G.R. No. L-8151 December 16, 1955 VIRGINIA CALANOC, Petitioner, Court of Appeals and The Philippine AMERICAN LIFE INSURANCE CO., Respondents

G.R. No.
L-8151
December 16, 1955
VIRGINIA CALANOC, petitioner,

vs.
COURT OF APPEALS and THE PHILIPPINE
AMERICAN LIFE INSURANCE CO., respondents.
This suit involves the collection of P2,000 representing

the value of a supplemental policy covering accidental
death which was secured by one Melencio Basilio from
the Philippine American Life Insurance Company. The
case originated in the Municipal Court of Manila and
judgment being favorable to the plaintiff it was
appealed to the court of first instance. The latter court
affirmed the judgment but on appeal to the Court of
Appeals the judgment was reversed and the case is
now before us on a petition for review.
Melencio Basilio was a watchman of the Manila Auto
Supply located at the corner of Avenida Rizal and
Zurbaran. He secured a life insurance policy from the
Philippine American Life Insurance Company in the
amount of P2,000 to which was attached a
supplementary contract covering death by accident. On
January 25, 1951, he died of a gunshot wound on the
occasion of a robbery committed in the house of Atty.
Ojeda at the corner of Oroquieta and Zurbaan streets.
Virginia Calanoc, the widow, was paid the sum of
P2,000, face value of the policy, but when she
demanded the payment of the additional sum of P2,000
representing the value of the supplemental policy, the
company refused alleging, as main defense, that the
deceased died because he was murdered by a person
who took part in the commission of the robbery and
while making an arrest as an officer of the law which
contingencies were expressly excluded in the contract
and have the effect of exempting the company from
liability.
The pertinent facts which need to be considered for the
determination of the questions raised are those
reproduced in the decision of the Court of Appeals as
follows:
The circumstances surrounding the death of Melencio
Basilio show that when he was killed at about seven
o'clock in the night of January 25, 1951, he was on duty
as watchman of the Manila Auto Supply at the corner of
Avenida Rizal and Zurbaran; that it turned out that Atty.
Antonio Ojeda who had his residence at the corner of
Zurbaran and Oroquieta, a block away from Basilio's
station, had come home that night and found that his
house was well-lighted, but with the windows closed;
that getting suspicious that there were culprits in his
house, Atty. Ojeda retreated to look for a policeman and
finding Basilio in khaki uniform, asked him to
accompany him to the house with the latter refusing on
the ground that he was not a policeman, but suggesting
that Atty. Ojeda should ask the traffic policeman on
LAW ON INSURANCE (Cases 1-20)
duty at the corner of Rizal Avenue and Zurbaran; that

Atty. Ojeda went to the traffic policeman at said corner
and reported the matter, asking the policeman to come
along with him, to which the policeman agreed; that on
the way to the Ojeda residence, the policeman and Atty.
Ojeda passed by Basilio and somehow or other invited
the latter to come along; that as the tree approached
the Ojeda residence and stood in front of the main gate
which was covered with galvanized iron, the fence itself
being partly concrete and partly adobe stone, a shot
was fired; that immediately after the shot, Atty. Ojeda
and the policeman sought cover; that the policeman, at
the request of Atty. Ojeda, left the premises to look for
reinforcement; that it turned out afterwards that the
special watchman Melencio Basilio was hit in the
abdomen, the wound causing his instantaneous death;
that the shot must have come from inside the yard of
Atty. Ojeda, the bullet passing through a hole waist-high
in the galvanized iron gate; that upon inquiry Atty.
Ojeda found out that the savings of his children in the
amount of P30 in coins kept in his aparador contained
in stockings were taken away, the aparador having
been ransacked; that a month thereafter the
corresponding investigation conducted by the police
authorities led to the arrest and prosecution of four
persons in Criminal Case No. 15104 of the Court of First
Instance of Manila for 'Robbery in an Inhabited House
and in Band with Murder'.
It is contended in behalf of the company that Basilio
was killed which "making an arrest as an officer of the
law" or as a result of an "assault or murder" committed
in the place and therefore his death was caused by one
of the risks excluded by the supplementary contract
which exempts the company from liability. This
contention was upheld by the Court of Appeals and, in
reaching this conclusion, made the following comment:
From the foregoing testimonies, we find that the
deceased was a watchman of the Manila Auto Supply,
and, as such, he was not boud to leave his place and go
with Atty. Ojeda and Policeman Magsanoc to see the
trouble, or robbery, that occurred in the house of Atty.
Ojeda. In fact, according to the finding of the lower
court, Atty. Ojeda finding Basilio in uniform asked him
to accompany him to his house, but the latter refused
on the ground that he was not a policeman and
suggested to Atty. Ojeda to ask help from the traffic
policeman on duty at the corner of Rizal Avenue and
Zurbaran, but after Atty. Ojeda secured the help of the
traffic policeman, the deceased went with Ojeda and
said traffic policeman to the residence of Ojeda, and
while the deceased was standing in front of the main
gate of said residence, he was shot and thus died. The
death, therefore, of Basilio, although unexpected, was
not caused by an accident, being a voluntary and
intentional act on the part of the one wh robbed, or one
of those who robbed, the house of Atty. Ojeda. Hence, it
is out considered opinion that the death of Basilio,
though unexpected, cannot be considered accidental,
for his death occurred because he left his post and
joined policeman Magsanoc and Atty. Ojeda to repair to
the latter's residence to see what happened thereat.
dennisaranabriljdiii
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Certainly, when Basilio joined Patrolman Magsanoc and

Atty. Ojeda, he should have realized the danger to
which he was exposing himself, yet, instead of
remaining in his place, he went with Atty. Ojeda and
Patrolman Magsanoc to see what was the trouble in
Atty. Ojeda's house and thus he was fatally shot.
We dissent from the above findings of the Court of
Appeals. For one thing, Basilio was a watchman of the
Manila Auto Supply which was a block away from the
house of Atty. Ojeda where something suspicious was
happening which caused the latter to ask for help.
While at first he declied the invitation of Atty. Ojeda to
go with him to his residence to inquire into what was
going on because he was not a regular policeman, he
later agreed to come along when prompted by the
traffic policeman, and upon approaching the gate of the
residence he was shot and died. The circumstance that
he was a mere watchman and had no duty to heed the
call of Atty. Ojeda should not be taken as a capricious
desire on his part to expose his life to danger
considering the fact that the place he was in dutybound to guard was only a block away. In volunteering
to extend help under the situation, he might have
thought, rightly or wrongly, that to know the truth was
in the interest of his employer it being a matter that
affects the security of the neighborhood. No doubt
there was some risk coming to him in pursuing that
errand, but that risk always existed it being inherent in
the position he was holding. He cannot therefore be
blamed solely for doing what he believed was in
keeping with his duty as a watchman and as a citizen.
And he cannot be considered as making an arrest as an
officer of the law, as contended, simply because he
went with the traffic policeman, for certainly he did not
go there for that purpose nor was he asked to do so by
the policeman.
Much less can it be pretended that Basilio died in the
course of an assault or murder considering the very
nature of these crimes. In the first place, there is no
proof that the death of Basilio is the result of either
crime for the record is barren of any circumstance
showing how the fatal shot was fired. Perhaps this may
be clarified in the criminal case now pending in court as
regards the incident but before that is done anything
that might be said on the point would be a mere
conjecture. Nor can it be said that the killing was
intentional for there is the possibility that the
malefactor had fired the shot merely to scare away the
people around for his own protection and not
necessarily to kill or hit the victim. In any event, while
the act may not excempt the triggerman from liability
for the damage done, the fact remains that the
happening was a pure accident on the part of the
victim. The victim could have been either the
policeman or Atty. Ojeda for it cannot be pretended that
the malefactor aimed at the deceased precisely
because he wanted to take his life.
We take note that these defenses are included among
the risks exluded in the supplementary contract which
enumerates the cases which may exempt the company
from liability. While as a general rule "the parties may
limit the coverage of the policy to certain particular

accidents and risks or causes of loss, and may
expressly except other risks or causes of loss
therefrom" (45 C. J. S. 781-782), however, it is to be
desired that the terms and phraseology of the
exception clause be clearly expressed so as to be
within the easy grasp and understanding of the insured,
for if the terms are doubtful or obscure the same must
of necessity be interpreted or resolved aganst the one
who has caused the obscurity. (Article 1377, new Civil
Code) And so it has bene generally held that the "terms
in an insurance policy, which are ambiguous, equivacal,
or uncertain . . . are to be construed strictly and most
strongly against the insurer, and liberally in favor of the
insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where
a forfeiture is involved" (29 Am. Jur., 181), and the
reason for this rule is that he "insured usually has no
voice in the selection or arrangement of the words
employed and that the language of the contract is
selected with great care and deliberation by experts
and legal advisers employed by, and acting exclusively
in the interest of, the insurance company." (44 C. J. S.,
p. 1174.)
Insurance is, in its nature, complex and difficult for the
layman to understand. Policies are prepared by experts
who know and can anticipate the bearings and possible
complications of every contingency. So long as
insurance companies insist upon the use of ambiguous,
intricate and technical provisions, which conceal rather
than frankly disclose, their own intentions, the courts
must, in fairness to those who purchase insurance,
construe every ambiguity in favor of the insured. (Algoe
vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A,
1237.)lawphi1.net
An insurer should not be allowed, by the use of obscure
phrases and exceptions, to defeat the very purpose for
which the policy was procured. (Moore vs. Aetna Life
Insurance Co., LRA 1915D, 264.)
We are therefore persuaded to conclude that the
circumstances unfolded in the present case do not
warrant the finding that the death of the unfortunate
victim comes within the purview of the exception
clause of the supplementary policy and, hence, do not
exempt the company from liability.
Wherefore, reversing the decision appealed from, we
hereby order the company to pay petitioner-appellant
the amount of P2,000, with legal interest from January
26, 1951 until fully paid, with costs.
G.R. No. L-25579 March 29, 1972
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EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL

T. BIAGTAN, GIL T. BIAGTAN and GRACIA T.
BIAGTAN,plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY,
LTD., defendant-appellant.
This is an appeal from the decision of the Court of First

Instance of Pangasinan in its Civil Case No. D-1700.
The facts are stipulated. Juan S. Biagtan was insured
with defendant InsularLife Assurance Company under
Policy No. 398075 for the sum of P5,000.00 and, under
a supplementary contract denominated "Accidental
Death Benefit Clause, for an additional sum of
P5,000.00 if "the death of the Insured resulted directly
from bodily injury effected solely through external and
violent means sustained in an accident ... and
independently of all other causes." The clause,
however,expressly provided that it would not apply
where death resulted from an injury"intentionally
inflicted by another party."
On the night of May 20, 1964, or during the first hours
of the following day a band of robbers entered the
house of the insured Juan S. Biagtan. What happened
then is related in the decision of the trial court as
follows:
...; that on the night of May 20, 1964 or the first hours
of May 21, 1964, while the said life policy and
supplementary contract were in full force and effect,
the house of insured Juan S. Biagtan was robbed by a
band of robbers who were charged in and convicted by
the Court of First Instance of Pangasinan for robbery
with homicide; that in committing the robbery, the
robbers, on reaching the staircase landing on the
second floor, rushed towards the door of the second
floor room, where they suddenly met a person near the
door of oneof the rooms who turned out to be the
insured Juan S. Biagtan who received thrusts from their
sharp-pointed instruments, causing wounds on the
body of said Juan S. Biagtan resulting in his death at
about 7 a.m. on the same day, May 21, 1964;
Plaintiffs, as beneficiaries of the insured, filed a claim
under the policy. The insurance company paid the basic
amount of P5,000.00 but refused to pay the additional
sum of P5,000.00 under the accidental death benefit
clause, on the ground that the insured's death resulted
from injuries intentionally inflicted by third parties and
therefore was not covered. Plaintiffs filed suit to
recover, and after due hearing the court a quo rendered
judgment in their favor. Hence the present appeal by
the insurer.
The only issue here is whether under the facts are
stipulated and found by the trial court the wounds
received by the insured at the hands of the robbers
nine in all, five of them mortal and four non-mortal
were inflicted intentionally. The court, in ruling

negatively on the issue, stated that since the parties
presented no evidence and submitted the case upon
stipulation, there was no "proof that the act of receiving
thrust (sic) from the sharp-pointed instrument of the
robbers was intended to inflict injuries upon the person
of the insured or any other person or merely to scare
away any person so as to ward off any resistance or
obstacle that might be offered in the pursuit of their
main objective which was robbery."
The trial court committed a plain error in drawing the
conclusion it did from the admitted facts. Nine wounds
were inflicted upon the deceased, all by means of
thrusts with sharp-pointed instruments wielded by the
robbers. This is a physical fact as to which there is no
dispute. So is the fact that five of those wounds caused
the death of the insured. Whether the robbers had the
intent to kill or merely to scare the victim or to ward off
any defense he might offer, it cannot be denied that
the act itself of inflicting the injuries was intentional. It
should be noted that the exception in the accidental
benefit clause invoked by the appellant does not speak
of the purpose whether homicidal or not of a third
party in causing the injuries, but only of the fact that
such injuries have been "intentionally" inflicted this
obviously to distinguish them from injuries which,
although received at the hands of a third party, are
purely accidental. This construction is the basic idea
expressed in the coverage of the clause itself, namely,
that "the death of the insured resulted directly from
bodily injury effected solely through external and
violent means sustained in an accident ... and
independently of all other causes." A gun which
discharges while being cleaned and kills a bystander; a
hunter who shoots at his prey and hits a person
instead; an athlete in a competitive game involving
physical effort who collides with an opponent and
fatally injures him as a result: these are instances
where the infliction of the injury is unintentional and
therefore would be within the coverage of an accidental
death benefit clause such as thatin question in this
case. But where a gang of robbers enter a house and
coming face to face with the owner, even if
unexpectedly, stab him repeatedly, it is contrary to all
reason and logic to say that his injuries are not
intentionally inflicted, regardless of whether they prove
fatal or not. As it was, in the present case they did
prove fatal, and the robbers have been accused and
convicted of the crime of robbery with homicide.
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is
relied upon by the trial court in support of its decision.
The facts in that case, however, are different from
those obtaining here. The insured there was a
watchman in a certain company, who happened to be
invited by a policeman to come along as the latter was
on his way to investigate a reported robbery going on in
a private house. As the two of them, together with the
owner of the house, approached and stood in front of
the main gate, a shot was fired and it turned out
afterwards that the watchman was hit in the abdomen,
the wound causing his death. Under those
circumstances this Court held that it could not be said
3|Page
that the killing was intentional for there was the

possibility that the malefactor had fired the shot to
scare people around for his own protection and not
necessarrily to kill or hit the victim. A similar possibility
is clearly ruled out by the facts in the case now before
Us. For while a single shot fired from a distance, and by
a person who was not even seen aiming at the victim,
could indeed have been fired without intent to kill or
injure, nine wounds inflicted with bladed weapons at
close range cannot conceivably be considered as
innocent insofar as such intent is concerned. The
manner of execution of the crime permits no other
conclusion.
Court decisions in the American jurisdiction, where
similar provisions in accidental death benefit clauses in
insurance policies have been construed, may shed light
on the issue before Us. Thus, it has been held that
"intentional" as used in an accident policy excepting
intentional injuries inflicted by the insured or any other
person, etc., implies the exercise of the reasoning
faculties, consciousness and volition. 1 Where a
provision of the policy excludes intentional injury, it is
the intention of the person inflicting the injury that is
controlling. 2 If the injuries suffered by the insured
clearly resulted from the intentional act of a third
person the insurer is relieved from liability as
stipulated. 3
In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87
Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484, the insured
was waylaid and assassinated for the purpose of
robbery. Two (2) defenses were interposed to the action
to recover indemnity, namely: (1) that the insured
having been killed by intentional means, his death was
not accidental, and (2) that the proviso in the policy
expressly exempted the insurer from liability in case
the insured died from injuries intentionally inflicted by
another person. In rendering judgment for the
insurance company the Court held that while the
assassination of the insured was as to him an
unforeseen event and therefore accidental, "the clause
of the proviso that excludes the (insurer's) liability, in
case death or injury is intentionally inflicted by another
person, applies to this case."
In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am.
St. Rep. 61, 71 S.W. 811, the insured was shot three
times by a person unknown late on a dark and stormy
night, while working in the coal shed of a railroad
company. The policy did not cover death resulting from
"intentional injuries inflicted by the insured or any other
person." The inquiry was as to the question whether the
shooting that caused the insured's death was
accidental or intentional; and the Court found that
under the facts, showing that the murderer knew his
victim and that he fired with intent to kill, there could
be no recovery under the policy which excepted death
from intentional injuries inflicted by any person.
WHEREFORE, the decision appealed from is reversed
and the complaint dismissed, without pronouncement
as to costs.
G.R. No. 100970 September 2, 1992

FINMAN GENERAL ASSURANCE
CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JULIA
SURPOSA, respondents.
This is a petition for certiorari with a prayer for the

issuance of a restraining order and preliminary
mandatory injunction to annul and set aside the
decision of the Court of Appeals dated July 11,
1991, 1 affirming the decision dated March 20, 1990 of
the Insurance Commission 2 in ordering petitioner
Finman General Assurance Corporation to pay private
respondent Julia Surposa the proceeds of the personal
accident Insurance policy with interest.
It appears on record that on October 22, 1986,
deceased, Carlie Surposa was insured with petitioner
Finman General Assurance Corporation under Finman
General Teachers Protection Plan Master Policy No.
2005 and Individual Policy No. 08924 with his parents,
spouses Julia and Carlos Surposa, and brothers
Christopher, Charles, Chester and Clifton, all surnamed,
Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect,
the insured, Carlie Surposa, died on October 18, 1988
as a result of a stab wound inflicted by one of the three
(3) unidentified men without provocation and warning
on the part of the former as he and his cousin, Winston
Surposa, were waiting for a ride on their way home
along Rizal-Locsin Streets, Bacolod City after attending
the celebration of the "Maskarra Annual Festival."
Thereafter, private respondent and the other
beneficiaries of said insurance policy filed a written
notice of claim with the petitioner insurance company
which denied said claim contending that murder and
assault are not within the scope of the coverage of the
insurance policy.
On February 24, 1989, private respondent filed a
complaint with the Insurance Commission which
subsequently rendered a decision, the pertinent portion
of which reads:
In the light of the foregoing. we find respondent liable
to pay complainant the sum of P15,000.00 representing
the proceeds of the policy with interest. As no evidence
was submitted to prove the claim for mortuary aid in
the sum of P1,000.00, the same cannot be entertained.
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WHEREFORE, judgment is hereby rendered ordering

respondent to pay complainant the sum of P15,000.00
with legal interest from the date of the filing of the
complaint until fully satisfied. With costs. 4
On July 11, 1991, the appellate court affirmed said
decision.
Hence, petitioner filed this petition alleging grove
abuse of discretion on the part of the appellate court in
applying the principle of "expresso unius exclusio
alterius" in a personal accident insurance policy since
death resulting from murder and/or assault are
impliedly excluded in said insurance policy considering
that the cause of death of the insured was not
accidental but rather a deliberate and intentional act of
the assailant in killing the former as indicated by the
location of the lone stab wound on the insured.
Therefore, said death was committed with deliberate
intent which, by the very nature of a personal accident
insurance policy, cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used in
insurance contracts have not acquired any technical
meaning, and are construed by the courts in their
ordinary and common acceptation. Thus, the terms
have been taken to mean that which happen 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.
. . . The generally accepted rule is that, death or injury
does not result from accident or accidental means
within the terms of an accident-policy if it is the natural
result of the insured's voluntary act, unaccompanied by
anything unforeseen except the death or injury. There is
no accident when a deliberate act is performed unless
some additional, unexpected, independent, and
unforeseen happening occurs which produces or brings
about the result of injury or death. In other words,
where the death or injury is not the natural or probable
result of the insured's voluntary act, or if something
unforeseen occurs in the doing of the act which
produces the injury, the resulting death is within the
protection of the policies insuring against death or
injury from accident. 5
As correctly pointed out by the respondent appellate
court in its decision:
In the case at bar, it cannot be pretended that Carlie
Surposa died in the course of an assault or murder as a
result of his voluntary act considering the very nature
of these crimes. In the first place, the insured and his
companion were on their way home from attending a
festival. They were confronted by unidentified persons.
The record is barren of any circumstance showing how
the stab wound was inflicted. Nor can it be pretended

that the malefactor aimed at the insured precisely
because the killer wanted to take his life. In any event,
while the act may not exempt the unknown perpetrator
from criminal liability, the fact remains that the
happening was a pure accident on the part of the
victim. The insured died from an event that took place
without his foresight or expectation, an event that
proceeded from an unusual effect of a known cause
and, therefore, not expected. Neither can it be said that
where was a capricious desire on the part of the
accused to expose his life to danger considering that he
was just going home after attending a festival. 6
Furthermore, the personal accident insurance policy
involved herein specifically enumerated only ten (10)
circumstances wherein no liability attaches to petitioner
insurance company for any injury, disability or loss
suffered by the insured as a result of any of the
stimulated causes. The principle of " expresso unius
exclusio alterius" the mention of one thing implies
the exclusion of another thing is therefore applicable
in the instant case since murder and assault, not
having been expressly included in the enumeration of
the circumstances that would negate liability in said
insurance policy cannot be considered by implication to
discharge the petitioner insurance company from
liability for, any injury, disability or loss suffered by the
insured. Thus, the failure of the petitioner insurance
company to include death resulting from murder or
assault among the prohibited risks leads inevitably to
the conclusion that it did not intend to limit or exempt
itself from liability for such death.
Article 1377 of the Civil Code of the Philippines provides
that:
The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the
obscurity.
Moreover,
it is well settled that contracts of insurance are to be
construed liberally in favor of the insured and strictly
against the insurer. Thus ambiguity in the words of an
insurance contract should be interpreted in favor of its
beneficiary. 7
WHEREFORE, finding no irreversible error in the
decision of the respondent Court of Appeals, the
petition for certiorari with restraining order and
preliminary injunction is hereby DENIED for lack of
merit.
ZENITH INSURANCE CORPORATION,

petitioner, vs. COURT OF APPEALS and
5|Page
Assailed in this petition is the decision of

the Court of Appeals in CA-G.R. C.V. No. 13498
entitled, "Lawrence L. Fernandez, plaintiff-appellee
v. Zenith Insurance Corp., defendant-appellant"
which affirmed in toto the decision of the Regional
Trial Court of Cebu, Branch XX in Civil Case No.
CEB-1215 and the denial of petitioner's Motion for
Reconsideration.
LibLex
4.The amount of
P5,000.00 as attorney's
fees;
5.The amount of
P3,000.00 as litigation
expenses; and
Rollo)
The antecedent facts are as follows:
On January 25, 1983, private respondent

Lawrence Fernandez insured his car for "own
damage" under private car Policy No. 50459 with
petitioner Zenith Insurance Corporation. On July 6,
1983, the car figured in an accident and suffered
actual damages in the amount of P3,640.00. After
allegedly being given a run around by Zenith for
two (2) months, Fernandez filed a complaint with
the Regional Trial Court of Cebu for sum of money
and damages resulting from the refusal of Zenith
to pay the amount claimed. The complaint was
docketed as Civil Case No. CEB-1215. Aside from
actual damages and interests, Fernandez also
prayed for more damages in the amount of
P10,000.00, exemplary damages of P5,000.00,
attorney's fees of P3,000.00 and litigation
expenses of P3,000.00.
On September 28, 1983, Zenith filed an
answer alleging that it offered to pay the claim of
Fernandez pursuant to the terms and conditions of
the contract which, the private respondent
rejected. After the issues had been joined, the pretrial was scheduled on October 17, 1983 but the
same was moved to November 4, 1983 upon
petitioner's motion, allegedly to explore ways to
settle the case although at an amount lower than
private respondent's claim. On November 14,
1983, the trial court terminated the pre-trial.
Subsequently, Fernandez presented his evidence.
Petitioner Zenith, however, failed to present its
evidence in new of its failure to appear in court,
without justifiable reason, on the day scheduled
for the purpose. The trial court issued an order on
August 23, 1984 submitting the case for decision
without Zenith's evidence (pp. 10-11, Rollo).
Petitioner filed a petition for certiorari with the
Court of Appeals assailing the order of the trial
court submitting the case for decision without
petitioner's evidence. The petition was docketed
as C.A.-G.R. No. 04644. However, the petition was
denied due course on April 29, 1986 (p. 56, Rollo).
On June 4, 1986, a decision was rendered
by the trial court in favor of private respondent
Fernandez. The dispositive portion of the trial
court's decision provides:
"WHEREFORE,
defendant is hereby ordered
to pay to the plaintiff:.
1.The amount of
P3,640.00 representing the
damage incurred plus
interest at the rate of twice
the prevailing interest rates;
Upon motion of Fernandez and before the

expiration of the period to appeal, the trial court,
on June 20, 1986, ordered the execution of the
decision pending appeal. The order was assailed
by petitioner in a petition for certiorari with the
Court of Appeals on October 23, 1986 in C.A. G.R
No. 10420 but which petition was also dismissed
on December 24, 1986 (p. 69, Rollo). LLjur
On June 10, 1986, petitioner filed a notice
of appeal before the trial court. The notice of
appeal was granted in the same order granting
private respondent's motion for execution pending
appeal. The appeal to respondent court assigned
the following errors:
"I.The lower court
erred in denying defendant
appellant to adduce
evidence in its behalf.
II.The lower court
erred in ordering Zenith
Insurance Corporation to
pay the amount of
P3,640.00 in its decision.
III.The lower court
erred in awarding moral
damages, attorney's fees
and exemplary damages,
the worst is that, the court
awarded damages more
than what are prayed for in
the complaint." (p. 12, Rollo)
On August 17, 1988, the Court of Appeals
rendered its decision affirming in toto the decision
of the trial court. It also ruled that the matter of
the trial court's denial of Fernandez's right to
adduce evidence is a closed matter in view of its
(CA) ruling in AC-G.R. 04644 wherein Zenith's
petition questioning the trial court's order
submitting the case for decision without Zenith's
evidence, was dismissed.
The Motion for Reconsideration of the
decision of the Court of Appeals dated August 17,
1988 was denied on September 29, 1988, for lack
of merit. Hence, the instant petition was filed by
Zenith on October 18, 1988 on the allegation that
respondent Court of Appeals' decision and
resolution ran counter to applicable decisions of
this Court and that they were rendered without or
in excess of jurisdiction. The issues raised by
petitioners in this petition are:
a)The legal basis of
respondent Court of Appeals
in awarding moral damages,
exemplary damages and
attorney's fees in an amount
more than that prayed for in
the complaint.
2.The amount of
P20,000.00 by way of moral
damages;
3.The amount of
P20,000.00 by way of
exemplary damages;
6.Costs." (p. 9,
b)The award of
actual damages of
P3,460.00 instead of only
6|Page
P1,927.50 which was arrived

at after deducting P250.00
and P274.00 as deductible
franchise and 20%
depreciation on parts as
agreed upon in the contract
of insurance.
Petitioner contends that while the
complaint of private respondent prayed for
P10,000.00 moral damages, the lower court
awarded twice the amount, or P20,000.00 without
factual or legal basis; while private respondent
prayed for P5,000.00 exemplary damages, the
trial court awarded P20,000.00; and while private
respondent prayed for P3,000.00 attorney's fees,
the trial court awarded P5,000.00.
The propriety of the award of moral
damages, exemplary damages and attorney's fees
is the main issue raised herein by petitioner.
The award of damages in case of
unreasonable delay in the payment of insurance
claims is governed by the Philippine Insurance
Code, which provides:
"SEC. 244.In case of any litigation for
the enforcement of any policy or contract of
insurance, it shall be the duty of the
Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of
the claim of the insured has been unreasonably
denied or withheld; and in the affirmative case,
the insurance company shall be adjudged to pay
damages which shall consist of attorney's fees
and other expenses incurred by the insured
person by reason of such unreasonable denial or
withholding of payment plus interest of twice the
ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the
date following the time prescribed in section two
hundred forty-two or in section two hundred
forty-three, as the case may be, until the claim is
fully satisfied; Provided, That the failure to pay
any such claim within the time prescribed in said
sections shall be considered prima facie
evidence of unreasonable delay in payment."
It is clear that under the Insurance Code,
in case of unreasonable delay in the payment of
the proceeds of an insurance policy, the damages
that may be awarded are: 1) attorney's fees; 2)
other expenses incurred by the insured person by
reason of such unreasonable denial or withholding
of payment; 3) interest at twice the ceiling
prescribed by the Monetary Board of the amount
of the claim due the injured; and 4) the amount of
the claim.
As regards the award of moral and
exemplary damages, the rules under the Civil
Code of the Philippines shall govern. prLL
SCRA 745). While it is true that no proof of

pecuniary loss is necessary in order that moral
damages may be adjudicated, the assessment of
which is left to the discretion of the court
according to the circumstances of each case (Art.
2216, New Civil Code), it is equally true that in
awarding moral damages in case of breach of
contract, there must be a showing that the breach
was wanton and deliberately injurious or the one
responsible acted fraudently or in bad faith (Perez
v. Court of Appeals, G.R. No. L-20238, January 30,
1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L17022, August 14, 1965; 14 SCRA 887). In the
instant case, there was a finding that private
respondent was given a "run-around" for two
months, which is the basis for the award of the
damages granted under the Insurance Code for
unreasonable delay in the payment of the claim.
However, the act of petitioner of delaying
payment for two months cannot be considered as
so wanton or malevolent to justify an award of
P20,000.00 as moral damages, taking into
consideration also the fact that the actual damage
on the car was only P3,460. In the pre-trial of the
case, it was shown that there was no total
disclaimer by respondent. The reason for
petitioner's failure to indemnify private
respondent within the two-month period was that
the parties could not come to an agreement as
regards the amount of the actual damage on the
car. The amount of P10,000.00 prayed for by
private respondent as moral damages is equitable.
On the other hand, exemplary or
corrective damages are imposed by way of
example or correction for the public good (Art.
2229, New Civil Code of the Philippines). In the
case of Noda v. Cruz-Arnaldo, G.R. No. 57322, June
22, 1987; 151 SCRA 227, exemplary damages
were not awarded as the insurance company had
not acted in wanton, oppressive or malevolent
manner. The same is true in the case at bar.
The amount of P5,000.00 awarded as
attorney's fees is justified under the
circumstances of this case considering that there
were other petitions filed and defended by private
respondent in connection with this case.
As regards the actual damages incurred
by private respondent, the amount of P3,640.00
had been established before the trial court and
affirmed by the appellate court. Respondent
appellate court correctly ruled that the deductions
of P250.00 and P274.00 as deductible franchise
and 20% depreciation on parts, respectively
claimed by petitioners as agreed upon in the
contract, had no basis. Respondent court ruled:
"Under its second
assigned error, defendantappellant puts forward two
arguments, both of which
are entirely without merit. It
is contented that the
amount recoverable under
the insurance policy
defendant-appellant issued
over the car of plaintiffappellee is subject to
deductible franchise,
and . . .
"The purpose of moral damages is

essentially indemnity or reparation, not
punishment or correction. Moral damages are
emphatically not intended to enrich a complainant
at the expense of a defendant, they are awarded
only to enable the injured party to obtain
means, diversions or amusements that will
serve to alleviate the moral suffering he has
undergone by reason of the defendant's
culpable action." (J. Cezar S. Sangco, Philippine
Law on Torts and Damages, Revised Edition, p.
539) (See also R and B Surety & Insurance Co.,
Inc. v. IAC, G.R. No. 64515, June 22, 1984; 129
"The policy (Exhibit

G, pp. 4-9, Record), does not
7|Page
mention any deductible

franchise, . . ." (p. 13, Rollo)
The words "accident" and

"accidental" have never acquired
any technical signification in law,
and when used in an insurance
contract are to be construed and
considered according to the
ordinary understanding and
common usage and speech of
people generally. In substance, the
courts are practically agreed that
the words "accident" and
"accidental" mean that which
happens by change or fortuitously,
without intention or design, and
which is unexpected, unusual, and
unforeseen. The definition that has
usually been adopted by the courts
is that 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
case, and therefore not expected. 4
Therefore, the award of moral damages is

reduced to P10,000.00 and the award of
exemplary damages is hereby deleted. The
awards due to private respondent Fernandez are
as follows: LLphil
1)P3,640.00 as
actual claim plus interest of
twice the ceiling prescribed
by the Monetary Board
computed from the time of
submission of proof of loss;
2)P10,000.00 as
moral damages;
3)P5,000.00 as
attorney's fees;
4)P3,000.00 as
litigation expenses and
5)Costs
ACCORDINGLY, the appealed
decision is MODIFIED as above stated.
An accident is an event which

happens without any human
agency or, if happening through
human agency, an event which,
under the circumstances, is
unusual to and not expected by the
person to whom it happens. It has
also been defined as an injury
which happens by reason of some
violence or casualty to the insured
without his design, consent, or
voluntary co-operation. 5
SO ORDERED.
SUN INSURANCE OFFICE, LTD., petitioner,
vs. THE HON. COURT OF APPEALS and
NERISSA LIM, respondents.
The petitioner issued Personal Accident Policy No.

05687 to Felix Lim, Jr. with a face value of P200,000.00.
Two months later, he was dead with a bullet wound in
his head. As beneficiary, his wife Nerissa Lim sought
payment on the policy but her claim was rejected. The
petitioner agreed that there was no suicide. It argued,
however, that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness
to his death. It happened on October 6, 1982, at about
10 o'clock in the evening, after his mother's birthday
party. According to Nalagon, Lim was in a happy mood
(but not drunk) and was playing with his handgun, from
which he had previously removed the magazine. As she
watched the television, he stood in front of her and
pointed the gun at her. She pushed it aside and said it
might be loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an
explosion and Lim slumped to the floor. He was dead
before he fell. 1
In light of these definitions, the Court is convinced that

the incident that resulted in Lim's death was indeed an
accident. The petitioner, invoking the case of De la Cruz
v. Capital Insurance, 6 says that "there is no accident
when a deliberate act is performed unless some
additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their
injury or death." There was such a happening. This was
the firing of the gun, which was the additional
unexpected and independent and unforeseen
occurrence that led to the insured person's death.
LibLex
The petitioner also cites one of the four exceptions
provided for in the insurance contract and contends
that the private petitioner's claim is barred by such
provision. It is there stated:
The widow sued the petitioner in the Regional Trial

Court of Zamboanga City and was sustained. 2 The
petitioner was sentenced to pay her P200,000.00,
representing the face value of the policy, with interest
at the legal rate; P10,000.00 as moral damages;
P5,000.00 as exemplary damages; P50,000.00 as
actual and compensatory damages; and P5,000.00 as
attorney's fees, plus the cost of the suit. This decision
was affirmed on appeal, and the motion for
reconsideration was denied. 3 The petitioner then came
to this Court of Appeals for approving the payment of
the claim and the award of damages.
Exceptions
The term "accident" has been defined as follows:
i)The insured persons attempting to

commit suicide or wilfully
exposing himself to needless peril
The company shall not be liable in

respect of.
1.Bodily injury.
xxx xxx xxx
b.consequent upon.
8|Page
except in an attempt to save

human life.
able to collect on the insurance policy for it is clear that

when he braved the currents below, he deliberately
exposed himself to a known peril.
To repeat, the parties agree that Lim did not commit

suicide. Nevertheless, the petitioner contends that the
insured willfully exposed himself to needless peril and
thus removed himself from the coverage of the
insurance policy.
It should be noted at the outset that suicide and willful
exposure to needless peril are in pari materia because
they both signify a disregard for one's life. The only
difference is in degree, as suicide imports a positive act
of ending such life whereas the second act indicates a
reckless risking of it that is almost suicidal in intent. To
illustrate, a person who walks a tightrope one thousand
meters above the ground and without any safety device
may not actually be intending to commit suicide, but
his act is nonetheless suicidal. He would thus be
considered as "willfully exposing himself to needless
peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of
pointing the gun to his temple, Lim had willfully
exposed himself to needless peril and so came under
the exception. The theory is that a gun is per se
dangerous and should therefore be handled cautiously
in every case.
That posture is arguable. But what is not is that, as
the secretary testified, Lim had removed the magazine
from the gun and believed it was no longer dangerous.
He expressly assured her that the gun was not loaded.
It is submitted that Lim did not willfully expose himself
to needless peril when he pointed the gun to his temple
because the fact is that he thought it was not unsafe to
do so. The act was precisely intended to assure
Nalagon that the gun was indeed harmless. LLphil
The private respondent maintains that Lim did not. That

is where she says the analogy fails. The petitioner's
hypothetical swimmer knew when he dived off the
Quezon Bridge that the currents below were dangerous.
By contrast, Lim did not know that the gun he put to his
head was loaded.
Lim was unquestionably negligent and that negligence
cost him his own life. But it should not prevent his
widow from recovering from the insurance policy he
obtained precisely against accident. There is nothing in
the policy that relieves the insurer of the responsibility
to pay the indemnity agreed upon if the insured is
shown to have contributed to his own accident.
Indeed, most accidents are caused by negligence.
There are only four exceptions expressly made in the
contract to relieve the insurer from liability, and none of
these exceptions is applicable in the case at bar. *
It bears noting that insurance contracts are as a rule
supposed to be interpreted liberally in favor of the
assured. There is no reason to deviate from this rule,
especially in view of the circumstances of this case as
above analyzed.
On the second assigned error, however, the Court must
rule in favor of the petitioner. The basic issue raised in
this case is, as the petitioner correctly observed, one of
first impression. It is evident that the petitioner was
acting in good faith when it resisted the private
respondent's claim on the ground that the death of the
insured was covered by the exception. The issue was
indeed debatable and was clearly not raised only for
the purpose of evading a legitimate obligation. We hold
therefore that the award of moral and exemplary
damages and of attorney's fees is unjust and so must
be disapproved.
The contrary view is expressed by the petitioner thus:

Accident insurance polices were
never intended to reward the
insured for his tendency to show off
or for his miscalculations. They
were intended to provide for
contingencies. Hence, when I
miscalculate and jump from the
Quezon Bridge into the Pasig River
in the belief that I can overcome
the current, I have wilfully exposed
myself to peril and must accept the
consequences of my act. If I
drown I cannot go to the
insurance company to ask them
to compensate me for my
failure to swim as well as I
thought I could. The insured in
the case at bar deliberately put the
gun to his head and pulled the
trigger. He wilfully exposed himself
to peril.
The Court certainly agrees that a drowned man
cannot go to the insurance company to ask for
compensation. That might frighten the insurance
people to death. We also agree that under the
circumstances narrated, his beneficiary would not be
In order that a person may be

made liable to the payment of
moral damages, the law requires
that his act be wrongful. The
adverse result of an action does not
per se make the act wrongful and
subject the act or to the payment
of moral damages. The law could
not have meant to impose a
penalty on the right to litigate; such
right is so precious that moral
damages may not be charged on
those who may exercise it
erroneously. For these the law taxes
costs. 7
The fact that the results of the trial
were adverse to Barreto did not
alone make his act in bringing the
action wrongful because in most
cases one party will lose; we would
be imposing an unjust condition or
limitation on the right to litigate.
We hold that the award of moral
damages in the case at bar is not
justified by the facts and
circumstances, as well as the law.
cdphil
9|Page
If a party wins, he cannot, as a rule,

recover attorney's fees and
litigation expenses, since it is not
the fact of winning alone that
entitles him to recover such
damages of the exceptional
circumstances enumerated in Art.
2208. Otherwise, every time a
defendant wins, automatically the
plaintiff must pay attorney's fees
thereby putting premium on the
right to litigate which should not be
so. For those expenses, the law
deems the award of costs as
sufficient. 8
road going south. As a consequence, the

gravel and sand truck veered to the right
side of the pavement going south and the
car veered to the right side of the pavement
going north. The driver, Benito Mabasa, and
one of the passengers died and the other
four sustained physical injuries. The car, as
well, suffered extensive damage.
Complainant, thereafter, filed a claim for
total loss with the respondent company but
claim was denied. Hence, complainant was
compelled to institute the present action."
WHEREFORE, the challenged decision of the Court of

Appeals is AFFIRMED insofar as it holds the petitioner
liable to the private respondent in the sum of
P200,000.00 representing the face value of the
insurance contract, with interest at the legal rate from
the date of the filing of the complaint until the full
amount is paid, but MODIFIED with the deletion of all
awards for damages, including attorney's fees, except
the costs of the suit.
SO ORDERED.
JEWEL VILLACORTA, assisted by her
husband, GUERRERO VILLACORTA,
petitioner, vs. THE INSURANCE
COMMISSION and EMPIRE INSURANCE
COMPANY, respondents.
The Court sets aside respondent Insurance

Commission's dismissal of petitioner's
complaint and holds that where the insured's
car is wrongfully taken without the insured's
consent from the car service and repair shop
to whom it had been entrusted for check-up
and repairs (assuming that such taking was for
a joy ride, in the course of which it was totally
smashed in an accident), respondent insurer is
liable and must pay insured for the total loss of
the insured vehicle under the theft clause of
the policy. cdtai
The undisputed facts of the case as found in the

appealed decision of April 14, 1980 of respondent
insurance commission are as follows:
"Complainant (petitioner) was the owner of
a Colt Lancer, Model 1976, insured with
respondent company under Private Car
Policy No. MBI/PC-0704 for P35,000.00
Own Damage; P30,000.00 Theft; and
P30,000.00 Third Party Liability, effective
May 16, 1977 to May 16, 1978. On May 9,
1978, the vehicle was brought to the Sunday
Machine Works, Inc., for general check-up
and repairs. On May 11, 1978, while it was
in the custody of the Sunday Machine
Works, the car was allegedly taken by six (6)
persons and driven out to Montalban, Rizal.
While travelling along Mabini St., Sitio
Palyasan, Barrio Burgos, going North at
Montalban, Rizal, the car figured in an
accident, hitting and bumping a gravel and
sand truck parked at the right side of the
The comprehensive motor car insurance policy for

P35,000.00 issued by respondent Empire Insurance
Company admittedly undertook to indemnify the
petitioner-insured against loss or damage to the car (a)
by accidental collision or overturning, or collision or
overturning consequent upon mechanical breakdown or
consequent upon wear and tear; (b) by fire, external
explosion, self-ignition or lightning or burglary,
housebreaking or theft; and (c) by malicious act. LLjur
Respondent insurance commission, however, dismissed
petitioner's complaint for recovery of the total loss of
the vehicle against private respondent, sustaining
respondent insurer's contention that the accident did
not fall within the provisions of the policy either for the
Own Damage or Theft coverage, invoking the policy
provision on "Authorized Driver" clause. 1
Respondent commission upheld private
respondent's contention on the "Authorized
Driver" clause in this wise: "It must be observed
that under the above-quoted provisions, the policy
limits the use of the insured vehicle to two (2) persons
only, namely: the insured himself or any person on his
(insured's) permission. Under the second category, it is
to be noted that the words "any person' is qualified by
the phrase ". . . on the insured's order or with his
permission.' It is therefore clear that if the person
driving is other than the insured, he must have been
duly authorized by the insured, to drive the vehicle to
make the Insurance company liable for the driver's
negligence. Complainant admitted that she did not
know the person who drove her vehicle at the time of
the accident, much less consented to the use of the
same (par. 5 of the complaint). Her husband likewise
admitted that he neither knew this driver Benito
Mabasa (Exhibit '4'). With these declarations of
complainant and her husband, we hold that the person
who drove the vehicle, in the person of Benito Mabasa,
is not an authorized driver of the complainant.
Apparently, this is a violation of the 'Authorized Driver'
clause of the policy."
Respondent commission likewise upheld private
respondent's assertion that the car was not stolen and
therefore not covered by the Theft clause, ruling that
"(T)he element of 'taking' in Article 308 of the Revised
Penal Code means that the act of depriving another of
the possession and dominion of a movable thing is
coupled . . . with the intention, at the time of the
'taking', of withholding it with the character of
permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In
other words, there must have been shown a felonious
intent upon the part of the taker of the car, and the
intent must be an intent permanently to deprive the
insured of his car," and that "(S)uch was not the case in
this instance. The fact that the car was taken by one of
the residents of the Sunday Machine Works, and the
withholding of the same, for a joy ride should not be
10 | P a g e
construed to mean 'taking' under Art. 308 of the

Revised Penal Code. If at all there was a 'taking', the
same was merely temporary in nature. A temporary
taking is held not a taking insured against (48 ALR 2d.,
page 15)."
The Court finds respondent commission's dismissal of
the complaint to be contrary to the evidence and the
law.
First, respondent commission's ruling that the person
who drove the vehicle in the person of Benito Mabasa,
who, according to its own finding, was one of the
residents of the Sunday Machine Works, Inc. to whom
the car had been entrusted for general check-up and
repairs was not an "authorized driver" of petitionercomplainant is too restrictive and contrary to the
established principle that insurance contracts, being
contracts of adhesion where the only participation of
the other party is the signing of his signature or his
"adhesion" thereto, "obviously call for greater strictness
and vigilance on the part of courts of justice with a view
of protecting the weaker party from abuse and
imposition, and prevent their becoming traps for the
unwary." 2
The main purpose of the "authorized driver" clause, as
may be seen from its text, supra, is that a person other
than the insured owner, who drives the car on the
insured's order, such as his regular driver, or with his
permission, such as a friend or member of the family or
the employees of a car service or repair shop must be
duly licensed drivers and have no disqualification to
drive a motor vehicle.
A car owner who entrusts his car to an established car
service and repair shop necessarily entrusts his car key
to the shop owner and employees who are presumed to
have the insured's permission to drive the car for
legitimate purposes of checking or road-testing the car.
The mere happenstance that the employee(s) of the
shop owner diverts the use of the car to his own illicit or
unauthorized purpose in violation of the trust reposed
in the shop by the insured car owner does not mean
that the "authorized driver" clause has been violated
such as to bar recovery, provided that such employee is
duly qualified to drive under a valid driver's license.
The situation is no different from the regular or family
driver, who instead of carrying out the owner's order to
fetch the children from school takes out his girl friend
instead for a joy ride and instead wrecks the car. There
is no question of his being an "authorized driver" which
allows recovery of the loss although his trip was for a
personal or illicit purpose without the owner's
authorization. cdll
Secondly, and independently of the foregoing (since
when a car is unlawfully taken, it is the theft clause, not
the "authorized driver" clause, that applies), where a
car is admittedly as in this case unlawfully and
wrongfully taken by some people, be they employees of
the car shop or not to whom it had been entrusted, and
taken on a long trip to Montalban without the owner's
consent or knowledge, such taking constitutes or
partakes of the nature of theft as defined in Article 308
of the Revised Penal Code, viz. "(W)ho are liable for
theft. Theft is committed by any person who, with
intent to gain but without violence against or
intimidation of persons nor force upon things, shall take
personal property of another without the latter's
consent," for purposes of recovering the loss under the

policy in question.
The Court rejects respondent commission's premise
that there must be an intent on the part of the taker of
the car "permanently to deprive the insured of his car"
and that since the taking here was for a "joy ride" and
"merely temporary in nature," a "temporary taking is
held not a taking insured against."
The evidence does not warrant respondent
commission's findings that it was a mere "joy ride".
From the very investigator's report cited in its
comment, 3 the police found from the waist of the car
driver Benito Mabasa y Bartolome who smashed the car
and was found dead right after the incident "one Cal.
45 Colt. and one apple type grenade," hardly the
materials one would bring along on a "joy ride". Then,
again, it is equally evident that the taking proved to be
quite permanent rather than temporary, for the car was
totally smashed in the fatal accident and was never
returned in serviceable and useful condition to
petitioner-owner.
Assuming, despite the totally inadequate evidence, that
the taking was "temporary" and for a "joy ride", the
Court sustains as the better view that which holds
that when a person, either with the object of
going to a certain place, or learning how to drive,
or enjoying a free ride, takes possession of a
vehicle belonging to another, without the consent
of its owner, he is guilty of theft because by
taking possession of the personal property
belonging to another and using it, his intent to
gain is evident since he derives therefrom utility,
satisfaction, enjoyment and pleasure. Justice
Ramon C. Aquino cites in his work Groizard who
holds that the use of a thing constitutes gain and
Cuello Calon who calls it "hurt de uso." 4
The insurer must therefore indemnify the petitioner

owner for the total loss of the insured car in the sum of
P35,000.00 under the theft clause of the policy, subject
to the filing of such claim for reimbursement or
payment as it may have as subrogee against the
Sunday Machine Works, Inc. prLL
ACCORDINGLY, the appealed decision is set aside and
judgment is hereby rendered sentencing private
respondent to pay petitioner the sum of P35,000.00
with legal interest from the filing of the complaint until
full payment is made and to pay the costs of suit.
SO ORDERED.
ANDREW PALERMO, plaintiff-appellee, vs.
PYRAMID INSURANCE CO., INC., defendantappellant.
The Court of Appeals certified this case to Us for proper

disposition as the only question involved is the
interpretation of the provision of the insurance contract
regarding the "authorized driver" of the insured motor
vehicle.
11 | P a g e
On March 7, 1969, the insured, appellee Andrew

Palermo, filed a complaint in the Court of First Instance
of Negros Occidental against Pyramid Insurance Co.,
Inc., for payment of his claim under a Private Car
Comprehensive Policy MV-1251 issued by the defendant
(Exh. A).
In its answer, the appellant Pyramid Insurance Co., Inc.,
alleged that it disallowed the claim because at the time
of the accident, the insured was driving his car with an
expired driver's license.
After the trial, the court a quo rendered judgment on
October 29, 1969 ordering the defendant "to pay the
plaintiff the sum of P20,000.00, value of the insurance
of the motor vehicle in question and to pay the costs.
LexLib
loss or damage to the car in cash or to

replace the damaged car. The defendant,
however, refused to take either of the
above-mentioned alternatives for the
reason as alleged, that the insured himself
had violated the terms of the policy when
he drove the car in question with an
expired driver's license." (Decision, Oct.
29, 1969, p. 68, Record on Appeal.)
Appellant alleges that the trial court erred in
interpreting the following provision of the Private Car
Comprehensive Policy MV-1251:
"AUTHORIZED DRIVER:
Any of the following:
"On November 26, 1969, the plaintiff filed a "Motion for

Immediate Execution Pending Appeal." It was opposed
by the defendant, but was granted by the trial court on
December 15, 1969.
(a)The Insured.
(b)Any person driving on
the Insured's order or with his
permission. Provided that the
person driving is permitted in
accordance with the licensing or
other laws or regulations to drive
the Motor Vehicle and is not
disqualified from driving such
motor vehicle by order of a Court of
law or by reason of any enactment
or regulation in that behalf." (Exh.
'A.')
The trial court found the following facts to be

undisputed:
"On October 12, 1968, after having
purchased a brand new Nissan Cedric de
Luxe Sedan car bearing Motor No. 087797
from the Ng Sam Bok Motors Co. in Bacolod
City, plaintiff insured the same with the
defendant insurance company against any
loss or damage for P20,000.00 and against
third party liability for P10,000.00. Plaintiff
paid the defendant P361.34 premium for
one year, March 12, 1968 to March 12,
1969, for which defendant issued Private
Car Comprehensive Policy No. MV-1251,
marked Exhibit 'A.'
"The automobile was, however, mortgaged
by the plaintiff with the vendor, Ng Sam
Bok Motors Co., to secure the payment of
the balance of the purchase price, which
explains why the registration certificate in
the name of the plaintiff remains in the
hands of the mortgagee, Ng Sam Bok
Motors Co.
"On April 17, 1968, while driving the
automobile in question, the plaintiff met a
violent accident. The La Carlota City fire
engine crashed head on, and as a
consequence, the plaintiff sustained
physical injuries, his father, Cesar Palermo,
who was with him in the car at the time
was likewise seriously injured and died
shortly thereafter, and the car in question
was totally wrecked.
"The defendant was immediately notified
of the occurrence, and upon its orders, the
damaged car was towed from the scene of
the accident to the compound of Ng Sam
Bok Motors in Bacolod City where it
remains deposited up to the present time.
There is no merit in the appellant's allegation that the

plaintiff was not authorized to drive the insured motor
vehicle because his driver's license had expired. The
driver of the insured motor vehicle at the time of the
accident was the insured himself, hence an "authorized
driver" under the policy.
While the Motor Vehicle Law prohibits a person from
operating a motor vehicle on the highway without a
license or with an expired license, an infraction of the
Motor Vehicle Law on the part of the insured, is not a
bar to recovery under the insurance contract. It
however renders him subject to the penal sanctions of
the Motor Vehicle Law.
The requirement that the driver be "permitted. in
accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not
disqualified from driving such motor vehicle by order of
a Court of Law or by reason of any enactment or
regulation in that behalf," applies only when the driver
"is driving on the insured's order or with his
permission." It does not apply when the person driving
is the insured himself.
This view may be inferred from the decision of this
Court in Villacorta vs. Insurance Commission, 100 SCRA
467, where it was held that: LLpr
"The main purpose of the
'authorized driver' clause, as may
be seen from its text, is that a
person other than the insured
owner, who drives the car on the
insured's order, such as his regular
driver, or with his permission, such
"The insurance policy, Exhibit 'A,' grants an

option unto the defendant, in case of
accident either to indemnify the plaintiff for
12 | P a g e
as a friend or member of the family

or the employees of a car service
or repair shop, must be duly
licensed drivers and have no
disqualification to drive a motor
vehicle.
In an American case, where the insured herself was
personally operating her automobile but without a
license to operate it, her license having expired prior to
the issuance of the policy, the Supreme Court of
Massachusetts was more explicit:
". . . Operating an automobile on a
public highway without a license,
which act is a statutory crime is not
precluded by public policy from
enforcing a policy indemnifying her
against liability for bodily injuries
inflicted by use of the automobile."
(Drew C. Drewfield McMahon vs.
Hannah Pearlman, et al., 242 Mass.
367, 136 N.E. 154, 23 A.L.R. 1467.)
running abreast with the overtaken

jeep, bumped the motorcycle
driven by the deceased who was
going towards the direction of Lasa,
Davao City. The point of impact was
on the lane of the motorcycle and
the deceased was thrown from the
road and met his untimely death."
1
Consequently, the heirs of Lope Maglana, Sr., here
petitioners, filed an action for damages and attorney's
fees against operator Patricio Destrajo and the Afisco
Insurance Corporation (AFISCO for brevity) before the
then Court of First Instance of Davao, Branch II. An
information for homicide thru reckless imprudence was
also filed against Pepito Into. prcd
During the pendency of the civil case, Into was
sentenced to suffer an indeterminate penalty of one (1)
year, eight (8) months and one (1) day of prision
correccional, as minimum, to four (4) years, nine (9)
months and eleven (11) days of prision correccional, as
maximum, with all the accessory penalties provided by
law, and to indemnify the heirs of Lope Maglana, Sr. in
the amount of twelve thousand pesos (P12,000.00) with
subsidiary imprisonment in case of insolvency, plus five
thousand pesos (P5,000.00) in the concept of moral
and exemplary damages with costs. No appeal was
interposed by the accused who later applied for
probation. 2
WHEREFORE, the appealed decision is affirmed with

costs against the defendant-appellant.
SO ORDERED.
FIGURACION VDA. DE MAGLANA, EDITHA
M. CRUZ, ERLINDA M. MASESAR, LEONILA
M. MALLARI, GILDA ANTONIO and the
minors LEAH, LOPE, JR., and ELVIRA, all
surnamed MAGLANA, herein represented
by their mother, FIGURACION VDA. DE
MAGLANA, petitioners, vs. HONORABLE
FRANCISCO Z. CONSOLACION, Presiding
Judge of Davao City, Branch II, and
AFISCO INSURANCE CORPORATION,
respondents.
On December 14, 1981, the lower court rendered a

decision finding that Destrajo had not exercised
sufficient diligence as the operator of the jeepney. The
dispositive portion of the decision reads:
The nature of the liability of an insurer sued together

with the insured/operator-owner of a common carrier
which figured in an accident causing the death of a
third person is sought to be defined in this petition for
certiorari.
The facts as found by the trial court are as follows:
" . . . . Lope Maglana was an
employee of the Bureau of Customs
whose work station was at Lasa,
here in Davao City. On December
20, 1978, early morning, Lope
Maglana was on his way to his work
station, driving a motorcycle
owned by the Bureau of Customs.
At Km. 7, Lanang, he met an
accident that resulted in his death.
He died on the spot. The PUJ jeep
that bumped the deceased was
driven by Pepito Into, operated and
owned by defendant Destrajo. From
the investigation conducted by the
traffic investigator, the PUJ jeep
was overtaking another passenger
jeep that was going towards the
city poblacion. While overtaking,
the PUJ jeep of defendant Destrajo
"WHEREFORE, the Court finds

judgment in favor of the plaintiffs
against defendant Destrajo,
ordering him to pay plaintiffs the
sum of P28,000.00 for loss of
income; to pay plaintiffs the
sum of P12,000.00 which
amount shall be deducted in
the event judgment in Criminal
Case No. 3527-D against the
driver, accused Into, shall have
been enforced; to pay plaintiffs
the sum of P5,901.70 representing
funeral and burial expenses of the
deceased; to pay plaintiffs the
sum of P5,000.00 as moral
damages which shall be
deducted in the event
judgment (sic) in Criminal Case
No. 3527-D against the driver,
accused Into; to pay plaintiffs the
sum of P3,000.00 as attorney's fees
and to pay the costs of suit.
The defendant insurance
company is ordered to
reimburse defendant Destrajo
whatever amounts the latter
shall have paid only up to the
extent of its insurance
coverage.
SO ORDERED." 3
13 | P a g e
Petitioners filed a motion for the reconsideration

of the second paragraph of the dispositive
portion of the decision contending that AFISCO
should not merely be held secondarily liable
because the Insurance Code provides that the
insurer's liability is "direct and primary and/or
jointly and severally with the operator of the
vehicle, although only up to the extent of the
insurance coverage." 4 Hence, they argued that
the P20,000.00 coverage of the insurance policy
issued by AFISCO, should have been awarded in
their favor.
In its comment on the motion for reconsideration,
AFISCO argued that since the Insurance Code does not
expressly provide for a solidary obligation, the
presumption is that the obligation is joint.
In its Order of February 9, 1982, the lower court denied
the motion for reconsideration ruling that since the
insurance contract "is in the nature of suretyship, then
the liability of the insurer is secondary only up to the
extent of the insurance coverage." 5
Petitioners filed a second motion for reconsideration
reiterating that the liability of the insurer is direct,
primary and solidary with the jeepney operator
because the petitioners became direct
beneficiaries under the provision of the policy
which, in effect, is a stipulation pour autrui. 6 This
motion was likewise denied for lack of merit. Cdpr
subject to the terms and conditions

hereof." 7
The above-quoted provision leads to no other
conclusion but that AFISCO can be held directly
liable by petitioners. As this Court ruled in Shafer vs.
Judge, RTC of Olongapo City, Br. 75, "[w]here an
insurance policy insures directly against liability,
the insurer's liability accrues immediately upon
the occurrence of the injury or event upon which
the liability depends, and does not depend on
the recovery of judgment by the injured party
against the insured." 8 The underlying reason behind
the third party liability (TPL) of the Compulsory Motor
Vehicle Liability Insurance is "to protect injured
persons against the insolvency of the insured
who causes such injury, and to give such injured
person a certain beneficial interest in the
proceeds of the policy . . . ." 9 Since petitioners
had received from AFISCO the sum of P5,000.00
under the no-fault clause, AFISCO's liability is
now limited to P15,000.00.
However, we cannot agree that AFISCO is

likewise solidarily liable with Destrajo. In Malayan
Insurance Co., Inc. v. Court of Appeals, 10 this Court
had the opportunity to resolve the issue as to the
nature of the liability of the insurer and the insured visa-vis the third party injured in an accident. We
categorically ruled thus:
Hence, petitioners filed the instant petition for certiorari

which, although it does not seek the reversal of the
lower court's decision in its entirety, prays for the
setting aside or modification of the second paragraph
of the dispositive portion of said decision. Petitioners
reassert their position that the insurance company is
directly and solidarily liable with the negligent operator
up to the extent of its insurance coverage.
"While it is true that where the

insurance contract provides for
indemnity against liability to third
persons, such third persons can
directly sue the insurer, however,
the direct liability of the
insurer under indemnity
contracts against third party
liability does not mean that the
insurer can be held solidarily
liable with the insured and/or
the other parties found at fault.
The liability of the insurer is
based on contract; that of the
insured is based on tort.
We grant the petition.

The particular provision of the insurance policy on
which petitioners base their claim is as follows:
"SECTION 1 LIABILITY TO THE
PUBLIC
In the case at bar, petitioner as

insurer of Sio Choy, is liable to
respondent Vallejos (the injured
third party), but it cannot, as
incorrectly held by the trial court,
be made `solidarily' liable with the
two principal tortfeasors, namely
respondents Sio Choy and San Leon
Rice Mill, Inc. For if petitionerinsurer were solidarily liable with
said two (2) respondents by reason
of the indemnity contract against
third party liability under which
an insurer can be directly sued by a
third party this will result in a
violation of the principles
underlying solidary obligation and
insurance contracts" (emphasis
supplied). llcd
1.The Company will, subject to the

Limits of Liability, pay all sums
necessary to discharge liability of
the insured in respect of.
(a)death of or bodily injury to
any THIRD PARTY
(b). . . .
2.. . . .
3.In the event of the death of any
person entitled to indemnity under
this Policy, the Company will, in
respect of the liability incurred to
such person indemnify his personal
representatives in terms of, and
The Court then proceeded to distinguish the extent of

the liability and manner of enforcing the same in
14 | P a g e
ordinary contracts from that of insurance contracts.

While in solidary obligations, the creditor may enforce
the entire obligation against one of the solidary
debtors, in an insurance contract, the insurer
undertakes for a consideration to indemnify the
insured against loss, damage or liability arising
from an unknown or contingent event. 11 Thus,
petitioner therein, which, under the insurance
contract is liable only up to P20,000.00, can not
be made solidarily liable with the insured for the
entire obligation of P29,013.00 otherwise there
would result "an evident breach of the concept of
solidary obligation."
No. 96493 both seeking to annul and set aside the

decision dated July 30, 1990 1 of the Court of Appeals
in CA-G.R. No. 13037, which reversed the decision of
the Regional Trial Court of Manila, Branch VIII in Civil
Case No. 83-19098 for replevin and damages. The
dispositive portion of the decision of the Court of
Appeals reads, as follows:
"WHEREFORE, the decision
appealed from is reversed and
appellee Perla Compania de
Seguros, Inc. is ordered to
indemnify appellants Herminio and
Evelyn Lim for the loss of their
insured vehicle; while said
appellants are ordered to pay
appellee FCP Credit Corporation all
the unpaid installments that were
due and payable before the date
said vehicle was carnapped; and
appellee Perla Compania de
Seguros, Inc. is also ordered to pay
appellants moral damages of
P12,000.00 for the latter's mental
sufferings, exemplary damages of
P20,000.00 for appellee Perla
Compania de Seguros. Inc.'s
unreasonable refusal on sham
grounds to honor the just insurance
claim of appellants by way of
example and correction for public
good, and attorney's fees of
P10,000.00 as a just and equitable
reimbursement for the expenses
incurred therefor by appellants, and
the costs of suit both in the lower
court and in this appeal." 2
Similarly, petitioners herein cannot validly claim that

AFISCO, whose liability under the insurance policy is
also P20,000.00, can be held solidarily liable with
Destrajo for the total amount of P53,901.70 in
accordance with the decision of the lower court. Since
under both the law and the insurance policy,
AFISCO's liability is only up to P20,000.00, the
second paragraph of the dispositive portion of
the decision in question may have unwittingly
sown confusion among the petitioners and their
counsel. What should have been clearly stressed as to
leave no room for doubt was the liability of AFISCO
under the explicit terms of the insurance contract.
In fine, we conclude that the liability of AFISCO based
on the insurance contract is direct, but not solidary with
that of Destrajo which is based on Article 2180 of the
Civil Code. 12 As such, petitioners have the option
either to claim the P15,000 from AFISCO and the
balance from Destrajo or enforce the entire judgment
from Destrajo subject to reimbursement from AFISCO
to the extent of the insurance coverage.
While the petition seeks a definitive ruling only on the
nature of AFISCO's liability, we noticed that the lower
court erred in the computation of the probable loss of
income. Using the formula: 2/3 of (80-56) x P12,000.00,
it awarded P28,000.00. 13 Upon recomputation, the
correct amount is P192,000.00. Being a "plain error,"
we opt to correct the same. 14 Furthermore, in
accordance with prevailing jurisprudence, the death
indemnity is hereby increased to P50,000.00. 15
WHEREFORE, premises considered, the present petition
is hereby GRANTED. The award of P28,800.00
representing loss of income is INCREASED to
P192,000.00 and the death indemnity of P12,000.00 to
P50,000.00.
On December 24, 1981, private respondents spouses

Herminio and Evelyn Lim executed a promissory note in
favor of Supercars, Inc. in the sum of P77,940.00,
payable in monthly installments according to the
schedule of payment indicated in said note, 3 and
secured by a chattel mortgage over a brand new red
Ford Laser 1300 5DR Hatchback 1981 model with motor
and serial No. SUPJYK-03780, which is registered under
the name of private respondent Herminio Lim 4 and
insured with the petitioner Perla Compania de Seguros,
Inc. (Perla for brevity) for comprehensive coverage
under Policy No. PC/41PP-QCB-43383. 5
On the same date, Supercars, Inc., with notice to
private respondents spouses, assigned to petitioner
FCP Credit Corporation (FCP for brevity) its rights, title
and interest on said promissory note and chattel
mortgage as shown by the Deed of Assignment. 6
SO ORDERED.
PERLA COMPANIA DE SEGUROS, INC.,
petitioner, vs. THE COURT OF APPEALS,
HERMINIO LIM and EVELYN LIM,
respondents.
FCP CREDIT CORPORATION, petitioner, vs.

THE COURT OF APPEALS, Special Third
Division, HERMINIO LIM and EVELYN LIM,,
respondents.
These are two petitions for review on certiorari, one

filed by Perla Compania de Seguros, Inc. in G.R. No.
96452, and the other by FCP Credit Corporation in G.R.
The facts as found by the trial court are as follows:
At around 2:30 P.M. of November 9, 1982, said vehicle

was carnapped while parked at the back of Broadway
Centrum along N. Domingo Street, Quezon City. Private
respondent Evelyn Lim, who was driving said car before
it was carnapped, immediately called up the AntiCarnapping Unit of the Philippine Constabulary to report
said incident and thereafter, went to the nearest police
substation at Araneta, Cubao to make a police report
regarding said incident, as shown by the certification
issued by the Quezon City police. 7
15 | P a g e
On November 10, 1982, private respondent Evelyn Lim

reported said incident to the Land Transportation
Commission in Quezon City, as shown by the letter of
her counsel to said office, 8 in compliance with the
insurance requirement. She also filed a complaint with
the Headquarters Constabulary Highway Patrol Group. 9
On November 11, 1982, private respondent filed a
claim for loss with the petitioner Perla but said claim
was denied on November 18, 1982 10 on the ground
that Evelyn Lim, who was using the vehicle before it
was carnapped, was in possession of an expired driver's
license at the time of the loss of said vehicle which is in
violation of the authorized driver clause of the
insurance policy, which states, to wit: Cdpr
"AUTHORIZED DRIVER:
Any of the following: (a) The
Insured (b) Any person driving on
the Insured's order, or with his
permission. Provided that the
person driving is permitted, in
accordance with the licensing or
other laws or regulations, to drive
the Scheduled Vehicle, or has been
permitted and is not disqualified by
order of a Court of Law or by
reason of any enactment or
regulation in that behalf." 11
Party Complaint filed against ThirdParty Defendant." 13

Not satisfied with said decision, private respondents
appealed the same to the Court of Appeals, which
reversed said decision.
After petitioners' separate motions for reconsideration
were denied by the Court of Appeals in its resolution of
December 10, 1990, petitioners filed these separate
petitions for review on certiorari.
Petitioner Perla alleged that there was grave abuse of
discretion on the part of the appellate court in holding
that private respondents did not violate the insurance
contract because the authorized driver clause is not
applicable to the "Theft" clause of said Contract.
For its part, petitioner FCP raised the issue of whether

or not the loss of the collateral exempted the debtor
from his admitted obligations under the promissory
note particularly the payment of interest, litigation
expenses and attorney's fees. prLL
We find no merit in Perla's petition.
On November 17, 1982, private respondents requested

from petitioner FCP for a suspension of payment on the
monthly amortization agreed upon due to the loss of
the vehicle and, since the carnapped vehicle was
insured with petitioner Perla, said insurance company
should be made to pay the remaining balance of the
promissory note and the chattel mortgage contract.
Perla, however, denied private respondents' claim.
Consequently, petitioner FCP demanded that private
respondents pay the whole balance of the promissory
note or to return the vehicle 12 but the latter refused.
The comprehensive motor car insurance policy issued

by petitioner Perla undertook to indemnify the private
respondents against loss or damages to the car (a) by
accidental collision or overturning, or collision or
overturning consequent upon mechanical breakdown or
consequent upon wear and tear; (b) by fire, external
explosion, self-ignition or lightning or burglary,
housebreaking or theft; and (c) by malicious act. 14
Where a car is admittedly, as in this case, unlawfully
and wrongfully taken without the owner's consent or
knowledge, such taking constitutes theft, and,
therefore, it is the "THEFT" clause, and not the
"AUTHORIZED DRIVER" clause, that should apply. As
correctly stated by the respondent court in its decision:
On July 25, 1983, petitioner FCP filed a complaint

against private respondents, who in turn filed an
amended third party complaint against petitioner Perla
on December 8, 1983. After trial on the merits, the trial
court rendered a decision, the dispositive portion of
which reads.
"WHEREFORE, in view of the
foregoing, judgment is hereby
rendered as follows:
1.Ordering defendants Herminio
Lim and Evelyn Lim to pay, jointly
and severally, plaintiff the sum of
P55,055.93 plus interest thereon at
the rate of 24% per annum from
July 2, 1983 until fully paid;
Clearly, the risk against accident is

distinct from the risk against theft.
The 'authorized driver clause' in a
typical insurance policy as in
contemplation or anticipation of
accident in the legal sense in which
it should be understood, and not in
contemplation or anticipation of an
event such as theft. The distinction
often seized upon by insurance
2.Ordering defendants to pay

plaintiff P5,000.00 as and for
attorney's fees; and the costs of
suit.
Upon the other hand, likewise,
ordering the DISMISSAL of the Third
". . . Theft is an entirely different

legal concept from that of accident.
Theft is committed by a person
with the intent to gain or, to put it
in another way, with the
concurrence of the doer's will. On
the other hand, accident, although
it may proceed or result from
negligence, is the happening of an
event without the concurrence of
the will of the person by whose
agency it was caused. (Bouvier's
Law Dictionary, Vol. I, 1914 ed., p.
101).
16 | P a g e
companies in resisting claims from

their assureds between death
occurring as a result of accident
and death occurring as a result of
intent may, by analogy, apply to
the case at bar. Thus, if the insured
vehicle had figured in an accident
at the time she drove it with an
expired license, then, appellee
Perla Compania could properly
resist appellants' claim for
indemnification for the loss or
destruction of the vehicle resulting
from the accident. But in the
present case, the loss of the
insured vehicle did not result from
an accident where intent was
involved; the loss in the present
case was caused by theft, the
commission of which was attended
by intent." 15
The insurance policy was therefore meant to be an

additional security to the principal contract, that is, to
insure that the promissory note will still be paid in case
the automobile is lost through accident or theft. The
Chattel Mortgage Contract provided that: LLjur
"'THE SAID MORTGAGOR
COVENANTS AND AGREES THAT
HE/IT WILL CAUSE THE
PROPERTY/IES HEREIN-ABOVE
MORTGAGED TO BE INSURED
AGAINST LOSS OR DAMAGE BY
ACCIDENT, THEFT AND FIRE FOR A
PERIOD OF ONE YEAR FROM DATE
HEREOF AND EVERY YEAR
THEREAFTER UNTIL THE
MORTGAGE OBLIGATION IS FULLY
PAID WITH AN INSURANCE
COMPANY OR COMPANIES
ACCEPTABLE TO THE MORTGAGEE
IN AN AMOUNT NOT LESS THAN
THE OUTSTANDING BALANCE OF
THE MORTGAGE OBLIGATION; THAT
HE/IT WILL MAKE ALL LOSS, IF ANY,
UNDER SUCH POLICY OR POLICIES,
PAYABLE TO THE MORTGAGEE OR
ITS ASSIGNS AS ITS INTERESTS
MAY APPEAR AND FORTHWITH
DELIVER SUCH POLICY OR POLICIES
TO THE MORTGAGEE, . . .'" 17
It is worthy to note that there is no causal connection

between the possession of a valid driver's license and
the loss of a vehicle. To rule otherwise would render car
insurance practically a sham since an insurance
company can easily escape liability by citing
restrictions which are not applicable or germane to the
claim, thereby reducing indemnity to a shadow.
We however find the petition of FCP meritorious.
This Court agrees with petitioner FCP that private
respondents are not relieved of their obligation to pay
the former the installments due on the promissory note
on account of the loss of the automobile. The chattel
mortgage constituted over the automobile is merely an
accessory contract to the promissory note. Being the
principal contract, the promissory note is unaffected by
whatever befalls the subject matter of the accessory
contract. Therefore, the unpaid balance on the
promissory note should be paid, and not just the
installments due and payable before the automobile
was carnapped, as erroneously held by the Court of
Appeals.
However, this does not mean that private respondents
are bound to pay the interest, litigation expenses and
attorney's fees stipulated in the promissory note.
Because of the peculiar relationship between the three
contracts in this case, i. e., the promissory note, the
chattel mortgage contract and the insurance policy,
this Court is compelled to construe all three contracts
as intimately interrelated to each other, despite the fact
that at first glance there is no relationship whatsoever
between the parties thereto.
Under the promissory note, private respondents are
obliged to pay Supercars, Inc. the amount stated
therein in accordance with the schedule provided for. To
secure said promissory note, private respondents
constituted a chattel mortgage in favor of Supercars,
Inc. over the automobile the former purchased from the
latter. The chattel mortgage, in turn, required private
respondents to insure the automobile and to make the
proceeds thereof payable to Supercars, Inc. The
promissory note and chattel mortgage were assigned
by Supercars, Inc. to petitioner FCP, with the knowledge
of private respondents. Private respondents were able
to secure an insurance policy from petitioner Perla, and
the same was made specifically payable to petitioner
FCP. 16
It is clear from the abovementioned provision that upon

the loss of the insured vehicle, the insurance company
Perla undertakes to pay directly to the mortgagor or to
their assignee, FCP, the outstanding balance of the
mortgage at the time of said loss under the mortgage
contract. If the claim on the insurance policy had been
approved by petitioner Perla, it would have paid the
proceeds thereof directly to petitioner FCP, and this
would have had the effect of extinguishing private
respondents' obligation to petitioner FCP. Therefore,
private respondents were justified in asking petitioner
FCP to demand the unpaid installments from petitioner
Perla.
Because petitioner Perla had unreasonably denied their
valid claim, private respondents should not be made to
pay the interest, liquidated damages and attorney's
fees as stipulated in the promissory note. As mentioned
above, the contract of indemnity was procured to insure
the return of the money loaned from petitioner FCP,
and the unjustified refusal of petitioner Perla to
recognize the valid claim of the private respondents
should not in any way prejudice the latter.
Private respondents can not be said to have unduly
enriched themselves at the expense of petitioner FCP
since they will be required to pay the latter the unpaid
balance of its obligation under the promissory note.
In view of the foregoing discussion, We hold that the
Court of Appeals did not err in requiring petitioner Perla
to indemnify private respondents for the loss of their
insured vehicle. However, the latter should be ordered
to pay petitioner FCP the amount of P55,055.93,
representing the unpaid installments from December
30, 1982 up to July 1, 1983, as shown in the statement
of account prepared by petitioner FCP, 18 plus legal
interest from July 2, 1983 until fully paid. llcd
17 | P a g e
As to the award of moral damages, exemplary damages

and attorney's fees, private respondents are legally
entitled to the same since petitioner Perla had acted in
bad faith by unreasonably refusing to honor the
insurance claim of the private respondents. Besides,
awards for moral and exemplary damages, as well as
attorney's fees are left to the sound discretion of the
Court. Such discretion, if well exercised, will not be
disturbed on appeal. 19
WHEREFORE, the assailed decision of the Court of
Appeals is hereby MODIFIED to require private
respondents to pay petitioner FCP the amount of
P55,055.93, with legal interest from July 2, 1983 until
fully paid. The decision appealed from is hereby
affirmed as to all other respects. No pronouncement as
to costs.
SO ORDERED.
ARMANDO GEAGONIA, petitioner, vs.
COURT OF APPEALS and COUNTRY
BANKERS INSURANCE CORPORATION,
respondents.
The basis of the private respondent's

denial was the petitioner's alleged violation of
Condition 3 of the policy.
The petitioner is the owner of Norman's

Mart located in the public market of San Francisco,
Agusan del Sur. On 22 December 1989, he
obtained from the private respondent fire
insurance policy No. F-146222 for P100,000.00.
The period of the policy was from 22 December
1989 to 22 December 1990 and covered the
following: "Stock-in-trade consisting principally of
dry goods such as RTW's for men and women wear
and other usual to assured's business."cdasia
The petitioner declared in the policy under
the subheading entitled CO-INSURANCE that
Mercantile Insurance Co., Inc. was the co-insurer
for P50,000.00. From 1989 to 1990, the petitioner
had in his inventory stocks amounting to
P392,130.50, itemized as follows:
The policy contained the following condition:

"3.The insured shall give notice to the
Company of any insurance or insurances
already effected, or which may subsequently
be effected, covering any of the property or
properties consisting of stocks in trade, goods
in process and/or inventories only hereby
insured, and unless notice be given and the
particulars of such insurance or insurances be
On 27 May 1990, fire of accidental origin

broke out at around 7:30 p.m. at the public market
of San Francisco, Agusan del Sur. The petitioner's
insured stocks-in-trade were completely destroyed
prompting him to file with the private respondent a
claim under the policy. On 28 December 1990, the
private respondent denied the claim because it
found that at the time of the loss the petitioner's
stocks-in-trade were likewise covered by fire
insurance policies No. GA-28146 and No. GA28144, for P100,000.00 each, issued by the Cebu
Branch of the Philippines First Insurance Co., Inc.
(hereinafter PFIC). 3 These policies indicate that the
insured was "Messrs. Discount Mart (Mr. Armando
Geagonia, Prop.)" with a mortgage clause reading:
"MORTGAGEE:Loss, if any, shall be payable to
Messrs.
Cebu Tesing Textiles, Cebu City as their
interest may appear subject to the terms of
this policy. CO-INSURANCE DECLARED:
P100,000. Phils. First CEB/F-24758" 4
For our review under Rule 45 of the Rules

of Court is the decision1 of the Court of Appeals in
CA-G.R. SP No. 31916, entitled "Country Bankers
Insurance Corporation versus Armando Geagonia,"
reversing the decision of the Insurance
Commission in I.C. Case No. 3340 which awarded
the claim of petitioner Armando Geagonia against
private respondent Country Bankers Insurance
Corporation.
Zenco Sales,
Inc.P55,698.00
F. Legaspi Gen.
Merchandise86,432.50
Cebu Tesing
Textiles250,000.00 (on
credit)
========
P392,130.50
stated therein or endorsed in this policy

pursuant to Section 50 of the Insurance Code,
by or on behalf of the Company before the
occurrence of any loss or damage, all benefits
under this policy shall be deemed forfeited,
provided however, that this condition shall not
apply when the total insurance or insurances
in force at the time of the loss or damage is
not more than P200,000.00."cdasia
The petitioner then filed a complaint5

against the private respondent with the Insurance
Commission (Case No. 3340) for the recovery of
P100,000.00 under fire insurance policy No. F14622 and for attorney's fees and costs of
litigation. He attached as Annex "M" 6 thereof his
letter of 18 January 1991 which asked for the
reconsideration of the denial. He admitted in the
said letter that at the time he obtained the private
respondent's fire insurance policy he knew that the
two policies issued by the PFIC were already in
existence; however, he had no knowledge of the
provision in the private respondent's policy
requiring him to inform it of the prior policies; this
requirement was not mentioned to him by the
private respondent's agent; and had it been so
mentioned, he would not have withheld such
information. He further asserted that the total of
the amounts claimed under the three policies was
below the actual value of his stocks at the time of
loss, which was P1,000,000.00
In its answer,7 the private respondent
specifically denied the allegations in the complaint
and set up as its principal defense the violation of
Condition 3 of the policy.
In its decision of 21 June 1993,8 the
Insurance Commission found that the petitioner did
not violate Condition 3 as he had no knowledge of
the existence of the two fire insurance policies
obtained from the PFIC; that it was Cebu Tesing
Textiles which procured the PFIC policies without
informing him or securing his consent; and that
Cebu Tesing Textile, as his creditor, had insurable
interest on the stocks. These findings were based
on the petitioner's testimony that he came to know
of the PFIC policies only when he filed his claim
with the private respondent and that Cebu Tesing
Textile obtained them and paid for their premiums
18 | P a g e
without informing him thereof. The Insurance

Commission then decreed:cdasia
"WHEREFORE, judgment is hereby
rendered ordering the respondent
company to pay complainant the
sum of P100,000.00 with legal
interest from the time the
complaint was filed until fully
satisfied plus the amount of
P10,000.00 as attorney's fees. With
costs. The compulsory counterclaim
of respondent is hereby dismissed."
Its motion for the reconsideration of the
decision9 having been denied by the Insurance
Commission in its resolution of 20 August 1993, 10
the private respondent appealed to the Court of
Appeals by way of a petition for review. The
petition was docketed as CA-G.R. SP No. 31916.
In its decision of 29 December 1993, 11
the Court of Appeals reversed the decision of the
Insurance Commission because it found that the
petitioner knew of the existence of the two other
policies issued by the PFIC. It said:
"It is apparent from the face of Fire
Policy GA 28146/Fire Policy No.
28144 that the insurance was taken
in the name of private respondent
[petitioner herein]. The policy
states that 'DISCOUNT MART (MR.
ARMANDO GEAGONIA, PROP)' was
assured and that 'TESING TEXTILES'
[was] only the mortgagee of the
goods.
In addition, the premiums on both
policies were paid for by private
respondent, not by the Tesing
Textiles which is alleged to have
taken out the other insurances
without the knowledge of private
respondent. This is shown by
Premium Invoices nos. 46632 and
46630. (Annexes M and N). In both
invoices, Tesing Textiles is indicated
to be only the mortgagee of the
goods insured but the party to
which they were issued were the
'DISCOUNT MART (MR. ARMANDO
GEAGONIA).'
It is clear that it was the private
respondent [petitioner herein] who
took out the policies on the same
property subject of the insurance
with petitioner. Hence, in failing to
disclose the existence of these
insurances private respondent
violated Condition No. 3 of Fire
Policy No. 14622. . . .
xxx xxx xxx

'Please be informed that I have no
knowledge of the provision requiring me
to inform your office about my prior
insurance under FGA-28146 and F-CEB24758. Your representative did not
mention about said requirement at the
time he was convincing me to insure
with you. If he only did or even inquired
if I had other existing policies covering
my establishment, I would have told
him so. You will note that at the time he
talked to me until I decided to insure
with your company the two policies
aforementioned were already in effect.
Therefore I would have no reason to
withhold such information and I would
have no reason to withhold such
information and I would have desisted
to part with my hard earned peso to pay
the insurance premiums [if] I know I
could not recover anything.
Sir, I am only an ordinary businessman
interested in protecting my
investments. The actual value of my
stocks damaged by the fire was
estimated by the Police Department to
be P1,000,000.00 (Please see xerox
copy of Police Report Annex "A"). My
Income Statement as of December 31,
1989 or five months before the fire,
shows my merchandise inventory was
already some P595,455,75. . . . These
will support my claim that the amount
under the three policies are much below
the value of my stocks lost.
xxx xxx xxx
The letter contradicts private
respondent's pretension that he did
not know that there were other
insurances taken on the stock-intrade and seriously puts in question
his credibility."cdasia
His motion to reconsider the adverse
decision having been denied, the petitioner filed
the instant petition. He contends therein that the
Court of Appeals acted with grave abuse of
discretion amounting to lack of excess of
jurisdiction:
"A . . . WHEN IT REVERSED THE
FINDINGS OF FACTS OF
THE INSURANCE
COMMISSION, A QUASIJUDICIAL BODY CHARGED
WITH THE DUTY OF
DETERMINING INSURANCE
CLAIM AND WHOSE
DECISION IS ACCORDED
RESPECT AND EVEN
FINALITY BY THE COURTS;
Indeed private respondent's

allegation of lack of knowledge of
the previous insurances is belied by
his letter to petitioner [of 18
January 1991. The body of the
letter reads as follows:]cdasia
B . . . WHEN IT CONSIDERED AS
EVIDENCE MATTERS
WHICH WERE NOT
PRESENTED AS EVIDENCE
19 | P a g e
DURING THE HEARING OR

TRIAL; AND
been upheld as valid and as a warranty that no

other insurance exists. Its violation would thus
avoid the policy. 16 However, in order to constitute
a violation, the other insurance must be upon the
same subject matter, the same interest therein,
and the same risk. 17
C . . . WHEN IT DISMISSED THE

CLAIM OF THE PETITIONER
HEREIN AGAINST THE
PRIVATE RESPONDENT."
The chief issues that crop up from the first
and third grounds are (a) whether the petitioner
had prior knowledge of the two insurance policies
issued by the PFIC when he obtained the fire
insurance policy from the private respondent,
thereby, for not disclosing such fact, violating
Condition 3 of the policy, and (b) if he had, whether
he is precluded from recovering therefrom.
The second ground, which is based on the
Court of Appeals' reliance on the petitioner's letter
of reconsideration of 18 January 1991, is without
merit. The petitioner claims that the said letter was
not offered in evidence and thus should not have
been considered in deciding the case. However, as
correctly pointed out by the Court of Appeals, a
copy of this letter was attached to the petitioner's
complaint in I.C. Case No. 3340 as Annex "M"
thereof and made an integral part of the complaint.
12 It has attained the status of a judicial admission
and since its due execution and authenticity was
not denied by the other party, the petitioner is
bound by it even if it were not introduced as an
independent evidence. 13
As to the first issue, the Insurance
Commission found that the petitioner had no
knowledge of the previous two policies. The Court
of Appeals disagreed and found otherwise in view
of the explicit admission by the petitioner in his
letter to the private respondent of 18 January
1991, which was quoted in the challenged decision
of the Court of Appeals. These divergent findings of
fact constitute an exception to the general rule
that in petitions for review under Rule 45, only
questions of law are involved and findings of fact
by the Court of Appeals are conclusive and binding
upon this Court. 14
We agree with the Court of Appeals that
the petitioner knew of the prior policies issued by
the PFIC. His letter of 18 January 1991 to the
private respondent conclusively proves this
knowledge. His testimony to the contrary before
the Insurance Commissioner and which the latter
relied upon cannot prevail over a written admission
made ante litem motam. It was, indeed, incredible
that he did not know about the prior policies since
these policies were not new or original. Policy No.
GA-28144 was a renewal of Policy No. F-24758,
while Policy No. GA-28146 had been renewed
twice, the previous policy being F-24792. cdasia
Condition 3 of the private respondent's
Policy No. F-14622 is a condition which is not
proscribed by law. Its incorporation in the policy is
allowed by Section 75 of the Insurance Code 15
which provides that "[a] policy may declare that a
violation of specified provisions thereof shall avoid
it, otherwise the breach of an immaterial provision
does not avoid the policy." Such a condition is a
provision which invariably appears in fire insurance
policies and is intended to prevent an increase in
the moral hazard. It is commonly known as the
additional or "other insurance" clause and has
As to a mortgaged property, the

mortgagor and the mortgagee have each an
independent insurable interest therein and both
interests may be covered by one policy, or each
may take out a separate policy covering his
interest, either at the same or at separate times.
18 The mortgagor's insurable interest covers the
full value of the mortgaged property, even though
the mortgage debt is equivalent to the full value of
the property. 19 The mortgagee's insurable interest
is to the extent of the debt, since the property is
relied upon as security thereof, and in insuring he
is not insuring the property but his interest or lien
thereon. His insurable interest is prima facie the
value mortgaged and extends only the amount of
the debt, not exceeding the value of the
mortgaged property.20 Thus, separate insurances
covering different insurable interests may be
obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out
insurance for the benefit of the mortgagee, which
is the usual practice. The mortgagee may be made
the beneficial payee in several ways. He may
become the assignee of the policy with the consent
of the insurer; or the mere pledgee without such
consent; or the original policy may contain a
mortgage clause; or a rider making the policy
payable to the mortgagee "as his interest may
appear" may be attached; or a "standard mortgage
clause," containing a collateral independent
contract between the mortgagee and insurer, may
be attached; or the policy, though by its terms
payable absolutely to the mortgagor, may have
been procured by a mortgagor under a contract
duty to insure for the mortgagee's benefit, in which
case the mortgagee acquires an equitable lien
upon the proceeds. 21
In the policy obtained by the mortgagor
with loss payable clause in favor of the mortgagee
as his interest may appear, the mortgagee is only a
beneficiary under the contract, and recognized as
such by the insurer but not made a party to the
contract itself. Hence, any act of the mortgagor
which defeats his right will also defeat the right of
the mortgagee.22 This kind of policy covers only
such interest as the mortgagee has at the issuing
of the policy. 23
On the other hand, a mortgagee may also
procure a policy as a contracting party in
accordance with the terms of an agreement by
which the mortgagor is to pay the premiums upon
such insurance. 24 It has been noted, however,
that although the mortgagee is himself the insured,
as where he applies for a policy, fully informs the
authorized agent of his interest, pays the
premiums, and obtains a policy on the assurance
that it insures him, the policy is in fact in the form
used to insure a mortgagor with loss payable
clause. 25
The fire insurance policies issued by the
PFIC name the petitioner as the assured and
contain a mortgage clause which reads:cdasia
"Loss, if any, shall be
payable to MESSRS. TESING
TEXTILES, Cebu City as their
20 | P a g e
interest may appear subject to the

terms of the policy."
to conclude that (a) the prohibition applies only to

double insurance, and (b) the nullity of the policy
shall only be to the extent exceeding P200,000.00
of the total policies obtained.
This is clearly a simple loss payable clause, not a

standard mortgage clause.
The first conclusion is supported by the

portion of the condition referring to other insurance
"covering any of the property or properties
consisting of stocks in trade, goods in process
and/or inventories only hereby insured," and the
portion regarding the insured's declaration on the
subheading CO-INSURANCE that the co-insurer is
Mercantile Insurance Co., Inc. in the sum of
P50,000.00. A double insurance exists where the
same person is insured by several insurers
separately in respect of the same subject and
interest. As earlier stated, the insurable interests of
a mortgagor and a mortgagee on the mortgaged
property are distinct and separate. Since the two
policies of the PFIC do not cover the same interest
as that covered by the policy of the private
respondent, no double insurance exists. The nondisclosure then of the former policies was not fatal
to the petitioner's right to recover on the private
respondent's policy. cdasia
It must, however, be underscored that

unlike the "other insurance" clauses involved in
General Insurance and Surety Corp. vs. Ng Hua 26
or in Pioneer Insurance & Surety Corp. vs. Yap, 27
which read:
"The insured shall give
notice to the company of any
insurance or insurances already
effected, or which may
subsequently be effected covering
any of the property hereby insured,
and unless such notice be given
and the particulars of such
insurance or insurances be stated
in or endorsed on this Policy by or
on behalf of the Company before
the occurrence of any loss or
damage, all benefits under this
Policy shall be forfeited."
or in the 1930 case of Santa Ana vs. Commercial
Union Assurance Co. 28 which provided "that any
outstanding insurance upon the whole or a portion
of the objects thereby assured must be declared by
the insured in writing and he must cause the
company to add or insert it in the policy, without
which such policy shall be null and void, and the
insured will not be entitled to indemnity in case of
loss," Condition 3 in the private respondent's policy
No. F-14622 does not absolutely declare void any
violation thereof. It expressly provides that the
condition "shall not apply when the total insurance
or insurances in force at the time of the loss or
damage is not more than P200,000.00."cdasia
It is a cardinal rule on insurance that a
policy or insurance contract is to be interpreted
liberally in favor of the insured and strictly against
the company, the reason being, undoubtedly, to
afford the greatest protection which the insured
was endeavoring to secure when he applied for
insurance. It is also a cardinal principle of law that
forfeitures are not favored and that any
construction which would result in the forfeiture of
the policy benefits for the person claiming
thereunder, will be avoided, if it is possible to
construe the policy in a manner which would
permit recovery, as, for example, by finding a
waiver for such forfeiture. 29 Stated differently,
provisions, conditions or exceptions in policies
which tend to work a forfeiture of insurance
policies should be construed most strictly against
those for whose benefits they are inserted, and
most favorably toward those against whom they
are intended to operate. 30 The reason for this is
that, except for riders which may later be inserted,
the insured sees the contract already in its final
form and has had no voice in the selection or
arrangement of the words employed therein. On
the other hand, the language of the contract was
carefully chosen and deliberated upon by experts
and legal advisers who had acted exclusively in the
interest of the insurers and the technical language
employed therein is rarely understood by ordinary
laymen. 31
With these principles in mind, we are of
the opinion that Condition 3 of the subject policy is
not totally free from ambiguity and must, perforce,
be meticulously analyzed. Such analysis leads us
Furthermore, by stating within Condition 3

itself that such condition shall not apply if the total
insurance in force at the time of loss does not
exceed P200,000.00, the private respondent was
amenable to assume a co-insurer's liability up to a
loss not exceeding P200,000.00. What it had in
mind was to discourage over-insurance. Indeed,
the rationale behind the incorporation of "other
insurance" clause in fire policies is to prevent overinsurance and thus avert the perpetration of fraud.
When a property owner obtains insurance policies
from two or more insurers in a total amount that
exceeds the property's value, the insured may
have an inducement to destroy the property for the
purpose of collecting the insurance. The public as
well as the insurer is interested in preventing a
situation in which a fire would be profitable to the
insured. 32
WHEREFORE, the instant petition is
hereby GRANTED. The decision of the Court of
Appeals in CA-G.R. SP No. 31916 is SET ASIDE and
the decision of the Insurance Commission in Case
No. 3340 is REINSTATED.
Costs against private respondent Country
Bankers Insurance Corporation.
SO ORDERED.
FORTUNE INSURANCE AND SURETY CO.,
INC., petitioner, vs. COURT OF APPEALS
and PRODUCERS BANK OF THE
PHILIPPINES, respondents.
The fundamental legal issue raised in this

petition for review on certiorari is whether the
petitioner is liable under the Money, Security, and
Payroll Robbery policy it issued to the private
respondent or whether recovery thereunder is
precluded under the general exceptions clause
thereof. Both the trial court and the Court of
Appeals held that there should be recovery. The
petitioner contends otherwise.
This case began with the filing with the
Regional Trial Court (RTC) of Makati, Metro Manila,
21 | P a g e
by private respondent Producers Bank of the

Philippines (hereinafter Producers) against
petitioner Fortune Insurance and Surety Co., Inc.
(hereinafter Fortune) of a complaint for recovery of
the sum of P725,000.00 under the policy issued by
Fortune. The sum was allegedly lost during a
robbery of Producer's armored vehicle while it was
in transit to transfer the money from its Pasay City
Branch to its head office in Makati. The case was
docketed as Civil Case No. 1817 and assigned to
Branch 146 thereof. LibLex
violation of P.D. 532 (AntiHighway Robbery Law)

before the Fiscal of Pasay
City. A copy of the
complaint is hereto
attached as Exhibit "D";
6.The Fiscal of Pasay City then filed
an information charging
the aforesaid persons with
the said crime before
Branch 112 of the
Regional Trial Court of
Pasay City. A copy of the
said information is hereto
attached as Exhibit "E."
The case is still being tried
as of this date;
After joinder of issues, the parties asked

the trial court to render judgment based on the
following stipulation of facts:
1.The plaintiff was insured by the
defendants and an
insurance policy was
issued, the duplicate
original of which is hereto
attached as Exhibit "A";
7.Demands were made by the

plaintiff upon the
defendant to pay the
amount of the loss of
P725,000.00, but the
latter refused to pay as
the loss is excluded from
the coverage of the
insurance policy, attached
hereto as Exhibit "A,"
specifically under page 1
thereof, "General
Exceptions" Section (b),
which is marked as Exhibit
"A-1," and which reads as
follows:
2.An armored car of the plaintiff,

while in the process of
transferring cash in the
sum of P725,000.00 under
the custody of its teller,
Maribeth Alampay, from
its Pasay Branch to its
Head Office at 8737 Paseo
de Roxas, Makati, Metro
Manila on June 29, 1987,
was robbed of the said
cash. The robbery took
place while the armored
car was traveling along
Taft Avenue in Pasay City;
"GENERAL EXCEPTIONS
The company shall not be liable
under this policy in respect of
3.The said armored car was driven

by Benjamin Magalong y
de Vera, escorted by
Security Guard Saturnino
Atiga y Rosete. Driver
Magalong was assigned by
PRC Management Systems
with the plaintiff by virtue
of an Agreement executed
on August 7, 1983, a
duplicate original copy of
which is hereto attached
as Exhibit "B";
xxx xxx xxx

(b)any loss caused by any
dishonest,
fraudulent or
criminal act of
the insured or
any officer,
employee,
partner, director,
trustee or
authorized
representative of
the Insured
whether acting
alone or in
conjunction with
others. . . . "
4.The Security Guard Atiga was

assigned by Unicorn
Security Services, Inc. with
the plaintiff by virtue of a
contract of Security
Service executed on
October 25, 1982, a
duplicate original copy of
which is hereto attached
as Exhibit "C";
8.The plaintiff opposes the

contention of the
defendant and contends
that Atiga and Magalong
are not its "officer,
employee, . . . trustee or
authorized
representative . . . at the
time of the robbery. 1
5.After an investigation conducted

by the Pasay police
authorities, the driver
Magalong and guard Atiga
were charged, together
with Edelmer Bantigue Y
Eulalio, Reynaldo Aquino
and John Doe, with
22 | P a g e
On 26 April 1990, the trial court rendered

its decision in favor of Producers. The dispositive
portion thereof reads as follows:
Magalong nor Atiga were plaintiff's

"employees" in avoidance of
defendant's liability under the
policy, particularly the general
exceptions therein embodied.
WHEREFORE, premises considered,

the Court finds for plaintiff and
against defendant, and
(a)orders defendant to pay
plaintiff the net
amount of
P540,000.00 as
liability under
Policy No. 0207
(as mitigated by
the P40,000.00
special clause
deduction and by
the recovered
sum of
P145,000.00),
with interest
thereon at the
legal rate, until
fully paid;
(b)orders defendant to pay
plaintiff the sum
of P30,000.00 as
and for attorney's
fees; and
(c)orders defendant to pay
costs of suit.
All other claims and counterclaims
are accordingly dismissed
forthwith.
Neither is the Court prepared to

accept the proposition that driver
Magalong and guard Atiga were the
"authorized representatives" of
plaintiff. They were merely an
assigned armored car driver and
security guard, respectively, for the
June 29, 1987 money transfer from
plaintiff's Pasay Branch to its
Makati Head Office. Quite plainly
it was teller Maribeth Alampay who
had "custody" of the P725,000.00
cash being transferred along a
specified money route, and hence
plaintiff's then designated
"messenger" adverted to in the
policy. 3
Fortune appealed this decision to the
Court of Appeals which docketed the case as CAG.R. CV No. 32946. In its decision 4 promulgated
on 3 May 1994, it affirmed in toto the appealed
decision.
The Court of Appeals agreed with the
conclusion of the trial court that Magalong and
Atiga were neither employees nor authorized
representatives of Producers and ratiocinated as
follows:
A policy or contract of insurance is
to be construed liberally in favor of
the insured and strictly against the
insurance company (New Life
Enterprises vs. Court of Appeals,
207 SCRA 669; Sun Insurance
Office, Ltd. vs. Court of Appeals,
211 SCRA 554). Contracts of
insurance, like other contracts, are
to be construed according to the
sense and meaning of the terms
which the parties themselves have
used. If such terms are clear and
unambiguous, they must be taken
and understood in their plain,
ordinary and popular sense (New
Life Enterprises Case, supra, p.
676; Sun Insurance Office, Ltd. vs.
Court of Appeals, 195 SCRA 193).
SO ORDERED.2
The trial court ruled that Magalong and
Atiga were not employees or representatives of
Producers. It said:
The Court is satisfied that plaintiff
may not be said to have selected
and engaged Magalong and Atiga,
their services as armored car driver
and as security guard having been
merely offered by PRC Management
and by Unicorn Security and which
latter firms assigned them to
plaintiff. The wages and salaries of
both Magalong and Atiga are
presumably paid by their respective
firms, which alone wields the power
to dismiss them. Magalong and
Atiga are assigned to plaintiff in
fulfillment of agreements to provide
driving services and property
protection as such in a context
which does not impress the Court
as translating into plaintiff's power
to control the conduct of any
assigned driver or security guard,
beyond perhaps entitling plaintiff to
request a replacement for such
driver or guard. The finding is
accordingly compelled that neither
The language used by defendantappellant in the above quoted

stipulation is plain, ordinary and
simple. No other interpretation is
necessary. The word "employee"
should be taken to mean in the
ordinary sense.
The Labor Code is a special law
specifically dealing with/and
specifically designed to protect
labor and therefore its definition as
to employer-employee relationships
insofar as the
23 | P a g e
application/enforcement of said
Code is concerned must necessarily
be inapplicable to an insurance
contract which defendant-appellant
itself had formulated. Had it
intended to apply the Labor Code in
defining what the word "employee"
refers to, it must/should have so
stated expressly in the insurance
policy.
investment in the form of tools,

equipment, machineries, work
premises, among others, and the
workers recruited and placed by
such persons are performing
activities which are directly related
to the principal business of such
employer. In such cases, the person
or intermediary shall be considered
merely as an agent of the employer
who shall be responsible to the
workers in the same manner and
extent as if the latter were directly
employed by him.
Said driver and security guard

cannot be considered as employees
of plaintiff-appellee bank because it
has no power to hire or to dismiss
said driver and security guard
under the contracts (Exhs. 8 and C)
except only to ask for their
replacements from the contractors.
5
On 20 June 1994, Fortune filed this
petition for review on certiorari. It alleges that the
trial court and the Court of Appeals erred in holding
it liable under the insurance policy because the
loss falls within the general exceptions clause
considering that driver Magalong and security
guard Atiga were Producers' authorized
representatives or employees in the transfer of the
money and payroll from its branch office in Pasay
City to its head office in Makati. LLpr
According to Fortune, when Producers
commissioned a guard and a driver to transfer its
funds from one branch to another, they effectively
and necessarily became its authorized
representatives in the care and custody of the
money. Assuming that they could not be
considered authorized representatives, they were,
nevertheless, employees of Producers. It asserts
that the existence of an employer-employee
relationship "is determined by law and being such,
it cannot be the subject of agreement." Thus, if
there was in reality an employer-employee
relationship between Producers, on the one hand,
and Magalong and Atiga, on the other, the
provisions in the contracts of Producers with PRC
Management System for Magalong and with
Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is
absolved from any liability as an employer, would
not obliterate the relationship.
Fortune points out that an employeremployee relationship depends upon four
standards: (1) the manner of selection and
engagement of the putative employee; (2) the
mode of payment of wages; (3) the presence or
absence of a power to dismiss; and (4) the
presence and absence of a power to control the
putative employee's conduct. Of the four, the rightof-control test has been held to be the decisive
factor. 6 It asserts that the power of control over
Magalong and Atiga was vested in and exercised
by Producers. Fortune further insists that PRC
Management System and Unicorn Security Services
are but "labor-only" contractors under Article 106
of the Labor Code which provides: prcd
Art. 106.Contractor or
subcontractor. There is "laboronly" contracting where the person
supplying workers to an employer
does not have substantial capital or
Fortune thus contends that Magalong and

Atiga were employees of Producers, following the
ruling in International Timber Corp. vs. NLRC 7 that
a finding that a contractor is a "labor-only"
contractor is equivalent to a finding that there is an
employer-employee relationship between the
owner of the project and the employee of the
"labor-only" contractor.
On the other hand, Producers contends
that Magalong and Atiga were not its employees
since it had nothing to do with their selection and
engagement, the payment of their wages, their
dismissal, and the control of their conduct.
Producers argued that the rule in International
Timber Corp. is not applicable to all cases but only
when it becomes necessary to prevent any
violation or circumvention of the Labor Code, a
social legislation whose provisions may set aside
contracts entered into by parties in order to give
protection to the working man.
Producer further asseverates that what
should be applied is the rule in American President
Lines vs. Clave,8 to wit:
In determining the existence of
employer-employee relationship,
the following elements are
generally considered, namely: (1)
the selection and engagement of
the employee; (2) the payment of
wages; (3) the power of dismissal;
and (4) the power to control the
employee's conduct.
Since under Producers' contract with PRC
Management Systems it is the latter which
assigned Magalong as the driver of Producers'
armored car and was responsible for his faithful
discharge of his duties and responsibilities, and
since Producers paid the monthly compensation of
P1,400.00 per driver to PRC Management Systems
and not to Magalong, it is clear that Magalong was
not Producers' employee. As to Atiga, Producers
relies on the provision of its contract with Unicorn
Security Services which provides that the guards of
the latter "are in no sense employees of the
CLIENT." prcd
There is merit in this petition.
It should be noted that the insurance
policy entered into by the parties is a theft or
robbery insurance policy which is a form of
casualty insurance. Section 174 of the Insurance
Code provides:
24 | P a g e
Sec. 174.Casualty insurance is

insurance covering loss or liability
arising from accident or mishap,
excluding certain types of loss
which by law or custom are
considered as falling exclusively
within the scope of insurance such
as fire or marine. It includes, but is
not limited to, employer's liability
insurance, public liability insurance,
motor vehicle liability insurance,
plate glass insurance, burglary and
theft insurance, personal accident
and health insurance as written by
non-life insurance companies, and
other substantially similar kinds of
insurance. (emphasis supplied)
With the foregoing principles in mind, it

may now be asked whether Magalong and Atiga
qualify as employees or authorized representatives
of Producers under paragraph (b) of the general
exceptions clause of the policy which, for easy
reference, is again quoted: LibLex
GENERAL EXCEPTIONS
The company shall not be liable
under this policy in respect of
xxx xxx xxx
Except with respect to compulsory motor

vehicle liability insurance, the Insurance Code
contains no other provisions applicable to casualty
insurance or to robbery insurance in particular.
These contracts are, therefore, governed by the
general provisions applicable to all types of
insurance. Outside of these, the rights and
obligations of the parties must be determined by
the terms of their contract, taking into
consideration its purpose and always in accordance
with the general principles of insurance law.9
It has been aptly observed that in
burglary, robbery, and theft insurance, "the
opportunity to defraud the insurer the moral
hazard is so great that insurers have found it
necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard.
Seldom does the insurer assume the risk of all
losses due to the hazards insured against." 10
Persons frequently excluded under such provisions
are those in the insured's service and employment.
11 The purpose of the exception is to guard against
liability should the theft be committed by one
having unrestricted access to the property." 12 In
such cases, the terms specifying the excluded
classes are to be given their meaning as
understood in common speech. 13 The terms
"service" and "employment" are generally
associated with the idea of selection, control, and
compensation. 14
A contract of insurance is a contract of
adhesion, thus any ambiguity therein should be
resolved against the insurer, 15 or it should be
construed liberally in favor of the insured and
strictly against the insurer. 16 Limitations of
liability should be regarded with extreme jealousy
and must be construed in such a way as to
preclude the insurer from non-compliance with its
obligation. 17 It goes without saying then that if the
terms of the contract are clear and unambiguous,
there is no room for construction and such terms
cannot be enlarged or diminished by judicial
construction. 18
An insurance contract is a contract of
indemnity upon the terms and conditions specified
therein. 19 It is settled that the terms of the policy
constitute the measure of the insurer's liability. 20
In the absence of statutory prohibition to the
contrary, insurance companies have the same
rights as individuals to limit their liability and to
impose whatever conditions they deem best upon
their obligations not inconsistent with public policy.
(b)any loss caused by any

dishonest, fraudulent or
criminal act of the insured
or any officer, employee,
partner, director, trustee
or authorized
representative of the
Insured whether acting
alone or in conjunction
with others. . . . (emphasis
supplied)
There is marked disagreement between
the parties on the correct meaning of the terms
"employee" and "authorized representatives."
It is clear to us that insofar as Fortune is
concerned, it was its intention to exclude and
exempt from protection and coverage losses
arising from dishonest, fraudulent, or criminal acts
of persons granted or having unrestricted access to
Producers' money or payroll. When it used then the
term "employee," it must have had in mind any
person who qualifies as such as generally and
universally understood, or jurisprudentially
established in the light of the four standards in the
determination of the employer-employee
relationship, 21 or as statutorily declared even in a
limited sense as in the case of Article 106 of the
Labor Code which considers the employees under a
"labor-only" contract as employees of the party
employing them and not of the party who supplied
them to the employer. 22
Fortune claims that Producers' contracts
with PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.
Producers, however, insists that by the express
terms thereof, it is not the employer of Magalong.
Notwithstanding such express assumption of PRC
Management Systems and Unicorn Security
Services that the drivers and the security guards
each shall supply to Producers are not the latter's
employees, it may, in fact, be that it is because the
contracts are, indeed, "labor-only" contracts.
Whether they are is, in the light of the criteria
provided for in Article 106 of the Labor Code, a
question of fact. Since the parties opted to submit
the case for judgment on the basis of their
stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC
Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No.
532, and the information therefor filed by the City
Fiscal of Pasay City, there is a paucity of evidence
as to whether the contracts between Producers and
the PRC Management Systems and Unicorn
Security Services are "labor-only" contracts. LLphil
25 | P a g e
But even granting for the sake of

argument that these contracts were not "laboronly" contracts, and PRC Management Systems
and Unicorn Security Services were truly
independent contractors, we are satisfied that
Magalong and Atiga were, in respect of the transfer
of Producer's money from its Pasay City branch to
its head office in Makati, its "authorized
representatives" who served as such with its teller
Maribeth Alampay. Howsoever viewed, Producers
entrusted the three with the specific duty to safely
transfer the money to its head office, with Alampay
to be responsible for its custody in transit;
Magalong to drive the armored vehicle which
would carry the money; and Atiga to provide the
needed security for the money, the vehicle, and his
two other companions. In short, for these particular
tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents
or stands in the place of another; one who
represents others or another in a special capacity,
as an agent, and is interchangeable with "agent."
23
In view of the foregoing, Fortune is
exempt from liability under the general exceptions
clause of the insurance policy.
WHEREFORE, the instant petition is
hereby GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 32946 dated 3 May 1994
as well as that of Branch 146 of the Regional Trial
Court of Makati in Civil Case No. 1817 are
REVERSED and SET ASIDE. The complaint in Civil
Case No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
application form which was dated April 15, 1969, she

gave the date of her birth as July 11, 1904. On the
same date, she paid the sum of P20.00 representing
the premium for which she was issued the
corresponding receipt signed by an authorized agent of
the respondent insurance corporation. (Rollo, p. 27.)
Upon the filing of said application and the payment of
the premium on the policy applied for, the respondent
insurance corporation issued to Carmen O. Lapuz its
Certificate of Insurance No. 128866. (Rollo, p. 28.) The
policy was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate
of Insurance No. 12886, Carmen O. Lapuz died in a
vehicular accident in the North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of
the insured and who was the named beneficiary in the
policy, filed her claim for the proceeds of the insurance,
submitting all the necessary papers and other
requisites with the private respondent. Her claim
having been denied, Regina L. Edillon instituted this
action in the Court of First Instance of Rizal on August
27, 1969.
In resisting the claim of the petitioner, the respondent
insurance corporation relies on a provision contained in
the Certificate of Insurance, excluding its liability to pay
claims under the policy in behalf of "persons who are
under the age of sixteen (16) years of age or over the
age of sixty (60) years ..." It is pointed out that the
insured being over sixty (60) years of age when she
applied for the insurance coverage, the policy was null
and void, and no risk on the part of the respondent
insurance corporation had arisen therefrom.
G.R. No. L-34200 September 30, 1982

REGINA L. EDILLON, as assisted by her husband,
MARCIAL EDILLON, petitioners-appellants,
vs.
MANILA BANKERS LIFE INSURANCE CORPORATION
and the COURT OF FIRST INSTANCE OF RIZAL,
BRANCH V, QUEZON CITY, respondents-appellees.
The question of law raised in this case that justified a

direct appeal from a decision of the Court of First
Instance Rizal, Branch V, Quezon City, to be taken
directly to the Supreme Court is whether or not the
acceptance by the private respondent insurance
corporation of the premium and the issuance of the
corresponding certificate of insurance should be
deemed a waiver of the exclusionary condition of
overage stated in the said certificate of insurance.
The material facts are not in dispute. Sometime in April
1969, Carmen O, Lapuz applied with respondent
insurance corporation for insurance coverage against
accident and injuries. She filled up the blank application
form given to her and filed the same with the
respondent insurance corporation. In the said
The trial court sustained the contention of the private

respondent and dismissed the complaint; ordered the
petitioner to pay attorney's fees in the sum of ONE
THOUSAND (P1,000.00) PESOS in favor of the private
respondent; and ordered the private respondent to
return the sum of TWENTY (P20.00) PESOS received by
way of premium on the insurancy policy. It was
reasoned out that a policy of insurance being a contract
of adhesion, it was the duty of the insured to know the
terms of the contract he or she is entering into; the
insured in this case, upon learning from its terms that
she could not have been qualified under the conditions
stated in said contract, what she should have done is
simply to ask for a refund of the premium that she paid.
It was further argued by the trial court that the ruling
calling for a liberal interpretation of an insurance
contract in favor of the insured and strictly against the
insurer may not be applied in the present case in view
of the peculiar facts and circumstances obtaining
therein.
We REVERSE the judgment of the trial court. The age of
the insured Carmen 0. Lapuz was not concealed to the
insurance company. Her application for insurance
coverage which was on a printed form furnished by
private respondent and which contained very few items
of information clearly indicated her age of the time of
26 | P a g e
filing the same to be almost 65 years of age. Despite

such information which could hardly be overlooked in
the application form, considering its prominence
thereon and its materiality to the coverage applied for,
the respondent insurance corporation received her
payment of premium and issued the corresponding
certificate of insurance without question. The accident
which resulted in the death of the insured, a risk
covered by the policy, occurred on May 31, 1969 or
FORTY-FIVE (45) DAYS after the insurance coverage was
applied for. There was sufficient time for the private
respondent to process the application and to notice
that the applicant was over 60 years of age and
thereby cancel the policy on that ground if it was
minded to do so. If the private respondent failed to act,
it is either because it was willing to waive such
disqualification; or, through the negligence or
incompetence of its employees for which it has only
itself to blame, it simply overlooked such fact. Under
the circumstances, the insurance corporation is already
deemed in estoppel. It inaction to revoke the policy
despite a departure from the exclusionary condition
contained in the said policy constituted a waiver of
such condition, as was held in the case of "Que Chee
Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil. 85.
This case involved a claim on an insurance policy which
contained a provision as to the installation of fire
hydrants the number of which depended on the height
of the external wan perimeter of the bodega that was
insured. When it was determined that the bodega
should have eleven (11) fire hydrants in the compound
as required by the terms of the policy, instead of only
two (2) that it had, the claim under the policy was
resisted on that ground. In ruling that the said deviation
from the terms of the policy did not prevent the claim
under the same, this Court stated the following:
We are in agreement with the trial Court that the
appellant is barred by waiver (or rather estoppel) to
claim violation of the so-called fire hydrants warranty,
for the reason that knowing fully an that the number of
hydrants demanded therein never existed from the
very beginning, the appellant nevertheless issued the
policies in question subject to such warranty, and
received the corresponding premiums. It would be
perilously close to conniving at fraud upon the insured
to allow appellant to claim now as void ab initio the
policies that it had issued to the plaintiff without
warning of their fatal defect, of which it was informed,
and after it had misled the defendant into believing
that the policies were effective.
The insurance company was aware, even before the
policies were issued, that in the premises insured there
were only two fire hydrants installed by Que Chee Gan
and two others nearby, owned by the municipality of
Tabaco, contrary to the requirements of the warranty in
question. Such fact appears from positive testimony for
the insured that appellant's agents inspected the
premises; and the simple denials of appellant's
representative (Jamiczon) can not overcome that proof.
That such inspection was made it moreover rendered
probable by its being a prerequisite for the fixing of the
discount on the premium to which the insured was
entitled, since the discount depended on the number of

hydrants, and the fire fighting equipment available
(See"'Scale of Allowances" to which the policies were
expressly made subject). The law, supported by a long
line of cases, is expressed by American Jurisprudence
(Vol. 29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of
the issuance of a policy of insurance, has knowledge of
existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract
inconsistent with the known facts, and the insurer is
stopped thereafter from asserting the breach of such
conditions. The law is charitable enough to assume, in
the absence of any showing to the contrary, that an
insurance company intends to execute a valid contract
in return for the premium received; and when the policy
contains a condition which renders it voidable at its
inception, and this result is known to the insurer, it will
be presumed to have intended to waive the conditions
and to execute a binding contract, rather than to have
deceived the insured into thinking he is insured when in
fact he is not, and to have taken is money without
consideration.' (29 Am. Jur., Insurance, section 807, at
pp. 611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly
apparent. To allow a company to accept one's money
for a policy of insurance which it then knows to be void
and of no effect, though it knows as it must, that the
assured believes it to be valid and binding, is so
contrary to the dictates of honesty and fair dealing, and
so closely related to positive fraud, as to be abhorent to
fairminded men. It would be to allow the company to
treat the policy as valid long enough to get the
premium on it, and leave it at liberty to repudiate it the
next moment. This cannot be deemed to be the real
intention of the parties. To hold that a literal
construction of the policy expressed the true intention
of the company would be to indict it, for fraudulent
purposes and designs which we cannot believe it to be
guilty of (Wilson vs. Commercial Union Assurance
Co., 96 Atl. 540, 543544).
A similar view was upheld in the case of Capital
Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc., 65
SCRA 134, which involved a violation of the provision of
the policy requiring the payment of premiums before
the insurance shall become effective. The company
issued the policy upon the execution of a promissory
note for the payment of the premium. A check given
subsequent by the insured as partial payment of the
premium was dishonored for lack of funds. Despite such
deviation from the terms of the policy, the insurer was
held liable.
Significantly, in the case before Us the Capital
Insurance accepted the promise of Plastic Era to pay
the insurance premium within thirty (30) days from the
effective date of policy. By so doing, it has impliedly
27 | P a g e
agreed to modify the tenor of the insurance policy and

in effect, waived the provision therein that it would only
pay for the loss or damage in case the same occurs
after the payment of the premium. Considering that the
insurance policy is silent as to the mode of payment,
Capital Insurance is deemed to have accepted the
promissory note in payment of the premium. This
rendered the policy immediately operative on the date
it was delivered. The view taken in most cases in the
United States:
... is that although one of conditions of an insurance
policy is that "it shall not be valid or binding until the
first premium is paid", if it is silent as to the mode of
payment, promissory notes received by the company
must be deemed to have been accepted in payment of
the premium. In other words, a requirement for the
payment of the first or initial premium in advance or
actual cash may be waived by acceptance of a
promissory note...
On December 17, 1978, the bus figured

in an accident in Naic, Cavite injuring several of its
passengers. One of them, 19-year-old Edgardo
Perea, sued Milagros Cayas for damages in the
Court of First Instance of Cavite, Branch I 6
docketed as Civil Case No. NC-794; while three
others, namely: Rosario del Carmen, Ricardo
Magsarili and Charlie Antolin, agreed to a
settlement of P4,000.00 each with Milagros Cayas.
At the pre-trial of Civil Case No. NC-794,
Milagros Cayas failed to appear and hence, she
was declared as in default. After trial, the court
rendered a decision 7 in favor of Perea with its
dispositive portion reading thus: llcd
"WHEREFORE,
under our present
imperatives, judgment is
hereby rendered in favor of
the plaintiffs and against the
defendant Milagros Cayas
who is hereby ordered to
compensate the plaintiff
Edgar Perea with damages
in the sum of Ten Thousand
(P10,000.00) Pesos for the
medical predicament he
found himself as damaging
consequences of defendant
Milagros Cayas' complete
lack of 'diligence of a good
father of a family' when she
secured the driving services
of one Oscar Figueroa on
December 17, 1978; the
sum of Ten Thousand
(P10,000.00) Pesos for
exemplary damages; the
sum of Five Thousand
(P5,000.00) Pesos for moral
damages; the sum of Seven
Thousand (P7,000.00) Pesos
for Attorney's fees, under
the imperatives of the
monetary power of the peso
today;
WHEREFORE, the judgment appealed from is hereby

REVERSED and SET ASIDE. In lieu thereof, the private
respondent insurance corporation is hereby ordered to
pay to the petitioner the sum of TEN THOUSAND
(P10,000.00) PESOS as proceeds of Insurance
Certificate No. 128866 with interest at the legal rate
from May 31, 1969 until fully paid, the further sum of
TWO THOUSAND (P2,000.00) PESOS as and for
attorney's fees, and the costs of suit.
PERLA COMPANIA DE SEGUROS, INC.,

petitioner, vs. HONORABLE COURT OF
APPEALS and MILAGROS CAYAS,
respondents.
This is a petition for review on certiorari

of the decision of the Court of Appeals 1 affirming
in toto the decision of the Regional Trial Court of
Cavite, Branch XVI, 2 the dispositive portion of
which states:
"IN VIEW OF THE
FOREGOING, judgment is
hereby rendered ordering
defendant Perla Compania
de Seguros, Inc. to pay
plaintiff Milagros Cayas the
sum of P50,000.00 under its
maximum liability as
provided for in the insurance
policy; and the sum of
P5,000.00 as reasonable
attorney's fees, with costs
against said defendant.
"SO ORDERED." 3
Private respondent Milagros Cayas was
the registered owner of a Mazda bus with serial
No. TA3H4 P-000445 and plate No. PUB-4G-593. 4
Said passenger vehicle was insured with Perla
Compania de Seguros, Inc. (PCSI) under policy No.
LTO/60CC-04241 issued on February 3, 1978. 5
"With costs against

the defendant.
"SO ORDERED."
When the decision in Civil Case No. NC794 was about to be executed against her,
Milagros Cayas filed a complaint against PCSI in
the Office of the Insurance Commissioner praying
that PCSI be ordered to pay P40,000.00 for all the
claims against her arising from the vehicular
accident plus legal and other expenses. 8
Realizing her procedural mistake, she later
withdrew said complaint. 9
Consequently, on November 11, 1981,
Milagros Cayas filed a complaint for a sum of
money and damages against PCSI in the Court of
First Instance of Cavite (Civil Case No. N-4161).
She alleged therein that to satisfy the judgment in
Civil Case No. NC-794, her house and lot were
levied upon and sold at public auction for P38,200;
10 that to avoid numerous suits and the
"detention" of the insured vehicle, she paid P4,000
to each of the following injured passengers:
Rosario del Carmen, Ricardo Magsarili and Charlie
Antolin; that she could not have suffered said
financial setback had the counsel for PCSI, who
also represented her, appeared at the trial of Civil
28 | P a g e
Case No. NC-794 and attended to the claims of the

three other victims; that she sought
reimbursement of said amounts from the
defendant, which, notwithstanding the fact that
her claim was within its contractual liability under
the insurance policy, refused to make such
reimbursement; that she suffered moral damages
as a consequence of such refusal, and that she
was constrained to secure the services of counsel
to protect her rights. She prayed that judgment be
rendered directing PCSI to pay her P50,000 for
compensation of the injured victims, such sum as
the court might approximate as damages, and
P6,000 as attorney's fees.
In view of Milagros Cayas' failure to
prosecute the case, the court motu proprio
ordered its dismissal without prejudice. 11
Alleging that she had not received a copy of the
answer to the complaint, and that "out of
sportsmanship", she did not file a motion to hold
PCSI in default, Milagros Cayas moved for the
reconsideration of the dismissal order. Said motion
for reconsideration was acted upon favorably by
the court in its order of March 31, 1982.
About two months later, Milagros Cayas
filed a motion to declare PCSI in default for its
failure to file an answer. The motion was granted
and plaintiff was allowed to adduce evidence exparte. On July 13, 1982, the court rendered
judgment by default ordering PCSI to pay Milagros
Cayas P50,000 as compensation for the injured
passengers, P5,000 as moral damages and P5,000
as attorney's fees.
Said decision was set aside after the PCSI
filed a motion therefor. Trial of the case ensued. In
due course, the court promulgated a decision in
Civil Case No. N-4161, the dispositive portion of
which was quoted earlier, finding that: prLL
"In disavowing its
obligation to plaintiff under
the insurance policy,
defendant advanced the
proposition that before it can
be made to pay, the liability
must first be determined in
an appropriate court action.
And so plaintiffs liability was
determined in that case filed
against her by Perea in the
Naic CFI. Still, despite this
determination of liability,
defendant sought escape
from its obligation by
positing the theory that
plaintiff Milagros Cayas lost
the Naic case due to her
negligence because of
which, efforts exerted by
defendant's lawyers in
protecting Cayas' rights
proved futile and rendered
nugatory. Blame was laid
entirely on plaintiff by
defendant for losing the Naic
case. Defendant labored
under the impression that
had Cayas cooperated fully
with defendant's lawyers,
the latter could have won
the suit and thus relieved of
any obligation to Perea.
Defendant's posture is
stretching the factual

circumstances of the Naic
case too far. But even
accepting defendant's
postulate, it cannot be said,
nor was it shown positively
and convincingly, that if the
Naic case had proceeded on
trial on the merits, a
decision favorable to
Milagros Cayas could have
been obtained. Nor was it
definitely established that if
the pre-trial was undertaken
in that case, defendant's
lawyers could have
mitigated the claim for
damages by Perea against
Cayas." 12
The court, however, held that inasmuch
as Milagros Cayas failed to establish that she
underwent moral suffering and mental anguish to
justify her prayer for damages, there should be no
such award. But, there being proof that she was
compelled to engage the services of counsel to
protect her rights under the insurance policy, the
court allowed attorney's fees in the amount of
P5,000.
PCSI appealed to the Court of Appeals,
which, in its decision of May 8, 1987 affirmed in
toto the lower court's decision. Its motion for
reconsideration having been denied by said
appellate court, PCSI filed the instant petition
charging the Court of Appeals with having erred in
affirming in toto the decision of the lower court.
At the outset, we hold as factual and
therefore undeserving of this Court's attention,
petitioner's assertions that private respondent lost
Civil Case No. NC-794 because of her negligence
and that there is no proof that the decision in said
case has been executed. Said contentions, having
been raised and threshed out in the Court of
Appeals and rejected by it, may no longer be
addressed to this Court.
Petitioner's other contentions are
primarily concerned with the extent of its liability
to private respondent under the insurance policy.
This, we consider to be the only issue in this case.
Petitioner seeks to limit its liability only to
the payment made by private respondent to Perea
and only up to the amount of P12,000.00. It
altogether denies liability for the payments made
by private respondents to the other three (3)
injured passengers Rosario del Carmen, Ricardo
Magsarili and Charlie Antolin in the amount of
P4,000.00 each or a total of P12,000.00.
There is merit in petitioner's assertions.
The insurance policy involved explicitly
limits petitioner's liability to P12,000.00 per
person and to P50,000.00 per accident. 13
Pertinent provisions of the policy also state:
"SECTION I
Liability to the Public.
xxx xxx xxx
"3.The Limit of
Liability stated in Schedule A
as applicable (a) to THIRD
29 | P a g e
PARTY is the limit of the

Company's liability for all
damages arising out of
death, bodily injury and
damage to property
combined so sustained as
the result of any one
accident; (b) "per person"
for PASSENGER liability is
the limit of the Company's
liability for all damages
arising out of death or bodily
injury sustained by one
person as the result of any
one accident; (c) "per
accident" for PASSENGER
liability is, subject to the
above provision respecting
per person, the total limit of
the Company's liability for
all such damages arising out
of death or bodily injury
sustained by two or more
persons as the result of any
one accident."
Insurance Code of 1978), which provided that the

liability of land transportation vehicle operators for
bodily injuries sustained by a passenger arising
out of the use of their vehicles shall not be less
than P12,000. In other words, under the law, the
minimum liability is P12,000 per passenger.
Petitioner's liability under the insurance contract
not being less than P12,000.00, and therefore not
contrary to law, morals, good customs, public
order or public policy, said stipulation must be
upheld as effective, valid and binding as between
the parties. 15
In like manner, we rule as valid and
binding upon private respondent the condition
above-quoted requiring her to secure the written
permission of petitioner before effecting any
payment in settlement of any claim against her.
There is nothing unreasonable, arbitrary or
objectionable in this stipulation as would warrant
its nullification. The same was obviously designed
to safeguard the insurer's interest against
collusion between the insured and the claimants.
In her cross-examination before the trial
court, Milagros Cayas admitted, thus:
"Conditions
Applicable to All Sections.
"Atty. Yabut:
qWith respect to the other injured
passengers of your bus
wherein you made
payments you did not
secure the consent of
defendant (herein
petitioner) Perla Compania
de Seguros when you
made those payments?
xxx xxx xxx

"5.No admission,
offer, promise or payment
shall be made by or on
behalf of the Insured without
the written consent of the
Company which shall been
titled, if it so desires, to take
over and conduct in his (sic)
name the defense or
settlement of any claim, or
to prosecute in his (sic)
name for its own benefit any
claim for indemnity or
damages or otherwise, and
shall have full discretion in
the conduct of any
proceedings in the
settlement of any claim, and
the insured shall give all
such information and
assistance as the Company
may require. If the Company
shall make any payment in
settlement of any claim, and
such payment includes any
amount not covered by this
Policy, the Insured shall
repay the Company the
amount not so covered.
We have ruled in Stokes vs. Malayan
Insurance Co., Inc., 14 that the terms of the
contract constitute the measure of the insurer's
liability and compliance therewith is a condition
precedent to the insured's right of recovery from
the insurer. llcd
In the case at bar, the insurance policy
clearly and categorically placed petitioner's
liability for all damages arising out of death or
bodily injury sustained by one person as a result
of any one accident at P12,000.00. Said amount
complied with the minimum fixed by the law then
prevailing, Section 377 of Presidential Decree No.
612 (which was retained by P.D. No. 1460, the
aI informed them about that.

qBut they did not give you the
written authority that you
were supposed to pay
those claims?
aNo, sir." 16
It being specifically required that
petitioner's written consent be first secured before
any payment in settlement of any claim could be
made, private respondent is precluded from
seeking reimbursement of the payments made to
del Carmen, Magsarili and Antolin in view of her
failure to comply with the condition contained in
the insurance policy. LibLex
Clearly, the fundamental principle that
contracts are respected as the law between the
contracting parties finds application in the present
case. 17 Thus, it was error on the part of the trial
and appellate courts to have disregarded the
stipulations of the parties and to have substituted
their own interpretation of the insurance policy. In
Phil. American General Insurance Co., Inc. vs.
Mutuc, 18 we ruled that contracts which are the
private laws of the contracting parties should be
fulfilled according to the literal sense of their
stipulations, if their terms are clear and leave no
room for doubt as to the intention of the
contracting parties, for contracts are obligatory,
no matter what form they may be, whenever the
essential requisites for their validity are present.
Moreover, we stated in Pacific Oxygen &
Acetylene Co. vs. Central Bank, 19 that the first
and fundamental duty of the courts is the
application of the law according to its express
30 | P a g e
terms, interpretation being called for only when

such literal application is impossible.
Policy No. 28PI-RSA 0001 in the amount not exceeding

FIVE THOUSAND PESOS (P5,000.00) dated June 21,
1969, without said accused having first secured a
certificate of authority to act as such agent from the
office of the Insurance Commissioner, Republic of the
Philippines.
We observe that although Milagros Cayas

was able to prove a total loss of only P44,000.00,
petitioner was made liable for the amount of
P50,000.00, the maximum liability per accident
stipulated in the policy. This is patent error. An
insurance indemnity, being merely an assistance
or restitution insofar as can be fairly ascertained,
cannot be availed of by any accident victim or
claimant as an instrument of enrichment by
reason of an accident. 20
CONTRARY TO LAW.
The facts, 4 as found by the respondent Court of
Appeals are quoted hereunder:
Finally, we find no reason to disturb the

award of attorney's fees.
WHEREFORE, the decision of the Court of
Appeals is hereby modified in that petitioner shall
pay Milagros Cayas the amount of Twelve
Thousand Pesos (P12,000.00) plus legal interest
from the promulgation of the decision of the lower
court until it is fully paid and attorney's fees in the
amount of P5,000.00. No pronouncement as to
costs.
SO ORDERED.
G.R. No. L-39419 April 12, 1982

MAPALAD AISPORNA, petitioner,
vs.
THE COURT OF APPEALS and THE PEOPLE OF THE
PHILIPPINES, respondents.
In this petition for certiorari, petitioner-accused

Aisporna seeks the reversal of the decision dated
August 14, 19741 in CA-G.R. No. 13243-CR entitled
"People of the Philippines, plaintiff-appellee, vs.
Mapalad Aisporna, defendant-appellant" of respondent
Court of Appeals affirming the judgment of the City
Court of Cabanatuan 2 rendered on August 2, 1971
which found the petitioner guilty for having violated
Section 189 of the Insurance Act (Act No. 2427, as
amended) and sentenced her to pay a fine of P500.00
with subsidiary imprisonment in case of insolvency, and
to pay the costs.
Petitioner Aisporna was charged in the City Court of
Cabanatuan for violation of Section 189 of the
Insurance Act on November 21, 1970 in an
information 3 which reads as follows:
That on or before the 21st day of June, 1969, in the City
of Cabanatuan, Republic of the Philippines, and within
the jurisdiction of this Honorable Court, the abovenamed accused, did then and there, wilfully, unlawfully
and feloniously act as agent in the solicitation or
procurement of an application for insurance by
soliciting therefor the application of one Eugenio S.
Isidro, for and in behalf of Perla Compania de Seguros,
Inc., a duly organized insurance company, registered
under the laws of the Republic of the Philippines,
resulting in the issuance of a Broad Personal Accident
IT RESULTING: That there is no debate that since 7

March, 1969 and as of 21 June, 1969, appellant's
husband, Rodolfo S. Aisporna was duly licensed by
Insurance Commission as agent to Perla Compania de
Seguros, with license to expire on 30 June, 1970, Exh.
C; on that date, at Cabanatuan City, Personal Accident
Policy, Exh. D was issued by Perla thru its author
representative, Rodolfo S. Aisporna, for a period of
twelve (12) months with beneficiary as Ana M. Isidro,
and for P5,000.00; apparently, insured died by violence
during lifetime of policy, and for reasons not explained
in record, present information was filed by Fiscal, with
assistance of private prosecutor, charging wife of
Rodolfo with violation of Sec. 189 of Insurance Law for
having, wilfully, unlawfully, and feloniously acted, "as
agent in the solicitation for insurance by soliciting
therefore the application of one Eugenio S. Isidro for
and in behalf of Perla Compaa de Seguros, ... without
said accused having first secured a certificate of
authority to act as such agent from the office of the
Insurance Commission, Republic of the Philippines."
and in the trial, People presented evidence that was
hardly disputed, that aforementioned policy was issued
with active participation of appellant wife of Rodolfo,
against which appellant in her defense sought to show
that being the wife of true agent, Rodolfo, she naturally
helped him in his work, as clerk, and that policy was
merely a renewal and was issued because Isidro had
called by telephone to renew, and at that time, her
husband, Rodolfo, was absent and so she left a note on
top of her husband's desk to renew ...
Consequently, the trial court found herein petitioner
guilty as charged. On appeal, the trial court's decision
was affirmed by the respondent appellate court finding
the petitioner guilty of a violation of the first paragraph
of Section 189 of the Insurance Act. Hence, this present
recourse was filed on October 22, 1974. 5
In its resolution of October 28, 1974, 6 this Court
resolved, without giving due course to this instant
petition, to require the respondent to comment on the
aforesaid petition. In the comment 7 filed on December
20, 1974, the respondent, represented by the Office of
the Solicitor General, submitted that petitioner may not
be considered as having violated Section 189 of the
Insurance Act. 8 On April 3, 1975, petitioner submitted
his Brief 9 while the Solicitor General, on behalf of the
respondent, filed a manifestation 10 in lieu of a Brief on
31 | P a g e
May 3, 1975 reiterating his stand that the petitioner has

not violated Section 189 of the Insurance Act.
In seeking reversal of the judgment of conviction,
petitioner assigns the following errors 11 allegedly
committed by the appellate court:
1. THE RESPONDENT COURT OF APPEALS ERRED IN
FINDING THAT RECEIPT OF COMPENSATION IS NOT AN
ESSENTIAL ELEMENT OF THE CRIME DEFINED BY THE
FIRST PARAGRAPH OF SECTION 189 OF THE INSURANCE
ACT.
2. THE RESPONDENT COURT OF APPEALS ERRED IN
GIVING DUE WEIGHT TO EXHIBITS F, F-1, TO F-17,
INCLUSIVE SUFFICIENT TO ESTABLISH PETITIONER'S
GUILT BEYOND REASONABLE DOUBT.
3. THE RESPONDENT COURT OF APPEALS ERRED IN NOT
ACQUITTING HEREIN PETITIONER.
We find the petition meritorious.
The main issue raised is whether or not a person can be
convicted of having violated the first paragraph of
Section 189 of the Insurance Act without reference to
the second paragraph of the same section. In other
words, it is necessary to determine whether or not the
agent mentioned in the first paragraph of the aforesaid
section is governed by the definition of an insurance
agent found on its second paragraph.
The pertinent provision of Section 189 of the Insurance
Act reads as follows:
No insurance company doing business within the
Philippine Islands, nor any agent thereof, shall pay any
commission or other compensation to any person for
services in obtaining new insurance, unless such person
shall have first procured from the Insurance
Commissioner a certificate of authority to act as an
agent of such company as hereinafter provided. No
person shall act as agent, sub-agent, or broker in the
solicitation of procurement of applications for
insurance, or receive for services in obtaining new
insurance, any commission or other compensation from
any insurance company doing business in the Philippine
Islands, or agent thereof, without first procuring a
certificate of authority so to act from the Insurance
Commissioner, which must be renewed annually on the
first day of January, or within six months thereafter.
Such certificate shall be issued by the Insurance
Commissioner only upon the written application of
persons desiring such authority, such application being
approved and countersigned by the company such
person desires to represent, and shall be upon a form
approved by the Insurance Commissioner, giving such
information as he may require. The Insurance
Commissioner shall have the right to refuse to issue or
renew and to revoke any such certificate in his
discretion. No such certificate shall be valid, however,
in any event after the first day of July of the year
following the issuing of such certificate. Renewal

certificates may be issued upon the application of the
company.
Any person who for compensation solicits or obtains
insurance on behalf of any insurance company, or
transmits for a person other than himself an application
for a policy of insurance to or from such company or
offers or assumes to act in the negotiating of such
insurance, shall be an insurance agent within the intent
of this section, and shall thereby become liable to all
the duties, requirements, liabilities, and penalties to
which an agent of such company is subject.
Any person or company violating the provisions of this
section shall be fined in the sum of five hundred pesos.
On the conviction of any person acting as agent, subagent, or broker, of the commission of any offense
connected with the business of insurance, the
Insurance Commissioner shall immediately revoke the
certificate of authority issued to him and no such
certificate shall thereafter be issued to such convicted
person.
A careful perusal of the above-quoted provision shows
that the first paragraph thereof prohibits a person from
acting as agent, sub-agent or broker in the solicitation
or procurement of applications for insurance without
first procuring a certificate of authority so to act from
the Insurance Commissioner, while its second
paragraph defines who is an insurance agent within the
intent of this section and, finally, the third paragraph
thereof prescribes the penalty to be imposed for its
violation.
The respondent appellate court ruled that the petitioner
is prosecuted not under the second paragraph of
Section 189 of the aforesaid Act but under its first
paragraph. Thus
... it can no longer be denied that it was appellant's
most active endeavors that resulted in issuance of
policy to Isidro, she was there and then acting as agent,
and received the pay thereof her defense that she
was only acting as helper of her husband can no longer
be sustained, neither her point that she received no
compensation for issuance of the policy because
any person who for compensation solicits or obtains
insurance on behalf of any insurance company or
transmits for a person other than himself an application
for a policy of insurance to or from such company or
offers or assumes to act in the negotiating of such
insurance, shall be an insurance agent within the intent
of this section, and shall thereby become liable to all
the duties, requirements, liabilities, and penalties, to
which an agent of such company is subject. paragraph
2, Sec. 189, Insurance Law,
now it is true that information does not even allege that
she had obtained the insurance,
32 | P a g e
for compensation
which is the gist of the offense in Section 189 of the
Insurance Law in its 2nd paragraph, but what appellant
apparently overlooks is that she is prosecuted not
under the 2nd but under the 1st paragraph of Sec. 189
wherein it is provided that,
No person shall act as agent, sub-agent, or broker, in
the solicitation or procurement of applications for
insurance, or receive for services in obtaining new
insurance any commission or other compensation from
any insurance company doing business in the Philippine
Island, or agent thereof, without first procuring a
certificate of authority to act from the insurance
commissioner, which must be renewed annually on the
first day of January, or within six months thereafter.
therefore, there was no technical defect in the wording
of the charge, so that Errors 2 and 4 must be
overruled. 12
From the above-mentioned ruling, the respondent
appellate court seems to imply that the definition of an
insurance agent under the second paragraph of Section
189 is not applicable to the insurance agent mentioned
in the first paragraph. Parenthetically, the respondent
court concludes that under the second paragraph of
Section 189, a person is an insurance agent if he
solicits and obtains an insurance for compensation, but,
in its first paragraph, there is no necessity that a
person solicits an insurance for compensation in order
to be called an insurance agent.
We find this to be a reversible error. As correctly
pointed out by the Solicitor General, the definition of an
insurance agent as found in the second paragraph of
Section 189 is intended to define the word "agent"
mentioned in the first and second paragraphs of the
aforesaid section. More significantly, in its second
paragraph, it is explicitly provided that the definition of
an insurance agent is within the intent of Section 189.
Hence
Any person who for compensation ... shall be
an insurance agent within the intent of this section, ...
Patently, the definition of an insurance agent under the
second paragraph holds true with respect to the agent
mentioned in the other two paragraphs of the said
section. The second paragraph of Section 189 is a
definition and interpretative clause intended to qualify
the term "agent" mentioned in both the first and third
paragraphs of the aforesaid section.
Applying the definition of an insurance agent in the
second paragraph to the agent mentioned in the first
and second paragraphs would give harmony to the
aforesaid three paragraphs of Section 189. Legislative
intent must be ascertained from a consideration of the
statute as a whole. The particular words, clauses and
phrases should not be studied as detached and isolated
expressions, but the whole and every part of the

statute must be considered in fixing the meaning of any
of its parts and in order to produce harmonious
whole. 13 A statute must be so construed as to
harmonize and give effect to all its provisions whenever
possible. 14 The meaning of the law, it must be borne in
mind, is not to be extracted from any single part,
portion or section or from isolated words and phrases,
clauses or sentences but from a general consideration
or view of the act as a whole. 15 Every part of the
statute must be interpreted with reference to the
context. This means that every part of the statute must
be considered together with the other parts, and kept
subservient to the general intent of the whole
enactment, not separately and independently. 16 More
importantly, the doctrine of associated words (Noscitur
a Sociis) provides that where a particular word or
phrase in a statement is ambiguous in itself or is
equally susceptible of various meanings, its true
meaning may be made clear and specific by
considering the company in which it is found or with
which it is associated. 17
Considering that the definition of an insurance agent as
found in the second paragraph is also applicable to the
agent mentioned in the first paragraph, to receive a
compensation by the agent is an essential element for
a violation of the first paragraph of the aforesaid
section. The appellate court has established ultimately
that the petitioner-accused did not receive any
compensation for the issuance of the insurance policy
of Eugenio Isidro. Nevertheless, the accused was
convicted by the appellate court for, according to the
latter, the receipt of compensation for issuing an
insurance policy is not an essential element for a
violation of the first paragraph of Section 189 of the
Insurance Act.
We rule otherwise. Under the Texas Penal Code 1911,
Article 689, making it a misdemeanor for any person for
direct or indirect compensation to solicit insurance
without a certificate of authority to act as an insurance
agent, an information, failing to allege that the solicitor
was to receive compensation either directly or
indirectly, charges no offense. 18 In the case of Bolen
vs. Stake, 19 the provision of Section 3750, Snyder's
Compiled Laws of Oklahoma 1909 is intended to
penalize persons only who acted as insurance solicitors
without license, and while acting in such capacity
negotiated and concluded insurance contracts for
compensation. It must be noted that the information, in
the case at bar, does not allege that the negotiation of
an insurance contracts by the accused with Eugenio
Isidro was one for compensation. This allegation is
essential, and having been omitted, a conviction of the
accused could not be sustained. It is well-settled in Our
jurisprudence that to warrant conviction, every element
of the crime must be alleged and proved. 20
After going over the records of this case, We are fully
convinced, as the Solicitor General maintains, that
accused did not violate Section 189 of the Insurance
Act.
33 | P a g e
WHEREFORE, the judgment appealed from is reversed

and the accused is acquitted of the crime charged, with
costs de oficio.
G.R. No. 136914
On July 1, 1989, at or about 12:40 a.m., the

respondents building located at Barangay Diatagon,
Lianga, Surigao del Sur was gutted by fire and reduced
to ashes, resulting in the total loss of the respondents
stocks-in-trade, pieces of furnitures and fixtures,
equipments and records.
Due to the loss, the respondent filed an insurance claim
with the petitioner under its Fire Insurance Policy No. F1397, submitting: (a) the Spot Report of Pfc. Arturo V.
Juarbal, INP Investigator, dated July 1, 1989; (b) the
Sworn Statement of Jose Lomocso; and (c) the Sworn
Statement of Ernesto Urbiztondo.
January 25, 2002
COUNTRY BANKERS INSURANCE

CORPORATION, petitioner,
vs.
LIANGA BAY AND COMMUNITY MULTI-PURPOSE
COOPERATIVE, INC., respondent.
The petitioner, however, denied the insurance claim on

the ground that, based on the submitted documents,
the building was set on fire by two (2) NPA rebels who
wanted to obtain canned goods, rice and medicines as
provisions for their comrades in the forest, and that
such loss was an excepted risk under paragraph No. 6
of the policy conditions of Fire Insurance Policy No. F1397, which provides:
DE LEON, JR., J.:

Before us is a petition for review on certiorari of the
Decision1 of the Court of Appeals2 dated December 29,
1998 in CA-G.R. CV Case No. 36902 affirming in toto the
Decision3 dated December 26, 1991 of the Regional
Trial Court of Lianga, Surigao del Sur, Branch 28, in Civil
Case No. L-518 which ordered petitioner Country
Bankers Insurance Corporation to fully pay the
insurance claim of respondent Lianga Bay and
Community Multi-Purpose Cooperative, Inc., under Fire
Insurance Policy No. F-1397, for loss sustained as a
result of the fire that occurred on July 1, 1989 in the
amount of Two Hundred Thousand Pesos (P200,000.00),
with interest at twelve percent (12%) per annum from
the date of filing of the complaint until fully paid, as
well as Fifty Thousand Pesos (P50,000.00) as actual
damages, Fifty Thousand Pesos (P50,000.00) as
exemplary damages, Five Thousand Pesos (P5,000.00)
as litigation expenses, Ten Thousand Pesos
(P10,000.00) as attorneys fees, and the costs of suit.
This insurance does not cover any loss or damage

occasioned by or through or in consequence, directly or
indirectly, of any of the following occurrences, namely:
xxx
xxx
xxx
(d) Mutiny, riot, military or popular uprising,

insurrection, rebellion, revolution, military or usurped
power.
The facts are undisputed:
Any loss or damage happening during the existence of

abnormal conditions (whether physical or otherwise)
which are occasioned by or through or in consequence,
directly or indirectly, of any of said occurrences shall be
deemed to be loss or damage which is not covered by
this insurance, except to the extent that the Insured
shall prove that such loss or damage happened
independently of the existence of such abnormal
conditions.
The petitioner is a domestic corporation principally

engaged in the insurance business wherein it
undertakes, for a consideration, to indemnify another
against loss, damage or liability from an unknown or
contingent event including fire while the respondent is
a duly registered cooperative judicially declared
insolvent and represented by the elected assignee,
Cornelio Jamero.
Finding the denial of its claim unacceptable, the

respondent then instituted in the trial court the
complaint for recovery of "loss, damage or liability"
against petitioner. The petitioner answered the
complaint and reiterated the ground it earlier cited to
deny the insurance claim, that is, that the loss was due
to NPA rebels, an excepted risk under the fire insurance
policy.
It appears that sometime in 1989, the petitioner and

the respondent entered into a contract of fire
insurance. Under Fire Insurance Policy No. F-1397, the
petitioner insured the respondents stocks-in-trade
against fire loss, damage or liability during the period
starting from June 20, 1989 at 4:00 p.m. to June 20,
1990 at 4:00 p.m., for the sum of Two Hundred
Thousand Pesos (P200,000.00).
In due time, the trial court rendered its Decision dated

December 26, 1991 in favor of the respondent,
declaring that:
Based on its findings, it is therefore the considered

opinion of this Court, as it so holds, that the defenses
raised by defendant-Country Bankers has utterly
crumbled on account of its inherent weakness,
incredibility and unreliability, and after applying those
helpful tools like common sense, logic and the Courts
34 | P a g e
honest appraisal of the real and actual situation

obtaining in this area, such defenses remains (sic)
unimpressive and unconvincing, and therefore, the
defendant-Country Bankers has to be irreversibly
adjudged liable, as it should be, to plaintiff-Insolvent
Cooperative, represented in this action by its Assignee,
Cornelio Jamero, and thus, ordering said defendantCountry Bankers to pay the plaintiff-Insolvent
Cooperative, as follows:
1. To fully pay the insurance claim for the loss the
insured-plaintiff sustained as a result of the fire under
its Fire Insurance Policy No. F-1397 in its full face value
of P200,000.00 with interest of 12% per annum from
date of filing of the complaint until the same is fully
paid;
2. To pay as and in the concept of actual or
compensatory damages in the total sum of P50,000.00;
3. To pay as and in the concept of exemplary damages
in the total sum of P50,000.00;
4. To pay in the concept of litigation expenses the sum
of P5,000.00;
5. To pay by way of reimbursement the attorneys fees
in the sum of P10,000.00; and
6. To pay the costs of the suit.
For being unsubstantiated with credible and positive
evidence, the "counterclaim" is dismissed.
IT IS SO ORDERED.
Petitioner interposed an appeal to the Court of Appeals.
On December 29, 1998, the appellate court affirmed
the challenged decision of the trial court in its entirety.
Petitioner now comes before us via the instant petition
anchored on three (3) assigned errors,4 to wit:
1. THE HONORABLE COURT OF APPEALS FAILED
TO APPRECIATE AND GIVE CREDENCE TO THE
SPOT REPORT OF PFC. ARTURO JUARBAL (EXH. 3)
AND THE SWORN STATEMENT OF JOSE LOMOCSO
(EXH. 4) THAT THE RESPONDENTS STOCK-INTRADE WAS BURNED BY THE NPA REBELS, HENCE
AN EXCEPTED RISK UNDER THE FIRE INSURANCE
POLICY.
2. THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING PETITIONER LIABLE FOR 12% INTEREST
PER ANNUM ON THE FACE VALUE OF THE POLICY
FROM THE FILING OF THE COMPLAINT UNTIL
FULLY PAID.
3. THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THE PETITIONER LIABLE FOR ACTUAL
AND EXEMPLARY DAMAGES, LITIGATION
EXPENSES, ATTORNEYS FEES AND COST OF SUIT.
A party is bound by his own affirmative allegations. This

is a well-known postulate echoed in Section 1 of Rule
131 of the Revised Rules of Court. Each party must
prove his own affirmative allegations by the amount of
evidence required by law which in civil cases, as in this
case, is preponderance of evidence, to obtain a
favorable judgment.5
In the instant case, the petitioner does not dispute that
the respondents stocks-in-trade were insured against
fire loss, damage or liability under Fire Insurance Policy
No. F- 1397 and that the respondent lost its stocks-intrade in a fire that occurred on July 1, 1989, within the
duration of said fire insurance. The petitioner, however,
posits the view that the cause of the loss was an
excepted risk under the terms of the fire insurance
policy.
Where a risk is excepted by the terms of a policy which
insures against other perils or hazards, loss from such a
risk constitutes a defense which the insurer may urge,
since it has not assumed that risk, and from this it
follows that an insurer seeking to defeat a claim
because of an exception or limitation in the policy has
the burden of proving that the loss comes within the
purview of the exception or limitation set up. If a proof
is made of a loss apparently within a contract of
insurance, the burden is upon the insurer to prove that
the loss arose from a cause of loss which is excepted or
for which it is not liable, or from a cause which limits its
liability.6 Stated else wise, since the petitioner in this
case is defending on the ground of non-coverage and
relying upon an exemption or exception clause in the
fire insurance policy, it has the burden of proving the
facts upon which such excepted risk is based, by a
preponderance of evidence.7 But petitioner failed to do
so.
The petitioner relies on the Sworn Statements of Jose
Lomocso and Ernesto Urbiztondo as well as on the Spot
Report of Pfc. Arturo V. Juarbal dated July 1, 1989, more
particularly the following statement therein:
xxx investigation revealed by Jose Lomocso that those
armed men wanted to get can goods and rice for their
consumption in the forest PD investigation further
disclosed that the perpetrator are member (sic) of the
NPA PD end x x x
A witness can testify only to those facts which he knows
of his personal knowledge, which means those facts
which are derived from his perception.8 Consequently, a
witness may not testify as to what he merely learned
from others either because he was told or read or heard
the same. Such testimony is considered hearsay and
may not be received as proof of the truth of what he
has learned. Such is the hearsay rule which applies not
only to oral testimony or statements but also to written
evidence as well.9
The hearsay rule is based upon serious concerns about
the trustworthiness and reliability of hearsay evidence
inasmuch as such evidence are not given under oath or
35 | P a g e
solemn affirmation and, more importantly, have not

been subjected to cross-examination by opposing
counsel to test the perception, memory, veracity and
articulateness of the out-of-court declarant or actor
upon whose reliability on which the worth of the out-ofcourt statement depends.10
Concerning the application of the proper interest rates,

the following guidelines were set in Eastern Shipping
Lines, Inc. v. Court of Appeals and Mercantile Insurance
Co., Inc.:15
Thus, the Sworn Statements of Jose Lomocso and

Ernesto Urbiztondo are inadmissible in evidence, for
being hearsay, inasmuch as they did not take the
witness stand and could not therefore be crossexamined.
There are exceptions to the hearsay rule, among which
are entries in official records.11 To be admissible in
evidence, however, three (3) requisites must concur, to
wit:
(a) that the entry was made by a public officer, or by
another person specially enjoined by law to do so;
I. When an obligation, regardless of its source, i.e., law,

contracts, quasi-contracts, delicts or quasi-delicts, is
breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed,
as follows:
(b) that it was made by the public officer in the

performance of his duties, or by such other person in
the performance of a duty specially enjoined by law;
and
(c) that the public officer or other person had sufficient
knowledge of the facts by him stated, which must have
been acquired by him personally or through official
information.12
The third requisite was not met in this case since no
investigation, independent of the statements gathered
from Jose Lomocso, was conducted by Pfc. Arturo V.
Juarbal. In fact, as the petitioner itself pointed out,
citing the testimony of Pfc. Arturo Juarbal,13 the latters
Spot Report "was based on the personal knowledge of
the caretaker Jose Lomocso who witnessed every single
incident surrounding the facts and circumstances of the
case." This argument undeniably weakens the
petitioners defense, for the Spot Report of Pfc. Arturo
Juarbal relative to the statement of Jose Lomocso to the
effect that NPA rebels allegedly set fire to the
respondents building is inadmissible in evidence, for
the purpose of proving the truth of the statements
contained in the said report, for being hearsay.
The said Spot Report is admissible only insofar as it
constitutes part of the testimony of Pfc. Arturo V.
Juarbal since he himself took the witness stand and was
available for cross-examination. The portions of his
Spot Report which were of his personal knowledge or
which consisted of his perceptions and conclusions are
not hearsay. The rest of the said report relative to the
statement of Jose Lomocso may be considered as
independently relevant statements gathered in the
course of Juarbals investigation and may be admitted
as such but not necessarily to prove the truth thereof. 14
The petitioners evidence to prove its defense is sadly
wanting and thus, gives rise to its liability to the
respondent under Fire Insurance Policy No. F-1397.
Nonetheless, we do not sustain the trial courts

imposition of twelve percent (12%) interest on the
insurance claim as well as the monetary award for
actual and exemplary damages, litigation expenses and
attorneys fees for lack of legal and valid basis.
1. When the obligation is breached, and it consists in

the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand
can be established with reasonable certainty.
Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to
run only from the date the judgment of the court is
made (at which time the quantification of damages
may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
36 | P a g e
In the said case of Eastern Shipping, the Court further

observed that a "forbearance" in the context of the
usury law is a "contractual obligation of lender or
creditor to refrain, during a given period of time, from
requiring the borrower or debtor to repay a loan or debt
then due and payable."
Considering the foregoing, the insurance claim in this
case is evidently not a forbearance of money, goods or
credit, and thus the interest rate should be as it is
hereby fixed at six percent (6%) computed from the
date of filing of the complaint.
We find no justification for the award of actual damages
of Fifty Thousand Pesos (P50,000.00). Well-entrenched
is the doctrine that actual, compensatory and
consequential damages must be proved, and cannot be
presumed.16That part of the dispositive portion of the
Decision of the trial court ordering the petitioner to pay
actual damages of Fifty Thousand Pesos (P50,000.00)
has no basis at all. The justification, if any, for such an
award of actual damages does not appear in the body
of the decision of the trial court. Neither is there any
testimonial and documentary evidence on the alleged
actual damages of Fifty Thousand Pesos (P50,000.00) to
warrant such an award. Thus, the same must be
deleted.
Concerning the award of exemplary damages for Fifty
Thousand Pesos (P50,000.00), we likewise find no legal
and valid basis for granting the same. Article 2229 of
the New Civil Code provides that exemplary damages
may be imposed by way of example or correction for
the public good. Exemplary damages are imposed not
to enrich one party or impoverish another but to serve
as a deterrent against or as a negative incentive to
curb socially deleterious actions. They are designed to
permit the courts to mould behavior that has socially
deleterious consequences, and its imposition is
required by public policy to suppress the wanton acts of
an offender. However, it cannot be recovered as a
matter of right. It is based entirely on the discretion of
the court. We find no cogent and valid reason to award
the same in the case at bar.
With respect to the award of litigation expenses and
attorneys fees, Article 2208 of the New Civil
Code17enumerates the instances where such may be
awarded and, in all cases, it must be reasonable, just
and equitable if the same were to be granted.
Attorneys fees as part of damages are not meant to
enrich the winning party at the expense of the losing
litigant. They are not awarded every time a party
prevails in a suit because of the policy that no premium
should be placed on the right to litigate.18 The award of
attorneys fees is the exception rather than the general
rule. As such, it is necessary for the court to make
findings of facts and law that would bring the case
within the exception and justify the grant of such
award. We find none in this case to warrant the award
by the trial court of litigation expenses and attorneys
fees in the amounts of Five Thousand Pesos (P5,000.00)
and Ten Thousand Pesos (P10,000.00), respectively,

and therefore, the same must also be deleted.
WHEREFORE, the appealed Decision is MODIFIED.
The rate of interest on the adjudged principal amount
of Two Hundred Thousand Pesos (P200,000.00) shall be
six percent (6%) per annum computed from the date of
filing of the Complaint in the trial court. The awards in
the amounts of Fifty Thousand Pesos (P50,000.00) as
actual damages, Fifty Thousand Pesos (P50,000.00) as
exemplary damages, Five Thousand Pesos (P5,000.00)
as litigation expenses, and Ten Thousand Pesos
(P10,000.00) as attorneys fees are hereby DELETED.
Costs against the petitioner.
G.R. No. 138941
October 8, 2001
AMERICAN HOME ASSURANCE

COMPANY, petitioner,
vs.
TANTUCO ENTERPRISES, INC., respondent.
PUNO, J.:
Before us is a Petition for Review on Certiorari assailing
the Decision of the Court of Appeals in CA-G.R. CV No.
52221 promulgated on January 14, 1999, which
affirmed in toto the Decision of the Regional Trial Court,
Branch 53, Lucena City in Civil Case No. 92-51 dated
October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in the
coconut oil milling and refining industry. It owns two oil
mills. Both are located at factory compound at Iyam,
Lucena City. It appears that respondent commenced its
business operations with only one oil mill. In 1988, it
started operating its second oil mill. The latter came to
be commonly referred to as the new oil mill.
The two oil mills were separately covered by fire
insurance policies issued by petitioner American Home
Assurance Co., Philippine Branch.1 The first oil mill was
insured for three million pesos (P3,000,000.00) under
Policy No. 306-7432324-3 for the period March 1, 1991
to 1992.2 The new oil mill was insured for six million
pesos (P6,000,000.00) under Policy No. 306-7432321-9
for the same term.3 Official receipts indicating payment
for the full amount of the premium were issued by the
petitioner's agent.4
A fire that broke out in the early morning of September
30,1991 gutted and consumed the new oil mill.
Respondent immediately notified the petitioner of the
37 | P a g e
incident. The latter then sent its appraisers who

inspected the burned premises and the properties
destroyed. Thereafter, in a letter dated October 15,
1991, petitioner rejected respondent's claim for the
insurance proceeds on the ground that no policy was
issued by it covering the burned oil mill. It stated that
the description of the insured establishment referred to
another building thus: "Our policy nos. 306-7432321-9
(Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance
coverage to your oil mill under Building No. 5, whilst the
affected oil mill was under Building No. 14. "5
A complaint for specific performance and damages was
consequently instituted by the respondent with the RTC,
Branch 53 of Lucena City. On October 16, 1995, after
trial, the lower court rendered a Decision finding the
petitioner liable on the insurance policy thus:
"(3) With due respect, the conclusion of the Court of

Appeals giving no regard to the parole evidence rule
and the principle of estoppel is erroneous."10
The petition is devoid of merit.
The primary reason advanced by the petitioner in
resisting the claim of the respondent is that the burned
oil mill is not covered by any insurance policy.
According to it, the oil mill insured is specifically
described in the policy by its boundaries in the
following manner:
"Front: by a driveway thence at 18 meters distance by
Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
"WHEREFORE, judgment is rendered in favor of the

plaintiff ordering defendant to pay plaintiff:
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
(a) P4,406,536.40 representing damages for loss by fire

of its insured property with interest at the legal rate;
Rear: by an open space thence at 8 meters distance."

However, it argues that this specific boundary
description clearly pertains, not to the burned oil mill,
but to the other mill. In other words, the oil mill gutted
by fire was not the one described by the specific
boundaries in the contested policy.
(b) P80,000.00 for litigation expenses;

(c) P300,000.00 for and as attorney's fees; and
(d) Pay the costs.
SO ORDERED."6
Petitioner assailed this judgment before the Court of
Appeals. The appellate court upheld the same in a
Decision promulgated on January 14, 1999, the
pertinent portion of which states:
"WHEREFORE, the instant appeal is hereby DISMISSED
for lack of merit and the trial court's Decision dated
October 16, 1995 is hereby AFFIRMED in toto.
SO ORDERED."7
Petitioner moved for reconsideration. The motion,
however, was denied for lack of merit in a Resolution
promulgated on June 10, 1999.
Hence, the present course of action, where petitioner
ascribes to the appellate court the following errors:
What exacerbates respondent's predicament, petitioner

posits, is that it did not have the supposed wrong
description or mistake corrected. Despite the fact that
the policy in question was issued way back in 1988, or
about three years before the fire, and despite the
"Important Notice" in the policy that "Please read and
examine the policy and if incorrect, return it
immediately for alteration," respondent apparently did
not call petitioner's attention with respect to the
misdescription.
By way of conclusion, petitioner argues that respondent
is "barred by the parole evidence rule from presenting
evidence (other than the policy in question) of its selfserving intention (sic) that it intended really to insure
the burned oil mill," just as it is "barred
by estoppel from claiming that the description of the
insured oil mill in the policy was wrong, because it
retained the policy without having the same corrected
before the fire by an endorsement in accordance with
its Condition No. 28."
These contentions can not pass judicial muster.
"(1) The Court of Appeals erred in its conclusion that

the issue of non-payment of the premium was beyond
its jurisdiction because it was raised for the first time
on appeal."8
"(2) The Court of Appeals erred in its legal
interpretation of 'Fire Extinguishing Appliances
Warranty' of the policy."9
In construing the words used descriptive of a building

insured, the greatest liberality is shown by the courts in
giving effect to the insurance.11 In view of the custom of
insurance agents to examine buildings before writing
policies upon them, and since a mistake as to the
identity and character of the building is extremely
unlikely, the courts are inclined to consider that the
policy of insurance covers any building which the
38 | P a g e
parties manifestly intended to insure, however

inaccurate the description may be.12
Notwithstanding, therefore, the misdescription in the
policy, it is beyond dispute, to our mind, that what the
parties manifestly intended to insure was the new oil
mill. This is obvious from the categorical statement
embodied in the policy, extending its protection:
"On machineries and equipment with complete
accessories usual to a coconut oil mill including stocks
of copra, copra cake and copra mills whilst contained in
the new oil mill building, situate (sic) at UNNO. ALONG
NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY
UNBLOCKED.''13 (emphasis supplied.)
If the parties really intended to protect the first oil
mill, then there is no need to specify it as new.
Indeed, it would be absurd to assume that respondent
would protect its first oil mill for different amounts and
leave uncovered its second one. As mentioned earlier,
the first oil mill is already covered under Policy No. 3067432324-4 issued by the petitioner. It is unthinkable for
respondent to obtain the other policy from the very
same company. The latter ought to know that a second
agreement over that same realty results in its over
insurance.
The imperfection in the description of the insured oil
mill's boundaries can be attributed to a
misunderstanding between the petitioner's general
agent, Mr. Alfredo Borja, and its policy issuing clerk,
who made the error of copying the boundaries of the
first oil mill when typing the policy to be issued for the
new one. As testified to by Mr. Borja:
"Atty. G. Camaligan:
Q:
What did you do when you received the report?
A:
I told them as will be shown by the map the
intention really of Mr. Edison Tantuco is to cover the
new oil mill that is why when I presented the existing
policy of the old policy, the policy issuing clerk just
merely (sic) copied the wording from the old policy and
what she typed is that the description of the
boundaries from the old policy was copied but
she inserted covering the new oil mill and to me
at that time the important thing is that it
covered the new oil mill because it is just within
one compound and there are only two oil
mill[s] and so just enough, I had the policy prepared. In
fact, two policies were prepared having the same date
one for the old one and the other for the new oil mill
and exactly the same policy period, sir." 14 (emphasis
supplied)
It is thus clear that the source of the discrepancy
happened during the preparation of the written
contract.
These facts lead us to hold that the present case falls

within one of the recognized exceptions to the parole
evidence rule. Under the Rules of Court, a party may
present evidence to modify, explain or add to the terms
of the written agreement if he puts in issue in his
pleading, among others, its failure to express the true
intent and agreement of the parties thereto.15 Here, the
contractual intention of the parties cannot be
understood from a mere reading of the instrument.
Thus, while the contract explicitly stipulated that it was
for the insurance of the new oil mill, the boundary
description written on the policy concededly pertains to
the first oil mill. This irreconcilable difference can only
be clarified by admitting evidence aliunde, which will
explain the imperfection and clarify the intent of the
parties.
Anent petitioner's argument that the respondent is
barred by estoppel from claiming that the description of
the insured oil mill in the policy was wrong, we find that
the same proceeds from a wrong assumption. Evidence
on record reveals that respondent's operating manager,
Mr. Edison Tantuco, notified Mr. Borja (the petitioner's
agent with whom respondent negotiated for the
contract) about the inaccurate description in the policy.
However, Mr. Borja assured Mr. Tantuco that the use of
the adjective new will distinguish the insured property.
The assurance convinced respondent, despite the
impreciseness in the specification of the boundaries,
the insurance will cover the new oil mill. This can be
seen from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q:
You mentioned, sir, that at least in so far as
Exhibit A is concern you have read what the policy
contents. (sic)
Kindly take a look in the page of Exhibit A which was
marked as Exhibit A-2 particularly the boundaries of the
property insured by the insurance policy Exhibit A, will
you tell us as the manager of the company whether the
boundaries stated in Exhibit A-2 are the boundaries of
the old (sic) mill that was burned or not.
A:
It was not, I called up Mr. Borja regarding this
matter and he told me that what is important is the
word new oil mill. Mr. Borja said, as a matter of fact,
you can never insured (sic) one property with two (2)
policies, you will only do that if you will make to
increase the amount and it is by indorsement not by
another policy, sir.,16
We again stress that the object of the court in
construing a contract is to ascertain the intent of the
parties to the contract and to enforce the agreement
which the parties have entered into. In determining
what the parties intended, the courts will read and
construe the policy as a whole and if possible, give
effect to all the parts of the contract, keeping in mind
always, however, the prime rule that in the event of
doubt, this doubt is to be resolved against the insurer.
In determining the intent of the parties to the contract,
39 | P a g e
the courts will consider the purpose and object of the

contract.17
stand basically to demonstrate that an existing policy

issued by the petitioner covers the burned building.
In a further attempt to avoid liability, petitioner claims

that respondent forfeited the renewal policy for its
failure to pay the full amount of the premium and
breach of the Fire Extinguishing Appliances Warranty.
Finally, petitioner contends that respondent violated

the express terms of the Fire Extinguishing Appliances
Warranty. The said warranty provides:
"WARRANTED that during the currency of this Policy,
Fire Extinguishing Appliances as mentioned below shall
be maintained in efficient working order on the
premises to which insurance applies:
The amount of the premium stated on the face of the

policy was P89,770.20. From the admission of
respondent's own witness, Mr. Borja, which the
petitioner cited, the former only paid it P75,147.00,
leaving a difference of P14,623.20. The deficiency,
petitioner argues, suffices to invalidate the policy, in
accordance with Section 77 of the Insurance Code. 18
The Court of Appeals refused to consider this
contention of the petitioner. It held that this issue was
raised for the first time on appeal, hence, beyond its
jurisdiction to resolve, pursuant to Rule 46, Section 18
of the Rules of Court.19
Petitioner, however, contests this finding of the
appellate court. It insists that the issue was raised in
paragraph 24 of its Answer, viz.:
PORTABLE EXTINGUISHERS
INTERNAL HYDRANTS
EXTERNAL HYDRANTS
FIRE PUMP
24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null

and void and the Company shall no longer be liable for
any loss which may occur." 20
"24. Plaintiff has not complied with the condition of the

policy and renewal certificate that the renewal premium
should be paid on or before renewal date."
Petitioner adds that the issue was the subject of the
cross-examination of Mr. Borja, who acknowledged that
the paid amount was lacking by P14,623.20 by reason
of a discount or rebate, which rebate under Sec. 361 of
the Insurance Code is illegal.
The argument fails to impress. It is true that the
asseverations petitioner made in paragraph 24 of its
Answer ostensibly spoke of the policy's condition for
payment of the renewal premium on time and
respondent's non-compliance with it. Yet, it did not
contain any specific and definite allegation that
respondent did not pay the premium, or that it did not
pay the full amount, or that it did not pay the amount
on time.
Likewise, when the issues to be resolved in the trial
court were formulated at the pre-trial proceedings, the
question of the supposed inadequate payment was
never raised. Most significant to point, petitioner fatally
neglected to present, during the whole course of the
trial, any witness to testify that respondent indeed
failed to pay the full amount of the premium. The thrust
of the cross-examination of Mr. Borja, on the other
hand, was not for the purpose of proving this fact.
Though it briefly touched on the alleged deficiency,
such was made in the course of discussing a discount
or rebate, which the agent apparently gave the
respondent. Certainly, the whole tenor of Mr. Borja's
testimony, both during direct and cross examinations,
implicitly assumed a valid and subsisting insurance
policy. It must be remembered that he was called to the
Petitioner argues that the warranty clearly obligates the

insured to maintain all the appliances specified therein.
The breach occurred when the respondent failed to
install internal fire hydrants inside the burned building
as warranted. This fact was admitted by the oil mill's
expeller operator, Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the
appellate court's conclusion that the aforementioned
warranty did not require respondent to provide for all
the fire extinguishing appliances enumerated therein.
Additionally, we find that neither did it require that the
appliances are restricted to those mentioned in the
warranty. In other words, what the warranty mandates
is that respondent should maintain in efficient working
condition within the premises of the insured property,
fire fighting equipments such as, but not limited to,
those identified in the list, which will serve as the oil
mill's first line of defense in case any part of it bursts
into flame.
To be sure, respondent was able to comply with the
warranty. Within the vicinity of the new oil mill can be
found the following devices: numerous portable fire
extinguishers, two fire hoses,21 fire hydrant,22 and an
emergency fire engine.23 All of these equipments were
in efficient working order when the fire occurred.
It ought to be remembered that not only are warranties
strictly construed against the insurer, but they should,
likewise, by themselves be reasonably
interpreted.24 That reasonableness is to be ascertained
in light of the factual conditions prevailing in each case.
Here, we find that there is no more need for an internal
hydrant considering that inside the burned building
40 | P a g e
were: (1) numerous portable fire extinguishers, (2) an

emergency fire engine, and (3) a fire hose which has a
connection to one of the external hydrants.
IN VIEW WHEREOF, finding no reversible error in the
impugned Decision, the instant petition is hereby
DISMISSED.
Likewise, Pioneer need not obtain another license as

insurance agent and/or a broker for Steamship Mutual
because Steamship Mutual was not engaged in the
insurance business. Moreover, Pioneer was already
licensed, hence, a separate license solely as
agent/broker of Steamship Mutual was already
superfluous.
The Court of Appeals affirmed the decision of the
Insurance Commissioner. In its decision, the appellate
court distinguished between P & I Clubs vis-vis conventional insurance. The appellate court also
held that Pioneer merely acted as a collection agent of
Steamship Mutual.
G.R. No. 154514. July 28, 2005
In this petition, petitioner assigns the following errors

allegedly committed by the appellate court,
WHITE GOLD MARINE SERVICES, INC., Petitioners,

vs.
PIONEER INSURANCE AND SURETY CORPORATION
AND THE STEAMSHIP MUTUAL UNDERWRITING
ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July
30, 2002 of the Court of Appeals in CA-G.R. SP No.
60144, affirming the Decision2 dated May 3, 2000 of
the Insurance Commission in I.C. Adm. Case No. RD277. Both decisions held that there was no violation of
the Insurance Code and the respondents do not need
license as insurer and insurance agent/broker.
FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT
RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN
THE PHILIPPINES ON THE GROUND THAT IT COURSED . .
. ITS TRANSACTIONS THROUGH ITS AGENT AND/OR
BROKER HENCE AS AN INSURER IT NEED NOT SECURE A
LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE
RECORD IS BEREFT OF ANY EVIDENCE THAT
RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE
BUSINESS.
The facts are undisputed.
THIRD ASSIGNMENT OF ERROR
White Gold Marine Services, Inc. (White Gold) procured

a protection and indemnity coverage for its vessels
from The Steamship Mutual Underwriting Association
(Bermuda) Limited (Steamship Mutual) through Pioneer
Insurance and Surety Corporation (Pioneer).
Subsequently, White Gold was issued a Certificate of
Entry and Acceptance.3Pioneer also issued receipts
evidencing payments for the coverage. When White
Gold failed to fully pay its accounts, Steamship Mutual
refused to renew the coverage.
Steamship Mutual thereafter filed a case against White
Gold for collection of sum of money to recover the
latters unpaid balance. White Gold on the other hand,
filed a complaint before the Insurance Commission
claiming that Steamship Mutual violated Sections
1864 and 1875 of the Insurance Code, while Pioneer
violated Sections 299,63007 and 3018 in relation to
Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It
said that there was no need for Steamship Mutual to
secure a license because it was not engaged in the
insurance business. It explained that Steamship Mutual
was a Protection and Indemnity Club (P & I Club).
THE COURT A QUO ERRED WHEN IT RULED, THAT

RESPONDENT PIONEER NEED NOT SECURE A LICENSE
WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER
OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE
LICENSE OF RESPONDENT PIONEER AND [IN NOT
REMOVING] THE OFFICERS AND DIRECTORS OF
RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship
Mutual, a P & I Club, engaged in the insurance business
in the Philippines? (2) Does Pioneer need a license as
an insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club.
Steamship Mutual admits it does not have a license to
do business in the Philippines although Pioneer is its
resident agent. This relationship is reflected in the
certifications issued by the Insurance Commission.
41 | P a g e
Petitioner insists that Steamship Mutual as a P & I Club

is engaged in the insurance business. To buttress its
assertion, it cites the definition of a P & I Club
in Hyopsung Maritime Co., Ltd. v. Court of Appeals 10 as
"an association composed of shipowners in general who
band together for the specific purpose of providing
insurance cover on a mutual basis against liabilities
incidental to shipowning that the members incur in
favor of third parties." It stresses that as a P & I Club,
Steamship Mutuals primary purpose is to solicit and
provide protection and indemnity coverage and for this
purpose, it has engaged the services of Pioneer to act
as its agent.
Respondents contend that although Steamship Mutual
is a P & I Club, it is not engaged in the insurance
business in the Philippines. It is merely an association
of vessel owners who have come together to provide
mutual protection against liabilities incidental to
shipowning.11 Respondents aver Hyopsung is
inapplicable in this case because the issue
in Hyopsung was the jurisdiction of the court
over Hyopsung.
Is Steamship Mutual engaged in the insurance
business?
Section 2(2) of the Insurance Code enumerates what
constitutes "doing an insurance business" or
"transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any
insurance contract;
(b) making, or proposing to make, as surety, any
contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of
the surety;
(c) doing any kind of business, including a reinsurance
business, specifically recognized as constituting the
doing of an insurance business within the meaning of
this Code;
(d) doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit
is derived from the making of insurance contracts,
agreements or transactions, or that no separate or
direct consideration is received therefor, shall not
preclude the existence of an insurance business.12
The test to determine if a contract is an insurance

contract or not, depends on the nature of the promise,
the act required to be performed, and the exact nature
of the agreement in the light of the occurrence,
contingency, or circumstances under which the
performance becomes requisite. It is not by what it is
called.13
Basically, an insurance contract is a contract of
indemnity. In it, one undertakes for a consideration to
indemnify another against loss, damage or liability
arising from an unknown or contingent event.14
In particular, a marine insurance undertakes to
indemnify the assured against marine losses, such as
the losses incident to a marine adventure.15 Section
9916 of the Insurance Code enumerates the coverage of
marine insurance.
Relatedly, a mutual insurance company is a cooperative
enterprise where the members are both the insurer and
insured. In it, the members all contribute, by a system
of premiums or assessments, to the creation of a fund
from which all losses and liabilities are paid, and where
the profits are divided among themselves, in proportion
to their interest.17 Additionally, mutual insurance
associations, or clubs, provide three types of coverage,
namely, protection and indemnity, war risks, and
defense costs.18
A P & I Club is "a form of insurance against third
party liability, where the third party is anyone other
than the P & I Club and the members."19 By definition
then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance
business.
The records reveal Steamship Mutual is doing business
in the country albeit without the requisite certificate of
authority mandated by Section 18720 of the Insurance
Code. It maintains a resident agent in the Philippines to
solicit insurance and to collect payments in its behalf.
We note that Steamship Mutual even renewed its P & I
Club cover until it was cancelled due to non-payment of
the calls. Thus, to continue doing business here,
Steamship Mutual or through its agent Pioneer, must
secure a license from the Insurance Commission.
Since a contract of insurance involves public interest,
regulation by the State is necessary. Thus, no insurer or
insurance company is allowed to engage in the
insurance business without a license or a certificate of
authority from the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual,
need a special license?
Pioneer is the resident agent of Steamship Mutual as
evidenced by the certificate of registration22 issued by
the Insurance Commission. It has been licensed to do or
transact insurance business by virtue of the certificate
of authority23 issued by the same agency. However, a
42 | P a g e
Certification from the Commission states that Pioneer

does not have a separate license to be an agent/broker
of Steamship Mutual.24
Although Pioneer is already licensed as an insurance
company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of
the Insurance Code clearly states:
Before us is a Petition for Review 1 under Rule 45 of the

Rules of Court, seeking to nullify the January 23, 2003
Decision 2 and the April 21, 2003 Resolution 3 of the
Court of Appeals (CA) in CA-GR SP No. 69125. The
dispositive portion of the Decision reads as follows:
"WHEREFORE, the petition for
review is hereby DENIED." 4
SEC. 299 . . .
The Facts
No person shall act as an insurance agent or as an

insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in
obtaining insurance, any commission or other
compensation from any insurance company doing
business in the Philippines or any agent thereof,
without first procuring a license so to act from the
Commissioner, which must be renewed annually on the
first day of January, or within six months thereafter. . .
The antecedents, as narrated by the CA, are as follows:
Finally, White Gold seeks revocation of Pioneers

certificate of authority and removal of its directors and
officers. Regrettably, we are not the forum for these
issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The
Decision dated July 30, 2002 of the Court of Appeals
affirming the Decision dated May 3, 2000 of the
Insurance Commission is hereby REVERSED AND SET
ASIDE. The Steamship Mutual Underwriting Association
(Bermuda) Ltd., and Pioneer Insurance and Surety
Corporation are ORDERED to obtain licenses and to
secure proper authorizations to do business as insurer
and insurance agent, respectively. The petitioners
prayer for the revocation of Pioneers Certificate of
Authority and removal of its directors and officers, is
DENIED. Costs against respondents.
REPUBLIC OF THE PHILIPPINES,

Represented by the
COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs.
SUNLIFE ASSURANCE COMPANY
OF CANADA, respondent.
Having satisfactorily proven to the Court of Tax
Appeals, to the Court of Appeals and to this Court that
it is a bona fide cooperative, respondent is entitled to
exemption from the payment of taxes on life insurance
premiums and documentary stamps. Not being
governed by the Cooperative Code of the Philippines, it
is not required to be registered with the Cooperative
Development Authority in order to avail itself of the tax
exemptions. Significantly, neither the Tax Code nor the
Insurance Code mandates this administrative
registration. acCDSH
"On October 20, 1997, Sun Life

filed with the [Commissioner of
Internal Revenue] (CIR) its
insurance premium tax return for
the third quarter of 1997 and paid
the premium tax in the amount of
P31,485,834.51. For the period
covering August 21 to December
18, 1997, petitioner filed with the
CIR its [documentary stamp tax
(DST)] declaration returns and paid
the total amount of
P30,000,000.00.
"On December 29, 1997, the [Court
of Tax Appeals] (CTA) rendered its
decision in Insular Life Assurance
Co. Ltd. v. [CIR], which held that
mutual life insurance companies
are purely cooperative companies
and are exempt from the payment
of premium tax and DST. This
pronouncement was later affirmed
by this court in [CIR] v. Insular Life
Assurance Company, Ltd. Sun Life
surmised that[,] being a mutual life
insurance company, it was likewise
exempt from the payment of
premium tax and DST. Hence, on
August 20, 1999, Sun Life filed with
the CIR an administrative claim for
tax credit of its alleged erroneously
paid premium tax and DST for the
aforestated tax periods.
"For failure of the CIR to act upon
the administrative claim for tax
The Case
"Sun Life is a mutual life insurance

company organized and existing
under the laws of Canada. It is
registered and authorized by the
Securities and Exchange
Commission and the Insurance
Commission to engage in business
in the Philippines as a mutual life
insurance company with principal
office at Paseo de Roxas, Legaspi
Village, Makati City.
43 | P a g e
credit and with the 2-year period to

file a claim for tax credit or refund
dwindling away and about to
expire, Sun Life filed with the CTA a
petition for review on August 23,
1999. In its petition, it prayed for
the issuance of a tax credit
certificate in the amount of
P61,485,834.51 representing
P31,485,834.51 of erroneously paid
premium tax for the third quarter of
1997 and P30,000[,000].00 of DST
on policies of insurance from
August 21 to December 18, 1997.
Sun Life stood firm on its
contention that it is a mutual life
insurance company vested with all
the characteristic features and
elements of a cooperative company
or association as defined in
[S]ection 121 of the Tax Code.
Primarily, the management and
affairs of Sun Life were conducted
by its members; secondly, it is
operated with money collected
from its members; and, lastly, it
has for its purpose the mutual
protection of its members and not
for profit or gain. cAEaSC
and failure to sustain this

burden is fatal to said
claim. . . . .
'11.It is incumbent upon
petitioner to show that it
has complied with the
provisions of Section
204[,] in relation to
Section 229, both in the
1997 Tax Code.'
"On November 12, 2002, the CTA
found in favor of Sun Life. Quoting
largely from its earlier findings in
Insular Life Assurance Company,
Ltd. v. [CIR], which it found to be on
all fours with the present action,
the CTA ruled:
'The [CA] has already
spoken. It ruled that a
mutual life insurance
company is a purely
cooperative company[;]
thus, exempted from the
payment of premium and
documentary stamp taxes.
Petitioner Sun Life is
without doubt a mutual
life insurance
company. . . . .
"In its answer, the CIR, then

respondent, raised as special and
affirmative defenses the following:
xxx xxx xxx
'7.Petitioner's (Sun Life's)

alleged claim for refund is
subject to administrative
routinary
investigation/examination
by respondent's (CIR's)
Bureau.
'Being similarly situated

with Insular, Petitioner at
bar is entitled to the same
interpretation given by
this Court in the earlier
cases of The Insular Life
Assurance Company, Ltd.
vs. [CIR] (CTA Case Nos.
5336 and 5601) and by
the [CA] in the case
entitled [CIR] vs. The
Insular Life Assurance
Company, Ltd., C.A. G.R.
SP No. 46516, September
29, 1998. Petitioner Sun
Life as a mutual life
insurance company is[,]
therefore[,] a cooperative
company or association
and is exempted from the
payment of premium tax
and [DST] on policies of
insurance pursuant to
Section 121 (now Section
123) and Section 199[1])
(now Section 199[a]) of
the Tax Code.'
'8.Petitioner must prove

that it falls under the
exception provided for
under Section 121 (now
123) of the Tax Code to be
exempted from premium
tax and be entitled to the
refund sought.
'9.Claims for tax
refund/credit are
construed strictly against
the claimants thereof as
they are in the nature of
exemption from payment
of tax.
'10.In an action for tax
credit/refund, the burden
is upon the taxpayer to
establish its right thereto,
44 | P a g e
"Seeking reconsideration of the

decision of the CTA, the CIR argued
that Sun Life ought to have
registered, foremost, with the
Cooperative Development Authority
before it could enjoy the
exemptions from premium tax and
DST extended to purely cooperative
companies or associations under
[S]ections 121 and 199 of the Tax
Code. For its failure to register, it
could not avail of the exemptions
prayed for. Moreover, the CIR
alleged that Sun Life failed to prove
that ownership of the company was
vested in its members who are
entitled to vote and elect the Board
of Trustees among [them]. The CIR
further claimed that change in the
1997 Tax Code subjecting mutual
life insurance companies to the
regular corporate income tax rate
reflected the legislature's
recognition that these companies
must be earning profits.
Philippines. Thus, respondent was deemed exempt from

premium and documentary stamp taxes, because its
affairs are managed and conducted by its members
with money collected from among themselves, solely
for their own protection, and not for profit. Its members
or policyholders constituted both insurer and insured
who contribute, by a system of premiums or
assessments, to the creation of a fund from which all
losses and liabilities were paid. The dividends it
distributed to them were not profits, but returns of
amounts that had been overcharged them for
insurance.
For having satisfactorily shown with substantial
evidence that it had erroneously paid and seasonably
filed its claim for premium and documentary stamp
taxes, respondent was entitled to a refund, the CA
ruled.
Hence, this Petition. 6
The Issues
Petitioner raises the following issues for our
consideration:
"Notwithstanding these arguments,

the CTA denied the CIR's motion for
reconsideration.
"I.
"Whether or not respondent is a
purely cooperative company or
association under Section 121 of
the National Internal Revenue Code
and a fraternal or beneficiary
society, order or cooperative
company on the lodge system or
local cooperation plan and
organized and conducted solely by
the members thereof for the
exclusive benefit of each member
and not for profit under Section 199
of the National Internal Revenue
Code. aATHIE
"Thwarted anew but nonetheless

undaunted, the CIR comes to this
court via this petition on the sole
ground that:
'The Tax Court erred in
granting the refund[,]
because respondent does
not fall under the
exception provided for
under Section 121 (now
123) of the Tax Code to be
exempted from premium
tax and DST and be
entitled to the refund.'
"II.
"The CIR repleads the arguments it

raised with the CTA and proposes
further that the [CA] decision in
[CIR] v. Insular Life Assurance
Company, Ltd. is not controlling
and cannot constitute res judicata
in the present action. At best, the
pronouncements are merely
persuasive as the decisions of the
Supreme Court alone have a
universal and mandatory effect." 5
"Whether or not registration with

the Cooperative Development
Authority is a sine qua non
requirement to be entitled to tax
exemption.
"III.
"Whether or not respondent is
exempted from payment of tax on
life insurance premiums and
documentary stamp tax." 7
Ruling of the Court of Appeals

In upholding the CTA, the CA reasoned that respondent
was a purely cooperative corporation duly licensed to
engage in mutual life insurance business in the
We shall tackle the issues seriatim.
The Court's Ruling
45 | P a g e
The Petition has no merit.
As early as October 30, 1947, the director of commerce

had already issued a license to respondent a
corporation organized and existing under the laws of
Canada to engage in business in the Philippines. 20
Pursuant to Section 225 of Canada's Insurance
Companies Act, the Canadian minister of state (for
finance and privatization) also declared in its Amending
Letters Patent that respondent would be a mutual
company effective June 1, 1992. 21 In the Philippines,
the insurance commissioner also granted it annual
Certificates of Authority to transact life insurance
business, the most relevant of which were dated July 1,
1997 and July 1, 1998. 22
First Issue:
Whether Respondent Is a Cooperative
The Tax Code defines a cooperative as an association
"conducted by the members thereof with the money
collected from among themselves and solely for their
own protection and not for profit." 8 Without a doubt,
respondent is a cooperative engaged in a mutual life
insurance business. aHcDEC
First, it is managed by its members. Both the CA and
the CTA found that the management and affairs of
respondent were conducted by its memberpolicyholders. 9
A stock insurance company doing business in the
Philippines may "alter its organization and transform
itself into a mutual insurance company." 10
Respondent has been mutualized or converted from a
stock life insurance company to a nonstock mutual life
insurance corporation 11 pursuant to Section 266 of
the Insurance Code of 1978. 12 On the basis of its
bylaws, its ownership has been vested in its memberpolicyholders who are each entitled to one vote; 13 and
who, in turn, elect from among themselves the
members of its board of trustees. 14 Being the
governing body of a nonstock corporation, the board
exercises corporate powers, lays down all corporate
business policies, and assumes responsibility for the
efficiency of management. 15
Second, it is operated with money collected from its

members. Since respondent is composed entirely of
members who are also its policyholders, all premiums
collected obviously come only from them. 16
The member-policyholders constitute "both insurer and
insured " 17 who "contribute, by a system of premiums
or assessments, to the creation of a fund from which all
losses and liabilities are paid." 18 The premiums 19
pooled into this fund are earmarked for the payment of
their indemnity and benefit claims.
Third, it is licensed for the mutual protection of its
members, not for the profit of anyone.
A mutual life insurance company is conducted for the

benefit of its member-policyholders, 23 who pay into its
capital by way of premiums. To that extent, they are
responsible for the payment of all its losses. 24 "The
cash paid in for premiums and the premium notes
constitute their assets . . . . " 25 In the event that the
company itself fails before the terms of the policies
expire, the member-policyholders do not acquire the
status of creditors. 26 Rather, they simply become
debtors for whatever premiums that they have
originally agreed to pay the company, if they have not
yet paid those amounts in full, for "[m]utual
companies . . . depend solely upon . . . premiums." 27
Only when the premiums will have accumulated to a
sum larger than that required to pay for company
losses will the member-policyholders be entitled to a
"pro rata division thereof as profits." 28
Contributing to its capital, the member-policyholders of
a mutual company are obviously also its owners. 29
Sustaining a dual relationship inter se, they not only
contribute to the payment of its losses, but are also
entitled to a proportionate share 30 and participate
alike 31 in its profits and surplus. DaTEIc
Where the insurance is taken at cost, it is important
that the rates of premium charged by a mutual
company be larger than might reasonably be expected
to carry the insurance, in order to constitute a margin
of safety. The table of mortality used will show an
admittedly higher death rate than will probably prevail;
the assumed interest rate on the investments of the
company is made lower than is expected to be realized;
and the provision for contingencies and expenses,
made greater than would ordinarily be necessary. 32
This course of action is taken, because a mutual
company has no capital stock and relies solely upon its
premiums to meet unexpected losses, contingencies
and expenses.
Certainly, many factors are considered in calculating
the insurance premium. Since they vary with the kind of
insurance taken and with the group of policyholders
insured, any excess in the amount anticipated by a
mutual company to cover the cost of providing for the
insurance over its actual realized cost will also vary. If a
member-policyholder receives an excess payment, then
the apportionment must have been based upon a
calculation of the actual cost of insurance that the
46 | P a g e
company has provided for that particular memberpolicyholder. Accordingly, in apportioning divisible
surpluses, any mutual company uses a contribution
method that aims to distribute those surpluses among
its member-policyholders, in the same proportion as
they have contributed to the surpluses by their
payments. 33
Sharing in the common fund, any member-policyholder
may choose to withdraw dividends in cash or to apply
them in order to reduce a subsequent premium,
purchase additional insurance, or accelerate the
payment period. Although the premium made at the
beginning of a year is more than necessary to provide
for the cost of carrying the insurance, the memberpolicyholder will nevertheless receive the benefit of the
overcharge by way of dividends, at the end of the year
when the cost is actually ascertained. "The declaration
of a dividend upon a policy reduces pro tanto the cost
of insurance to the holder of the policy. That is its
purpose and effect." 34
A stipulated insurance premium "cannot be increased,
but may be lessened annually by so much as the
experience of the preceding year has determined it to
have been greater than the cost of carrying the
insurance . . . ." 35 The difference between that
premium and the cost of carrying the risk of loss
constitutes the so-called "dividend" which, however, "is
not in any real sense a dividend." 36 It is a technical
term that is well understood in the insurance business
to be widely different from that to which it is ordinarily
attached.
The so-called "dividend" that is received by memberpolicyholders is not a portion of profits set aside for
distribution to the stockholders in proportion to their
subscription to the capital stock of a corporation. 37
One, a mutual company has no capital stock to which
subscription is necessary; there are no stockholders to
speak of, but only members. And, two, the amount they
receive does not partake of the nature of a profit or
income. The quasi-appearance of profit will not change
its character. It remains an overpayment, a benefit to
which the member-policyholder is equitably entitled. 38
Verily, a mutual life insurance corporation is a
cooperative that promotes the welfare of its own
members. It does not operate for profit, but for the
mutual benefit of its member-policyholders. They
receive their insurance at cost, while reasonably and
properly guarding and maintaining the stability and
solvency of the company. 39 "The economic benefits
filter to the cooperative members. Either equally or
proportionally, they are distributed among members in
correlation with the resources of the association
utilized." 40
It does not follow that because respondent is registered
as a nonstock corporation and thus exists for a purpose
other than profit, the company can no longer make any
profits. 41 Earning profits is merely its secondary, not
primary, purpose. In fact, it may not lawfully engage in
any business activity for profit, for to do so would

change or contradict its nature 42 as a non-profit
entity. 43 It may, however, invest its corporate funds in
order to earn additional income for paying its operating
expenses and meeting benefit claims. Any excess profit
it obtains as an incident to its operations can only be
used, whenever necessary or proper, for the
furtherance of the purpose for which it was organized.
44
Second Issue:
Whether CDA Registration Is Necessary
Under the Tax Code although respondent is a
cooperative, registration with the Cooperative
Development Authority (CDA) 45 is not necessary in
order for it to be exempt from the payment of both
percentage taxes on insurance premiums, under
Section 121; and documentary stamp taxes on policies
of insurance or annuities it grants, under Section 199.
aCSTDc
First, the Tax Code does not require registration with
the CDA. No tax provision requires a mutual life
insurance company to register with that agency in
order to enjoy exemption from both percentage and
documentary stamp taxes.
A provision of Section 8 of Revenue Memorandum
Circular (RMC) No. 48-91 requires the submission of the
Certificate of Registration with the CDA, 46 before the
issuance of a tax exemption certificate. That provision
cannot prevail over the clear absence of an equivalent
requirement under the Tax Code. One, as we will
explain below, the Circular does not apply to
respondent, but only to cooperatives that need to be
registered under the Cooperative Code. Two, it is a
mere issuance directing all internal revenue officers to
publicize a new tax legislation. Although the Circular
does not derogate from their authority to implement
the law, it cannot add a registration requirement, 47
when there is none under the law to begin with.
Second, the provisions of the Cooperative Code of the
Philippines 48 do not apply. Let us trace the Code's
development in our history.
As early as 1917, a cooperative company or association
was already defined as one "conducted by the
members thereof with money collected from among
themselves and solely for their own protection and not
profit." 49 In 1990, it was further defined by the
Cooperative Code as a "duly registered association of
persons, with a common bond of interest, who have
voluntarily joined together to achieve a lawful common
social or economic end, making equitable contributions
to the capital required and accepting a fair share of the
risks and benefits of the undertaking in accordance
with universally accepted cooperative principles." 50
The Cooperative Code was actually an offshoot of the
old law on cooperatives. In 1973, Presidential Decree
47 | P a g e
(PD) No. 175 was signed into law by then President

Ferdinand E. Marcos in order to strengthen the
cooperative movement. 51 The promotion of
cooperative development was one of the major
programs of the "New Society" under his
administration. It sought to improve the country's trade
and commerce by enhancing agricultural production,
cottage industries, community development, and
agrarian reform through cooperatives. 52
The whole cooperative system, with its vertical and
horizontal linkages from the market cooperative of
agricultural products to cooperative rural banks,
consumer cooperatives and cooperative insurance
was envisioned to offer considerable economic
opportunities to people who joined cooperatives. 53 As
an effective instrument in redistributing income and
wealth, 54 cooperatives were promoted primarily to
support the agrarian reform program of the
government. 55
Notably, the cooperative under PD 175 referred only to

an organization composed primarily of small producers
and consumers who voluntarily joined to form a
business enterprise that they themselves owned,
controlled, and patronized. 56 The Bureau of
Cooperatives Development under the Department of
Local Government and Community Development (later
Ministry of Agriculture) 57 had the authority to
register, regulate and supervise only the following
cooperatives: (1) barrio associations involved in the
issuance of certificates of land transfer; (2) local or
primary cooperatives composed of natural persons
and/or barrio associations; (3) federations composed of
cooperatives that may or may not perform business
activities; and (4) unions of cooperatives that did not
perform any business activities. 58 Respondent does
not fall under any of the above-mentioned types of
cooperatives required to be registered under PD 175.
When the Cooperative Code was enacted years later,
all cooperatives that were registered under PD 175 and
previous laws were also deemed registered with the
CDA. 59 Since respondent was not required to be
registered under the old law on cooperatives, it
followed that it was not required to be registered even
under the new law.
Furthermore, only cooperatives to be formed or
organized under the Cooperative Code needed
registration with the CDA. 60 Respondent already
existed before the passage of the new law on
cooperatives. It was not even required to organize
under the Cooperative Code, not only because it
performed a different set of functions, but also because
it did not operate to serve the same objectives under
the new law particularly on productivity, marketing
and credit extension. 61
The insurance against losses of the members of a
cooperative referred to in Article 6(7) of the
Cooperative Code is not the same as the life insurance

provided by respondent to member-policyholders. The
former is a function of a service cooperative, 62 the
latter is not. Cooperative insurance under the Code is
limited in scope and local in character. It is not the
same as mutual life insurance.
We have already determined that respondent is a
cooperative. The distinguishing feature of a cooperative
enterprise 63 is the mutuality of cooperation among its
member-policyholders united for that purpose. 64 So
long as respondent meets this essential feature, it does
not even have to use 65 and carry the name of a
cooperative to operate its mutual life insurance
business. Gratia argumenti that registration is
mandatory, it cannot deprive respondent of its tax
exemption privilege merely because it failed to register.
The nature of its operations is clear; its purpose welldefined. Exemption when granted cannot prevail over
administrative convenience. EAcTDH
Third, not even the Insurance Code requires registration
with the CDA. The provisions of this Code primarily
govern insurance contracts; only if a particular matter
in question is not specifically provided for shall the
provisions of the Civil Code on contracts and special
laws govern. 66
True, the provisions of the Insurance Code relative to
the organization and operation of an insurance
company also apply to cooperative insurance entities
organized under the Cooperative Code. 67 The latter
law, however, does not apply to respondent, which
already existed as a cooperative company engaged in
mutual life insurance prior to the passage of that law.
The statutes prevailing at the time of its organization
and mutualization were the Insurance Code and the
Corporation Code, which imposed no registration
requirement with the CDA.
Third Issue:
Whether Respondent Is Exempted
from Premium Taxes and DST
Having determined that respondent is a cooperative
that does not have to be registered with the CDA, we
hold that it is entitled to exemption from both premium
taxes and documentary stamp taxes (DST).
The Tax Code is clear. On the one hand, Section 121 of
the Code exempts cooperative companies from the 5
percent percentage tax on insurance premiums. On the
other hand, Section 199 also exempts from the DST,
policies of insurance or annuities made or granted by
cooperative companies. Being a cooperative,
respondent is thus exempt from both types of taxes.
It is worthy to note that while RA 8424 amending the
Tax Code has deleted the income tax of 10 percent
imposed upon the gross investment income of mutual
life insurance companies domestic 68 and foreign 69
48 | P a g e
the provisions of Section 121 and 199 remain

unchanged. 70
Having been seasonably filed and amply substantiated,
the claim for exemption in the amount of
P61,485,834.51, representing percentage taxes on
insurance premiums and documentary stamp taxes on
policies of insurance or annuities that were paid by
respondent in 1997, is in order. Thus, the grant of a tax
credit certificate to respondent as ordered by the
appellate court was correct. aHCSTD
WHEREFORE, the Petition is hereby DENIED, and the
assailed Decision and Resolution are AFFIRMED. No
pronouncement as to costs.
was hypertensive, diabetic and asthmatic, contrary to

his answer in the application form. Thus, respondent
paid the hospitalization expenses herself, amounting to
about P76,000.00.
After her husband was discharged from the MMC, he

was attended by a physical therapist at home. Later, he
was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her
husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak.
Respondent was constrained to bring him back to the
Chinese General Hospital where he died on the same
day. THcaDA
SO ORDERED.
On July 24, 1990, respondent instituted with the
Regional Trial Court of Manila, Branch 44, an action for
damages against petitioner and its president, Dr. Benito
Reverente, which was docketed as Civil Case No. 9053795. She asked for reimbursement of her expenses
plus moral damages and attorney's fees. After trial, the
lower court ruled against petitioners, viz:
PHILAMCARE HEALTH SYSTEMS,

INC., petitioner, vs. COURT OF
APPEALS and JULITA TRINOS,
respondents.
Ernani Trinos, deceased husband of respondent Julita
Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the
standard application form, he answered no to the
following question:
WHEREFORE, in view of the

foregoing, the Court renders
judgment in favor of the plaintiff
Julita Trinos, ordering:
Have you or any of your family

members ever consulted or been
treated for high blood pressure,
heart trouble, diabetes, cancer,
liver disease, asthma or peptic
ulcer? (If Yes, give details). 1
1.Defendants to pay and reimburse

the medical and hospital coverage
of the late Ernani Trinos in the
amount of P76,000.00 plus interest,
until the amount is fully paid to
plaintiff who paid the same;
The application was approved for a period of one year

from March 1, 1988 to March 1, 1989. Accordingly, he
was issued Health Care Agreement No. P010194. Under
the agreement, respondent's husband was entitled to
avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail
of "out-patient benefits" such as annual physical
examinations, preventive health care and other outpatient services.
Upon the termination of the agreement, the same was
extended for another year from March 1, 1989 to March
1, 1990, then from March 1, 1990 to June 1, 1990. The
amount of coverage was increased to a maximum sum
of P75,000.00 per disability. 2
During the period of his coverage, Ernani suffered a
heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990.
While her husband was in the hospital, respondent tried
to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the
Health Care Agreement was void. According to
petitioner, there was a concealment regarding Ernani's
medical history. Doctors at the MMC allegedly
discovered at the time of Ernani's confinement that he
2.Defendants to pay the reduced

amount of moral damages of
P10,000.00 to plaintiff;
3.Defendants to pay the reduced
amount of P10,000.00 as
exemplary damages to plaintiff;
4.Defendants to pay attorney's fees
of P20,000.00, plus costs of suit.
SO ORDERED. 3
On appeal, the Court of Appeals affirmed the decision
of the trial court but deleted all awards for damages
and absolved petitioner Reverente. 4 Petitioner's
motion for reconsideration was denied. 5 Hence,
petitioner brought the instant petition for review,
raising the primary argument that a health care
agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code 6
does not apply.
49 | P a g e
Petitioner argues that the agreement grants "living

benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy
so long as he is alive upon effectivity of the agreement
until its expiration one-year thereafter. Petitioner also
points out that only medical and hospitalization
benefits are given under the agreement without any
indemnification, unlike in an insurance contract where
the insured is indemnified for his loss. Moreover, since
Health Care Agreements are only for a period of one
year, as compared to insurance contracts which last
longer, 7 petitioner argues that the incontestability
clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner
further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a
Health Maintenance Organization under the authority of
the Department of Health.
Section 2 (1) of the Insurance Code defines a contract
of insurance as an agreement whereby one undertakes
for a consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event. An insurance contract exists where
the following elements concur:
1.The insured has an insurable
interest;
or in whom he has a
pecuniary interest;
(3)of any person under a legal
obligation to him for the
payment of money,
respecting property or
service, of which death or
illness might delay or
prevent the performance;
and
(4)of any person upon whose life
any estate or interest
vested in him depends.
In the case at bar, the insurable interest of
respondent's husband in obtaining the health care
agreement was his own health. The health care
agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity. 9 Once the
member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the
same to the extent agreed upon under the contract.
cDTHIE
Petitioner argues that respondent's husband concealed
a material fact in his application. It appears that in the
application for health coverage, petitioners required
respondent's husband to sign an express authorization
for any person, organization or entity that has any
record or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation,
treatment or any other medical advice or examination.
10 Specifically, the Health Care Agreement signed by
respondent's husband states:
2.The insured is subject to a risk of

loss by the happening of
the designated peril;
3.The insurer assumes the risk;
4.Such assumption of risk is part of
a general scheme to
distribute actual losses
among a large group of
persons bearing a similar
risk; and
5.In consideration of the insurer's
promise, the insured pays
a premium. 8
Section 3 of the Insurance Code states that any
contingent or unknown event, whether past or future,
which may damnify a person having an insurable
interest against him, may be insured against. Every
person has an insurable interest in the life and health of
himself. Section 10 provides:
Every person has an insurable
interest in the life and health:
(1)of himself, of his spouse and of
his children;
(2)of any person on whom he
depends wholly or in part
for education or support,
We hereby declare and agree that

all statement and answers
contained herein and in any
addendum annexed to this
application are full, complete and
true and bind all parties-in-interest
under the Agreement herein
applied for, that there shall be no
contract of health care coverage
unless and until an Agreement is
issued on this application and the
full Membership Fee according to
the mode of payment applied for is
actually paid during the lifetime
and good health of proposed
Members; that no information
acquired by any Representative of
PhilamCare shall be binding upon
PhilamCare unless set out in writing
in the application; that any
physician is, by these presents,
expressly authorized to disclose or
give testimony at anytime relative
to any information acquired by him
in his professional capacity upon
50 | P a g e
any question affecting the

eligibility for health care coverage
of the Proposed Members and that
the acceptance of any Agreement
issued on this application shall be a
ratification of any correction in or
addition to this application as
stated in the space for Home Office
Endorsement. 11 (Emphasis ours)
will not avoid the policy if there is

no actual fraud in inducing the
acceptance of the risk, or its
acceptance at a lower rate of
premium, and this is likewise the
rule although the statement is
material to the risk, if the
statement is obviously of the
foregoing character, since in such
case the insurer is not justified in
relying upon such statement, but is
obligated to make further inquiry.
There is a clear distinction between
such a case and one in which the
insured is fraudulently and
intentionally states to be true, as a
matter of expectation or belief, that
which he then knows, to be actually
untrue, or the impossibility of which
is shown by the facts within his
knowledge, since in such case the
intent to deceive the insurer is
obvious and amounts to actual
fraud. 15 (Emphasis ours)
In addition to the above condition, petitioner

additionally required the applicant for authorization to
inquire about the applicant's medical history, thus:
I hereby authorize any person,
organization, or entity that has any
record or knowledge of my health
and/or that of ________ to give to
the PhilamCare Health Systems,
Inc. any and all information relative
to any hospitalization, consultation,
treatment or any other medical
advice or examination. This
authorization is in connection with
the application for health care
coverage only. A photographic copy
of this authorization shall be as
valid as the original. 12 (Emphasis
ours)
The fraudulent intent on the part of the insured must be

established to warrant rescission of the insurance
contract. 16 Concealment as a defense for the health
care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests
upon the provider or insurer. In any case, with or
without the authority to investigate, petitioner is liable
for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound
to answer the same to the extent agreed upon. In the
end, the liability of the health care provider attaches
once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails
of the covered benefits which he has prepaid.
Petitioner cannot rely on the stipulation regarding

"Invalidation of Agreement" which reads:
Failure to disclose or
misrepresentation of any material
information by the member in the
application or medical examination,
whether intentional or
unintentional, shall automatically
invalidate the Agreement from the
very beginning and liability of
Philamcare shall be limited to
return of all Membership Fees paid.
An undisclosed or misrepresented
information is deemed material if
its revelation would have resulted
in the declination of the applicant
by Philamcare or the assessment of
a higher Membership Fee for the
benefit or benefits applied for. 13
Under Section 27 of the Insurance Code, "a

concealment entitles the injured party to rescind a
contract of insurance." The right to rescind should be
exercised previous to the commencement of an action
on the contract. 17 In this case, no rescission was
made. Besides, the cancellation of health care
agreements as in insurance policies require the
concurrence of the following conditions:
The answer assailed by petitioner was in response to

the question relating to the medical history of the
applicant. This largely depends on opinion rather than
fact, especially coming from respondent's husband who
was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith
and without intent to deceive will not avoid a policy
even though they are untrue. 14 Thus,
(A)lthough false, a representation
of the expectation, intention, belief,
opinion, or judgment of the insured
1.Prior notice of cancellation to

insured;
2.Notice must be based on the
occurrence after effective
date of the policy of one or
more of the grounds
mentioned;
3.Must be in writing, mailed or
delivered to the insured at
51 | P a g e
the address shown in the

policy;
4.Must state the grounds relied
upon provided in Section
64 of the Insurance Code
and upon request of
insured, to furnish facts on
which cancellation is
based. 18
None of the above pre-conditions was fulfilled in this
case. When the terms of insurance contract contain
limitations on liability, courts should construe them in
such a way as to preclude the insurer from noncompliance with his obligation. 19 Being a contract of
adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the
contract the insurer. 20 By reason of the exclusive
control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally
in favor of the insured, especially to avoid forfeiture. 21
This is equally applicable to Health Care Agreements.
The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally
construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be
strictly construed against the provider. 22
Anent the incontestability of the membership of
respondent's husband, we quote with approval the
following findings of the trial court:
(U)nder the title Claim procedures
of expenses, the defendant
Philamcare Health Systems Inc. had
twelve months from the date of
issuance of the Agreement within
which to contest the membership
of the patient if he had previous
ailment of asthma, and six months
from the issuance of the agreement
if the patient was sick of diabetes
or hypertension. The periods
having expired, the defense of
concealment or misrepresentation
no longer lie. 23
Finally, petitioner alleges that respondent was not the

legal wife of the deceased member considering that at
the time of their marriage, the deceased was previously
married to another woman who was still alive. The
health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the
party who incurred the expenses. It is not controverted
that respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement.
The records adequately prove the expenses incurred by
respondent for the deceased's hospitalization,
medication and the professional fees of the attending
physicians. 24
WHEREFORE, in view of the foregoing, the petition is
DENIED. The assailed decision of the Court of Appeals
dated December 14, 1995 is AFFIRMED.
SO ORDERED.
COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs.
LINCOLN PHILIPPINE LIFE
INSURANCE COMPANY, INC.
(now JARDINE-CMA LIFE
INSURANCE COMPANY, INC.)
and THE COURT OF APPEALS,
respondents.
This is a petition for review on certiorari filed by the
Commission on Internal Revenue of the decision of the
Court of Appeals dated November 18, 1994 in C.A. G.R.
SP No. 31224 which reversed in part the decision of the
Court of Tax Appeals in C.T.A. Case No. 4583.
The facts of the case are undisputed.
Private respondent Lincoln Philippine Life Insurance Co.,
Inc., (now Jardine-CMA Life Insurance Company, Inc.) is
a domestic corporation registered with the Securities
and Exchange Commission and engaged in life
insurance business. In the years prior to 1984, private
respondent issued a special kind of life insurance policy
known as the "Junior Estate Builder Policy," the
distinguishing feature of which is a clause providing for
an automatic increase in the amount of life insurance
coverage upon attainment of a certain age by the
insured without the need of issuing a new policy. The
clause was to take effect in the year 1984.
Documentary stamp taxes due on the policy were paid
by petitioner only on the initial sum assured.
In 1984, private respondent also issued 50,000 shares
of stock dividends with a par value of P100.00 per
share or a total par value of P5,000,000.00. The actual
value of said shares, represented by its book value, was
P19,307,500.00. Documentary stamp taxes were paid
based only on the par value of P5,000,000.00 and not
on the book value.
52 | P a g e
Subsequently, petitioner issued deficiency

documentary stamps tax assessment for the year 1984
in the amounts of (a) P464,898.75, corresponding to
the amount of automatic increase of the sum assured
on the policy issued by respondent, and (b) P78,991.25
corresponding to the book value in excess of the par
value of the stock dividends. The computation of the
deficiency documentary stamp taxes is as follows:
On Policies Issued:
the deficiency tax assessment on

the stock dividends, but AFFIRMED
with regards to the assessment on
the Insurance Policies.
Consequently, private respondent
is ordered to pay the petitioner
herein the sum of P78,991.25,
representing documentary stamp
tax on the stock dividends it issued.
No costs pronouncement.
Total policy issued during the year P1,360,054,000.00
SO ORDERED. 2
Documentary stamp tax due thereon

(P1,360,054,000.00 divided by
P200.00 multiplied by P0.35)P2,380,094.50
Less: PaymentP1,915,495.75
DeficiencyP464,598.75
Add: Compromise Penalty300.00
------------------TOTAL AMOUNT DUE & COLLECTIBLE P464,898.75
Private respondent questioned the deficiency
assessments and sought their cancellation in a petition
filed in the Court of Tax Appeals, docketed as CTA Case
No. 4583.
A motion for reconsideration of the decision having

been denied, 3 both the Commissioner of Internal
Revenue and private respondent appealed to this Court,
docketed as G.R. No. 118043 and G.R. No. 119176,
respectively. In G.R. No. 118043, private respondent
appealed the decision of the Court of Appeals insofar as
it upheld the validity of the deficiency tax assessment
on the stock dividends. The Commissioner of Internal
Revenue, on his part, filed the present petition
questioning that portion of the Court of Appeals'
decision which invalidated the deficiency assessment
on the insurance policy, attributing the following errors:
THE HONORABLE COURT OF
APPEALS ERRED WHEN IT RULED
THAT THERE IS A SINGLE
AGREEMENT EMBODIED IN THE
POLICY AND THAT THE AUTOMATIC
INCREASE CLAUSE IS NOT A
SEPARATE AGREEMENT, CONTRARY
TO SECTION 49 OF THE INSURANCE
CODE AND SECTION 183 OF THE
REVENUE CODE THAT A RIDER, A
CLAUSE IS PART OF THE POLICY.
On March 30, 1993, the Court of Tax Appeals found no

valid basis for the deficiency tax assessment on the
stock dividends, as well as on the insurance policy. The
dispositive portion of the CTA's decision reads:
WHEREFORE, the deficiency
documentary stamp tax
assessments in the amount of
P464,898.76 and P78,991.25 or a
total of P543,890.01 are hereby
cancelled for lack of merit.
Respondent Commissioner of
Internal Revenue is ordered to
desist from collecting said
deficiency documentary stamp
taxes for the same are considered
withdrawn.
THE HONORABLE COURT OF

APPEALS ERRED IN NOT
COMPUTING THE AMOUNT OF TAX
ON THE TOTAL VALUE OF THE
INSURANCE ASSURED IN THE
POLICY INCLUDING THE
ADDITIONAL INCREASE ASSURED
BY THE AUTOMATIC INCREASE
CLAUSE DESPITE ITS RULING THAT
THE ORIGINAL POLICY AND THE
AUTOMATIC CLAUSE CONSTITUTED
ONLY A SINGULAR TRANSACTION. 4
SO ORDERED. 1
Petitioner appealed the CTA's decision to the Court of
Appeals. On November 18, 1994, the Court of Appeals
promulgated a decision affirming the CTA's decision
insofar as it nullified the deficiency assessment on the
insurance policy, but reversing the same with regard to
the deficiency assessment on the stock dividends. The
CTA ruled that the correct basis of the documentary
stamp tax due on the stock dividends is the actual
value or book value represented by the shares. The
dispositive portion of the Court of Appeals' decision
states:
Section 173 of the National Internal Revenue Code on

documentary stamp taxes provides:
IN VIEW OF ALL THE FOREGOING,

the decision appealed from is
hereby REVERSED with respect to
Sec. 173.Stamp taxes upon

documents, instruments and
papers. Upon documents,
instruments, loan agreements, and
papers, and upon acceptances,
assignments, sales, and transfers
of the obligation, right or property
incident thereto, there shall be
levied, collected and paid for, and
53 | P a g e
in respect of the transaction so had

or accomplished, the corresponding
documentary stamp taxes
prescribed in the following section
of this Title, by the person making,
signing, issuing, accepting, or
transferring the same wherever the
document is made, signed, issued,
accepted, or transferred when the
obligation or right arises from
Philippine sources or the property is
situated in the Philippines, and at
the same time such act is done or
transaction had: Provided, That
whenever one party to the taxable
document enjoys exemption from
the tax herein imposed, the other
party thereto who is not exempt
shall be the one directly liable for
the tax. (As amended by PD No.
1994) The basis for the value of
documentary stamp taxes to be
paid on the insurance policy is
Section 183 of the National Internal
Revenue Code which states in part:
Section 49, Title VI of the Insurance Code defines an

insurance policy as the written instrument in which a
contract of insurance is set forth. 5 Section 50 of the
same Code provides that the policy, which is required
to be in printed form, may contain any word, phrase,
clause, mark, sign, symbol, signature, number, or word
necessary to complete the contract of insurance. 6 It is
thus clear that any rider, clause, warranty or
endorsement pasted or attached to the policy is
considered part of such policy or contract of insurance.
The subject insurance policy at the time it was issued
contained an "automatic increase clause." Although the
clause was to take effect only in 1984, it was written
into the policy at the time of its issuance. The
distinctive feature of the "junior estate builder policy"
called the "automatic increase clause" already formed
part and parcel of the insurance contract, hence, there
was no need for an execution of a separate agreement
for the increase in the coverage that took effect in 1984
when the assured reached a certain age.
The basis for the value of documentary stamp taxes to

be paid on the insurance policy is Section 183 of the
National Internal Revenue Code which states in part:
Sec. 183.Stamp tax on life
insurance policies. On all policies
of insurance or other instruments
by whatever name the same may
be called, whereby any insurance
shall be made or renewed upon any
life or lives, there shall be collected
a documentary stamp tax of thirty
(now 50c) centavos on each Two
hundred pesos per fractional part
thereof, of the amount insured by
any such policy.
Petitioner claims that the "automatic increase clause"
in the subject insurance policy is separate and distinct
from the main agreement and involves another
transaction; and that, while no new policy was issued,
the original policy was essentially re-issued when the
additional obligation was assumed upon the effectivity
of this "automatic increase clause" in 1984; hence, a
deficiency assessment based on the additional
insurance not covered in the main policy is in order.
The Court of Appeals sustained the CTA's ruling that
there was only one transaction involved in the issuance
of the insurance policy and that the "automatic
increase clause" is an integral part of that policy.
The petition is impressed with merit.
It is clear from Section 173 that the payment of

documentary stamp taxes is done at the time the act is
done or transaction had and the tax base for the
computation of documentary stamp taxes on life
insurance policies under Section 183 is the amount
fixed in policy, unless the interest of a person insured is
susceptible of exact pecuniary measurement. 7 What
then is the amount fixed in the policy? Logically, we
believe that the amount fixed in the policy is the figure
written on its face and whatever increases will take
effect in the future by reason of the "automatic
increase clause" embodied in the policy without the
need of another contract.
Here, although the automatic increase in the amount of
life insurance coverage was to take effect later on, the
date of its effectivity, as well as the amount of the
increase, was already definite at the time of the
issuance of the policy. Thus, the amount insured by the
policy at the time of its issuance necessarily included
the additional sum covered by the automatic increase
clause because it was already determinable at the time
the transaction was entered into and formed part of the
policy.
The "automatic increase clause" in the policy is in the
nature of a conditional obligation under Article 1181, 8
by which the increase of the insurance coverage shall
depend upon the happening of the event which
constitutes the obligation. In the instant case, the
additional insurance that took effect in 1984 was an
obligation subject to a suspensive obligation, 9 but still
a part of the insurance sold to which private respondent
was liable for the payment of the documentary stamp
tax.
The deficiency of documentary stamp tax imposed on
private respondent is definitely not on the amount of
the original insurance coverage, but on the increase of
the amount insured upon the effectivity of the "Junior
Estate Builder Policy."
54 | P a g e
Finally, it should be emphasized that while tax

avoidance schemes and arrangements are not
prohibited, 10 tax laws cannot be circumvented in order
to evade the payment of just taxes. In the case at bar,
to claim that the increase in the amount insured (by
virtue of the automatic increase clause incorporated
into the policy at the time of issuance) should not be
included in the computation of the documentary stamp
taxes due on the policy would be a clear evasion of the
law requiring that the tax be computed on the basis of
the amount insured by the policy.
WHEREFORE, the petition is hereby given DUE COURSE.

The decision of the Court of Appeals is SET ASIDE
insofar as it affirmed the decision of the Court of Tax
Appeals nullifying the deficiency stamp tax assessment
petitioner imposed on private respondent in the
amount of P464,898.75 corresponding to the increase
in 1984 of the sum under the policy issued by
respondent.
SO ORDERED.
55 | P a g e

G.R. No. L-8151 December 16, 1955 VIRGINIA CALANOC, Petitioner, Court of Appeals and The Philippine AMERICAN LIFE INSURANCE CO., Respondents

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G.R. No. L-8151 December 16, 1955 VIRGINIA CALANOC, Petitioner, Court of Appeals and The Philippine AMERICAN LIFE INSURANCE CO., Respondents

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G.R. No.

December 16, 1955

VIRGINIA CALANOC, petitioner,

This suit involves the collection of P2,000 representing

LAW ON INSURANCE (Cases 1-20)

duty at the corner of Rizal Avenue and Zurbaran; that

Certainly, when Basilio joined Patrolman Magsanoc and

limit the coverage of the policy to certain particular

G.R. No. L-25579 March 29, 1972

EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL

This is an appeal from the decision of the Court of First

LAW ON INSURANCE (Cases 1-20)

were inflicted intentionally. The court, in ruling

that the killing was intentional for there was the

LAW ON INSURANCE (Cases 1-20)

G.R. No. 100970 September 2, 1992

This is a petition for certiorari with a prayer for the

WHEREFORE, judgment is hereby rendered ordering

LAW ON INSURANCE (Cases 1-20)

the stab wound was inflicted. Nor can it be pretended

ZENITH INSURANCE CORPORATION,

Assailed in this petition is the decision of

The antecedent facts are as follows:

On January 25, 1983, private respondent

Upon motion of Fernandez and before the

LAW ON INSURANCE (Cases 1-20)

P1,927.50 which was arrived

SCRA 745). While it is true that no proof of

"The purpose of moral damages is

LAW ON INSURANCE (Cases 1-20)

"The policy (Exhibit

mention any deductible

The words "accident" and

Therefore, the award of moral damages is

An accident is an event which

The petitioner issued Personal Accident Policy No.

In light of these definitions, the Court is convinced that

The widow sued the petitioner in the Regional Trial

The term "accident" has been defined as follows:

i)The insured persons attempting to

LAW ON INSURANCE (Cases 1-20)

The company shall not be liable in

except in an attempt to save

able to collect on the insurance policy for it is clear that

To repeat, the parties agree that Lim did not commit

The private respondent maintains that Lim did not. That

The contrary view is expressed by the petitioner thus:

LAW ON INSURANCE (Cases 1-20)

In order that a person may be

If a party wins, he cannot, as a rule,

road going south. As a consequence, the

WHEREFORE, the challenged decision of the Court of

The Court sets aside respondent Insurance

The undisputed facts of the case as found in the

LAW ON INSURANCE (Cases 1-20)

The comprehensive motor car insurance policy for

construed to mean 'taking' under Art. 308 of the

LAW ON INSURANCE (Cases 1-20)

consent," for purposes of recovering the loss under the

The insurer must therefore indemnify the petitioner

The Court of Appeals certified this case to Us for proper

On March 7, 1969, the insured, appellee Andrew