim
claimed that this intention was apparent from the fact that they
were made to believe that when full payment was effected, a Deed of
Sale will be executed by FEB as vendor in favor of JVL and Lim as
vendees.
9
FEB purportedly assured them that documenting the
transaction as a lease agreement is just an industry practice and that
the proper documentation would be effected as soon as full payment
for every item was made. They also contended that the lease
agreement is a contract of adhesion and should, therefore, be
construed against the party who prepared it, i.e., FEB.
In upholding JVL and Lims stance, the trial court stressed the
contradictory terms it found in the lease agreement. The pertinent
portions of the Decision dated November 22, 2002 read:
A profound scrutiny of the provisions of the contract which is a
contract of adhesion at once exposed the use of several
contradictory terms. To name a few, in Section 9 of the said contract
disclaiming warranty, it is stated that the lessor is not the
manufacturer nor the latters agent and therefore does not
guarantee any feature or aspect of the object of the contract as to its
merchantability. Merchantability is a term applied in a contract of
sale of goods where conditions and warranties are made to apply.
Article 1547 of the Civil Code provides that unless a contrary
intention appears an implied warranty on the part of the seller that
he has the right to sell and to pass ownership of the object is
furnished by law together with an implied warranty that the thing
shall be free from hidden faults or defects or any charge or
encumbrance not known to the buyer.
In an adhesion contract which is drafted and printed in advance and
parties are not given a real arms length opportunity to transact, the
Courts treat this kind of contract strictly against their architects for
the reason that the party entering into this kind of contract has no
choice but to accept the terms and conditions found therein even if
he is not in accord therewith and for that matter may not have
understood all the terms and stipulations prescribed thereat.
Contracts of this character are prepared unilaterally by the stronger
party with the best legal talents at its disposal. It is upon that
thought that the Courts are called upon to analyze closely said
contracts so that the weaker party could be fully protected.
Another instance is when the alleged lessee was required to insure
the thing against loss, damage or destruction.
In property insurance against loss or other accidental causes, the
assured must have an insurable interest, 32 Corpus Juris 1059.
x x x x
It has also been held that the test of insurable interest in property is
whether the assured has a right, title or interest therein that he will
be benefited by its preservation and continued existence or suffer a
direct pecuniary loss from its destruction or injury by the peril
insured against. If the defendants were to be regarded as only a
lessee, logically the lessor who asserts ownership will be the one
directly benefited or injured and therefore the lessee is not
supposed to be the assured as he has no insurable interest.
There is also an observation from the records that the actual value
of each object of the contract would be the result after computing
the monthly rentals by multiplying the said rentals by the number of
months specified when the rentals ought to be paid.
Still another observation is the existence in the records of a Deed of
Absolute Sale by and between the same parties, plaintiff and
defendants which was an exhibit of the defendant where the
plaintiff sold to the same defendants one unit 1995 Mitsubishi L-200
STRADA DC PICK UP and in said Deed, The Court noticed that the
same terms as in the alleged lease were used in respect to warranty,
as well as liability in case of loss and other conditions. This action of
the plaintiff unequivocally exhibited their real intention to execute
the corresponding Deed after the defendants have paid in full and as
heretofore discussed and for the sake of emphasis the obscurity in
the written contract cannot favor the party who caused the
obscurity.
Based on substantive Rules on Interpretation, if the terms are clear
and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control. If the words appear
to be contrary to the evident intention of the parties, their
contemporaneous and subsequent acts shall be principally
considered. If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what may have been
the intention or will of the parties, the contract shall be null and
void.
10

Thus, the court concluded with the following disposition:
In this case, which is held by this Court as a sale on installment there
is no chattel mortgage on the thing sold, but it appears amongst the
Complaints prayer, that the plaintiff elected to exact fulfillment of
the obligation.
For the vehicles returned, the plaintiff can only recover the unpaid
balance of the price because of the previous payments made by the
defendants for the reasonable use of the units, specially so, as it
appears, these returned vehicles were sold at auction and that the
plaintiff can apply the proceeds to the balance. However, with
respect to the unreturned units and machineries still in the
possession of the defendants, it is this Courts view and so hold that
the defendants are liable therefore and accordingly are ordered
jointly and severally to pay the price thereof to the plaintiff together
with attorneys fee and the costs of suit in the sum of Php25,000.00.
SO ORDERED.
11

On December 27, 2002, FEB filed its Notice of Appeal.
12
Accordingly,
on January 17, 2003, the court issued an Order
13
elevating the entire
records of the case to the CA. FEB averred that the trial court erred:
A. When it ruled that the agreement between the Parties-Litigants is
one of sale of personal properties on installment and not of lease;
B. When it ruled that the applicable law on the case is Article 1484
(of the Civil Code) and not R.A. No. 8556;
C. When it ruled that the Plaintiff-Appellant can no longer recover
the unpaid balance of the price because of the previous payments
made by the defendants for the reasonable use of the units;
D. When it failed to make a ruling or judgment on the Joint and
Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-Appellant.
14

On March 15, 2005, the CA issued its Decision
15
declaring the
transaction between the parties as a financial lease agreement
under Republic Act (R.A.) No. 8556.
16
The fallo of the assailed
Decision reads:
WHEREFORE, the instant appeal is GRANTED and the assailed
Decision dated 22 November 2002 rendered by the Regional Trial
Court of Manila, Branch 49 in Civil Case No. 00-99451
is REVERSED and SET ASIDE, and a new judgment is
hereby ENTERED ordering appellees JVL Food Products and Vicente
Ong Lim, Jr. to solidarily pay appellant FEB Leasing and Finance
Corporation the amount of Three Million Four Hundred Fourteen
Thousand Four Hundred Sixty Eight Pesos and 75/100
(Php3,414,468.75), with interest at the rate of twelve percent
(12%) per annum starting from the date of judicial demand on 06
December 2000, until full payment thereof. Costs against appellees.
SO ORDERED.
17

Lim filed the instant Petition for Review on Certiorari under Rule 45
contending that:
I
The Honorable Court of Appeals erred when it failed to consider that
the undated complaint was filed by Saturnino J. Galang, Jr., without
any authority from respondents Board of Directors and/or
Secretarys Certificate.
II
The Honorable Court of Appeals erred when it failed to strictly apply
Section 7, Rule 18 of the 1997 Rules of Civil Procedure and now Item
1, A(8) of A.M. No. 03-1-09 SC (June 8, 2004).
III
The Honorable Court of Appeals erred in not dismissing the appeal
for failure of the respondent to file on time its appellants brief and
to separately rule on the petitioners motion to dismiss.
IV
The Honorable Court of Appeals erred in finding that the contract
between the parties is one of a financial lease and not of a contract
of sale.
V
The Honorable Court of Appeals ERRED IN ruling that the payments
paid by the petitioner to the respondent are "rentals" and not
installments paid for the purchase price of the subject motor
vehicles, heavy machines and equipment.
VI
The Honorable Court of Appeals erred in ruling that the previous
contract of sale involving the pick-up vehicle is of no consequence.
VII
The Honorable Court of Appeals failed to take into consideration
that the contract of lease, a contract of adhesion, concealed the true
intention of the parties, which is a contract of sale.
VIII
The Honorable Court of Appeals erred in ruling that the petitioner is
a lessee with insurable interest over the subject personal properties.
IX
The Honorable Court of Appeals erred in construing the intentions
of the Court a quo in its usage of the term merchantability.
18

We affirm the ruling of the appellate court.
First, Lim can no longer question Galangs authority as FEBs
authorized representative in filing the suit against Lim. Galang was
the representative of FEB in the proceedings before the trial court
up to the appellate court. Petitioner never placed in issue the
validity of Galangs representation before the trial and appellate
courts. Issues raised for the first time on appeal are barred by
estoppel. Arguments not raised in the original proceedings cannot
be considered on review; otherwise, it would violate basic principles
of fair play.
19

Second, there is no legal basis for Lim to question the authority of
the CA to go beyond the matters agreed upon during the pre-trial
conference, or in not dismissing the appeal for failure of FEB to file
its brief on time, or in not ruling separately on the petitioners
motion to dismiss.
Courts have the prerogative to relax procedural rules of even the
most mandatory character, mindful of the duty to reconcile both the
need to speedily put an end to litigation and the parties right to due
process. In numerous cases, this Court has allowed liberal
construction of the rules when to do so would serve the demands of
substantial justice and equity.
20
In Aguam v. Court of Appeals , the
Court explained:
The court has the discretion to dismiss or not to dismiss an
appellant's appeal. It is a power conferred on the court, not a duty.
The "discretion must be a sound one, to be exercised in accordance
with the tenets of justice and fair play, having in mind the
circumstances obtaining in each case." Technicalities, however, must
be avoided. The law abhors technicalities that impede the cause of
justice. The court's primary duty is to render or dispense justice. "A
litigation is not a game of technicalities." "Lawsuits unlike duels are
not to be won by a rapier's thrust. Technicality, when it deserts its
proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts."
Litigations must be decided on their merits and not on technicality.
Every party litigant must be afforded the amplest opportunity for
the proper and just determination of his cause, free from the
unacceptable plea of technicalities. Thus, dismissal of appeals purely
on technical grounds is frowned upon where the policy of the court
is to encourage hearings of appeals on their merits and the rules of
procedure ought not to be applied in a very rigid, technical sense;
rules of procedure are used only to help secure, not override
substantial justice. It is a far better and more prudent course of
action for the court to excuse a technical lapse and afford the parties
a review of the case on appeal to attain the ends of justice rather
than dispose of the case on technicality and cause a grave injustice
to the parties, giving a false impression of speedy disposal of cases
while actually resulting in more delay, if not a miscarriage of
justice.
21

Third, while we affirm that the subject lease agreement is a contract
of adhesion, such a contract is not void per se. It is as binding as any
ordinary contract. A party who enters into an adhesion contract is
free to reject the stipulations entirely.
22
If the terms thereof are
accepted without objection, then the contract serves as the law
between the parties.
In Section 23 of the lease contract, it was expressly stated that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE
23.1. The LESSOR and the LESSEE agree this instrument constitute
the entire agreement between them, and that no representations
have been made other than as set forth herein. This Agreement shall
not be amended or altered in any manner, unless such amendment
be made in writing and signed by the parties hereto.
Petitioners claim that the real intention of the parties was a
contract of sale of personal property on installment basis is more
likely a mere afterthought in order to defeat the rights of the
respondent.
The Lease Contract with corresponding Lease Schedules with
Delivery and Acceptance Certificates is, in point of fact, a financial
lease within the purview of R.A. No. 8556. Section 3(d) thereof
defines "financial leasing" as:
[A] mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires, at the
instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable or
immovable property in consideration of the periodic payment by the
lessee of a fixed amount of money sufficient to amortize at least
seventy (70%) of the purchase price or acquisition cost, including
any incidental expenses and a margin of profit over an obligatory
period of not less than two (2) years during which the lessee has the
right to hold and use the leased property with the right to expense
the lease rentals paid to the lessor and bears the cost of repairs,
maintenance, insurance and preservation thereof, but with no
obligation or option on his part to purchase the leased property
from the owner-lessor at the end of the lease contract.
FEB leased the subject equipment and motor vehicles to JVL in
consideration of a monthly periodic payment ofP170,494.00. The
periodic payment by petitioner is sufficient to amortize at least 70%
of the purchase price or acquisition cost of the said movables in
accordance with the Lease Schedules with Delivery and Acceptance
Certificates. "The basic purpose of a financial leasing transaction is
to enable the prospective buyer of equipment, who is unable to pay
for such equipment in cash in one lump sum, to lease such
equipment in the meantime for his use, at a fixed rental sufficient to
amortize at least 70% of the acquisition cost (including the expenses
and a margin of profit for the financial lessor) with the expectation
that at the end of the lease period the buyer/financial lessee will be
able to pay any remaining balance of the purchase price."
23

The allegation of petitioner that the rent for the use of each movable
constitutes the value of the vehicle or equipment leased is of no
moment. The law on financial lease does not prohibit such a
circumstance and this alone does not make the transaction between
the parties a sale of personal property on installment. In fact, the
value of the lease, usually constituting the value or amount of the
property involved, is a benefit allowed by law to the lessor for the
use of the property by the lessee for the duration of the lease. It is
recognized that the value of these movables depreciates through
wear and tear upon use by the lessee. In Beltran v. PAIC Finance
Corporation,
24
we stated that:
Generally speaking, a financing company is not a buyer or seller of
goods; it is not a trading company. Neither is it an ordinary leasing
company; it does not make its profit by buying equipment and
repeatedly leasing out such equipment to different users thereof.
But a financial lease must be preceded by a purchase and sale
contract covering the equipment which becomes the subject matter
of the financial lease. The financial lessor takes the role of the buyer
of the equipment leased. And so the formal or documentary tie
between the seller and the real buyer of the equipment, i.e., the
financial lessee, is apparently severed. In economic reality, however,
that relationship remains. The sale of the equipment by the supplier
thereof to the financial lessor and the latter's legal ownership
thereof are intended to secure the repayment over time of the
purchase price of the equipment, plus financing charges, through the
payment of lease rentals; that legal title is the upfront security held
by the financial lessor, a security probably superior in some
instances to a chattel mortgagee's lien.
25

Fourth, the validity of Lease No. 27:95:20 between FEB and JVL
should be upheld. JVL entered into the lease contract with full
knowledge of its terms and conditions. The contract was in force for
more than four years. Since its inception on March 9, 1995, JVL and
Lim never questioned its provisions. They only attacked the validity
of the contract after they were judicially made to answer for their
default in the payment of the agreed rentals.
It is settled that the parties are free to agree to such stipulations,
clauses, terms, and conditions as they may want to include in a
contract. As long as such agreements are not contrary to law,
morals, good customs, public policy, or public order, they shall have
the force of law between the parties.
26
Contracting parties may
stipulate on terms and conditions as they may see fit and these have
the force of law between them.
27

The stipulation in Section 14
28
of the lease contract, that the
equipment shall be insured at the cost and expense of the lessee
against loss, damage, or destruction from fire, theft, accident, or
other insurable risk for the full term of the lease, is a binding and
valid stipulation. Petitioner, as a lessee, has an insurable interest in
the equipment and motor vehicles leased. Section 17 of the
Insurance Code provides that the measure of an insurable interest in
property is the extent to which the insured might be damnified by
loss or injury thereof. It cannot be denied that JVL will be directly
damnified in case of loss, damage, or destruction of any of the
properties leased.
Likewise, the stipulation in Section 9.1 of the lease contract that the
lessor does not warrant the merchantability of the equipment is a
valid stipulation. Section 9.1 of the lease contract is stated as:
9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR
IS NOT THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT
NOR THE AGENT OF THE MANUFACTURER OR SUPPLIER
THEREOF. THE LESSEE HEREBY ACKNOWLEDGES THAT IT HAS
SELECTED THE EQUIPMENT AND THE SUPPLIER THEREOF AND
THAT THERE ARE NO WARRANTIES, CONDITIONS, TERMS,
REPRESENTATION OR INDUCEMENTS, EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE, MADE BY OR ON BEHALF OF THE
LESSOR AS TO ANY FEATURE OR ASPECT OF THE EQUIPMENT OR
ANY PART THEREOF, OR AS TO ITS FITNESS, SUITABILITY,
CAPACITY, CONDITION OR MERCHANTABILITY, NOR AS TO
WHETHER THE EQUIPMENT WILL MEET THE REQUIREMENTS OF
ANY LAW, RULE, SPECIFICATIONS OR CONTRACT WHICH PROVIDE
FOR SPECIFIC MACHINERY OR APPARATUS OR SPECIAL
METHODS.
29

In the financial lease agreement, FEB did not assume responsibility
as to the quality, merchantability, or capacity of the equipment. This
stipulation provides that, in case of defect of any kind that will be
found by the lessee in any of the equipment, recourse should be
made to the manufacturer. "The financial lessor, being a financing
company, i.e., an extender of credit rather than an ordinary
equipment rental company, does not extend a warranty of the
fitness of the equipment for any particular use. Thus, the financial
lessee was precisely in a position to enforce such warranty directly
against the supplier of the equipment and not against the financial
lessor. We find nothing contra legem or contrary to public policy in
such a contractual arrangement."
30

Fifth, petitioner further proffers the view that the real intention of
the parties was to enter into a contract of sale on installment in the
same manner that a previous transaction between the parties over a
1995 Mitsubishi L-200 Strada DC-Pick-Up was initially covered by
an agreement denominated as a lease and eventually became the
subject of a Deed of Absolute Sale.
We join the CA in rejecting this view because to allow the
transaction involving the pick-up to be read into the terms of the
lease agreement would expand the coverage of the agreement, in
violation of Article 1372 of the New Civil Code.
31
The lease contract
subject of the complaint speaks only of a lease. Any agreement
between the parties after the lease contract has ended is a different
transaction altogether and should not be included as part of the
lease. Furthermore, it is a cardinal rule in the interpretation of
contracts that if the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning of
its stipulations shall control. No amount of extrinsic aid is necessary
in order to determine the parties' intent.
32

WHEREFORE, in the light of all the foregoing, the petition is DENIED.
The Decision of the CA in CA-G.R. CV No. 77498 dated March 15,
2005 and Resolution dated May 23, 2005 are AFFIRMED. Costs
against petitioner.
SO ORDERED


































2. G.R. No. 175666 July 29, 2013
MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner.
vs.
CRESENCIA P. ABAN, Respondent.
D E C I S I O N
DEL CASTILLO, J.:
The ultimate aim of Section 48 of the Insurance Code is to compel
insurers to solicit business from or provide insurance coverage only
to legitimate and bona fide clients, by requiring them to thoroughly
investigate those they insure within two years from effectivity of the
policy and while the insured is still alive. If they do not, they will be
obligated to honor claims on the policies they issue, regardless of
fraud, concealment or misrepresentation. The law assumes that they
will do just that and not sit on their laurels, indiscriminately
soliciting and accepting insurance business from any Tom, Dick and
Harry.
Assailed in this Petition for Review on Certiorari
1
are the September
28, 2005 Decision
2
of the Court of Appeals' (CA) in CA-G.R. CV No.
62286 and its November 9, 2006 Resolution
3
denying the
petitioners Motion for Reconsideration.
4

Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy
from Manila Bankers Life Insurance Corporation (Bankers Life),
designating respondent Cresencia P. Aban (Aban), her niece,
5
as her
beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a
face value of P100,000.00, in Soteros favor on August 30, 1993,
after the requisite medical examination and payment of the
insurance premium.
6

On April 10, 1996,
7
when the insurance policy had been in force for
more than two years and seven months, Sotero died. Respondent
filed a claim for the insurance proceeds on July 9, 1996. Petitioner
conducted an investigation into the claim,
8
and came out with the
following findings:
1. Sotero did not personally apply for insurance coverage, as
she was illiterate;
2. Sotero was sickly since 1990;
3. Sotero did not have the financial capability to pay the
insurance premiums on Insurance Policy No. 747411;
4. Sotero did not sign the July 3, 1993 application for
insurance;
9
and
5. Respondent was the one who filed the insurance
application, and x x x designated herself as the beneficiary.
10

For the above reasons, petitioner denied respondents claim on April
16, 1997 and refunded the premiums paid on the policy.
11

On April 24, 1997, petitioner filed a civil case for rescission and/or
annulment of the policy, which was docketed as Civil Case No. 97-
867 and assigned to Branch 134 of the Makati Regional Trial Court.
The main thesis of the Complaint was that the policy was obtained
by fraud, concealment and/or misrepresentation under the
Insurance Code,
12
which thus renders it voidable under Article
1390
13
of the Civil Code.
Respondent filed a Motion to Dismiss
14
claiming that petitioners
cause of action was barred by prescription pursuant to Section 48 of
the Insurance Code, which provides as follows:
Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be
exercised previous to the commencement of an action on the
contract.
After a policy of life insurance made payable on the death of the
insured shall have been in force during the lifetime of the insured
for a period of two years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab
initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
During the proceedings on the Motion to Dismiss, petitioners
investigator testified in court, stating among others that the
insurance underwriter who solicited the insurance is a cousin of
respondents husband, Dindo Aban,
15
and that it was the respondent
who paid the annual premiums on the policy.
16

Ruling of the Regional Trial Court
On December 9, 1997, the trial court issued an Order
17
granting
respondents Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABANs Motion to Dismiss is
hereby granted. Civil Case No. 97-867 is hereby dismissed.
SO ORDERED.
18

In dismissing the case, the trial court found that Sotero, and not
respondent, was the one who procured the insurance; thus, Sotero
could legally take out insurance on her own life and validly
designate as she did respondent as the beneficiary. It held
further that under Section 48, petitioner had only two years from
the effectivity of the policy to question the same; since the policy
had been in force for more than two years, petitioner is now barred
from contesting the same or seeking a rescission or annulment
thereof.
Petitioner moved for reconsideration, but in another Order
19
dated
October 20, 1998, the trial court stood its ground.
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV
No. 62286. Petitioner questioned the dismissal of Civil Case No. 97-
867, arguing that the trial court erred in applying Section 48 and
declaring that prescription has set in. It contended that since it was
respondent and not Sotero who obtained the insurance, the
policy issued was rendered void ab initio for want of insurable
interest.
Ruling of the Court of Appeals
On September 28, 2005, the CA issued the assailed Decision, which
contained the following decretal portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is
DISMISSED for lack of merit.
SO ORDERED.
20

The CA thus sustained the trial court. Applying Section 48 to
petitioners case, the CA held that petitioner may no longer prove
that the subject policy was void ab initio or rescindible by reason of
fraudulent concealment or misrepresentation after the lapse of
more than two years from its issuance. It ratiocinated that petitioner
was equipped with ample means to determine, within the first two
years of the policy, whether fraud, concealment or
misrepresentation was present when the insurance coverage was
obtained. If it failed to do so within the statutory two-year period,
then the insured must be protected and allowed to claim upon the
policy.
Petitioner moved for reconsideration,
21
but the CA denied the same
in its November 9, 2006 Resolution.
22
Hence, the present Petition.
Issues
Petitioner raises the following issues for resolution:
I
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE
ORDER OF THE TRIAL COURT DISMISSING THE COMPLAINT ON
THE GROUND OF PRESCRIPTION IN CONTRAVENTION (OF)
PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.
II
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE
APPLICATION OF THE INCONTESTABILITY PROVISION IN THE
INSURANCE CODE BY THE TRIAL COURT.
III
WHETHER THE COURT OF APPEALS ERRED IN DENYING
PETITIONERS MOTION FOR RECONSIDERATION.
23

Petitioners Arguments
In praying that the CA Decision be reversed and that the case be
remanded to the trial court for the conduct of further proceedings,
petitioner argues in its Petition and Reply
24
that Section 48 cannot
apply to a case where the beneficiary under the insurance contract
posed as the insured and obtained the policy under fraudulent
circumstances. It adds that respondent, who was merely Soteros
niece, had no insurable interest in the life of her aunt.
Relying on the results of the investigation that it conducted after the
claim for the insurance proceeds was filed, petitioner insists that
respondents claim was spurious, as it appeared that Sotero did not
actually apply for insurance coverage, was unlettered, sickly, and
had no visible source of income to pay for the insurance premiums;
and that respondent was an impostor, posing as Sotero and
fraudulently obtaining insurance in the latters name without her
knowledge and consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio
and could not have given rise to rights and obligations; as such, the
action for the declaration of its nullity or inexistence does not
prescribe.
25

Respondents Arguments
Respondent, on the other hand, essentially argues in her
Comment
26
that the CA is correct in applying Section 48. She adds
that petitioners new allegation in its Petition that the policy is void
ab initio merits no attention, having failed to raise the same below,
as it had claimed originally that the policy was merely voidable.
On the issue of insurable interest, respondent echoes the CAs
pronouncement that since it was Sotero who obtained the
insurance, insurable interest was present. Under Section 10 of the
Insurance Code, Sotero had insurable interest in her own life, and
could validly designate anyone as her beneficiary. Respondent
submits that the CAs findings of fact leading to such conclusion
should be respected.
Our Ruling
The Court denies the Petition.
The Court will not depart from the trial and appellate courts finding
that it was Sotero who obtained the insurance for herself,
designating respondent as her beneficiary. Both courts are in accord
in this respect, and the Court is loath to disturb this. While
petitioner insists that its independent investigation on the claim
reveals that it was respondent, posing as Sotero, who obtained the
insurance, this claim is no longer feasible in the wake of the courts
finding that it was Sotero who obtained the insurance for herself.
This finding of fact binds the Court.
With the above crucial finding of fact that it was Sotero who
obtained the insurance for herself petitioners case is severely
weakened, if not totally disproved. Allegations of fraud, which are
predicated on respondents alleged posing as Sotero and forgery of
her signature in the insurance application, are at once belied by the
trial and appellate courts finding that Sotero herself took out the
insurance for herself. "Fraudulent intent on the part of the insured
must be established to entitle the insurer to rescind the
contract."
27
In the absence of proof of such fraudulent intent, no
right to rescind arises.
Moreover, the results and conclusions arrived at during the
investigation conducted unilaterally by petitioner after the claim
was filed may simply be dismissed as self-serving and may not form
the basis of a cause of action given the existence and application of
Section 48, as will be discussed at length below.
Section 48 serves a noble purpose, as it regulates the actions of both
the insurer and the insured. Under the provision, an insurer is given
two years from the effectivity of a life insurance contract and while
the insured is alive to discover or prove that the policy is void ab
initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. After the two-year
period lapses, or when the insured dies within the period, the
insurer must make good on the policy, even though the policy was
obtained by fraud, concealment, or misrepresentation. This is not to
say that insurance fraud must be rewarded, but that insurers who
recklessly and indiscriminately solicit and obtain business must be
penalized, for such recklessness and lack of discrimination
ultimately work to the detriment of bona fide takers of insurance
and the public in general.
Section 48 regulates both the actions of the insurers and prospective
takers of life insurance. It gives insurers enough time to inquire
whether the policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns scheming
individuals that their attempts at insurance fraud would be timely
uncovered thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders are
absolutely protected from unwarranted denial of their claims or
delay in the collection of insurance proceeds occasioned by
allegations of fraud, concealment, or misrepresentation by insurers,
claims which may no longer be set up after the two-year period
expires as ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the fact that
both the insurer and the insured are given the assurance that any
dishonest scheme to obtain life insurance would be exposed, and
attempts at unduly denying a claim would be struck down. Life
insurance policies that pass the statutory two-year period are
essentially treated as legitimate and beyond question, and the
individuals who wield them are made secure by the thought that
they will be paid promptly upon claim. In this manner, Section 48
contributes to the stability of the insurance industry.
Section 48 prevents a situation where the insurer knowingly
continues to accept annual premium payments on life insurance,
only to later on deny a claim on the policy on specious claims of
fraudulent concealment and misrepresentation, such as what
obtains in the instant case. Thus, instead of conducting at the first
instance an investigation into the circumstances surrounding the
issuance of Insurance Policy No. 747411 which would have timely
exposed the supposed flaws and irregularities attending it as it now
professes, petitioner appears to have turned a blind eye and opted
instead to continue collecting the premiums on the policy. For
nearly three years, petitioner collected the premiums and devoted
the same to its own profit. It cannot now deny the claim when it is
called to account. Section 48 must be applied to it with full force and
effect.
The Court therefore agrees fully with the appellate courts
pronouncement that
the "incontestability clause" is a provision in law that after a policy
of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is rescindible
by reason of fraudulent concealment or misrepresentation of the
insured or his agent.
The purpose of the law is to give protection to the insured or his
beneficiary by limiting the rescinding of the contract of insurance on
the ground of fraudulent concealment or misrepresentation to a
period of only two (2) years from the issuance of the policy or its
last reinstatement.
The insurer is deemed to have the necessary facilities to discover
such fraudulent concealment or misrepresentation within a period
of two (2) years. It is not fair for the insurer to collect the premiums
as long as the insured is still alive, only to raise the issue of
fraudulent concealment or misrepresentation when the insured dies
in order to defeat the right of the beneficiary to recover under the
policy.
At least two (2) years from the issuance of the policy or its last
reinstatement, the beneficiary is given the stability to recover under
the policy when the insured dies. The provision also makes clear
when the two-year period should commence in case the policy
should lapse and is reinstated, that is, from the date of the last
reinstatement.
After two years, the defenses of concealment or misrepresentation,
no matter how patent or well-founded, will no longer lie.
Congress felt this was a sufficient answer to the various tactics
employed by insurance companies to avoid liability.
The so-called "incontestability clause" precludes the insurer from
raising the defenses of false representations or concealment of
material facts insofar as health and previous diseases are concerned
if the insurance has been in force for at least two years during the
insureds lifetime. The phrase "during the lifetime" found in Section
48 simply means that the policy is no longer considered in force
after the insured has died. The key phrase in the second paragraph
of Section 48 is "for a period of two years."
As borne by the records, the policy was issued on August 30, 1993,
the insured died on April 10, 1996, and the claim was denied on
April 16, 1997. The insurance policy was thus in force for a period of
3 years, 7 months, and 24 days. Considering that the insured died
after the two-year period, the plaintiff-appellant is, therefore, barred
from proving that the policy is void ab initio by reason of the
insureds fraudulent concealment or misrepresentation or want of
insurable interest on the part of the beneficiary, herein defendant-
appellee.
Well-settled is the rule that it is the plaintiff-appellants burden to
show that the factual findings of the trial court are not based on
substantial evidence or that its conclusions are contrary to
applicable law and jurisprudence. The plaintiff-appellant failed to
discharge that burden.
28

Petitioner claims that its insurance agent, who solicited the Sotero
account, happens to be the cousin of respondents husband, and thus
insinuates that both connived to commit insurance fraud. If this
were truly the case, then petitioner would have discovered the
scheme earlier if it had in earnest conducted an investigation into
the circumstances surrounding the Sotero policy. But because it did
not and it investigated the Sotero account only after a claim was
filed thereon more than two years later, naturally it was unable to
detect the scheme. For its negligence and inaction, the Court cannot
sympathize with its plight. Instead, its case precisely provides the
strong argument for requiring insurers to diligently conduct
investigations on each policy they issue within the two-year period
mandated under Section 48, and not after claims for insurance
proceeds are filed with them.
Besides, if insurers cannot vouch for the integrity and honesty of
their insurance agents/salesmen and the insurance policies they
issue, then they should cease doing business. If they could not
properly screen their agents or salesmen before taking them in to
market their products, or if they do not thoroughly investigate the
insurance contracts they enter into with their clients, then they have
only themselves to blame. Otherwise said, insurers cannot be
allowed to collect premiums on insurance policies, use these
amounts collected and invest the same through the years,
generating profits and returns therefrom for their own benefit, and
thereafter conveniently deny insurance claims by questioning the
authority or integrity of their own agents or the insurance policies
they issued to their premium-paying clients. This is exactly one of
the schemes which Section 48 aims to prevent.
Insurers may not be allowed to delay the payment of claims by filing
frivolous cases in court, hoping that the inevitable may be put off for
years or even decades by the pendency of these unnecessary
court cases. In the meantime, they benefit from collecting the
interest and/or returns on both the premiums previously paid by
the insured and the insurance proceeds which should otherwise go
to their beneficiaries. The business of insurance is a highly regulated
commercial activity in the country,
29
and is imbued with public
interest.
30
"An insurance contract is a contract of adhesion which
must be construed liberally in favor of the insured and strictly
against the insurer in order to safeguard the formers interest."
31

WHEREFORE, the Petition is DENIED. The assailed September 28,
2005 Decision and the November 9, 2006 Resolution of the Court of
Appeals in CA-G.R. CV No. 62286 are AFFIRMED.
SO ORDERED.





























3. G.R. No. 200784 August 7, 2013
MALAYAN INSURANCE COMPANY, INC., PETITIONER,
vs.
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
D E C I S I O N
MENDOZA, J.:
Challenged in this petition for review on certiorari under Rule 45 of
the Rules of Court is the October 27, 2011 Decision
1
of the Court of
Appeals (CA), which affirmed with modification the September 17,
2009 Decision
2
of the Regional Trial Court, Branch 15, Manila (RTC),
and its February 24, 2012 Resolution
3
denying the motion for
reconsideration filed by petitioner Malayan Insurance Company.,
Inc. (Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by
the CA as follows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued
Fire Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.)
for the latters machineries and equipment located at Sanyo
Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario,
Cavite (Sanyo Building). The insurance, which was for Fifteen
Million Pesos (?15,000,000.00) and effective for a period of one (1)
year, was procured by PAP Co. for Rizal Commercial Banking
Corporation (RCBC), the mortgagee of the insured machineries and
equipment.
After the passage of almost a year but prior to the expiration of the
insurance coverage, PAP Co. renewed the policy on an "as is" basis.
Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-
00227-000079, was issued by Malayan to PAP Co. for the period
May 13, 1997 to May 13, 1998.
On October 12, 1997 and during the subsistence of the renewal
policy, the insured machineries and equipment were totally lost by
fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the
amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim
upon the ground that, at the time of the loss, the insured
machineries and equipment were transferred by PAP Co. to a
location different from that indicated in the policy. Specifically, that
the insured machineries were transferred in September 1996 from
the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase
III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial, PAP
Co. argued that Malayan cannot avoid liability as it was informed of
the transfer by RCBC, the party duty-bound to relay such
information. However, Malayan reiterated its denial of PAP Co.s
claim. Distraught, PAP Co. filed the complaint below against
Malayan.
4

Ruling of the RTC
On September 17, 2009, the RTC handed down its decision, ordering
Malayan to pay PAP Company Ltd (PAP) an indemnity for the loss
under the fire insurance policy as well as for attorneys fees. The
dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff. Defendant is hereby ordered:
a)
To pay plaintiff the sum of FIFTEEN MILLION PESOS
(P15,000,000.00) as and for indemnity for the loss under the fire
insurance policy, plus interest thereon at the rate of 12% per annum
from the time of loss on October 12, 1997 until fully paid;
b)
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS
(PhP500,000.00) as and by way of attorneys fees; [and,]
c)
To pay the costs of suit.
SO ORDERED.
5

The RTC explained that Malayan is liable to indemnify PAP for the
loss under the subject fire insurance policy because, although there
was a change in the condition of the thing insured as a result of the
transfer of the subject machineries to another location, said
insurance company failed to show proof that such transfer resulted
in the increase of the risk insured against. In the absence of proof
that the alteration of the thing insured increased the risk, the
contract of fire insurance is not affected per Article 169 of the
Insurance Code.
The RTC further stated that PAPs notice to Rizal Commercial
Banking Corporation (RCBC) sufficiently complied with the notice
requirement under the policy considering that it was RCBC which
procured the insurance. PAP acted in good faith in notifying RCBC
about the transfer and the latter even conducted an inspection of the
machinery in its new location.
Not contented, Malayan appealed the RTC decision to the CA
basically arguing that the trial court erred in ordering it to
indemnify PAP for the loss of the subject machineries since the
latter, without notice and/or consent, transferred the same to a
location different from that indicated in the fire insurance policy.
Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which
affirmed the RTC decision but deleted the attorneys fees. The
decretal portion of the CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified,
Malayan Insurance Company must indemnify PAP Co. Ltd the
amount of Fifteen Million Pesos (PhP15,000,000.00) for the loss
under the fire insurance policy, plus interest thereon at the rate of
12% per annum from the time of loss on October 12, 1997 until fully
paid. However, the Five Hundred Thousand Pesos (PhP500,000.00)
awarded to PAP Co., Ltd. as attorneys fees is DELETED. With costs.
SO ORDERED.
6

The CA wrote that Malayan failed to show proof that there was a
prohibition on the transfer of the insured properties during the
efficacy of the insurance policy. Malayan also failed to show that its
contractual consent was needed before carrying out a transfer of the
insured properties. Despite its bare claim that the original and the
renewed insurance policies contained provisions on transfer
limitations of the insured properties, Malayan never cited the
specific provisions.
The CA further stated that even if there was such a provision on
transfer restrictions of the insured properties, still Malayan could
not escape liability because the transfer was made during the
subsistence of the original policy, not the renewal policy. PAP
transferred the insured properties from the Sanyo Factory to the
Pace Pacific Building (Pace Factory) sometime in September 1996.
Therefore, Malayan was aware or should have been aware of such
transfer when it issued the renewal policy on May 14, 1997. The CA
opined that since an insurance policy was a contract of adhesion,
any ambiguity must be resolved against the party that prepared the
contract, which, in this case, was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of
the insured properties increased the risk of the loss. It, thus, could
not use such transfer as an excuse for not paying the indemnity to
PAP. Although the insurance proceeds were payable to RCBC, PAP
could still sue Malayan to enforce its rights on the policy because it
remained a party to the insurance contract.
Not in conformity with the CA decision, Malayan filed this petition
for review anchored on the following
GROUNDS
I
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER
NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE
DECISIONS OF THE HONORABLE COURT WHEN IT AFFIRMED THE
DECISION OF THE TRIAL COURT AND THUS RULING IN THE
QUESTIONED DECISION AND RESOLUTION THAT PETITIONER
MALAYAN IS LIABLE UNDER THE INSURANCE CONTRACT
BECAUSE:
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS,
PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT
DENIED, THAT ON THE FACE OF THE RENEWAL POLICY ISSUED TO
RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR
A REPRESENTATION MADE BY THE INSURED THAT THE
"LOCATION OF THE RISK" WAS AT THE SANYO BUILDING. IT IS
LIKEWISE UNDISPUTED THAT WHEN THE RENEWAL POLICY WAS
ISSUED TO RESPONDENT PAP CO., THE INSURED PROPERTIES
WERE NOT AT THE SANYO BUILDING BUT WERE AT A DIFFERENT
LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS
DIFFERENT LOCATION WHEN THE LOSS INSURED AGAINST
OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF
ALREADY ENTITLES PETITIONER MALAYAN TO CONSIDER THE
RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW, BECAUSE
OF CONCEALMENT, MISREPRESENTATION AND BREACH OF AN
AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 AND 74 IN
RELATION TO SECTION 31 OF THE INSURANCE CODE,
RESPECTIVELY.
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID
NOT COMMIT CONCEALMENT, MISREPRESENTATION OR BREACH
OF AN AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE
THAT IT INFORMED PETITIONER MALAYAN THAT THE INSURED
PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION
DIFFERENT FROM WHAT WAS INDICATED IN THE INSURANCE
POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT
THERE ARE CONDITIONS AND LIMITATIONS TO THE RENEWAL
POLICY WHICH ARE THE REASONS WHY ITS CLAIM WAS DENIED
IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT
RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND
LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE FOCUSED
ON ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED
PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE
INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT
THERE WAS AN INCREASE IN RISK BECAUSE OF THE UNILATERAL
TRANSFER OF THE INSURED PROPERTIES. IN FACT, THIS PIECE OF
EVIDENCE WAS UNREBUTTED BY RESPONDENT PAP CO.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY,
THE LAW AND ESTABLISHED DECISIONS OF THE HONORABLE
COURT WHEN IT IMPOSED INTEREST AT THE RATE OF TWELVE
PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL
FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN
INSURANCE POLICY IS NOT A LOAN OR FORBEARANCE OF MONEY
FROM WHICH A BREACH ENTITLES A PLAINTIFF TO AN AWARD OF
INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER
ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE
CODE SHOULD NOT HAVE BEEN APPLIED BY THE COURT OF
APPEALS BECAUSE THERE WAS NEVER ANY FINDING THAT
PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD
THE PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE
FIRST PLACE, THERE WAS A LEGITIMATE DISPUTE OR
DIFFERENCE IN OPINION ON WHETHER RESPONDENT PAP CO.
COMMITTED CONCEALMENT, MISREPRESENTATION AND BREACH
OF AN AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER
MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO
CONSIDER THE CLAIM AS VOIDED.
III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER
NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE
DECISIONS OF THE HONORABLE COURT WHEN IT AGREED WITH
THE TRIAL COURT AND HELD IN THE QUESTIONED DECISION
THAT THE PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE
TO RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A
MORTGAGEE CLAUSE IN THE INSURANCE POLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM
ESTABLISHED LAW AND JURISPRUDENCE WHEN IT HELD IN THE
QUESTIONED DECISION AND RESOLUTION THAT THE
INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE
ADOPTED.
7

Malayan basically argues that it cannot be held liable under the
insurance contract because PAP committed concealment,
misrepresentation and breach of an affirmative warranty under the
renewal policy when it transferred the location of the insured
properties without informing it. Such transfer affected the correct
estimation of the risk which should have enabled Malayan to decide
whether it was willing to assume such risk and, if so, at what rate of
premium. The transfer also affected Malayans ability to control the
risk by guarding against the increase of the risk brought about by
the change in conditions, specifically the change in the location of
the risk.
Malayan claims that PAP concealed a material fact in violation of
Section 27 of the Insurance Code
8
when it did not inform Malayan of
the actual and new location of the insured properties. In fact, before
the issuance of the renewal policy on May 14, 1997, PAP even
informed it that there would be no changes in the renewal policy.
Malayan also argues that PAP is guilty of breach of warranty under
the renewal policy in violation of Section 74 of the Insurance
Code
9
when, contrary to its affirmation in the renewal policy that
the insured properties were located at the Sanyo Factory, these
were already transferred to the Pace Factory. Malayan adds that
PAP is guilty of misrepresentation upon a material fact in violation
of Section 45 of the Insurance Code
10
when it informed Malayan that
there would be no changes in the original policy, and that the
original policy would be renewed on an "as is" basis.
Malayan further argues that PAP failed to discharge the burden of
proving that the transfer of the insured properties under the
insurance policy was with its knowledge and consent. Granting that
PAP informed RCBC of the transfer or change of location of the
insured properties, the same is irrelevant and does not bind
Malayan considering that RCBC is a corporation vested with
separate and distinct juridical personality. Malayan did not consent
to be the principal of RCBC. RCBC did not also act as Malayans
representative.
With regard to the alleged increase of risk, Malayan insists that
there is evidence of an increase in risk as a result of the unilateral
transfer of the insured properties. According to Malayan, the Sanyo
Factory was occupied as a factory of automotive/computer parts by
the assured and factory of zinc & aluminum die cast and plastic gear
for copy machine by Sanyo Precision Phils., Inc. with a rate of
0.449% under 6.1.2 A, while Pace Factory was occupied as factory
that repacked silicone sealant to plastic cylinders with a rate of
0.657% under 6.1.2 A.
PAPs position
On the other hand, PAP counters that there is no evidence of any
misrepresentation, concealment or deception on its part and that its
claim is not fraudulent. It insists that it can still sue to protect its
rights and interest on the policy notwithstanding the fact that the
proceeds of the same was payable to RCBC, and that it can collect
interest at the rate of 12% per annum on the proceeds of the policy
because its claim for indemnity was unduly delayed without legal
justification.
The Courts Ruling
The Court agrees with the position of Malayan that it cannot be held
liable for the loss of the insured properties under the fire insurance
policy.
As can be gleaned from the pleadings, it is not disputed that on May
13, 1996, PAP obtained a ?15,000,000.00 fire insurance policy from
Malayan covering its machineries and equipment effective for one
(1) year or until May 13, 1997; that the policy expressly stated that
the insured properties were located at "Sanyo Precision Phils.
Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite"; that
before its expiration, the policy was renewed
11
on an "as is" basis for
another year or until May 13, 1998; that the subject properties were
later transferred to the Pace Factory also in PEZA; and that on
October 12, 1997, during the effectivity of the renewal policy, a fire
broke out at the Pace Factory which totally burned the insured
properties.
The policy forbade the removal of the insured properties unless
sanctioned by Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to
attach as regards the property affected unless the insured, before
the occurrence of any loss or damage, obtains the sanction of the
company signified by endorsement upon the policy, by or on behalf
of the Company:
x x x x x x x x x
(c) If property insured be removed to any building or place other
than in that which is herein stated to be insured.
12

Evidently, by the clear and express condition in the renewal policy,
the removal of the insured property to any building or place
required the consent of Malayan. Any transfer effected by the
insured, without the insurers consent, would free the latter from
any liability.
The respondent failed to notify, and to obtain the consent of,
Malayan regarding the removal
The records are bereft of any convincing and concrete evidence that
Malayan was notified of the transfer of the insured properties from
the Sanyo factory to the Pace factory. The Court has combed the
records and found nothing that would show that Malayan was duly
notified of the transfer of the insured properties.
What PAP did to prove that Malayan was notified was to show that it
relayed the fact of transfer to RCBC, the entity which made the
referral and the named beneficiary in the policy. Malayan and RCBC
might have been sister companies, but such fact did not make one an
agent of the other. The fact that RCBC referred PAP to Malayan did
not clothe it with authority to represent and bind the said insurance
company. After the referral, PAP dealt directly with Malayan.
The respondent overlooked the fact that during the November 9,
2006 hearing,
13
its counsel stipulated in open court that it was
Malayans authorized insurance agent, Rodolfo Talusan, who
procured the original policy from Malayan, not RCBC. This was the
reason why Talusans testimony was dispensed with.
Moreover, in the previous hearing held on November 17,
2005,
14
PAPs hostile witness, Alexander Barrera, Administrative
Assistant of Malayan, testified that he was the one who procured
Malayans renewal policy, not RCBC, and that RCBC merely referred
fire insurance clients to Malayan. He stressed, however, that no
written referral agreement exists between RCBC and Malayan. He
also denied that PAP notified Malayan about the transfer before the
renewal policy was issued. He added that PAP, through Maricar
Jardiniano (Jardiniano), informed him that the fire insurance would
be renewed on an "as is basis."
15

Granting that any notice to RCBC was binding on Malayan, PAPs
claim that it notified RCBC and Malayan was not indubitably
established. At best, PAP could only come up with the hearsay
testimony of its principal witness, Branch Manager Katsumi Yoneda
(Mr. Yoneda), who testified as follows:
Q
What did you do as Branch Manager of Pap Co. Ltd.?
A
What I did I instructed my Secretary, because these equipment was
bank loan and because of the insurance I told my secretary to notify.
Q
To notify whom?
A
I told my Secretary to inform the bank.
Q
You are referring to RCBC?
A
Yes, sir.
x x x x
Q
After the RCBC was informed in the manner you stated, what did
you do regarding the new location of these properties at Pace Pacific
Bldg. insofar as Malayan Insurance Company is concerned?
A
After that transfer, we informed the RCBC about the transfer of the
equipment and also Malayan Insurance but we were not able to
contact Malayan Insurance so I instructed again my secretary to
inform Malayan about the transfer.
Q
Who was the secretary you instructed to contact Malayan Insurance,
the defendant in this case?
A
Dory Ramos.
Q
How many secretaries do you have at that time in your office?
A
Only one, sir.
Q
Do you know a certain Maricar Jardiniano?
A
Yes, sir.
Q
Why do you know her?
A
Because she is my secretary.
Q
So how many secretaries did you have at that time?
A
Two, sir.
Q
What happened with the instruction that you gave to your secretary
Dory Ramos about the matter of informing the defendant Malayan
Insurance Co of the new location of the insured properties?
A
She informed me that the notification was already given to Malayan
Insurance.
Q
Aside from what she told you how did you know that the
information was properly relayed by the said secretary, Dory
Ramos, to Malayan Insurance?
A
I asked her, Dory Ramos, did you inform Malayan Insurance and she
said yes, sir.
Q
Now after you were told by your secretary, Dory Ramos, that she
was able to inform Malayan Insurance Company about the transfer
of the properties insured to the new location, do you know what
happened insofar this information was given to the defendant
Malayan Insurance?
A
I heard that someone from Malayan Insurance came over to our
company.
Q
Did you come to know who was that person who came to your place
at Pace Pacific?
A
I do not know, sir.
Q
How did you know that this person from Malayan Insurance came to
your place?
A
It is according to the report given to me.
Q
Who gave that report to you?
A
Dory Ramos.
Q
Was that report in writing or verbally done?
A
Verbal.
16
[Emphases supplied]
The testimony of Mr. Yoneda consisted of hearsay matters. He
obviously had no personal knowledge of the notice to either
Malayan or RCBC. PAP should have presented his secretaries, Dory
Ramos and Maricar Jardiniano, at the witness stand. His testimony
alone was unreliable.
Moreover, the Court takes note of the fact that Mr. Yoneda admitted
that the insured properties were transferred to a different location
only after the renewal of the fire insurance policy.
COURT
Q
When did you transfer the machineries and equipments before the
renewal or after the renewal of the insurance?
A
After the renewal.
COURT
Q
You understand my question?
A
Yes, Your Honor.
17
[Emphasis supplied]
This enfeebles PAPs position that the subject properties were
already transferred to the Pace factory before the policy was
renewed.
The transfer from the Sanyo Factory to the PACE Factory increased
the risk.
The courts below held that even if Malayan was not notified thereof,
the transfer of the insured properties to the Pace Factory was
insignificant as it did not increase the risk.
Malayan argues that the change of location of the subject properties
from the Sanyo Factory to the Pace Factory increased the hazard to
which the insured properties were exposed. Malayan wrote:
With regards to the exposure of the risk under the old location, this
was occupied as factory of automotive/computer parts by the
assured, and factory of zinc & aluminum die cast, plastic gear for
copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449%
under 6.1.2 A. But under Pace Pacific Mfg. Corporation this was
occupied as factory that repacks silicone sealant to plastic cylinders
with a rate of 0.657% under 6.1.2 A. Hence, there was an increase in
the hazard as indicated by the increase in rate.
18

The Court agrees with Malayan that the transfer to the Pace Factory
exposed the properties to a hazardous environment and negatively
affected the fire rating stated in the renewal policy. The increase in
tariff rate from 0.449% to 0.657% put the subject properties at a
greater risk of loss. Such increase in risk would necessarily entail an
increase in the premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very
crucial point. Despite the importance of the issue, PAP failed to
refute Malayans argument on the increased risk.
Malayan is entitled to rescind the insurance contract
Considering that the original policy was renewed on an "as is basis,"
it follows that the renewal policy carried with it the same
stipulations and limitations. The terms and conditions in the
renewal policy provided, among others, that the location of the risk
insured against is at the Sanyo factory in PEZA. The subject insured
properties, however, were totally burned at the Pace Factory.
Although it was also located in PEZA, Pace Factory was not the
location stipulated in the renewal policy. There being an
unconsented removal, the transfer was at PAPs own risk.
Consequently, it must suffer the consequences of the fire. Thus, the
Court agrees with the report of Cunningham Toplis Philippines, Inc.,
an international loss adjuster which investigated the fire incident at
the Pace Factory, which opined that "[g]iven that the location of risk
covered under the policy is not the location affected, the policy will,
therefore, not respond to this loss/claim."
19

It can also be said that with the transfer of the location of the subject
properties, without notice and without Malayans consent, after the
renewal of the policy, PAP clearly committed concealment,
misrepresentation and a breach of a material warranty. Section 26
of the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and
ought to communicate, is called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is
entitled to rescind the insurance contract in case of an alteration in
the use or condition of the thing insured. Section 168 of the
Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured
from that to which it is limited by the policy made without the
consent of the insurer, by means within the control of the insured,
and increasing the risks, entitles an insurer to rescind a contract of
fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance
contract when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insureds
control; and
5) the alteration increases the risk of loss.
20

In the case at bench, all these circumstances are present. It was
clearly established that the renewal policy stipulated that the
insured properties were located at the Sanyo factory; that PAP
removed the properties without the consent of Malayan; and that
the alteration of the location increased the risk of loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals
is hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance
Company, Inc. is hereby declared NOT liable for the loss of the
insured machineries and equipment suffered by PAP Co., Ltd.
SO ORDERED.




4. G.R. No. 159213 July 3, 2013
VECTOR SHIPPING CORPORATION and FRANCISCO
SORIANO, Petitioners,
vs.
AMERICAN HOME ASSURANCE COMPANY and SULPICIO LINES,
INC., Respondents.
D E C I S I O N
BERSAMIN, J.:
Subrogation under Article 2207 of the Civil Code gives rise to a
cause of action created by law. For purposes of the law on the
prescription of actions, the period of limitation is ten years.
The Case
Vector Shipping Corporation (Vector) and Francisco Soriano appeal
the decision promulgated on July 22, 2003,
1
whereby the Court of
Appeals (CA) held them jointly and severally liable to pay P7
,455,421.08 to American Home Assurance Company (respondent) as
and by way of actual damages on the basis of respondent being the
subrogee of its insured Caltex Philippines, Inc. (Caltex).
Antecedents
Vector was the operator of the motor tanker M/T Vector, while
Soriano was the registered owner of the M/T Vector. Respondent is
a domestic insurance corporation.
2

On September 30, 1987, Caltex entered into a contract of
Affreightment
3
with Vector for the transport of Caltexs petroleum
cargo through the M/T Vector. Caltex insured the petroleum cargo
with respondent for P7,455,421.08 under Marine Open Policy No.
34-5093-6.
4
In the evening of December 20, 1987, the M/T Vector
and the M/V Doa Paz, the latter a vessel owned and operated by
Sulpicio Lines, Inc., collided in the open sea near Dumali Point in
Tablas Strait, located between the Provinces of Marinduque and
Oriental Mindoro. The collision led to the sinking of both vessels.
The entire petroleum cargo of Caltex on board the M/T Vector
perished.
5
On July 12, 1988, respondent indemnified Caltex for the
loss of the petroleum cargo in the full amount of P7,455,421.08.
6

On March 5, 1992, respondent filed a complaint against Vector,
Soriano, and Sulpicio Lines, Inc. to recover the full amount
of P7,455,421.08 it paid to Caltex (Civil Case No. 92-620).
7
The case
was raffled to Branch 145 of the Regional Trial Court (RTC) in
Makati City.
On December 10, 1997, the RTC issued a resolution dismissing Civil
Case No. 92-620 on the following grounds:
This action is upon a quasi-delict and as such must be commenced
within four 4 years from the day they may be brought. [Art. 1145 in
relation to Art. 1150, Civil Code] "From the day [the action] may be
brought" means from the day the quasi-delict occurred. [Capuno v.
Pepsi Cola, 13 SCRA 663]
The tort complained of in this case occurred on 20 December 1987.
The action arising therefrom would under the law prescribe, unless
interrupted, on 20 December 1991.
When the case was filed against defendants Vector Shipping and
Francisco Soriano on 5 March 1992, the action not having been
interrupted, had already prescribed.
Under the same situation, the cross-claim of Sulpicio Lines against
Vector Shipping and Francisco Soriano filed on 25 June 1992 had
likewise prescribed.
The letter of demand upon defendant Sulpicio Lines allegedly on 6
November 1991 did not interrupt the tolling of the prescriptive
period since there is no evidence that it was actually received by the
addressee. Under such circumstances, the action against Sulpicio
Lines had likewise prescribed.
Even assuming that such written extra-judicial demand was
received and the prescriptive period interrupted in accordance with
Art. 1155, Civil Code, it was only for the 10-day period within which
Sulpicio Lines was required to settle its obligation. After that period
lapsed, the prescriptive period started again. A new 4-year period to
file action was not created by the extra-judicial demand; it merely
suspended and extended the period for 10 days, which in this case
meant that the action should be commenced by 30 December 1991,
rather than 20 December 1991.
Thus, when the complaint against Sulpicio Lines was filed on 5
March 1992, the action had prescribed.
PREMISES CONSIDERED, the complaint of American Home
Assurance Company and the cross-claim of Sulpicio Lines against
Vector Shipping Corporation and Francisco Soriano are DISMISSED.
Without costs.
SO ORDERED.
8

Respondent appealed to the CA, which promulgated its assailed
decision on July 22, 2003 reversing the RTC.
9
Although thereby
absolving Sulpicio Lines, Inc. of any liability to respondent, the CA
held Vector and Soriano jointly and severally liable to respondent
for the reimbursement of the amount of P7,455,421.08 paid to
Caltex, explaining:
x x x x
The resolution of this case is primarily anchored on the
determination of what kind of relationship existed between Caltex
and M/V Dona Paz and between Caltex and M/T Vector for purposes
of applying the laws on prescription. The Civil Code expressly
provides for the number of years before the extinctive prescription
sets in depending on the relationship that governs the parties.
x x x x
After a careful perusal of the factual milieu and the evidence
adduced by the parties, We are constrained to rule that the
relationship that existed between Caltex and M/V Dona Paz is that of
a quasi-delict while that between Caltex and M/T Vector is culpa
contractual based on a Contract of Affreightment or a charter party.
x x x x
On the other hand, the claim of appellant against M/T Vector is
anchored on a breach of contract of affreightment. The appellant
averred that M/T Vector committed such act for having
misrepresented to the appellant that said vessel is seaworthy when
in fact it is not. The contract was executed between Caltex and M/T
Vector on September 30, 1987 for the latter to transport thousands
of barrels of different petroleum products. Under Article 1144 of the
New Civil Code, actions based on written contract must be brought
within 10 years from the time the right of action accrued. A
passenger of a ship, or his heirs, can bring an action based on culpa
contractual within a period of 10 years because the ticket issued for
the transportation is by itself a complete written contract (Peralta
de Guerrero vs. Madrigal Shipping Co., L 12951, November 17,
1959).
Viewed with reference to the statute of limitations, an action against
a carrier, whether of goods or of passengers, for injury resulting
from a breach of contract for safe carriage is one on contract, and
not in tort, and is therefore, in the absence of a specific statute
relating to such actions governed by the statute fixing the period
within which actions for breach of contract must be brought (53
C.J.S. 1002 citing Southern Pac. R. Co. of Mexico vs. Gonzales 61 P. 2d
377, 48 Ariz. 260, 106 A.L.R. 1012).
Considering that We have already concluded that the prescriptive
periods for filing action against M/V Doa Paz based on quasi delict
and M/T Vector based on breach of contract have not yet expired,
are We in a position to decide the appeal on its merit.
We say yes.
x x x x
Article 2207 of the Civil Code on subrogation is explicit that if the
plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company
should be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
Undoubtedly, the herein appellant has the rights of a subrogee to
recover from M/T Vector what it has paid by way of indemnity to
Caltex.
WHEREFORE, foregoing premises considered, the decision dated
December 10, 1997 of the RTC of Makati City, Branch 145 is hereby
REVERSED. Accordingly, the defendant-appellees Vector Shipping
Corporation and Francisco Soriano are held jointly and severally
liable to the plaintiff-appellant American Home Assurance Company
for the payment of P7,455,421.08 as and by way of actual damages.
SO ORDERED.
10

Respondent sought the partial reconsideration of the decision of the
CA, contending that Sulpicio Lines, Inc. should also be held jointly
liable with Vector and Soriano for the actual damages awarded.
11
On
their part, however, Vector and Soriano immediately appealed to the
Court on September 12, 2003.
12
Thus, on October 1, 2003, the CA
held in abeyance its action on respondents partial motion for
reconsideration pursuant to its internal rules until the Court has
resolved this appeal.
13

Issues
The main issue is whether this action of respondent was already
barred by prescription for bringing it only on March 5, 1992. A
related issue concerns the proper determination of the nature of the
cause of action as arising either from a quasi-delict or a breach of
contract.
The Court will not pass upon whether or not Sulpicio Lines, Inc.
should also be held jointly liable with Vector and Soriano for the
actual damages claimed.
Ruling
The petition lacks merit.
Vector and Soriano posit that the RTC correctly dismissed
respondents complaint on the ground of prescription. They insist
that this action was premised on a quasi-delict or upon an injury to
the rights of the plaintiff, which, pursuant to Article 1146 of the Civil
Code, must be instituted within four years from the time the cause of
action accrued; that because respondents cause of action accrued
on December 20, 1987, the date of the collision, respondent had only
four years, or until December 20, 1991, within which to bring its
action, but its complaint was filed only on March 5, 1992, thereby
rendering its action already barred for being commenced beyond
the four-year prescriptive period;
14
and that there was no showing
that respondent had made extrajudicial written demands upon them
for the reimbursement of the insurance proceeds as to interrupt the
running of the prescriptive period.
15

We concur with the CAs ruling that respondents action did not yet
prescribe. The legal provision governing this case was not Article
1146 of the Civil Code,
16
but Article 1144 of the Civil Code, which
states:
Article 1144. The following actions must be brought within ten
years from the time the cause of action accrues:
(1)Upon a written contract;
(2)Upon an obligation created by law;
(3)Upon a judgment.
We need to clarify, however, that we cannot adopt the CAs
characterization of the cause of action as based on the contract of
affreightment between Caltex and Vector, with the breach of
contract being the failure of Vector to make the M/T Vector
seaworthy, as to make this action come under Article 1144 (1),
supra. Instead, we find and hold that that the present action was not
upon a written contract, but upon an obligation created by law.
Hence, it came under Article 1144 (2) of the Civil Code. This is
because the subrogation of respondent to the rights of Caltex as the
insured was by virtue of the express provision of law embodied in
Article 2207 of the Civil Code, to wit:
Article 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
(Emphasis supplied)
The juridical situation arising under Article 2207 of the Civil Code is
well explained in Pan Malayan Insurance Corporation v. Court of
Appeals,
17
as follows:
Article 2207 of the Civil Code is founded on the well-settled
principle of subrogation.1wphi1 If the insured property is
destroyed or damaged through the fault or negligence of a party
other than the assured, then the insurer, upon payment to the
assured, will be subrogated to the rights of the assured to recover
from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operates as
an equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or
wrongful act caused the loss.1wphi1 The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment
of the insurance claim by the insurer [Compania Maritima v.
Insurance Company of North America, G.R. No. L-18965, October 30,
1964, 12 SCRA 213; Firemans Fund Insurance Company v. Jamilla &
Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].
18

Verily, the contract of affreightment that Caltex and Vector entered
into did not give rise to the legal obligation of Vector and Soriano to
pay the demand for reimbursement by respondent because it
concerned only the agreement for the transport of Caltexs
petroleum cargo. As the Court has aptly put it in Pan Malayan
Insurance Corporation v. Court of Appeals, supra, respondents right
of subrogation pursuant to Article 2207, supra, was "not dependent
upon, nor did it grow out of, any privity of contract or upon written
assignment of claim but accrued simply upon payment of the
insurance claim by the insurer."
Considering that the cause of action accrued as of the time
respondent actually indemnified Caltex in the amount
of P7,455,421.08 on July 12, 1988,
19
the action was not yet barred
by the time of the filing of its complaint on March 5, 1992,
20
which
was well within the 10-year period prescribed by Article 1144 of the
Civil Code.
The insistence by Vector and Soriano that the running of the
prescriptive period was not interrupted because of the failure of
respondent to serve any extrajudicial demand was rendered
inconsequential by our foregoing finding that respondents cause of
action was not based on a quasi-delict that prescribed in four years
from the date of the collision on December 20, 1987, as the RTC
misappreciated, but on an obligation created by law, for which the
law fixed a longer prescriptive period of ten years from the accrual
of the action.
Still, Vector and Soriano assert that respondent had no right of
subrogation to begin with, because the complaint did not allege that
respondent had actually paid Caltex for the loss of the cargo. They
further assert that the subrogation receipt submitted by respondent
was inadmissible for not being properly identified by Ricardo C.
Ongpauco, respondents witness, who, although supposed to identify
the subrogation receipt based on his affidavit, was not called to
testify in court; and that respondent presented only one witness in
the person of Teresita Espiritu, who identified Marine Open Policy
No. 34-5093-6 issued by respondent to Caltex.
21

We disagree with petitioners assertions. It is undeniable that
respondent preponderantly established its right of subrogation. Its
Exhibit C was Marine Open Policy No. 34-5093-6 that it had issued
to Caltex to insure the petroleum cargo against marine peril.
22
Its
Exhibit D was the formal written claim of Caltex for the payment of
the insurance coverage of P7,455,421.08 coursed through
respondents adjuster.
23
Its Exhibits E to H were marine documents
relating to the perished cargo on board the M/V Vector that were
processed for the purpose of verifying the insurance claim of
Caltex.
24
Its Exhibit I was the subrogation receipt dated July 12,
1988 showing that respondent paid Caltex P7,455,421.00 as the full
settlement of Caltexs claim under Marine Open Policy No. 34-5093-
6.
25
All these exhibits were unquestionably duly presented, marked,
and admitted during the trial.
26
Specifically, Exhibit C was admitted
as an authentic copy of Marine Open Policy No. 34-5093-6, while
Exhibits D, E, F, G, H and I, inclusive, were admitted as parts of the
testimony of respondents witness Efren Villanueva, the manager for
the adjustment service of the Manila Adjusters and Surveyors
Company.
27

Consistent with the pertinent law and jurisprudence, therefore,
Exhibit I was already enough by itself to prove the payment
of P7,455,421.00 as the full settlement of Caltexs claim.
28
The
payment made to Caltex as the insured being thereby duly
documented, respondent became subrogated as a matter of course
pursuant to Article 2207 of the Civil Code. In legal contemplation,
subrogation is the "substitution of another person in the place of the
creditor, to whose rights he succeeds in relation to the debt;" and is
"independent of any mere contractual relations between the parties
to be affected by it, and is broad enough to cover every instance in
which one party is required to pay a debt for which another is
primarily answerable, and which in equity and conscience ought to
be discharged by the latter."
29

Lastly, Vector and Soriano argue that Caltex waived and abandoned
its claim by not setting up a cross-claim against them in Civil Case
No. 18735, the suit that Sulpicio Lines, Inc. had brought to claim
damages for the loss of the M/V Doa Paz from them, Oriental
Assurance Company (as insurer of the M/T Vector), and Caltex; that
such failure to set up its cross- claim on the part of Caltex, the real
party in interest who had suffered the loss, left respondent without
any better right than Caltex, its insured, to recover anything from
them, and forever barred Caltex from asserting any claim against
them for the loss of the cargo; and that respondent was similarly
barred from asserting its present claim due to its being merely the
successor-in-interest of Caltex.
The argument of Vector and Soriano would have substance and
merit had Civil Case No. 18735 and this case involved the same
parties and litigated the same rights and obligations. But the two
actions were separate from and independent of each other. Civil
Case No. 18735 was instituted by Sulpicio Lines, Inc. to recover
damages for the loss of its M/V Doa Paz. In contrast, this action was
brought by respondent to recover from Vector and Soriano
whatever it had paid to Caltex under its marine insurance policy on
the basis of its right of subrogation. With the clear variance between
the two actions, the failure to set up the cross-claim against them in
Civil Case No. 18735 is no reason to bar this action.
WHEREFORE, the Court DENIES the petition for review on
certiorari; AFFIRMS the decision promulgated on July 22, 2003; and
ORDERS petitioners to pay the costs of suit.
SO ORDERED.