1
FIRST DIVISION 5. Philippine British Insurance Company for P500,000 under Fire Insurance Policy
G.R. No. 85624 June 5, 1989
CATHAY INSURANCE CO., INC., EMPIRE INSURANCE CO., UNION INSURANCE
SOCIETY OF CANTON, LTD., PARAMOUNT INSURANCE CORP., PHILIPPINE BRITISH
INSURANCE CO., & PHILIPPINE FIRST INSURANCE CO., petitioners,
vs.
HON. COURT OF APPEALS & EMILIA CHAN LUGAY, respondents.
GRIÑO-AQUINO, J.:
It has been the sad experience of many who sought protection from disaster or
tragedy through insurance, to realize that insurance is quite easy to buy but difficult
to collect. Insurance companies are prone to invent excuses to avoid their just
obligations (American Home Ins. Co. vs. Court of Appeals, 109 SCRA 180). This case
is one such instance.
Eight (8) years after Emilia Chan Lugay's Cebu Filipina Press was destroyed by fire in
broad daylight, she is still waiting to collect the proceeds of seven (7) fire policies
which the petitioners sold to her.
The petitioners are the six (6) insurance companies that issued fire insurance
policies for the total sum of P4,000,000 to the Cebu Filipino Press of Cebu City, as
follows:
1. Cathay Insurance Company for P1,000,000 under Fire Insurance Policy No. F-
31056 dated June 10, 1981 renewing Policy No. F27942 (Exh-B-5), covering the
period from June 20, 1981 to June 20, 1982 (Exh-B);
2. Empire Insurance Company for P500,000 under Fire Insurance Policy No.
YASCO/F-1101 dated March 7, 1981, renewing Policy No. F-1095 (Exh. C-5), covering
the period from March 19, 1981 to March 19, 1982 (Exh. C);
3. Union Insurance Society of Canton, Ltd, for P500,000 under Fire Insurance Policy
No. NU-0530 dated May 5, 1981, renewing Policy No. MU-223903 (Exh. D-5),
covering the period from May 21, 1981 to May 21, 1982 (Exh. D);
4. Paramount Insurance Corp. for P500,000 under Fire Insurance Policy No. 25311
dated July 1, 1981, covering the period from July 15, 1981 to July 15, 1982 (Exh. E);
No. PB-107861 dated July 6, 1981, renewing Policy No. PB-933 11 (Exh. F-5),
covering the period from July 10, 1981 to July 10, 1982 (Exh. F).
6. Philippine British Insurance Company for P500,000 under another Fire Insurance
Policy No. PB-107848 dated July 1, 1981, renewing Policy No. PB-102653 (Exh G-5),
covering the period from July 5, 1981 to July 5, 1982 (Exh. G); and
7. Philippine First Insurance Company for P500,000 under Fire Insurance Policy No.
CEB-G-0515 dated January 28, 1981, covering the period from February 15, 1981 to
February 15, 1982 (Exh. H). (p. 76, Rollo.)
The fire policies described the insured property as "stocks of printing materials,
papers and general merchandise usual to the Assured's trade" (p. 53, Rollo) stored
in a one-storey building of strong materials housing the Cebu Filipina Press located
at UNNO Pres. Quirino cor. Don V. Sotto Sts., Mabolo, Cebu City. The co-insurers
were indicated in each of the policies. All, except one policy (Paramount's), were
renewals of earlier policies issued for the same property.
On December 18, 1981, at around ten o'clock in the morning, the Cebu Filipina
Press was razed by electrical fire together with all the stocks and merchandise
stored in the premises.
On January 15, 1982, Mrs. Lugay, owner and operator of the printing press,
submitted sworn Statements of Loss Formal Claims to the insurers, through their
adjusters. She claimed a total loss of P4,595,00.
She submitted proofs of loss required by the adjusters. After nearly ten (10) months
of wating for the insurers to pay his claim, she sued to collect on December 15,
1982. The insurance companies denied liability, alleging violation of certain
conditions of the policy, misdeclaration, and even arson which was not seriously
pressed for, come the pre-trial, the petitioners offered to pay 50% of her claim, but
she insisted in full recovery.
After the trial on the merits, the court rendered judgment in her favor, as follows:
... directing payment by Cathay Insurance Company, Inc., the amount of
P1,000,000, by Empire the amount of P5,000,000.00, by Insurance Society
of Canton Limited the amount P5,000,000.00, by Paramount Insurance
Company, the amount P5,000,000.00, by Philippine British Insurance

Company Inc., the amount of P5,000,000.00 by Philippine First Insurance
Company, Inc., the amount of P5,000,000.00; for all the defendants jointly
and severaly to pay P48,000.00 representing expenses of the plaintiff, and
a separate amount of 20% of the P4,000,000.00 representing fees of
councel; and interests at the rate of twice the ceiling being prescribe by
the Monetary Board starting from the time when the case was filed; and
finally, with costs. (Decision Court of Appeal, pp. 1-3.) (p. 77, Rollo.)
On appeal to the Court of Appeals, the decision was affirmed in toto (pp. 52-67,
Rollo). Hence, this petition for review under Rule 45 of the Rules of Court wherein
the petitioners allege that the Court of Appeals erred:
1. in holding that the private respondent's cause of action had already
acrued when the complaint was filed on December 15, 1982 and in not
holding that the action is premature;
2. in finding that sufficient proofs of loss had been presented by the
private respondent;
3. in not holding that the private respondent's claim for loss was infrated;
4. in awarding damages to the private respondent in the form of interests
equivalent to double the interest ceiling set by the Monetary Board
despite absence of a finding of unreasonable withholding or refusal to pay
the claim; and
5. in awarding exorbitant attorney's fees.
It is plain to see that all these grounds of the petition for review present factual
issues which, in view of the provision in Section 2, Rule 45 of the Rules of Court that
"only questions of law may be raised" this Court may not inquire into by conducting
a tedious reassessment of the "maze of testimonial and documentary evidence" (p.
57, Rollo) of the parties. Referring to the evidence presented at the trial of this case,
the Court of Appeals said:
We are impressed indeed with the patience, diligence and perseverance of
the trial judge in wading through the voluminous documents, making an
exhaustive examination and detailed evaluation of the evidence, and thus
emerging from the maze of testimonial and documentary evidence with
accuracy of perception in determining the merits of the respective claims
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of the litigants. Accordingly, We are constrained to honor and stamp
our imprimatur to the findings of fact and conclusions of the trial court
since, admittedly, it was in a better position than We are to examine the
real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case (Chase vs. Buencamino, Sr., 136 SCRA 365). (p. 57,
Rollo.)
The finding of the trial court and the Court of Appeals that the insured's cause of
action had already accrued before she filed her complaint is supported by Section
243 of the Insurance Code which fixes a maximum period of 90 days after receipt of
the proofs of loss by the insurer for the latter to pay the insured s claim.
Sec. 243. The amount of any loss or damage for which an insurer may be
liable, under any policy other than the insurance policy, shall be paid
within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between
the insured and the insurer or by arbitration; but if such ascertainiment is
not had or made within sixty days after such receipt by the insurer of the
proof of loss, then the loss or damage shall be paid within ninetydays after
such receipt. ... (Insurance Code.)
As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981
and the proofs of loss were submitted from January 15, 1982 through June 21, 1982
in compliance with the adjusters' numerous requests for various documents,
payment should have been made within 90 days thereafter, or on or before
September 21, 1982. Hence, when the assured file her complaint on December 15,
1982, her cause of action had a ready accrued.
There is no merit in the petitioners' contention that the proof of loss were
insufficient because respondent Emilia Chan Luga failed to comply with the
adjuster's request for the submission of her bank statements. Condition No. 13 of
the insurance policy on proofs of loss, provides:
13. The insured shall give immediate written notice to th company of any
loss, protect the property from further damage, forth with separate the
damaged and undamaged personal property, put it in the best possible
order, furnish a complete inventory of the destroyed damaged and
undamaged property, showing in detail quantities, costs, actual cash value
and the amount of loss claimed; AN WITHIN SIXTY DAYS AFTER THE LOSS,
UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE
INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS signed and

sworn to by the insured, stating the knowledge and belief of th insured as
to the following: the time and origin of the loss, the interest of the insured
and of all others in the property, the actual cash value of each item thereof
and the amount of loss thereto, all encumbrances thereon, all other
contracts of insurance, whether valid or not covering any of said property,
any changes in the title, use, occupation, location, possession or exposures
of said property since the issuing of this policy, by whom and for what
purpose any buildings herein described and the several parts thereof were
occupied at the time of the loss and whether or not they stood on leased
ground, and shall furnish a copy of all the descriptions and schedules in all
policies and, if required, verified plans and specifications of any building,
fixtures or machine destroyed or damaged. The insured as often as may be
reasonable required shall exhibit to any person designated by the
Company all that remains of any property therein described, and submit to
examination under oath by any person named by the Company, and
subscribe the same; as often as may be reasonably required, shall produce
for examination all books of account, bills, invoices, and other vouchers, or
certified copies thereof if originals be lost. At such reasonable time and
place as may be designated by the Company or its representative, and shall
permit extracts and copies thereof to be made.
No claim under this policy shall be payable unless the terms of this
condition have been complied with. (pp. 55-56, Rollo.)
Condition No. 13, as the Court of Appeals observed, does not require the insured to
produce her bank statements. Therefore, the insured was not obligated to produce
them and the insurers had no right to ask for them. Condition No. 13 was prepared
by the insurers themselves, hence, it "should be taken most strongly" (p. 58, Rollo)
against them.
The Court of Appeals found that the insured "fully complied with the requirements
of Condition No. 13" (p. 58, Rollo). The adjuster's demand for the assured's bank
statements (which under the law on the secrecy of bank deposits, she need not
disclose) would add more requirements to Condition No. 13 of the insurance
contract, and, as pointed out by the Appellate Court, "would amount to giving the
insurers limitless latitude in making unreasonable demands if only to evade and
avoid liability" (p. 58, Rollo).
Nor was the claim inflated. Both the trial court and the Court of Appeals noted that
the proofs were ample and "more than enough ... for defendants (insurers) to do a
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just assessment supporting the 1981 fire claim for an amount exceeding four million
pesos" (p. 60, Rollo).
The trial court's award (which was affirmed by the Court of Appeals) of double
interest on the private respondent's claim is lawful and justified under Sections 243
and 244 of the Insurance Code which provide:
Sec. 243. ... Refusal or failure to pay the loss or damage within the time
prescribed herein will entitle the assured to collect interest on the proceeds
of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, ...
Sec. 244. In case of any litigation for the enforcement of any policy or
contract of insurance, it shall be the duty of the Commissioner or the
Court, as the case may be, to make a finding as to whether the payment of
the claim of the insured has been unreasonably denied or withheld; and in
the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist attorney's fees and other expenses incurred by
the insured person by reason of such unreasonable denial or withholding
of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of claim due the insured, ... (Emphasis supplied; p. 66,
Rollo.)
Section 243 of the Insurance Code is in fact embodied in provision No. 29 of the
policies issued by the petitioners to th private respondents (p. 82, Rollo).
The petitioners' contention that the charging of double interest was improper
because no unreasonable delay in the processing of the fire claim was proven, is
refuted by the trial court' explicit finding that "there was a delay that was not
reasonable in processing the claim and doing payments" (p. 81, Rollo). Under
Section 244, a prima facie evidence of unreasonable delay in payment of the claim
is created by the failure of the insurer to pay the claim within the time fixed in both
Section 242 and 243 of the Insurance Code.
As provided in Section 244 also, by reason of the delay and consequent filing of this
suit by the insured, the insurers "shall be adjudged to pay damages which shall
consist of attorney's fees and other expenses incurred by the insured." In view of
the not insubstantial value of the private respondent's claims and the considerable
time and effort expended by them and their counsel in prosecuting these claims for
the past eight (8) years, We hold that attorney's fees were properly awarded to the
private respondents. However, an award equivalent to (10%) percent of the
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proceeds of the policies would be more reasonable than the 20% awarded by the
trial court and th Appellate Court.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. CV-12100 is

affirmed, except the award of attorney's fees to the private respondents which is
hereby reduced to ten (10%) percent of the proceeds of the insurance policies sued
upon. Costs against the petitioners.

SO ORDERED.
 5

FIRST DIVISION submitting the case for decision without petitioner's evidence. The petition was
docketed as C.A.-G.R. No. 04644. However, the petition was denied due course on
G.R. No. 85296 May 14, 1990 April 29, 1986 (p. 56, Rollo).

ZENITH INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.
MEDIALDEA, J.:
Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No.
13498 entitled, "Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp.,
defendant-appellant" which affirmed in toto the decision of the Regional Trial Court
of Cebu, Branch XX in Civil Case No. CEB-1215 and the denial of petitioner's Motion
for Reconsideration.
On June 4, 1986, a decision was rendered by the trial court in favor of private
respondent Fernandez. The dispositive portion of the trial court's decision provides:
WHEREFORE, defendant is hereby ordered to pay to the plaintiff:
1. The amount of P3,640.00 representing the damage incurred plus interest at the
rate of twice the prevailing interest rates;
2. The amount of P20,000.00 by way of moral damages;
3. The amount of P20,000.00 by way of exemplary damages;

The antecedent facts are as follows: 4. The amount of P5,000.00 as attorney's fees;

On January 25, 1983, private respondent Lawrence Fernandez insured his car for 5. The amount of P3,000.00 as litigation expenses; and
"own damage" under private car Policy No. 50459 with petitioner Zenith Insurance
Corporation. On July 6, 1983, the car figured in an accident and suffered actual 6. Costs. (p. 9, Rollo)
damages in the amount of P3,640.00. After allegedly being given a run around by
Zenith for two (2) months, Fernandez filed a complaint with the Regional Trial Court
Upon motion of Fernandez and before the expiration of the period to appeal, the
of Cebu for sum of money and damages resulting from the refusal of Zenith to pay
trial court, on June 20, 1986, ordered the execution of the decision pending appeal.
the amount claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside
The order was assailed by petitioner in a petition forcertiorari with the Court of
from actual damages and interests, Fernandez also prayed for moral damages in the
Appeals on October 23, 1986 in C.A. G.R. No. 10420 but which petition was also
amount of P10,000.00, exemplary damages of P5,000.00, attorney's fees of
dismissed on December 24, 1986 (p. 69, Rollo).
P3,000.00 and litigation expenses of P3,000.00.
On June 10, 1986, petitioner filed a notice of appeal before the trial court. The
On September 28, 1983, Zenith filed an answer alleging that it offered to pay the
notice of appeal was granted in the same order granting private respondent's
claim of Fernandez pursuant to the terms and conditions of the contract which, the
motion for execution pending appeal. The appeal to respondent court assigned the
private respondent rejected. After the issues had been joined, the pre-trial was
following errors:
scheduled on October 17, 1983 but the same was moved to November 4, 1983
upon petitioner's motion, allegedly to explore ways to settle the case although at
I. The lower court erred in denying defendant appellant to adduce evidence in its
an amount lower than private respondent's claim. On November 14, 1983, the trial
behalf.
court terminated the pre-trial. Subsequently, Fernandez presented his evidence.
Petitioner Zenith, however, failed to present its evidence in view of its failure to
appear in court, without justifiable reason, on the day scheduled for the purpose. II. The lower court erred in ordering Zenith Insurance Corporation to pay the
The trial court issued an order on August 23, 1984 submitting the case for decision amount of P3,640.00 in its decision.
without Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a petition
for certiorari with the Court of Appeals assailing the order of the trial court

III. The lower court erred in awarding moral damages, attorneys fees and exemplary
damages, the worst is that, the court awarded damages more than what are prayed
for in the complaint. (p. 12,Rollo)
On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the
decision of the trial court. It also ruled that the matter of the trial court's denial of
Fernandez's right to adduce evidence is a closed matter in view of its (CA) ruling in
AC-G.R. 04644 wherein Zenith's petition questioning the trial court's order
submitting the case for decision without Zenith's evidence, was dismissed.
The Motion for Reconsideration of the decision of the Court of Appeals dated
August 17, 1988 was denied on September 29, 1988, for lack of merit. Hence, the
instant petition was filed by Zenith on October 18, 1988 on the allegation that
respondent Court of Appeals' decision and resolution ran counter to applicable
decisions of this Court and that they were rendered without or in excess of
jurisdiction. The issues raised by petitioners in this petition are:
a) The legal basis of respondent Court of Appeals in awarding moral damages,
exemplary damages and attomey's fees in an amount more than that prayed for in
the complaint.
b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was
arrived at after deducting P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of insurance.
Petitioner contends that while the complaint of private respondent prayed for
P10,000.00 moral damages, the lower court awarded twice the amount, or
P20,000.00 without factual or legal basis; while private respondent prayed for
P5,000.00 exemplary damages, the trial court awarded P20,000.00; and while
private respondent prayed for P3,000.00 attorney's fees, the trial court awarded
P5,000.00.
The propriety of the award of moral damages, exemplary damages and attorney's
fees is the main issue raised herein by petitioner.
The award of damages in case of unreasonable delay in the payment of insurance
claims is governed by the Philippine Insurance Code, which provides:
Sec. 244. In case of any litigation for the enforcement of any policy or
contract of insurance, it shall be the duty of the Commissioner or the
6
Court, as the case may be, to make a finding as to whether the payment of
the claim of the insured has been unreasonably denied or withheld; and in
the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist of attomey's fees and other expenses incurred
by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the insured, from the date
following the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the claim is fully
satisfied; Provided, That the failure to pay any such claim within the time
prescribed in said sections shall be considered prima facie evidence of
unreasonable delay in payment.
It is clear that under the Insurance Code, in case of unreasonable delay in the
payment of the proceeds of an insurance policy, the damages that may be awarded
are: 1) attorney's fees; 2) other expenses incurred by the insured person by reason
of such unreasonable denial or withholding of payment; 3) interest at twice the
ceiling prescribed by the Monetary Board of the amount of the claim due the
injured; and 4) the amount of the claim.
As regards the award of moral and exemplary damages, the rules under the Civil
Code of the Philippines shall govern.
"The purpose of moral damages is essentially indemnity or reparation, not
punishment or correction. Moral damages are emphatically not intended to enrich
a complainant at the expense of a defendant, they are awarded only to enable the
injured party to obtain means, diversions or amusements that will serve to alleviate
the moral suffering he has undergone by reason of the defendant's culpable
action." (J. Cezar S. Sangco, Philippine Law on Torts and Damages, Revised Edition,
p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June
22, 1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is necessary
in order that moral damages may be adjudicated, the assessment of which is left to
the discretion of the court according to the circumstances of each case (Art. 2216,
New Civil Code), it is equally true that in awarding moral damages in case of breach
of contract, there must be a showing that the breach was wanton and deliberately
injurious or the one responsible acted fraudently or in bad faith (Perez v. Court of
Appeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No.
L-17022, August 14, 1965; 14 SCRA 887). In the instant case, there was a finding
that private respondent was given a "run-around" for two months, which is the
basis for the award of the damages granted under the Insurance Code for
unreasonable delay in the payment of the claim. However, the act of petitioner of
 7

delaying payment for two months cannot be considered as so wanton or 1) P3,640.00 as actual claim plus interest of twice the ceiling
malevolent to justify an award of P20,000.00 as moral damages, taking into prescribed by the Monetary Board computed from the time of
consideration also the fact that the actual damage on the car was only P3,460. In submission of proof of loss;
the pre-trial of the case, it was shown that there was no total disclaimer by
respondent. The reason for petitioner's failure to indemnify private respondent 2) P10,000.00 as moral damages;
within the two-month period was that the parties could not come to an agreement
as regards the amount of the actual damage on the car. The amount of P10,000.00 3) P5,000.00 as attorney's fees;
prayed for by private respondent as moral damages is equitable.
4) P3,000.00 as litigation expenses; and
On the other hand, exemplary or corrective damages are imposed by way of
example or correction for the public good (Art. 2229, New Civil Code of the
5) Costs.
Philippines). In the case of Noda v. Cruz-Arnaldo, G.R. No. 57322, June 22,1987; 151
SCRA 227, exemplary damages were not awarded as the insurance company had
ACCORDINGLY, the appealed decision is MODIFIED as above stated.
not acted in wanton, oppressive or malevolent manner. The same is true in the case
at bar.
SO ORDERED.
The amount of P5,000.00 awarded as attomey's fees is justified under the
circumstances of this case considering that there were other petitions filed and
defended by private respondent in connection with this case.

As regards the actual damages incurred by private respondent, the amount of

P3,640.00 had been established before the trial court and affirmed by the appellate
court. Respondent appellate court correctly ruled that the deductions of P250.00
and P274.00 as deductible franchise and 20% depreciation on parts, respectively
claimed by petitioners as agreed upon in the contract, had no basis. Respondent
court ruled:

Under its second assigned error, defendant-appellant puts

forward two arguments, both of which are entirely without merit.
It is contented that the amount recoverable under the insurance
policy defendant-appellant issued over the car of plaintiff-
appellee is subject to deductible franchise, and . . . .

The policy (Exhibit G, pp. 4-9, Record), does not mntion any
deductible franchise, . . . (p. 13, Rollo)

Therefore, the award of moral damages is reduced to P10,000.00 and the award of
exemplary damages is hereby deleted. The awards due to private respondent
Fernandez are as follows:

SECOND DIVISION
[G.R. Nos. 128833. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.
LAO, petitioners, vs. COURT OF APPEALS and GOYU & SONS,
INC.,respondents.
D EC I S I O N
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 attorneys fees. GOYUs
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 GOYUs application for
approval by RCBCs executive committee. A credit facility in the amount of P30
million was initially granted. Upon GOYUs application and Uys and Laos
recommendation, RCBCs executive committee increased GOYUs 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
8
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 GOYUs 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. No. 128833 and 128866.
RCBC, one of GOYUs 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 GOYUs claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the
Regional Trial Court of Manila (Branch 3), confirmed that GOYUs 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 insurers 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, attorneys 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.
9
(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 courts findings of liability on their part. The Court of Appeals partly granted
GOYUs appeal, but sustained the findings of the trial court with respect to MICO
and RCBCs 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 attorneys fees.
4. And on RCBCs 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 the 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. No. 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 RCBCs 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., MICOs 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
10
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 GOYUs 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 mortgagor RCBC. The basis and purpose of the
doctrine was explained inPhilippine 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. (p. 368.)
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 GOYUs 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 Alchesters 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 GOYUs 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 RCBCs 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 GOYUs 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 MICOs 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.
11
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 cannot 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 laws 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
case, only 8 of them appear to have been subject of the endorsements prepared
and delivered by Alchester for and upon instructions of GOYU as shown below:
INSURANCE POLICY PARTICULARS ENDORSEMENT
a. Policy Number : F-114-07795 None
Issue Date : March 18, 1992
Expiry Date : April 5, 1993
Amount : P9,646,224.92

b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan
Issue Date : January 18, 1992
Expiry Date : February 9, 1993
Amount : P4,307,217.54
c. Policy Number : ACIA/F-114-07661 Exhibit 2-Malayan
Issue Date : January 18, 1992
Expiry Date : February 15, 1993
Amount : P6,603,586.43
d. Policy Number : ACIA/F-114-07662 Exhibit 3-Malayan
Issue Date : January 18, 1992
Expiry Date : (not legible)
Amount : P6,603,586.43
e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan
Issue Date : January 18, 1992
Expiry Date : February 9, 1993
Amount : P9,457,972.76
f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan
Issue Date : January 13, 1992
Expiry Date : January 13, 1993
Amount : P24,750,000.00
12
g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan
Issue Date : May 29, 1991
Expiry Date : June 27, 1992
Amount : P6,000,000.00
h. Policy Number : CI/F-128-03341 None
Issue Date : May 3, 1991
Expiry Date : May 3, 1992
Amount : P10,000,000.00
i. Policy Number : F-114-07402 Exhibit 8-Malayan
Issue Date : September 16, 1991
Expiry Date : October 19, 1992
Amount : P32,252,125.20
j. Policy Number : F-114-07525 Exhibit 9-Malayan
Issue Date : November 20, 1991
Expiry Date : December 5, 1992
Amount : P6,603,586.43
(pp. 456-457, Record; Folder of Exhibits for MICO.)
Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was
admitted by MICOs witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise,
the record shows no endorsement for Policy Number CI/F-128-03341 [(h)
above]. Also, one of the endorsement documents, Exhibit 5-Malayan, refers to a

certain insurance policy number ACIA-F-07066, which is not among the insurance
policies involved in the complaint.
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 GOYUs other
creditors up to the extent of the GOYUs outstanding obligation in RCBCs
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 GOYUs obligation with
RCBC, the interest of GOYU in the subject policies had been transferred to RCBC
effective as of the time of the endorsement. These policies may no longer be
attached by the other creditors of GOYU, like Alfredo Sebastian in the present G.R.
No. 128834, which may nonetheless forthwith be dismissed for being moot and
academic in view of the results reached herein. Only the two other policies
amounting to P19,646,224.92 may be validly attached, garnished, and levied upon
by GOYUs other creditors. To the extent of GOYUs outstanding obligation with
RCBC, all the rest of the other insurance policies above-listed which were endorsed
to RCBC, are, therefore, to be released from attachment, garnishment, and levy by
the other creditors of GOYU.
This brings us to the next relevant issue to be resolved, which is, the extent of
GOYUs outstanding obligation with RCBC which the proceeds of the 8 insurance
policies will discharge and liquidate, or put differently, the actual amount of GOYUs
liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial court finding that
GOYUS total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus
sanctioning the trial courts exclusion of Promissory Note No. 421-92 (renewal of
Promissory Note No. 908-91) and Promissory Note No. 420-92 (renewal of
Promissory Note No. 952-91) on the ground that their execution is highly
questionable for not only are these dated after the fire, but also because the
signatures of either GOYU or any its representative are conspicuously absent.
Accordingly, the Court of Appeals speculated thusly:
Hence, this Court is inclined to conclude that said promissory notes were pre-signed
by plaintiff in blank terms, as averred by plaintiff, in contemplation of the speedy
grant of future loans, for the same practice of procedure has always been adopted
in its previous dealings with the bank.
(Rollo, pp. 181-182.)
13
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
ordinary course of business had been followed (Metropolitan Bank and Trust
Company vs. Quilts and All, Inc., 222 SCRA 486 [1993]). The obligor and not the
holder of the negotiable instrument has the burden of proof of showing that he no
longer owes the obligee any amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA
351 [1992]).
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 No. 420-92 and 421-92 are
mere renewals of Promissory Notes No. 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 GOYUs 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 GOYUs 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
Principal[1] Interest
Regular 80,535,946.32
14
FDU 7,548,025.17
____________ _____________
Total: 108,083,971.49 8,218,021.11[2]
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
9,055,104.70[3]
NET AMOUNT as of January 21, 1993: P 107,246,887.90
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 RCBCs existence and being, was duly recognized by the trial court when
it ruled favorably on RCBCs 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 courts 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 RCBCs 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 latters 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
15
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 GOYUs
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 a 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 GOYUs offer to pay the amount of
P116,301,992.60 to RCBC as 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; 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. The problem in the determination of
who is the actual beneficiary of the insurance policies, aggravated by the claim of
various creditors who wanted to partake of the insurance proceeds, not to mention
the importance of the endorsement to RCBC, to our mind, and as now borne out by
the outcome herein, justified MICO in withholding payment to GOYU.
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 an unpaid
creditor, one for specific performance and the other for foreclosure. In 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 was too
16
accommodating in giving due consideration to this argument of GOYU, for the
foreclosure suit is still pending appeal before the same Court of Appeals in CA G.R
CV No. 46247, the case having been elevated by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the
Court of Appeals pre-empted the resolution of said foreclosure case which is not
before it. This is plain reversible error if not grave abuse of discretion.
As held in Pea vs. Court of Appeals (245 SCRA 691[1995]):
It should have been enough, nonetheless, for the appellate court to merely set
aside the questioned orders of the trial court for having been issued by the latter
with grave abuse of discretion. In likewise enjoining permanently herein petitioner
from entering in and interfering with the use or occupation and enjoyment of
petitioners (now private 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 principal case still pending
with the trial court. In Municipality of Bian, Laguna vs. Court of Appeals, 219 SCRA
69, we ruled that the Court of Appeals would have no jurisdiction in
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.
(pp. 701-702.)
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 hereby REVERSED
and SET ASIDE, and a new one entered:
1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442
before Branch 3 of the Manila Regional Trial Court for lack of merit;
2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial
Banking Corporation the proceeds of the insurance policies in the amount of

P51,862,390.94 (per 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);
3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including
the interests earned to Rizal Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial
Banking Corporation in the principal amount of P107,246,887.90, with interest at
the respective 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, 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 at the time of the finality of this judgment
shall earn interest at the legal rate of 12% in lieu of all other stipulated interests and
charges until fully paid.
The petition of Rizal Commercial Banking Corporation against the respondent Court
in CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results
herein arrived at. Respondent Sebastians right as attaching creditor must yield to
the preferential rights of Rizal Commercial Banking Corporation over the Malayan
insurance policies as first mortgagee.
SO ORDERED.
Facts:
> GOYU applied for credit facilities and accommodations with RCBC. After due
evaluation, a credit facility in the amount of P30 million was initially granted. Upon
GOYU's application increased GOYU's credit facility to P50 million, then to P90
million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two
CM in favor of RCBC, which were registered with the Registry of Deeds at. Under
each of these four mortgage contracts, GOYU committed itself to insure the
mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In
February 1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU
17
obtained the Malayan insurance policies, issued nine endorsements in favor of
RCBC seemingly upon instructions of GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by
fire. Consequently, GOYU submitted its claim for indemnity.
> MICO denied the claim on the ground that the insurance policies were either
attached pursuant to writs of attachments/garnishments issued by various courts or
that the insurance proceeds were also claimed by other creditors of GOYU alleging
better rights to the proceeds than the insured.
> GOYU filed a complaint for specific performance and damages. RCBC, one of
GOYU's creditors, also filed with MICO its formal claim over the proceeds of the
insurance policies, but said claims were also denied for the same reasons that AGCO
denied GOYU's claims.
> However, because the endorsements do not bear the signature of any officer of
GOYU, the trial court, as well as the Court of Appeals, concluded that the
endorsements are defective and held that RCBC has no right over the insurance
proceeds.
Issue:
Whether or not RCBC has a right over the insurance proceeds.
Held:
RCBC has a right over the insurance proceeds.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may insure
the same property for his own sole benefit. There is no question that GOYU could
insure the mortgaged property for its own exclusive benefit. In the present case,
although it appears that GOYU obtained the subject insurance policies naming itself
as the sole payee, the intentions of the parties as shown by their contemporaneous

acts, must be given due consideration in order to better serve the interest of justice
and equity.
It is to be noted that 9 endorsement documents were prepared by Alchester in
favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of
endorsing any specific insurance policy in favor of any particular beneficiary or
payee other than the insured had not such named payee or beneficiary been
specifically disclosed by the insured itself. It is also significant that GOYU voluntarily
and purposely took the insurance policies from MICO, a sister company of RCBC,
and not just from any other insurance company. Alchester would not have found
out that the subject pieces of property were mortgaged to RCBC had not such
information been voluntarily disclosed by GOYU itself. Had it not been for GOYU,
Alchester would not have known of GOYU's intention of obtaining insurance
coverage in compliance with its undertaking in the mortgage contracts with RCBC,
and verify, Alchester would not have endorsed the policies to RCBC had it not been
so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is
constrained to rule in favor of mortgagor RCBC. RCBC, in good faith, relied upon the
endorsement documents sent to it as this was only pursuant to the stipulation in
the mortgage contracts. We find such reliance to be justified under the
circumstances of the case. GOYU failed to seasonably repudiate the authority of the
person or persons who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities extended to
it by RCBC. After the occurrence of the loss insured against, it was too late for GOYU
to disown the endorsements for any imagined or contrived lack of authority of
Alchester to prepare and issue said endorsements. If there had not been actually an
implied ratification of said endorsements by virtue of GOYU's inaction in this case,
GOYU is at the very least estopped from assailing their operative effects.
To permit GOYU to capitalize on its non-confirmation of these endorsements while
it continued to enjoy the benefits of the credit facilities of RCBC which believed in
good faith that there was due endorsement pursuant to their mortgage contracts, is
to countenance grave contravention of public policy, fair dealing, good faith, and
18
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 cannot over stress the fact that upon receiving its copies of the
endorsement documents prepared by Alchester, GOYU, despite the absence
written conformity thereto, obviously considered said endorsement to be sufficient
 19

compliance with its obligation under the mortgage contracts since RCBC accordingly charging of interest for loans forms a very essential and fundamental element of
continued to extend the benefits of its credit facilities and GOYU continued to the banking business.

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 Petitions granted.
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.

FACTS

GOYU was granted credit facilities and accommodations by the RCBC initially in the
amount of P 30 million. Upon GOYU’s application, the credit was increased to P50
Million, then P90 Million, then P117 Million. As security, GOYU executed 2 REM and
2 CM in favor of RCBC, which were registered with the RD. Under the 4 contracts,
GOYU committed itself to insure the mortgaged properties with an insurance
company approved by RCBC, and subsequently endorse and deliver the insurance
policies to RCBC. GOYU then obtained 10 policies from MICO. GOYU’s buildings
were gutted by fire and it claimed indemnity from MICO but the latter 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 proceeds
were also claimed by other creditors of GOYU. GOYU, alleging better rights to the
proceeds, filed for specific performance and damges before the RTC of Manila Br 3.
The trial court ruled in favor of GOYU for the fire loss claims but ordered it to pay
RCBC its loan obligations. On appeal to the CA, it affirmed the ruling with regard to
the liabilities of MICO and RCBC. The trial court and appellate courts both held that,
since the endorsements do not bear the signature of any officer of GOYU, they
concluded that the endorsements are defective. The CA then ordered GOYU to pay
its obligation to RCBC without any interest, surcharges and penalties.

ISSUE: Whether or not the ruling of the appellate court is correct.

HELD

The Court held in the negative. The essence or rationale for the payment of interest
or cost of money is separate and distinct from that of surcharges and penalties. The

SECOND DIVISION
G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a restraining order
and preliminary mandatory injunction to annul and set aside the decision of the
Court of Appeals dated July 11, 1991, 1 affirming the decision dated March 20, 1990
of the Insurance Commission 2 in ordering petitioner Finman General Assurance
Corporation to pay private respondent Julia Surposa the proceeds of the personal
accident Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie Surposa was
insured with petitioner Finman General Assurance Corporation under Finman
General Teachers Protection Plan Master Policy No. 2005 and Individual Policy No.
08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect, the insured, Carlie Surposa,
died on October 18, 1988 as a result of a stab wound inflicted by one of the three
(3) unidentified men without provocation and warning on the part of the former as
he and his cousin, Winston Surposa, were waiting for a ride on their way home
along Rizal-Locsin Streets, Bacolod City after attending the celebration of the
"Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy
filed a written notice of claim with the petitioner insurance company which denied
said claim contending that murder and assault are not within the scope of the
coverage of the insurance policy.
On February 24, 1989, private respondent filed a complaint with the Insurance
Commission which subsequently rendered a decision, the pertinent portion of
which reads:
20
In the light of the foregoing. we find respondent liable to pay complainant
the sum of P15,000.00 representing the proceeds of the policy with
interest. As no evidence was submitted to prove the claim for mortuary aid
in the sum of P1,000.00, the same cannot be entertained.
WHEREFORE, judgment is hereby rendered ordering respondent to pay
complainant the sum of P15,000.00 with legal interest from the date of the
filing of the complaint until fully satisfied. With costs. 4
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion on the part of
the appellate court in applying the principle of "expresso unius exclusio alterius" in a
personal accident insurance policy since death resulting from murder and/or assault
are impliedly excluded in said insurance policy considering that the cause of death
of the insured was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone stab wound on
the insured. Therefore, said death was committed with deliberate intent which, by
the very nature of a personal accident insurance policy, cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without one's foresight or expectation — an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected.
. . . The generally accepted rule is that, death or injury does not result from accident
or accidental means within the terms of an accident-policy if it is the natural result
of the insured's voluntary act, unaccompanied by anything unforeseen except the
death or injury. There is no accident when a deliberate act is performed unless
some additional, unexpected, independent, and unforeseen happening occurs
which produces or brings about the result of injury or death. In other words, where
the death or injury is not the natural or probable result of the insured's voluntary
act, or if something unforeseen occurs in the doing of the act which produces the
injury, the resulting death is within the protection of the policies insuring against
death or injury from accident. 5

As correctly pointed out by the respondent appellate court in its decision:
In the case at bar, it cannot be pretended that Carlie Surposa died in the course of
an assault or murder as a result of his voluntary act considering the very nature of
these crimes. In the first place, the insured and his companion were on their way
home from attending a festival. They were confronted by unidentified persons. The
record is barren of any circumstance showing how the stab wound was inflicted.
Nor can it be pretended that the malefactor aimed at the insured precisely because
the killer wanted to take his life. In any event, while the act may not exempt the
unknown perpetrator from criminal liability, the fact remains that the happening
was a pure accident on the part of the victim. The insured died from an event that
took place without his foresight or expectation, an event that proceeded from an
unusual effect of a known cause and, therefore, not expected. Neither can it be said
that where was a capricious desire on the part of the accused to expose his life to
danger considering that he was just going home after attending a festival. 6
Furthermore, the personal accident insurance policy involved herein specifically
enumerated only ten (10) circumstances wherein no liability attaches to petitioner
insurance company for any injury, disability or loss suffered by the insured as a
result of any of the stimulated causes. The principle of " expresso unius exclusio
alterius" — the mention of one thing implies the exclusion of another thing — is
therefore applicable in the instant case since murder and assault, not having been
expressly included in the enumeration of the circumstances that would negate
liability in said insurance policy cannot be considered by implication to discharge
the petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to
include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from
liability for such death.
Article 1377 of the Civil Code of the Philippines provides that:
The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.
Moreover, it is well settled that contracts of insurance are to be construed liberally
in favor of the insured and strictly against the insurer. Thus ambiguity in the words
of an insurance contract should be interpreted in favor of its beneficiary. 7
21
WHEREFORE, finding no irreversible error in the decision of the respondent Court of
Appeals, the petition forcertiorari with restraining order and preliminary injunction
is hereby DENIED for lack of merit.
SO ORDERED.
FACTS:
[P]etitioner filed this petition alleging grove abuse of discretion on the part of the
appellate court in applying the principle of “expresso unius exclusio alterius” in a
personal accident insurance policy since death resulting from murder and/or assault
are impliedly excluded in said insurance policy considering that the cause of death
of the insured was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone stab wound on
the insured. Therefore, said death was committed with deliberate intent which, by
the very nature of a personal accident insurance policy, cannot be indemnified.
ISSUE:Whether or not death petitioner is correct that results from assault or
murder deemed are not included in the terms “accident” and “accidental”.
HELD:
NO. Petition for certiorari with restraining order and preliminary injunction was
denied for lack of merit.
RATIO:
The terms “accident” and “accidental” as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without one’s foresight or expectation — an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected.
[I]t is well settled that contracts of insurance are to be construed liberally in favor of
the insured and strictly against the insurer. Thus ambiguity in the words of an
insurance contract should be interpreted in favor of its beneficiary.

SECOND DIVISION
G.R. No. 78848 November 14, 1988
SHERMAN SHAFER, petitioner,
vs.
HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75, and
MAKATI INSURANCE COMPANY, INC., respondents.
PADILLA, J.:
This is a petition for review on certiorari of the Order * of the Regional Trial Court,
Olongapo City, Branch 75, dated 24 April 1986 dismissing petitioner's third party
complaint filed in Criminal Case No. 381-85, a prosecution for reckless imprudence
resulting in damage to property and serious physical injuries. 1
On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA No.
0889, 2 over his Ford Laser car with Plate No. CFN-361 from Makati Insurance
Company, Inc., for third party liability (TPL).<äre||anº•1àw> During the effectivity
of the policy, an information 3 for reckless imprudence resulting in damage to
property and serious physical injuries was filed against petitioner. The information
reads as follows:
That on or about the seventeeth (17th) day of May 1985, in the City of
Olongapo, Philippines, and within the jurisdiction of this Honorable Court,
the above-named accused, being then the driver and in actual physical
control of a Ford Laser car bearing Plate No. CFN-361, did then and there
wilfully, unlawfully and criminally drive, operate and manage the said Ford
Laser car in a careless, reckless and imprudent manner without exercising
reasonable caution, diligence and due care to avoid accident to persons
and damage to property and in disregard of existing traffic rules and
regulations, causing by such carelessness, recklessness and imprudence
the said Ford Laser car to hit and bump a Volkswagen car bearing Plate No.
NJE-338 owned and driven by Felino llano y Legaspi, thereby causing
damage in the total amount of P12,345.00 Pesos, Philippine Currency, and
as a result thereof one Jovencio Poblete, Sr. who was on board of the said
Volkswagen car sustained physical injuries, to wit:
1. 2 cm. laceration of left side of tongue.
22
2. 6 cm. laceration with partial transection of muscle (almost full thickness) left side
of face.
3. Full thickness laceration of lower lip and adjacent skin. which injuries causing [sic]
deformity on the face. 4
The owner of the damaged Volkswagen car filed a separate civil action against
petitioner for damages, while Jovencio Poblete, Sr., who was a passenger in the
Volkswagen car when allegedly hit and bumped by the car driven by petitioner, did
not reserve his right to file a separate civil action for damages. Instead, in the
course of the trial in the criminal case, Poblete, Sr. testified on his claim for
damages for the serious physical injuries which he claimed to have sustained as a
result of the accident.
Upon motion, petitioner was granted leave by the former presiding judge of the
trail court to file a third party complaint against the herein private respondent,
Makati Insurance Company, Inc. Said insurance company, however, moved to
vacate the order granting leave to petitioner to file a third party complaint against it
and/or to dismiss the same. 5
On 24 April 1987, the court a quo issued an order dismissing the third party
complaint on the ground that it was premature, based on the premise that unless
the accused (herein petitioner) is found guilty and sentenced to pay the offended
party (Poblete Sr.) indemnity or damages, the third party complaint is without cause
of action. The court further stated that the better procedure is for the accused
(petitioner) to wait for the outcome of the criminal aspect of the case to determine
whether or not the accused, also the third party plaintiff, has a cause of action
against the third party defendant for the enforcement of its third party liability
(TPL) under the insurance contract.6 Petitioner moved for reconsideration of said
order, but the motion was denied; 7 hence, this petition.
It is the contention of herein petitioner that the dismissal of the third party
complaint amounts to a denial or curtailment of his right to defend himself in the
civil aspect of the case. Petitioner further raises the legal question of whether the
accused in a criminal action for reckless imprudence, where the civil action is jointly
prosecuted, can legally implead the insurance company as third party defendant
under its private car insurance policy, as one of his modes of defense in the civil
aspect of said proceedings.
On the other hand, the insurance company submits that a third party complaint is,
under the rules, available only if the defendant has a right to demand contribution,

indemnity, subrogation or any other relief in respect of plaintiff's claim, to minimize
the number of lawsuits and avoid the necessity of bringing two (2) or more suits
involving the same subject matter. The insurance company further contends that
the contract of motor vehicle insurance, the damages and attorney's fees claimed
by accused/third party plaintiff are matters entirely different from his criminal
liability in the reckless imprudence case, and that petitioner has no cause of action
against the insurer until petitioner's liability shall have been determined by final
judgment, as stipulated in the contract of insurance. 8
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is
primarily intended to provide compensation for the death or bodily injuries suffered
by innocent third parties or passengers as a result of a negligent operation and use
of motor vehicles. 9 The victims and/or their dependents are assured of immediate
financial assistance, regardless of the financial capacity of motor vehicle owners.
The liability of the insurance company under the Compulsory Motor Vehicle Liability
Insurance is for loss or damage. Where an insurance policy insures directly against
liability, the insurer's liability accrues immediately upon the occurrence of the injury
or event upon which the liability depends, and does not depend on the recovery of
judgment by the injured party against the insured. 10
The injured for whom the contract of insurance is intended can sue directly the
insurer. The general purpose of statutes enabling an injured person to proceed
directly against the insurer is to protect injured persons against the insolvency of
the insured who causes such injury, and to give such injured person a certain
beneficial interest in the proceeds of the policy, and statutes are to be liberally
construed so that their intended purpose may be accomplished. It has even been
held that such a provision creates a contractual relation which inures to the benefit
of any and every person who may be negligently injured by the named insured as if
such injured person were specifically named in the policy. 11
In the event that the injured fails or refuses to include the insurer as party
defendant in his claim for indemnity against the insured, the latter is not prevented
by law to avail of the procedural rules intended to avoid multiplicity of suits. Not
even a "no action" clause under the policy-which requires that a final judgment be
first obtained against the insured and that only thereafter can the person insured
recover on the policy can prevail over the Rules of Court provisions aimed at
avoiding multiplicity of suits. 12
In the instant case, the court a quo erred in dismissing petitioner's third party
complaint on the ground that petitioner had no cause of action yet against the
23
insurance company (third party defendant). There is no need on the part of the
insured to wait for the decision of the trial court finding him guilty of reckless
imprudence. The occurrence of the injury to the third party immediately gave rise
to the liability of the insurer under its policy.
A third party complaint is a device allowed by the rules of procedure by which the
defendant can bring into the original suit a party against whom he will have a claim
for indemnity or remuneration as a result of a liability established against him in the
original suit. 13 Third party complaints are allowed to minimize the number of
lawsuits and avoid the necessity of bringing two (2) or more actions involving the
same subject matter. They are predicated on the need for expediency and the
avoidance of unnecessary lawsuits. If it appears probable that a second action will
result if the plaintiff prevails, and that this result can be avoided by allowing the
third party complaint to remain, then the motion to dismiss the third party
complaint should be denied. 14
Respondent insurance company's contention that the third party complaint involves
extraneous matter which will only clutter, complicate and delay the criminal case is
without merit. An offense causes two (2) classes of injuries the first is the social
injury produced by the criminal act which is sought to be repaired thru the
imposition of the corresponding penalty, and the second is the personal injury
caused to the victim of the crime, which injury is sought to be compensated thru
indemnity, which is civil in nature. 15
In the instant case, the civil aspect of the offense charged, i.e., serious physical
injuries allegedly suffered by Jovencio Poblete, Sr., was impliedly instituted with the
criminal case. Petitioner may thus raise all defenses available to him insofar as the
criminal and civil aspects of the case are concerned. The claim of petitioner for
payment of indemnity to the injured third party, under the insurance policy, for the
alleged bodily injuries caused to said third party, arose from the offense charged in
the criminal case, from which the injured (Jovencio Poblete, Sr.) has sought to
recover civil damages. Hence, such claim of petitioner against the insurance
company cannot be regarded as not related to the criminal action.
WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April
1987 is SET ASIDE and a new one entered admitting petitioner's third party
complaint against the private respondent Makati Insurance Company, Inc.
SO ORDERED.

SECOND DIVISION
[G.R. No. 101439. June 21, 1999]
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. COURT OF
APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for
herself and minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for
herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, and
MAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA KHO, EMERITA KHO
APEGO, ANTONIO KHO and TERESITA KHO, respondents.
DECISION
QUISUMBING, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court,
petitioner Government Service Insurance System (GSIS) assails the January 15, 1991
Decision[1] of the Court of Appeals in CA-G.R. No. 19849, which affirmed in toto the
judgment of the Regional Trial Court of Butuan City, Branch II, dated April 30, 1985,
stating in part:
WHEREFORE, judgment is hereby rendered, as follows:
In Civil Case No. 2256:
a) Dismissing the complaint against defendant Victor Uy;
b) Ordering defendants Mabuhay Insurance and Guaranty Company, Inc., Guillermo
Corbeta, NFA and GSIS to pay jointly and severally the following sums of money:
i. to pay plaintiff Gloria Kho Vda. de Calabia, the sum of P8,935.06 for doctors fees,
medicines, hospitalizations and medical expenses; P2,319.00 for transportation
expenses; and P53.30 for telegrams; P10,000.00 for the injuries she sustained;
P12,000.00 loss of income for six months.
ii. to plaintiff Victoria Kho, the sum of P832.00 for hospitalization and medicines;
P10,000.00 for the injuries she sustained;
24
iii. to the heirs of Wellie [Willie] Calabia, Roland Kho and Maxima Uhmad [Ugmad]
Vda. de Kho, the sum of P7,500.00 as funeral expenses less P5,000.00 advanced by
defendant Victor Uy.
iv. to the heirs of Wellie [Willie] Calabia, Sr., heirs of Roland Kho and heirs of
Maxima Ugmad Vda. de Kho; P30,000.00 each as compensatory damages.
c) To pay plaintiff the sum of P10,000.00 as attorneys fees and expenses of
litigation;
d) Dismissing defendants counterclaim, and cross-claim; and
e) To pay the costs.
That this decision is without prejudice as to the right of Mabuhay Insurance &
Guaranty Co., Inc., and NFA to recover from Guillermo Corbeta and GSIS the
amounts they may have paid by virtue hereof.[2]
For purposes of this review, we deem as also assailed the disposition by the
trial court in its Order issued on July 12, 1985, modifying its original decision, by
awarding moral damages to the heirs of the deceased victims, as follows:
Considering that the dispositive portion of the decision in this case, an award of
P10,000.00 each made to plaintiffs Gloria Kho Vda. de Calabia x x x, for injuries they
sustained, this award, through [sic] not clearly stated in the decision, is the moral
damages the instant motion seeks to obtain. However, the prayer for moral
damages for the death of the three (3) persons above-mentioned is
proper. (citation omitted)
In view of the foregoing, the prayer of plaintiffs Gloria Kho Vda. de Calabia and
Victoria Kho for an award of moral damages in their favor is hereby
denied. However, as for the death of Wellie [Willie] Calabia, Sr., Rolando Kho and
Maxima Ugmad Vda. de Kho, an award of moral damages is hereby made, and
ordering and directing defendants Mabuhay Insurance and Guaranty Company Inc.,
Guillermo Corbeta, National Food Authority and Government Service Insurance
System to pay jointly and severally the following sums to wit:
P10,000.00 to the heirs of Wellie [Willie] Calabia, Sr.
P10,000.00 to the heirs of Rolando Kho and

P10,000.00 to the heirs of Maxima Ugmad Vda. de Kho
IT IS SO ORDERED.[3]
The relevant facts as found by the trial court are as follows:
National Food Authority (NFA, formerly National Grains Authority) was the owner of
a Chevrolet truck which was insured against liabilities for death of and injuries to
third persons with the GSIS.
On May 9, 1979, at about 7:00 in the evening at Tabon-Tabon, Butuan City, the
said truck driven by Guillermo Corbeta collided with a public utility vehicle, a Toyota
Tamaraw. The Toyota Tamaraw was owned and operated by Victor Uy, under the
name and style of Victory Line. The Tamaraw was a total wreck.
All the collision victims were passengers of the Toyota Tamaraw. Five (5) passengers
died[4] while ten (10) others sustained bodily injuries. Among those injured were
private respondents, Victoria Jaime Vda. de Kho and Gloria Kho Vda. de
Calabia. Among the dead were Maxima Ugmad Vda. de Kho, Roland Kho and Willie
Calabia, Sr.
Three (3) cases were filed with the Court of First Instance of Agusan del Norte and
Butuan City. The first, Civil Case No. 2196 for quasi-delict, damages and attorneys
fees, was commenced by Uy on June 5, 1979 against NFA and Corbeta. On August
27, 1979, the second, Civil Case No. 2225 for damages, was filed by an injured
passenger, Librado Taer, against Uy, the operator of the public utility vehicle, and
insurer, Mabuhay Insurance and Guaranty Co. (MIGC). In turn, Uy filed a cross-claim
against MIGC and a third-party complaint against Corbeta and NFA. The third, Civil
Case No. 2256, was instituted by herein private respondents on November 26, 1979
against the following: NFA and Corbeta for damages due to quasi-delict; GSIS as
insurer of the truck; Uy for breach of contract of carriage; and MIGC as insurer of
the Toyota Tamaraw. These cases were consolidated and partially tried by Judge
Fortunato A. Vailoces, of the then Court of First Instance of Agusan del Norte and
Butuan City.
These cases were later on transferred to Branch II of the Regional Trial Court of
Butuan City. Trial ensued and on April 30, 1985, the court rendered its
decision[5] holding that Corbetas negligence was the proximate cause of the
collision. The findings of the trial court stated that the truck which crossed over to
the other lane was speeding because after the collision, its left front wheel was
detached and the truck traveled for about fifty (50) meters and fell into a
ravine.[6] Likewise, the court concluded that if both vehicles had traveled in their
respective lanes, the incident would not have occurred. [7] However, the Chevy cargo
25
truck had crossed over to the other lane which, under traffic rules, was the lane of
the Toyota Tamaraw.[8]
In Civil Case No. 2196, the trial court awarded Uy the total amount of one hundred
nine thousand one hundred (P109,100.00) pesos for damages. In Civil Case No.
2225, said court dismissed the case against Uy and ordered MIGC, Corbeta and NFA
to pay plaintiff Taer, jointly and severally, the total amount of forty thousand five
hundred fifty-nine pesos and ninety four centavos (P40,559.94) for actual,
compensatory, and moral damages plus attorneys fees. Damages were likewise
awarded to the herein private respondents in Civil Case No. 2256, as earlier
mentioned.
Corbeta and NFA appealed the decision of the trial court in Civil Case Nos. 2196,
2225, and 2256 to the Court of Appeals. GSIS also elevated the decision in Civil Case
No. 2256 to the same appellate court. The appeals were docketed as C.A.-G.R. Nos.
19847, 19848, and 19849.
The Court of Appeals agreed with the conclusions of the trial court and ruled as
follows:
WHEREFORE, in view of the foregoing considerations, and finding no reversible
error, the decisions of the Court a quo in Civil Cases Nos. 2196, 2225 and 2256 are
hereby AFFIRMED in toto, with costs against the appellants.
SO ORDERED.[9]
On February 5 and 6, 1991, GSIS and NFA filed their motions for reconsideration
respectively, which were denied by the respondent court in its Resolution [10] dated
August 13, 1991.
On October 4, 1991, only GSIS filed this petition for review on certiorari based on
the following assigned errors:
1. The respondent court erred in holding GSIS solidarily liable with NFA.
2. The respondent court erred in holding GSIS liable beyond the terms and
conditions of the contract of insurance and the limitations under Insurance
Memorandum Circular (IMC) No. 5-78.
3. The respondent court erred in holding GSIS liable without proof that a
notice of claim had been filed within six (6) months from the date of the
accident.
We find pertinent the following issues:

1) Whether the respondent court erred in holding GSIS solidarily liable
with the negligent insured/owner-operator of the Chevrolet truck for
damages awarded to private respondents which are beyond the
limitations of the insurance policy and the Insurance Memorandum
Circular No. 5-78.
2) Whether the respondent court failed to consider that the private
respondents have no cause of action against the petitioner, allegedly for
failure of the victims to file an insurance claim within six (6) months from
the date of the accident.
Petitioner denies solidary liability with the NFA or the negligent operator of the
cargo truck because it claims that they are liable under different obligations. It
asserts that the NFAs liability is based on quasi-delict, while petitioners liability is
based on the contract of insurance. Citing articles 1207[11] and 1208[12] of the Civil
Code of the Philippines, petitioner states that when there are two or more debtors
or two or more creditors, the obligation as a general rule is joint. It claims that the
only exceptions are: (1) when there is a stipulation for solidary obligation; (2) when
the nature of the obligation requires solidary liability; and (3) when the law declares
the obligation to be solidary. However, since neither the provision of the contract
nor the insurance law provides for solidary liability, petitioner asserts that the
presumption is that its obligation arising from a contract of insurance is joint.
Petitioners position insofar as joint liability is concerned is not tenable. It is now
established that the injured or the heirs of a deceased victim of a vehicular accident
may sue directly the insurer of the vehicle. Note that common carriers are required
to secure Compulsory Motor Vehicle Liability Insurance [CMVLI] coverage as
provided under Sec. 374[13] of the Insurance Code, precisely for the benefit of
victims of vehicular accidents and to extend them immediate relief. [14] As this Court
held in Shafer vs. Judge, RTC of Olongapo City, Br. 75:[15]
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is
primarily intended to provide compensation for the death or bodily injuries suffered
by innocent third parties or passengers as a result of a negligent operation and use
of motor vehicles. The victims and/or their defendants [dependents] are assured of
immediate financial assistance, regardless of the financial capacity of motor vehicle
owners.
The injured for whom the contract of insurance is intended can sue directly the
insurer. The general purpose of statutes enabling an injured person to proceed
directly against the insurer is to protect injured persons against the insolvency of
the insured who causes such injury, and to give such injured person a certain
26
beneficial interest in the proceeds of the policy, and statutes are to be liberally
construed so that their intended purpose may be accomplished. It has even been
held that such a provision creates a contractual relation which inures to the benefit
of any and every person who may be negligently injured by the named insured as if
such injured person were specifically named in the policy. (S 449 7 Am. Jur., 2d, pp.
118-119)[16]
However, although the victim may proceed directly against the insurer for
indemnity, the third party liability is only up to the extent of the insurance policy
and those required by law. While it is true that where the insurance contract
provides for indemnity against liability to third persons, and such third persons can
directly[17] sue the insurer, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the insurer can be held
liable in solidum with the insured and/or the other parties found at fault. [18] For the
liability of the insurer is based on contract; that of the insured carrier or vehicle
owner is based on tort.[19] The liability of GSIS based on the insurance contract is
direct, but not solidary with that of the NFA. The latters liability is based separately
on Article 2180[20] of the Civil Code.[21]
Obviously, the insurer could be held liable only up to the extent of what was
provided for by the contract of insurance, in accordance with CMVLI law. At the
time of the incident, the schedule of indemnities for death and/or bodily injuries,
professional fees, hospital and other charges payable under a CMVLI coverage was
provided under the Insurance Memorandum Circular (IMC) No. 5-78 which was
approved on November 10, 1978. As therein provided, the maximum indemnity for
death was twelve thousand (P12,000.00) pesos per victim.[22] The schedules for
medical expenses were also provided by said IMC, specifically in paragraphs (C) to
(G).
Consequently, heirs of the victims who died in the May 9, 1979 vehicular incident,
could proceed (1) against GSIS for the indemnity of P12,000 for each dead victim,
and against NFA and Guillermo Corbeta for any other damages or expenses
claimed; or (2) against NFA and Corbeta to pay them all their claims in full.
It follows also that injured victims, Gloria Kho Vda. de Calabia and Victoria Kho,
could claim their medical expenses for eight thousand nine hundred thirty-five
pesos and six centavos (P8,935.06) and eight hundred thirty-two (P832.00) pesos,
from any of the following: GSIS, NFA, or Corbeta. As to the other damages, only NFA
or Corbeta may be held liable therefor.
Computation of hospital charges and fees for the services rendered to the
injured victims was conclusively established by the trial court. The petitioner failed
to object to the evidence thereon, when presented by the private respondents
 27

during the trial. Thus, these factual bases for the award of damages may no longer I. For the Injured Victims
be attacked. For generally, findings of the judge who tried the case and heard the
witnesses could not be disturbed on appeal, unless there are substantial facts and 1) Gloria Kho Vda. de Calabia
particular circumstances which have been overlooked but which, if properly
considered, might affect the result of the case.[23]Thus, considering the evidence on a) Medical expenses P 8,935.06
record including the schedule of indemnities provided under IMC No. 5-78, we find
no cogent reason to disturb the computation of medical charges and expenses that
b) Transportation and Telegraph Expenses 2,372.30
justify the award of damages by the trial court.
As to the second issue, the petitioner contends that it cannot be held liable without c) Other Compensatory/Moral Damages 10,000.00
proof nor allegation that the private respondents filed before its office a notice of
claim within six (6) months from the date of the accident. This requirement, d) Loss of Income 12,000.00
according to the petitioner, gives the insurer the opportunity to investigate the
veracity of the claim, and non-compliance therewith constitutes waiver. Since the Total P 33,307.36
claim was not reported to the insurer, the petitioner avers that the presumption is
that the victim opted to pursue his claim against the motor vehicle owner or against
2) Victoria Kho
the tortfeasor.
However, in this case the records reveal that on September 7, 1979, the private a) Medical expenses P 832.00
respondents sent a notice of loss to the petitioner informing the latter of the
accident. Included as Exhibit J[24] in the records, this notice constitutes evidence of b) Other Compensatory/Moral Damages 10,000.00
the loss they suffered by reason of the vehicular collision. They stressed further that
the petitioner did not deny receipt of notice of claim during the trial, and it would Total P10,832.00
be too late now to state otherwise.
Although merely factual, we need to emphasize that the alleged delay in reporting II. For the Heirs of the Deceased Victims:
the loss by the insured and/or by the beneficiaries must be promptly raised by the
insurer[25] in objecting to the claims. When the insured presented proof of loss Compensatory/ Funeral Death Moral
before the trial court, the insurer failed to object to said presentation. The
petitioner should have promptly interposed the defense of delay, or belated Expenses Indemnity Damages Total
compliance, concerning the notice of claim. Moreover, the petitioner merely waited
for the victims or beneficiaries to file their complaint. As matters stand now, the 1) Heirs of Willie Calabia, Sr. P 2,500.00 P30,000.00 P10, 000.00 42,500.00
defense of laches or prescription is deemed waived because of petitioners failure to
raise it not only before but also during the hearing.[26]
2) Heirs of Roland Kho 2,500.00 30,000.00 10,000.00 42,500.00
To recapitulate, petitioner seeks a definitive ruling only on the extent of its
liability, as insurer of NFA, to those injured or killed in the May 9, 1979 vehicular 3) Heirs of Maxima Ugmad Vda.
collision.
de Kho 2,500.00 30,000.00 10,000.00 42,500.00
As found by the trial court, the driver (Guillermo Corbeta), the operator (NFA),
and MIGC, are solidarily liable for damages as computed below:
SSub-Total P 7,500.00 P90,000.00 P30,000.00 P127,500.00
SCHEDULE A
Less: Advances by Victor Uy (5,000.00) NIL _ (5,000.00)
 28

Balance P2,500.00 P90,000.00 P30,000.00 122,500.00
III. Total Amount of Attorneys Fees P10,000.00
Note that, the petitioner (GSIS) was impleaded as insurer of NFA. But under
the CMVLI law, the petitioner could only be held liable under its contract of
insurance. And pursuant to the CMVLI law, its liability is primary, and not
dependent on the recovery of judgment from the insured. Hence, GSIS is directly
liable to the private respondents, in the following amounts:
SCHEDULE B
I. Injured Victims Medical expenses
1) Victoria Jaime Vda. de Kho P 832.00
2. Guillermo Corbeta, National Foods Authority, and Mabuhay Insurance
& Guaranty Co., Inc., jointly and severally, are ordered to pay private
respondents claims[28] as adjudged by the Regional Trial Court of
Butuan City, minus the amounts that GSIS must pay to the injured
victims and the heirs of the deceased victims as abovestated.
This decision is immediately executory. No pronouncement as to costs.
SO ORDERED.
Facts: NFA National Food Authority – owner of Chevrolet truck insured by GSIS-
CMVLI. Victor Uy – owner of Toyota Tamaraw used as PU insured by Mabuhay Ins
and Guarrantee – CMVLI. On May 9, 1979 at Tabon-Tabon, Butuan City, the two
vehicles collided resulting to death and injuries to passengers of the Tamaraw and
total wreck of the Tamaraw. 3 cases were filed.

2) Gloria Kho Vda. de Calabia P 8,935.06

(1) Civil Case No. 2196 for quasi-delict filed by UY vs NFA & GSIS – recover damage
to property. Won
II. Heirs of Deceased Victims Death Indemnity
(2) Civil Case No. 2225 for culpa contractual filed by injured passenger Taer vs Victor
1) Heirs of Willie Calabia, Sr. P 12,000.00
Uy and Mabuhay. Won.

2) Heirs of Roland Kho 12,000.00 (3) Civil Case No. 2256 for quasi-delict NFA and driver Corbeta, GSIS vs Victor Uy for
culpa contractual and Mabuhay.
3) Heirs of Maxima Ugmad Vda. de Kho 12,000.00
(Note: no criminal action was filed although it may be done had any of the injured
The balance of the private respondents claims as shown on Schedule A above, parties minded to. The action against the Insurers GSIS and Mabuhay are based on
must be paid by Corbeta or NFA, or MIGC, the parties found solidarily liable. [27] the insurance contract of CMVLI whereby passengers injured have the right to sue
WHEREFORE, the instant petition is hereby GRANTED, but the decision of the directly the insurers)
trial court as affirmed by the Court of Appeals is hereby MODIFIED, as follows:
1. Petitioner Government Service Insurance System is ordered to pay (a)
twelve thousand pesos (P12,000.00) as death indemnity to each
group of heirs of the deceased, Willie Calabia Sr., Roland Kho and
Maxima Ugmad Vda. de Kho; (b) eight hundred thirty-two (P832.00)
pesos for medical expenses of Victoria Jaime Vda. de Kho; and (c)
eight thousand, nine hundred thirty-five pesos and six centavos
(P8,935.06) for medical expenses of Gloria Kho Vda. de Calabia.

SECOND DIVISION
[G.R. No. 138060. September 1, 2004]
WILLIAM TIU, doing business under the name and style of D Rough Riders, and
VIRGILIO TE LAS PIAS petitioners, vs. PEDRO A. ARRIESGADO, BENJAMIN
CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY AND
INSURANCE, INC., respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
from the Decision[1] of the Court of Appeals in CA-G.R. CV No. 54354 affirming with
modification the Decision[2] of the Regional Trial Court, 7th Judicial
Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of contract of
carriage, damages and attorneys fees, and the Resolution dated February 26, 1999
denying the motion for reconsideration thereof.
The following facts are undisputed:
At about 10:00 p.m. of March 15, 1987, the cargo truck marked Condor Hollow
Blocks and General Merchandise bearing plate number GBP-675 was loaded with
firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies,
Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its rear
tires exploded. The driver, Sergio Pedrano, then parked along the right side of the
national highway and removed the damaged tire to have it vulcanized at a nearby
shop, about 700 meters away.[3] Pedrano left his helper, Jose Mitante, Jr. to keep
watch over the stalled vehicle, and instructed the latter to place a spare tire six
fathoms away[4] behind the stalled truck to serve as a warning for oncoming
vehicles. The trucks tail lights were also left on. It was about 12:00 a.m., March 16,
1987.
At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724
driven by Virgilio Te Laspias was cruising along the national highway of Sitio Aggies,
Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and
had come from Maya, Daanbantayan, Cebu. Among its passengers were the
29
Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the
right side of the bus, about three (3) or four (4) places from the front seat.
As the bus was approaching the bridge, Laspias saw the stalled truck, which
was then about 25 meters away.[5] He applied the breaks and tried to swerve to the
left to avoid hitting the truck. But it was too late; the bus rammed into the trucks
left rear. The impact damaged the right side of the bus and left several passengers
injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right
colles.[6] His wife, Felisa, was brought to the Danao City Hospital. She was later
transferred to the Southern Island Medical Center where she died shortly
thereafter.[7]
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract
of carriage, damages and attorneys fees before the Regional Trial Court of Cebu
City, Branch 20, against the petitioners, D Rough Riders bus operator William Tiu
and his driver, Virgilio Te Laspias on May 27, 1987. The respondent alleged that the
passenger bus in question was cruising at a fast and high speed along the national
road, and that petitioner Laspias did not take precautionary measures to avoid the
accident.[8] Thus:
6. That the accident resulted to the death of the plaintiffs wife, Felisa Pepito
Arriesgado, as evidenced by a Certificate of Death, a xerox copy of which is hereto
attached as integral part hereof and marked as ANNEX A, and physical injuries to
several of its passengers, including plaintiff himself who suffered a COLLES
FRACTURE RIGHT, per Medical Certificate, a xerox copy of which is hereto attached
as integral part hereof and marked as ANNEX B hereof.
7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspias of
the said Rough Riders passenger bus, plaintiff and his wife, Felisa Pepito Arriesgado,
failed to safely reach their destination which was Cebu City, the proximate cause of
which was defendant-drivers failure to observe utmost diligence required of a very
cautious person under all circumstances.
8. That defendant William Tiu, being the owner and operator of the said Rough
Riders passenger bus which figured in the said accident, wherein plaintiff and his
wife were riding at the time of the accident, is therefore directly liable for the
breach of contract of carriage for his failure to transport plaintiff and his wife safely
to their place of destination which was Cebu City, and which failure in his obligation
to transport safely his passengers was due to and in consequence of his failure to
exercise the diligence of a good father of the family in the selection and supervision
of his employees, particularly defendant-driver Virgilio Te Laspias.[9]

The respondent prayed that judgment be rendered in his favor and that the
petitioners be condemned to pay the following damages:
1). To pay to plaintiff, jointly and severally, the amount of P30,000.00 for the death
and untimely demise of plaintiffs wife, Felisa Pepito Arriesgado;
2). To pay to plaintiff, jointly and severally, the amount of P38,441.50, representing
actual expenses incurred by the plaintiff in connection with the death/burial of
plaintiffs wife;
3). To pay to plaintiff, jointly and severally, the amount of P1,113.80, representing
medical/hospitalization expenses incurred by plaintiff for the injuries sustained by
him;
4). To pay to plaintiff, jointly and severally, the amount of P50,000.00 for moral
damages;
5). To pay to plaintiff, jointly and severally, the amount of P50,000.00 by way of
exemplary damages;
6). To pay to plaintiff, jointly and severally, the amount of P20,000.00 for attorneys
fees;
7). To pay to plaintiff, jointly and severally, the amount of P5,000.00 for litigation
expenses.
PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN LAW AND
EQUITY.[10]
The petitioners, for their part, filed a Third-Party Complaint[11] on August 21,
1987 against the following: respondent Philippine Phoenix Surety and Insurance,
Inc. (PPSII), petitioner Tius insurer; respondent Benjamin Condor, the registered
owner of the cargo truck; and respondent Sergio Pedrano, the driver of the
truck. They alleged that petitioner Laspias was negotiating the uphill climb along
the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and
normal speed. It was further alleged that the truck was parked in a slanted manner,
its rear portion almost in the middle of the highway, and that no early warning
device was displayed. Petitioner Laspias promptly applied the brakes and swerved
to the left to avoid hitting the truck head-on, but despite his efforts to avoid
30
damage to property and physical injuries on the passengers, the right side portion
of the bus hit the cargo trucks left rear. The petitioners further alleged, thus:
5. That the cargo truck mentioned in the aforequoted paragraph is owned and
registered in the name of the third-party defendant Benjamin Condor and was left
unattended by its driver Sergio Pedrano, one of the third-party defendants, at the
time of the incident;
6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with
marked (sic) Condor Hollow Blocks & General Merchandise, with Plate No. GBP-675
which was recklessly and imprudently parked along the national highway of
Compostela, Cebu during the vehicular accident in question, and third-party
defendant Benjamin Condor, as the registered owner of the cargo truck who failed
to exercise due diligence in the selection and supervision of third-party defendant
Sergio Pedrano, are jointly and severally liable to the third-party plaintiffs for
whatever liability that may be adjudged against said third-party plaintiffs or are
directly liable of (sic) the alleged death of plaintiffs wife;
7. That in addition to all that are stated above and in the answer which are intended
to show reckless imprudence on the part of the third-party defendants, the third-
party plaintiffs hereby declare that during the vehicular accident in question, third-
party defendant was clearly violating Section 34, par. (g) of the Land Transportation
and Traffic Code
10. That the aforesaid passenger bus, owned and operated by third-party plaintiff
William Tiu, is covered by a common carrier liability insurance with Certificate of
Cover No. 054940 issued by Philippine Phoenix Surety and Insurance, Inc., Cebu City
Branch, in favor of third-party plaintiff William Tiu which covers the period from
July 22, 1986 to July 22, 1987 and that the said insurance coverage was valid,
binding and subsisting during the time of the aforementioned incident (Annex A as
part hereof);
11. That after the aforesaid alleged incident, third-party plaintiff notified third-party
defendant Philippine Phoenix Surety and Insurance, Inc., of the alleged incident
hereto mentioned, but to no avail;
12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be
adversely adjudged, they stand to pay damages sought by the plaintiff and
therefore could also look up to the Philippine Phoenix Surety and Insurance, Inc.,
for contribution, indemnification and/or reimbursement of any liability or
obligation that they might [be] adjudged per insurance coverage duly entered into

by and between third-party plaintiff William Tiu and third-party defendant
Philippine Phoenix Surety and Insurance, Inc.;[12]
The respondent PPSII, for its part, admitted that it had an existing contract
with petitioner Tiu, but averred that it had already attended to and settled the
claims of those who were injured during the incident. [13] It could not accede to the
claim of respondent Arriesgado, as such claim was way beyond the scheduled
indemnity as contained in the contract of insurance.[14]
After the parties presented their respective evidence, the trial court ruled in
favor of respondent Arriesgado. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of
plaintiff as against defendant William Tiu ordering the latter to pay the plaintiff the
following amounts:
1 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;
2 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as exemplary damages;
3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE PESOS
(P38,441.00) as actual damages;
4 - The sum of TWENTY THOUSAND PESOS (P20,000.00) as attorneys fees;
5 - The sum of FIVE THOUSAND PESOS (P5,000.00) as costs of suit;
SO ORDERED.[15]
According to the trial court, there was no dispute that petitioner William Tiu
was engaged in business as a common carrier, in view of his admission that D Rough
Rider passenger bus which figured in the accident was owned by him; that he had
been engaged in the transportation business for 25 years with a sole proprietorship;
and that he owned 34 buses. The trial court ruled that if petitioner Laspias had not
been driving at a fast pace, he could have easily swerved to the left to avoid hitting
the truck, thus, averting the unfortunate incident. It then concluded that petitioner
Laspias was negligent.
The trial court also ruled that the absence of an early warning device near the
place where the truck was parked was not sufficient to impute negligence on the
part of respondent Pedrano, since the tail lights of the truck were fully on, and the
31
vicinity was well lighted by street lamps.[16] It also found that the testimony of
petitioner Tiu, that he based the selection of his driver Laspias on efficiency and in-
service training, and that the latter had been so far an efficient and good driver for
the past six years of his employment, was insufficient to prove that he observed the
diligence of a good father of a family in the selection and supervision of his
employees.
After the petitioners motion for reconsideration of the said decision was
denied, the petitioners elevated the case to the Court of Appeals on the following
issues:
I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS RECKLESS
AND IMPRUDENT WHEN HE PARKED THE CARGO TRUCK IN AN
OBLIQUE MANNER;
II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND
SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE OR TO
DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT MAY BE
ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS;
III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIAS WAS GUILTY
OF GROSS NEGLIGENCE;
IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED THE
DUE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE SELECTION
AND SUPERVISION OF HIS DRIVERS;
V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-
APPELLANT WILLIAM TIU IS LIABLE TO PLAINTIFF-APPELLEE,
WHETHER THERE IS LEGAL AND FACTUAL BASIS IN AWARDING
EXCESSIVE MORAL DAMAGES, EX[E]MPLARY DAMAGES, ATTORNEYS
FEES AND LITIGATION EXPENSES TO PLAINTIFF-APPELLEE;
VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY
AND INSURANCE, INC. IS LIABLE TO DEFENDANT- APPELLANT
WILLIAM TIU.[17]
The appellate court rendered judgment affirming the trial courts decision with
the modification that the awards for moral and exemplary damages were reduced
to P25,000. The dispositive portion reads:
WHEREFORE, the appealed Decision dated November 6, 1995 is
hereby MODIFIED such that the awards for moral and exemplary damages are each
reduced to P25,000.00 or a total of P50,000.00 for both. The judgment
is AFFIRMED in all other respects.

SO ORDERED.[18]
According to the appellate court, the action of respondent Arriesgado was
based not on quasi-delict but on breach of contract of carriage. As a common
carrier, it was incumbent upon petitioner Tiu to prove that extraordinary diligence
was observed in ensuring the safety of passengers during transportation. Since the
latter failed to do so, he should be held liable for respondent Arriesgados claim. The
CA also ruled that no evidence was presented against the respondent PPSII, and as
such, it could not be held liable for respondent Arriesgados claim, nor for
contribution, indemnification and/or reimbursement in case the petitioners were
adjudged liable.
The petitioners now come to this Court and ascribe the following errors
committed by the appellate court:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING
RESPONDENTS BENJAMIN CONDOR AND SERGIO PEDRANO GUILTY
OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A.
ARRIESGADO OR TO PETITIONERS FOR WHATEVER LIABILITY THAT
MAY BE ADJUDGED AGAINST THEM.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS
GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO
A. ARRIESGADO.
III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONER
WILLIAM TIU LIABLE FOR EXEMPLARY DAMAGES, ATTORNEYS FEES
AND LITIGATION EXPENSES.
IV.THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING
RESPONDENT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC.
LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONER
WILLIAM TIU.[19]
According to the petitioners, the appellate court erred in failing to appreciate
the absence of an early warning device and/or built-in reflectors at the front and
back of the cargo truck, in clear violation of Section 34, par. (g) of the Land
Transportation and Traffic Code. They aver that such violation is only a proof of
respondent Pedranos negligence, as provided under Article 2185 of the New Civil
Code. They also question the appellate courts failure to take into account that the
truck was parked in an oblique manner, its rear portion almost at the center of the
road. As such, the proximate cause of the incident was the gross recklessness and
imprudence of respondent Pedrano, creating the presumption of negligence on the
part of respondent Condor in supervising his employees, which presumption was
32
not rebutted. The petitioners then contend that respondents Condor and Pedrano
should be held jointly and severally liable to respondent Arriesgado for the payment
of the latters claim.
The petitioners, likewise, aver that expert evidence should have been
presented to prove that petitioner Laspias was driving at a very fast speed, and that
the CA could not reach such conclusion by merely considering the damages on the
cargo truck. It was also pointed out that petitioner Tiu presented evidence that he
had exercised the diligence of a good father of a family in the selection and
supervision of his drivers.
The petitioners further allege that there is no legal and factual basis to require
petitioner Tiu to pay exemplary damages as no evidence was presented to show
that the latter acted in a fraudulent, reckless and oppressive manner, or that he had
an active participation in the negligent act of petitioner Laspias.
Finally, the petitioners contend that respondent PPSII admitted in its answer
that while it had attended to and settled the claims of the other injured passengers,
respondent Arriesgados claim remained unsettled as it was beyond the scheduled
indemnity under the insurance contract. The petitioners argue that said respondent
PPSII should have settled the said claim in accordance with the scheduled indemnity
instead of just denying the same.
On the other hand, respondent Arriesgado argues that two of the issues raised
by the petitioners involved questions of fact, not reviewable by the Supreme Court:
the finding of negligence on the part of the petitioners and their liability to him; and
the award of exemplary damages, attorneys fees and litigation expenses in his
favor. Invoking the principle of equity and justice, respondent Arriesgado pointed
out that if there was an error to be reviewed in the CA decision, it should be geared
towards the restoration of the moral and exemplary damages to P50,000 each, or a
total of P100,000 which was reduced by the Court of Appeals to P25,000 each, or a
total of only P50,000.
Respondent Arriesgado also alleged that respondents Condor and Pedrano,
and respondent Phoenix Surety, are parties with whom he had no contract of
carriage, and had no cause of action against. It was pointed out that only the
petitioners needed to be sued, as driver and operator of the ill-fated bus, on
account of their failure to bring the Arriesgado Spouses to their place of destination
as agreed upon in the contract of carriage, using the utmost diligence of very
cautious persons with due regard for all circumstances.
Respondents Condor and Pedrano point out that, as correctly ruled by the
Court of Appeals, the proximate cause of the unfortunate incident was the fast
speed at which petitioner Laspias was driving the bus owned by petitioner Tiu.

According to the respondents, the allegation that the truck was not equipped with
an early warning device could not in any way have prevented the incident from
happening. It was also pointed out that respondent Condor had always exercised
the due diligence required in the selection and supervision of his employees, and
that he was not a party to the contract of carriage between the petitioners and
respondent Arriesgado.
Respondent PPSII, for its part, alleges that contrary to the allegation of
petitioner Tiu, it settled all the claims of those injured in accordance with the
insurance contract. It further avers that it did not deny respondent Arriesgados
claim, and emphasizes that its liability should be within the scheduled limits of
indemnity under the said contract. The respondent concludes that while it is true
that insurance contracts are contracts of indemnity, the measure of the insurers
liability is determined by the insureds compliance with the terms thereof.
The Courts Ruling
At the outset, it must be stressed that this Court is not a trier of
facts.[20] Factual findings of the Court of Appeals are final and may not be reviewed
on appeal by this Court, except when the lower court and the CA arrived at diverse
factual findings.[21] The petitioners in this case assail the finding of both the trial and
the appellate courts that petitioner Laspias was driving at a very fast speed before
the bus owned by petitioner Tiu collided with respondent Condors stalled truck.
This is clearly one of fact, not reviewable by the Court in a petition for review under
Rule 45.[22]
On this ground alone, the petition is destined to fail.
However, considering that novel questions of law are likewise involved, the
Court resolves to examine and rule on the merits of the case.
Petitioner Laspias
Was negligent in driving
The Ill-fated bus
In his testimony before the trial court, petitioner Laspias claimed that he was
traversing the two-lane road at Compostela, Cebu at a speed of only forty (40) to
fifty (50) kilometers per hour before the incident occurred.[23] He also admitted that
he saw the truck which was parked in an oblique position at about 25 meters
before impact,[24] and tried to avoid hitting it by swerving to the left. However, even
in the absence of expert evidence, the damage sustained by the truck [25] itself
33
supports the finding of both the trial court and the appellate court, that the D
Rough Rider bus driven by petitioner Laspias was traveling at a fast pace. Since he
saw the stalled truck at a distance of 25 meters, petitioner Laspias had more than
enough time to swerve to his left to avoid hitting it; that is, if the speed of the bus
was only 40 to 50 kilometers per hour as he claimed. As found by the Court of
Appeals, it is easier to believe that petitioner Laspias was driving at a very fast
speed, since at 4:45 a.m., the hour of the accident, there were no oncoming
vehicles at the opposite direction. Petitioner Laspias could have swerved to the left
lane with proper clearance, and, thus, could have avoided the truck.[26] Instinct, at
the very least, would have prompted him to apply the breaks to avert the
impending disaster which he must have foreseen when he caught sight of the
stalled truck. As we had occasion to reiterate:
A man must use common sense, and exercise due reflection in all his acts; it is his
duty to be cautious, careful and prudent, if not from instinct, then through fear of
recurring punishment. He is responsible for such results as anyone might foresee
and for acts which no one would have performed except through culpable abandon.
Otherwise, his own person, rights and property, and those of his fellow beings,
would ever be exposed to all manner of danger and injury.[27]
We agree with the following findings of the trial court, which were affirmed by
the CA on appeal:
A close study and evaluation of the testimonies and the documentary proofs
submitted by the parties which have direct bearing on the issue of negligence, this
Court as shown by preponderance of evidence that defendant Virgilio Te Laspias
failed to observe extraordinary diligence as a driver of the common carrier in this
case. It is quite hard to accept his version of the incident that he did not see at a
reasonable distance ahead the cargo truck that was parked when the Rough Rider
[Bus] just came out of the bridge which is on an (sic) [more] elevated position than
the place where the cargo truck was parked. With its headlights fully on, defendant
driver of the Rough Rider was in a vantage position to see the cargo truck ahead
which was parked and he could just easily have avoided hitting and bumping the
same by maneuvering to the left without hitting the said cargo truck. Besides, it is
(sic) shown that there was still much room or space for the Rough Rider to pass at
the left lane of the said national highway even if the cargo truck had occupied the
entire right lane thereof. It is not true that if the Rough Rider would proceed to pass
through the left lane it would fall into a canal considering that there was much
space for it to pass without hitting and bumping the cargo truck at the left lane of
said national highway. The records, further, showed that there was no incoming
vehicle at the opposite lane of the national highway which would have prevented

the Rough Rider from not swerving to its left in order to avoid hitting and bumping
the parked cargo truck. But the evidence showed that the Rough Rider instead of
swerving to the still spacious left lane of the national highway plowed directly into
the parked cargo truck hitting the latter at its rear portion; and thus, the (sic)
causing damages not only to herein plaintiff but to the cargo truck as well. [28]
Indeed, petitioner Laspias negligence in driving the bus is apparent in the
records. By his own admission, he had just passed a bridge and was traversing the
highway of Compostela,Cebu at a speed of 40 to 50 kilometers per hour before the
collision occurred. The maximum speed allowed by law on a bridge is only 30
kilometers per hour.[29] And, as correctly pointed out by the trial court, petitioner
Laspias also violated Section 35 of the Land Transportation and Traffic Code,
Republic Act No. 4136, as amended:
Sec. 35. Restriction as to speed. (a) Any person driving a motor vehicle on a highway
shall drive the same at a careful and prudent speed, not greater nor less than is
reasonable and proper, having due regard for the traffic, the width of the highway,
and or any other condition then and there existing; and no person shall drive any
motor vehicle upon a highway at such speed as to endanger the life, limb and
property of any person, nor at a speed greater than will permit him to bring the
vehicle to a stop within the assured clear distance ahead.[30]
Under Article 2185 of the Civil Code, a person driving a vehicle is presumed
negligent if at the time of the mishap, he was violating any traffic regulation. [31]
Petitioner Tiu failed to Overcome the presumption Of negligence against him as
One engaged in the business Of common carriage
The rules which common carriers should observe as to the safety of their
passengers are set forth in the Civil Code, Articles 1733,[32] 1755[33] and 1756.[34] In
this case, respondent Arriesgado and his deceased wife contracted with petitioner
Tiu, as owner and operator of D Rough Riders bus service, for transportation from
Maya, Daanbantayan, Cebu, to Cebu City for the price of P18.00.[35] It is undisputed
that the respondent and his wife were not safely transported to the destination
agreed upon. In actions for breach of contract, only the existence of such contract,
and the fact that the obligor, in this case the common carrier, failed to transport his
passenger safely to his destination are the matters that need to be proved. [36] This is
because under the said contract of carriage, the petitioners assumed the express
obligation to transport the respondent and his wife to their destination safely and
to observe extraordinary diligence with due regard for all circumstances.[37] Any
injury suffered by the passengers in the course thereof is immediately attributable
to the negligence of the carrier.[38] Upon the happening of the accident, the
34
presumption of negligence at once arises, and it becomes the duty of a common
carrier to prove that he observed extraordinary diligence in the care of his
passengers.[39] It must be stressed that in requiring the highest possible degree of
diligence from common carriers and in creating a presumption of negligence against
them, the law compels them to curb the recklessness of their drivers. [40]
While evidence may be submitted to overcome such presumption of
negligence, it must be shown that the carrier observed the required extraordinary
diligence, which means that the carrier must show the utmost diligence of very
cautious persons as far as human care and foresight can provide, or that the
accident was caused by fortuitous event.[41] As correctly found by the trial court,
petitioner Tiu failed to conclusively rebut such presumption. The negligence of
petitioner Laspias as driver of the passenger bus is, thus, binding against petitioner
Tiu, as the owner of the passenger bus engaged as a common carrier. [42]
The Doctrine of
Last Clear Chance
Is Inapplicable in the
Case at Bar
Contrary to the petitioners contention, the principle of last clear chance is
inapplicable in the instant case, as it only applies in a suit between the owners and
drivers of two colliding vehicles. It does not arise where a passenger demands
responsibility from the carrier to enforce its contractual obligations, for it would be
inequitable to exempt the negligent driver and its owner on the ground that the
other driver was likewise guilty of negligence.[43] The common law notion of last
clear chance permitted courts to grant recovery to a plaintiff who has also been
negligent provided that the defendant had the last clear chance to avoid the
casualty and failed to do so. Accordingly, it is difficult to see what role, if any, the
common law of last clear chance doctrine has to play in a jurisdiction where the
common law concept of contributory negligence as an absolute bar to recovery by
the plaintiff, has itself been rejected, as it has been in Article 2179 of the Civil
Code.[44]
Thus, petitioner Tiu cannot escape liability for the death of respondent
Arriesgados wife due to the negligence of petitioner Laspias, his employee, on this
score.
Respondents Pedrano and
Condor were likewise
Negligent

In Phoenix Construction, Inc. v. Intermediate Appellate Court,[45] where therein
respondent Dionisio sustained injuries when his vehicle rammed against a dump
truck parked askew, the Court ruled that the improper parking of a dump truck
without any warning lights or reflector devices created an unreasonable risk for
anyone driving within the vicinity, and for having created such risk, the truck driver
must be held responsible. In ruling against the petitioner therein, the Court
elucidated, thus:
In our view, Dionisios negligence, although later in point of time than the truck
drivers negligence, and therefore closer to the accident, was not an efficient
intervening or independent cause. What the petitioners describe as an intervening
cause was no more than a foreseeable consequence of the risk created by the
negligent manner in which the truck driver had parked the dump truck. In other
words, the petitioner truck driver owed a duty to private respondent Dionisio and
others similarly situated not to impose upon them the very risk the truck driver had
created. Dionisios negligence was not that of an independent and overpowering
nature as to cut, as it were, the chain of causation in fact between the improper
parking of the dump truck and the accident, nor to sever the juris vinculum of
liability.
We hold that private respondent Dionisios negligence was only contributory, that
the immediate and proximate cause of the injury remained the truck drivers lack of
due care.[46]
In this case, both the trial and the appellate courts failed to consider that
respondent Pedrano was also negligent in leaving the truck parked askew without
any warning lights or reflector devices to alert oncoming vehicles, and that such
failure created the presumption of negligence on the part of his employer,
respondent Condor, in supervising his employees properly and adequately. As we
ruled in Poblete v. Fabros:[47]
It is such a firmly established principle, as to have virtually formed part of the law
itself, that the negligence of the employee gives rise to the presumption of
negligence on the part of the employer. This is the presumed negligence in the
selection and supervision of employee. The theory of presumed negligence, in
contrast with the American doctrine of respondeat superior, where the negligence
of the employee isconclusively presumed to be the negligence of the employer, is
clearly deducible from the last paragraph of Article 2180 of the Civil Code which
provides that the responsibility therein mentioned shall cease if the employers
prove that they observed all the diligence of a good father of a family to prevent
damages. [48]
35
The petitioners were correct in invoking respondent Pedranos failure to
observe Article IV, Section 34(g) of the Rep. Act No. 4136, which provides:
(g) Lights when parked or disabled. Appropriate parking lights or flares visible one
hundred meters away shall be displayed at a corner of the vehicle whenever such
vehicle is parked on highways or in places that are not well-lighted or is placed in
such manner as to endanger passing traffic.
The manner in which the truck was parked clearly endangered oncoming
traffic on both sides, considering that the tire blowout which stalled the truck in the
first place occurred in the wee hours of the morning. The Court can only now
surmise that the unfortunate incident could have been averted had respondent
Condor, the owner of the truck, equipped the said vehicle with lights, flares, or, at
the very least, an early warning device.[49] Hence, we cannot subscribe to
respondents Condor and Pedranos claim that they should be absolved from liability
because, as found by the trial and appellate courts, the proximate cause of the
collision was the fast speed at which petitioner Laspias drove the bus. To accept this
proposition would be to come too close to wiping out the fundamental principle of
law that a man must respond for the foreseeable consequences of his own
negligent act or omission. Indeed, our law on quasi-delicts seeks to reduce the risks
and burdens of living in society and to allocate them among its members. To accept
this proposition would be to weaken the very bonds of society.[50]
The Liability of
Respondent PPSII
as Insurer
The trial court in this case did not rule on the liability of respondent PPSII,
while the appellate court ruled that, as no evidence was presented against it, the
insurance company is not liable.
A perusal of the records will show that when the petitioners filed the Third-
Party Complaint against respondent PPSII, they failed to attach a copy of the terms
of the insurance contract itself. Only Certificate of Cover No. 054940 [51] issued in
favor of Mr. William Tiu, Lahug, Cebu City signed by Cosme H. Boniel was appended
to the third-party complaint. The date of issuance, July 22, 1986, the period of
insurance, from July 22, 1986 to July 22, 1987, as well as the following items, were
also indicated therein:
SCHEDULED VEHICLE
 36

8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali
MODEL MAKE TYPE OF COLOR BLT FILE NO.
Palces who sustained injuries during the incident in question. In fact, it settled
BODY financially their claims per vouchers duly signed by them and they duly executed
Affidavit[s] of Desistance to that effect, xerox copies of which are hereto attached
Isuzu Forward Bus blue mixed as Annexes 1, 2, 3, 4, 5, and 6 respectively;

PLATE NO. SERIAL/CHASSIS MOTOR NO. AUTHORIZED UNLADEN 9. With respect to the claim of plaintiff, herein answering third party defendant
PBP-724 NO. SER450- 677836 CAPACITY 50 WEIGHT through its authorized insurance adjuster attended to said claim. In fact, there were
1584124 6Cyls. Kgs. negotiations to that effect. Only that it cannot accede to the demand of said
claimant considering that the claim was way beyond the scheduled indemnity as
SECTION 1/11 *LIMITS OF LIABILITY PREMIUMS per contract entered into with third party plaintiff William Tiu and third party
P50,000.00 PAID defendant (Philippine Phoenix Surety and Insurance, Inc.). Third party Plaintiff
William Tiu knew all along the limitation as earlier stated, he being an old hand in
A. THIRD PARTY LIABILITY
the transportation business; 55

B. PASSENGER LIABILITY Per Person Per Accident P540.0052
P12,000.00 P50,000
In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted
the existence of the contract of insurance, in view of its failure to specifically deny
the same as required under then Section 8(a), Rule 8 of the Rules of Court, 54 which
reads:
Sec. 8. How to contest genuineness of such documents. When an action or defense
is founded upon a written instrument copied in or attached to the corresponding
pleading as provided in the preceding section, the genuineness and due execution
of the instrument shall be deemed admitted unless the adverse party, under oath,
specifically denies them, and sets forth what he claims to be the facts; but the
requirement of an oath does not apply when the adverse party does not appear to
be a party to the instrument or when compliance with an order for inspection of
the original instrument is refused.
In fact, respondent PPSII did not dispute the existence of such contract, and
admitted that it was liable thereon. It claimed, however, that it had attended to and
settled the claims of those injured during the incident, and set up the following as
special affirmative defenses:
Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby
reiterates and incorporates by way of reference the preceding paragraphs and
further states THAT:-
Considering the admissions made by respondent PPSII, the existence of the
insurance contract and the salient terms thereof cannot be dispatched. It must be
noted that after filing its answer, respondent PPSII no longer objected to the
presentation of evidence by respondent Arriesgado and the insured petitioner Tiu.
Even in its Memorandum56 before the Court, respondent PPSII admitted the
existence of the contract, but averred as follows:
Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification
and/or reimbursement. This has no basis under the contract. Under the contract,
PPSII will pay all sums necessary to discharge liability of the insured subject to the
limits of liability but not to exceed the limits of liability as so stated in the contract.
Also, it is stated in the contract that in the event of accident involving indemnity to
more than one person, the limits of liability shall not exceed the aggregate amount
so specified by law to all persons to be indemnified.57
As can be gleaned from the Certificate of Cover, such insurance contract was
issued pursuant to the Compulsory Motor Vehicle Liability Insurance Law. It was
expressly provided therein that the limit of the insurers liability for each person
was P12,000, while the limit per accident was pegged at P50,000. An insurer in an
indemnity contract for third party liability is directly liable to the injured party up to
the extent specified in the agreement but it cannot be held solidarily liable beyond
that amount.58 The respondent PPSII could not then just deny petitioner Tius claim;
it should have paid P12,000 for the death of Felisa Arriesgado,59 and respondent
Arriesgados hospitalization expenses of P1,113.80, which the trial court found to
have been duly supported by receipts. The total amount of the claims, even when
added to that of the other injured passengers which the respondent PPSII claimed

to have settled,60 would not exceed the P50,000 limit under the insurance
agreement.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such
that it is primarily intended to provide compensation for the death or bodily injuries
suffered by innocent third parties or passengers as a result of the negligent
operation and use of motor vehicles. The victims and/or their dependents are
assured of immediate financial assistance, regardless of the financial capacity of
motor vehicle owners.61 As the Court, speaking through Associate Justice Leonardo
A. Quisumbing, explained in Government Service Insurance System v. Court of
Appeals:62
However, although the victim may proceed directly against the insurer for
indemnity, the third party liability is only up to the extent of the insurance policy
and those required by law. While it is true that where the insurance contract
provides for indemnity against liability to third persons, and such persons can
directly sue the insurer, the direct liability of the insurer under indemnity contracts
against third party liability does not mean that the insurer can be held liable
in solidum with the insured and/or the other parties found at fault. For the liability
of the insurer is based on contract; that of the insured carrier or vehicle owner is
based on tort.
Obviously, the insurer could be held liable only up to the extent of what was
provided for by the contract of insurance, in accordance with the CMVLI law. At the
time of the incident, the schedule of indemnities for death and bodily injuries,
professional fees and other charges payable under a CMVLI coverage was provided
for under the Insurance Memorandum Circular (IMC) No. 5-78 which was approved
on November 10, 1978. As therein provided, the maximum indemnity for death was
twelve thousand (P12,000.00) pesos per victim. The schedules for medical expenses
were also provided by said IMC, specifically in paragraphs (C) to (G).63
Damages to be
Awarded
The trial court correctly awarded moral damages in the amount of P50,000 in
favor of respondent Arriesgado. The award of exemplary damages by way of
example or correction of the public good,64 is likewise in order. As the Court
ratiocinated in Kapalaran Bus Line v. Coronado:65
While the immediate beneficiaries of the standard of extraordinary diligence are, of
course, the passengers and owners of cargo carried by a common carrier, they are
37
not the only persons that the law seeks to benefit. For if common carriers carefully
observed the statutory standard of extraordinary diligence in respect of their own
passengers, they cannot help but simultaneously benefit pedestrians and the
passengers of other vehicles who are equally entitled to the safe and convenient
use of our roads and highways. The law seeks to stop and prevent the slaughter and
maiming of people (whether passengers or not) on our highways and buses, the
very size and power of which seem to inflame the minds of their drivers. Article
2231 of the Civil Code explicitly authorizes the imposition of exemplary damages in
cases of quasi-delicts if the defendant acted with gross negligence. 66
The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa
Arriesgado, is entitled to indemnity in the amount of P50,000.00.67
The petitioners, as well as the respondents Benjamin Condor and Sergio
Pedrano are jointly and severally liable for said amount, conformably with the
following pronouncement of the Court in Fabre, Jr. vs. Court of Appeals:68
The same rule of liability was applied in situations where the negligence of the
driver of the bus on which plaintiff was riding concurred with the negligence of a
third party who was the driver of another vehicle, thus causing an accident.
In Anuran v. Buo, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate
Court, and Metro Manila Transit Corporation v. Court of Appeals, the bus company,
its driver, the operator of the other vehicle and the driver of the vehicle were jointly
and severally held liable to the injured passenger or the latters heirs. The basis of
this allocation of liability was explained inViluan v. Court of Appeals, thus:
Nor should it make difference that the liability of petitioner [bus owner] springs
from contract while that of respondents [owner and driver of other vehicle] arises
from quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56
Phil. 177, that in case of injury to a passenger due to the negligence of the driver of
the bus on which he was riding and of the driver of another vehicle, the drivers as
well as the owners of the two vehicles are jointly and severally liable for
damages. Some members of the Court, though, are of the view that under the
circumstances they are liable on quasi-delict.69
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The
Decision of the Court of Appeals is AFFIRMED with MODIFICATIONS:
(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner
William Tiu are ORDERED to pay, jointly and severally, respondent Pedro A.
Arriesgado the total amount of P13,113.80;
 38

(2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano HELD:
are ORDERED to pay, jointly and severally, respondent Pedro A.
Arriesgado P50,000.00 as indemnity;P26,441.50 as actual damages; P50,000.00 as Contrary to the petitioner's contention, the principle of last clear chance is
moral damages; P50,000.00 as exemplary damages; and P20,000.00 as attorneys
inapplicable in the instant case, as it only applies in a suit between the owners and
fees.
drivers of two colliding vehicles. It does not arise where the passenger demands
SO ORDERED. responsibility from the carrier to enforce its contractual obligations, for it would be
inequitable to exempt the negligent driver and its owner on the ground that the
other driver was likewise guilty negligence. The common law notion of last clear
FACTS: chance permitted courts to grant recovery to a plaintiff who has also been negligent
provided that the defendant had the last clear chance to avoid the casualty and
At about 10:00 pm of March 15, 1987, the cargo truck marked " Condor Hollow failed to do so.
Blocks and General Merchandise" was loaded with firewood in Bogo, Cebu and left
for Cebu City. Upon reaching Sitio Aggies, Poblacion Compostela, Cebu, just as the
truck passed over the bridge, one of its rear tires exploded. The driver, Sergio
Pedrano, then parked along the right side of the bridge and removed the damaged
tire to have it vulcanized at a nearby shop. Pedrano left his helper, Jose Militante Jr.
to keep watch over the stalled vehicle, and instructed the latter to place a spare tire
6 fathoms behind the stalled truck to serve as a warning for oncoming vehicles. The
truck's tail lights were also left on.

At abount 4:45 am., D rough Riders Passenger bus driven by Virgilio te Las Pinas was
crushing along the national highway of Sitio Aggies also bound for Cebu City. Among
its passengers were the Sposes Pedro A. Arriesgado and Felisa Pepito Arriesgado,
who were seated at the right side of the bus. As the bus was approaching the
bridge, Las Pinas saw the stalled truck. He applied the brakes and tried to swerve to
the left to avoid hitting the truck. But it was too late; the bus rammed into the
truck's left rear. Pedro Arriesgado lost consciousness and suffered a fracture in his
colles. His wife Felisa died after being transferred to Island Medical Center.
Arriesgado then filed a complaint against Wiliam Tiu, operator of D Rough and his
driver Las Pinas for breach of contract of carriage.

ISSUE: Whether the doctrine of last clear chance is applicable as the petitioner
asserts.

THIRD DIVISION
G.R. No. L-49699 August 8, 1988
PERLA COMPANIA de SEGUROS, INC., petitioner,
vs.
HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court of First instance of
Camarines Norte, Branch III, ERNESTO A. RAMOS and GOYENA ZENAROSA-
RAMOS, for themselves and as Guardian Ad Litem for Minors JOBET, BANJO,
DAVID and GRACE all surnamed RAMOS, FERNANDO M. ABCEDE, SR., for himself
and Guardian Ad Litem for minor FERNANDO G. ABCEDE, JR., MIGUEL JEREZ
MAGO as Guardian Ad Litem for minors ARLEEN R. MAGO, and ANACLETA J.
ZENAROSA., respondents.
CORTES, J.:
The instant petition for certiorari and prohibition with preliminary injunction
concerns the ability of insurers under the "no fault indemnity" provision of the
Insurance Code. *
On December 27, 1977, in a collision between the IH Scout in which private
respondents were riding and a Superlines bus along the national highway in Sta.
Elena, Camarines Norte, private respondents sustained physics injuries in varying
degrees of gravity. Thus, they filed with the Court of First Instance of Camarines
Norte on February 23,1978 a complaint for damages against Superlines, the bus
driver and petitioner, the insurer of the bus [Rollo, pp. 27-39.] The bus was insured
with petitioner for the amount of P50,000.00 as and for passenger liability and
P50,000.00 as and for third party liability. The vehicle in which private respondents
were riding was insured with Malayan Insurance Co.
Even before summons could be served, respondent judge issued an order dated
March 1, 1978 [Rollo, pp. 40-41], the pertinent portion of which stated:
The second incident is the prayer for an order of this court for the
Insurance Company, Perla Compania de Seguros, Inc., to pay
immediately the P5,000.00 under the "no fault clause" as
provided for under Section 378 of the Insurance Code, and finding
that the requisite documents to be attached in the record, the
said Insurance Company is therefore directed to pay the plaintiffs
(private respondents herein) within five (5) days from receipt of
this order.
39
Petitioner denied in its Answer its alleged liability under the "no fault indemnity"
provision [Rollo, p. 44] and likewise moved for the reconsideration of the order.
Petitioner held the position that under Sec. 378 of the Insurance Code, the insurer
liable to pay the P5,000.00 is the insurer of the vehicle in which private respondents
were riding, not petitioner, as the provision states that "[i]n the case of an occupant
of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is
riding, mounting or dismounting from." Respondent judge, however, denied
reconsideration. A second motion for reconsideration was filed by petitioner.
However, in an order dated January 3, 1979, respondent judge denied the second
motion for reconsideration and ordered the issuance of a writ of execution [Rollo,
p. 69.] Hence, the instant petition praying principally for the annulment and setting
aside of respondent judge's orders dated March 1, 1978 and January 3, 1979.
The Court issued a temporary restraining order on January 24,1979 [Rollo pp. 73-
74.]
The sole issue raised in this petition is whether or not petitioner is the insurer liable
to indemnify private respondents under Sec. 378 of the Insurance Code.
The key to the resolution of the issue is of courts e Sec. 378, which provides:
Sec. 378. Any claim for death or injury to any passenger or third party
pursuant to the provision of this chapter shall be paid without the
necessity of proving fault or negligence of any kind. Provided, That for
purposes of this section —
(i) The indemnity in respect of any one person shall not exceed five
thousand pesos;
(ii) The following proofs of loss, when submitted under oath, shall be
sufficient evidence to substantiate the claim:
(a) Police report of accident, and
(b) Death certificate and evidence sufficient to establish the
proper payee, or
(c) Medical report and evidence of medical or hospital
disbursement in respect of which refund is claimed;
 40

(iii) Claim may be made against one motor vehicle only. In the case of an
occupant of a vehicle, claim shall lie against the insurer of the vehicle in
which the occupant is riding, mounting or dismounting from. In any other
case, claim shall lie against the insurer of the directly offending vehicle. In
all cases, the right of the party paying the claim to recover against the
owner of the vehicle responsible for the accident shall be maintained.
[Emphasis supplied.]
From a reading of the provision, which is couched in straight-forward and
unambiguous language, the following rules on claims under the "no fault
indemnity" provision, where proof of fault or negligence is not necessary for
payment of any claim for death Or injury to a passenger or a third party, are
established:
1. A claim may be made against one motor vehicle only.
2. If the victim is an occupant of a vehicle, the claim shall lie against the insurer of
the vehicle. in which he is riding, mounting or dismounting from.
compulsory passenger and/or third party liability insurance [Sec. 377] which was
mandated in order to ensure ready compensation for victims of vehicular accidents.
Irrespective of whether or not fault or negligence lies with the driver of the
Superlines bus, as private respondents were not occupants of the bus, they cannot
claim the "no fault indemnity" provided in Sec. 378 from petitioner. The claim
should be made against the insurer of the vehicle they were riding. This is very clear
from the law. Undoubtedly, in ordering petitioner to pay private respondents the
'no fault indemnity,' respondent judge gravely abused his discretion in a manner
that amounts to lack of jurisdiction. The issuance of the corrective writ of certiorari
is therefore warranted.
WHEREFORE, the petition is GRANTED and respondent judge's order dated March 1,
1978, requiring petitioner to pay private respondents the amount of P5,000.00 as
"no fault indemnity' under Sec. 378 of the Insurance Code, and that of January 3,
1979, denying the second motion for reconsideration and issuing a writ of
execution, are ANNULLED and SET ASIDE. The temporary restraining order issued by
the Court on January 24, 1979 is made permanent.

3. In any other case (i.e. if the victim is not an occupant of a vehicle), the claim shall SO ORDERED.
lie against the insurer of the directly offending vehicle.

4. In all cases, the right of the party paying the claim to recover against the owner
of the vehicle responsible for the accident shall be maintained.

The law is very clear — the claim shall lie against the insurer of the vehicle in which
the "occupant" ** is riding, and no other. The claimant is not free to choose from
which insurer he will claim the "no fault indemnity," as the law, by using the word
"shall, makes it mandatory that the claim be made against the insurer of the vehicle
in which the occupant is riding, mounting or dismounting from.

That said vehicle might not be the one that caused the accident is of no moment
since the law itself provides that the party paying the claim under Sec. 378 may
recover against the owner of the vehicle responsible for the accident. This is
precisely the essence of "no fault indemnity" insurance which was introduced to
and made part of our laws in order to provide victims of vehicular accidents or their
heirs immediate compensation, although in a limited amount, pending final
determination of who is responsible for the accident and liable for the
victims'injuries or death. In turn, the "no fault indemnity" provision is part and
parcel of the Insurance Code provisions on compulsory motor vehicle ability
insurance [Sec. 373-389] and should be read together with the requirement for

FIRST DIVISION
G.R. No. L-51221 July 31, 1991
FIRST INTEGRATED BONDING & INSURANCE COMPANY, INC., petitioner,
vs.
HON. HAROLD M. HERNANDO, VICTORINO ADVINCULA, ROMANA ADVINCULA,
SILVERIO BLANCO & THE SHERIFF OF MANILA and his DEPUTY
SHERIFFS, respondents.
MEDIALDEA, J.:p
This petition for certiorari under Rule 65 of the Revised Rules of Court, seeks the
annulment of the amended decision of respondent trial court in Civil Case No. 1104
for allegedly having been rendered in excess of jurisdiction. The same decision was
sought to be annulled in a petition for relief from judgment filed in the same case
but the petition was denied for having been filed out of time.
The narration of facts below was taken from the pleadings filed by the parties. As
regards the proceedings following the promulgation of the amended decision, the
dates were supplied in the Comment and Answer filed by respondent judge and
which were not disputed by petitioner.
Silverio Blanco was the owner of a passenger jeepney which he insured against
liabilities for death and injuries to third persons with First Integrated Bonding and
Insurance Company, Inc. (First Insurance) under Motor Vehicle Policy No. V-
0563751 with the face value of P30,000.00 (p. 15, Rollo).
On November 25, 1976, the said jeepney driven by Blanco himself bumped a five-
year old child, Deogracias Advincula, causing the latter's death.
A complaint (pp. 38-41, Rollo) for damages was brought by the child's parents, the
Advincula spouses, against Silverio Blanco. First Insurance was also impleaded in the
complaint as the insurer. The complaint was docketed as Civil Case No. 1104 of the
Court of First Instance of Abra (now Regional Trial Court).
Summons were served on Silverio Blanco and First Insurance. However, only Blanco
filed an answer. Upon motion of the Advincula spouses, First Insurance was
declared in default (p. 45, Rollo) on January 19, 1978. Thereafter, a pre-trial
41
conference was conducted where the Advincula spouses presented the following
documentary evidence:
Exhibit "A" — Marriage Certificate, Exhibit B — Birth Certificate, Exhibit B-1
— The Certificate of the Local Civil Registrar, Exhibit C — Certificate of
Death, Exhibit C-1 — the official receipt of the burial permit, Exhibit C-2 —
the autopsy report, Exhibit D — filing fee under official receipt in the
amount of P80.00, Exhibit D-1 — list of actual expenses in connection with
the death and burial of the deceased Advincula, Exhibit E — Criminal Case
No. 666 of the Municipal Court of Tayum, Abra entitled People of the
Philippines versus Silverio Blanco for Homicide thru Reckless Imprudence,
Exhibit E-1 — sworn statement of Severino Balneg Exhibit F — Tax
Declaration No. 906 in the name of Maria Blanco delivered by Silverio
Blanco to the plaintiffs as pledge of Silverio Blanco to settle the civil aspect
of this case. (pp. 14-15, Rollo)
On the basis of the evidence presented by the Advincula spouses, judgment was
rendered by the trial court on March 1, 1978, the dispositive portion of which
states:
WHEREFORE, for moral damages, this court adjudicates to the plaintiffs
P5,000.00; for the life of Deogracias Advincula P12,000.00, for funeral
expenses, P3,663.50 and for attomey's fees, P3,000.00. The satisfaction of
these damages divulged (sic) independently now upon the defendant
insurance company and to pay the costs of the proceedings.
SO ORDERED. (p. 16, Rollo)
First Insurance received a copy of the decision on March 14, 1978. Upon motion of
the Advincula spouses, the decision was amended on March 27, 1978 (p. 17, Rollo),
which, in addition to the damages granted in the original decision, awarded
damages in the amount of P6,336.50 to Silverio Blanco. The dispositive portion of
the amended decision is quoted, as follows:
WHEREFORE, for moral damages, this Court hereby adjudicates to the
plaintiffs P5,000.00; for the life of Deogracias Advincula P12,000.00; for
funeral expenses P3,663.50 and for attorney's fees P3,000.00 or in the
total amount of P23,663.50 which must be satisfied independently by the
defendant First Integrated Bonding and Insurance Company, Inc. in favor of
the plaintiffs and the balance of P6,336.50 shall also be paid by said

defendant Insurance Company to the defendant Silverio Blanco. The grand
total under the insurance policy, Exhibit H, is P30,000.00.
The defendant Insurance Company to pay the costs of the proceedings.
SO ORDERED. (p. 17, Rollo)
The amended decision was received by First Instance on April 11, 1978. On May 11,
1978, entry of judgment was made, a copy of which was furnished First Insurance
on June 27, 1978. Upon motion of the Advincula spouses, an order granting
execution was issued by the court on June 14, 1978, which was received by First
Insurance on August 1, 1978 (pp. 31-32, Rollo).
On September 5, 1978, First Insurance filed a petition for relief from judgment in
the same case. The petition was set for hearing on September 28, 1978. No
appearance was entered by First Insurance on the said date. On October 4, 1978,
the trial court issued an order, denying the petition for relief from judgment (pp.
33-34, Rollo), a copy of which was received by First Insurance on October 10, 1978
(p. 35, Rollo). The order reads:
The records of this case show that on April 11, 1978, the defendant First
Integrated Bonding and Insurance Company, Inc. received a copy of the
amended decision dated March 27, 1978 and found on page 30 of the
records of this case; on May 11, 1978, the Deputy Clerk of Court entered
the corresponding entry of judgment and the First Integrated Bonding and
Insurance Company, Inc. received a copy thereof on June 27, 1978, On
June 13, 1978, the plaintiffs moved for execution of judgment and the
same was granted pursuant to an Order of this Court dated June 14, 1978
and found on page 35 of the records of this case.
And now comes the petition for relief from the Order of execution and
judgment with preliminary injunction filed by First integrated Bonding and
Insurance Co., Inc. and which was received by this Court on September 5,
1978; on September 28, 1978, the plaintiffs filed their written opposition
to the petition for relief from judgment and preliminary injunction. The
opposition is based on three grounds, namely: 1. that the petition is filed
out of time; 2. that there was gross and notorious negligence of the
Insurance Company; 3. that this case is within the jurisdiction of this Court
and therefore the cause of action of the plaintiffs deserves judicial
consideration.
42
It was on April 11, 1978 that the First Integrated Bonding and Insurance Co., Inc.
received the amended decision and the petition for relief from Order of Execution
and judgment with preliminary injunction was filed on September 5, 1978 or a
period of 191 days already expired, that is, more than 6 months already as required
by Section 3, Rule 38 of the Rules of Court. Consequently, the first ground invoked
by the opposition must be sustained. On the second ground, the records of this
case show that the First Integrated Bonding and Insurance Co., Inc. was duly
summoned and served a copy of the complaint on August 16, 1977 and it was
received by the President of the Insurance Company as shown by the certificate of
Service of the Sheriff of Manila and found in page 12 and page 13 of the records of
this case; after the reglementary period to file an answer expired, the plaintiffs
move to declare the defendant insurance company in default and likewise asked
the Court that they be allowed to present their evidence on January 23, 1978 and
which was granted by this Court pursuant to an order dated January 19, 1978 and
found on page 16 of the records of this case; after the reception of the evidence for
the plaintiffs this Court rendered a decision on March 1, 1978 and which is found on
pages 23 to 26 of the records of this case; subsequently, on March 27, 1978, an
amended decision was issued by this Court and it is found on page 30 of the records
of this case. Clearly, therefore, the First Integrated Bonding and Insurance Co., Inc.
was grossly and notoriously negligent in giving the proper attention to this case.
This kind of gross and notorious negligence can not be considered excusable. The
last ground is that this Court has jurisdiction over the plaintiffs' cause of action
against the insurance company. This ground is well-taken because according to
Section 416 of the Philippine Insurance Code, Presidential Decree No. 612, it
provides that the authority to adjudicate granted to the Commissioner of insurance
shall be concurrent with that of the civil courts, but the filing of a complaint with
the commissioner shall preclude the civil courts from taking cognizance of a suit
involving the same subject matter. Furthermore, the plaintiffs did not intervene in
the criminal aspect of this case, instead, they filed a separate and independent civil
action on July 26, 1977 and which is now the present Civil Case No. 1104. It may be
added, that the matter of exhaustion of administrative remedy may be waived
which has been so in the present case because the First Integrated Bonding and
Insurance Co., Inc. was declared in default.
In view of all the foregoing considerations, the petition for relief from the
order of execution and judgment with preliminary injunction, for lack of
merit, is hereby denied.
SO ORDERED. (pp. 33-34, Rollo)

First Insurance filed a motion for reconsideration of the order denying the petition
for relief on May 14, 1979. The motion was set for hearing and again no appearance
was entered by the movant First Insurance (p. 35, Rollo), prompting the trial court
to deny the same.
On August 13, 1979, the herein petitioner First Insurance filed this petition
for certiorari on the following grounds:
1. The trial court erred in deciding for the respondent spouse(s) where
there exists no cause of action against the herein petitioner.
2. The trial court erred when it abbreviated the proceeding and rendered
judgment based only on the documentary evidence presented during the
pre-trial conference.
3. The trial court erred in holding the petitioner liable in excess of the
limits of liability as provided for in the policy contract.
On August 20, 1979, this Court issued a temporary restraining order enjoining the
respondents from enforcing the Writ of Execution dated August 1, 1978 (p.
19, Rollo)
It is the contention of the petitioner that the Advincula spouses have no cause of
action against it. As parents of the victim, they may proceed against the driver,
Silverio Blanco on the basis of the provisions of the New Civil Code. However, they
have no cause of action against First Insurance, because they are not parties to the
insurance contract.
It is settled that where the insurance contract provides for indemnity against
liability to a third party, such third party can directly sue the insurer (Caguia v.
Fieldman's Insurance Co., Inc., G. R. No. 23276, November 29, 1968, 26 SCRA 178).
The liability of the insurer to such third person is based on contract while the
liability of the insured to the third party is based on tort (Malayan Insurance Co.,
Inc. v. CA, L-36413, September 26, 1988, 165 SCRA 536). This rule was explained in
the case of Shafer v. Judge, RTC of Olongapo City, Br. 75, G.R. No. 78848, November
14, 1988:
The injured for whom the contract of insurance is intended can sue directly
the insurer. The general purpose of statutes enabling an injured person to
proceed directly against the insurer is to protect injured persons against
43
the insolvency of the insured who causes such injury, and to give such
injured person a certain beneficial interest in the proceeds of the policy,
and statutes are to be liberally construed so that their intended purpose
may be accomplished. It has even been held that such a provision creates a
contractual relation which inures to the benefit of any and every person
who may be negligently injured by the named insured as if such injured
person were specifically named in the policy.
In the event that the injured fails or refuses to include the insurer as party
defendant in his claim for indemnity against the insured, the latter is not
prevented by law to avail of the procedural rules intended to avoid
multiplicity of suits. Not even a "no action" clause under the policy which
requires that a final judgment be first obtained against the insured and
that only thereafter can the person insured recover on the policy can
prevail over the Rules of Court provisions aimed at avoiding multiplicity of
suits. (p. 391, 167 SCRA) (emphasis supplied)
First Insurance cannot evade its liability as insurer by hiding under the cloak of the
insured. Its liability is primary and not dependent on the recovery of judgment from
the insured.
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL)
is primarily intended to provide compensation for the death or bodily
injuries suffered by innocent third parties or passengers as a result of a
negligent operation and use of motor vehicles. The victims and/or their
dependents are assured of immediate financial assistance, regardless of
the financial capacity of the motor vehicle owners.
. . . the insurer's liability accrues immediately upon the occurrence of the
injury or event upon which the liability depends, and does not depend on
the recovery of judgment by the injured party against the insured (Shafer v.
Judge, RTC of Olongapo, supra, p. 390).
It is true that Blanco denied that he was negligent when the incident occurred.
However, during the pre-trial conference, when respondent judge admitted all the
exhibits of the plaintiffs to abbreviate the proceedings, no objection was interposed
by Blanco. When a decision was rendered based only on the exhibits of the
plaintiffs, Blanco likewise did not object. No motion for reconsideration was filed by
either Blanco or First Insurance. Hence, the decision became final and may no
longer be attacked.

It should be noted also that First Insurance was declared in default because of its
failure to file an answer. As far as it was concerned, it failed to raise any triable
issue. It lost its standing in court and judgment may be rendered against it on the
basis only of the evidence of the Advincula spouses.
Petitioner had been given its day in court. Despite its having been declared in
default and its failure to file a motion to lift the order of default, it was still notified
of the subsequent proceedings in the trial court. But no positive step was taken by
it on time to vacate the order of default, the decision nor the amended decision.
Instead, it chose to file a petition for relief from judgment on September 1, 1978
almost five (5) months from its receipt of a copy of the amended decision on April
11, 1978. Clearly, the said petition for relief from judgment was filed out of time.
The rules require that such petitions must be filed within sixty (60) days after the
petitioner learns of the judgment and not more than six (6) months after such
judgment was entered (Rule 38, Section 3). The period fixed by Rule 38 of the Rules
of Court is non-extendible and never interrupted. It is not subject to any condition
or contingency, because it is itself devised to meet a condition or contingency. The
remedy allowed by Rule 38 is an act of grace, as it were, designed to give the
aggrieved party another and last chance. Being in the position of one who begs,
such party's privilege is not to impose conditions, haggle or dilly-dally, but to grab
what is offered him. (Palomares, et al. v. Jimenez, et al., 90 Phil. 773, XVII, L.J., No.
3, p. 136, Rafanan v. Rafanan, 35 O.G. 228; Santos v. Manila Electric Co., G.R. L-
7735, December 29, 1955; Gana v. Abaya, G.R. No. L-3106, December 29, 1955,
cited in Vicente J. Francisco, The Revised Rules of Court of the Philippines,
Annotated and Commented, Vol, 11, p. 580.
It appears that the award of damages in favor of Blanco has no basis. The complaint
in Civil case 1104 was for damages brought by the spouses against Blanco and First
Insurance. Blanco did not put up any claim against the latter. However, since the
said decision had already become final and executory, it can no longer be corrected
or amended. In the same vein, the claim of petitioner that its liability to third
parties under the insurance policy is limited to P20,000.00 only can no longer be
given consideration at this late stage, when the decision of the trial court awarding
damages had already become final and executory.
ACCORDINGLY, finding respondent judge to have acted within his jurisdiction in
denying the petition for relief from judgment, the petition is DISMISSED. The
questioned decision of the trial court in Civil Case No. 1104 having become final and
executory, is AFFIRMED. The temporary restraining order issued on August 20, 1979
is hereby lifted. Costs against petitioner.
44
SO ORDERED.
Topic: Casualty Insurance; Compulsory motor vehicle liability; Third party suit
against insurer
Date: July 31, 1991
Facts:
Silverio Blanco was the owner of a passenger jeepney which he insured against
liabilities for death and injuries to third persons with First Integrated Bonding and
Insurance Company, Inc. for P30,000. The said jeepney driven by Blanco himself
bumped a five-year old child, Deogracias Advincula, causing the latter's death. The
boy’s parents filed a complaint for damages against Blanco and First Insurance,
which was granted by the lower court. First Insurance filed a petition for certiorari
contending that the victim’s parents have no cause of action against it because they
are not parties to the insurance contract and that they may only proceed against
the driver based on the provisions of the New Civil Code.
Issue: W/N an injured party for whom the contract of insurance is intended can sue
directly the insurer
Held:
YES. Where the insurance contract provides for indemnity against liability to a third
party, such third party can directly sue the insurer. The liability of the insurer to
such third person is based on contract while the liability of the insured to the third
party is based on tort. It cannot evade its liability as insurer by hiding under the
cloak of the insured. Its liability is primary and not dependent on the recovery
of judgment from the insured

EN BANC
G.R. No. L-48546 February 29, 1988
SUMMIT GUARANTY & INSURANCE COMPANY, INC., petitioner,
vs.
THE HONORABLE GREGORIA C. ARNALDO, in her capacity as Insurance
Commissioner, and FGU INSURANCE CORPORATION, respondents.
GANCAYCO, J.:
As a result of a vehicular accident that happened on November 26,1976 whereby a
Ford Pick-up with Plate No. UC-5925 Phil. '76 owned by Marcos Olaso was bumped
by a cargo truck with Plate No. OY-783 then owned by Alberto Floralde, FGU
insurance poration FGU by reason of Motor Vehicle Insurance Policy No. IC-VF-
07185 paid Olaso the sum of P 2,817.50 as its share in the repair cost of the said
Ford Pick-up. Having thus been subrogated to the rights and causes of action of said
Olaso in the said amount FGU formally demanded payment of said amount from
Floralde and attempted to verify Floralde's insurance carrier. Floralde failed to
reveal his insurance carrier. In the early part of 1978 FGU was able to ascertain the
Identity of Floralde's insurance carrier to be the Summit Guaranty and Insurance
Company, Inc. (Summit). On February 22,1978 FGU wrote to the insurance
commissioner requesting for a conference with Summit and demanded from
Summit through counsel on February 28,1978 the payment of the damages
sustained by the car of Olaso but to no avail. Hence on May 22,1978 FGU filed IC
Case No. 825 in the Insurance Commissioner's Office against Summit for recovery of
said amount.
A motion to dismiss the complaint was filed by Summit on May 30,1978 on the
ground of prescription under Section 384 of PD No. 612. In an order of June 19,1978
the resolution of the motion was deferred until after the hearing on the merits. A
motion for reconsideration of said order filed by Summit was denied in an order of
June 28,1978 and Summit was required to file its answer to the complaint. Hence
Summit filed the herein petition for certiorari and prohibition with restraining order
in this Court alleging that respondent commissioner acted without or in excess of
jurisdiction or with grave abuse of discretion in denyingthe aforesaid motion for
reconsideration when it has been shown that the action has already prescribed so
petitioner sought an order to restrain the respondent commissioner from further
proceeding in the case during the pendency of the petition.
45
Without giving due course to the petition, the respondents were required to
comment thereon within ten (10) days from notice. The comments of respondents
were submitted in due time. The petitioner was then required to submit a reply
thereto which reply was filed. On October 6, 1978 the court gave due course to the
petition and thereafter required the parties to file their briefs. The briefs of all the
parties having all been submitted, the case is now due for decision.
Outrightly, the court finds that the petition should be dismissed for lack of merit.
The questioned orders of the respondent Commissioner of June 19,1978 and June
28,1978 deferring the consideration of the petitioner's motion to dismiss the
complaint until after the hearing on the merits of the case are supported by the
provision of Section 3, Rule 16 of the Rules of Court that such hearing and
determination of the motion may be deferred "until the trial if the ground alleged
therein does not appear to be indubitable." Obviously, the respondent
commissioner had doubts from the mere allegations of the motion to dismiss.
Considering such doubt the deferment was proper and may be considered as a
provisional denial of the motion to dismiss. 1
The purpose of this provision requiring that the order of the court dismissing an
action should be founded on indubitable grounds is to avoid multiplicity of appeals.
In case of doubt, the court, instead of denying or granting the motion, must defer
its final hearing and determination until the trial . 2
The remedy against the denial of a motion to dismiss is by appeal in due course
after the case is decided on the merits, save where the trial court clearly acted
outside its jurisdiction or with grave abuse of discretion as to amount to excess of
jurisdiction . 3 Thus it is only when it clearly appears that the trial judge or court is
proceeding in excess or outside of its jurisdiction, when the remedy of prohibition
would lie since it would be useless to waste time to go ahead with the
proceedings. 4 The same remedy applies when the court denies the motion based
on lack of jurisdiction. 5However, such a situation does not exist in the present case
as to warrant this extraordinary remedy.
Nevertheless, petitioner squarely brings into focus the provisions of Section 384 of
PD 612, the Insurance Code, which provides as follows:
Sec. 384. Any person having any claim upon the policy issued pursuant to
this chapter shall, without any unnecessary delay, present to the insurance
company concerned a written notice of claim setting forth the amount of
his loss, and/or the nature, extent and duration of the injuries sustained as
certified by a duly licensed physician. Notice of claim must be filed within

six months from date of the accident, otherwise, the claim shall be
deemed waived. Action or suit for recovery of damage due to loss or injury
must be brought, in proper cases, with the Commissioner or the Courts
within one year from date of accident, otherwise, the claimant's right of
action shall prescribe.
As averred in the motion to dismiss flied by petitioner the accident happened on
November 26, 1976 while the complaint was filed on May 22,1978 beyond the one-
year period from the time of the accident provided for by the aforecited provision
of law.
Respondent FGU, however, contends that the said one-year prescriptive period can
not apply to it because it was merely subrogated to the rights of Olaso; that the
prescriptive period of its cause of action is ten (10) years being one arising from a
written contract; 6 that said provision of Section 384 of the Insurance Code apply
only to the claim directly filed by a person against the insurance company for the
loss he sustained; and that the claim of respondent FGU is one for reimbursement
as subrogee of its assured Marcos Olaso against petitioner for the third party
liability insurance coverage the latter issued in favor of Floralde.
Respondent Commissioner in turn argues that the cause of action of FGU was
shown and arose only from the date it paid Olaso for the damages suffered and not
from the date of the accident; and that the period set forth in Section 384 of PD 612
begins to run only from the time the party against whom the right is to be asserted
is Identified. In this case FGU was able to Identify petitioner only in 1978 after all
efforts were undertaken to verify its Identity. FGU paid Marcos Olaso on Dec.
9,1976.
Respondent Commissioner invites attention to the phrase "in proper cases" in
Section 384 of PD 612 and argues that the prescriptive period was interrupted upon
the extrajudicial demand for payment made by FGU on petitioner. 7 It is further
argued that respondent FGU had a right to wait for the petitioner to respond to the
demand before it should file a suit as litigation is not encouraged when it could be
justifiably settled.
In the cases of Summit Guaranty & Insurance Co., Inc. vs. The Hon. Jose C. de
Guzman, etc., et al., G.R. No. 50997, Summit Guaranty & Insurance Co., Inc. vs. The
Hon. Gregoria C. Arnaldo, etc., G.R. No. L-48679, andSummit Guaranty & Insurance
Co., Inc. vs. The Hon. Ramon B. Jabson etc., G.R. No. L-48758, which were jointly
decided by this Court on June 30,1987, wherein the petitioner in the present case
46
was also the petitioner in said cases, the Court had occasion to interpret the
aforesaid provision of Section 384 of the Insurance Code in this manner:
Petitioner company contends that the two periods prescribed in the
aforementioned law — that is, the six-month period for filing the notice of
claim and the one-year period for bringing an action or suit — are
mandatory and must always concur. Petitioner company argues that under
this law, even if the notice of claim was timely filed with the insurance
company within the six-month period, as what happened in the three
cases before Us, the action or suit that follows, if filed beyond the one-year
period should necessarily be dismissed on the ground of prescription.
We find no merit in the contention of petitioner company. There is
absolutely nothing in the law which mandates that the two periods must
always concur. On the contrary, it is very clear that the one-year period is
only required 'in proper cases.' It appears that petitioner company
disregarded this very significant phrase when it made its own
interpretation of the law. Had the lawmakers intended it to be the way
petitioner company assumes it to be, then the phrase in proper cases'
would not have been inserted. At this point, it is but appropriate for Us to
reiterate our ruling in Aisporna vs. Court of Appeals, 8 to wit:
Legislative intent must be ascertained from a consideration of the
statute as a whole. The particular words, clauses and phrases
should not be studied as detached and isolated expressions, but
the whole and every part of the statute must be considered in
fixing the meaning of any of its parts and in order to produce a
harmonious whole. A statute must be so construed as to
harmonize and give effect to all its provisions whenever possible.
It is very obvious that petitioner company is trying to use Section 384 of
the Insurance Code as a cloak to hide itself from its liabilities. The facts of
these cases evidently reflect the deliberate efforts of petitioner company
to prevent the filing of a formal action against it. Bearing in mind that if it
succeeds in doing so until one year lapses from the date of the accident it
could set up the defense of prescription, petitioner company made private
respondents believe that their claims would be settled in order that the
latter will not find it necessary to immediately bring suit. In violation of its
duties to adopt and implement reasonable standards for the prompt
investigation of claims and to effectuate prompt, fair and equitable
settlement of claims, and with manifest bad faith, petitioner company

devised means and ways of stalling the settlement proceedings. In G.R.No.
L-50997, no steps were taken to process the claim and no rejection of said
claim was ever made even if private respondent had already complied with
all the requirements. In G.R. No. L-48758 — petitioner company even
provided legal assistance to one of the private respondents in the criminal
case filed against him leading private respondents to believe that it was
ready to pay. In the same case, petitioner company admits that it took no
final action or adjudication of the claim. Worse still, in G.R. No. L-48679,
assurances of payment were constantly given and petitioner company
even said that a check was ready for release.
This Court has made the observation that some insurance companies have been
inventing excuses to avoid their just obligations and it is only the State that can give
the protection which the insuring public needs from possible abuses of the insurers.
In view of the foregoing, We hold that these three cases do not fall within the
meaning of 'proper cases as contemplated in Section 384 of the Insurance Code. To
hold otherwise would enable petitioner company to evade its responsibility through
a clever scheme it had contrived.
The one-year period should instead be counted from the date of rejection by the
insurer as this is the time when the cause of action accrues. Since in these cases
there has yet been no accrual of cause of action, We hold that precription has not
yet set in.
We also observed in the aforesaid cases that because of the problems created by
the aforecited provision of the Insurance Code the said section was amended by the
then Batas Pambansa to read as follows:
... Action or suit for recovery of damage due to loss or injury must be
brought in proper cases, with the Commissioner or the Courts within one
year from the denial of the claim, otherwise, the claimant's right of action
shall prescribe. 9
In the present case, it is not denied that an extrajudicial demand for payment was
made by respondent FGU on petitioner but petitioner failed to respond to the
same. Nevertheless the complaint was filed even before a denial of the claim was
made by petitioner. For all legal purposes, the one-year prescriptive period
provided for in Section 384 of the Insurance Code has not begun to run. The cause
of action arises only and starts to run upon the denial of the claim by the insurance
company.
47
The court takes note of the dilatory tactics employed by petitioner in this as in the
several cases aforecited to avoid payment of its liabilities. We now put a finis to this
case and express extreme disapproval of such actuations of petitioner.
WHEREFORE, the petition is DISMISSED for lack of merit with costs against
petitioner. Respondent Commissioner is hereby directed to terminate the
proceedings in IC No. 825 with deliberate dispatch. No motion for extension of time
to file a motion for reconsideration of this decision shall be entertained.
SO ORDERED.
FACTS:
As a result of a vehicular accident that happened on November 26,1976whereby a
Ford Pick-up with Plate No. UC-5925 Phil. '76 owned by Marcos Olaso was bumped
by a cargo truck with Plate No. OY-783 then owned by Alberto Floralde, FGU
insurance corporation FGU by reason of Motor Vehicle Insurance Policy No. IC-VF-
07185 paid Olaso the sum of P 2,817.50 as its share in the repair cost of the said
Ford Pick-up. Having thus been subrogated to the rights and causes of action of said
Olaso in the said amount FGU formally demanded payment of said amount from
Floralde and attempted to verify Floralde's insurance carrier. Floralde failed to
reveal his insurance carrier. In the early part of 1978 FGU was able to ascertain the
Identity of Floralde's insurance carrier to be the Summit Guaranty and Insurance
Company, Inc.(Summit). On February 22,1978 FGU wrote to the insurance
commissioner requesting for a conference with Summit and demanded from
Summit through counsel on February 28,1978 the payment of the damages
sustained by the car of Olaso but to no avail. Hence on May22,1978 FGU filed IC
Case No. 825 in the Insurance Commissioner's Office against Summit for recovery of
said amount.
ARGUMENTS:
Petitioner squarely brings into focus the provisions of Section 384 of PD612, the
Insurance Code, Petitioner company contends that the two periods prescribed in
the aforementioned law — that is, the six-month period for filing the notice of claim
and the one-year period for bringing an action or suit — are mandatory and must
always concur. Respondent FGU, however, contends that the said one-year
prescriptive period can not apply to it because it was merely subrogated to the
 48

rights of Olaso. Respondent Commissioner invites attention to the phrase "in

proper cases" in Section 384 of PD 612 and argues that the prescriptive period was
interrupted upon the extrajudicial demand for payment made by FGU on petitioner

ISSUE: Whether the claim of Insurance Corporation is barred by prescription under

section 384 of PD No. 612.

HELD:

In the present case, it is not denied that an extrajudicial demand for payment was
made by respondent FGU on petitioner but petitioner failed to respond to the
same. Nevertheless the complaint was filed even before a denial of the claim was
made by petitioner. For all legal purposes, the one-year prescriptive period
provided for in Section 384 of the Insurance Code has not begun to run. The cause
of action arises only and starts to run upon the denial of the claim by the insurance
company.

DISCUSSION ON HOW THE SC RULED THE CASE

We find no merit in the contention of petitioner company. There is absolutely

nothing in the law which mandates that the two periods must always concur. On
the contrary, it is very clear that the one-year period is only required 'in proper
cases.' It appears that petitioner company disregarded this very significant phrase
when it made its own interpretation of the law. Had the lawmakers intended it to
be the way petitioner company assumes it to be, then the phrase in proper cases
would not have been inserted.

SECOND DIVISION
[G.R. No. 101439. June 21, 1999]
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. COURT OF
APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for
herself and minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for
herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, and
MAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA KHO, EMERITA KHO
APEGO, ANTONIO KHO and TERESITA KHO, respondents.
DECISION
QUISUMBING, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court,
petitioner Government Service Insurance System (GSIS) assails the January 15, 1991
Decision[1] of the Court of Appeals in CA-G.R. No. 19849, which affirmed in toto the
judgment of the Regional Trial Court of Butuan City, Branch II, dated April 30, 1985,
stating in part:
WHEREFORE, judgment is hereby rendered, as follows:
In Civil Case No. 2256:
a) Dismissing the complaint against defendant Victor Uy;
b) Ordering defendants Mabuhay Insurance and Guaranty Company, Inc., Guillermo
Corbeta, NFA and GSIS to pay jointly and severally the following sums of money:
i. to pay plaintiff Gloria Kho Vda. de Calabia, the sum of P8,935.06 for doctors fees,
medicines, hospitalizations and medical expenses; P2,319.00 for transportation
expenses; and P53.30 for telegrams; P10,000.00 for the injuries she sustained;
P12,000.00 loss of income for six months.
ii. to plaintiff Victoria Kho, the sum of P832.00 for hospitalization and medicines;
P10,000.00 for the injuries she sustained;
49
iii. to the heirs of Wellie [Willie] Calabia, Roland Kho and Maxima Uhmad [Ugmad]
Vda. de Kho, the sum of P7,500.00 as funeral expenses less P5,000.00 advanced by
defendant Victor Uy.
iv. to the heirs of Wellie [Willie] Calabia, Sr., heirs of Roland Kho and heirs of
Maxima Ugmad Vda. de Kho; P30,000.00 each as compensatory damages.
c) To pay plaintiff the sum of P10,000.00 as attorneys fees and expenses of
litigation;
d) Dismissing defendants counterclaim, and cross-claim; and
e) To pay the costs.
That this decision is without prejudice as to the right of Mabuhay Insurance &
Guaranty Co., Inc., and NFA to recover from Guillermo Corbeta and GSIS the
amounts they may have paid by virtue hereof.[2]
For purposes of this review, we deem as also assailed the disposition by the
trial court in its Order issued on July 12, 1985, modifying its original decision, by
awarding moral damages to the heirs of the deceased victims, as follows:
Considering that the dispositive portion of the decision in this case, an award of
P10,000.00 each made to plaintiffs Gloria Kho Vda. de Calabia x x x, for injuries they
sustained, this award, through [sic] not clearly stated in the decision, is the moral
damages the instant motion seeks to obtain. However, the prayer for moral
damages for the death of the three (3) persons above-mentioned is
proper. (citation omitted)
In view of the foregoing, the prayer of plaintiffs Gloria Kho Vda. de Calabia and
Victoria Kho for an award of moral damages in their favor is hereby
denied. However, as for the death of Wellie [Willie] Calabia, Sr., Rolando Kho and
Maxima Ugmad Vda. de Kho, an award of moral damages is hereby made, and
ordering and directing defendants Mabuhay Insurance and Guaranty Company Inc.,
Guillermo Corbeta, National Food Authority and Government Service Insurance
System to pay jointly and severally the following sums to wit:
P10,000.00 to the heirs of Wellie [Willie] Calabia, Sr.
P10,000.00 to the heirs of Rolando Kho and

P10,000.00 to the heirs of Maxima Ugmad Vda. de Kho
IT IS SO ORDERED.[3]
The relevant facts as found by the trial court are as follows:
National Food Authority (NFA, formerly National Grains Authority) was the
owner of a Chevrolet truck which was insured against liabilities for death of and
injuries to third persons with the GSIS.
On May 9, 1979, at about 7:00 in the evening at Tabon-Tabon, Butuan City, the
said truck driven by Guillermo Corbeta collided with a public utility vehicle, a Toyota
Tamaraw. The Toyota Tamaraw was owned and operated by Victor Uy, under the
name and style of Victory Line. The Tamaraw was a total wreck.
All the collision victims were passengers of the Toyota Tamaraw. Five (5)
passengers died[4] while ten (10) others sustained bodily injuries. Among those
injured were private respondents, Victoria Jaime Vda. de Kho and Gloria Kho Vda.
de Calabia. Among the dead were Maxima Ugmad Vda. de Kho, Roland Kho and
Willie Calabia, Sr.
Three (3) cases were filed with the Court of First Instance of Agusan del Norte
and Butuan City. The first, Civil Case No. 2196 for quasi-delict, damages and
attorneys fees, was commenced by Uy on June 5, 1979 against NFA and Corbeta. On
August 27, 1979, the second, Civil Case No. 2225 for damages, was filed by an
injured passenger, Librado Taer, against Uy, the operator of the public utility
vehicle, and insurer, Mabuhay Insurance and Guaranty Co. (MIGC). In turn, Uy filed
a cross-claim against MIGC and a third-party complaint against Corbeta and
NFA. The third, Civil Case No. 2256, was instituted by herein private respondents on
November 26, 1979 against the following: NFA and Corbeta for damages due to
quasi-delict; GSIS as insurer of the truck; Uy for breach of contract of carriage; and
MIGC as insurer of the Toyota Tamaraw. These cases were consolidated and
partially tried by Judge Fortunato A. Vailoces, of the then Court of First Instance of
Agusan del Norte and Butuan City.
These cases were later on transferred to Branch II of the Regional Trial Court
of Butuan City. Trial ensued and on April 30, 1985, the court rendered its
decision[5] holding that Corbetas negligence was the proximate cause of the
collision. The findings of the trial court stated that the truck which crossed over to
the other lane was speeding because after the collision, its left front wheel was
detached and the truck traveled for about fifty (50) meters and fell into a
ravine.[6] Likewise, the court concluded that if both vehicles had traveled in their
respective lanes, the incident would not have occurred. [7] However, the Chevy cargo
50
truck had crossed over to the other lane which, under traffic rules, was the lane of
the Toyota Tamaraw.[8]
In Civil Case No. 2196, the trial court awarded Uy the total amount of one
hundred nine thousand one hundred (P109,100.00) pesos for damages. In Civil Case
No. 2225, said court dismissed the case against Uy and ordered MIGC, Corbeta and
NFA to pay plaintiff Taer, jointly and severally, the total amount of forty thousand
five hundred fifty-nine pesos and ninety four centavos (P40,559.94) for actual,
compensatory, and moral damages plus attorneys fees. Damages were likewise
awarded to the herein private respondents in Civil Case No. 2256, as earlier
mentioned.
Corbeta and NFA appealed the decision of the trial court in Civil Case Nos.
2196, 2225, and 2256 to the Court of Appeals. GSIS also elevated the decision in
Civil Case No. 2256 to the same appellate court. The appeals were docketed as C.A.-
G.R. Nos. 19847, 19848, and 19849.
The Court of Appeals agreed with the conclusions of the trial court and ruled
as follows:
WHEREFORE, in view of the foregoing considerations, and finding no reversible
error, the decisions of the Court a quo in Civil Cases Nos. 2196, 2225 and 2256 are
hereby AFFIRMED in toto, with costs against the appellants.
SO ORDERED.[9]
On February 5 and 6, 1991, GSIS and NFA filed their motions for
reconsideration respectively, which were denied by the respondent court in its
Resolution[10] dated August 13, 1991.
On October 4, 1991, only GSIS filed this petition for review on certiorari based
on the following assigned errors:
1. The respondent court erred in holding GSIS solidarily liable with NFA.
2. The respondent court erred in holding GSIS liable beyond the terms
and conditions of the contract of insurance and the limitations under
Insurance Memorandum Circular (IMC) No. 5-78.
3. The respondent court erred in holding GSIS liable without proof that a
notice of claim had been filed within six (6) months from the date of
the accident.
We find pertinent the following issues:

1) Whether the respondent court erred in holding GSIS solidarily liable
with the negligent insured/owner-operator of the Chevrolet truck for
damages awarded to private respondents which are beyond the
limitations of the insurance policy and the Insurance Memorandum
Circular No. 5-78.
2) Whether the respondent court failed to consider that the private
respondents have no cause of action against the petitioner, allegedly
for failure of the victims to file an insurance claim within six (6)
months from the date of the accident.
Petitioner denies solidary liability with the NFA or the negligent operator of
the cargo truck because it claims that they are liable under different obligations. It
asserts that the NFAs liability is based on quasi-delict, while petitioners liability is
based on the contract of insurance. Citing articles 1207[11] and 1208[12] of the Civil
Code of the Philippines, petitioner states that when there are two or more debtors
or two or more creditors, the obligation as a general rule is joint. It claims that the
only exceptions are: (1) when there is a stipulation for solidary obligation; (2) when
the nature of the obligation requires solidary liability; and (3) when the law declares
the obligation to be solidary. However, since neither the provision of the contract
nor the insurance law provides for solidary liability, petitioner asserts that the
presumption is that its obligation arising from a contract of insurance is joint.
Petitioners position insofar as joint liability is concerned is not tenable. It is
now established that the injured or the heirs of a deceased victim of a vehicular
accident may sue directly the insurer of the vehicle. Note that common carriers are
required to secure Compulsory Motor Vehicle Liability Insurance [CMVLI] coverage
as provided under Sec. 374[13] of the Insurance Code, precisely for the benefit of
victims of vehicular accidents and to extend them immediate relief. [14] As this Court
held in Shafer vs. Judge, RTC of Olongapo City, Br. 75:[15]
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is
primarily intended to provide compensation for the death or bodily injuries suffered
by innocent third parties or passengers as a result of a negligent operation and use
of motor vehicles. The victims and/or their defendants [dependents] are assured of
immediate financial assistance, regardless of the financial capacity of motor vehicle
owners.
The injured for whom the contract of insurance is intended can sue directly the
insurer. The general purpose of statutes enabling an injured person to proceed
directly against the insurer is to protect injured persons against the insolvency of
the insured who causes such injury, and to give such injured person a certain
51
beneficial interest in the proceeds of the policy, and statutes are to be liberally
construed so that their intended purpose may be accomplished. It has even been
held that such a provision creates a contractual relation which inures to the benefit
of any and every person who may be negligently injured by the named insured as if
such injured person were specifically named in the policy. (S 449 7 Am. Jur., 2d, pp.
118-119)[16]
However, although the victim may proceed directly against the insurer for
indemnity, the third party liability is only up to the extent of the insurance policy
and those required by law. While it is true that where the insurance contract
provides for indemnity against liability to third persons, and such third persons can
directly[17] sue the insurer, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the insurer can be held
liable in solidum with the insured and/or the other parties found at fault.[18] For the
liability of the insurer is based on contract; that of the insured carrier or vehicle
owner is based on tort.[19] The liability of GSIS based on the insurance contract is
direct, but not solidary with that of the NFA. The latters liability is based separately
on Article 2180[20] of the Civil Code.[21]
Obviously, the insurer could be held liable only up to the extent of what was
provided for by the contract of insurance, in accordance with CMVLI law. At the
time of the incident, the schedule of indemnities for death and/or bodily injuries,
professional fees, hospital and other charges payable under a CMVLI coverage was
provided under the Insurance Memorandum Circular (IMC) No. 5-78 which was
approved on November 10, 1978. As therein provided, the maximum indemnity for
death was twelve thousand (P12,000.00) pesos per victim.[22] The schedules for
medical expenses were also provided by said IMC, specifically in paragraphs (C) to
(G).
Consequently, heirs of the victims who died in the May 9, 1979 vehicular
incident, could proceed (1) against GSIS for the indemnity of P12,000 for each dead
victim, and against NFA and Guillermo Corbeta for any other damages or expenses
claimed; or (2) against NFA and Corbeta to pay them all their claims in full.
It follows also that injured victims, Gloria Kho Vda. de Calabia and Victoria
Kho, could claim their medical expenses for eight thousand nine hundred thirty-five
pesos and six centavos (P8,935.06) and eight hundred thirty-two (P832.00) pesos,
from any of the following: GSIS, NFA, or Corbeta. As to the other damages, only NFA
or Corbeta may be held liable therefor.
Computation of hospital charges and fees for the services rendered to the
injured victims was conclusively established by the trial court. The petitioner failed
to object to the evidence thereon, when presented by the private respondents
 52

during the trial. Thus, these factual bases for the award of damages may no longer I. For the Injured Victims
be attacked. For generally, findings of the judge who tried the case and heard the
witnesses could not be disturbed on appeal, unless there are substantial facts and 1) Gloria Kho Vda. de Calabia
particular circumstances which have been overlooked but which, if properly
considered, might affect the result of the case.[23]Thus, considering the evidence on a) Medical expenses P 8,935.06
record including the schedule of indemnities provided under IMC No. 5-78, we find
no cogent reason to disturb the computation of medical charges and expenses that
b) Transportation and Telegraph Expenses 2,372.30
justify the award of damages by the trial court.
As to the second issue, the petitioner contends that it cannot be held liable c) Other Compensatory/Moral Damages 10,000.00
without proof nor allegation that the private respondents filed before its office a
notice of claim within six (6) months from the date of the accident. This d) Loss of Income 12,000.00
requirement, according to the petitioner, gives the insurer the opportunity to
investigate the veracity of the claim, and non-compliance therewith constitutes Total P 33,307.36
waiver. Since the claim was not reported to the insurer, the petitioner avers that
the presumption is that the victim opted to pursue his claim against the motor
2) Victoria Kho
vehicle owner or against the tortfeasor.
However, in this case the records reveal that on September 7, 1979, the a) Medical expenses P 832.00
private respondents sent a notice of loss to the petitioner informing the latter of
the accident. Included as Exhibit J[24] in the records, this notice constitutes evidence b) Other Compensatory/Moral Damages 10,000.00
of the loss they suffered by reason of the vehicular collision. They stressed further
that the petitioner did not deny receipt of notice of claim during the trial, and it Total P10,832.00
would be too late now to state otherwise.
Although merely factual, we need to emphasize that the alleged delay in II. For the Heirs of the Deceased Victims:
reporting the loss by the insured and/or by the beneficiaries must be promptly
raised by the insurer[25] in objecting to the claims.When the insured presented Compensatory/
proof of loss before the trial court, the insurer failed to object to said
presentation. The petitioner should have promptly interposed the defense of delay, Funeral Death Moral
or belated compliance, concerning the notice of claim. Moreover, the petitioner
merely waited for the victims or beneficiaries to file their complaint. As matters Expenses Indemnity Damages Total
stand now, the defense of laches or prescription is deemed waived because of
petitioners failure to raise it not only before but also during the hearing. [26]
1) Heirs of Willie Calabia, Sr. P 2,500.00 P30,000.00 P10, 000.00 42,500.00
To recapitulate, petitioner seeks a definitive ruling only on the extent of its
liability, as insurer of NFA, to those injured or killed in the May 9, 1979 vehicular 2) Heirs of Roland Kho 2,500.00 30,000.00 10,000.00 42,500.00
collision.
3) Heirs of Maxima Ugmad Vda.
As found by the trial court, the driver (Guillermo Corbeta), the operator (NFA),
and MIGC, are solidarily liable for damages as computed below:
de Kho 2,500.00 30,000.00 10,000.00 42,500.00
SCHEDULE A
Sub-Total P 7,500.00 P90,000.00 P30,000.00 P127,500.00
 53

Less: Advances by Victor Uy (5,000.00) NIL _ (5,000.00)
Balance P2,500.00 P90,000.00 P30,000.00 122,500.00
III. Total Amount of Attorneys Fees P10,000.00
Note that, the petitioner (GSIS) was impleaded as insurer of NFA. But under
the CMVLI law, the petitioner could only be held liable under its contract of
insurance. And pursuant to the CMVLI law, its liability is primary, and not
dependent on the recovery of judgment from the insured. Hence, GSIS is directly
liable to the private respondents, in the following amounts:
2. Guillermo Corbeta, National Foods Authority, and Mabuhay Insurance
& Guaranty Co., Inc., jointly and severally, are ordered to pay private
respondents claims[28] as adjudged by the Regional Trial Court of
Butuan City, minus the amounts that GSIS must pay to the injured
victims and the heirs of the deceased victims as abovestated.
This decision is immediately executory. No pronouncement as to costs.
SO ORDERED.

SCHEDULE B

I. Injured Victims Medical expenses

1) Victoria Jaime Vda. de Kho P 832.00

2) Gloria Kho Vda. de Calabia P 8,935.06

II. Heirs of Deceased Victims Death Indemnity

1) Heirs of Willie Calabia, Sr. P 12,000.00

2) Heirs of Roland Kho 12,000.00

3) Heirs of Maxima Ugmad Vda. de Kho 12,000.00

The balance of the private respondents claims as shown on Schedule A above,

must be paid by Corbeta or NFA, or MIGC, the parties found solidarily liable. [27]
WHEREFORE, the instant petition is hereby GRANTED, but the decision of the
trial court as affirmed by the Court of Appeals is hereby MODIFIED, as follows:
1. Petitioner Government Service Insurance System is ordered to pay (a)
twelve thousand pesos (P12,000.00) as death indemnity to each
group of heirs of the deceased, Willie Calabia Sr., Roland Kho and
Maxima Ugmad Vda. de Kho; (b) eight hundred thirty-two (P832.00)
pesos for medical expenses of Victoria Jaime Vda. de Kho; and (c)
eight thousand, nine hundred thirty-five pesos and six centavos
(P8,935.06) for medical expenses of Gloria Kho Vda. de Calabia.

FIRST DIVISION
[G.R. No. 82036. May 22, 1997]
TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner, vs. HON. COURT
OF APPEALS and VICENTE MENDOZA, respondents.
DECISION
HERMOSISIMA, JR., J.:
The petition herein seeks the review and reversal of the decision [1] of
respondent Court of Appeals[2] affirming in toto the judgment[3] of the Regional Trial
Court[4] in an action for damages[5] filed by private respondent Vicente Mendoza, Jr.
as heir of his mother who was killed in a vehicular accident.
Before the trial court, the complainant lumped the erring taxicab driver, the
owner of the taxicab, and the alleged insurer of the vehicle which featured in the
vehicular accident into one complaint. The erring taxicab was allegedly covered by a
third-party liability insurance policy issued by petitioner Travellers Insurance &
Surety Corporation.
The evidence presented before the trial court established the following facts:
At about 5:30 oclock in the morning of July 20, 1980, a 78-year old woman by the
name of Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman
Cathedral. While walking along Tayuman corner Gregorio Perfecto Streets, she was
bumped by a taxi that was running fast. Several persons witnessed the accident,
among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the
bumping, the old woman was seen sprawled on the pavement. Right away, the good
Samaritan that he was, Marvilla ran towards the old woman and held her on his lap
to inquire from her what had happened, but obviously she was already in shock and
could not talk. At this moment, a private jeep stopped. With the driver of that
vehicle, the two helped board the old woman on the jeep and brought her to the
Mary Johnston Hospital in Tondo.
x x x Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street
from Pritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was
54
on his return trip from Rizal Avenue when Lopez saw the plaintiff and his brother
who were crying near the scene of the accident. Upon learning that the two were the
sons of the old woman, Lopez told them what had happened. The Mendoza brothers
were then able to trace their mother at the Mary Johnston Hospital where they were
advised by the attending physician that they should bring the patient to the National
Orthopedic Hospital because of her fractured bones. Instead, the victim was brought
to the U.S.T. Hospital where she expired at 9:00 oclock that same morning. Death
was caused by traumatic shock as a result of the severe injuries she sustained.
The evidence shows that at the moment the victim was bumped by the vehicle, the
latter was running fast, so much so that because of the strong impact the old woman
was thrown away and she fell on the pavement. In truth, in that related criminal case
against defendant Dumlao the trial court found as a fact that therein accused was
driving the subject taxicab in a careless, reckless and imprudent manner and at a
speed greater than what was reasonable and proper without taking the necessary
precaution to avoid accident to persons considering the condition of the traffic at the
place at the time aforementioned. Moreover, the driver fled from the scene of the
accident and without rendering assistance to the victim.
Three (3) witnesses who were at the scene at the time identified the taxi involved,
though not necessarily the driver thereof. Marvilla saw a lone taxi speeding away just
after the bumping which, when it passed by him, said witness noticed to be a Lady
Love Taxi with Plate No. 438, painted maroon, with baggage bar attached on the
baggage compartment and with an antenae[sic] attached at the right rear side.The
same descriptions were revealed by Ernesto Lopez, who further described the taxi to
have reflectorized decorations on the edges of the glass at the back. A third witness
in the person of Eulogio Tabalno made similar descriptions although, because of the
fast speed of the taxi, he was only able to detect the last digit of the plate number
which is 8. [T]he police proceeded to the garage of Lady Love Taxi and then and
there they took possession of such a taxi and later impounded it in the impounding
area of the agency concerned. [T]he eyewitnesses were unanimous in pointing to
that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein.
During the investigation, defendant Armando Abellon, the registered owner of Lady
Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact that the vehicle
was driven last July 20, 1980 by one Rodrigo Dumlao It was on the basis of this
affidavit of the registered owner that caused the police to apprehend Rodrigo
Dumlao, and consequently to have him prosecuted and eventually convicted of the
offense. [S]aid Dumlao absconded in that criminal case, specially at the time of the
promulgation of the judgment therein so much so that he is now a fugitive from
justice.[6]

Private respondent filed a complaint for damages against Armando Abellon as
the owner of the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love
taxicab that bumped private respondents mother. Subsequently, private
respondent amended his complaint to include petitioner as the compulsory insurer
of the said taxicab under Certificate of Cover No. 1447785-3.
After trial, the trial court rendered judgment in favor of private respondent,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more
particularly the Heirs of the late Feliza Vineza de Mendoza, and against defendants
Rodrigo Dumlao, Armando Abellon and Travellers Insurance and Surety
Corporation, by ordering the latter to pay, jointly and severally, the former the
following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with interest
thereon at the rate of 12% per annum from October 17, 1980, when the complaint
was filed, until the said amount is fully paid;
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorneys fees and other litigation expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.
SO ORDERED.[7]
Petitioner appealed from the aforecited decision to the respondent Court of
Appeals. The decision of the trial court was affirmed by respondent appellate
court. Petitioners Motion for Reconsideration[8] of September 22, 1987 was denied
in a Resolution[9] dated February 9, 1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as
compulsory insurer of the Lady Love Taxi and that, assuming arguendo that it had
indeed covered said taxicab for third-party liability insurance, private respondent
55
failed to file a written notice of claim with petitioner as required by Section 384 of
P.D. No. 612, otherwise known as the Insurance Code.
We find the petition to be meritorious.
I
When private respondent filed his amended complaint to implead petitioner
as party defendant and therein alleged that petitioner was the third-party liability
insurer of the Lady Love taxicab that fatally hit private respondents mother, private
respondent did not attach a copy of the insurance contract to the amended
complaint. Private respondent does not deny this omission.
It is significant to point out at this juncture that the right of a third person to
sue the insurer depends on whether the contract of insurance is intended to benefit
third persons also or only the insured.
[A] policy x x x whereby the insurer agreed to indemnify the insured against all sums
x x x which the Insured shall become legally liable to pay in respect of: a. death of or
bodily injury to any person x x x is one for indemnity against liability; from the fact
then that the insured is liable to the third person, such third person is entitled to
sue the insurer.
The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third persons
also or on the insured. And the test applied has been this: Where the contract
provides for indemnity against liability to third persons, then third persons to whom
the insured is liable can sue the insurer. Where the contract is for indemnity against
actual loss or payment, then third persons cannot proceed against the insurer, the
contract being solely to reimburse the insured for liability actually discharged by
him thru payment to third persons, said third persons recourse being thus limited
to the insured alone.[10]
Since private respondent failed to attach a copy of the insurance contract to
his complaint, the trial court could not have been able to apprise itself of the real
nature and pecuniary limits of petitioners liability. More importantly, the trial court
could not have possibly ascertained the right of private respondent as third person
to sue petitioner as insurer of the Lady Love taxicab because the trial court never
saw nor read the insurance contract and learned of its terms and conditions.
Petitioner, understandably, did not volunteer to present any insurance
contract covering the Lady Love taxicab that fatally hit private respondents mother,
considering that petitioner precisely presented the defense of lack of insurance

coverage before the trial court. Neither did the trial court issue a subpoena duces
tecum to have the insurance contract produced before it under pain of contempt.
We thus find hardly a basis in the records for the trial court to have validly
found petitioner liable jointly and severally with the owner and the driver of the
Lady Love taxicab, for damages accruing to private respondent.
Apparently, the trial court did not distinguish between the private
respondents cause of action against the owner and the driver of the Lady Love
taxicab and his cause of action against petitioner. The former is based on torts
and quasi-delicts while the latter is based on contract. Confusing these two sources
of obligations as they arise from the same act of the taxicab fatally hitting private
respondents mother, and in the face of overwhelming evidence of the reckless
imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its
ignorance of the terms and conditions of the insurance contract and forthwith
found all three - the driver of the taxicab, the owner of the taxicab, and the alleged
insurer of the taxicab - jointly and severally liable for actual, moral and exemplary
damages as well as attorneys fees and litigation expenses. This is clearly a
misapplication of the law by the trial court, and respondent appellate court
grievously erred in not having reversed the trial court on this ground.
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however,
the direct liability of the insurer under indemnity contracts against third-party
liability does not mean that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault. The liability of the insurer is based on
contract; that of the insured is based on tort.[11]
Applying this principle underlying solidary obligation and insurance contracts, we
ruled in one case that:
In solidary obligation, the creditor may enforce the entire obligation against one of
the solidary debtors. On the other hand, insurance is defined as a contract whereby
one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.
In the case at bar, the trial court held petitioner together with respondents Sio
Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total
amount of P29,103.00, with the qualification that petitioners liability is only up
to P20,000.00. In the context of a solidary obligation, petitioner may be compelled
by respondent Vallejos to pay the entire obligation of P29,103.00, notwithstanding
the qualification made by the trial court. But, how can petitioner be obliged to pay
56
the entire obligation when the amount stated in its insurance policy with
respondent Sio Choy for indemnity against third-party liability is
only P20,000.00? Moreover, the qualification made in the decision of the trial court
to the effect that petitioner is sentenced to pay up to P20,000.00 only when the
obligation to pay P29,103.00 is made solidary is an evident breach of the concept of
a solidary obligation.[12]
The above principles take on more significance in the light of the counter-
allegation of petitioner that, assuming arguendo that it is the insurer of the Lady
Love taxicab in question, its liability is limited to only P50,000.00, this being its
standard amount of coverage in vehicle insurance policies. It bears repeating that
no copy of the insurance contract was ever proffered before the trial court by the
private respondent, notwithstanding knowledge of the fact that the latters
complaint against petitioner is one under a written contract. Thus, the trial court
proceeded to hold petitioner liable for an award of damages exceeding its limited
liability of P50,000.00. This only shows beyond doubt that the trial court was under
the erroneous presumption that petitioner could be found liable absent proof of
the contract and based merely on the proof of reckless imprudence on the part of
the driver of the Lady Love taxicab that fatally hit private respondents mother.
II
Petitioner did not tire in arguing before the trial court and the respondent
appellate court that, assuming arguendo that it had issued the insurance contract
over the Lady Love taxicab, private respondents cause of action against petitioner
did not successfully accrue because he failed to file with petitioner a written
notice of claim within six (6) months from the date of the accident as required by
Section 384 of the Insurance Code.
At the time of the vehicular incident which resulted in the death of private
respondents mother, during which time the Insurance Code had not yet been
amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
Any person having any claim upon the policy issued pursuant to this chapter shall,
without any unnecessary delay, present to the insurance company concerned a
written notice of claim setting forth the amount of his loss, and/or the nature,
extent and duration of the injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six months from date of the accident,
otherwise, the claim shall be deemed waived. Action or suit for recovery of damage
due to loss or injury must be brought in proper cases, with the Commission or the
Courts within one year from date of accident, otherwise the claimants right of
action shall prescribe [emphasis and underscoring supplied].
 57

In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De
Guzman,[13] we ruled that the one year prescription period to bring suit in court
against the insurer should be counted from the time that the insurer rejects the
written claim filed therewith by the insured, the beneficiary or the third person
interested under the insurance policy. We explained:
opportunity for the insurer to even reject a claim if none has been filed in the first
place, as in the instant case.
The one-year period should instead be counted from the date of rejection by the
insurer as this is the time when the cause of action accrues. x x x

It is very obvious that petitioner company is trying to use Section 384 of the In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:
Insurance Code as a cloak to hide itself from its liabilities. The facts of these cases
evidently reflect the deliberate efforts of petitioner company to prevent the filing of The plaintiffs cause of action did not accrue until his claim was finally rejected by
a formal action against it. Bearing in mind that if it succeeds in doing so until one the insurance company. This is because, before such final rejection, there was no
year lapses from the date of the accident it could set up the defense of prescription, real necessity for bringing suit.
petitioner company made private respondents believe that their claims would be
settled in order that the latter will not find it necessary to immediately bring suit. In
The philosophy of the above pronouncement was pointed out in the case of ACCFA
violation of its duties to adopt and implement reasonable standards for the prompt
vs. Alpha Insurance and Surety Co., viz.:
investigation of claims and to effectuate prompt, fair and equitable settlement of
claims, and with manifest bad faith, petitioner company devised means and ways of
Since a cause of action requires, as essential elements, not only a legal right of the
stalling the settlement proceedings. x x x [N]o steps were taken to process the claim
plaintiff and a correlative obligation of the defendant but also an act or omission of
and no rejection of said claim was ever made even if private respondent had
the defendant in violation of said legal right, the cause of action does not accrue
already complied with all the requirements. x x x
until the party obligated refuses, expressly or impliedly, to comply with its duty. [16]
This Court has made the observation that some insurance companies have been
When petitioner asseverates, thus, that no written claim was filed by private
inventing excuses to avoid their just obligations and it is only the State that can give
respondent and rejected by petitioner, and private respondent does not dispute
the protection which the insuring public needs from possible abuses of the
such asseveration through a denial in his pleadings, we are constrained to rule that
insurers.[14]
respondent appellate court committed reversible error in finding petitioner liable
under an insurance contract the existence of which had not at all been proven in
It is significant to note that the aforecited Section 384 was amended by B.P.
court. Even if there were such a contract, private respondents cause of action can
Blg. 874 to categorically provide that action or suit for recovery of damage due to
not prevail because he failed to file the written claim mandated by Section 384 of
loss or injury must be brought in proper cases, with the Commissioner or the Courts
the Insurance Code. He is deemed, under this legal provision, to have waived his
within one year from denial of the claim, otherwise the claimants right of action
rights as against petitioner-insurer.
shall prescribe [emphasis ours].[15]
WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the
We have certainly ruled with consistency that the prescriptive period to bring
Court of Appeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial
suit in court under an insurance policy, begins to run from the date of the insurers
Court in Civil Case No. 135486 are REVERSED and SET ASIDE insofar as Travellers
rejection of the claim filed by the insured, the beneficiary or any person claiming
Insurance & Surety Corporation was found jointly and severally liable to pay actual,
under an insurance contract. This ruling is premised upon the compliance by the
moral and exemplary damages, death indemnity, attorneys fees and litigation
persons suing under an insurance contract, with the indispensable requirement of
expenses in Civil Case No. 135486. The complaint against Travellers Insurance &
having filed the written claim mandated by Section 384 of the Insurance Code
Surety Corporation in said case is hereby ordered dismissed.
before and after its amendment. Absent such written claim filed by the person
suing under an insurance contract, no cause of action accrues under such insurance No pronouncement as to costs.
contract, considering that it is the rejection of that claim that triggers the running of
the one-year prescriptive period to bring suit in court, and there can be no SO ORDERED.
 58

THIRD DIVISION complaint 4 (docketed as Administrative Case No. 006) against private respondent
Bankers. In its complaint, petitioner Almendras sought (1) revocation or suspension
G.R. No.72878 April 15, 1988 of private respondent Bankers' Certificate of Authority to engage in the insurance
business; (2) an administrative directive ordering immediate completion of all repair
ALMENDRAS MINING CORPORATION, petitioner, work on and delivery to petitioner of the LCT "Don Paulo;" and (3) damages.
vs.
OFFICE OF THE INSURANCE COMMISSION and COUNTRY BANKERS INSURANCE At the initial hearings on Administrative Case No. 006 held before public respondent
CORPORATION,respondents. Commission, private respondent Bankers agreed to replace the four (4) damaged
engines of the LCT "Don Paulo" with one (1) brand new engine and three (3)
RESOLUTION reconditioned engines. This entailed a total additional cost of P3,000,000.00,
seventy percent (70%) of which private respondent Bankers had previously
obligated itself, as insurer, to shoulder. For its part, petitioner Almendras agreed to
FELICIANO, J.:
pay a thirty percent (30%) share in the cost, but only after it had inspected one of
the proposed replacement engines a brand new Caterpillar D-3408 marine engine
At about two-thirty in the morning of 3 September 1984, the marine cargo vessel
which petitioner had claimed was not a suitable replacement for the vessel's
LCT "Don Paulo," while on a voyage from Davao to Mariveles, Bataan, was forced
damaged main engine.
ground somewhere in the vicinity of Sogod, Tablas Island, Romblon after having
been hit by strong winds and tidal waves brought about by tropical typhoon
Inspection of the Caterpillar D-3408 engine took place at the premises of the
"Nitang." Later that same day, petitioner Almendras Mining Corporation
Actrade Machinery Corporation (supplier of the engine) on 16 July 1985 in the
("Almendras"), owner of the vessel, executed and filed the corresponding Marine
presence of representatives of both petitioner and private respondent. Engineers of
Protest. 1 Subsequently, in a letter dated 6 September 1984, 2 petitioner Almendras
the PNOC Marine Corporation who conducted the inspection found said engine to
formally notified the vessel's insurer, private respondent Country Bankers Insurance
have met the engineering requirements of the LCT "Don Paulo;" private respondent
Corporation ("Bankers"), of its intention to file a provisional claim for indemnity for
Bankers thus anticipated a favorable response in this regard from petitioner
damages sustained by the vessel. 3
Almendras.
Immediately following the marine casualty, private respondent Bankers
The following day, however, petitioner Almendras, reiterating its claim that the
commissioned the services of Audemus Adjustment Corporation, which estimated
proposed Caterpillar D-3408 engine was not at par with the vessel's original but
the insurer's liability at P2,187,983.00, or the equivalent of seventy percent (70%)
damaged main engine, demanded instead cash settlement of its insurance claim.
of all expenses necessary for the repair of the vessel. Private respondent accepted
This unexpected turn of events moved the Insurance Commissioner to terminate
and approved this estimate.
the hearing then in progress and to require private respondent Bankers to submit
its Answer to the complaint of petitioner Almendras.
Salvage operations on the LCT "Don Paulo" were commenced on 5 September 1984.
By 24 September 1984, the vessel had been towed to and docked at the Philippine
Meanwhile, on 13 August 1985, petitioner Almendras filed a separate civil action for
National Oil Corporation (PNOC) marine facility in Bauan, Batangas where repair
damages (docketed as Civil Case No. 3120-P) with the Regional Trial Court of Pasay
work on the same was subsequently performed by the PNOC Marine Corporation.
City. 5
Delay, however, overtook the repair work on the LCT 'Don Paulo.' Private
At the 23 August 1985 Commission hearing both parties agreed to submit
respondent Bankers explained that the delay was due to the unavailability of spare
Administrative Case No. 006 for resolution on a single issue—i.e,whether or not
parts needed in the repair of the vessel's four (4) damaged engines.
revocation or suspension of private respondent Bankers' Certificate of Authority to
Notwithstanding this explanation, petitioner Almendras, on 18 April 1985, filed with
engage in the insurance business was justified and proper under the circumstances
the public respondent office of the Insurance Commission an administrative
of this case.

On 23 October 1985, public respondent Commission, through the Insurance
Commissioner, issued a Resolution 6ordering the dismissal of petitioner Almendras'
complaint. It was found by the Insurance Commissioner that failure by private
respondent Bankers to settle promptly and expeditiously the insurance claim of
petitioner Almendras was attributable to the latter's own act of insisting on cash
settlement thereof, even after the parties had already agreed upon outright
replacement of the vessel's damaged engines. The Insurance Commissioner also
stated in his resolution that, assuming that private respondent Bankers had
incurred in delay in the repair of the LCT "Don Paulo," nevertheless, there was
nothing in the record of the case to show that such delay was unreasonable or was
the result of any unfair claim settlement practice — as defined under the Insurance
Code, as amended — as would warrant revocation or suspension of private
respondent's Certificate of Authority.
Petitioner Almendras' Motion for Reconsideration was denied for lack of merit by
public respondent Commission on 11 November 1985. 7
In the present Petition for certiorari filed with this Court on 28 November 1985,
petitioner Almendras presents only one issue for determination-i.e., whether or not
there the valid and substantial grounds to revoke or suspend private respondent
Bankers' Certificate of Authority to engage in the insurance business. Public
respondent Commission would, however, raise as an additional issue the argument
that the present Petition for certiorari is improperly filed, that appeal to the
Secretary of Finance from public respondent Commission's disputed Resolution and
Order is the proper recourse for petitioner under the facts and circumstances of
this case. 8
Viewed in the light of the facts obtaining in Administrative Case No. 006 and the
pertinent legal provisions on the matter, we hold that the Court has no jurisdiction
to try and decide the instant Petition.
The provisions of the Insurance Code (Presidential Decree No. 1460), as amended,
clearly indicate that the Office of the Insurance Commission is an administrative
agency vested with regulatory power as well as withadjudicatory authority. Among
the several regulatory or non-quasi-judicial duties of the Insurance Commissioner
under the Insurance Code is the authority to issue, or refuse issuance of, a
Certificate of Authority to a person or entity desirous of engaging in insurance
business in the Philippines, 9 and to revoke or suspend such Certificate of Authority
upon a finding of the existence of statutory grounds for such revocation or
suspension. The grounds for revocation or suspension of an insurer's Certificate of
Authority are set out in Section 241 10 and in Section 247 11 of the Insurance Code as
59
amended. The general regulatory authority of the Insurance Commissioneris
described in Section 414 of the Insurance Code, as amended, in the following terms:
Section 414. The Insurance Commissioner shall have the duty to see that
all laws relating to insurance, insurance companies and other insurance
matters, mutual benefit associations, and trusts for charitable uses are
faithfully executed and to perform the duties imposed upon him by this
Code, and shall, not withstanding any existing laws to contrary, have sole
and exclusive authority to regulate the issuance and sale of variable
contracts as defined in section two hundred thirty-two and to provide for
the licensing of persons selling such contracts, and to issue such
reasonable rules and regulations governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders
and decisions as he may deem necessary to secure the enforcement of the
provisions of this Code, subject to the approval of the Secretary of Finance.
Except as otherwise specified decisions made by the Commissioner shall be
appealable to the Secretary of Finance. (Emphasis supplied)
which Section also specifies the authority to which a decision of the Insurance
Commissioner rendered in the exercise of its regulatory function may be appealed.
The adjudicatory authority of the Insurance Commissioner is generally described in
Section 416 of the Insurance Code, as amended, which reads as follows:
Sec. 416. The Commissioner shall have the power to adjudicate claims and
complaints involving any loss, damage or liability for which an insurer may
be answerable under any kind of policy or contract of insurance, or for
which such insurer may be liable under a contract of membership, or for
which a reinsurer may be sued under any contract or reinsurance it may
have entered into, or for which a mutual benefit association may be held
liable under the membership certificates it has issued to its members,
where the amount of any such loss, damage or liability, excluding interests,
cost and attorney's fees, being claimed or sued upon any kind of insurance,
bond, reinsurance contract, or membership certificate does not exceed in
any single claim one hundred thousand pesos.
The authority to adjudicate granted to the Commissioner under this section
shall be concurrent with that of the civil courts, but the filing of a complaint
with the Commissioner shall preclude the civil courts from taking
cognizance of a suit involving the same subject matter. (Emphasis supplied)
 60

Continuing, Section 416 (as amended by B.P. Blg. 874) also specifies the authority to
which appeal may be taken from a final order or decision of the Commissioner
given in the exercise of his adjuclicatory or quasi-judicial power:
Any decision, order or ruling rendered by the Commissioner after a hearing
shall have the force and effect of a judgment. Any party may appeal from a
final order, ruling or decision of the Commissioner by filing with the
Commissioner within thirty days from receipt of copy of such order, ruling
or decision a notice of appeal to the Intermediate Appellate Court (now the
Court of appeals) in the manner provided for in the Rules of Court for
appeals from the Regional Trial Court to the Intermediate Appellate Court
(now the Court of Appeals).
It may be noted that under Section 9 (3) of B.P. Blg. 129, appeals from a final
decision of the Insurance Commissioner rendered in the exercise of his adjudicatory
authority now fall within the exclusive appellate jurisdiction of the Court of Appeals.
Almendras had in fact to go before a judicial forum and to limit the proceedings
before the Insurance Commissioner to regulatory, non-judicial, matters; the claim
of petitioner Almendras was in excess of P100,000.00 and, therefore, fen outside
the quasi-judicial jurisdiction of the Insurance Commissioner under Section 416 of
the Insurance Code, as amended.
We conclude that petitioner Almendras remedy after its Motion for
Reconsideration in Administrative Case No. 006 had been denied by public
respondent Commission was to interpose an appeal to the Secretary of Finance.
The present Petition for certiorari is neither proper nor an appropriate substitute
for such an appeal.
WHEREFORE, the Petition for certiorari is DISMISSED. Costs against petitioner.
SO ORDERED.

Petitioner Almendras in his Complaint filed with the Insurance Commission,

originally sought remedies which would have required the Insurance Commissioner
to adjudicate on matters pertaining to performance and satisfaction by private
respondent Bankers of its legal obligations under its Contract of Insurance (policy
No. MH-HO/84-305) with petitioner Almendras. The Court observes, however, that
both parties had agreed at the 23 August 1985 hearing before the Insurance
Commissioner to submit the case for resolution on the sole issue of whether or not
revocation or suspension of private respondent Bankers' Certificate of Authority to
engage in insurance business was justified. The scope of the issues involved having
been so limited the Insurance Commissioner was left with the task of determining
whether or not private respondent Bankers was guilty of an act or acts constituting
a statutory ground for revocation or suspension of its Certificate of Authority.
Clearly, therefore, the Insurance Commissioner's disputed Resolution and Order
was issued in the performance of administrative and regulatory duties and fucntion
and should have been appealed by petitioner to the Office of the Secretary of
Finance.

Petitioner Almendras in effect invoked only the Commissioner's regulatory

authority to determine whether or not private respondent Bankers had violated
provisions of the Insurance Code, as amended. Petitioner had chosen to litigate the
substantive aspects of its insurance claim against Bankers in a different forum — a
judicial one — for it instituted a separate civil action for damages before the
Regional Trial Court of Pasay City, on 13 August 1985, that is, after efforts at
amicable settlement of Administrative Case No. 006 had failed. Petitioner

FIRST DIVISION
G.R. No. 76452 July 26, 1994
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS
REYES, petitioners,
vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and
RAMON MONTILLA PATERNO, JR., respondents.
QUIASON, J.:
This is a petition for certiorari and prohibition under Rule 65 of the Revised Rules of
Court, with preliminary injunction or temporary restraining order, to annul and set
aside the Order dated November 6, 1986 of the Insurance Commissioner and the
entire proceedings taken in I.C. Special Case No. 1-86.
We grant the petition.
The instant case arose from a letter-complaint of private respondent Ramon M.
Paterno, Jr. dated April 17, 1986, to respondent Commissioner, alleging certain
problems encountered by agents, supervisors, managers and public consumers of
the Philippine American Life Insurance Company (Philamlife) as a result of certain
practices by said company.
In a letter dated April 23, 1986, respondent Commissioner requested petitioner
Rodrigo de los Reyes, in his capacity as Philamlife's president, to comment on
respondent Paterno's letter.
In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los
Reyes suggested that private respondent "submit some sort of a 'bill of particulars'
listing and citing actual cases, facts, dates, figures, provisions of law, rules and
regulations, and all other pertinent data which are necessary to enable him to
prepare an intelligent reply" (Rollo, p. 37). A copy of this letter was sent by the
Insurance Commissioner to private respondent for his comments thereon.
On May 16, 1986, respondent Commissioner received a letter from private
respondent maintaining that his letter-complaint of April 17, 1986 was sufficient in
form and substance, and requested that a hearing thereon be conducted.
61
Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6,
1986, reiterated his claim that private respondent's letter of May 16, 1986 did not
supply the information he needed to enable him to answer the letter-complaint.
On July 14, a hearing on the letter-complaint was held by respondent Commissioner
on the validity of the Contract of Agency complained of by private respondent.
In said hearing, private respondent was required by respondent Commissioner to
specify the provisions of the agency contract which he claimed to be illegal.
On August 4, private respondent submitted a letter of specification to respondent
Commissioner dated July 31, 1986, reiterating his letter of April 17, 1986 and
praying that the provisions on charges and fees stated in the Contract of Agency
executed between Philamlife and its agents, as well as the implementing provisions
as published in the agents' handbook, agency bulletins and circulars, be declared as
null and void. He also asked that the amounts of such charges and fees already
deducted and collected by Philamlife in connection therewith be reimbursed to the
agents, with interest at the prevailing rate reckoned from the date when they were
deducted.
Respondent Commissioner furnished petitioner De los Reyes with a copy of private
respondent's letter of July 31, 1986, and requested his answer thereto.
Petitioner De los Reyes submitted an Answer dated September 8, 1986, stating inter
alia that:
(1) Private respondent's letter of August 11, 1986 does not contain any of
the particular information which Philamlife was seeking from him and
which he promised to submit.
(2) That since the Commission's quasi-judicial power was being invoked
with regard to the complaint, private respondent must file a verified
formal complaint before any further proceedings.
In his letter dated September 9, 1986, private respondent asked for the resumption
of the hearings on his complaint.
On October 1, private respondent executed an affidavit, verifying his letters of April
17, 1986, and July 31, 1986.

In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior Assistant
Vice-President and Executive Assistant to the President, asked that respondent
Commission first rule on the questions of the jurisdiction of the Insurance
Commissioner over the subject matter of the letters-complaint and the legal
standing of private respondent.
On October 27, respondent Commissioner notified both parties of the hearing of
the case on November 5, 1986.
On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the
following grounds;
1. The Subpoena/Notice has no legal basis and is premature because:
(1) No complaint sufficient in form and contents has been filed;
(2) No summons has been issued nor received by the respondent De los Reyes, and
hence, no jurisdiction has been acquired over his person;
(3) No answer has been filed, and hence, the hearing scheduled on November 5,
1986 in the Subpoena/Notice, and wherein the respondent is required to appear, is
premature and lacks legal basis.
II. The Insurance Commission has no jurisdiction over;
(1) the subject matter or nature of the action; and
(2) over the parties involved (Rollo, p. 102).
In the Order dated November 6, 1986, respondent Commissioner denied the
Motion to Quash. The dispositive portion of said Order reads:
NOW, THEREFORE, finding the position of complainant thru counsel tenable and
considering the fact that the instant case is an informal administrative litigation
falling outside the operation of the aforecited memorandum circular but cognizable
by this Commission, the hearing officer, in open session ruled as it is hereby ruled to
deny the Motion to Quash Subpoena/Notice for lack of merit (Rollo, p. 109).
Hence, this petition.
62
II
The main issue to be resolved is whether or not the resolution of the legality of the
Contract of Agency falls within the jurisdiction of the Insurance Commissioner.
Private respondent contends that the Insurance Commissioner has jurisdiction to
take cognizance of the complaint in the exercise of its quasi-judicial powers. The
Solicitor General, upholding the jurisdiction of the Insurance Commissioner, claims
that under Sections 414 and 415 of the Insurance Code, the Commissioner has
authority to nullify the alleged illegal provisions of the Contract of Agency.
III
The general regulatory authority of the Insurance Commissioner is described in
Section 414 of the Insurance Code, to wit:
The Insurance Commissioner shall have the duty to see that all laws
relating to insurance, insurance companies and other insurance matters,
mutual benefit associations and trusts for charitable uses are faithfully
executed and to perform the duties imposed upon him by this Code, . . .
On the other hand, Section 415 provides:
In addition to the administrative sanctions provided elsewhere in this
Code, the Insurance Commissioner is hereby authorized, at his discretion,
to impose upon insurance companies, their directors and/or officers
and/or agents, for any willful failure or refusal to comply with, or violation
of any provision of this Code, or any order, instruction, regulation or ruling
of the Insurance Commissioner, or any commission of irregularities, and/or
conducting business in an unsafe and unsound manner as may be
determined by the the Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors and/or officers and/or
agents.
A plain reading of the above-quoted provisions show that the Insurance
Commissioner has the authority to regulate the business of insurance, which is
defined as follows:

(2) The term "doing an insurance business" or "transacting an insurance
business," within the meaning of this Code, shall include
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety; (c) doing any kind of business, including a reinsurance
business, specifically recognized as constituting the doing of an insurance
business within the meaning of this Code; (d) doing or proposing to do any
business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code. (Insurance Code, Sec. 2[2];
Emphasis supplied).
Since the contract of agency entered into between Philamlife and its agents is not
included within the meaning of an insurance business, Section 2 of the Insurance
Code cannot be invoked to give jurisdiction over the same to the Insurance
Commissioner. Expressio unius est exclusio alterius.
With regard to private respondent's contention that the quasi-judicial power of the
Insurance Commissioner under Section 416 of the Insurance Code applies in his
case, we likewise rule in the negative. Section 416 of the Code in pertinent part,
provides:
The Commissioner shall have the power to adjudicate claims and
complaints involving any loss, damage or liability for which an insurer may
be answerable under any kind of policy or contract of insurance, or for
which such insurer may be liable under a contract of suretyship, or for
which a reinsurer may be used under any contract or reinsurance it may
have entered into, or for which a mutual benefit association may be held
liable under the membership certificates it has issued to its members,
where the amount of any such loss, damage or liability, excluding interest,
costs and attorney's fees, being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership certificate does not
exceed in any single claim one hundred thousand pesos.
A reading of the said section shows that the quasi-judicial power of the Insurance
Commissioner is limited by law "to claims and complaints involving any loss,
damage or liability for which an insurer may be answerable under any kind of policy
or contract of insurance, . . ." Hence, this power does not cover the relationship
affecting the insurance company and its agents but is limited to adjudicating claims
and complaints filed by the insured against the insurance company.
63
While the subject of Insurance Agents and Brokers is discussed under Chapter IV,
Title I of the Insurance Code, the provisions of said Chapter speak only of the
licensing requirements and limitations imposed on insurance agents and brokers.
The Insurance Code does not have provisions governing the relations between
insurance companies and their agents. It follows that the Insurance Commissioner
cannot, in the exercise of its quasi-judicial powers, assume jurisdiction over
controversies between the insurance companies and their agents.
We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180
SCRA 445 (1989), andInvestment Planning Corporation of the Philippines v. Social
Security Commission, 21 SCRA 904 (1962), that an insurance company may have
two classes of agents who sell its insurance policies: (1) salaried employees who
keep definite hours and work under the control and supervision of the company;
and (2) registered representatives, who work on commission basis.
Under the first category, the relationship between the insurance company and its
agents is governed by the Contract of Employment and the provisions of the Labor
Code, while under the second category, the same is governed by the Contract of
Agency and the provisions of the Civil Code on the Agency. Disputes involving the
latter are cognizable by the regular courts.
WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the
Insurance Commission is SET ASIDE.
SO ORDERED.
Lessons Applicable: Doing an Insurance Business (Insurance)
FACTS:
 Ramon M. Paterno, Jr. sent a letter dated April 17, 1986 to Insurance
Commissioner alleging certain problems encountered by agents, supervisors,
managers and public consumers of the Philippine American Life Insurance
Company (Philamlife)
 During the hearing Ramon stated that the contract of agency is illegal
 Philamlife through its president De los Reyes contended that the Insurance
Commissioner as a quasi-judicial body cannot rule on the matter

ISSUE:
1. W/N the Insurance Commissioner has the authority to regulate the business of
insurance - YES
2. W/N the business of insurance covers the contract of agency - NO
HELD:
Petition is GRANTED
1. YES.
Insurance Code
Sec. 414
Sec. 414. The Insurance Commissioner shall have the duty to see that all laws
relating to insurance, insurance companies and other insurance matters, mutual
benefit associations, and trusts for charitable uses are faithfully executed and to
perform the duties imposed upon him by this Code, and shall, notwithstanding any
existing laws to the contrary, have sole and exclusive authority to regulate the
issuance and sale of variable contracts as defined in section two hundred thirty-two
and to provide for the licensing of persons selling such contracts, and to issue such
reasonable rules and regulations governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders and
decision as he may deem necessary to secure the enforcement of the provisions of
this Code, subject to the approval of the Secretary of Finance. Except as otherwise
specified, decisions made by the Commissioner shall be appealable to the Secretary
of Finance.
Sec. 415
Sec. 415. In addition to the administrative sanctions provided elsewhere in this
Code, the Insurance Commissioner is hereby authorized, at his discretion, to impose
upon the insurance companies, their directors and/or officers and/or agents, for
any willful failure or refusal to comply with, or violation of any provision of this
Code, or any order, instruction, regulation, or ruling of the Insurance Commissioner,
or any commission or irregularities, and/or conducting business in an unsafe or
unsound manner as may be determined by the Insurance Commissioner, the
following:
64
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors and/or officers and/or
agents.
 Insurance Commissioner has the authority to regulate the business of
insurance
2. NO.
 power does not cover the relationship affecting the insurance company and its
agents but is limited to adjudicating claims and complaints filed by the insured
against the insurance company
 While the subject of Insurance Agents and Brokers is discussed under Chapter
IV, Title I of the Insurance Code, the provisions of said Chapter speak only of
the licensing requirements and limitations imposed on insurance agents and
brokers.
 Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989):
 insurance company may have two classes of agents who sell its insurance
policies:
 (1) salaried employees who keep definite hours and work under the control
and supervision of the company - governed by the Contract of Employment
and the provisions of the Labor Code
 (2) registered representatives, who work on commission basis. - governed by
the Contract of Agency and the provisions of the Civil Code on the Agency
Insurance Case Digest: Phil. American Life Insurance Company v. Ansaldo (1994)
Facts:
Ramon M. Paterno, Jr. sent a letter to Insurance Commissioner alleging certain
problems encountered by agents, supervisors, managers and public consumers of
the Philippine American Life Insurance Company (Philamlife). During the hearing
Ramon stated that the contract of agency is illegal. Philamlife through its president
De los Reyes contended that the Insurance Commissioner as a quasi-judicial body
cannot rule on the matter. Issue: Whether or not the resolution of the legality of
the Contract of Agency falls within the jurisdiction of the Insurance Commissioner.
 65

Held: NO. The general regulatory authority of the Insurance Commissioner is already deducted and collected by Philamlife in connection therewith be
described in Section 414 of the Insurance Code. A plain reading of the above-
reimbursed to the agents, with interest at the prevailing rate reckoned from the
quoted provisions show that the Insurance Commissioner has the authority to
date when they were deducted
regulate the business of insurance, as defined in Section 2[2] thereof. Since the
contract of agency entered into between Philamlife and its agents is not included > Manuel Ortega, Philamlife's Senior Assistant Vice-President and Executive
within the meaning of an insurance business, Section 2 of the Insurance Code Assistant to the President, asked that the Commissioner first rule on the questions
cannot be invoked to give jurisdiction over the same to the Insurance
of the jurisdiction of the Insurance Commissioner over the subject matter of the
Commissioner. Expressio unius est exclusio alterius. The quasi-judicial power of the
letters-complaint and the legal standing of Paterno.
Insurance Commissioner under Section 416 of the Insurance Code is likewise not
applicable in this case. The quasi-judicial power of the Insurance Commissioner is > Insurance Commissioner set the case for hearing and sent subpoena to the
limited by law "to claims and complaints involving any loss, damage or liability for officers of Philamlife. Ortega filed a motion to quash the subpoena alleging that the
which an insurer may be answerable under any kind of policy or contract of
Insurance company has no jurisdiction over the subject matter of the case and that
insurance, . . . ."
there is no complaint sufficient in form and contents has been filed.
Hence, this power does not cover the relation affecting the insurance company and
> The motion to quash was denied.
its agents but is limited to adjudicating claims and complaints filed by the insured
against the insurance company. While the subject of Insurance Agents and Brokers
Issue: Whether or not the insurance commissioner had jurisdiction over the legality
is discussed under Chapter IV, Title I of the Insurance Code, the provisions of said of the Contract of Agency between Philamlife and its agents.
Chapter speak only of the licensing requirements and limitations imposed on
insurance agents and brokers. The Insurance Code does not have provisions Held:
governing the relations between insurance companies and their agents.
No, it does not have jurisdiction.

The general regulatory authority of the Insurance Commissioner is described in

Section 414 of the Insurance Code, to wit:
Facts:
"The Insurance Commissioner shall have the duty to see that all laws relating to
> Ramon M. Paterno sent a letter-complaint to the Insurance Commissioner
insurance, insurance companies and other insurance matters, mutual benefit
alleging certain problems encountered by agents, supervisors, managers and public
associations and trusts for charitable uses are faithfully executed and to perform the
consumers of the Philamlife as a result of certain practices by said company.
duties imposed upon him by this Code, . . . ."
> Commissioner requested petitioner Rodrigo de los Reyes, in his capacity as
On the other hand, Section 415 provides:
Philamlife's president, to comment on respondent Paterno's letter.
"In addition to the administrative sanctions provided elsewhere in this Code, the
> The complaint prays that provisions on charges and fees stated in the Contract of
Insurance Commissioner is hereby authorized, at his discretion, to impose upon
Agency executed between Philamlife and its agents, as well as the implementing
insurance companies, their directors and/or officers and/or agents, for any willful
provisions as published in the agents' handbook, agency bulletins and circulars, be
failure or refusal to comply with, or violation of any provision of this Code, or any
declared as null and void. He also asked that the amounts of such charges and fees
 66

order, instruction, regulation or ruling of the Insurance Commissioner, or any

commission of irregularities, and/or conducting business in an unsafe or unsound
manner as may be determined by the Insurance Commissioner, the following:

a) fines not in excess of five hundred pesos a day; and

b) suspension, or after due hearing, removal of directors and/or officers and/or

agents."

A plain reading of the above-quoted provisions show that the Insurance

Commissioner has the authority to regulate the business of insurance, which is
defined as follows:

"(2) The term 'doing an insurance business' or 'transacting an insurance

business,' within the meaning of this Code, shall include (a) making or proposing to
make, as insurer, any insurance contract; (b) making, or proposing to make, as
surety, any contract of suretyship as a vocation and not as merely incidental of the
surety; (c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning of
this Code; (d) doing or proposing to do any business in substance equivalent to any
of the foregoing in a manner designed to evade the provisions of this Code.
(Insurance Code, Sec. 2 [2])

Since the contract of agency entered into between Philamlife and its agents is not
included within the meaning of an insurance business, Section 2 of the Insurance
Code cannot be invoked to give jurisdiction over the same to the Insurance
Commissioner. Expressio unius est exclusio alterius.