WHAT MAY BE INSURED AGAINST

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 84628 November 16, 1989

HEIRS OF ILDEFONSO COSCOLLUELA, SR., INC., petitioner,
vs.
RICO GENERAL INSURANCE CORPORATION, COURT OF APPEALS (11th Division), and HON.
ENRIQUE T. JOCSON, Judge, Regional Trial Court of Negros Occidental Branch, respondents.

Ildefonso S. Villanueva and Rolando N. Medalla for petitioner.

Limbaga, Bana-ag, Bana-ag & Associates for private respondent.



GUTIERREZ, JR., J.:

The main issues raised in this petition for review on certiorari are whether the Court of Appeals
erred in: (1) affirming the dismissal by the trial court of the complaint for damages on the ground
of lack of cause of action, and in (2) denying due course to a petition for certiorari on the ground
that the remedy of the petitioner to assail said order is appeal.

Petitioner, Heirs of Ildefonso Coscoluella, Inc. is a domestic corporation and the registered owner
of an Isuzu KBD Pick-up truck bearing Motor No. 663296 and Plate No. LTV-FAW-189. The vehicle
was insured with the private respondent Rico General Insurance Corporation for a consideration
of P100,000.00 excluding third party liability under Commercial Vehicle Policy No. CV-122415 per
Renewal Certificate No. 02189. The premiums and other expenses for insurance paid covered the
period from October 1, 1986 to October 1, 1987.

On August 28, 1987 and within the period covered by the insurance, the insured vehicle was
severely damaged and rendered unserviceable when fired upon by a group of unidentified armed
persons at Hacienda Puyas, Barangay Blumentritt, Murcia, Negros Occidental. In the same
incident, four persons died.

Petitioner filed its claim of P80,000.00 for the repair of the vehicle but private respondent, in a
letter dated October 8, 1987, refused to grant it. As a consequence, the petitioner was prompted
to file a complaint with the Regional Trial Court, 6th Judicial Region, Branch 47 at Bacolod City,
docketed as Civil Case No. 4707, to recover the claim of P80,000.00 plus interest and attorney's
fees.

The private respondent filed a motion to dismiss alleging that the complaint lacks a cause of action
because the firing by armed men is a risk excepted under the following provisions in the insurance
policy:

The Company shall not be liable under any Section of the Policy in respect of:

1. x x x x x

2. x x x x x

3. Except in respect of claims arising under Sections I and II of the policy, any accident, loss,
damage or liability directly or indirectly, proximately or remotely occasioned by, contributed to by
or traceable to, or arising out of, or in connection with flood, typhoon, hurricane, volcanic
eruption, earthquake or other convulsion of nature, invasion, the act of foreign enemies,
hostilities or warlike operations (whether war be declared or not), civil commotion, mutiny,
rebellion, insurrection, military or usurped power, or by any direct or indirect consequences of any
of the said occurrences and in the event of any claim hereunder, the insured shall prove that the
accident, loss or damage or liability arose independently of, and was in no way connected with, or
occasioned by, or contributed to, any of the said occurrences, or any consequence thereof, and in
default of such proof, the Company shall not be liable to make any payment in respect of such
claim. (Emphasis supplied; see Rollo, p. 33,71)

The private respondent alleged that the firing was "an indirect consequence of rebellion,
insurrection or civil commotion." The petitioner opposed the motion, saying that the quoted
provision does not apply in the absence of an official governmental proclamation of any of the
above-enumerated conditions.

The trial court ordered the dismissal of the complaint for lack of cause of action stating that the
damage arose from a civil commotion or was a direct result thereof. (Rollo, p. 37)

A motion for reconsideration filed by the petitioner was denied by the trial court which further
noted that "Courts can take effective cognizance of the general civil disturbance in the country
akin to civil war without any executive proclamation of the existence of such unsettling
condition." (Rollo, p. 38)

A second motion for reconsideration was filed but was later withdrawn.

Petitioner filed a notice of appeal which was given due course. However, the trial court, stated in
its order that "the records of the case will not be transmitted to the Court of Appeals, the
appropriate remedy being (a) petition for review by way of certiorari." In that same order, the trial
court took cognizance of the withdrawal of the second motion for reconsideration but noted the
police blotter appended to said motion which showed that "other than M-16 Armalite Rifles (the
number of which were not specified for unknown reasons), nothing else was taken by the
attackers." (Rollo, p. 40)

Thereafter, the petitioner filed a petition for certiorari with the Court of Appeals. The appellate
court denied the petition, affirmed the trial court's dismissal order, and also ruled that an appeal
in the ordinary course of law, not a special civil action of certiorari, is the proper remedy for the
petitioner in assailing the dismissal order.

Hence, this petition to review the respondent appellate court's decision.

Petitioner asserts that its complaint states a cause of action since ultimate facts were alleged as
follows:

3. That, on August 28, 1987, the ISUZU KBD PICK-UP referred to in the preceding paragraph was
damaged as a result of an incident at Hda. Puyas, Barangay Blumentritt, Murcia, Negros
Occidental, when it was fired upon by a group of unidentified armed persons causing even the
death of four (4) persons and rendering the said vehicle almost totally damaged and
unserviceable;

4. That when the said incident occurred on August 28, 1987, the said ISUZU KBD PICK-UP was
insured by the defendant for P100,000.00 excluding third-party liability under Commercial Vehicle
Policy No. CV/122415 per Renewal Certificate No. 02189 a copy of which is herewith attached as
Annex "B"; and with the premiums and other expenses thereon duly paid for under Official
Receipt No. 691, dated September 8, 1986, covering the period from October 1, 1986 to October 1,
1987, a copy of the same being attached hereto as Annex "C";

5. That, the damage on said motor vehicle being a "fait accompli" and that it was insured by the
defendant at the time it was damaged, it is the obligation of the defendant to restore the said
vehicle to its former physical and running condition when it was insured however defendant
refused and still refuses and fails, despite demands in writing made by plaintiff and its counsel to
that effect, copies of said letters attached hereto as Annexes "D" & "E";

6. That, for purposes of restoring the ISUZU KBD PICK-UP insured by the defendant to its former
physical and running condition when it was insured, as mentioned above, would cost P80,000.00,
which will include repair, repainting, replacement of spare parts, labor, etc., the said amount
having arrived at upon inspection and appraisal of the said motor vehicle by knowledgeable and
technical people;

7. That, as a consequence of defendant's refusal to settle or pay the just claim of plaintiff,
plaintiff has been compelled to hire the legal services of counsel for the protection of its rights and
interest at the agreed fee of P15,000.00, for and as attorney's fees, which sum plaintiff is claiming
from the defendant. (At pp. 29-30, Rollo)

Petitioner further maintains that the order of dismissal was erroneous in that: it overlooked the
principle that a motion to dismiss a complaint on the ground of failure to state a cause of action
hypothetically admits the allegations in the complaint; no trial was held for the reception of proof
that the firing incident was a direct or indirect result of a civil commotion, mutiny, insurrection or
rebellion; private respondent had the burden of proof to show that the cause was really an
excepted risk; and in any case, the nature of the incident as a "civil disturbance" must first be
officially proclaimed by the executive branch of the government. Private respondent, on the other
hand, argues that the accident was really a result of a civil commotion, one of the fatalities being a
military officer. (Rollo, p. 59)

After a review of the records, the Court finds that the allegations set forth in the complaint
sufficiently establish a cause of action. The following are the requisites for the existence of a cause
of action: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the named defendant to respect, or not to violate
such right; and (3) an act or omission on the part of the said defendant constituting a violation of
the plaintiff's right or a breach of the obligation of the defendant to the plaintiff. (Cole v. Vda. de
Gregoria, 116 SCRA 670 [1982]; Baliwag Transit, Inc. v. Ople, G. R. No. 57642, March 16, 1989)

The facts as alleged clearly define the existence of a right of the petitioner to a just claim against
the insurer for the payment of the indemnity for a loss due to an event against which the
petitioner's vehicle was insured. The insurance contract mentioned therein manifests a right to
pursue a claim and a duty on the part of the insurer or private respondent to compensate the
insured in case of a risk insured against. The refusal of the insurer to satisfy the claim and the
consequent loss to the petitioner in incurring the cost of acquiring legal assistance on the matter
constitutes a violation or an injury brought to the petitioner.

There is, therefore, a sufficient cause of action upon which the trial court can render a valid
judgment. (Taedo v. Bernad, et al; G. R. No. 66520, August 30, 1988).

The Court is very much cognizant of the principle that a motion to dismiss on the ground of failure
to state a cause of action stated in the complaint hypothetically admits the truth of the facts
therein. The Court notes the following limitations on the hypothetical admission:

The hypothetical admission is however limited to the relevant and material facts well pleaded in
the complaint and inferences fairly deducible therefrom. The admission does not extend to
conclusions or interpretations of law: nor does it cover allegations of fact the falsity of which is
subject to judicial notice. (U. Baez Electric Light Co. v. Abra Electric Cooperative, Inc., 119 SCRA 90
[1982])

Applying the above principle, we hold that the private respondent's motion to dismiss
hypothetically admits the facts alleged in the complaint. We do not find anything in the complaint
which does not deserve admission by the motion since there are no "conclusions or
interpretations of law" nor "allegations of fact the falsity of which is subject to judicial notice." It is
clear that the complaint does no more and no less than state simply that the van was damaged
due to the firing by unidentified armed men. Since the complaint does not explicitly state nor
intimate civil strife which private respondent insists to be the cause of the damage, the motion to
dismiss cannot go beyond the admission of the facts stated and inferences reasonably deducible
from them. Any other assertion by the private respondent is subject to proof. Meanwhile, the
sufficiency of the petitioner's cause of action has been shown since, admitting the facts alleged, a
valid judgment can be rendered.

The private respondent's invocation of the exceptions clause in the insurance policy as the basis
for its non-liability and the consequent dismissal of the complaint is without merit. We also
reiterate the established rule that when the terms of an insurance contract contain limitations on
liability, the court "should construe them in such a way as to preclude the insurer from non-
compliance with his obligations." (Taurus Taxi Co. Inc. v. Capital Insurance and Surety Company,
Inc., 24 SCRA 454 [l968]) A policy of insurance with a narration of exceptions tending to work a
forfeiture of the policy shall be interpreted liberally in favor of the insured and strictly against the
insurance company or the party for whose benefit they are inserted. (Eagle Star Insurance, Ltd. v.
Chia Yu, 96 Phil. 696 [1955]; Trinidad v. Orient Protective Asso., 67 Phil. 181 [1939]; Serrano v.
Court of Appeals, 130 SCRA 327 [1984]; and National Power Corp. v. Court of Appeals, 145 SCRA
533 [1986]).

The facts alleged in the complaint do not give a complete scenario of the real nature of the firing
incident. Hence, it was incumbent upon the trial judge to have made a deeper scrutiny into the
circumstances of the case by receiving evidence instead of summarily disposing of the case.
Contrary to what the respondent appellate court says, this case does not present a pure question
of law but demands a factual determination of whether the incident was a result of events falling
under the exceptions to the liability of private respondent contained in the policy of insurance.

We agree with the petitioner's claim that the burden of proof to show that the insured is not liable
because of an excepted risk is on the private respondent. The Rules of Court in its Section 1, Rule
131 provides that "each party must prove his affirmative allegations." (Summit Guaranty and
Insurance Co., Inc. vs. Court of Appeals, 110 SCRA 241 [1981]; Tai Tong Chuache & Co. v. Insurance
Commissioner, 158 SCRA 366 [1988]; Paris-Manila Perfume Co. v. Phoenix Assurance Co., 49 Phil.
753 [1926]). Where the insurer denies liability for a loss alleged to be due to a risk not insured
against, but fails to establish the truth of such fact by concrete proofs, the Court rules that the
insurer is liable under the terms and conditions of the policy by which it has bound itself. In this
case, the dismissal order without hearing and reception of evidence to prove that the firing
incident was indeed a result of a civil commotion, rebellion or insurrection constitutes reversible
error on the part of the trial court.

The Court stresses that it would be a grave and dangerous procedure for the courts to permit
insurance companies to escape liability through a motion to dismiss without the benefit of hearing
and evidence every time someone is killed, or as in this case,. property is damaged in an ambush.
The question on the nature of the firing incident for the purpose of determining whether or not
the insurer is liable must first be threshed out and resolved in a full-blown trial.

The evidence to be received does not even have to relate to the existence of an official
government proclamation of the nature of the incident because the latter is not an explicit
requirement in the exception clause resolved in a mere motion to dismiss and is, for purposes of
this petition for review on certiorari, immaterial. This particular issue on when to take cognizance
of a rebellion for purposes of the law on contracts and obligations should have been developed
during the trial on the merits or may have to await remedial legislation in Insurance Law or a
decision in a more appropriate case.

The petitioner also questions the reasoning of the Court of Appeals in denying due course to the
petition for certiorari. The appellate court said that even assuming for the sake of argument that
the dismissal order by the trial court was not procedurally correct for lack of hearing, there was
only an "error of judgment or procedure" correctible only by appeal then available in the ordinary
course of law and not by a special civil action of certiorari which cannot be a substitute for appeal.

The records show that the remedy of appeal was actually intended to be pursued by petitioner.
However, the appeal was rendered unfeasible when the trial judge refused to transmit the records
to the appellate court. (see Rollo, p. 40) The judge, in effect, ruled out the remedy of appeal which
was supposed to be availed of as a matter of right. In filing a petition for certiorari, the petitioner
was acting upon the instructions of the judge. Under a situation where there was no more plain,
speedy and adequate remedy in the ordinary course of law, the only available recourse was to file
a special civil action of certiorari to determine whether or not the dismissal order was issued with
grave abuse of discretion.

It is apparent, moreover, that the respondent appellate court failed to appreciation the
petitioner's predicament. The trial judge, aside from dismissing the complaint which we now rule
to have a sufficient cause of action, likewise prevented an ordinary appeal to prosper in
contravention of what is provided for by the rules of procedure.

The April 6, 1988 order of the trial judge stating that the appropriate remedy was a petition for
review by way of certiorari is deplorable. The lower court cannot even distinguish between an
original petition for certiorari and a petition for review by way of certiorari. A petition for review
before the Court of Appeals could have been availed of if what is challenged is an adverse decision
of the Regional Trial Court in its appellate capacity affirming, modifying or reversing a decision of a
municipal trial court or lower tribunal. (Section 22, Batas Pambansa Blg. 129 and Section 22 (6) of
the Interim Rules). In this case, the petitioner assailed the dismissal order of the Regional Trial
Court of a complaint originally filed with it. This adverse order which had the effect of a judgment
on the merits, may be appealed to the Court of Appeals by filing a notice of appeal within fifteen
(15) days from receipt of notice of the order both on questions of law and of fact. (Section 39,
Batas Pambansa Blg. 129 and Section 19 (a) of the Interim Rules). This was exactly what petitioner
did after its motion for reconsideration was denied. Unfortunately, the trial judge failed to see the
propriety of this recourse. And the Court of Appeals compounded the problem when it denied the
petitioner any remedy arising from the Judge's wrong instructions.

The filing of the petition for certiorari was proper. Petitioner has satisfactorily shown before the
respondent appellate court that the trial judge "acted whimsically in total disregard of evidence
material to and even decisive of the controversy". (Pure Foods Corp. v. National Labor Relations
Commission, G. R. No. 78591, March 21, 1989).

The extraordinary writ of certiorari is always available where there is no appeal or any other plain,
speedy and adequate remedy in the ordinary course of law. (Tropical Homes, Inc. v. National
Housing Authority, 152 SCRA 540 [1987]; Pure Foods Corp. v. NLRC, supra)

Since the petitioner was denied the remedy of appeal, the Court deems that a certiorari petition
was in order.

WHEREFORE, considering the foregoing, the petition is hereby GRANTED. The decision of the
respondent Court of Appeals affirming the dismissal order by the Regional Trial Court is hereby
REVERSED and SET ASIDE. Let the case be remanded to the lower court for trial on the merits.

SO ORDERED.


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-31984 February 25, 1930

PRATS & COMPANY, a registered partnership, plaintiff,
vs.
PHOENIX INSURANCE COMPANY, HARTFORD, CONNECTICUT, a corporation, defendant.
MENZI and CO., INC., and ANTONIO BRIMO, intervenors-appellants.
BEN J. S. OHNICK and JOHN R. MCFIE, Jr., respondents-appellees.

Harvey and O'Brien for intervenors and appellants.
Benj. S. Ohnick and John R. McFie, jr., in their own behalf.
No appearance for plaintiff, and defendant.

STATEMENT

In the original action, Prats & Company, a partnership, sought to recover judgment against the
defendant, Phoenix Insurance Company, for and on account of a fire insurance policy which it
issued to the plaintiff on its property, goods, wares, and merchandise, which was defended by the
insurance company on the ground of incendiarism and a fraudulent claim. The lower court decided
the case in favor of the insurance company, and on appeal the decision was affirmed by this
court.1 That was a test case against a number of insurance companies by the plaintiff to recover
on account of fire losses a total amount of P241,491. In this court the Phoenix Insurance Company
was ordered to pay plaintiff P11,731.93, with legal interest from the filing of the complaint, for
and on account of money which it received from salvage sales of the remnants of the insured
stock. In the inception of this litigation, the plaintiff was legally represented by the original firm of
Schwarzkopf and Ohnick as its attorneys, and later by the legal firm of Ohnick and McFie. The final
decision of this court was rendered on February 21, 1921. On or about February 21, 1929, and
after the decision of this court became final, Ohnick and McFie filed an attorney's lien, claiming
the sum of P11,109.56 for and on account of their fees and disbursements in prosecuting the
action against the insurance company, and on March 20, 1929, with the approval of Prats &
Company, the lower court issued an order confirming the attorney's claim for the amount claimed,
and on March 22, 1929, it directed the defendant to pay that amount to Ohnick and McFie. In this
situation and on May 6, 1929, and before the money was paid, Menzi & Company, Inc., and
Antonio Brimo filed a motion to intervene for the purpose of asserting and establishing a superior
lien and preference as against the parties to the action, including attorneys Ohnick and McFie, for
the sum of P11,731.93, with legal interest thereon at 6 per cent per annum, making a total of
P14,802.14, which amount was deposited by the insurance company with the clerk of the court,
and to set aside and vacate the order of the court of March 22, 1929, in favor of Ohnick and McFie,
claiming and asserting that hey had a legal right to the money in question as against all persons, in
which they alleged that on December 10, 1924, the intervenors commenced their respective
actions against Prats & Company in the Court of First Instance of Manila, known as civil case No.
27315, to recover from Prats & Company P9,336.97, with legal interest from the filing of the
complaint, and in civil case No. 27316, to recover P21,146.56, with interest and costs, in both of
which cases it was alleged that a writ of attachment was duly issued out of and under the seal of
the court at the instance of the plaintiffs against the property of Prats & Company, to secure any
judgment that might be rendered in the actions, and that said attachment was placed in the hands
of the sheriff of the City of Manila, with instructions to make the corresponding levy. That on
December 11, 1924, the sheriff notified the defendant, Phoenix Insurance Company, and all of the
other insurance companies, by means of process of garnishment. That by virtue of the order of
attachment, copies of which were attached to the notice, the levy was thereby made upon all of
the goods, effects, credits, and moneys which either of the insurance companies might owe to
Prats & Company, and that any personal property which either of them had in their possession
was levied upon under and by virtue of said writ, and at the same time the sheriff advised the
insurance companies not to deliver any property in their possession, to any person, except to the
sheriff, under the penalties provided by law. That at the time of the service of the process of
garnishment, the insurance companies had in their possession the sum of P11,731.93, which was
received and held by them under the provisions of certain insurance policies issued by the
companies to and in favor of Prats & Company on merchandise, all of which were duly levied upon
and attached by the sheriff. That on September 10, 1925, judgment was rendered in favor of
Menzi & Company, Inc. for P9,663.97, with legal interest and costs, and on August 19, 1925,
judgment was rendered in favor of Antonio Brimo against Prats & Company for P21,146.56, with
legal interest and costs, and that in each of the judgments, the attachments, as alleged, were
upheld and confirmed by the court. It is then alleged that on October 2, 1924, Prats & Company
entered into a written contract with attorneys Schwarzkopf and Ohnick in substance and to the
effect that, if Prats & Company should recover on its insurance policies, the attorneys should
receive P18,000 for their services, but that in the event that no recovery was made, the attorneys
would not receive anything for their services. That the later agreement between Prats & Company
and Ohnick and McFie, to the effect that they should have and receive P10,000 for their legal
services was fraudulent and collusive, and that it was made with the full knowledge that writs of
attachment had been issued out of the court in the actions of Menzi & Company, Inc. and Antonio
Brimo, and that on December 11, 1924, based thereon, garnishee notices were duly served upon
all of the insurance companies. The intervenors then alleged that they have a preferential right to
the sum of P14,802.14, now on deposit with the clerk of this court, as the proceeds of the sales of
salvage of the damaged merchandise of Prats & Company, which is superior in right to the claim of
attorneys Ohnick and McFie or any one else, and for an order that the money should be paid to
the intervenors, and for costs.

Vigorous objections were filed to the motion of the intervenors, and after a hearing and
arguments on the motion, the lower court denied the right of the petitioners to intervene, and
ordered the clerk to pay Ohnick and McFie P11,109.56. The intervenors then filed a motion for a
reconsideration, which was also denied, to which the intervenors duly excepted, and on appeal
assign the following errors:

I. The lower court erred in denying the motion of Menzi and Co., Inc., and Antonio Brimo of May 6,
1929, to intervene in this case for the purposes stated therein,

II. The lower court erred in denying the motion of Menzi & Co., Inc., and Antonio Brimo for a
reconsideration of its said order, refusing to permit their intervention in this case.

JOHNS, J.:

In the final analysis, the real question presented is whether or not the bill of intervention stated
facts sufficient to give the intevenors the relief for which they pray. Many and different legal
questions have been ably presented by oppossing counsel. As we analyze the record, the dates are
important and decisive. The intervenors alleged that their respective action were commenced
against Prats & Company on December 10, 1924, and that the writs of attachment were issued on
December 11, 1924, when the process of garnishment was served on the respective insurance
companies. It is also alleged that final judgment was rendered in case No. 27315 on September 10,
1925, and in case No. 27316 on August 19, 1925. There are no allegations anywhere in the petition
as to what was done after the service of the garnishee process. Neither is there any allegation that
the insurance companies made default in the service, or that any interrogatories or cross-
interrogatories were ever filed or that any hearing was ever had before any court on the
garnishment proceedings, or that any judgment was ever rendered against the garnishee. In truth
and in fact it does not appear that anything whatever was done by the intervenors after the
service of the garnishee process or that the intervenors at any time ever claimed or asserted any
right, title or interest in the money in question until they filed their motion to intervene on May 6,
1929. That is to say, it does not appear from the bill of intervention that, beyond serving of the
garnishee notices on the insurance companies, the intervenors ever did anything to prosecute or
perfect their garnishee proceedings or that they ever claimed or asserted any right, title or interest
in the money in dispute until the 6th day of May, 1929.

In that situation, the law laid down in Corpus Juris, vol 28, p. 359, is square in point.

(2) Abandonment or Delay in Prosecution. It is good ground for dismissal of the garnishment
proceedings or discharge of the garnishee that plaintiff does not at all undertake to maintain the
garnishment, or fails to prosecute his remedy with due diligence, thus in effect abandoning the
proceeding, for the garnishment statute contemplate speedy proceedings and the cause cannot be
kept open for a considerable period of time without either a continuance in form or consent or
acquiescence by the garnishee. However, laches of or delay by plaintiff may be waived, and it has
been held that the right to have the summons set aside or dismissed for delay in prosecution is in
the court's discretion. There is also some authority that plaintiff's laches in prosecuting the
garnishment is not ground for dissolution, particularly where the garnishee is not prejudiced. But
under the rules of some lower courts in the same jurisdiction, it is held otherwise, unless a
sufficient cause for the delay is shown. Among acts or omissions on the part of plaintiff which have
been held an abandonment or discontinuance of the proceedings are: Extraordinary delay in
bringing in defendant, failure to exhibit interrogatories or to take the deposition, answer, or
examination of the garnishees as required by statute, failure or refusal to proceed as required by
statute where the garnishee disputes his liability, failure to appear on the return day of a
summons to the garnishee to show cause why judgment should not be entered against him,
failure to set the case for trial at the term to which it was continued, failure for two years to
prosecute the proceedings or to bring it to hearing, taking out an alias or pluries execution against
defendant, and suffering several terms to elapse, without taking proper steps to bring into court
to contest the validity of the transfer, the transferee disclosed by the garnishee's answer. It has,
however, been held that the garnishee is not entitled to dismissal because neither party moves for
trial at the next term after judgment against defendant, as permitted by statute. Among matters
which have been held not an abandonment or discontinuance of the proceedings are: Return by
the sheriff of the fieri facias without retaining copy thereof after service on the garnishees but
before they had answered, the mere pendency of the cause for fifteen months, defendant not
having raised the question of laches, and the rendition of judgment against defendant before
examining the garnishee. However, under the statutes and practice of some jurisdictions the
taking of judgment against defendant without having had the trustee or garnishee charged
operated as an abandonment and discontinuance of the proceedings against the trustee or
garnishee. In these jurisdictions vacation of the judgment pursuant to statute eliminated the
discontinuance as to the garnishee. Of course the garnishee cannot complaint of a delay caused by
his own act, as where he procured a continuance, nor can he urge that such delay constitutes an
abandonment by plaintiff.

That rule of law is well sustained by the authorities cited in the notes, and particular, the case of
Wooding vs. Puget Sound Nat. Bank (11 Wash., 527, 535; 40 Pac., 223), in which that court says:

Waiting for two years after the service before citing the garnishees to appear and answer should
be held equivalent to an abandonment of said proceedings, regardless of the fact as to whether
such final action was barred by the statute of limitation. A creditor should diligently prosecute his
proceedings against garnishees. The services of the writs upon the garnishees was not the
commencement of an action against them. No issue was formed which they could force to trial,
and they were not put in a position where they could take any action in the premises to have the
question of their liability put at rest. Such action rested with the plaintiff creditor, the moving
party, and he should be required to prosecute the same with reasonable diligence.

In the instant case, after service of the garnishee notices on the insurance companies on
December 11, 1924, it is not claimed or alleged that the intervenors ever did anything to enforce
or protect their legal rights under the garnishment until they filed the motion to intervene on May
6, 1929, covering a period of four years, four months, and twenty-five days. In this situation, we
are clearly of the opinion that the intervenors lost any legal rights which they may have had under
the garnishee notice of December 11, 1924. Hence, it is unnecessary to discuss or decide the
numerous other legal questions presented by opposing counsel in their respective briefs.

The judgment of the court is affirmed, with costs, So ordered.

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

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-35848 November 22, 1932

THE EAST FURNITURE INC., plaintiff-appellant,
vs.
THE GLOBE & RUTGERS FIRE INSURANCE CO. OF NEW YORK, defendant-appellee.

--------------------------------------------

G.R. No. L-35849 November 22, 1932

THE EAST FURNITURE INC., plaintiff-appellant,
vs.
COMMERCIAL UNION ASSURANCE COMPANY, LTD., defendant-appellee.

--------------------------------------------

G.R. No. L-35850 November 22, 1932

THE EAST FURNITURE INC., plaintiff-appellant,
vs.
THE CONTINENTAL INSURANCE CO. OF NEW YORK, defendant-appellee.

Juan Ortega for appellant.
Gibbs & McDonough and Roman Ozaeta for appellees.



OSTRAND, J.:

The three above entitled actions were instituted in the Court of First Instance of Manila on March
25, 1929, to recover the full amount of three fire insurance police aggregating P20,000. The
complaints in each of these cases alleged in substance that the plaintiff is a duly registered
partnership engaged in the sale of furniture; that the defendant is a company engaged in the
insurance business and duly constituted in accordance with the laws of the Philippine Islands; that
the plaintiff insured against fire the articles existing in its establishment situated at Nos. 626 and
628 Rizal Avenue, Manila; that the insurance policies issued by the defendants, respectively, were:
Globe & Rutgers, P5,000, in force from July 12, 1928, to July 12, 1929; Commercial Union, P5,000,
in force during the same period; and The Continental, P10,000, in force from August 16, 1928, to
August 16, 1929; that on March 2, 1929, a fire broke out in plaintiff's establishment, as a result of
which the insured articles therein found were destroyed by the fire; that within the period marked
in the policies the plaintiff presented to the insurance companies an inventory of the insured
furniture which was destroyed by the fire, the value of which, before or at the time of the fire,
amounted to P52,061.99; and that of the furniture destroyed by the fire some was saved, of the
value of P5,000, more or less.

The defendants in their respective answers interposed a general denial and as special defenses
alleged in substance (1) that the fire in question was of intentional origin; (2) that the claims of
loss presented by the plaintiff were false and fraudulent; (3) that the furniture in question had
been mortgaged by the plaintiff to the Manila Finance and Discount Corporation, so that at the
time of the fire the plaintiff was not the only party interested therein, contrary to the
representations made in its claims of loss; and (4) that the plaintiff violated one of the conditions
of the policies by refusing to furnish the defendants with a physical inventory of the contents of its
store at the time of the fire.

By agreement of the parties the three cases were tried jointly before Judge Concepcion, who after
the trial found that the claims presented by the plaintiff were notoriously fraudulent, and,
accordingly, sustained defendant's second special defense and dismissed the complaint in each of
the three cases, with costs against the plaintiff. As to the first special defense, referring to the
origin of the fire, the trial judge merely said that "altho much might be said against the manager of
the plaintiff corporation it is not necessary to make a detailed analysis of the proofs with respect
to the fire, inasmuch as for the purposes of this decision a consideration of the second special
defense is sufficient." The trial court overruled the third and fourth special defenses. From that
judgment the plaintiff appealed.

The appellant contends that the trial court erred (1) in finding that the claims presented by the
plaintiff to the insurance companies were fraudulent; (2) in giving weight to the testimony of
Captain Lorenzo, deputy chief of the Manila Fire Department, and Isidro Guevara, a furniture
manufacturer, as to the value of the articles found in the premises after the fire; and (3) in
dismissing plaintiff's complaints.

The appellees sustain the finding of the trial court that appellant's claims of loss were "notoriously
fraudulent", and further urge before this court their first special defense, i. e., that the fire in
question was of intentional origin.

1. With reference to the origin of the fire, the evidence shows that it started at about 9.55 p. m. in
the second floor of the building which was occupied by the plaintiff as office and workshop. That
floor was constructed of wood, with a galvanized iron roof. Immediately after the fire was
extinguished Captain Lorenzo, the deputy chief of the fire department, investigated its origin and
found in the second floor three cans containing gasoline and kapok saturated with gasoline. For
this reason, in his official report of that fire (Exhibit 3), he stated the cause to be: "Suspected
incendiary. Intentional. Preventable."

Filoteo Miranda, the proprietor and manager of the East Furniture Store, while testifying as a
witness for the plaintiff, made no attempt to deny the presence of three cans of gasoline and
kapok saturated with gasoline. His only explanation was that "inasmuch as on that occasion I had
an automobile, I ordered them to buy gasoline, petroleum, and other combustibles". When
further asked to explain the presence of those cans of gasoline in the upper story on the night of
the fire, he replied: "How can I explain it, since, as I have said, I paid no attention to those cans?
The laborers were the ones in charge of that." With regard to the kapok saturated with gasoline,
his only explanation was that "in my store mattresses and pillows are sold, and it is possible that
someone had taken kapok and saturated it with gasoline".

It also appears from the record that in connection with the fire in question the said Filoteo
Miranda caused one Eugenio Lim Pineda to be prosecuted for calumny, alleging that the latter had
imputed to the former the commission of a crime, namely, that Miranda had caused his store to
be burned or ordered a certain person to set it on fire. Pineda was acquitted by the Court of First
Instance of Manila on the ground that it was proven that the imputation made by him against
Miranda was true.

The said Eugenio Lim Pineda testified at the trial of these cases that he had known Miranda for
about fifteen years; that about six months before the fire in question, Miranda intimated to him
that he (Miranda) intended to burn the East Furniture Store because it was on the verge of
bankruptcy; that he communicated this information to attorney Eriberto de Silva, who in turn
communicated it to his friend Aurelio Periquet, an insurance agent, and the latter thereupon
caused one of the policies issued by Smith, Bell & Co. to be cancelled; that on the night of the
fire he saw Garcia, the cashier of the plaintiff enter the back door of the building in question, and
that ten minutes later the building burned; that witness called Garcia when he came out of the
building and said to him: "You have set fire to the building."

Attorney Eriberto de Silva, testifying in these cases, corroborated the testimony of Pineda
regarding the cancellation of the Smith-Bell policy through his instrumentality, and further
testified that sometime after the cancellation of said policy he called on Miranda in connection
with the latter's account with the Philippine Finance Corporation, on which occasion Miranda
asked him why the insurance he (Miranda) had procured from Periquet was cancelled, whereupon
he replied: "Look here, Miranda, why should we not cancel that policy when we heard from Mr.
Lim Pineda that you people were going to burn this establishment." That Miranda then replied:
"That is confidential, please don't repeat to anybody." (Pp. 143-146, trans.)

It further appears from the record that at the time of the fire the plaintiff was heavily indebted to
the Manila Finance & Discount Corporation, to the Bank of the Philippine Islands, and to Attorney
Alfonso E. Mendoza.

We are thus led to the conclusion that defendants' first special defense is well founded that the
fire in question was of intentional origin and was caused with the connivance of the plaintiff.
Neither the interest of the justice nor public policy would be promoted by an omission of the
courts to expose and condemn incendiarism once the same is established by competent evidence.
It would tend to encourage rather than suppress that great public menace if the courts do not
expose the crime to public condemnation when the evidence in a case like the present shows that
it has really been committed.

2. We may also consider the damage caused by the fire in relation with defendant's second special
defense that plaintiff's claims of loss were false and fraudulent.

To each of the proofs of loss which the plaintiff presented to the respective insurance companies
four days after the fire was attached an inventory of the furniture claimed to have been in the
building at the time of the fire. This inventory contains 506 pieces of furniture and 3,700 board
feet of lumber of the alleged total value of P52,061.99. This amount was the total loss claimed to
have been suffered by the plaintiff, although we note that in its complaints in these cases
amended it is conceded that some furniture of the value of about P5,000 was saved.

The same inventory above referred to was offered by the plaintiff and admitted in evidence,
having been marked Exhibits F-1, F-2, F-3, and F-4. To support the validity of this inventory Filoteo
Miranda testified that he had taken the date appearing therein from his books of account. Neither
he nor any other witness testified as to the correctness of the prices therein set forth, and it was
not even shown whether they were costs prices or selling prices. But a comparison between the
prices listed in Exhibit F-1 (the inventory of all of plaintiff's stock, supposed, to have been taken on
or as of December 31, 1928), and those listed in Exhibit F-3 (the list of furniture sold by the
plaintiff from January 4, 1929, to the date of the fire) tends to show that the value claimed against
the insurance companies is much higher than the selling price. For instance, Exhibit F-3 (2nd item)
shows that during the period from January 4 to March 2, 1929, the plaintiff sold 8 settees for P160
or at P20 each. These 8 settees must have been taken from the stock listed in Exhibit F-1, and an
examination of this document reveals that the settees therein listed are valued by the plaintiff at
from P32.50 to P110 each.

The only book the plaintiff produced and offered in evidence to support Miranda's testimony as to
the validity of the inventory in question is Exhibit J. This appears to be a new book, only the first
six pages of which contain entries, the first page consisting of a testament of assets and liabilities
as of December 31, 1928, and the second to the sixth pages consisting of a list of furniture and its
price, from which list the inventory in question appears to have been copied. The remaining 194
pages of said book are entirely blank. This seems to us significant in view of Miranda's testimony
that at the end of the two preceding years, 1927 and 1926, he took a physical inventory similar to
that found in Exhibit J, and in view of his inability to account for the whereabouts of those alleged
previous inventories. The appellees contend that Exhibit J is not genuine but was evidently
prepared by the plaintiff for the purpose of bolstering up its claim against the insurance
companies; and we believe such a conclusion is warranted by the facts and circumstances which
appear in the record.

Turning now to the evidence for the defense, we find from the uncontradicted testimony of
Captain Lorenzo, who had directed the task of extinguishing the fire, that it lasted only twelve
minutes and caused no damage to the first floor of the building were most of the insured furniture
was located. Said witness also testified that he found but few pieces of furniture in the second
floor and that he believed none had been completely burned.

The record shows that from March 2, 1929, the date of the fire, to April 20, 1929, when the sheriff
sold the furniture left in the building at the instance of plaintiff's mortgages, the Manila Finance &
Discount Corporation, the premises in question were guarded by an Indian watchman whom the
insurance companies placed thereto to prevent anybody from taking away any part of its
contents. It appears from the evidence for the defense that on April 4, 1929, at the request of the
insurance companies, a furniture manufacturer named Isidro Guevara, with the assistance of
Julian Dacanay, an employee of the adjusters, made an inventory of all the damaged and
undamaged furniture found in the building after the fire. That inventory, which was offered in
evidence as Exhibit 5, contains 202 pieces of furniture, the cost price of which according to
Guevara's appraisal is the total sum of P4,184.60. It will be recalled that the plaintiff claimed that
at the time of the fire there were 506 pieces of furniture in the building of the total value of
P52,061.99.

No contention is advanced on behalf of the appellant to the effect that Guevara's inventory is not
a complete list of all the damaged and undamaged furniture found in the building after the fire.
The contention on its behalf in this regard is that said inventory is not reliable (a) because Guevara
was not a competent appraiser of furniture, and (b) because some of the furniture found in the
building at the time of the fire may have been completely consumed by the fire.

With regard to the competency of the witness Guevara to appraise the furniture in question, he
testified, and the trial court found, that he had been engaged in the manufacture of furniture in
Manila for eighteen years. His testimony that the cost price of all the furniture found in the
building after the fire was P4,184.60 appears to be reasonable, as the same furniture was
subsequently sold by the sheriff at public auction and brought only, the sum of P2,650.

With reference to appellant's contention that Guevara's inventory is not reliable because some of
the furniture found in the building at the time of the fire may have been completely consumed by
the fire, we think the question may be narrowed down to this: Was it possible that the plaintiff
had 506 pieces of furniture in the building at the time of the fire when after the fire only 202
pieces were found in the premises? Considering the undisputed fact that most of the insured
furniture was located in the ground floor of the building, which was not damaged by the fire, and
that the fire lasted only twelve minutes and damaged only the second floor where comparatively
few pieces of furniture were found at the time of the fire; and considering the testimony of
Captain Lorenzo and Isidro Guevara to the effect that, judging from the condition of the remains of
the fire, they believed not a single piece of furniture was completely consumed by the fire, we do
not hesitate to answer that question in the negative. During the twelve minutes the fire lasted, an
enormous quantity of water was being pumped in by the firemen to extinguish it. Judging, then,
from the duration and intensity of the fire in question, we cannot bring ourselves to believe it
possible for some 304 pieces of wooden furniture to have been entirely consumed without leaving
any vestige.

Regardless of any difference of opinion as to the value of the insured furniture and the extent of
the damage caused thereto by the fire in question, the fact that the insured only had
approximately 202 pieces of furniture in the building at the time of the fire and sought to compel
the insurance companies to pay for 506 pieces conclusively shows that its claim was not honestly
conceived. The trial court's conclusion that said claim is notoriously fraudulent, is correct.

Condition 12 of each of the insurance policies sued upon provides that "if the claim be in any
respect fraudulent, or if any false declaration be made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any
benefit under this policy; or, if the loss or damage be occasioned by the wilful act, or with the
connivance of the Insured, all benefit under this policy shall be forfeited." This case is governed
by the decisions of this court in Yu Cua vs. South British Insurance Co. (41 Phil., 134); Go Lu vs.
Yorkshire Insurance Co. (43 Phil., 633); Tuason vs. North China Insurance Co. (47 Phil., 14); Tan It
vs. Sun Insurance Office (51 Phil., 212); Prats & Co. vs. Phoenix Insurance Co. (52 Phil., 807); and
Philippine National Bank and J. M. Po Pauco vs. Guardian Assurance Co., Ltd. (G. R. Nos. 28763,
28765, and 28766). 1

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

Street, J., concurs.







Separate Opinions



MALCOLM, HULL, and VICKERS, JJ., concurring:

We agree on the ground that it has been established that the plaintiff's claims of loss were false
and fraudulent. This was the finding of the trial judge, and a clear preponderance of the evidence
supports that conclusion. This result influenced the trial judge to refrain from expressing any
opinion regarding the other special defense of incendiarism, and in this view we fully concur.

BUTTE, J., dissenting:

The conclusion that the claim presented by the plaintiff and appellant to the insurance companies
was fraudulent because it was excessive and the conclusion that the fire in question was of an
intentional origin and caused with the connivance of the plaintiff seem to be entirely warranted
by the resume of the evidence made in the foregoing opinion. I have made a careful examination
of the entire record and I am convinced that said resume of the evidence gives very scant and
inadequate consideration to the case of the other side as actually presented in the record.
Moreover, evidence is relied upon which is clearly incompetent and improper; for example, the ex
parte report of the Chief of the Fire Department from which the following was quoted: "Suspected
incendiary. Intentional. Preventable." The acquittal of Lim Pineda in the criminal prosecution for
slander is not competent evidence and indeed it was not admitted by the court below.
Furthermore, Lim Pineda's testimony that he saw Garcia enter the building ten minutes before the
fire was refuted by Garcia's testimony, corroborated by an impartial witness, that he was at the
stadium at the time of the fire and had no connection with it. This evidence is not mentioned nor
are the facts mentioned which impeach the credibility of the witness conclusively. The first extract
of Attorney Silva's testimony quoted and relied upon was ordered stricken by the court below and
was clearly improper because no predicate had been laid for it. The second extract was so
meaningless that when he was asked what was to be kept "confidential" he testified that he did
not know.

There is no direct evidence whatever that the plaintiff and appellant set his building on fire to
collect the insurance. Nor can I reconcile the suspicion that gasoline was put in the building in
open cans to start the fire, with the finding that the same gasoline was found unconsumed after
the conflagration.

As to the second special defense of the insurance companies that the plaintiff's claim of loss was
fraudulent, I confess that I have more doubt with regard to the facts on this point. Again I think
the foregoing opinion has not adequately stated the evidence of both sides. The claim of
P52,061.99 was undoubtedly unreasonably high. The policies aggregated P20,000. It is a matter of
common knowledge and borne out by many insurance cases which have been considered by this
court, that the insured expects insurance companies to beat down his claim; and the respective
claims of the insurer and the insured then become a matter of negotiation and adjustment. Under
these circumstances, it is not surprising that the insured puffs the amount of his loss. If the
amount claimed exceeds the limit of the ordinary puffing, it may also be so disproportionate to
the fair value of the property lost as to give ground for an inference of an attempt to defraud. I
think the present case was very close to that line. But in view of the facts that one of the
defendant's own witnesses estimated the loss at P20,000, and that the plaintiff's inventory which
appears to have been kept due in course of business shows a value of P42,501.49 two months
before the fire, I feel disposed to give the benefit of the doubt to the insured. Suspicion of fraud is
not enough for, I daresay, there never was a fire where some circumstance could not be found
that could be alleged as a ground for an inference of fraud.lawphil.net

Avancea, Villa-Real and Abad Santos, JJ., concur.

INSURABLE INTEREST
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-9401 March 30, 1915

ANTONINA LAMPANO, plaintiff-appellee,
vs.
PLACIDA A. JOSE, ET AL., defendants-appellants.

D. R. Williams for appellants.
C. W. O'Brien for appellee.

TRENT, J.:

The defendant, Mariano R. Barretto, constructed a house for the other defendant, Placida A. Jose,
on land described as No. 72, plot F. Estate of Nagtahan, district of Sampaloc, city of Manila, for the
agreed price of P6,000. Subsequent thereto and on November 12, 1912, Placida A. Jose sold the
house to the plaintiff, Antonina Lampano, for the sum of P6,000. On March 22, 1913, the house
was destroyed by fire. At the time of the fire Antonina Lampano still owed Placida A. Jose the sum
of P2,000, evidenced by a promissory note, and Placida A. Jose still owed Mariano R. Barretto on
the cost of the construction the sum of P2,000. After the completion of the house and sometime
before it was destroyed, Mariano R. Barretto took out an insurance policy upon it in his own
name, with the consent of Placida A. Jose, for the sum of P4,000. After its destruction, he collected
P3,600 from the insurance company, having paid in premiums the sum of P301.50.

The plaintiff alleged in her complaint that there was a verbal agreement between her and Placida
A. Jose, at the time of the purchase and sale of the house, to the effect that the latter agreed to
deliver to her the insurance policy on the building; that she did not learn that the policy was in the
name of Barretto until after the fire; and the neither Placida A. Jose nor Mariano R. Barretto has
any right to the insurance or to the money received therefrom. She prayed for judgment against
each of them for the sum of P3,600, the amount of the insurance collected.

To this complaint the defendant, Placida A. Jose, answered, denying that she agreed to transfer
the policy of insurance to the plaintiff and alleging (a) that the insurance was taken out and paid
for by Barretto before the sale of the house to the plaintiff; (b) that Barretto did this because he
had constructed the house and she was owing him therefor; and (c) that the insurance was
entirely for the personal account and in the exclusive interest of Barretto. In her cross-complaint
she asked for judgment against the plaintiff for the sum of P2,000, the balance due on the
purchase price. Barretto answered, reciting the facts giving rise to his taking out the insurance on
the house and denying any obligation to the plaintiff in connection therewith.

Judgment was entered against Barretto and in favor of Placida A. Jose for the sum of P1,298.50,
being the difference between the amount collected by Barretto on the insurance and the amount
yet due him for the construction of the house, including the premiums paid. Judgment was also
entered in favor of the defendant, Placida A. Jose, against the plaintiff for the sum of P2,000, being
the balance of the purchase price of the house. The plaintiff was authorized to offset this
judgment against her for P2,000 by the P2,000 which the court declared had been paid the
defendant, Placida A. Jose, by Barretto out of the insurance money. A final judgment was entered
in favor of the plaintiff against the defendant, Placida A. Jose, for the sum of P1,298.50, being the
amount of the judgment against Barretto. From this judgment Barretto alone appealed.

The court found that there was no privity of contract between the plaintiff and the defendant
Barretto. In consequence, no judgment was entered in favor of the plaintiff against the defendant.
The court decided the respective rights of the two defendants to the insurance money and entered
judgment against Barretto and in favor of Placida A. Jose for the sum of P1,298.50. This was done
upon the theory that the insurance policy was held in trust for Placida A. Jose, and that any
balance, resulting after deducting the amount owing upon the construction contract and paid for
premiums, belonged to her. Neither by the pleading nor upon the trial was there any claim made
by Placida A. Jose against Barretto for the insurance money, nor for any participation therein.
Placida A. Jose's answer specifically alleged that such insurance was for Barretto's personal
account and in his exclusive rights. Her testimony is equally positive upon this point. She says:

Q. Was the house insured when you sold it to Antonina Lampano?

A. It was insured by Mariano Barretto because he is the one constructed that house.

Q. Did you have any interest in that insurance?

A. I was indebted to him and he insured the house in his own name from 1911.

Q. Did you have any right, interest or participation in that insurance?

A. I have none.

Q. Who was paying the premiums on that insurance?

A. M. Barretto.

The result is that there was no controversy between the defendants concerning this insurance, nor
was any issue presented which required an adjudication of their respective rights thereto. So far
as Barretto was concerned, the only issue raised, either by the pleadings or at the trial, was, Has
the plaintiff any right to recover from Barretto any portion of the insurance money?

The plaintiff sought to recover from Barretto all of the P3,600, but she is now contented with a
judgment against Placida A. Jose for P1,298.50. Her right to recover this amount of the insurance
rests upon an alleged verbal agreement between herself and Placida A. Jose to the effect that the
latter agreed, at the time of the purchase and sale of the house, to transfer to her the insurance
policy, the policy being held in trust by Barretto for the benefit of the Jose woman. The plaintiff
does not contend that Barretto participated in this sale, or even had any knowledge of it, until
sometime after it was consummated. Placida A. Jose denies that she agreed to transfer the policy
to the plaintiff, and the deed of purchase and sale makes no mention of such an agreement. The
policy is not mentioned in this document, although it was agreed that the vendor would transfer
to the vendee all of the former's right, title, and interest in the leasehold to the land upon which
the house was built. It would seem that if the vendor agreed to transfer the policy, this agreement
would have been inserted in the document of purchase and sale, the same as that with reference
to the lease. The trial court did not find that such an agreement existed and we think the plaintiff
has failed to establish this verbal agreement.

If Barretto had an insurable interest in the house, he could insure this interest for his sole
protection. The policy was in the name of Barretto alone. It was, therefore, a personal contract
between him and the company and not a contract which ran with the property. According to this
personal contract the insurance policy was payable to the insured without regard to the nature
and extent of his interest in the property, provided that he had, as we have said, an insurable
interest at the time of the making of the contract, and also at the time of the fire. Where different
persons have different interests in the same property, the insurance taken by one in his own right
and in his own interest does not in any way insure to the benefit of another. This is the general
rule prevailing in the United States and we find nothing different in this jurisdiction. (19 Cyc., 883.)

In the case of Shadgett vs. Phillips and Crew Co., reported in 56 L. R. A., 461, Mrs. Shagett received
a piano as a gift from her husband and insured it. She knew that it was the obligation of her
husband to insure he piano for the benefit of the vendor. The court held, however, that the
vendor (mortgagee) was not entitled to the proceeds of the insurance as "there was no
undertaking on the part of Mrs. Shadgett to either insure for complainant's benefit, or to assume
her husband's obligation to so insure, and mere knowledge of that obligation did not impose it
upon her."

The court further said: "The contract of insurance was wholly between the defendant and the
insurance company, and was personal, in the sense that the money agreed to be paid in case of
loss was not to stand in the place of the piano itself, but was a mere indemnity against the loss of
defendant's interest therein. If her interest was small, on account of incumbrances existing in
favor of the complainant, that fact was for the consideration only of the insurer and defendant,
for complaint has no concern with the adjustment of the loss between them. We know of no
principle, either of law or equity, which would bind defendant to carry out her donor's contract to
insure, in the absence of any agreement on her part to do so, even though the property in her
hands was subject to complainant's rights therein as a conditional vendor."

The court further says: "A contract of insurance made for the insurer's (insured) indemnity only, as
where there is no agreement, express or implied, that it shall be for the benefit of a third person,
does not attach to or run with the title to the insured property on a transfer thereof personal as
between the insurer and the insured. In such case strangers to the contract cannot require in their
own right any interest in the insurance money, except through an assignment or some contract
with which they are connected."

In Vandergraf vs. Medlock (3 Porter, 389; 29 Am. Dec., 256), it was held that the mortgage is not
entitled to the proceeds of an insurance policy procured by the mortgages, there being no
agreement that such insurance should be effected by the latter for the benefit of the former. The
court says: "It is well settled that a policy of insurance is a distinct independent contract between
the insured and insurers, and third person have no right either in a court of equity, or in a court of
law, to the proceeds of it, unless there be some contract or trust, expressed or implied, between
the insured and third persons."

In Burlingane vs. Goodspeed (10 L. R. A., 495), the court says that where a mortgage at his own
expense and without any agreement or understanding with he mortgagor obtains insurance upon
his interest as a mortgage and collects the money from the insurer after a loss, he is not bound to
account for it to the mortgagor.

In the case at bar Barretto assumed the responsibility for the insurance. The premiums, as we
have indicated, were paid by him without any agreement or right to recoup the amount paid
therefor should no loss result to the property. It would not, therefore, be in accordance with t he
law and his contractual obligations to compel him to account for the insurance money, or any par
thereof, to the plaintiff, who assumed no risk whatever.

That Barretto had an insurable interest in the house, we think there can be no question. He
construed the building, furnishing all the materials and supplies, and insured it after it had been
completed (pars. 3 and 5, art. 1923, Civil Code; Manresa, Vol. 12, pp. 692-695; citing decision of
the supreme court of Spain of December 30, 1896).

For the foregoing reasons the judgment appealed from, in so far as it affects the appellant, is
reversed and he is absolved. Without costs. So ordered.

Arellano, C.J., Torres, Johnson, Moreland and Araullo, JJ., concur.

TRADERS INSURANCE AND SURETY CO. V. GOLANGCO- INSURANCE PROCEEDS
95 PHIL 826
Facts:
> A decision was rendred in Civil Case No. 6306 granting Golangco the right to collect rentals from
a building in Sta. Cruz, Manila.
> Golangco then sought fire insurance from Traders. Before the policy was issued, Golangco made
a full and clear exposal of his interests in the premises, i.e. that he was not the owner.
> The fire policy that defendant issued covered only all of Golangcos interest in the premises and
his right to collect the rentals.
> The building burned down in a fire and Golangco sought to collect from Traders. Traders denied
any liability on the ground that since Golangco was not the owner of the premises then he had no
insurable interest in the same and consequently, he could not collect the insurance proceeds.

Issue:

Whether or not plaintiff can claim the insurance proceeds.

Held.
YES.
Both at the time of the issuance of the policy and at the time of the fire, plaintiff Golangco was in
legal possession of the premises, collecting rentals from its occupant. It seems plain that if the
premises were destroyed as they were, by fire, Golangco would be, as he was, directly damnified
thereby; and hence he had an insurable interest therein.

FILIPINO MERCHANTS V. CA- INSURABLE INTEREST
179 SCRA 638
Facts:
> The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the vessel SS
Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to
recover from Filipino the amount of P51,568.62 representing damages to said shipment which has
been insured by Filipino.
> Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs Reunis
and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is
rendered against it.
> It appears from the evidence presented that Chao insured said shipment with Filipino for the
sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in gunny bags of 90
kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse
terms.
> Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.
> The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976 at Manila
unto the arrastre contractor E. Razon, Inc. and Filipinos surveyor ascertained and certified that in
such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and
the arrastre contractor.
> Based on said computation the Chao made a formal claim against the Filipino for P51,568.62. A
formal claim statement was also presented by the plaintiff against the vessel, but the Filipino
refused to pay the claim.
Issues & Resolutions:
Filipino contends that an "all risks" marine policy has a technical meaning in insurance in that
before a claim can be compensable it is essential that there must be "some fortuity," "casualty" or
"accidental cause" to which the alleged loss is attributable and the failure of herein private
respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the
cargo in question was due to a fortuitous event precludes his right to recover from the insurance
policy.

SC did not uphold this contention. An "all risks policy" should be read literally as meaning all risks
whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and
"accidental", as used in insurance contracts, have not acquired any technical meaning. They are
construed by the courts in their ordinary and common acceptance. Thus, the terms have been
taken to mean that which happens by chance or fortuitously, without intention and design, and
which is unexpected, unusual and unforeseen. An accident is an event that takes place without
one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting upon the
insured the burden of establishing that the loss was due to the peril falling within the policy's
coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly
excludes the loss from coverage. A marine insurance policy providing that the insurance was to
be "against all risks" must be construed as creating a special insurance and extending to other
risks than are usually contemplated, and covers all losses except such as arise from the fraud of
the insured. The burden of the insured, therefore, is to prove merely that the goods he
transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the
insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of
proving the precise cause of the loss or damage would be inconsistent with the broad protective
purpose of "all risks" insurance.

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

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

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

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

Chao, as vendee/consignee of the goods in transit has such existing interest therein as may be the
subject of a valid contract of insurance. His interest over the goods is based on the perfected
contract of sale. The perfected contract of sale between him and the shipper of the goods
operates to vest in him an equitable title even before delivery or before he performed the
conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this
case, is immaterial in the determination of whether the vendee has an insurable interest or not in
the goods in transit. The perfected contract of sale even without delivery vests in the vendee an
equitable title, an existing interest over the goods sufficient to be the subject of insurance

CHA V. CHA - INSURABLE INTEREST
277 SCRA 690 (1997)
Facts:
> Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS
Development Corporation (CKS), as lessor.
> One of the stipulations of the one (1) year lease contract states: "18. . . . The LESSEE shall not
insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store
or space in the leased premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the
policy is deemed assigned and transferred to the LESSOR for its own benefit; . . ."
> Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their
merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United
Insurance without the written consent CKS.
> On the day that the lease contract was to expire, fire broke out inside the leased premises.
When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it
wrote the United a demand letter asking that the proceeds of the insurance contract (between the
Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.
> United refused to pay CKS, alleging that the latter had no insurable interest. Hence, the latter
filed a complaint against the Cha spouses and United.

Issue:
Whether or not CKS can claim the proceeds of the fire insurance.
Held:
NO. CKS has no insurable interest.
Sec. 18 of the Insurance Code provides:
"Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit
of some person having an insurable interest in the property insured."

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must
exist at the time the insurance takes effect and at the time the loss occurs. The basis of such
requirement of insurable interest in property insured is based on sound public policy: to prevent a
person from taking out an insurance policy on property upon which he has no insurable interest
and collecting the proceeds of said policy in case of loss of the property.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code
which provide:
"Section 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss of injury thereof."

Therefore, CKS cannot, under the Insurance Code a special law be validly a beneficiary of the
fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable
interest over said merchandise remains with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision of the lease contract previously quoted is void
for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus
rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer
(United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS)
who has no insurable interest in the property insured.

GARCIA V. HONGKONG FIRE AND MARINE INSURANCE CO. - WRONG POLICY
45 PHIL 122

Facts:
> Garcia had his merchandise insured by Hongkong Fire and Marine Insurance Co.
> The insurance company however made a mistake and issued a policy covering the building
where the merchandise was stored. (The building was not owned by Garcia)
> The policy was written in English, of which Garcia was ignorant, so he could not have noticed
the error of the insurance company.
> Said policy was later on assigned by Garcia to PNB to secure a loan. PNB acknowledged receipt
of said policy, referring to it as a policy covering the merchandise.
> The insurance company made the necessary endorsements to PNB.
> The building which housed the merchandise was later razed by fire. The insurance company
refused to pay due to the fact that the policy indicates insurance on the building and not on the
merchandise.

Issue:
Whether or not Garcia can collect.

Held:
YES.
The defense of the insurer is purely technical. The mistake was obviously on the part of the
insurer when it issued a wrong policy. It cannot deny such allegation due to the fact that it even
confirmed with PNB the nature of said policy when it was endorsed. Garcia could not have
noticed the mistake due to his ignorance of the English language.

G.R. No. 31952, Lim Cuan Sy v. Northern Assurance Co., 55 Phil. 248
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

November 13, 1930

G.R. No. 31952
LIM CUAN SY, plaintiff-appellee,
vs.
THE NORTHERN ASSURANCE COMPANY, LIMITED, defendant-appellant.

Gibbs and McDonough for appellant.
M. H. de Joya and Jose P. Laurel for appellee.

STREET, J.:

This action was instituted in the Court of First Instance of the City of Manila, on May 5, 1927, by
Lim Cuan Sy, for the purpose of recovering from the Northern Assurance Company, Limited, the
sum of P10,000 upon a policy of insurance issued through its Manila agency upon a stock of
textiles stored in a bodega located at No. 62, Calle Urbiztondo, San Nicolas, Manila, which goods,
it was alleged in the complaint, had been destroyed by fire on December 28, 1926. In its answer
the defendant company set up a general denial and several special defenses directed to the
following points: false representation by the insured with respect to the ownership of the insured
property, incendiarism on the part of the insured, and the submission of false and fraudulent
proof with respect to the amount and value of the destroyed merchandise. Upon hearing the
cause the trial court gave judgment for the plaintiff to recover of the defendant the sum of
P10,000, the full amount of the policy, with lawful interest from the date of the filing of the
complaint, and with costs. From this judgment the defendant appealed.

At the time of the fire which gave rise to this lawsuit there was a Chinese firm engaged in the
business of selling textiles at 174 Rosario Street, in the City of Manila. This business was conducted
indifferently, in Chinese fashion, under the names of "Hong Liong," "Lim Cuan Sy," and "Lim Cuan
Sy & Co.," though it was organized and registered as a mercantile partnership under the
designation last above given. The name "Lim Cuan Sy," one of the designations of the business, is
the name of one of the partners in the business, who actually owned, at the time this action arose,
about one-third of the business. At the time of the incident with which we are concerned, the
partner Lim Cuan Sy was in China, and his son, one Lim Tec Suan, was acting as his agent and as
manager of the business at 174 Rosario Street. Owing to the cramped quarters of the place where
the concern did business, it was necessary for the firm to store a large part of its stock, such as was
not necessary for actual exhibition to purchasers, in places apart from its store. One of these
places of storage was an interior compartment in the Poizant Bodega located on Urbiztondo and
Barraca Streets in the District of San Nicolas, Manila. This bodega was of considerable size with
exterior parts of cement. In the center there was originally an open patio, but in response
apparently to demands for space, this interior area had been converted into compartments for the
storage of goods. In the autumn of 1926 the plaintiff acquired possession of the interior
compartment of the bodega designated as A-1, No. 62, Urbiztondo Street. This compartment was
10 or 12 meters long, with a breadth of 5 meters and height of 5 meters. Here the plaintiff
stored a a large quantity of textiles prior to November 23, 1926, upon which date he produced the
policy of insurance, which is the basis of this action, to be issued by the local agent of the
defendant insurance company in the amount of P10,000, insuring the effects stored in said bodega
from loss by fire. At or about the same time additional policies of insurance, aggregating P60,000
and underwrittten by other companies, were taken out, making all together P70,00 of insurance
on the same stock of textiles. All of these policies were written in the name of the plaintiff Lim
Cuan Sy, as the insured.

At the hour of about 1.45 a. m. on the morning of December 28, 1926, a destructive fire occurred
in the Poizat Bodega, which burned with fury for perhaps a couple of hours and destroyed most of
the contents of the buildings, leaving only the exterior walls standing. This fire appears to have
originated in the northeastern corner of the bodega, at a point somewhat removed from the
compartment where the plaintiff's good were stored. A breeze happened, at the time, to be
blowing from the northeast, with the result that the flames were carried in a southwestwardly
direction, giving the fire the full sweep of the bodega. The plaintiff's compartment was directly in
the course of the progress of the fire; and although some remnants of the textiles were found in
the debris, the destruction was so complete that even the places occupied by the rows of boxes
are not discernible in the photographs taken of the ruins.

After the fire occurred the plaintiff, in due time, put in claim of loss against the various insurance
companies concerned for 155 boxes of textiles, with as alleged value of P91,425.46. The claim was
disallowed by the insurer, upon the advice of its adjuster and its attorneys, and as a consequence
this action was instituted.

It is not questioned that at the time the insurance policies were written the plaintiff had goods
stored in his compartment in the Poizat Bodega of the value claimed; and no serious attempt has
been made to fasten upon the plaintiff the charge of having set fire to the bodega. The defenses
urged in this instance by the appellant revolve mainly around two propositions, namely, first, that
there was a misrepresentation by the insured as to the nature and extent of his interest in the
insured goods, and secondly, that immediately prior to the fire, the plaintiff caused a large of the
goods to be removed surreptitiously from the bodega and that the goods so removed were
included in the claim of loss, thereby rendering the claim fraudulent. These defenses will be dealt
with in turn.

In connection with the first of these defenses the appellant calls attention to the fact that the true
owner of the insured goods was the mercantile entity Lim Cuan Sy & Co., whereas the policies
were written in the name of Lim Cuan Sy only , without any revelation having been made Lim Cuan
Sy only, without any revelation having been made to the insurer of the fact that Lim Cuan Sy was
only one of several partners in the business and that he was not the sole owner. The proof,
however, shows that the agent who wrote the policy made no inquiry as to the interest of Lim
Cuan Sy in the insured goods, and he merely asked in what name the insurance should be written.
The proof further shows that, in accordance with the Chinese genius for mixing names, the name
Lim Cuan Sy was commonly used to indicate the business pertaining to the mercantile entity Lim
Cuan Sy & Co. Thus, the store at 174 Rosario Street was rented in the name of Lim Cuan Sy; the
goods in the same store are insured in the name of Lim Cuan Sy; and the obligations contracted by
the concern with the Philippine National Bank for goods bought on credit were contracted in the
name of Lim Cuan Sy. There is no question but that when this policy of insurance was written, the
agent of the company knew that he was insuring a stock of goods the identity of which was not in
doubt, and which pertained to a business commonly known as the business of Lim Cuan Sy; and
inasmuch as the defendant was content to take the premium corresponding to the insurance on
goods of the value of those then contained in the bodega, the company should not now be
permitted to escaped responsibility merely upon the lack of conformity between the name used in
the policy and the true name of the legal entity existing under our law. If questions had been put
to the agent of the insured at the time the policies were written and misrepresentation had been
deliberately made with respect to the ownership, a different problem would have been presented.

A point somewhat similar to that here presented was raised by the defendant in the case of
Acriche vs. Law Union & Rock Insurance Co., (48 Phil., 592), and although the point was not
necessary to the decision in the case, it was suggested that "if the claim had been in all other
respects fair and honest, the objection with respect to the ownership of the insured goods would
probably not have been a fatal obstacle to a recovery." The very strict doctrine built up on this
point in the courts of America has resulted from the effort of the courts to protect insurance
companies by withdrawing the cases so far as possible from the jury, it being notorious that juries
are very prone to see matters of this kind in the light of the insured. As the jury system is not in
vogue in this country, this idea should not here control. The defendant, we think, should be
considered estopped from defeating its policy on the ground stated. In arriving at this view we are
not unmindful of the practices of the mercantile community, including both bankers and
merchants, in dealing with Chinese firms. We are of the opinion, therefore, that the contract of
insurance cannot be avoided upon the ground suggested. It is evident that the misrepresentation
complained of was not fraudulently made, and it could only have resulted from ignorance on the
part of the insured. I considered material, the error would no doubt have given rise to an equity
on the part of the insured to have the contract reformed in conformity with the intention of both
insurer and insured, but we consider such a course unnecessary.

The difficult question in the case, and the one upon which the defense has mainly concentrated its
force, is, whether the plaintiff, after having surreptitiously removed a great part of the insured
goods from the bodega already mentioned, falsified its claim and proof of loss by including the
goods so removed, with intent to defraud the insurer. Upon this question the defendant
introduced two witnesses, Gabriel Ykal and Fernando Bayan, who testified that, as laborers, they
assisted in removing some 65 cases of goods from the bodega on December 23, 24, and 27, 1926,
immediately preceding the fire. These witnesses state that a truck was used to effect the removal
of the boxes mentioned, and they further state that a carretela was used to transport some goods
which were taken from boxes in the bodega, the boxes being left in the place. The boxes and
goods thus removed form the bodega were taken, so the witnesses say, to the store at 174 Rosario
Street, where they were unladen and carried in through the front door. They were then taken, so
these witnesses say, through the back yard No. 174 and stored in No. 176. A certain verisimilitude
was imparted to this narrative by the circumstance that the defendant first obtained from the
witness Ykal information concerning the use of No. 176 as a place of storage for the occupant of
No. 174. But of course his ability to reveal this circumstance might have originated from a single
visit to the place upon some other occasion. The antecedents of the witness Ykal appear to be
bad, if repeated enforced visits to Bilibid Prison may be taken as suggestive; and the other witness
was procured by him. Upon the whole the trial judge was so unfavorably impressed by the story
told by these two that he refused to give credence to it.

The defense insists, however, that the testimony of these two witnesses is corroborated by the
circumstance that when the attorneys for the respective parties, in company with the clerk of
court, visited No. 176 Rosario Street, for purposes of inspection on March 19, 1928, they found in
that compartment an empty box bearing the same number as one of the cases included in the
claim of loss, that is to say, the number "3790." This certainly looks suspicious. But the defendant
produced and exhibited in court shipping documents showing that in the early part of the year
1928, that is to say, more than a year after the fire occurred, two boxes of goods, purchased in
England, arrived at the port of Manila, consigned to Lim Cuan Sy, and were entered through the
Bureau of Customs soon after their arrival. In connection with this entry, the defendant exhibited
the customhouse documents by means of which the admission of the goods was effected. We
believed that these documents are authentic. And the numbers of the two boxes so entered were
"3790" and "3890." After the boxes were received at the plaintiff's store and the contents
removed, the two empty cases were stored, so the Chinese witnesses say, in No. 176. This must
have occurred just before the place was suspected by the clerk of the court and the attorneys for
the two litigations on March 19, for the reason that when the inspecting party examined this place
on said date they found 32 boxes, one of which was the box bearing the number "3790," already
mentioned. Two other boxes found in the same occasion bore an identical number, namely,
"3890." This shows that a consignment of two boxes was received by the plaintiff in 1932, in which
the numbers on the boxes duplicated the numbers of two boxes previously received; and one of
these numbers happened to correspond with the number on one of the boxes consumed in the
fire. The reason for this coincidence is not apparent. It may have resulted from a mere duplication
of orders upon an identical exporter. That the duplication occurred is established beyond a
reasonable doubt.

In reflecting upon this circumstance we have not overlooked the fact that the Chinese witnesses
testifies that the two boxes imported in March, 1928, were, after the removal of their contents,
stored in No. 176 Calle Rosario on March 20, 1928, or one day later than the inspection above-
mentioned. But this must have been a mere mistake due possibly to the difference between
Gregorian and Chinese calendars. It could not reasonably have been due to a deliberate intent to
give a false date, because the truth would have been more in the interest of the side by which the
witnesses were called. Upon the whole it must be apparent that the proof relative to the finding
of box No. 3790 in this place of storage is far from adding any weight to the defendant's
contention.

But the defense further relies upon the results of an examination of the debris left by the fire, and
the deductions drawn therefrom. In this connection we note that there were found in the
compartment where the plaintiff had its goods stored in the Poizat Bodega certain remnants of
textiles that had not been entirely consumed, as well as some iron bands, or wires, from around
boxes that had been consumed in the fire. Of these bands enough pieces were found to have
served, as is supposed, for about 73 boxes; and as the plaintiff claims that 155 boxes were
destroyed, it is therefore insisted by the appellant that there were not in the place at the time of
the fire as many boxes as the plaintiff claims. With respect to the remnants of textiles found in the
debris, it appears that no vestige remained of 14 kinds of goods comprising the 30 items included
in the claim of loss, and it is therefore insisted by the appellant that there could not reasonably
have been in the place anything like the quantity of goods claimed by the plaintiff.

We are of the opinion, however, that the inference which the appellant draws from the data
supplied by the debris are not sufficiently convincing to justify this court in reversing the
judgment; for although some remnants of unconsumed textiles were found in the ruins, the fire
was undoubtedly of great intensity, as more than one member of the fire department stated. In
the right of this testimony it cannot be considered wholly incredible that half of the iron bands
might have been entirely destroyed. The suspicions engendered by the aspects of the proof above
discussed, and by other circumstances upon which counsel for the defense places stress, do not, in
the opinion of a majority of the court, amount to a clear preponderance of the evidence, such as
ought to be demonstrated before the findings of a trial court can be reversed.

Error No. 11 calls in question the propriety of the action of the trial court in excluding the
deposition of A. H. Wells. In this connection it appears that the taking of the proof in this case
extended over a considerable period time, in the course of which the defendant's attorneys
became informed that one of its witnesses, Dr. Albert H. Wells, was planning to leave the
Philippines Islands for the United States. Immediately upon learning of this fact, the attorneys for
the defendant, on December 2, 1927, gave notice to the plaintitff and his attorneys that they
would take the deposition of Doctor Wells at 10:30 a. m., Monday, December 5, before a notary
public. Said notice was accompanied by the usual affidavit setting forth that Doctor Wells was to
leave the city on December 6, 1927, as he in fact did, and that he would be absent when his
testimony would be required in court. The notification of the taking of this deposition was in due
form and the time fixed was in accordance with law, since full two days' notice was given exclusive
of the intervening Sunday. No member of the firm of attorneys representing the plaintiff appeared
at the taking of said deposition, as the particular member of the firm who was acting in this case
apparently had other professional matters requiring his attention at that time. When, however,
the deposition was produced in court, said attorney objected to its use and moved for its
suppression. This motion was acceded to by the trial judge, on the ground that the attorneys for
the defendant had not advised the court that one of its witnesses was about to leave the Islands;
and that, if immediate application had been made to the court, it would have allowed the witness
to be examined in court on the afternoon of the same day when the deposition was in fact taken.

It is clear that the deposition was taken upon proper notice, and we are of the opinion that the
deposition ought to have been admitted as proof for the defendant. It is true that the court might
have suspended the order of proof at the hearing of the same case in the afternoon of the day
when the deposition was taken, but the plaintiff was then submitting its case. The attorneys for
the defendant had no means of knowing that the court would suspend the order of the taking of
the proof with a view to the examination of this particular witness, for the party who was then out
of turn; and it might well have been considered unwise to take this chance. At any rate the
deposition was taken according to law and showing not have been suppressed. The circumstance
that none of the lawyers of the firm representing the plaintiff were present at the taking of the
deposition, whether for good reason or for none, did not make the deposition inadmissible, and
notice having been properly given, it was the duty of the attorneys for the plaintiff either to have
some one present to represent the firm at the taking of the deposition or to let it be read without
cross-examinations by them. His Honor, therefore, erred in excluding the deposition, and we have
accordingly treated it upon this hearing as competent proof for the defendant.

For the reasons stated, the appealed judgment, in so far as relates to the fundamental issues of
the case, is affirmed, and it is so ordered, with costs against the appellant.

Avancea, C. J., Malcolm, Villamor, and Villa-Real, JJ., concur.
Johns, J., concurs.

Separate Opinions

OSTRAND, J., dissenting:

We agree that the fire was not incendiary. We also agree that the lower court committed an error
in refusing to receive in evidence the deposition of Dr. A. H. Wells, and that it "ought to have been
admitted as proof for the defendant." We also agree with the majority opinion when it says: "The
destruction was so complete that even the places occupied by the rows of boxes are not
discernible in the photographs taken of the ruins." But we are clearly of the opinion that the proof
of plaintiff's claim was both false and fraudulent.

As to the deposition of Doctor Wells, the majority opinion says: "We have accordingly treated it
upon this hearing as competent proof for the defendant.

Plaintiff's claim of loss is founded upon the destruction by the fire of cases and bolts of textile
goods, and the real and decisive question in this case is whether or not, with some few marked
exceptions, they could be or were totally lost and consumed in and by the fire. That is to say,
whether a fire of this nature would consume, wipe out, and destroy every vestige of the cases,
iron bolts, bands, and wrappings in which, it is admitted, the textiles were bound. Upon that
question the only competent evidence offered by either party was the deposition of Doctor Wells.
He testified that he was 42 years of age. That his occupation was chief, division of organic
chemistry, Bureau of Science and then as follows:

Q. What course of study did you take which qualified you for the position as chief of the division of
organic chemistry, Bureau of Science? A. Seven years, Stanford University, studying organic
chemistry. Organic chemistry covers work with textiles.

Q. How long have you been chief, division or organic chemistry, Bureau of Science? A. About
ten years.

Q. State whether or not you examined the damaged merchandise now stored at No. 427 Calle
Pinpin, Manila, and said to be the remains of the merchandise of Lim Cuan Sy & Company
damaged in the fire of the Poizat bodega? A. I did.

Q. State whether or not all the boxes or cases containing damaged merchandise were opened up
for your inspection? A. All of the cases were opened up and the merchandise taken out.

Q. In what form was the merchandise which was taken from the boxes? A. Tightly wrapped
bolts, some of which were covered with heavy paper wrappings tied with string.

Q. That is to say that they were in their original packages of paper and the paper had not been
burned? A. Yes in some cases.

Q. What can you say as to whether or not the paper labels of some of the bolts were still on the
bolts? A. They were still intact, in their original form.

Q. Speaking generally of all the bolts of goods which you inspected there, state to what extent the
various bolts had been consumed by fire? A. Some of the bolts were consumed over 50 per
cent; others about 5 to 10 per cent and others were not consumed at all, still having their original
wrappings.

Q. Did you make a rough estimate at the time you examined the bolts of merchandise as to what
percentage of the entire damaged goods that were inspected by you were consumed by fire? A.
After inspecting all the bolts, including those that were not damaged by fire, I estimated
approximately 25 per cent of the total to be consumed by fire.

Q. What percentage of the bolts would you say had been consumed to an extent of more than 50
per cent ? A. I would say possibly 5, not over 10 per cent.

Q. I call your attention to a book of samples of merchandise, one column of the samples of which
consists of new samples of goods claimed by the insured to have been in the bodega at the time of
the fire and the other outside column of the samples are samples of the goods actually found in
the debris after the fire, and which book of samples has heretofore been referred to in the trial as
Exhibit 8. Now, referring to item No. 6 of this book of samples described as 4 cases containing
10,827 yards of colored stripped madras, 199 pieces (bolts), I will ask you to state whether, in
your opinion, there could have been 4 cases of 199 bolts, containing 10,827 yards of that kind of
cloth totally consumed in that bodega by the fire, taking into consideration the condition of the
bolts of goods which were examined by you at No. 427 Calle Pinpin and which went through the
same fire? A. It would be impossible taking into consideration the intensity of heat and
duration of the fire indicated by the specimens we inspected at the bodega; there would have
been some of the original material left if there had been such a quantity in the bodega at the time
of the fire.

Q. I call your attention to item No. 9 in the same book of samples Exhibit 8 consisting of 5
cases, 9,619 3/4 yards of Hallburnic Ginghams, contained in 240 bolts, and will ask you to state
whether or not, in your opinion, there could have been as large a quantity of that class of
merchandise in the bodega at the time of the fire without there having been left any vestige
thereof in the debris, taking into consideration the condition of the merchandise which you
inspected and which, according to your information, went through the same fire? A. The
answer to the last question applies equally to this.

Q. I call your attention likewise to items Nos. 12, 14, 19, 22, 23, 24, 25, 26, 29 and 30, after each of
which numbers appears the word "None," meaning that no vestige of the material designated by
those items were found in the debris after the fire, and ask you to state whether or not in your
opinion the quantities of merchandise designated in these items could have been totally
consumed, leaving no vestige thereof, by the same fire through which the damaged merchandise
inspected by you at No. 427 Calle Pinpin went? A. The same holds true in these cases as in the
pervious answer.

Q. Please state whether or not merchandise rolled tightly in bolts and boxed in cases burns rapidly
or slowly and why? A. It burns slowly, not only for the reason that the bolts are tightly wrapped
and boxed, but also because of the small quantity of oxygen contained in the bolts to allow of
combustion combustion being oxidation.

Q. Doctor, do you remember if among the bolts of merchandise which you inspected at No. 427
Calle Pinpin, there was some coco Pajarito? A. Yes, sir.

Q. Please state whether or not, in your opinion, judgment from the condition in which the bolts
you examined were found, there could have been 150 more bolts of the same class of goods
totally consumed by the fire through which the piece inspected by you went? A. It is my opinion
that it would have been impossible for the same fire to have entirely consumed 150 bolts more of
the same kind of goods.

Q. Referring to item No. 17 in the book of samples, consisting of 10 cases of 2,000 blankets, which,
when new, would fill a space of 284.56 cubic feet, please state whether or not, judgment from the
damage tot he blankets that you examined at No. 427 Calle Pinpin, the blankets could have been
reduced by the fire to such an extent that the remains thereof would fill a space of but 115,359
cubic feet? A. Blankets of this nature are not easily combustible, particularly when compressed
in packing cases, and it is my opinion judging from the appearance of those fund in the bodega,
that such a reduction would be impossible, or highly improbable.

Q. Doctor, how do you account for the fact that some of the bolts of goods which you inspected at
No. 427 Calle Pinpin were consumed to a larger extent than others by the fire? A. Because there
was naturally some variation in the intensity of the heat in the different parts if the bodega.

Q. Taking into consideration the fact that this bodega was but 13 meters in length by 5 meters in
width, what would you say as to whether or not the difference in the intensity of heat which may
have prevailed at the time of the fire in the bodega would have been sufficient to totally destroy
certain classes of goods to which your attention has heretofore been called, and at the same time
consume or damage the goods which you inspected only to the extent found by you? A. In my
opinion, the difference in the intensity of heat which might have prevailed in the fire in the
different parts of the bodega would be insufficient to totally consume such large quantities of one
class of merchandise and leave the merchandise inspected by me in the condition in which it was
found.

It will be noted that this evidence is clear, positive, definite, and certain, and that nowhere in the
record is it impeached or questioned. In fact upon those points no other witness testified or was
called by either party. The question as to whether or not a fire of this nature would totally wipe
out and destroy every vestige of the textiles is one of science, and in the absence of any other
testimony upon that point how can this court find as a scientific fact that the evidence of Doctor
Wells is not true? It appears from his deposition that he has made a life study of organic chemistry
which covers the burning of textiles, and he testified as a fact that taking in consideration the
intensive heat and duration of the fire "there would have been some of the original material left if
there had been such a quantity in the bodega at the time of the fire." That some of the bolt were
consumed over 50 per cent others about 5 to 10 per cent; and others still have their original
wrappings, and that the percentage of the entire damaged goods was "possibly 5, not over 10 per
cent," and that it would have been impossible for the same fire to have entirely consumed 150
bolts more of the same kind of goods." That is a scientific fact upon which the only competent
evidence in the record is that of Doctor Wells. Yet, in the final analysis, the majority opinon of this
court has set up its own judgment as to the force and effect of the fire against his, and found as a
fact, based on its own judgment, that there was almost a total destruction and loss of textiles
which plaintiff claims was in the bodega at the time of the fire. In other words, the majority
opinion holds that the deposition of Doctor Wells was competent, an that it should have been
received in evidence, but without any evidence to overcome or contradict if finds that it is not
true. Yet it was was given by a man who has devoted his whole life to the study of his profession,
with a lifelong experience, who is fair and impartial, and has no personal interest in the result.

We have been taught that questions of fact should be tried and decided upon the evidence in the
record, and the the testimony of one credible witness is sufficient to establish any fact, in
particularly, when it is not controverted and there is no evidence to dispute it.

The testimony of Doctor Wells was given after a personal inspection by him of everything which
remained of all of the textiles after the fire, which were later sold for P7,000, and his testimony is
founded on that personal inspection. How then can this court, after an inspection of a small
portion of the remaining textiles, set up its own judgment against a person who has made a
lifelong study of his profession, and who personally examined all of the remaining evidence of the
textiles after the fire?

The majority opinion says:

That the inference which the appellant draws from the data supplied by the debris are not
sufficiently convincing to justify this court in reversing the judgment; for although some remnants
of unconsumed textiles were found in the ruins, the fire was undoubtedly of great intensity, as
more than one member of the fire department stated. In the light of this testimony it cannot be
considered wholly incredible that half of the iron bands might have been entirely destroyed. The
suspicious engendered by the aspects of the proof above discussed, and by other circumstances
upon which counsel for the defense places stress, do not, in the opinion of majority of the court,
amount to a clear preponderance of the evidence, such as ought to be demonstrated before the
findings of a trial court can be reversed.

It will be noted that the majority opinion says:

In the light of this testimony, but it does not point out or specify any of the testimony upon which
it relies. In truth and in fact the only competent evidence upon that point is the testimony of
Doctor Wells who has made a lifelong study of the decisive question involved in this case.

Again it appears that in testifying, Doctor Wells was shown samples of the textiles which were
supposed to be in the bodega at the time of the fire, together with the samples of the textiles
which were "actually found in the debris after the fire," known as Exhibit 8, and his evidence is
based on his personal inspection of those samples which this court has never seen. As stated, the
decisive question in this case is whether the kind and quality of the textiles which plaintiff claims
were in the bodega at the time of the fire, as evidenced by the samples submitted to Doctor Wells,
would be consumed and all evidence wiped out and destroyed by the fire, and again we repeat
that the only evidence in the record on that point is that of Doctor Wells, and if his testimony is
true, it must follow that plaintiff's claim was false and fraudulent. How can this court ignore and
entirely overlook the testimony of Doctor Wells? In the face if his testimony, how can this court
find as a fact that the textile goods were wholly consumed, wiped out, and destroyed by the fire?
Upon what legal principle can this court set up its own judgment against a man who has made
organic chemistry his chosen profession and in which he has had a lifelong experience, in
particular, when on that vital point his evidence is not refuted by any other witness? As the
majority opinion finds "the destruction was so complete that even the places occupied by the
rows of boxes are not discernible in the photographs taken of the ruins." If Doctor Well's
testimony is true, "the rows of boxes" were not discernible after the fire, for the simple reason
that "the rows of boxes" were not in the bodega at the time of the fire.

We are clearly of the opinion that plaintiff's claim was false and fraudulent, and for such reasons
the judgment of the lower court should be reversed.

ROMUALDEZ, J.:

SAN MIGUEL BREWERY V. LAW UNION ROCK INSURANCE COMPANY - INSURANCE PROCEEDS

40 PHIL 674
Facts:
> On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.
> Mortgage contract stated that Dunn was to have the property insured at his own expense,
authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of
the proceeds as would cover the mortgage debt.
> Dunn likewise authorized SMB to take out the insurance policy for him.
> Brias, SMBs general manager, approached Law Union for insurance to the extent of 15T upon
the property. In the application, Brias stated that SMBs interest in the property was merely that
of a mortgagee.
> Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and
procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued
in the name of SMB only and contained no reference to any other interests in the propty. Both
policies required assignments to be approved and noted on the policy.
> Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.
> In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the
latter.
> Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding
was made a defendant because by virtue of the sale, he became the owner of the property,
although the policies were issued in SMBs name.
> SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go
to Harding.
> Insurance Companies contended that they were not liable to Harding because their liability
under the policies was limited to the insurable interests of SMB only.
> SMB eventually reached a settlement with the insurance companies and was paid the balance of
its mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence
the appeal.

Issue:

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

Held:
NOPE.
Under the Insurance Act, the measure of insurable interest in the property is the extent to which
the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the
insurance shall be applied exclusively to the proper interest of the person in whose name it is
made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but
it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage
credit.

By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two
policies. With respect to Harding, when he acquired the property, no change or assignment of the
policies had been undertaken. The policies might have been worded differently so as to protect
the owner, but this was not done.

If the wording had been: Payable to SMB, mortgagee, as its interests may appear, remainder to
whomsoever, during the continuance of the risk, may become owner of the interest insured, it
would have proved an intention to insure the entire interest in the property, NOT merely SMBs
and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this
was not what was stated in the policies.

If during the negotiation for the policies, the parties had agreed that even the owners interest
would be covered by the policies, and the policies had inadvertently been written in the form in
which they were eventually issued, the lower court would have been able to order that the
contract be reformed to give effect to them in the sense that the parties intended to be bound.
However, there is no clear and satisfactory proof that the policies failed to reflect the real
agreement between the parties that would justify the reformation of these two contracts.

RCBC V. CA - INSURANCE PROCEEDS
289 SCRA 292 (1998)
Facts:
> GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, a credit
facility in the amount of P30 million was initially granted. Upon GOYU's application increased
GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two CM in favor of
RCBC, which were registered with the Registry of Deeds at. Under each of these four mortgage
contracts, GOYU committed itself to insure the mortgaged property with an insurance company
approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In February 1992,
Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan
insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of
GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire.
Consequently, GOYU submitted its claim for indemnity.
> MICO denied the claim on the ground that the insurance policies were either attached pursuant
to writs of attachments/garnishments issued by various courts or that the insurance proceeds
were also claimed by other creditors of GOYU alleging better rights to the proceeds than the
insured.
> GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's creditors,
also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims
were also denied for the same reasons that AGCO denied GOYU's claims.
> However, because the endorsements do not bear the signature of any officer of GOYU, the trial
court, as well as the Court of Appeals, concluded that the endorsements are defective and held
that RCBC has no right over the insurance proceeds.

Issue:
Whether or not RCBC has a right over the insurance proceeds.
Held:
RCBC has a right over the insurance proceeds.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same property for his own
sole benefit. There is no question that GOYU could insure the mortgaged property for its own
exclusive benefit. In the present case, although it appears that GOYU obtained the subject
insurance policies naming itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to better serve the interest of
justice and equity.

It is to be noted that 9 endorsement documents were prepared by Alchester in favor of RCBC. The
Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance
policy in favor of any particular beneficiary or payee other than the insured had not such named
payee or beneficiary been specifically disclosed by the insured itself. It is also significant that
GOYU voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC,
and not just from any other insurance company. Alchester would not have found out that the
subject pieces of property were mortgaged to RCBC had not such information been voluntarily
disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYU's
intention of obtaining insurance coverage in compliance with its undertaking in the mortgage
contracts with RCBC, and verify, Alchester would not have endorsed the policies to RCBC had it not
been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in
favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it
as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be
justified under the circumstances of the case. GOYU failed to seasonably repudiate the authority
of the person or persons who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC.
After the occurrence of the loss insured against, it was too late for GOYU to disown the
endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue
said endorsements. If there had not been actually an implied ratification of said endorsements by
virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their
operative effects.

To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to
enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance grave contravention of
public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot
sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize
RCBC's right to the proceeds of the insurance policies if not for the actual endorsement of the
policies, at least on the basis of the equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds
of insurance shall exclusively apply to the interest of the person in whose name or for whose
benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a
justification to take exception to the strict application of said provision, it having been sufficiently
established that it was the intention of the parties to designate RCBC as the party for whose
benefit the insurance policies were taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of mortgage contracts
entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities
from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor,
undertook to have the mortgaged property properly covered against any loss by an insurance
company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO,
no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency,
Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of late, the
validity of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities
extended by RCBC which was conditioned upon the endorsement of the insurance policies to be
taken by GOYU to cover the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU, despite the absence written conformity thereto,
obviously considered said endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the benefits of its credit facilities
and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to
constitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The
intention of the parties will have to be given full force and effect in this particular case. The
insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual
circumstances of the case, is truly the person or entity for whose benefit the policies were clearly
intended