G.R. No.

L-16215 June 29, 1963

SIMEON DEL ROSARIO, plaintiff-appellee,

vs.
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.

Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.

K. V. Faylona for defendant-appellant.

PAREDES, J.:

On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal
Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein
plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death
of the insured. The pertinent provisions of the Policy, recite:

Part I. Indemnity For Death

If the insured sustains any bodily injury which is effected solely through violent, external,
visible and accidental means, and which shall result, independently of all other causes and
within sixty (60) days from the occurrence thereof, in the Death of the Insured, the Company
shall pay the amount set opposite such injury:

Section 1. Injury sustained other than those specified

below unless excepted hereinafter. . . . . . . . P1,000.00

Section 2. Injury sustained by the wrecking or

disablement of a railroad passenger car or street railway
car in or on which the Insured is travelling as a farepaying
passenger. . . . . . . . P1,500.00

Section 3. Injury sustained by the burning of a church,

theatre, public library or municipal administration building
while the Insured is therein at the commencement of the
fire. . . . . . . . P2,000.00
Section 4. Injury sustained by the wrecking or
disablement of a regular passenger elevator car in which
the Insured is being conveyed as a passenger (Elevator
in mines excluded) P2,500.00

Section 5. Injury sustained by a stroke of lightning or by a

cyclone. . . . . . . . P3,000.00

xxx xxx xxx

Part VI. Exceptions

This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability,
Hospital fees, or Loss of Time, caused to the insured:
 . . . (h) By drowning except as a consequence of the wrecking or disablement in the
Philippine waters of a passenger steam or motor vessel in which the Insured is travelling as
a farepaying passenger; . . . .

A rider to the Policy contained the following:

IV. DROWNING

It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy
is hereby waived by the company, and to form a part of the provision covered by the policy.

On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the
motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios
Jayme, were forced to jump off said launch on account of fire which broke out on said vessel,
resulting in the death of drowning, of the insured and beneficiary in the waters of Jolo. 1w ph1.t

On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for
payment with defendant company, and on September 13, 1957, defendant company paid to him
(plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The receipt signed by
plaintiff reads

RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of
PESOS ONE THOUSAND (P1,000.00) Philippine Currency, being settlement in
full for all claims and demands against said Company as a result of an accident
which occurred on February 26, 1957, insured under out ACCIDENT Policy No.
7136, causing the death of the Assured.

In view of the foregoing, this policy is hereby surrendered and CANCELLED.

LOSS COMPUTATION

Amount of Insurance P1,000.00

__________
vvvvv

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company
acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing said company
that said amount was not the correct one. Atty. Francisco claimed

The amount payable under the policy, I believe should be P1,500.00 under the provision of
Section 2, part 1 of the policy, based on the rule of pari materia as the death of the insured
occurred under the circumstances similar to that provided under the aforecited section.

Defendant company, upon receipt of the letter, referred the matter to the Insurance Commissioner,
who rendered an opinion that the liability of the company was only P1,000.00, pursuant to Section 1,
Part I of the Provisions of the policy (Exh. F, or 3). Because of the above opinion, defendant
insurance company refused to pay more than P1,000.00. In the meantime, Atty. Vicente Francisco,
in a subsequent letter to the insurance company, asked for P3,000.00 which the Company refused,
to pay. Hence, a complaint for the recovery of the balance of P2,000.00 more was instituted with the
Court of First Instance of Rizal (Pasay City, Branch VII), praying for it further sum of P10,000.00 as
attorney's fees, expenses of litigation and costs.
Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or claim is
set forth in the complaint had already been released, plaintiff having received the full amount due as
appearing in policy and as per opinion of the Insurance Commissioner. An opposition to the motion
to dismiss, was presented by plaintiff, and other pleadings were subsequently file by the parties. On
December 28, 1957, the trial court deferred action on the motion to dismiss until termination of the
trial of the case, it appearing that the ground thereof was not indubitable. In the Answer to the
complaint, defendant company practically admitted all the allegations therein, denying only those
which stated that under the policy its liability was P3,000.00.

On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions of
which read

xxx xxx xxx

Since the contemporaneous and subsequent acts of the parties show that it was not their
intention that the payment of P1,000.00 to the plaintiff and the signing of the loss receipt
exhibit "1" would be considered as releasing the defendant completely from its liability on the
policy in question, said intention of the parties should prevail over the contents of the loss
receipt "1" (Articles 1370 and 1371, New Civil Code).

". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to
P3,000.00 as indemnity for the death of the insured. The insured died of drowning. Death by
drowning is covered by the policy the pertinent provisions of which reads as follows:

xxx xxx xxx

"Part I of the policy fixes specific amounts as indemnities in case of death resulting
from "bodily injury which is effected solely thru violence, external, visible and
accidental means" but, Part I of the Policy is not applicable in case of death by
drowning because death by drowning is not one resulting from "bodily injury which is
affected solely thru violent, external, visible and accidental means" as "Bodily Injury"
means a cut, a bruise, or a wound and drowning is death due to suffocation and not
to any cut, bruise or wound."

xxx xxx xxx

Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for
recovery apart from the bodily injury because death by bodily injury is covered by Part I of
the policy while death by drowning is covered by Part VI thereof. But while the policy
mentions specific amounts that may be recovered for death for bodily injury, yet, there is not
specific amount mentioned in the policy for death thru drowning although the latter is, under
Part VI of the policy, a ground for recovery thereunder. Since the defendant has bound itself
to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does
not positively state any definite amount that may be recovered in case of death by drowning,
there is an ambiguity in this respect in the policy, which ambiguity must be interpreted in
favor of the insured and strictly against the insurer so as to allow greater indemnity.

xxx xxx xxx

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the
amount of P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the
amount to which plaintiff is entitled to recover under the policy Exhibit "A".
 The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation.
However, since it is evident that the defendant had not acted in bad faith in refusing to pay
plaintiff's claim, the Court cannot award plaintiff's claim for attorney's fees and expenses of
litigation.

IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision
dated July 21, 1958 and hereby renders judgment, ordering the defendant to pay plaintiff the
sum of Two Thousand (P2,000.00) Pesos and to pay the costs.

The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a
Resolution dated September 29, 1959, elevated the case to this Court, stating that the genuine issue
is purely legal in nature.

All the parties agree that indemnity has to be paid. The conflict centers on how much should the
indemnity be. We believe that under the proven facts and circumstances, the findings and
conclusions of the trial court, are well taken, for they are supported by the generally accepted
principles or rulings on insurance, which enunciate that where there is an ambiguity with respect to
the terms and conditions of the policy, the same will be resolved against the one responsible thereof.
It should be recalled in this connection, that generally, the insured, has little, if any, participation in
the preparation of the policy, together with the drafting of its terms and Conditions. The interpretation
of obscure stipulations in a contract should not favor the party who cause the obscurity (Art. 1377,
N.C.C.), which, in the case at bar, is the insurance company.

. . . . And so it has been generally held that the "terms in an insurance policy, which are
ambiguous, equivocal or uncertain . . . are to be construed strictly 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 the "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 expert and legal advisers employed by, and acting exclusively in the interest of, the
insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151,
Dec. 16, 1955.

. . . . Where two interpretations, equally fair, of languages used in an insurance policy may
be made, that which allows the greater indemnity will prevail. (L'Engel v. Scotish Union &
Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).

At any event, the policy under consideration, covers death or disability by accidental means, and the
appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the
insured.

In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised in
the appeal.

The judgment appealed from is hereby affirmed. Without costs.

G.R. No. L-23491 July 31, 1968

TAURUS TAXI CO., INC., FELICITAS V. MONJE, ET AL., plaintiffs-appellees,

vs.
THE CAPITAL INSURANCE & SURETY CO., INC., defendant-appellant.

Vergara and Dayot for plaintiffs-appellees.

Achacoso, Nera and Ocampo for defendant-appellant.

FERNANDO, J.:

The principal legal question in this appeal from a lower court decision, ordering defendant-appellant
The Capital Insurance & Surety Co., Inc. to pay the plaintiff-appellee Taurus Taxi Co., Inc. as well as
plaintiffs-appellees, widow and children of the deceased Alfredo Monje, who, in his lifetime, was
employed as a taxi driver of such plaintiff-appellee, "the sum of P5,000.00 with interest thereon at
the legal rate from the filing of the complaint until fully paid," with P500.00 as attorney's fees and the
costs of the suit, is whether or not a provision in the insurance contract that defendant-appellant will
indemnify any authorized driver provided that [he] is not entitled to any indemnity under any other
policy, it being shown that the deceased was paid his workman's compensation from another
insurance policy, should defeat such a right to recover under the insurance contract subject of this
suit. The lower court answered in the negative. Its holding cannot be successfully impugned.

The appealed decision stated at the outset that the motion for judgment on the pleadings filed by the
plaintiffs was granted, the defendant having no objection and the issue presented being capable of
resolution without the need of presenting any evidence. Then the decision continues: "Alfredo Monje,
according to the complaint, was employed as taxi driver by the plaintiff Taurus Taxi Co., Inc. On
December 6, 1962, the taxi he was driving collided with a Transport Taxicab at the intersection of
Old Sta. Mesa and V. Mapa Streets, Manila, resulting in his death. At the time of the accident, there
was subsisting and in force Commercial Vehicle Comprehensive Policy No. 101, 737 ... issued by
the defendant to the Taurus Taxi Co., Inc. The amount for which each passenger, including the
driver, is insured is P5,000.00. After the issuance of policy No. 101, 737, the defendant issued the
Taurus Taxi Co., Inc. Indorsement No. 1 which forms part of the policy ... " 1 Reference was then
made to plaintiff-appellee Felicitas Monje being the widow of the taxi driver, the other plaintiffs-
appellees with the exception of the Taurus Taxi Co., Inc., being the children of the couple. After
which it was noted that plaintiff Taurus Taxi Co., Inc. made representations "for the payment of the
insurance benefit corresponding to her and her children since it was issued in its name, benefit
corresponding to her and her children, ... but despite demands ... the defendant refused and still
refuses to pay them." 2

On the above facts, the liability apparently clear, the defenses interposed by defendant insurance
company being in the opinion of the lower court without merit, the aforesaid judgment was rendered.
This being a direct appeal, to us on questions of law, the facts as found by the lower court cannot be
controverted.

Defendant-appellant Capital Insurance & Surety Co. Inc. alleged as the first error of the lower court
its failure to hold "that in view of the fact that the deceased Alfredo Monje was entitled to indemnity
under another insurance policy issued by Ed. A. Keller Co., Ltd., the heirs of the said deceased are
not entitled to indemnity under the insurance policy issued by appellant for the reason that the latter
policy contains a stipulation that "the company will indemnify any authorized driver provided that
such authorized driver is not entitled to indemnity under any other policy." " 3 In the discussion of the
above error, defendant-appellant stated the following: "The facts show that at the time of his death,
the deceased Alfredo Monje, as authorized driver and employee of plaintiff Taurus Taxi Co., Inc.,
was entitled to indemnity under another insurance policy, then subsisting, which was Policy No.
50PH-1605 issued by Ed. A. Keller Co., Ltd. to plaintiff Taurus Taxi Co., Inc. As a matter of fact, the
indemnity to which the deceased Alfredo Monje was entitled under the said Policy No. 50PH-1605
was paid by Ed. A. Keller Co., Ltd. to the heirs of Alfredo Monje on December 28, 1962, as
evidenced by the records of W.C.C. Case No. A88637 entitled "Felicitas V. Monje, et al. vs. Taurus
Taxi Co., Inc.", Regional Office No. 4, Department of Labor, Manila ... " 4

The above defense, based on a fact which was not disputed, was raised and rightfully rejected by
the lower court. From its own version, defendant-appellant would seek to escape liability on the plea
that the workman's compensation to which the deceased driver was rightfully entitled was settled by
the employer through a policy issued by another insurance firm. What was paid therefore was not
indemnity but compensation.

Since what is prohibited by the insurance policy in question is that any "authorized driver of plaintiff
Taurus Taxi Co., Inc." should not be "entitled to any indemnity under any policy", it would appear
indisputable that the obligation of defendant-appellant under the policy had not in any wise been
extinguished. It is too well-settled to need the citation of authorities that what the law requires enters
into and forms part of every contract. The Workmen's Compensation Act, explicitly requires that an
employee suffering any injury or death arising out of or in the course of employment be
compensated. The fulfillment of such statutory obligation cannot be the basis for evading the clear,
explicit and mandatory terms of a policy.

In the same way as was held in Benguet Consolidated, Inc. v. Social Security System 5 that sickness
benefits under the Social Security Act may be recovered simultaneously with disability benefits
under the Workmen's Compensation Act, the previous payment made of the compensation under
such legislation is no obstacle by virtue of a clause like that invoked by defendant-appellant to the
payment of indemnity under the insurance policy.

Assuming however that there is a doubt concerning the liability of defendant-appellant insurance
firm, nonetheless, it should be resolved against its pretense and in favor of the insured. It was the
holding in Eagle Star Insurance, Ltd. v. Chia Yu 6 that courts are to regard "with extreme jealousy"
limitations of liability found in insurance policies and to construe them in such a way as to preclude
the insurer from non-compliance with his obligation. In other words, to quote a noted authority on the
subject, "a contract of insurance couched in language chosen by the insurer is, if open to the
construction contended for by the insured, to be construed most strongly, or strictly, against the
insurer and liberally in favor of the contention of the insured, which means in accordance with the
rule contra proferentem."7 Enough has been said therefore to dispose of the first assigned error.

The point is made in the second alleged error that the lower court ought to have held "that by joining
the heirs of Alfredo Monje as a party plaintiff, plaintiff Taurus Taxi Co., Inc. committed a breach of
policy condition and thus forfeited whatever benefits, if any, to which it might be entitled under
appellant's policy." 8 The basis for such an allegation is one of the conditions set forth in the policy.
Thus: " "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 be entitled if it so desires to take over and
conduct in his name the defense or settlement of any claim or to prosecute in his name for its own
benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct
of any proceedings and in the settlement of any claim and the Insured shall give all such information
and assistance as the Company may require ... " 9

Such a plea is even less persuasive. It is understandable then why the lower court refused to be
swayed by it. The plaintiff Taurus Taxi Co., inc. had to join the suit on behalf of the real beneficiaries,
the heirs of the deceased driver, who are the other plaintiffs as it was a party to the policy.
Moreover, as noted in the decision appealed from: "The institution of the action cannot possibly be
construed as an admission, offer, promise, or payment by the company, for it merely seeks to
enforce, by court action, the only legal remedy available to it, its rights under the contract of
insurance to which it is a party. To consider, furthermore, the commencement of an action by the
insured, alone or with others, as a breach of the policy, resulting in forfeiture of the benefits
thereunder, to place in the hands of the insurer the power to nullify at will the whole contract of
insurance by the simple expedient of refusing to make payment and compelling the insured to bring
a suit to enforce the policy." 10

To so construe the policy to yield a contrary result is to put a premium on technicality. If such a
defense is not frowned upon and rejected, the time will come when the confidence on the part of the
public in the good faith of insurance firms would be minimized, if not altogether lost. Such a
deplorable consequence ought to be avoided and a construction of any stipulation that would be
fraught with such a risk repudiated. What the lower court did then cannot be characterized as error.

The third error assigned, namely, that the lower court should have considered the filing of the
complaint against defendant-appellant as unjust and unwarranted, is, in the light of the above,
clearly without merit.

WHEREFORE, the appealed decision of the lower court ordering defendant-appellant "to pay the
plaintiffs the sum of P5,000.00 with interest thereon at the legal rate from the filing of the complaint
until fully paid, P500.00 as attorney's fees," 11 with costs is affirmed. Costs against defendant-
appellant.
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 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:

"WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay

plaintiff:

(a) P4,406,536.40 representing damages for loss by fire of its insured property with interest
at the legal rate;

(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:

"(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

"(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.

Left: Adjoining thence an imperfect wall by Bldg. No. 4.

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.

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 self-serving 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.

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 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. 306-7432324-4 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, the courts will consider the purpose and object of the contract.17

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.

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.:

"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 stand basically to demonstrate
that an existing policy issued by the petitioner covers the burned building.

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:

- 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
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 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.

SO ORDERED.
G.R. No. L-27932 October 30, 1972

UNION MANUFACTURING CO., INC. and the REPUBLIC BANK, plaintiffs, REPUBLIC
BANK, plaintiff-appellant,
vs.
PHILIPPINE GUARANTY CO., INC., defendant-appellee.

Armando L. Abad, Sr. for plaintiff-appellant.

Gamelo, Francisco and Aquino for defendant-appellee.

FERNANDO, J.:p

In a suit arising from a fire insurance policy, the insurer, Philippine Guaranty Co., Inc., defendant in the lower court and now appellee, was
able to avoid liability upon proof that there was a violation of a warranty. There was no denial thereof from the insured, Union Manufacturing
Co., Inc. With such a legally crippling blow, the effort of the Republic Bank, the main plaintiff and now the sole appellant, to recover on such
policy as mortgagee, by virtue of the cover note in the insurance policy providing that it is entitled to the payment of loss or damages as its
interest may appear, was in vain. The defect being legally incurable, its appeal is likewise futile. We affirm.

As noted in the decision, the following facts are not disputed: "(1) That on January 12, 1962, the
Union Manufacturing Co., Inc. obtained certain loans, overdrafts and other credit accommodations
from the Republic Bank in the total sum of P415,000.00 with interest at 9% per annum from said
date and to secure the payment thereof, said Union Manufacturing Co., Inc. executed a real and
chattel mortgages on certain properties, which are more particularly described and listed at the back
of the mortgage contract ...; (2) That as additional condition of the mortgage contract, the Union
Manufacturing Co., Inc. undertook to secure insurance coverage over the mortgaged properties for
the same amount of P415,000.00 distributed as follows: (a) Buildings, P30,000.00; (b) Machineries,
P300,000.00; and (c) Merchandise Inventory, P85,000.00, giving a total of P415,000.00; (3) That as
Union Manufacturing Co., Inc. failed to secure insurance coverage on the mortgaged properties
since January 12, 1962, despite the fact that Cua Tok, its general manager, was reminded of said
requirement, the Republic Bank procured from the defendant, Philippine Guaranty Co., Inc. an
insurance coverage on loss against fire for P500,000.00 over the properties of the Union
Manufacturing Co., Inc., as described in defendant's 'Cover Note' dated September 25, 1962, with
the annotation that loss or damage, if any, under said Cover Note is payable to Republic Bank as its
interest may appear, subject however to the printed conditions of said defendant's Fire Insurance
Policy Form; (4) That on September 27, 1962, Fire Insurance Policy No. 43170 ... was issued for the
sum of P500,000.00 in favor of the assured, Union Manufacturing Co., Inc., for which the
corresponding premium in the sum of P8,328.12, which was reduced to P6,688.12, was paid by the
Republic Bank to the defendant, Philippine Guaranty Co., Inc. ...; (5) That upon the expiration of said
fire policy on September 25, 1963, the same was renewed by the Republic Bank upon payment of
the corresponding premium in the same amount of P6,663.52 on September 26, 1963; (6) That in
the corresponding voucher ..., it appears that although said renewal premium was paid by the
Republic Bank, such payment was for the account of Union Manufacturing Co., Inc. and that the
cash voucher for the payment of the first premium was paid also by the Republic Bank but for the
account Union Manufacturing Co., Inc.; (7) That sometime on September 6, 1964, a fire occurred in
the premises of the Union Manufacturing Co., Inc.; (8) That on October 6, 1964, the Union
Manufacturing Co., Inc. filed its fire claim with the defendant Philippine Guaranty Co., Inc., thru its
adjuster, H. H. Bayne Adjustment Co., which was denied by said defendant in its letter dated
November 27, 1964 ..., on the following grounds: 'a. Policy Condition No. 3 and/or the 'Other
Insurance Clause' of the policy violated because you did not give notice to us the other insurance
which you had taken from New India for P80,000.00, Sincere Insurance for P25,000.00 and Manila
Insurance for P200,000.00 with the result that these insurances, of which we became aware of only
after the fire, were not endorsed on our policy; and (b) Policy Condition No. 11 was not complied
with because you have failed to give to our representatives the required documents and other proofs
with respect to your claim and matters touching on our liability, if any, and the amount of such
liability'; (9) That as of September, 1962, when the defendant Philippine Guaranty Co., issued Fire
Insurance Policy No. 43170 ... in the sum of P500,000.00 to cover the properties of the Union
Manufacturing Co., Inc., the same properties were already covered by Fire Policy No. 1533 of the
Sincere Insurance Company for P25,000.00 for the period from October 7, 1961 to October 7, 1962
...; and by insurance policies Nos. F-2314 ... and F-2590 ... of the Oceanic Insurance Agency for the
total sum of P300,000.00 and for periods respectively, from January 27, 1962 to January 27, 1963,
and from June 1, 1962 to June 1, 1963; and (10) That when said defendant's Fire Insurance Policy
No. 43170 was already in full force and effect, the Union Manufacturing Co., Inc. without the consent
of the defendant, Philippine Guaranty Co., Inc., obtained other insurance policies totalling
P305,000.00 over the same properties prior to the fire, to wit: (1) Fire Policy No. 250 of New India
Assurance Co., Ltd., for P80,000.00 for the period from May 27, 1964 to May 27, 1965 ...; (2) Fire
Policy No. 3702 of the Sincere Insurance Company for P25,000.00 for the period from October 7,
1963 to October 7, 1964 ...; and (3) Fire Policy No. 6161 of Manila Insurance Co. for P200,000.00
for the period from May 15, 1964 to May 15, 1965 ... ."1 There is in the cover note2 and in the fire
insurance policy3 the following warranty: "[Co- Insurance Declared]: Nil."4

Why the appellant Republic Bank could not recover, as payee, in case of loss as its "interest may
appear subject to the terms and conditions, clauses and warranties" of the policy was expressed in
the appealed decision thus: "However, inasmuch as the Union Manufacturing Co., Inc. has violated
the condition of the policy to the effect that it did not reveal the existence of other insurance policies
over the same properties, as required by the warranty appearing on the face of the policy issued by
the defendant and that on the other hand said Union Manufacturing Co., Inc. represented that there
were no other insurance policies at the time of the issuance of said defendant's policy, and it
appearing furthermore that while the policy of the defendant was in full force and effect the Union
Manufacturing Co., Inc. secured other fire insurance policies without the written consent of the
defendant endorsed on the policy, the conclusion is inevitable that both the Republic Bank and
Union Manufacturing Co., Inc. cannot recover from the same policy of the defendant because the
same is null and void."5 The tone of confidence apparent in the above excerpts from the lower court
decision is understandable. The conclusion reached by the lower court finds support in authoritative
precedents. It is far from easy, therefore, for appellant Republic Bank to impute to such a decision a
failure to abide by the law. Hence, as noted at the outset, the appeal cannot prosper. An affirmance
is indicated.

It is to Santa Ana v. Commercial Union Assurance Co.,6 a 1930 decision, that one turns to for the
first explicit formulation as to the controlling principle. As was made clear in the opinion of this Court,
penned by Justice Villa-Real: "Without deciding whether notice of other insurance upon the same
property must be given in writing, or whether a verbal notice is sufficient to render an insurance valid
which requires such notice, whether oral or written, we hold that in the absolute absence of such
notice when it is one of the conditions specified in the fire insurance policy, the policy is null and
void."7 The next year, in Ang Giok Chip v. Springfield Fire & Marine Ins. Co.,8 the conformity of the
insured to the terms of the policy, implied from the failure to express any disagreement with what is
provided for, was stressed in these words of the ponente, Justice Malcolm: "It is admitted that the
policy before us was accepted by the plaintiff. The receipt of this policy by the insured without
objection binds both the acceptor and the insured to the terms thereof. The insured may not
thereafter be heard to say that he did not read the policy or know its terms, since it is his duty to read
his policy and it will be assumed that he did so." 9 As far back as 1915, in Young v. Midland Textile
Insurance Company, 10 it was categorically set forth that as a condition precedent to the right of
recovery, there must be compliance on the part of the insured with the terms of the policy. As stated
in the opinion of the Court through Justice Johnson: "If the insured has violated or failed to perform
the conditions of the contract, and such a violation or want of performance has not been waived by
the insurer, then the insured cannot recover. Courts are not permitted to make contracts for the
parties. The function and duty of the courts consist simply in enforcing and carrying out the contracts
actually made. While it is true, as a general rule, that contracts of insurance are construed most
favorably to the insured, yet contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which 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." 11 More specifically, there was a reiteration of this Santa Ana ruling in a decision by
the then Justice, later Chief Justice, Bengzon, in General Insurance & Surety Corp. v. Ng
Hua. 12 Thus: "The annotation then, must be deemed to be a warranty that the property was not
insured by any other policy. Violation thereof entitles the insurer to rescind. (Sec. 69, Insurance Act)
Such misrepresentation is fatal in the light of our views in Santa Ana v. Commercial Union
Assurance Company, Ltd. ... . The materiality of non-disclosure of other insurance policies is not
open to doubt." 13As a matter of fact, in a 1966 decision, Misamis Lumber Corp. v. Capital Ins. &
Surety Co., Inc., 14 Justice J.B.L. Reyes, for this Court, made manifest anew its adherence to such a
principle in the face of an assertion that thereby a highly unfavorable provision for the insured would
be accorded recognition. This is the language used: "The insurance contract may be rather onerous
('one sided', as the lower court put it), but that in itself does not justify the abrogation of its express
terms, terms which the insured accepted or adhered to and which is the law between the contracting
parties." 15

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

WHEREFORE, the decision of the lower court of March 31, 1967 is affirmed. No costs.
G.R. No. 96452 May 7, 1992

PERLA COMPANIA DE SEGUROS, INC. petitioner,

vs.
THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.

G.R. No. 96493 May 7, 1992

FCP CREDIT CORPORATION, petitioner,

vs.

THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN
LIM, respondents.

Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner.

Wilson L. Tee for respondents Herminio and Evelyn Lim.

NOCON, J.:

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. 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

The facts as found by the trial court are as follows:

On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a
promissory note in favor 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

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 Anti-Carnapping 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

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:

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

On November 17, 1982, private respondents requests 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 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.

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 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;
 2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and the
costs of suit.

Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint
filed against Third-Party 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.

We find no merit in Perla's petition.

The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the
private respondents 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.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:

. . . 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).

Clearly, the risk against accident is distinct from the risk against theft. The
"authorized driver clause" in a typical insurance policy is 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 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

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 erronously 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

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:

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 MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY
APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE
MORTGAGEE, . . . . 17

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.

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.