G.R. No. 124520. August 18, 1997.*
Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION, respondents.
Contracts; Stipulations contained in a contract cannot be contrary to law,
morals, good customs, public order or public policy.—The core issue to be resolved
in this case is whether or not the aforequoted paragraph 18 of the lease contract
entered into between CKS and the Cha spouses is valid insofar as it provides that
any fire insurance policy obtained by the lessee (Cha spouses) over their
merchandise inside the leased premises is deemed assigned or transferred to the
lessor (CKS) if said policy is obtained without the prior written consent of the
latter. It is, of course, basic in the law on contracts that the stipulations contained
in a contract cannot be contrary to law, morals, good customs, public order or
public policy.
Same; Insurance; No contract or policy of insurance on property shall be
enforceable except for the benefit of some person having an insurable interest in the
property insured.—Sec. 18 of the Insurance Code provides: “Sec. 18. No contract or
policy of insurance on property shall be enforceable except for the benefit of some
person having an insurable interest in the property insured.” A non-life insurance
policy such as the fire insurance policy taken by petitionerspouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the
property insured must exist at the time the insurance takes effect and at the time
the loss occurs. The basis of such requirement of insurable interest in property
insured is based on sound public policy: to prevent a person from taking out an
insurance policy on property upon which he has no insurable interest and
collecting the proceeds of said policy in case of loss of the property. In such a case,
the contract of insurance is a mere wager which is void under Section 25 of the
Insurance Code.
Same; Same; Leases; The lessor cannot be validly a beneficiary of a fire
insurance policy taken by a lessee over his merchandise, and the provision in the
lease contract providing for such automatic assignment is void for being contrary
to law and/or public policy—the insurer cannot be compelled to pay the proceeds
of the policy to a person who has no insurable interest in the property insured.—
Therefore, respondent CKS cannot, under the Insurance Code—a special law—be
validly a beneficiary of the fire insurance policy taken by the petitioner-spouses
over their merchandise. This insurable interest over said merchandise remains
with the insured, the Cha spouses. The automatic assignment of the policy to
CKS under the provision of the lease contract previously quoted is void for being
contrary to law and/or public policy. The proceeds of the fire insurance policy thus
rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-
petitioners.) The insurer (United) cannot be compelled to pay the proceeds of the
fire insurance policy to a person (CKS) who has no insurable interest in the
property insured.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to
set aside a decision of respondent Court of Appeals.
The undisputed facts of the case are as follows:
1. 1.Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease
contract with private respondent CKS Development Corporation (hereinafter
CKS), as lessor, on 5 October 1988.
2. 2.One of the stipulations of the one (1) year lease contract states:
“18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles,
goods and effects placed at any stall or store or space in the leased premises without first
obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the
insurance thereof without the consent of the LESSOR then the policy is deemed assigned
and transferred to the LESSOR for its own benefit; x x x.”1
3.Notwithstanding the above stipulation in the lease contract, the Cha spouses
insured against loss by fire the merchandise inside the leased premises for Five
Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter
United) without the written consent of private respondent CKS.
4.On the day that the lease contract was to expire, fire broke out inside the leased
premises.
5.When CKS learned of the insurance earlier procured by the Cha spouses (without
its consent), it wrote the insurer (United) a demand letter asking that the proceeds of
the insurance contract (between the Cha spouses and United) be paid directly to CKS,
based on its lease contract with the Cha spouses.
6.United refused to pay CKS. Hence, the latter filed a complaint against the Cha
spouses and United.
7.On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a
decision** ordering therein defendant United to pay CKS the amount of P335,063.11
and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as
attorney’s fees and costs of suit.
8.On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a
decision*** dated 11 January 1996, affirming the trial court decision, deleting however
the awards for exemplary damages and attorney’s fees. A motion for reconsideration
by United was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the
Court of Appeals:
I In the present case, it cannot be denied that CKS has no insurable interest in the
goods and merchandise inside the leased premises under the provisions of Section
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE 17 of the Insurance Code which provide:
STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW, MORALS
AND PUBLIC POLICY “Section 17. The measure of an insurable interest in property is the extent to which the
II insured might be damnified by loss or injury thereof.”

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT

OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE Therefore, respondent CKS cannot, under the Insurance Code—a special law—be
QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE validly a beneficiary of the fire insurance policy taken by the petitioner-spouses
TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER
over their merchandise. This insurable interest over said merchandise remains
III
with the insured, the Cha spouses. The automatic assignment of the policy to
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
CKS under the provision of the lease contract previously quoted is void for being
INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN contrary to law and/or public policy. The proceeds of the fire insurance policy thus
CONTRAVENTION OF THE INSURANCE LAW rightfully belong to the spouses Nilo Cha and Stella UyCha (herein co-
IV
petitioners.) The insurer (United) cannot be compelled to pay the proceeds of the
fire insurance policy to a person (CKS) who has no insurable interest in the
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT
property insured.
CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE
RESPONDENT CORPORATION.2
The liability of the Cha spouses to CKS for violating their lease contract in
that the Cha spouses obtained a fire insur-ance policy over their own
The core issue to be resolved in this case is whether or not the aforequoted merchandise, without the consent of CKS, is a separate and distinct issue which
paragraph 18 of the lease contract entered into between CKS and the Cha spouses we do not resolve in this case.
is valid insofar as it provides that any fire insurance policy obtained by the lessee
(Cha spouses) over their merchandise inside the leased premises is deemed
WHEREFORE, the decision of the Court of Appeals in CAG.R. CV No. 39328 is
assigned or transferred to the lessor (CKS) if said policy is obtained without the
SET ASIDE and a new decision is hereby entered, awarding the proceeds of the
prior written consent of the latter.
fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.

It is, of course, basic in the law on contracts that the stipulations contained in
SO ORDERED.
a contract cannot be contrary to law, morals, good customs, public order or public
policy.3Sec. 18 of the Insurance Code provides:
Bellosillo, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
“Sec. 18. No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured.” Judgment set aside, award of proceeds of fire insurance policy ordered given to
petitioners Nilo Cha and Stella Uy-Cha.

A non-life insurance policy such as the fire insurance policy taken by petitioner-
spouses over their merchandise is primarily a contract of indemnity. Insurable
interest in the property insured must exist at the time the insurance takes effect
and at the time the loss occurs.4 The basis of such requirement of insurable
interest in property insured is based on sound public policy: to prevent a person
from taking out an insurance policy on property upon which he has no insurable
interest and collecting the proceeds of said policy in case of loss of the property. In
such a case, the contract of insurance is a mere wager which is void under Section
25 of the Insurance Code, which provides:
“SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether
the person insured has or has not any interest in the property insured, or that the policy
shall be received as proof of such interest, and every policy executed by way of gaming or
wagering, is void.”
Notes.—In a case arising from a vehicular collision where the driver, the registered
owners, the beneficial owners, and the insurer were sued, a compromise agreement entered
into between the plaintiff and the insurer resulting in the dismissal of the case as against
the insurer does not redound to the benefit of the other defendants. (Imson vs. Court of
Appeals, 239 SCRA 58[1994])
If the insured property is destroyed or damaged through the fault or negligence of a
party other than the assured, then the insurer, upon payment to the assured will be
subrogated to the rights of the assured to recover from the wrongdoer to the extent that the
insurer has been obligated to pay. (Coastwise Lighterage Corporation vs. Court of
Appeals, 245 SCRA 796 [1995])
G.R. No. 114427. February 6, 1995.*
ARMANDO GEAGONIA, petitioner, vs. COURT OF APPEALS and COUNTRY BANKERS
INSURANCE CORPORATION, respondents.
Remedial Law; Evidence; Petitioner's letter of reconsideration having been made an integral part of the complaint 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.—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. 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.
Same; Same; Appeals; The 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.—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.
Insurance; The incorporation of Condition 3 in the policy is allowed by Section 75
of the Insurance Code.—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 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 been upheld as valid and as a warranty that
no other insurance exists. Its violation would thus avoid the policy. 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.
Same; Same; Separate insurances covering different insurable interests may be
obtained by the mortgagor and the mortgagee.—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. 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. 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 to the amount of the debt, not exceeding the value of
the mortgaged property. Thus, separate insurances covering different insurable
interests may be obtained by the mortgagor and the mortgagee.
Same; A policy or insurance contract is to be interpreted liberally in favor of the
insured and strictly against the company.—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.
Same; Double Insurance; A double insurance exists where the same person is
insured by several insurers separately in respect of the same subject and interest.—
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 non-disclosure then of the former policies was not fatal to
the petitioner's right to recover on the private respondent's policy.
Same; Same; The rationale behind the incorporation of "other insurance" clause in
fire policies is to prevent over-insurance and thus avert the perpetration of fraud.—
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 overinsurance. Indeed, the rationale behind the incorporation of "other
insurance" clause in fire policies is to prevent over-insurance 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.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
DAVIDE, JR., J.:
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.
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."
The petitioner declared in the policy under the subheading entitled CO-
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for policy.
P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks
amounting to P392,130.50, itemized as follows: In its decision of 21 June 1993,8 the Insurance Commission found that the
Zenco Sales, Inc. P 55,698.00
F. Legaspi Gen. Merchandise 86,432.50 petitioner did not violate Condition 3 as he had no knowledge of the existence of
Cebu Tesing Textiles 250,000.00 (on credit) the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing
P392,130.50
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 policy contained the following condition: 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
"3. The insured shall give notice to the Company of any insurance or insurances already effected, or respondent and that Cebu Tesing Textile obtained them and paid for their
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 such notice be given and the
premiums without informing him thereof. The Insurance Commission then
particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to decreed:
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
"WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the
shall not apply when the total insurance or insurances in force at the time of the loss or damage is not
sum of P 100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the
more than P200,000.00."
amount of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is
hereby dismissed."
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
Its motion for the reconsideration of the decision9 having been denied by the
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 Insurance Commission in its resolution of 20 August 1993, 10 the private
the loss the petitioner's stocks-in-trade were likewise covered by fire insurance policies No. respondent appealed to the Court of Appeals by way of a petition for review. The
GA-28146 and No. GA-28144, for P100,000.00 each, issued by the Cebu Branch of the petition was docketed as CA-G.R. SP No. 31916.
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
In its decision of 29 December 1993,11 the Court of Appeals reversed the decision
clause reading:
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:
"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:
"It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken
P100,000.—Phils. First CEB/F-24758"4
in the name of private respondent [petitioner herein]. The policy states that 'DISCOUNT MART (MR.
ARMANDO GEAGONIA, PROP)' was the assured and that 'TESING TEXTILES' [was] only the
The basis of the private respondent's denial was the petitioner's alleged violation mortgagee of the goods.

of Condition 3 of the policy.

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
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
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:
'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-CEB-24758. 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
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 P
1,000,000.00 (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 claimed under
the three policies are much below the value of my stocks lost. ...
The letter contradicts private respondent's pretension that he did not know that there were
other insurances taken on the stock-in-trade and seriously puts in question his credibility."
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 or excess of jurisdiction:
"A
—. . .WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A
QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM
AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS;
B
—. . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS
EVIDENCE DURING THE HEARING OR TRIAL; AND
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.
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 Code15 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 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
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 to 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:
"Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest
may appear subject to the terms of this policy."
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses
involved in General Insurance and Surety Corp. vs. Ng Hua26 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."
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 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.
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 non-disclosure then of the former policies was not fatal to the petitioner's
right to recover on the private respondent's policy.
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 over-insurance 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. Petition granted.
Note.—Contracts of insurance are to be construed according to the sense and meaning of the
terms which the parties themselves have used. (Sun Insurance Office, Ltd. vs. CA)
G.R. Nos. 128833, 128834, and 128866. April 20, 1998. *
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI
D. LAO, petitioners, vs. COURT OF APPEALS and GOYU & SONS, INC.,
respondents.
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. COURT OF
APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP,
SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY GO,
respondents.
MALAYAN INSURANCE, INC., petitioner, vs. GOYU & SONS, INC., respondent.
Civil Law; Insurance Law; Mortgages; It is settled that a mort-gagor and a
mortgagee have separate and distinct insurable interests in the same mortgaged
property, such that each one of them may insure the same property for his own sole
benefit; The intentions of the parties as shown by their contemporaneous acts, must
be given due consideration in order to better serve the interest of justice and
equity.—It is settled that a mortgagor and a mortgagee have separate and distinct
insurable interests in the same mortgaged property, such that each one of them
may insure the same property for his own sole benefit. There is no question that
GOYU could insure the mortgaged property for its own exclusive benefit. In the
present case, although it appears that GOYU obtained the subject insurance
policies naming itself as the sole payee, the intentions of the parties as shown by
their contemporaneous acts, must be given due consideration in order to better
serve the interest of justice and equity.
Same; Same; Same; It is basic and fundamental that the first mortgagee has
superior rights over junior mortgagees or attaching creditors.—Anent the right of
RCBC to intervene in Civil Case No. 1073, before the Zamboanga Regional Trial
Court, since it has been determined that RCBC has the right to the insurance
proceeds, the subject matter of intervention is rendered moot and academic.
Respondent Sebastian must, however, yield to the preferential right of RCBC over
the MICO insurance policies. It is basic and fundamental that the first mortgagee
has superior rights over junior mortgagees or attaching creditors.
Same; Same; Section 53 of the Insurance Code ordains that the insurance proceeds
of the endorsed policies shall be applied exclusively to the proper interest of the
person for whose benefit it was made.—The proceeds of the 8 insurance policies
endorsed to RCBC aggregate to P89,974,488.36. Being exclusively payable to
RCBC by reason of the endorsement by Alchester to RCBC, which we already
ruled to have the force and effect of an endorsement by GOYU itself, these 8
policies can not be attached by GOYU’s other creditors up to the extent of the
GOYU’s outstanding obligation in RCBC’s favor. Section 53 of the Insurance Code
ordains that the insurance proceeds of the endorsed policies shall be applied
exclusively to the proper interest of the person for whose benefit it was made. In
this case, to the extent of GOYU’s obligation with RCBC, the interest of GOYU in
the subject policies had been transferred to RCBC effective as of the time of the
endorsement.
Same; Same; For an insurance company to be held liable for unreasonably
delaying and withholding payment of insurance proceeds, the delay must be
wanton, oppressive, or malevolent.—For an insurance company to be held liable
for unreasonably delaying and withholding payment of insurance proceeds, the
delay must be wanton, oppressive, or malevolent (Zenith Insurance Corporation
vs. CA, 185 SCRA 403 [1990]). It is generally agreed, however, that an insurer
may in good faith and honesty entertain a difference of opinion as to its liability.
Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a
claim should not be inflicted unless the evidence and circumstances show that
such refusal was willful and without reasonable cause as the facts appear to a
reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d]
53, 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep
307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The
case at bar does not show that MICO wantonly and in bad faith delayed the
release of the proceeds.
Same; Same; Interests; The essence or rationale for the payment of interest or cost
of money is separate and distinct from that of surcharges and penalties; Court fails
to find justification for the Court of Appeals’ outright deletion of the payment of
interest as agreed upon in the respective promissory notes.—The essence or
rationale for the payment of interest or cost of money is separate and distinct
from that of surcharges and penalties. What may justify a court in not allowing
the creditor to charge surcharges and penalties despite express stipulation
therefor in a valid agreement, may not equally justify non-payment of interest.
The charging of interest for loans forms a very essential and fundamental
element of the banking business, which may truly be considered to be at the very
core of its existence or being. It is inconceivable for a bank to grant loans for
which it will not charge any interest at all. We fail to find justification for the
Court of Appeals’ outright deletion of the payment of interest as agreed upon in
the respective promissory notes. This constitutes gross error.
PETITIONS for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
MELO, J.:
The issues relevant to the herein three consolidated petitions revolve around the
fire loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan
Insurance Company, Inc. (MICO) in connection with the mortgage contracts
entered into by and between Rizal Commercial Banking Corporation (RCBC) and
GOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the total amount
of P74,040,518.58, plus 37% interest per annum commencing July 27, 1992.
RCBC was ordered to pay actual and compensatory damages in the amount of
P5,000,000.00. MICO and RCBC were held solidarily liable to pay GOYU
P1,500,000.00 as exemplary damages and P1,500,000.00 for attorney’s fees.
GOYU’s obligation to RCBC was fixed at P68,785,069.04 as of April 1992, without
any interest, surcharges, and penalties. RCBC and MICO appealed separately
but, in view of the common facts and issues involved, their individual petitions
were consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at its Binondo
Branch. After due evaluation, RCBC Binondo Branch, through its key officers,
petitioners Uy Chun Bing and Eli D. Lao, recommended GOYU’s application for
approval by RCBC’s executive committee. A credit facility in the amount of P30
million was initially granted. Upon GOYU’s application and Uy’s and Lao’s
recommendation, RCBC’s executive committee increased GOYU’s credit facility to
P50 million, then to P90 million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real estate
mortgages and two chattel mortgages in favor of RCBC, which were registered
with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these four
mortgage contracts, GOYU committed itself to insure the mortgaged property
with an insurance company approved by RCBC, and subsequently, to endorse and
deliver the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. In
February 1992, Alchester Insurance Agency, Inc., the insurance agent where
GOYU obtained the Malayan insurance policies, issued nine endorsements in
favor of RCBC seemingly upon instructions of GOYU (Exhibits “1-Malayan” to “9-
Malayan”).
On April 27, 1992, one of GOYU’s factory buildings in Valenzuela was gutted by
fire. Consequently, GOYU submitted its claim for indemnity on account of the loss
insured against. MICO denied the claim on the ground that the insurance policies
were either attached pursuant to writs of attachments/garnishments issued by
various courts or that the insurance proceeds were also claimed by other creditors
of GOYU alleging better rights to the proceeds than the insured. GOYU filed a
complaint for specific performance and damages which was docketed at the
Regional Trial Court of the National Capital Judicial Region (Manila, Branch 3)
as Civil Case No. 93-65442, now subject of the present G.R. Nos. 128833 and
128866.
RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over the
proceeds of the insurance policies, but said claims were also denied for the same
reasons that MICO denied GOYU’s claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the
Regional Trial Court of Manila (Branch 3), confirmed that GOYU’s other
creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company
obtained their respective writs of attachments from various courts, covering an
aggregate amount of P14,938,080.23, and ordered that the proceeds of the ten
insurance policies be deposited with the said court minus the aforementioned
P14,938,080.23. Accordingly, on January 7, 1994, MICO deposited the amount of
P50,505,594.60 with Branch 3 of the Manila RTC.
In the meantime, another notice of garnishment was handed down by another
Manila RTC sala (Branch 28) for the amount of P8,696,838.75 (Exhibit “22-
Malayan”).
After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU,
disposing:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, Malayan Insurance Company, Inc. and Rizal Commercial Banking Corporation,
ordering the latter as follows:
1.
For defendant Malayan Insurance Co., Inc.:
a.
To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the
amount of P50,000,000.00 which is deposited with this Court;
b.
To pay the plaintiff damages by way of interest for the duration of the delay since July
27, 1992 (ninety days after defendant insurer’s receipt of the required proof of loss and
notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the
following amounts:
1)
P50,000,000.00—from July 27, 1992 up to the time said amount was deposited with this Court
on January 7, 1994;
2)
P24,040,518.58—from July 27, 1992 up to the time when the writs of attachments were
received by defendant Malayan;
2.
For defendant Rizal Commercial Banking Corporation:
a.
To pay the plaintiff actual and compensatory damages in the amount of P2,000,000.00;
3.
For both defendants Malayan and RCBC:
a.
To pay the plaintiff, jointly and severally, the following amounts:
1)
P1,000,000.00 as exemplary damages;
2)
P1,000,000.00 as, and for, attorney’s fees;
3)
Costs of suit.
and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan
obligations with defendant RCBC in the amount of P68,785,069.04, as of April 27, 1992,
with interest thereon at the rate stipulated in the respective promissory notes (without
surcharges and penalties) per computation, pp. 14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to
release immediately to the plaintiff the amount of P50,000,000.00 deposited with the Court
by defendant Malayan, together with all the interests earned thereon.
(Record, pp. 478-479.)
From this judgment, all parties interposed their respective appeals. GOYU was
unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the
trial court’s findings of liability on their part. The Court of Appeals partly granted
GOYU’s appeal, but sustained the findings of the trial court with respect to MICO
and RCBC’s liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as
follows:
1.
FOR DEFENDANT MALAYAN INSURANCE CO., INC.:
a)
To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the
amount of P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and damages by
way of interest commencing July 27, 1992 until the time Goyu receives the said amount at
the rate of thirty-seven (37%) percent per annum which is twice the ceiling prescribed by
the Monetary Board.
2.
FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:
a)
To pay the plaintiff actual and compensatory damages in the amount of
P5,000,000.00.
3.
FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL
BANKING CORPORATION, UY CHUN BING AND ELI D. LAO:
a)
To pay the plaintiff jointly and severally the following amounts:
1.
P1,500,000.00 as exemplary damages;
2.
P1,500,000.00 as, and for, attorney’s fees.
And on RCBC’s Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan
obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any
interest, surcharges and penalties.
The Clerk of Court of the Regional Trial Court of Manila is hereby ordered to immediately
release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No. 3649285) deposited
with it by Malayan Insurance Co., Inc., together with all the interests thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. Nos. 128833 and 128866, respectively,
seeking review and consequent reversal of the above dispositions of the Court of
Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No.
CV-48376, which case, by virtue of the Court of Appeals’ resolution dated August
7, 1996, was consolidated with C.A. G.R. No. CV-46162 (subject of herein G.R. No.
128833). At issue in said petition is RCBC’s right to intervene in the action
between Alfredo C. Sebastian (the creditor) and GOYU (the debtor), where the
subject insurance policies were attached in favor of Sebastian.
After a careful review of the material facts as found by the two courts below in
relation to the pertinent and applicable laws, we find merit in the submissions of
RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to several related
issues which are now submitted in the petitions before us. This Court, however,
discerns one primary and central issue, and this is, whether or not RCBC, as
mortgagee, has any right over the insurance policies taken by GOYU, the
mortgagor, in case of the occurrence of loss.
As earlier mentioned, accordant with the credit facilities extended by RCBC to
GOYU, the latter executed several mortgage contracts in favor of RCBC. It was
expressly stipulated in these mortgage contracts that GOYU shall insure the
mortgaged property with any of the insurance companies acceptable to RCBC.
GOYU indeed insured the mortgaged property with MICO, an insurance company
acceptable to RCBC. Based on their stipulations in the mortgage contracts, GOYU
was supposed to endorse these insurance policies in favor of, and deliver them, to
RCBC. Alchester Insurance Agency, Inc., MICO’s underwriter from whom GOYU
obtained the subject insurance policies, prepared the nine endorsements (see Exh.
“1-Malayan” to “9-Malayan”; also Exh. “51-RCBC” to “59-RCBC”), copies of which
were delivered to GOYU, RCBC, and MICO. However, because these
endorsements do not bear the signature of any officer of GOYU, the trial court, as
well as the Court of Appeals, concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and distinct
insurable interests in the same mortgaged property, such that each one of them
may insure the same property for his own sole benefit. There is no question that
GOYU could insure the mortgaged property for its own exclusive benefit. In the
present case, although it appears that GOYU obtained the subject insurance
policies naming itself as the sole payee, the intentions of the parties as shown by
their contemporaneous acts, must be given due consideration in order to better
serve the interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by Alchester in
favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea
of endorsing any specific insurance policy in favor of any particular beneficiary or
payee other than the insured had not such named payee or beneficiary been
specifically disclosed by the insured itself. It is also significant that GOYU
voluntarily and purposely took the insurance policies from MICO, a sister
company of RCBC, and not just from any other insurance company. Alchester
would not have found out that the subject pieces of property were mortgaged to
RCBC had not such information been voluntarily disclosed by GOYU itself. Had it
not been for GOYU, Alchester would not have known of GOYU’s intention of
obtaining insurance coverage in compliance with its undertaking in the mortgage
contracts with RCBC, and verily, Alchester would not have endorsed the policies
to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is
constrained to rule in favor of mortgagee RCBC. The basis and purpose of the
doctrine was explained in Philippine National Bank vs. Court of Appeals (94
SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith
and justice, and its purpose is to forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable principles and the equities in the
case. It is designed to aid the law in the administration of justice where without its aid
injustice might result. It has been applied by this Court wherever and whenever special
circumstances of a case so demand.
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a
certain Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine
endorsement documents for GOYU’s nine insurance policies in favor of RCBC.
The original copies of each of these nine endorsement documents were sent to
GOYU, and the others were sent to RCBC and MICO, while the fourth copies
were retained for Alchester’s file (tsn, February 23, pp. 7-8). GOYU has not
denied having received from Alchester the originals of these endorsements.
RCBC, in good faith, relied upon the endorsement documents sent to it as this
was only pursuant to the stipulation in the mortgage contracts. We find such
reliance to be justified under the circumstances of the case. GOYU failed to
seasonably repudiate the authority of the person or persons who prepared such
endorsements. Over and above this, GOYU continued, in the meantime, to enjoy
the benefits of the credit facilities extended to it by RCBC. After the occurrence of
the loss insured against, it was too late for GOYU to disown the endorsements for
any imagined or contrived lack of authority of Alchester to prepare and issue said
endorsements. If there had not been actually an implied ratification of said
endorsements by virtue of GOYU’s inaction in this case, GOYU is at the very least
estopped from assailing their operative effects. To permit GOYU to capitalize on
its non-confirmation of these endorsements while it continued to enjoy the
benefits of the credit facilities of RCBC which believed in good faith that there
was due endorsement pursuant to their mortgage contracts, is to countenance
grave contravention of public policy, fair dealing, good faith, and justice. Such an
unjust situation, the Court cannot sanction. Under the peculiar circumstances
obtaining in this case, the Court is bound to recognize RCBC’s right to the
proceeds of the insurance policies if not for the actual endorsement of the policies,
at least on the basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides
that the proceeds of insurance shall exclusively apply to the interest of the person
in whose name or for whose benefit it is made. The peculiarity of the
circumstances obtaining in the instant case presents a justification to take
exception to the strict application of said provision, it having been sufficiently
established that it was the intention of the parties to designate RCBC as the
party for whose benefit the insurance policies were taken out. Consider thus the
following:
1.
It is undisputed that the insured pieces of property were the subject of mortgage
contracts entered into between RCBC and GOYU in consideration of and for securing
GOYU’s credit facilities from RCBC. The mortgage contracts contained common provisions
whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered
against any loss by an insurance company acceptable to RCBC.
2.
GOYU voluntarily procured insurance policies to cover the mortgaged property from
MICO, no less than a sister company of RCBC and definitely an acceptable insurance
company to RCBC.
3.
Endorsement documents were prepared by MICO’s underwriter, Alchester Insurance
Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not
assail, until of late, the validity of said endorsements.
4.
GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
facilities extended by RCBC which was conditioned upon the endorsement of the insurance
policies to be taken by GOYU to cover the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of the
endorsement documents prepared by Alchester, GOYU, despite the absence of its
written conformity thereto, obviously considered said endorsement to be sufficient
compliance with its obligation under the mortgage contracts since RCBC
accordingly continued to extend the benefits of its credit facilities and GOYU
continued to benefit therefrom. Just as plain too is the intention of the parties to
constitute RCBC as the beneficiary of the various insurance policies obtained by
GOYU. The intention of the parties will have to be given full force and effect in
this particular case. The insurance proceeds may, therefore, be exclusively
applied to RCBC, which under the factual circumstances of the case, is truly the
person or entity for whose benefit the policies were clearly intended.
Moreover, the law’s evident intention to protect the interests of the mortgagee
upon the mortgaged property is expressed in Article 2127 of the Civil Code which
states:
ART. 2127. The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due, and to the
amount of the indemnity granted or owing to the proprietor from the insurers of the
property mortgaged, or in virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person.
Significantly, the Court notes that out of the 10 insurance policies subject of this The proceeds of the 8 insurance policies endorsed to RCBC aggregate to
case, only 8 of them appear to have been subject of the endorsements prepared P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement
and delivered by Alchester for and upon instructions of GOYU as shown below: by Alchester to RCBC, which we already ruled to have the force and effect of an
INSURANCE POLICY PARTICULARS ENDORSEMENT
a. Policy Number : F-114-07795 None endorsement by GOYU itself, these 8 policies can not be attached by GOYU’s
Issue Date
Expiry Date
: March 18, 1992
: April 5, 1993
other creditors up to the extent of the GOYU’s outstanding obligation in RCBC’s
Amount
b. Policy Number
: P9,646,224.92
: ACIA/F-174-07660 Exhibit “1-
favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the
endorsed policies shall be applied exclusively to the proper interest of the person
Malayan”
for whose benefit it was made. In this case, to the extent of GOYU’s obligation
Issue Date
Expiry Date
: January 18, 1992
: February 9, 1993
with RCBC, the interest of GOYU in the subject policies had been transferred to
Amount : P4,307,217.54 RCBC effective as of the time of the endorsement. These policies may no longer be
c. Policy Number : ACIA/F-114-07661 Exhibit “2-
attached by the other creditors of GOYU, like Alfredo Sebastian in the present
Malayan”
G.R. No. 128834, which may nonetheless forthwith be dismissed for being moot
Issue Date : January 18, 1992 and academic in view of the results reached herein. Only the two other policies
Expiry Date : February 15, 1993
Amount : P6,603,586.43 amounting to P19,646,224.92 may be validly attached, garnished, and levied upon
d. Policy Number : ACIA/F-114-07662 Exhibit “3-
by GOYU’s other creditors. To the extent of GOYU’s outstanding obligation with
Malayan”
RCBC, all the rest of the other insurance policies above-listed which were
Issue Date : January 18, 1992 endorsed to RCBC, are, therefore, to be released from attachment, garnishment,
Expiry Date : (not legible)
Amount : P6,603,586.43 and levy by the other creditors of GOYU.
e. Policy Number : ACIA/F-114-07663 Exhibit “4-

Malayan” This brings us to the next relevant issue to be resolved, which is, the extent of
Issue Date
Expiry Date
: January 18, 1992
: February 9, 1993
GOYU’s outstanding obligation with RCBC which the proceeds of the 8 insurance
Amount
f. Policy Number
: P9,457,972.76
: ACIA/F-114-07623 Exhibit “7-
policies will discharge and liquidate, or put differently, the actual amount of
GOYU’s liability to RCBC.
Malayan”
Issue Date : January 13, 1992
Expiry Date : January 13, 1993 The Court of Appeals simply echoed the declaration of the trial court finding that
Amount : P24,750,000.00
g. Policy Number : ACIA/F-174-07223 Exhibit “6- GOYU’s total obligation to RCBC was only P68,785,060.04 as of April 27, 1992,
thus sanctioning the trial court’s exclusion of Promissory Note No. 421-92
Malayan” (renewal of Promissory Note No. 908-91) and Promissory Note No. 420-92
Issue Date : May 29, 1991
Expiry Date : June 27, 1992 (renewal of Promissory Note No. 952-91) on the ground that their execution is
Amount
h. Policy Number
: P6,000,000.00
: CI/F-128-03341 None
highly questionable for not only are these dated after the fire, but also because
Issue Date
Expiry Date
: May 3, 1991
: May 3, 1992
the signatures of either GOYU or any of its representative are conspicuously
Amount : P10,000,000.00 absent. Accordingly, the Court of Appeals speculated thusly:
i. Policy Number : F-114-07402 Exhibit “8-

Malayan” . . . Hence, this Court is inclined to conclude that said promissory notes were pre-signed by
Issue Date
Expiry Date
: September 16, 1991
October 19, 1992
plaintiff in blank terms, as averred by plaintiff, in contemplation of the speedy grant of
Amount : P32,252,125.20 future loans, for the same practice of procedure has always been adopted in its previous
j. Policy Number : F-114-07525 Exhibit “9-
dealings with the bank.

Malayan”
Issue Date : November 20, 1991 (Rollo, pp. 181-182.)
Expiry Date : December 5, 1992
Amount : P6,603,586.43
(pp. 456-457, Record; Folder of Exhibits for MICO.)
The fact that the promissory notes bear dates posterior to the fire does not
necessarily mean that the documents are spurious, for it is presumed that the
Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was
ordinary course of business had been followed (Metropolitan Bank and Trust
admitted by MICO’s witness, Atty. Farolan (tsn, February 16, 1994, p. 25).
Company vs. Quilts and All, Inc., 222 SCRA 486 [1993]). The obligor and not the
Likewise, the record shows no endorsement for Policy Number CI/F-128-03341
holder of the negotiable instrument has the burden of proof of showing that he no
[(h) above]. Also, one of the endorsement documents, Exhibit “5-Malayan,” refers
longer owes the obligee any amount (Travel-On, Inc. vs. Court of Appeals, 210
to a certain insurance policy number ACIAF-07066, which is not among the
SCRA 351 [1992]).
insurance policies involved in the complaint.
Even casting aside the presumption of regularity of private transactions, receipt
of the loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by
GOYU as indicated in the testimony of Go Song Hiap when he answered the
queries of the trial court:
ATTY. NATIVIDAD
Q: But insofar as the amount stated in Exhibits 1 to 29- RCBC, you received all the amounts stated therein?
A: Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?
WITNESS
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
A: The promissory Notes they did not give to me but the amount I asked which is correct, Your Honor.
COURT
Q: You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct?
A: Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)
Furthermore, aside from its judicial admission of having received all the proceeds
of the 29 promissory notes as hereinabove quoted, GOYU also offered and
admitted to RCBC that its obligation be fixed at P116,301,992.60 as shown in its
letter dated March 9, 1993, which pertinently reads:
We wish to inform you, therefore that we are ready and willing to pay the current past due
account of this company in the amount of P116,301,992.60 as of 21 January 1993, specified
in pars. 15, p. 10, and 18, p. 13 of your affidavits of Third Party Claims in the Urban case at
Makati, Metro Manila and in the Zamboanga case at Zamboanga City, respectively, less the
total of P8,851,519.71 paid from the Seaboard and Equitable insurance companies and other
legitimate deductions. We accept and confirm this amount of P116,301,992.60 as stated as
true and correct.
(Exhibit BB.)
The Court of Appeals erred in placing much significance on the fact that the
excluded promissory notes are dated after the fire. It failed to consider that said
notes had for their origin transactions consummated prior to the fire. Thus,
careful attention must be paid to the fact that Promissory Notes Nos. 420-92 and
421-92 are mere renewals of Promissory Notes Nos. 908-91 and 952-91, loans
already availed of by GOYU.
The two courts below erred in failing to see that the promissory notes which they
ruled should be excluded for bearing dates which are after that of the fire, are
mere renewals of previous ones. The proceeds of the loan represented by these
promissory notes were admittedly received by GOYU. There is ample factual and
legal basis for giving GOYU’s judicial admission of liability in the amount of
P116,301,992.60 full force and effect.
It should, however, be quickly added that whatever amount RCBC may have
recovered from the other insurers of the mortgaged property will, nonetheless,
have to be applied as payment against GOYU’s obligation. But, contrary to the
lower courts’ findings, payments effected by GOYU prior to January 21, 1993
should no longer be deducted. Such payments had obviously been duly considered
by GOYU, in its aforequoted letter dated March 9, 1993, wherein it admitted that
its past due account totaled P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90
as of January 21, 1993, to wit:
Total Obligation as admitted by GOYU as of January 21, 1993: P116,301,992.60
Broken down as follows: Principal1 Interest Regular 80,535,946.32 FDU 27,548,025.17
____________ Total: 108,083,971.49 8,218,021.112 LESS: 1) Proceeds from Seaboard Eastern
Insurance Company: 6,095,145.81 2) Proceeds from Equitable Insurance Company:
2,756,373.00 3) Payment from foreign department negotiation: 203,584.89 9,055,104.703
NET AMOUNT as of January 21, 1993: P107,246,887.90
The need for the payment of interest due upon the principal amount of the
obligation, which is the cost of money to RCBC, the primary end and the ultimate
reason for RCBC’s existence and being, was duly recognized by the trial court
when it ruled favorably on RCBC’s counterclaim, ordering GOYU “to pay its loan
obligation with RCBC in the amount of P68,785,069.04, as of April 27, 1992, with
interest thereon at the rate stipulated in the respective promissory notes (without
surcharges and penalties) per computation, pp. 14-A, 14-B, 14-C” (Record, p. 479).
Inexplicably, the Court of Appeals, without even laying down the factual or legal
justification for its ruling, modified the trial court’s ruling and ordered GOYU “to
pay the principal amount of P68,785,069.04 without any interest, surcharges and
penalties” (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with much
uncertainty deleted the payment of additional interest, penalties, and charges, in
this manner:
Regarding defendant RCBC’s commitment not to charge additional interest, penalties and
surcharges, the same does not require that it be embodied in a document or some form of
writing to be binding and enforceable. The principle is well known that generally a verbal
agreement or contract is no less binding and effective than a written one. And the existence
of such a verbal agreement has been amply established by the evidence in this case. In any
event, regardless of the existence of such verbal agreement, it would still be unjust and
inequitable for defendant RCBC to charge the plaintiff with surcharges and penalties
considering the latter’s pitiful situation. (Emphasis supplied.)
(Record, p. 476)
The essence or rationale for the payment of interest or cost of money is separate
and distinct from that of surcharges and penalties. What may justify a court in
not allowing the creditor to charge surcharges and penalties despite express
stipulation therefor in a valid agreement, may not equally justify non-payment of
interest. The charging of interest for loans forms a very essential and
fundamental element of the banking business, which may truly be considered to
be at the very core of its existence or being. It is inconceivable for a bank to grant
loans for which it will not charge any interest at all. We fail to find justification
for the Court of Appeals’ outright deletion of the payment of interest as agreed
upon in the respective promissory notes. This constitutes gross error.
For the computation of the interest due to be paid to RCBC, the following rules of
thumb laid down by this Court in Eastern Shipping Lines, Inc. vs. Court of
Appeals (234 SCRA 78 [1994]), shall apply, to wit:
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:
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 of 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.
(pp. 95-97.)
There being written stipulations as to the rate of interest owing on each specific
promissory note as summarized and tabulated by the trial court in its decision
(pp. 470 and 471, Record) such agreed interest rates must be followed. This is
very clear from paragraph II, sub-paragraph 1 quoted above.
On the issue of payment of surcharges and penalties, we partly agree that
GOYU’s pitiful situation must be taken into account. We do not agree, however,
that payment of any amount as surcharges and penalties should altogether be
deleted. Even assuming that RCBC, through its responsible officers, herein
petitioners Eli Lao and Uy Chun Bing, may have relayed its assurance for
assistance to GOYU immediately after the occurrence of the fire, we cannot accept
the lower courts’ finding that RCBC had thereby ipso facto effectively waived
collection of any additional interests, surcharges, and penalties from GOYU.
Assurances of assistance are one thing, but waiver of additional interests,
surcharges, and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of default
partake of the nature of liquidated damages, covered by Section 4, Chapter 3,
Title XVIII of the Civil Code. Article 2227 thereof provides:
ART. 2227. Liquidated damages, whether intended as an indemnity or penalty, shall be
equitably reduced if they are iniquitous and unconscionable.
In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case. It should
be stressed that the Court will not make any sweeping ruling that surcharges and
penalties imposed by banks for non-payment of the loans extended by them are
generally iniquitous and unconscionable. What may be iniquitous and
unconscionable in one case, may be totally just and equitable in another. This
provision of law will have to be applied to the established facts of any given case.
Given the circumstances under which GOYU found itself after the occurrence of
the fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%,
plus the penalty charges of 36%, to be definitely iniquitous and unconscionable.
The Court tempers these rates to 2% and 3%, respectively. Furthermore, in the
light of GOYU’s offer to pay the amount of P116,301,992.60 to RCBC as of March
1993 (See: Exhibit “BB”), which RCBC refused, we find it more in keeping with
justice and equity for RCBC not to charge additional interest, surcharges, and
penalties from that time onward.
Given the factual milieu spread hereover, we rule that it was error to hold MICO
liable in damages for denying or withholding the proceeds of the insurance claim
to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements of the
insurance policies, RCBC has the right to claim the insurance proceeds, in
substitution of the property lost in the fire. Having assigned its rights, GOYU lost
its standing as the beneficiary of the said insurance policies.
Secondly, for an insurance company to be held liable for unreasonably delaying
and withholding payment of insurance proceeds, the delay must be wanton,
oppressive, or malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403
[1990]). It is generally agreed, however, that an insurer may in good faith and
honesty entertain a difference of opinion as to its liability. Accordingly, the
statutory penalty for vexatious refusal of an insurer to pay a claim should not be
inflicted unless the evidence and circumstances show that such refusal was
willful and without reasonable cause as the facts appear to a reasonable and
prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR
1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep 307; hereby REVERSED and SET ASIDE, and a new one entered:
Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at
bar does not show that MICO wantonly and in bad faith delayed the release of the 1.
Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442
proceeds. The problem in the determination of who is the actual beneficiary of the before Branch 3 of the Manila Regional Trial Court for lack of merit;
insurance policies, aggravated by the claim of various creditors who wanted to
partake of the insurance proceeds, not to mention the importance of the 2.
Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking
endorsement to RCBC, to our mind, and as now borne out by the outcome herein, Corporation the proceeds of the insurance policies in the amount of P51,862,390.94 (per
justified MICO in withholding payment to GOYU. report of adjuster Toplis & Harding [Far East], Inc., Exhibits “2” and “2-1”), less the amount
of P50,505,594.60 (per O.R. No. 3649285);
In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that
RCBC cannot avail itself of two simultaneous remedies in enforcing the claim of 3.
Ordering the Clerk of Court to release the amount of P50,505,594.60 including the
an unpaid creditor, one for specific performance and the other for foreclosure. In interests earned to Rizal Commercial Banking Corporation;
doing so, said the appellate court, the second action is deemed barred, RCBC
having split a single cause of action (Rollo, pp. 195-199). The Court of Appeals 4.
Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking
was too accommodating in giving due consideration to this argument of GOYU, Corporation in the principal amount of P107,246,887.90, with interest at the respective
for the foreclosure suit is still pending appeal before the same Court of Appeals in rates stipulated in each promissory note from January 21, 1993 until finality of this
judgment, and surcharges at 2% and penalties at 3% from January 21, 1993 to March 9,
CA G.R. CV No. 46247, the case having been elevated by RCBC.
1993, minus payments made by Malayan Insurance Company, Inc. and the proceeds of the
amount deposited with the trial court and its earned interest. The total amount due RCBC
In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the at the time of the finality of this judgment shall earn interest at the legal rate of 12% in lieu
Court of Appeals pre-empted the resolution of said foreclosure case which is not of all other stipulated interests and charges until fully paid.
before it. This is plain reversible error if not grave abuse of discretion.
The petition of Rizal Commercial Banking Corporation against the respondent
As held in Peña vs. Court of Appeals (245 SCRA 691 [1995]): Court in CA-GR CV 48376 is DISMISSED for being moot and academic in view of
the results herein arrived at. Respondent Sebastian’s right as attaching creditor
It should have been enough, nonetheless, for the appellate court to merely set aside the
must yield to the preferential rights of Rizal Commercial Banking Corporation
questioned orders of the trial court for having been issued by the latter with grave abuse of over the Malayan insurance policies as first mortgagee.
discretion. In likewise enjoining permanently herein petitioner “from entering in and
interfering with the use or occupation and enjoyment of petitioner’s (now private SO ORDERED.
respondent) residential house and compound,” the appellate court in effect, precipitately
resolved with finality the case for injunction that was yet to be heard on the merits by the
lower court. Elevated to the appellate court, it might be stressed, were mere incidents of the Regalado (Chairman), Puno, Mendoza and Martinez, JJ., concur.
principal case still pending with the trial court. In Municipality of Biñan, Laguna vs. Court
of Appeals, 219 SCRA 69, we ruled that the Court of Appeals would have “no jurisdiction in Petitions granted, decision and resolution reversed and set aside.
a certiorari proceeding involving an incident in a case to rule on the merits of the main case
itself which was not on appeal before it.”
Note.—Where both parties offer a conflicting interpretation of a contract
(pp. 701-702.) then judicial determination of the parties’ intention is inevitable. (China Banking
Corporation vs. Court of Appeals, 265 SCRA 327 [1996])
Anent the right of RCBC to intervene in Civil Case No. 1073, before the
Zamboanga Regional Trial Court, since it has been determined that RCBC has
the right to the insurance proceeds, the subject matter of intervention is rendered
moot and academic. Respondent Sebastian must, however, yield to the
preferential right of RCBC over the MICO insurance policies. It is basic and
fundamental that the first mortgagee has superior rights over junior mortgagees
or attaching creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA 274
[1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil. 271 [1928]).

WHEREFORE, the petitions are hereby GRANTED and the decision and
resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are

G.R. No. 147839. June 8, 2006.*
GAISANO CAGAYAN, INC., petitioner, vs. INSURANCE COMPANY OF NORTH
AMERICA, respondent.
Actions; Pleadings and Practice; Appeals; Petition for Review; Findings of fact of the appellate court are generally conclusive
on the Supreme Court.—As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it
from the CA is limited to reviewing questions of law which involves no examination of the probative value of the evidence
presented by the litigants or any of them. The Supreme Court is not a trier of facts; it is not its function to analyze or weigh
evidence all over again. Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court.
Same; Same; Same; Same; Exceptions; Nevertheless, jurisprudence has recognized several exceptions in which factual issues
may be resolved by the Supreme Court.—Jurisprudence has recognized several exceptions in which factual issues may be
resolved by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making
its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant
and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation
of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main
and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion.
Statutory Construction; When the words of a contract are plain and readily
understood, there is no room for construction.—It is well-settled that when the
words of a contract are plain and readily understood, there is no room for
construction. In this case, the questioned insurance policies provide coverage for
“book debts in connection with ready-made clothing materials which have been
sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines;” and defined book debts as the “unpaid account still appearing in the
Book of Account of the Insured 45 days after the time of the loss covered under
this Policy.” Nowhere is it provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered to the customers and
dealers of the insured. Indeed, when the terms of the agreement are clear and
explicit that they do not justify an attempt to read into it any alleged intention of
the parties, the terms are to be understood literally just as they appear on the
face of the contract.
Civil Law; Contracts; Sales; Loss; When the seller retains ownership only to insure
that the buyer will pay its debt, the risk of loss is borne by the buyer.—The present
case clearly falls under paragraph (1), Article 1504 of the Civil Code: ART. 1504.
Unless otherwise agreed, the goods remain at the seller’s risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred
to the buyer the goods are at the buyer’s risk whether actual delivery has been
made or not, except that: (1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the contract and the ownership
in the goods has been retained by the seller merely to secure performance by the
buyer of his obligations under the contract, the goods are at the buyer’s risk from
the time of such delivery; (Emphasis supplied) x x x x Thus, when the seller
retains ownership only to insure that the buyer will pay its debt, the risk of loss is
borne by the buyer. Accordingly, petitioner bears the risk of loss of the goods
delivered.
Same; Same; Insurance; Insurable Interest; Kinds; An insurable interest in
property may consist in the following.—Section 13 of our Insurance Code defines
insurable interest as “every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that a contemplated
peril might directly damnify the insured.” Parenthetically, under Section 14 of the
same Code, an insurable interest in property may consist in: (a) an existing
interest; (b) an inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the expectancy
arises.
Same; Same; Same; Same; Anyone has an insurable interest in property who
derives a benefit from its existence or would suffer loss from its destruction.—An
insurable interest in property does not necessarily imply a property interest in, or
a lien upon, or possession of, the subject matter of the insurance, and neither the
title nor a beneficial interest is requisite to the existence of such an interest, it is
sufficient that the insured is so situated with reference to the property that he
would be liable to loss should it be injured or destroyed by the peril against which
it is insured. Anyone has an insurable interest in property who derives a benefit
from its existence or would suffer loss from its destruction. Indeed, a vendor or
seller retains an insurable interest in the property sold so long as he has any
interest therein, in other words, so long as he would suffer by its destruction, as
where he has a vendor’s lien. In this case, the insurable interest of IMC and LSPI
pertain to the unpaid accounts appearing in their Books of Account 45 days after
the time of the loss covered by the policies.
Same; Same; Subrogation; There is no evidence that respondent has been
subrogated to any right which Levi Strauss (Phils.) Inc. (LSPI) may have against
petitioner.—There is no proof of full settlement of the insurance claim of LSPI; no
subrogation receipt was offered in evidence. Thus, there is no evidence that
respondent has been subrogated to any right which LSPI may have against
petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner’s
case for recovery of the amount of P535,613.00.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000
of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated
August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No.
92-322 and upheld the causes of action for damages of Insurance Company of North
America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution
dated April 11, 2001 which denied petitioner’s motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi
Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by
Levi Strauss & Co., IMC and LSPI separately obtained from respondent fire insurance
policies with book debt endorsements. The insurance policies provide for coverage on “book
debts in connection with ready-made clothing materials which have been sold or delivered to
various customers and dealers of the Insured anywhere in the Philippines.” 2 The policies
defined book debts as the “unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this Policy.”3 The policies also
provide for the following conditions:
1.
Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for
a period in excess of six (6) months from the date of the covering invoice or actual delivery of
the merchandise whichever shall first occur.
2.
Warranted that the Insured shall submit to the Company within twelve (12) days after
the close of every calendar month all amount shown in their books of accounts as unpaid
and thus become receivable item from their customers and dealers. x x x4
Petitioner is a customer and dealer of the products of IMC and LSPI. On
February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City,
owned by petitioner, was consumed by fire. Included in the items lost or destroyed
in the fire were stocks of ready-made clothing materials sold and delivered by
IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against
petitioner. It alleges that IMC and LSPI filed with respondent their claims under
their respective fire insurance policies with book debt endorsements; that as of
February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of
ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it
was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue
thereof, respondent was subrogated to their rights against petitioner; that
respondent made several demands for payment upon petitioner but these went
unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it
could not be held liable because the property covered by the insurance policies
were destroyed due to fortuities event or force majeure; that respondent’s right of
subrogation has no basis inasmuch as there was no breach of contract committed
by it since the loss was due to fire which it could not prevent or foresee; that IMC
and LSPI never communicated to it that they insured their properties; that it
never consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable settlement. 7
Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent’s
complaint.8 It held that the fire was purely accidental; that the cause of the fire
was not attributable to the negligence of the petitioner; that it has not been
established that petitioner is the debtor of IMC and LSPI; that since the sales
invoices state that “it is further agreed that merely for purpose of securing the
payment of purchase price, the above-described merchandise remains the
property of the vendor until the purchase price is fully paid,” IMC and LSPI
retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA
rendered its decision setting aside the decision of the RTC. The dispositive portion
of the decision reads:
“WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET
ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1.
the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured
Inter Capitol Marketing Corporation, plus legal interest from the time of demand until fully paid;
2.
the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured
Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid. With costs against
the defendant-appellee. SO ORDERED.”10
The CA held that the sales invoices are proofs of sale, being detailed statements of
the nature, quantity and cost of the thing sold; that loss of the goods in the fire
must be borne by petitioner since the proviso contained in the sales invoices is an
exception under Article 1504 (1) of the Civil Code, to the general rule that if the
thing is lost by a fortuitous event, the risk is borne by the owner of the thing at
the time the loss under the principle of res perit domino; that petitioner’s
obligation to IMC and LSPI is not the delivery of the lost goods but the payment
of its unpaid account and as such the obligation to pay is not extinguished, even if
the fire is considered a fortuitous event; that by subrogation, the insurer has the
right to go against petitioner; that, being a fire insurance with book debt
endorsements, what was insured was the vendor’s interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its
Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following
Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE
WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN
THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION
UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT. 14
Anent the first error, petitioner contends that the insurance in the present case
cannot be deemed to be over credit since an insurance “on credit” belies not only
the nature of fire insurance but the express terms of the policies; that it was not
credit that was insured since respondent paid on the occasion of the loss of the
insured goods to fire and not because of the non-payment by petitioner of any
obligation; that, even if the insurance is deemed as one over credit, there was no
loss as the accounts were not yet due since no prior demands were made by IMC
and LSPI against petitioner for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under the fire insurance
policies.15
As to the second error, petitioner avers that despite delivery of the goods,
petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire
insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in
favor of respondent as no valid insurance could be maintained thereon by IMC
and LSPI since all risk had transferred to petitioner upon delivery of the goods;
that petitioner was not privy to the insurance contract or the payment between
respondent and its insured nor was its consent or approval ever secured; that this
lack of privity forecloses any real interest on the part of respondent in the
obligation to pay, limiting its interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready-made
clothing materials was transferred upon delivery to petitioner, IMC and LSPI
have insurable interest over said goods as creditors who stand to suffer direct
pecuniary loss from its destruction by fire; that petitioner is liable for loss of the
ready-made clothing materials since it failed to overcome the presumption of
liability under Article 126516 of the Civil Code; that the fire was caused through
petitioner’s negligence in failing to provide stringent measures of caution, care
and maintenance on its property because electric wires do not usually short
circuit unless there are defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner is guilty of gross and
evident bad faith in refusing to pay respondent’s valid claim and should be liable
to respondent for contracted lawyer’s fees, litigation expenses and cost of suit. 17
As a general rule, in petitions for review, the jurisdiction of this Court in cases
brought before it from the CA is limited to reviewing questions of law which
involves no examination of the probative value of the evidence presented by the
litigants or any of them.18 The Supreme Court is not a trier of facts; it is not its
function to analyze or weigh evidence all over again.19 Accordingly, findings of
fact of the appellate court are generally conclusive on the Supreme Court. 20
Nevertheless, jurisprudence has recognized several exceptions in which factual
issues may be resolved by this Court, such as: (1) when the findings are grounded
entirely on speculation, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of facts are conflicting; (6) when in making its findings the CA
went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioner’s main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence
of evidence and contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.21 Exceptions (4), (5), (7),
and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner
claims that the CA erred in construing a fire insurance policy on book debts as
one covering the unpaid accounts of IMC and LSPI since such insurance applies
to loss of the ready-made clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner’s stand.
It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction.22 In this case, the questioned
insurance policies provide coverage for “book debts in connection with ready-made
clothing materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines;”23 and defined book debts as
the “unpaid account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy.”24 Nowhere is it provided in
the questioned insurance policies that the subject of the insurance is the goods
sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not
justify an attempt to read into it any alleged intention of the parties, the terms
are to be understood literally just as they appear on the face of the contract. 25
Thus, what were insured against were the accounts of IMC and LSPI with
petitioner which remained unpaid 45 days after the loss through fire, and not the
loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved
ownership of the goods by stipulating in the sales invoices that “[i]t is further
agreed that merely for purpose of securing the payment of the purchase price the
above described merchandise remains the property of the vendor until the
purchase price thereof is fully paid.”26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller’s risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the
buyer’s risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has been retained by the seller merely to secure performance
by the buyer of his obligations under the contract, the goods are at the buyer’s risk from the time of such
delivery; (Emphasis supplied)
Thus, when the seller retains ownership only to insure that the buyer will pay its
debt, the risk of loss is borne by the buyer.27 Accordingly, petitioner bears the risk
of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods. Unlike
the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one’s interest is
not determined by concept of title, but whether insured has substantial economic
interest in the property.28
Section 13 of our Insurance Code defines insurable interest as “every interest in
property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might directly damnify the
insured.” Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate
interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property
interest in, or a lien upon, or possession of, the subject matter of the insurance,
and neither the title nor a beneficial interest is requisite to the existence of such
an interest, it is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or destroyed by the
peril against which it is insured.29 Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer loss from its destruction.30
Indeed, a vendor or seller retains an insurable interest in the property sold so
long as he has any interest therein, in other words, so long as he would suffer by
its destruction, as where he has a vendor’s lien. 31 In this case, the insurable
interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books
of Account 45 days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner’s argument that it is not liable because the fire is a fortuitous event
under Article 117432 of the Civil Code is misplaced. As held earlier, petitioner
bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of
goods by fire but for petitioner’s accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioner’s obligation is for the
payment of money. As correctly stated by the CA, where the obligation consists in
the payment of money, the failure of the debtor to make the payment even by
reason of a fortuitous event shall not relieve him of his liability. 33 The rationale
for this is that the rule that an obligor should be held exempt from liability when
the loss occurs thru a fortuitous event only holds true when the obligation
consists in the delivery of a determinate thing and there is no stipulation holding
him liable even in case of fortuitous event. It does not apply when the obligation
is pecuniary in nature.34
Under Article 1263 of the Civil Code, “[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation.” If the
obligation is generic in the sense that the object thereof is designated merely by its class or
genus without any particular designation or physical segregation from all others of the same
class, the loss or destruction of anything of the same kind even without the debtor’s fault
and before he has incurred in delay will not have the effect of extinguishing the obligation.35
This rule is based on the principle that the genus of a thing can never perish. Genus
nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by
fortuitous loss of any specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters
immaterial to this case. What is relevant here is whether it has been established
that petitioner has outstanding accounts with IMC and LSPI. With respect to
IMC, the respondent has adequately established its claim. Exhibits “C” to “C-22”38
show that petitioner has an outstanding account with IMC in the amount of
P2,119,205.00. Exhibit “E”39 is the check voucher evidencing payment to IMC.
Exhibit “F”40 is the subrogation receipt executed by IMC in favor of respondent
upon receipt of the insurance proceeds. All these documents have been properly
identified, presented and marked as exhibits in court. The subrogation receipt, by
itself, is sufficient to establish not only the relationship of respondent as insurer
and IMC as the insured, but also the amount paid to settle the insurance claim.
The right of subrogation accrues simply upon payment by the insurance company
of the insurance claim.41 Respondent’s action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. x x x
Petitioner failed to refute respondent’s evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of
action. No evidentiary weight can be given to Exhibit “F Levi Strauss,” 42 a letter
dated April 23, 1991 from petitioner’s General Manager, Stephen S. Gaisano, Jr.,
since it is not an admission of petitioner’s unpaid account with LSPI. It only
confirms the loss of Levi’s products in the amount of P535,613.00 in the fire that
razed petitioner’s building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no
subrogation receipt was offered in evidence. Thus, there is no evidence that
respondent has been subrogated to any right which LSPI may have against
petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner’s
case for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATION that the order to pay the amount of P535,613.00 to respondent is DELETED for
lack of factual basis. No pronouncement as to costs. SO ORDERED.
 Petition partly granted, assailed decision and resolution affirmed with modification.

Note.—The filing of a claim with the carrier within the time limitation therefore actually
constitutes a condition precedent to the accrual of a right of action against a carrier for loss of or damage
to the goods. (Federal Express Corporation vs. American Home Assurance Company, 437 SCRA 50 [2004])