1. Risk and Insurance 1988 to March 14, 1989 (Exhs.

G also G-1) and in said policy the

GULF RESORTS, INC., vs. PHILIPPINE CHARTER INSURANCE
CORPORATION
DECISION
PUNO, J.:
Before the Court is the petition for certiorari under Rule 45 of the
Revised Rules of Court by petitioner GULF RESORTS, INC., against
respondent PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner
assails the appellate court decision[1] which dismissed its two appeals
and affirmed the judgment of the trial court.
earthquake endorsement clause as indicated in Exhibits C-1, D-1,
Exhibits E and F-1 was deleted and the entry under
Endorsements/Warranties at the time of issue read that plaintiff
renewed its policy with AHAC (AIU) for the period of March 14, 1989 to
March 14, 1990 under Policy No. 206-4568061-9 (Exh. H) which carried
the entry under Endorsement/Warranties at Time of Issue, which read
Endorsement to Include Earthquake Shock (Exh. 6-B-1) in the amount of
P10,700.00 and paid P42,658.14 (Exhs. 6-A and 6-B) as premium
thereof, computed as follows:
Item -P7,691,000.00 - on the Clubhouse only

For review are the warring interpretations of petitioner and respondent @ .392%;
on the scope of the insurance companys liability for earthquake damage
to petitioners properties. Petitioner avers that, pursuant to its 1,500,000.00 - on the furniture, etc.
earthquake shock endorsement rider, Insurance Policy No. 31944 covers
all damages to the properties within its resort caused by earthquake. contained in the building
Respondent contends that the rider limits its liability for loss to the two
swimming pools of petitioner. above-mentioned@ .490%;

The facts as established by the court a quo, and affirmed by the 393,000.00- on the two swimming
appellate court are as follows:
pools, only (against the
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union
and had its properties in said resort insured originally with the American peril of earthquake
Home Assurance Company (AHAC-AIU). In the first four insurance
policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and shock only) @ 0.100%
1987-88 (Exhs. C, D, E and F; also Exhs. 1, 2, 3 and 4 respectively), the
risk of loss from earthquake shock was extended only to plaintiffs two 116,600.00- other buildings include
swimming pools, thus, earthquake shock endt. (Item 5 only) (Exhs. C-1;
D-1, and E and two (2) swimming pools only (Exhs. C-1; D-1, E and F-1). as follows:
Item 5 in those policies referred to the two (2) swimming pools only
(Exhs. 1-B, 2-B, 3-B and F-2); that subsequently AHAC(AIU) issued in a) Tilter House- P19,800.00- 0.551%
plaintiffs favor Policy No. 206-4182383-0 covering the period March 14,

Insurance Law JD4301 Page 1

b) Power House- P41,000.00- 0.551% Prem. Tax 409.05

c) House Shed- P55,000.00 -0.540% TOTAL 45,159.92;

P100,000.00 for furniture, fixtures, that the above break-down of premiums shows that plaintiff paid only
P393.00 as premium against earthquake shock (ES); that in all the six
lines air-con and insurance policies (Exhs. C, D, E, F, G and H), the premium against the
peril of earthquake shock is the same, that is P393.00 (Exhs. C and 1-B;
operating equipment 2-B and 3-B-1 and 3-B-2; F-02 and 4-A-1; G-2 and 5-C-1; 6-C-1; issued by
AHAC (Exhs. C, D, E, F, G and H) and in Policy No. 31944 issued by
that plaintiff agreed to insure with defendant the properties covered by defendant, the shock endorsement provide(sic):
AHAC (AIU) Policy No. 206-4568061-9 (Exh. H) provided that the policy
wording and rates in said policy be copied in the policy to be issued by In consideration of the payment by the insured to the company of the
defendant; that defendant issued Policy No. 31944 to plaintiff covering sum included additional premium the Company agrees, notwithstanding
the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for what is stated in the printed conditions of this policy due to the
a total premium of P45,159.92 (Exh. I); that in the computation of the contrary, that this insurance covers loss or damage to shock to any of
premium, defendants Policy No. 31944 (Exh. I), which is the policy in the property insured by this Policy occasioned by or through or in
question, contained on the right-hand upper portion of page 7 thereof, consequence of earthquake (Exhs. 1-D, 2-D, 3-A, 4-B, 5-A, 6-D and 7-C);
the following:
that in Exhibit 7-C the word included above the underlined portion was
Rate-Various deleted; that on July 16, 1990 an earthquake struck Central Luzon and
Northern Luzon and plaintiffs properties covered by Policy No. 31944
Premium - P37,420.60 F/L issued by defendant, including the two swimming pools in its Agoo Playa
Resort were damaged.[2]
2,061.52 Typhoon
After the earthquake, petitioner advised respondent that it would be
1,030.76 EC making a claim under its Insurance Policy No. 31944 for damages on its
properties. Respondent instructed petitioner to file a formal claim, then
393.00 ES assigned the investigation of the claim to an independent claims
adjuster, Bayne Adjusters and Surveyors, Inc.[3] On July 30, 1990,
Doc. Stamps 3,068.10 respondent, through its adjuster, requested petitioner to submit various
documents in support of its claim. On August 7, 1990, Bayne Adjusters
F.S.T. 776.89 and Surveyors, Inc., through its Vice-President A.R. de Leon,[4] rendered

Insurance Law JD4301 Page 2

a preliminary report[5] finding extensive damage caused by the
earthquake to the clubhouse and to the two swimming pools. Mr. de
Leon stated that except for the swimming pools, all affected items have
no coverage for earthquake shocks.[6] On August 11, 1990, petitioner
filed its formal demand[7] for settlement of the damage to all its
properties in the Agoo Playa Resort. On August 23, 1990, respondent
denied petitioners claim on the ground that its insurance policy only
afforded earthquake shock coverage to the two swimming pools of the
resort.[8] Petitioner and respondent failed to arrive at a settlement.[9]
Thus, on January 24, 1991, petitioner filed a complaint[10] with the
regional trial court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the
insured properties, with interest thereon, as computed under par. 29 of
the policy (Annex B) until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses
sustained by plaintiff on account of defendants refusal to pay the
claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorneys fees and expenses of
litigation;
5.) Costs.[11]
Respondent filed its Answer with Special and Affirmative Defenses with
Compulsory Counterclaims.[12]
On February 21, 1994, the lower court after trial ruled in favor of the
respondent, viz:
Insurance Law JD4301
The above schedule clearly shows that plaintiff paid only a premium of
P393.00 against the peril of earthquake shock, the same premium it
paid against earthquake shock only on the two swimming pools in all
the policies issued by AHAC(AIU) (Exhibits C, D, E, F and G). From this
fact the Court must consequently agree with the position of defendant
that the endorsement rider (Exhibit 7-C) means that only the two
swimming pools were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of
adhesion hence, where the language used in an insurance contract or
application is such as to create ambiguity the same should be resolved
against the party responsible therefor, i.e., the insurance company
which prepared the contract. To the mind of [the] Court, the language
used in the policy in litigation is clear and unambiguous hence there is
no need for interpretation or construction but only application of the
provisions therein.
From the above observations the Court finds that only the two (2)
swimming pools had earthquake shock coverage and were heavily
damaged by the earthquake which struck on July 16, 1990. Defendant
having admitted that the damage to the swimming pools was appraised
by defendants adjuster at P386,000.00, defendant must, by virtue of the
contract of insurance, pay plaintiff said amount.
Because it is the finding of the Court as stated in the immediately
preceding paragraph that defendant is liable only for the damage
caused to the two (2) swimming pools and that defendant has made
known to plaintiff its willingness and readiness to settle said liability,
there is no basis for the grant of the other damages prayed for by
plaintiff. As to the counterclaims of defendant, the Court does not agree
that the action filed by plaintiff is baseless and highly speculative since
such action is a lawful exercise of the plaintiffs right to come to Court in
the honest belief that their Complaint is meritorious. The prayer,
therefore, of defendant for damages is likewise denied.
Page 3
WHEREFORE, premises considered, defendant is ordered to pay
plaintiffs the sum of THREE HUNDRED EIGHTY SIX THOUSAND PESOS
(P386,000.00) representing damage to the two (2) swimming pools, with
interest at 6% per annum from the date of the filing of the Complaint
until defendants obligation to plaintiff is fully paid.
No pronouncement as to costs.[13]
Petitioners Motion for Reconsideration was denied. Thus, petitioner
filed an appeal with the Court of Appeals based on the following
assigned errors:[14]
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT
CAN ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS
UNDER ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE
CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND
THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE
OF JULY 16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS
RIGHT TO RECOVER UNDER DEFENDANT-APPELLEES POLICY (NO. 31944;
EXH I) BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID POLICY
ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE
AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF
JULY 16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-
APPELLANT IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST
COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower
courts failure to award it attorneys fees and damages on its compulsory
counterclaim.
Insurance Law JD4301
After review, the appellate court affirmed the decision of the trial court
and ruled, thus:
However, after carefully perusing the documentary evidence of both
parties, We are not convinced that the last two (2) insurance contracts
(Exhs. G and H), which the plaintiff-appellant had with AHAC (AIU) and
upon which the subject insurance contract with Philippine Charter
Insurance Corporation is said to have been based and copied (Exh. I),
covered an extended earthquake shock insurance on all the insured
properties.
xxx
We also find that the Court a quo was correct in not granting the
plaintiff-appellants prayer for the imposition of interest 24% on the
insurance claim and 6% on loss of income allegedly amounting to
P4,280,000.00. Since the defendant-appellant has expressed its
willingness to pay the damage caused on the two (2) swimming pools,
as the Court a quo and this Court correctly found it to be liable only, it
then cannot be said that it was in default and therefore liable for
interest.
Coming to the defendant-appellants prayer for an attorneys fees, long-
standing is the rule that the award thereof is subject to the sound
discretion of the court. Thus, if such discretion is well-exercised, it will
not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838,
July 18, 2002). Moreover, being the award thereof an exception rather
than a rule, it is necessary for the court to make findings of facts and
law that would bring the case within the exception and justify the grant
of such award (Country Bankers Insurance Corp. v. Lianga Bay and
Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25,
2002). Therefore, holding that the plaintiff-appellants action is not
Page 4
baseless and highly speculative, We find that the Court a quo did not err
in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby
DISMISSED and judgment of the Trial Court hereby AFFIRMED in toto.
No costs.[15]
Petitioner filed the present petition raising the following issues:[16]
A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER
RESPONDENTS INSURANCE POLICY NO. 31944, ONLY THE TWO (2)
SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED
THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE
SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS
PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE
CLAIMED, ATTORNEYS FEES AND EXPENSES OF LITIGATION.
Petitioner contends:
First, that the policys earthquake shock endorsement clearly covers all
of the properties insured and not only the swimming pools. It used the
words any property insured by this policy, and it should be interpreted
as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake
shock endorsement is confirmed in the body of the insurance policy
itself, which states that it is [s]ubject to: Other Insurance Clause,
Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage
Endt., FEA Warranty & Annual Payment Agreement On Long Term
Policies.[17]
Insurance Law JD4301
Third, that the qualification referring to the two swimming pools had
already been deleted in the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an
inadvertent omission when it deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given
precedence over the wording of the insurance policy, because the rider
is the more deliberate expression of the agreement of the contracting
parties.
Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be
resolved in favor of petitioner and against respondent. It was
respondent which caused the ambiguity when it made the policy in
issue.
Eighth, the qualification of the endorsement limiting the earthquake
shock endorsement should be interpreted as a caveat on the standard
fire insurance policy, such as to remove the two swimming pools from
the coverage for the risk of fire. It should not be used to limit the
respondents liability for earthquake shock to the two swimming pools
only.
Ninth, there is no basis for the appellate court to hold that the
additional premium was not paid under the extended coverage. The
premium for the earthquake shock coverage was already included in the
premium paid for the policy.
Tenth, the parties contemporaneous and subsequent acts show that
they intended to extend earthquake shock coverage to all insured
properties. When it secured an insurance policy from respondent,
Page 5
petitioner told respondent that it wanted an exact replica of its latest
insurance policy from American Home Assurance Company (AHAC-AIU),
which covered all the resorts properties for earthquake shock damage
and respondent agreed. After the July 16, 1990 earthquake, respondent
assured petitioner that it was covered for earthquake shock.
Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc.,
likewise requested petitioner to submit the necessary documents for its
building claims and other repair costs. Thus, under the doctrine of
equitable estoppel, it cannot deny that the insurance policy it issued to
petitioner covered all of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review by
certiorari under Rule 45 of the Revised Rules of Court as its remedy, and
there is no need for calibration of the evidence in order to establish the
facts upon which this petition is based.
On the other hand, respondent made the following counter
arguments:[18]
First, none of the previous policies issued by AHAC-AIU from 1983 to
1990 explicitly extended coverage against earthquake shock to
petitioners insured properties other than on the two swimming pools.
Petitioner admitted that from 1984 to 1988, only the two swimming
pools were insured against earthquake shock. From 1988 until 1990, the
provisions in its policy were practically identical to its earlier policies,
and there was no increase in the premium paid. AHAC-AIU, in a
letter[19] by its representative Manuel C. Quijano, categorically stated
that its previous policy, from which respondents policy was copied,
covered only earthquake shock for the two swimming pools.
Second, petitioners payment of additional premium in the amount of
P393.00 shows that the policy only covered earthquake shock damage
on the two swimming pools. The amount was the same amount paid by
petitioner for earthquake shock coverage on the two swimming pools
Insurance Law JD4301
from 1990-1991. No additional premium was paid to warrant coverage
of the other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the
earthquake shock endorsement to the two swimming pools in the policy
schedule did not expand the earthquake shock coverage to all of
petitioners properties. As per its agreement with petitioner, respondent
copied its policy from the AHAC-AIU policy provided by petitioner.
Although the first five policies contained the said qualification in their
riders title, in the last two policies, this qualification in the title was
deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such deletion
was a mere inadvertence. This inadvertence did not make the policy
incomplete, nor did it broaden the scope of the endorsement whose
descriptive title was merely enumerated. Any ambiguity in the policy
can be easily resolved by looking at the other provisions, specially the
enumeration of the items insured, where only the two swimming pools
were noted as covered for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984
through 1988, the phrase Item 5 P393,000.00 on the two swimming
pools only (against the peril of earthquake shock only) meant that only
the swimming pools were insured for earthquake damage. The same
phrase is used in toto in the policies from 1989 to 1990, the only
difference being the designation of the two swimming pools as Item 3.
Fifth, in order for the earthquake shock endorsement to be effective,
premiums must be paid for all the properties covered. In all of its seven
insurance policies, petitioner only paid P393.00 as premium for
coverage of the swimming pools against earthquake shock. No other
premium was paid for earthquake shock coverage on the other
properties. In addition, the use of the qualifier ANY instead of ALL to
describe the property covered was done deliberately to enable the
parties to specify the properties included for earthquake coverage.
Page 6
Sixth, petitioner did not inform respondent of its requirement that all of In Insurance Policy No. 31944, four key items are important in the
its properties must be included in the earthquake shock coverage. resolution of the case at bar.
Petitioners own evidence shows that it only required respondent to
follow the exact provisions of its previous policy from AHAC-AIU. First, in the designation of location of risk, only the two swimming pools
Respondent complied with this requirement. Respondents only were specified as included, viz:
deviation from the agreement was when it modified the provisions
regarding the replacement cost endorsement. With regard to the issue ITEM 3 393,000.00 On the two (2) swimming pools only (against the
under litigation, the riders of the old policy and the policy in issue are peril of earthquake shock only)[20]
identical.
Second, under the breakdown for premium payments,[21] it was stated
Seventh, respondent did not do any act or give any assurance to that:
petitioner as would estop it from maintaining that only the two
swimming pools were covered for earthquake shock. The adjusters PREMIUM RECAPITULATION
letter notifying petitioner to present certain documents for its building
claims and repair costs was given to petitioner before the adjuster knew ITEM NOS. AMOUNT RATES PREMIUM
the full coverage of its policy.
xxx
Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the
phrase Item 5 Only after the descriptive name or title of the Earthquake 3 393,000.00 0.100%-E/S 393.00[22]
Shock Endorsement. However, the words of the policy reflect the
parties clear intention to limit earthquake shock coverage to the two Third, Policy Condition No. 6 stated:
swimming pools.
6. This insurance does not cover any loss or damage occasioned by or
Before petitioner accepted the policy, it had the opportunity to read its through or in consequence, directly or indirectly of any of the following
conditions. It did not object to any deficiency nor did it institute any occurrences, namely:--
action to reform the policy. The policy binds the petitioner.
(a) Earthquake, volcanic eruption or other convulsion of nature. [23]
Eighth, there is no basis for petitioner to claim damages, attorneys fees
and litigation expenses. Since respondent was willing and able to pay for Fourth, the rider attached to the policy, titled Extended Coverage
the damage caused on the two swimming pools, it cannot be considered Endorsement (To Include the Perils of Explosion, Aircraft, Vehicle and
to be in default, and therefore, it is not liable for interest. Smoke), stated, viz:

We hold that the petition is devoid of merit. ANNUAL PAYMENT AGREEMENT ON

Insurance Law JD4301 Page 7

LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE
SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION
OF A DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY
HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE
ABOVE NAMED x x x AND TO PAY THE PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the
sum of P. . . . . . . . . . . . . . . . . additional premium the Company agrees,
notwithstanding what is stated in the printed conditions of this Policy to
the contrary, that this insurance covers loss or damage (including loss or
damage by fire) to any of the property insured by this Policy occasioned
by or through or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall apply (except
in so far as they may be hereby expressly varied) and that any reference
therein to loss or damage by fire should be deemed to apply also to loss
or damage occasioned by or through or in consequence of
Earthquake.[24]
Petitioner contends that pursuant to this rider, no qualifications were
placed on the scope of the earthquake shock coverage. Thus, the policy
extended earthquake shock coverage to all of the insured properties.
It is basic that all the provisions of the insurance policy should be
examined and interpreted in consonance with each other.[25] All its
parts are reflective of the true intent of the parties. The policy cannot
be construed piecemeal. Certain stipulations cannot be segregated and
then made to control; neither do particular words or phrases necessarily
determine its character. Petitioner cannot focus on the earthquake
shock endorsement to the exclusion of the other provisions. All the
Insurance Law JD4301
provisions and riders, taken and interpreted together, indubitably show
the intention of the parties to extend earthquake shock coverage to the
two swimming pools only.
A careful examination of the premium recapitulation will show that it is
the clear intent of the parties to extend earthquake shock coverage only
to the two swimming pools. Section 2(1) of the Insurance Code defines a
contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. Thus, an insurance
contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a
premium.[26] (Emphasis ours)
An insurance premium is the consideration paid an insurer for
undertaking to indemnify the insured against a specified peril.[27] In
fire, casualty, and marine insurance, the premium payable becomes a
debt as soon as the risk attaches.[28] In the subject policy, no premium
payments were made with regard to earthquake shock coverage, except
on the two swimming pools. There is no mention of any premium
payable for the other resort properties with regard to earthquake shock.
This is consistent with the history of petitioners previous insurance
policies from AHAC-AIU. As borne out by petitioners witnesses:
Page 8
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25,
1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your
insurance policy during the period from March 4, 1984 to March 4, 1985
the coverage on earthquake shock was limited to the two swimming
pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in
the warranty, there is a provision here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00
corresponding to the two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25,
1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you
personally arrange for the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
Insurance Law JD4301
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are
concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned
they are of course subject to your instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend
what insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988
to March 14, 1989, did you give written instruction to Forte Insurance
Agency advising it that the earthquake shock coverage must extend to
all properties of Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made
an oral instruction to that effect of extending the coverage on (sic) the
other properties of the company.
Q. And that instruction, according to you, was very important because in
April 1987 there was an earthquake tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors
in the [future], is that correct?
A. Yes, sir.
Page 9
Q. Now, after this policy was delivered to you did you bother to check
the provisions with respect to your instructions that all properties must
be covered again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home
Assurance Company marked Exhibit G?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake
shock endorsement has no more limitation referring to the two
swimming pools only, I was contented already that the previous
limitation pertaining to the two swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase Subject
to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock
Endorsement, Extended Coverage Endorsement, FEA Warranty &
Annual Payment Agreement on Long Term Policies[29] to the insurance
policy as proof of the intent of the parties to extend the coverage for
earthquake shock. However, this phrase is merely an enumeration of
the descriptive titles of the riders, clauses, warranties or endorsements
to which the policy is subject, as required under Section 50, paragraph 2
of the Insurance Code.
We also hold that no significance can be placed on the deletion of the
qualification limiting the coverage to the two swimming pools. The
earthquake shock endorsement cannot stand alone. As explained by the
testimony of Juan Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III[30]
TSN, August 11, 1992
Insurance Law JD4301
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have
been previously marked by counsel for defendant as Exhibit[s] 1-6
inclusive. Did you have occasion to review of (sic) these six (6) policies
issued by your company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time,
sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as
Exhibits C to H respectively carries an earthquake shock endorsement[?]
My question to you is, on the basis on (sic) the wordings indicated in
Exhibits C to H respectively what was the extent of the coverage
[against] the peril of earthquake shock as provided for in each of the six
(6) policies?
xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and
H?
A. Yes, sir.
ATTY. MEJIA:
Page 10

What is your basis for stating that the coverage against earthquake
shock as provided for in each of the six (6) policies extend to the two (2)
swimming pools only?
WITNESS:
Because it says here in the policies, in the enumeration Earthquake
Shock Endorsement, in the Clauses and Warranties: Item 5 only
(Earthquake Shock Endorsement), sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand
alone basis. For swimming pools we do cover earthquake shock. For
building we covered it for full earthquake coverage which includes
earthquake shock
COURT:
As far as earthquake shock endorsement you do not have a specific
coverage for other things other than swimming pool? You are covering
building? They are covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering
building or another we can issue earthquake shock solely but that the
moment I see this, the thing that comes to my mind is either insuring a
Insurance Law JD4301
swimming pool, foundations, they are normally affected by earthquake
but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only
Exhibits C, D, E and F inclusive [remained] its coverage against
earthquake shock to two (2) swimming pools only but that Exhibits G
and H respectively entend the coverage against earthquake shock to all
the properties indicated in the respective schedules attached to said
policies, what can you say about that testimony of plaintiffs witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone
without the other half of it. I assure you that this one covers the two
swimming pools with respect to earthquake shock endorsement. Based
on it, if we are going to look at the premium there has been no change
with respect to the rates. Everytime (sic) there is a renewal if the
intention of the insurer was to include the earthquake shock, I think
there is a substantial increase in the premium. We are not only going to
consider the two (2) swimming pools of the other as stated in the policy.
As I see, there is no increase in the amount of the premium. I must say
that the coverage was not broaden (sic) to include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
Page 11
 ATTY. ANDRES:
They are the same in the sence (sic), in the amount of the coverage. If
you are going to do some computation based on the rates you will As an insurance executive will you not attach any significance to the
arrive at the same premiums, your Honor. deletion of the qualifying phrase for the policies?

CROSS-EXAMINATION OF JUAN BARANDA III WITNESS:

TSN, September 7, 1992 My answer to that would be, the deletion of that particular phrase is
inadvertent. Being a company underwriter, we do not cover. . it was
pp. 4-6 inadvertent because of the previous policies that we have issued with
no specific attachments, premium rates and so on. It was inadvertent,
ATTY. ANDRES: sir.

Would you as a matter of practice [insure] swimming pools for fire The Court also rejects petitioners contention that respondents
insurance? contemporaneous and subsequent acts to the issuance of the insurance
policy falsely gave the petitioner assurance that the coverage of the
WITNESS: earthquake shock endorsement included all its properties in the resort.
Respondent only insured the properties as intended by the petitioner.
No, we dont, sir. Petitioners own witness testified to this agreement, viz:

Q. That is why the phrase earthquake shock to the two (2) swimming
pools only was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H
which you have pointed to during your direct-examination, the phrase
Item no. 5 only meaning to (sic) the two (2) swimming pools was
deleted from the policies issued by AIU, is it not?
xxx
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness,
what exactly did you tell Atty. Omlas (sic) to copy from Exhibit H for
purposes of procuring the policy from Philippine Charter Insurance
Corporation?
A. I told him that the insurance that they will have to get will have the
same provisions as this American Home Insurance Policy No. 206-
4568061-9.

Insurance Law JD4301 Page 12

Q. You are referring to Exhibit H of course?
A. Yes, sir, to Exhibit H.
Q. So, all the provisions here will be the same except that of the
premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium
rates that they will be charging will be limited to this one. I (sic) can
even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison
of the provisions and scope of coverage of Exhibits I and H sometime in
the third week of March, 1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference
between the policy wordings as well as scope of coverage of Exhibits I
and H respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was
assured already that the policy wordings and rates were copied from
the insurance policy I sent them but it was only when this case erupted
that we discovered some discrepancies.
Insurance Law JD4301
Q. With respect to the items declared for insurance coverage did you
notice any discrepancy at any time between those indicated in Exhibit I
and those indicated in Exhibit H respectively?
A. With regard to the wordings I did not notice any difference because it
was exactly the same P393,000.00 on the two (2) swimming pools only
against the peril of earthquake shock which I understood before that
this provision will have to be placed here because this particular
provision under the peril of earthquake shock only is requested because
this is an insurance policy and therefore cannot be insured against fire,
so this has to be placed.
The verbal assurances allegedly given by respondents representative
Atty. Umlas were not proved. Atty. Umlas categorically denied having
given such assurances.
Finally, petitioner puts much stress on the letter of respondents
independent claims adjuster, Bayne Adjusters and Surveyors, Inc. But as
testified to by the representative of Bayne Adjusters and Surveyors, Inc.,
respondent never meant to lead petitioner to believe that the
endorsement for earthquake shock covered properties other than the
two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
Page 13
Q. Do you recall the circumstances that led to your discussion regarding
the extent of coverage of the policy issued by Philippine Charter
Insurance Corporation?
A. I remember that when I returned to the office after the inspection, I
got a photocopy of the insurance coverage policy and it was indicated
under Item 3 specifically that the coverage is only for earthquake shock.
Then, I remember I had a talk with Atty. Umlas (sic), and I relayed to him
what I had found out in the policy and he confirmed to me indeed only
Item 3 which were the two swimming pools have coverage for
earthquake shock.
xxx
Q. Now, may we know from you Engr. de Leon your basis, if any, for
stating that except for the swimming pools all affected items have no
coverage for earthquake shock?
xxx
A. I based my statement on my findings, because upon my examination
of the policy I found out that under Item 3 it was specific on the
wordings that on the two swimming pools only, then enclosed in
parenthesis (against the peril[s] of earthquake shock only), and
secondly, when I examined the summary of premium payment only
Item 3 which refers to the swimming pools have a computation for
premium payment for earthquake shock and all the other items have no
computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders.
Petitioner cannot rely on the general rule that insurance contracts are
contracts of adhesion which should be liberally construed in favor of the
insured and strictly against the insurer company which usually prepares
it.[31] A contract of adhesion is one wherein a party, usually a
Insurance Law JD4301
corporation, prepares the stipulations in the contract, while the other
party merely affixes his signature or his "adhesion" thereto. Through the
years, the courts have held that in these type of contracts, the parties
do not bargain on equal footing, the weaker party's participation being
reduced to the alternative to take it or leave it. Thus, these contracts
are viewed as traps for the weaker party whom the courts of justice
must protect.[32] Consequently, any ambiguity therein is resolved
against the insurer, or construed liberally in favor of the insured.[33]
The case law will show that this Court will only rule out blind adherence
to terms where facts and circumstances will show that they are basically
one-sided.[34] Thus, we have called on lower courts to remain careful in
scrutinizing the factual circumstances behind each case to determine
the efficacy of the claims of contending parties. In Development Bank of
the Philippines v. National Merchandising Corporation, et al.,[35] the
parties, who were acute businessmen of experience, were presumed to
have assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case
at bar. Petitioner cannot claim it did not know the provisions of the
policy. From the inception of the policy, petitioner had required the
respondent to copy verbatim the provisions and terms of its latest
insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo
Mantohac, a direct participant in securing the insurance policy of
petitioner, is reflective of petitioners knowledge, viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC[36]
TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would
want for those facilities in Agoo Playa?
Page 14

A. Yes, sir. I told him that I will agree to that renewal of this policy under
Philippine Charter Insurance Corporation as long as it will follow the
same or exact provisions of the previous insurance policy we had with
American Home Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions
which you wanted in the American Home Insurance policy are to be
incorporated in the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance
Corporation I specifically told him that the policy and wordings shall be
copied from the AIU Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner,
copied AIU Policy No. 206-4568061-9 in drafting its Insurance Policy No.
31944. It is true that there was variance in some terms, specifically in
the replacement cost endorsement, but the principal provisions of the
policy remained essentially similar to AHAC-AIUs policy. Consequently,
we cannot apply the "fine print" or "contract of adhesion" rule in this
case as the parties intent to limit the coverage of the policy to the two
swimming pools only is not ambiguous.[37]
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed.
The petition for certiorari is dismissed. No costs.
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
Insurance Law JD4301
RAFAEL ENRIQUEZ vs,
SUN LIFE ASSURANCE COMPANY OF CANADA
MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the estate
of the late Joaquin Ma. Herrer to recover from the defendant life
insurance company the sum of pesos 6,000 paid by the deceased for a
life annuity. The trial court gave judgment for the defendant. Plaintiff
appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer
made application to the Sun Life Assurance Company of Canada through
its office in Manila for a life annuity. Two days later he paid the sum of
P6,000 to the manager of the company's Manila office and was given a
receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como
prima dela Renta Vitalicia solicitada por dicho Don Joaquin Herrer hoy,
sujeta al examen medico y aprobacion de la Oficina Central de la
Compañia.
The application was immediately forwarded to the head office of the
company at Montreal, Canada. On November 26, 1917, the head office
gave notice of acceptance by cable to Manila. (Whether on the same
day the cable was received notice was sent by the Manila office of
Herrer that the application had been accepted, is a disputed point,
which will be discussed later.) On December 4, 1917, the policy was
issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres
wrote to the Manila office of the company stating that Herrer desired to
withdraw his application. The following day the local office replied to
Page 15
Mr. Torres, stating that the policy had been issued, and called attention
to the notification of November 26, 1917. This letter was received by
Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on
December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether
Herrer received notice of acceptance of his application. To resolve this
question, we propose to go directly to the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company
of Canada at the time of the trial testified that he prepared the letter
introduced in evidence as Exhibit 3, of date November 26, 1917, and
handed it to the local manager, Mr. E. E. White, for signature. The
witness admitted on cross-examination that after preparing the letter
and giving it to he manager, he new nothing of what became of it. The
local manager, Mr. White, testified to having received the cablegram
accepting the application of Mr. Herrer from the home office on
November 26, 1917. He said that on the same day he signed a letter
notifying Mr. Herrer of this acceptance. The witness further said that
letters, after being signed, were sent to the chief clerk and placed on
the mailing desk for transmission. The witness could not tell if the letter
had every actually been placed in the mails. Mr. Tuason, who was the
chief clerk, on November 26, 1917, was not called as a witness. For the
defense, attorney Manuel Torres testified to having prepared the will of
Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his
application for a life annuity, and that he said that the only document
relating to the transaction in his possession was the provisional receipt.
Rafael Enriquez, the administrator of the estate, testified that he had
gone through the effects of the deceased and had found no letter of
notification from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of
November 26, 1917, notifying Mr. Herrer that his application had been
accepted, was prepared and signed in the local office of the insurance
Insurance Law JD4301
company, was placed in the ordinary channels for transmission, but as
far as we know, was never actually mailed and thus was never received
by the applicant.
Not forgetting our conclusion of fact, it next becomes necessary to
determine the law which should be applied to the facts. In order to
reach our legal goal, the obvious signposts along the way must be
noticed.
Until quite recently, all of the provisions concerning life insurance in the
Philippines were found in the Code of Commerce and the Civil Code. In
the Code of the Commerce, there formerly existed Title VIII of Book III
and Section III of Title III of Book III, which dealt with insurance
contracts. In the Civil Code there formerly existed and presumably still
exist, Chapters II and IV, entitled insurance contracts and life annuities,
respectively, of Title XII of Book IV. On the after July 1, 1915, there was,
however, in force the Insurance Act. No. 2427. Chapter IV of this Act
concerns life and health insurance. The Act expressly repealed Title VIII
of Book II and Section III of Title III of Book III of the code of Commerce.
The law of insurance is consequently now found in the Insurance Act
and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is
silent as to the methods to be followed in order that there may be a
contract of insurance. On the other hand, the Civil Code, in article 1802,
not only describes a contact of life annuity markedly similar to the one
we are considering, but in two other articles, gives strong clues as to the
proper disposition of the case. For instance, article 16 of the Civil Code
provides that "In matters which are governed by special laws, any
deficiency of the latter shall be supplied by the provisions of this Code."
On the supposition, therefore, which is incontestable, that the special
law on the subject of insurance is deficient in enunciating the principles
governing acceptance, the subject-matter of the Civil code, if there be
any, would be controlling. In the Civil Code is found article 1262
Page 16
providing that "Consent is shown by the concurrence of offer and
acceptance with respect to the thing and the consideration which are to
constitute the contract. An acceptance made by letter shall not bind the
person making the offer except from the time it came to his knowledge.
The contract, in such case, is presumed to have been entered into at the
place where the offer was made." This latter article is in opposition to
the provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by
which we reach a conclusion, then the only duty remaining is for the
court to apply the law as it is found. The legislature in its wisdom having
enacted a new law on insurance, and expressly repealed the provisions
in the Code of Commerce on the same subject, and having thus left a
void in the commercial law, it would seem logical to make use of the
only pertinent provision of law found in the Civil code, closely related to
the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the
person making the offer only from the date it came to his knowledge,
may not be the best expression of modern commercial usage. Still it
must be admitted that its enforcement avoids uncertainty and tends to
security. Not only this, but in order that the principle may not be taken
too lightly, let it be noticed that it is identical with the principles
announced by a considerable number of respectable courts in the
United States. The courts who take this view have expressly held that an
acceptance of an offer of insurance not actually or constructively
communicated to the proposer does not make a contract. Only the
mailing of acceptance, it has been said, completes the contract of
insurance, as the locus poenitentiae is ended when the acceptance has
passed beyond the control of the party. (I Joyce, The Law of Insurance,
pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the
second paragraph of article 1262 of the Civil Code providing that an
Insurance Law JD4301
acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. The pertinent fact is,
that according to the provisional receipt, three things had to be
accomplished by the insurance company before there was a contract:
(1) There had to be a medical examination of the applicant; (2) there
had to be approval of the application by the head office of the company;
and (3) this approval had in some way to be communicated by the
company to the applicant. The further admitted facts are that the head
office in Montreal did accept the application, did cable the Manila office
to that effect, did actually issue the policy and did, through its agent in
Manila, actually write the letter of notification and place it in the usual
channels for transmission to the addressee. The fact as to the letter of
notification thus fails to concur with the essential elements of the
general rule pertaining to the mailing and delivery of mail matter as
announced by the American courts, namely, when a letter or other mail
matter is addressed and mailed with postage prepaid there is a
rebuttable presumption of fact that it was received by the addressee as
soon as it could have been transmitted to him in the ordinary course of
the mails. But if any one of these elemental facts fails to appear, it is
fatal to the presumption. For instance, a letter will not be presumed to
have been received by the addressee unless it is shown that it was
deposited in the post-office, properly addressed and stamped. (See 22
C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not
perfected because it has not been proved satisfactorily that the
acceptance of the application ever came to the knowledge of the
applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the
defendant the sum of P6,000 with legal interest from November 20,
1918, until paid, without special finding as to costs in either instance. So
ordered.
Page 17
Mapa, C.J., Araullo, Avanceña and Villamor, JJ., concur.
Johnson, J., dissents.
THE INSULAR LIFE ASSURANCE COMPANY, LTD.
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife
named as beneficiary in the life insurance policy of a legally married
man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The
Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00
with a, rider for Accidental Death for the same amount Buenaventura C.
Ebrado designated T. Ebrado as the revocable beneficiary in his policy.
He to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t
when he was hit by a failing branch of a tree. As the policy was in force,
The Insular Life Assurance Co., Ltd. liable to pay the coverage in the
total amount of P11,745.73, representing the face value of the policy in
the amount of P5,882.00 plus the additional benefits for accidental
death also in the amount of P5,882.00 and the refund of P18.00 paid for
the premium due November, 1969, minus the unpaid premiums and
interest thereon due for January and February, 1969, in the sum of
P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the
Policy as the designated beneficiary therein, although she admits that
she and the insured Buenaventura C. Ebrado were merely living as
husband and wife without the benefit of marriage.
Insurance Law JD4301
Pascuala Vda. de Ebrado also filed her claim as the widow of the
deceased insured. She asserts that she is the one entitled to the
insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer,
The Insular Life Assurance Co., Ltd. commenced an action for
Interpleader before the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on
July 8, 1972, after which, a pre-trial order was entered reading as
follows: ñé+.£ªwph!1
During the pre-trial conference, the parties manifested to the court.
that there is no possibility of amicable settlement. Hence, the Court
proceeded to have the parties submit their evidence for the purpose of
the pre-trial and make admissions for the purpose of pretrial. During
this conference, parties Carponia T. Ebrado and Pascuala Ebrado agreed
and stipulated: 1) that the deceased Buenaventura Ebrado was married
to Pascuala Ebrado with whom she has six — (legitimate) namely;
Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed
Ebrado; 2) that during the lifetime of the deceased, he was insured with
Insular Life Assurance Co. Under Policy No. 009929 whole life plan,
dated September 1, 1968 for the sum of P5,882.00 with the rider for
accidental death benefit as evidenced by Exhibits A for plaintiffs and
Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado;
3) that during the lifetime of Buenaventura Ebrado, he was living with
his common-wife, Carponia Ebrado, with whom she had 2 children
although he was not legally separated from his legal wife; 4) that
Buenaventura in accident on October 21, 1969 as evidenced by the
death Exhibit 3 and affidavit of the police report of his death Exhibit 5;
5) that complainant Carponia Ebrado filed claim with the Insular Life
Assurance Co. which was contested by Pascuala Ebrado who also filed
claim for the proceeds of said policy 6) that in view ofthe adverse claims
the insurance company filed this action against the two herein claimants
Page 18
Carponia and Pascuala Ebrado; 7) that there is now due from the Insular
Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the
beneficiary designated by the insured in the policy is Carponia Ebrado
and the insured made reservation to change the beneficiary but
although the insured made the option to change the beneficiary, same
was never changed up to the time of his death and the wife did not have
any opportunity to write the company that there was reservation to
change the designation of the parties agreed that a decision be
rendered based on and stipulation of facts as to who among the two
claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their
simultaneous memoranda from the receipt of this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring
among others, Carponia T. Ebrado disqualified from becoming
beneficiary of the insured Buenaventura Cristor Ebrado and directing
the payment of the insurance proceeds to the estate of the deceased
insured. The trial court held: ñé+.£ªwph!1
It is patent from the last paragraph of Art. 739 of the Civil Code that a
criminal conviction for adultery or concubinage is not essential in order
to establish the disqualification mentioned therein. Neither is it also
necessary that a finding of such guilt or commission of those acts be
made in a separate independent action brought for the purpose. The
guilt of the donee (beneficiary) may be proved by preponderance of
evidence in the same proceeding (the action brought to declare the
nullity of the donation).
It is, however, essential that such adultery or concubinage exists at the
time defendant Carponia T. Ebrado was made beneficiary in the policy
in question for the disqualification and incapacity to exist and that it is
Insurance Law JD4301
only necessary that such fact be established by preponderance of
evidence in the trial. Since it is agreed in their stipulation above-quoted
that the deceased insured and defendant Carponia T. Ebrado were living
together as husband and wife without being legally married and that
the marriage of the insured with the other defendant Pascuala Vda. de
Ebrado was valid and still existing at the time the insurance in question
was purchased there is no question that defendant Carponia T. Ebrado
is disqualified from becoming the beneficiary of the policy in question
and as such she is not entitled to the proceeds of the insurance upon
the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of
Appeals, but on July 11, 1976, the Appellate Court certified the case to
Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as
amended) or even the new Insurance Code (PD No. 612, as amended)
does not contain any specific provision grossly resolutory of the prime
question at hand. Section 50 of the Insurance Act which provides that
"(t)he insurance shag be applied exclusively to the proper interest of the
person in whose name it is made" 1 cannot be validly seized upon to
hold that the mm includes the beneficiary. The word "interest" highly
suggests that the provision refers only to the "insured" and not to the
beneficiary, since a contract of insurance is personal in character. 2
Otherwise, the prohibitory laws against illicit relationships especially on
property and descent will be rendered nugatory, as the same could
easily be circumvented by modes of insurance. Rather, the general rules
of civil law should be applied to resolve this void in the Insurance Law.
Article 2011 of the New Civil Code states: "The contract of insurance is
governed by special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life
Page 19
insurance is governed by the general rules of the civil law regulating
contracts. 3 And under Article 2012 of the same Code, "any person who
is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a fife insurance policy by the person who cannot
make a donation to him. 4 Common-law spouses are, definitely, barred
from receiving donations from each other. Article 739 of the new Civil
Code provides: ñé+.£ªwph!1
The following donations shall be void:
1. Those made between persons who were guilty of adultery or
concubinage at the time of donation;
Those made between persons found guilty of the same criminal offense,
in consideration thereof;
3. Those made to a public officer or his wife, descendants or
ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may
be brought by the spouse of the donor or donee; and the guilt of the
donee may be proved by preponderance of evidence in the same action.
2. In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are founded upon
the same consideration: liberality. A beneficiary is like a donee, because
from the premiums of the policy which the insured pays out of liberality,
the beneficiary will receive the proceeds or profits of said insurance. As
a consequence, the proscription in Article 739 of the new Civil Code
should equally operate in life insurance contracts. The mandate of
Article 2012 cannot be laid aside: any person who cannot receive a
donation cannot be named as beneficiary in the life insurance policy of
the person who cannot make the donation. 5 Under American law, a
policy of life insurance is considered as a testament and in construing it,
Insurance Law JD4301
the courts will, so far as possible treat it as a will and determine the
effect of a clause designating the beneficiary by rules under which wins
are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the
institution of a barrier between common law spouses in record to
Property relations since such hip ultimately encroaches upon the nuptial
and filial rights of the legitimate family There is every reason to hold
that the bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance policies
since the same are based on similar consideration As above pointed out,
a beneficiary in a fife insurance policy is no different from a donee. Both
are recipients of pure beneficence. So long as manage remains the
threshold of family laws, reason and morality dictate that the
impediments imposed upon married couple should likewise be imposed
upon extra-marital relationship. If legitimate relationship is
circumscribed by these legal disabilities, with more reason should an
illicit relationship be restricted by these disabilities. Thus, in Matabuena
v. Cervantes, 7 this Court, through Justice Fernando, said: ñé+.£ªwph!1
If the policy of the law is, in the language of the opinion of the then
Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit
donations in favor of the other consort and his descendants because of
and undue and improper pressure and influence upon the donor, a
prejudice deeply rooted in our ancient law;" por-que no se enganen
desponjandose el uno al otro por amor que han de consuno' (According
to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No
Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De
donat, inter virum et uxorem); then there is very reason to apply the
same prohibitive policy to persons living together as husband and wife
without the benefit of nuptials. For it is not to be doubted that assent to
such irregular connection for thirty years bespeaks greater influence of
one party over the other, so that the danger that the law seeks to avoid
is correspondingly increased. Moreover, as already pointed out by
Page 20
Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such
donations should subsist, lest the condition 6f those who incurred guilt
should turn out to be better.' So long as marriage remains the
cornerstone of our family law, reason and morality alike demand that
the disabilities attached to marriage should likewise attach to
concubinage.
It is hardly necessary to add that even in the absence of the above
pronouncement, any other conclusion cannot stand the test of scrutiny.
It would be to indict the frame of the Civil Code for a failure to apply a
laudable rule to a situation which in its essentials cannot be
distinguished. Moreover, if it is at all to be differentiated the policy of
the law which embodies a deeply rooted notion of what is just and what
is right would be nullified if such irregular relationship instead of being
visited with disabilities would be attended with benefits. Certainly a
legal norm should not be susceptible to such a reproach. If there is
every any occasion where the principle of statutory construction that
what is within the spirit of the law is as much a part of it as what is
written, this is it. Otherwise the basic purpose discernible in such codal
provision would not be attained. Whatever omission may be apparent in
an interpretation purely literal of the language used must be remedied
by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is
exacted before the disabilities mentioned in Article 739 may effectuate.
More specifically, with record to the disability on "persons who were
guilty of adultery or concubinage at the time of the donation," Article
739 itself provides: ñé+.£ªwph!1
In the case referred to in No. 1, the action for declaration of nullity may
be brought by the spouse of the donor or donee; and the guilty of the
donee may be proved by preponderance of evidence in the same action.
Insurance Law JD4301
The underscored clause neatly conveys that no criminal conviction for
the offense is a condition precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On the contrary,
the law plainly states that the guilt of the party may be proved "in the
same acting for declaration of nullity of donation. And, it would be
sufficient if evidence preponderates upon the guilt of the consort for
the offense indicated. The quantum of proof in criminal cases is not
demanded.
In the caw before Us, the requisite proof of common-law relationship
between the insured and the beneficiary has been conveniently
supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein that
the deceased insured Buenaventura C. Ebrado was married to Pascuala
Ebrado with whom she has six legitimate children; that during his
lifetime, the deceased insured was living with his common-law wife,
Carponia Ebrado, with whom he has two children. These stipulations are
nothing less than judicial admissions which, as a consequence, no longer
require proof and cannot be contradicted. 8 A fortiori, on the basis of
these admissions, a judgment may be validly rendered without going
through the rigors of a trial for the sole purpose of proving the illicit
liaison between the insured and the beneficiary. In fact, in that pretrial,
the parties even agreed "that a decision be rendered based on this
agreement and stipulation of facts as to who among the two claimants
is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby
affirmed. Carponia T. Ebrado is hereby declared disqualified to be the
beneficiary of the late Buenaventura C. Ebrado in his life insurance
policy. As a consequence, the proceeds of the policy are hereby held
payable to the estate of the deceased insured. Costs against Carponia T.
Ebrado.
SO ORDERED.
Page 21
 sank, resulting in the damage or loss of 1,162 bales of hemp loaded
Teehankee (Chairman), Makasiar, Muñ;oz Palma, Fernandez and therein. On October 30, 1952, Macleod promptly notified the carrier's
Guerrero, JJ., concur. main office in Manila and its branch in Davao advising it of its liability.
The damaged hemp was brought to Odell Plantation in Madaum, Davao,
COMPAÑIA MARITIMAvs. for cleaning, washing, reconditioning, and redrying. During the period
from November 1-15, 1952, the carrier's trucks and lighters hauled from
INSURANCE COMPANY OF NORTH AMERICA
Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned
BAUTISTA ANGELO, J.:
hemp out of the original cargo of 1,162 bales weighing 2,324 piculs
which had a total value of 116,835.00. After reclassification, the value of
Sometime in October, 1952, Macleod and Company of the Philippines
the reconditioned hemp was reduced to P84,887.28, or a loss in value of
contracted by telephone the services of the Compañia Maritima, a
P31,947.72. Adding to this last amount the sum of P8,863.30
shipping corporation, for the shipment of 2,645 bales of hemp from the
representing Macleod's expenses in checking, grading, rebating, and
former's Sasa private pier at Davao City to Manila and for their
other fees for washing, cleaning and redrying in the amount of
subsequent transhipment to Boston, Massachusetts, U.S.A. on board
P19.610.00, the total loss adds up to P60,421.02.
the S.S. Steel Navigator. This oral contract was later on confirmed by a
formal and written booking issued by Macleod's branch office in Sasa
All abaca shipments of Macleod, including the 1,162 bales loaded on the
and handcarried to Compañia Maritima's branch office in Davao in
carrier's LCT No. 1025, were insured with the Insurance Company of
compliance with which the latter sent to Macleod's private wharf LCT
North America against all losses and damages. In due time, Macleod
Nos. 1023 and 1025 on which the loading of the hemp was completed
filed a claim for the loss it suffered as above stated with said insurance
on October 29, 1952. These two lighters were manned each by a patron
company, and after the same had been processed, the sum of
and an assistant patron. The patrons of both barges issued the
P64,018.55 was paid, which was noted down in a document which aside
corresponding carrier's receipts and that issued by the patron of Barge
from being a receipt of the amount paid, was a subrogation agreement
No. 1025 reads in part:
between Macleod and the insurance company wherein the former
assigned to the latter its rights over the insured and damaged cargo.
Received in behalf of S.S. Bowline Knot in good order and condition
Having failed to recover from the carrier the sum of P60,421.02, which
from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for
is the only amount supported by receipts, the insurance company
transhipment at Manila onto S.S. Steel Navigator.
instituted the present action on October 28, 1953. After trial, the court
a quo rendered judgment ordering the carrier to pay the insurance
FINAL DESTINATION: Boston.
company the sum of P60,421.02, with legal interest thereon from the
date of the filing of the complaint until fully paid, and the costs. This
Thereafter, the two loaded barges left Macleod's wharf and proceeded
judgment was affirmed by the Court of Appeals on December 14, 1960.
to and moored at the government's marginal wharf in the same place to
Hence, this petition for review.
await the arrival of the S.S. Bowline Knot belonging to Compañia
Maritima on which the hemp was to be loaded. During the night of
October 29, 1952, or at the early hours of October 30, LCT No. 1025

Insurance Law JD4301 Page 22

The issues posed before us are: (1) Was there a contract of carriage
between the carrier and the shipper even if the loss occurred when the
hemp was loaded on a barge owned by the carrier which was loaded
free of charge and was not actually loaded on the S.S. Bowline Knot
which would carry the hemp to Manila and no bill of lading was issued
therefore?; (2) Was the damage caused to the cargo or the sinking of
the barge where it was loaded due to a fortuitous event, storm or
natural disaster that would exempt the carrier from liability?; (3) Can
respondent insurance company sue the carrier under its insurance
contract as assignee of Macleod in spite of the fact that the liability of
the carrier as insurer is not recognized in this jurisdiction?; (4) Has the
Court of Appeals erred in regarding Exhibit NNN-1 as an implied
admission by the carrier of the correctness and sufficiency of the
shipper's statement of accounts contrary to the burden of proof rule?;
and (5) Can the insurance company maintain this suit without proof of
its personality to do so?
1. This issue should be answered in the affirmative. As found by
the Court of Appeals, Macleod and Company contracted by telephone
the services of petitioner to ship the hemp in question from the
former's private pier at Sasa, Davao City, to Manila, to be subsequently
transhipped to Boston, Massachusetts, U.S.A., which oral contract was
later confirmed by a formal and written booking issued by the shipper's
branch office, Davao City, in virtue of which the carrier sent two of its
lighters to undertake the service. It also appears that the patrons of said
lighters were employees of the carrier with due authority to undertake
the transportation and to sign the documents that may be necessary
therefor so much so that the patron of LCT No. 1025 signed the receipt
covering the cargo of hemp loaded therein as follows: .
Received in behalf of S.S. Bowline Knot in good order and condition
from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for
transhipment at Manila onto S.S. Steel Navigator.
Insurance Law JD4301
FINAL DESTINATION: Boston.
The fact that the carrier sent its lighters free of charge to take the hemp
from Macleod's wharf at Sasa preparatory to its loading onto the ship
Bowline Knot does not in any way impair the contract of carriage
already entered into between the carrier and the shipper, for that
preparatory step is but part and parcel of said contract of carriage. The
lighters were merely employed as the first step of the voyage, but once
that step was taken and the hemp delivered to the carrier's employees,
the rights and obligations of the parties attached thereby subjecting
them to the principles and usages of the maritime law. In other words,
here we have a complete contract of carriage the consummation of
which has already begun: the shipper delivering the cargo to the carrier,
and the latter taking possession thereof by placing it on a lighter
manned by its authorized employees, under which Macleod became
entitled to the privilege secured to him by law for its safe transportation
and delivery, and the carrier to the full payment of its freight upon
completion of the voyage.
The receipt of goods by the carrier has been said to lie at the foundation
of the contract to carry and deliver, and if actually no goods are
received there can be no such contract. The liability and responsibility of
the carrier under a contract for the carriage of goods commence on
their actual delivery to, or receipt by, the carrier or an authorized agent.
... and delivery to a lighter in charge of a vessel for shipment on the
vessel, where it is the custom to deliver in that way, is a good delivery
and binds the vessel receiving the freight, the liability commencing at
the time of delivery to the lighter. ... and, similarly, where there is a
contract to carry goods from one port to another, and they cannot be
loaded directly on the vessel and lighters are sent by the vessel to bring
the goods to it, the lighters are for the time its substitutes, so that the
bill of landing is applicable to the goods as soon as they are placed on
the lighters. (80 C.J.S., p. 901, emphasis supplied)
Page 23
... The test as to whether the relation of shipper and carrier had been
established is, Had the control and possession of the cotton been
completely surrendered by the shipper to the railroad company?
Whenever the control and possession of goods passes to the carrier and
nothing remains to be done by the shipper, then it can be said with
certainty that the relation of shipper and carrier has been established.
Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419, 46 A. St. Rep. 202;
Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834;
Matthews & Hood v. St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461,
L.R.A. 1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W.
148).
The claim that there can be no contract of affreightment because the
hemp was not actually loaded on the ship that was to take it from
Davao City to Manila is of no moment, for, as already stated, the
delivery of the hemp to the carrier's lighter is in line with the contract.
In fact, the receipt signed by the patron of the lighter that carried the
hemp stated that he was receiving the cargo "in behalf of S.S. Bowline
Knot in good order and condition." On the other hand, the authorities
are to the effect that a bill of lading is not indispensable for the creation
of a contract of carriage.
Bill of lading not indispensable to contract of carriage. — As to the
issuance of a bill of lading, although article 350 of the Code of
Commerce provides that "the shipper as well as the carrier of
merchandise or goods may mutua-lly demand that a bill of lading is not
indispensable. As regards the form of the contract of carriage it can be
said that provided that there is a meeting of the minds and from such
meeting arise rights and obligations, there should be no limitations as to
form." The bill of lading is not essential to the contract, although it may
become obligatory by reason of the regulations of railroad companies,
or as a condition imposed in the contract by the agreement of the
parties themselves. The bill of lading is juridically a documentary proof
of the stipulations and conditions agreed upon by both parties. (Del
Insurance Law JD4301
Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the
Code does not demand, as necessary requisite in the contract of
transportation, the delivery of the bill of lading to the shipper, but gives
right to both the carrier and the shipper to mutually demand of each
other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895).
(Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13)
The liability of the carrier as common carrier begins with the actual
delivery of the goods for transportation, and not merely with the formal
execution of a receipt or bill of lading; the issuance of a bill of lading is
not necessary to complete delivery and acceptance. Even where it is
provided by statute that liability commences with the issuance of the
bill of lading, actual delivery and acceptance are sufficient to bind the
carrier. (13 C.J.S., p. 288)
2. Petitioner disclaims responsibility for the damage of the cargo in
question shielding itself behind the claim of force majeure or storm
which occurred on the night of October 29, 1952. But the evidence fails
to bear this out.
Rather, it shows that the mishap that caused the damage or loss was
due, not to force majeure, but to lack of adequate precautions or
measures taken by the carrier to prevent the loss as may be inferred
from the following findings of the Court of Appeals:
Aside from the fact that, as admitted by appellant's own witness, the ill-
fated barge had cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959)
which admitted sea water in the same manner as rain entered "thru
tank man-holes", according to the patron of LCT No. 1023 (exh. JJJ-4) —
conclusively showing that the barge was not seaworthy — it should be
noted that on the night of the nautical accident there was no storm,
flood, or other natural disaster or calamity. Certainly, winds of 11 miles
per hour, although stronger than the average 4.6 miles per hour then
prevailing in Davao on October 29, 1952 (exh. 5), cannot be classified as
Page 24
storm. For according to Beaufort's wind scale, a storm has wind
velocities of from 64 to 75 miles per hour; and by Philippine Weather
Bureau standards winds should have a velocity of from 55 to 74 miles
per hour in order to be classified as storm (Northern Assurance Co., Ltd.
vs. Visayan Stevedore Transportation Co., CA-G.R. No. 23167-R, March
12, 1959).
The Court of Appeals further added: "the report of R. J. del Pan & Co.,
Inc., marine surveyors, attributes the sinking of LCT No. 1025 to the
'non-water-tight conditions of various buoyancy compartments' (exh.
JJJ); and this report finds confirmation on the above-mentioned
admission of two witnesses for appellant concerning the cracks of the
lighter's bottom and the entrance of the rain water 'thru manholes'."
We are not prepared to dispute this finding of the Court of Appeals.
3. There can also be no doubt that the insurance company can
recover from the carrier as assignee of the owner of the cargo for the
insurance amount it paid to the latter under the insurance contract. And
this is so because since the cargo that was damaged was insured with
respondent company and the latter paid the amount represented by the
loss, it is but fair that it be given the right to recover from the party
responsible for the loss. The instant case, therefore, is not one between
the insured and the insurer, but one between the shipper and the
carrier, because the insurance company merely stepped into the shoes
of the shipper. And since the shipper has a direct cause of action against
the carrier on account of the damage of the cargo, no valid reason is
seen why such action cannot be asserted or availed of by the insurance
company as a subrogee of the shipper. Nor can the carrier set up as a
defense any defect in the insurance policy not only because it is not a
privy to it but also because it cannot avoid its liability to the shipper
under the contract of carriage which binds it to pay any loss that may be
caused to the cargo involved therein. Thus, we find fitting the following
comments of the Court of Appeals:
Insurance Law JD4301
It was not imperative and necessary for the trial court to pass upon the
question of whether or not the disputed abaca cargo was covered by
Marine Open Cargo Policy No. MK-134 isued by appellee. Appellant was
neither a party nor privy to this insurance contract, and therefore
cannot avail itself of any defect in the policy which may constitute a
valid reason for appellee, as the insurer, to reject the claim of Macleod,
as the insured. Anyway, whatever defect the policy contained, if any, is
deemed to have been waived by the subsequent payment of Macleod's
claim by appellee. Besides, appellant is herein sued in its capacity as a
common carrier, and appellee is suing as the assignee of the shipper
pursuant to exhibit MM. Since, as above demonstrated, appellant is
liable to Macleod and Company of the Philippines for the los or damage
to the 1,162 bales of hemp after these were received in good order and
condition by the patron of appellant's LCT No. 1025, it necessarily
follows that appellant is likewise liable to appellee who, as assignee of
Macleod, merely stepped into the shoes of and substi-tuted the latter in
demanding from appellant the payment for the loss and damage
aforecited.
4. It should be recalled in connection with this issue that during
the trial of this case the carrier asked the lower court to order the
production of the books of accounts of the Odell Plantation containing
the charges it made for the loss of the damaged hemp for verification of
its accountants, but later it desisted therefrom on the claim that it finds
their production no longer necessary. This desistance notwithstanding,
the shipper however pre-sented other documents to prove the damage
it suffered in connection with the cargo and on the strength thereof the
court a quo ordered the carrier to pay the sum of P60,421.02. And after
the Court of Appeals affirmed this award upon the theory that the
desistance of the carrier from producing the books of accounts of Odell
Plantation implies an admission of the correctness of the statements of
accounts contained therein, petitioner now contends that the Court of
Appeals erred in basing the affirmance of the award on such erroneous
interpretation.
Page 25
There is reason to believe that the act of petitioner in waiving its right to
have the books of accounts of Odell Plantation presented in court is
tantamount to an admission that the statements contained therein are
correct and their verification not necessary because its main defense
here, as well as below, was that it is not liable for the loss because there
was no contract of carriage between it and the shipper and the loss
caused, if any, was due to a fortuitous event. Hence, under the carrier's
theory, the correctness of the account representing the loss was not so
material as would necessitate the presentation of the books in question.
At any rate, even if the books of accounts were not produced, the
correctness of the accounts cannot now be disputed for the same is
supported by the original documents on which the entries in said books
were based which were presented by the shipper as part of its evidence.
And according to the Court of Appeals, these documents alone
sufficiently establish the award of P60,412.02 made in favor of
respondent.
5. Finally, with regard to the question concerning the personality
of the insurance company to maintain this action, we find the same of
no importance, for the attorney himself of the carrier admitted in open
court that it is a foreign corporation doing business in the Philippines
with a personality to file the present action.
WHEREFORE, the decision appealed from is affirmed, with costs against
petitioner.
Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala,
Makalintal, Bengzon, J.P. and Zaldivar JJ., concur.
PHILIPPINE CHARTER INSURANCE CORPORATION vs.
CHEMOIL LIGHTERAGE CORPORATION
DECISION
CHICO-NAZARIO, J.:
Insurance Law JD4301
Before Us is a petition for review on certiorari which assails the Decision
of the Court of Appeals[1] in CA-G.R. CV No. 56209, dated 18 December
1998. The Decision reversed and set aside the decision of the Regional
Trial Court (RTC),[2] Branch 16, City of Manila, which ordered herein
respondent to pay the petitioners claim in the amount of P5,000,000.00
with legal interest from the date of the filing of the complaint.
THE FACTS
Petitioner Philippine Charter Insurance Corporation is a domestic
corporation engaged in the business of non-life insurance. Respondent
Chemoil Lighterage Corporation is also a domestic corporation engaged
in the transport of goods.
On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan,
South Korea, shipped 62.06 metric tons of the liquid chemical DIOCTYL
PHTHALATE (DOP) on board MT TACHIBANA which was valued at
US$90,201.57 under Bill of Lading No. ULS/MNL-1[3] and another
436.70 metric tons of DOP valued at US$634,724.89 under Bill of Lading
No. ULS/MNL-2[4] to the Philippines. The consignee was Plastic Group
Phils., Inc. (PGP) in Manila.
PGP insured the cargo with herein petitioner Philippine Charter
Insurance Corporation against all risks. The insurance was under Marine
Policies No. MRN-30721[5] dated 06 February 1991 for P31,757,969.19
and No. MRN-30722[6] for P4,514,881.00. Marine Endorsement No.
2786[7] dated 11 May 1991 was attached and formed part of MRN-
30721, amending the latters insured value to P24,667,422.03, and
reduced the premium accordingly.
The ocean tanker MT TACHIBANA unloaded the cargo to Tanker Barge
LB-1011 of respondent Chemoil Lighterage Corporation, which shall
transport the same to Del Pan Bridge in Pasig River. Tanker Barge LB-
Page 26
1011 would unload the cargo to tanker trucks, also owned by the
respondent, and haul it by land to PGPs storage tanks in Calamba,
Laguna.
Upon inspection by PGP, the samples taken from the shipment showed
discoloration from yellowish to amber, demonstrating that it was
damaged, as DOP is colorless and water clear. PGP then sent a letter to
the petitioner dated 18 February 1991[8] where it formally made an
insurance claim for the loss it sustained due to the contamination.
The petitioner requested an independent insurance adjuster, the GIT
Insurance Adjusters, Inc. (GIT), to conduct a Quantity and Condition
Survey of the shipment. On 22 February 1991, GIT issued a Report,[9]
part of which states:
As unloading progressed, it was observed on February 14, 1991 that
DOP samples taken were discolored from yellowish to amber.
Inspection of cargo tanks showed manhole covers of ballast tanks
ceilings loosely secured. Furthermore, it was noted that the rubber
gaskets of the manhole covers of the ballast tanks re-acted to the
chemical causing shrinkage thus, loosening the covers and cargo ingress
to the rusty ballast tanks[10]
On 13 May 1991, the petitioner paid PGP the amount of
P5,000,000.00[11] as full and final payment for the loss. PGP issued a
Subrogation Receipt to the petitioner.
Meanwhile, on 03 April 1991, PGP paid the respondent the amount of
P301,909.50 as full payment for the latters services, as evidenced by
Official Receipt No. 1274.[12]
On 15 July 1991, an action for damages was instituted by the petitioner-
insurer against respondent-carrier before the RTC, Branch 16, City of
Manila, docketed as Civil Case No. 91-57923.[13] The petitioner prayed
Insurance Law JD4301
for actual damages in the amount of P5,000,000.00, attorneys fees in
the amount of no less than P1,000,000.00, and costs of suit.
An Answer with Compulsory Counterclaim[14] was filed by the
respondent on 05 September 1991. The respondent admitted it
undertook to transport the consignees shipment from MT TACHIBANA
to the Del Pan Bridge, Pasig River, where it was transferred to its tanker
trucks for hauling to PGPs storage tanks in Calamba, Laguna. The
respondent alleged that before the DOP was loaded into its barge (LB-
1011), the surveyor/representative of PGP, Adjustment Standard
Corporation, inspected it and found the same clean, dry, and fit for
loading. The entire loading and unloading of the shipment were also
done under the control and supervision of PGPs
surveyor/representative. It was also mentioned by the respondent that
the contract between it and PGP expressly stipulated that it shall be free
from any and all claims arising from contamination, loss of cargo or part
thereof; that the consignee accepted the cargo without any protest or
notice; and that the cargo shall be insured by its owner sans recourse
against all risks. As subrogee, the petitioner was bound by this
stipulation. As carrier, no fault and negligence can be attributed against
respondent as it exercised extraordinary diligence in handling the
cargo.[15]
After due hearing, the trial court rendered a Decision on 06 January
1997, the dispositive portion of which reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in
favor of plaintiff ordering defendant to pay plaintiffs claim of
P5,000,000.00 with legal interest from the date of the filing of the
complaint. The counterclaims are DISMISSED.[16]
Aggrieved by the trial courts decision, the respondent sought relief with
the Court of Appeals where it alleged in the main that PGP failed to file
any notice, claim or protest within the period required by Article 366 of
Page 27
the Code of Commerce, which is a condition precedent to the accrual of
a right of action against the carrier.[17] A telephone call which was
supposedly made by a certain Alfred Chan, an employee of PGP, to one
of the Vice Presidents of the respondent, informing the latter of the
discoloration, is not the notice required by Article 366 of the Code of
Commerce.[18]
On 18 December 1998, the Court of Appeals promulgated its Decision
reversing the trial court, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED AND SET
ASIDE and a new one is entered dismissing the complaint.[19]
A petition for review on certiorari[20] was filed by the petitioner with
this Court, praying that the decision of the trial court be affirmed.
After the respondent filed its Comment[21] and the petitioner filed its
Reply[22] thereto, this Court issued a Resolution[23] on 18 August 1999,
giving due course to the petition.
ASSIGNMENT OF ERRORS
The petitioner assigns as errors the following:
I
THE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE
OF CLAIM WAS NOT FILED WITHIN THE REQUIRED PERIOD.
II
THE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT
DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF
RESPONDENT CHEMOIL.
Insurance Law JD4301
III
THE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL
COURTS DECISION AND IN DISMISSING THE COMPLAINT.[24]
ISSUES
Synthesized, the issues that must be addressed by this Court are:
I
WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE
REQUIRED PERIOD. If the answer is in the affirmative,
II
WHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE
FAULT OR NEGLIGENCE OF THE RESPONDENT.
THE COURTS RULINGS
Article 366 of the Code of Commerce has profound application in the
case at bar. This provision of law imparts:
Art. 366. Within twenty-four hours following the receipt of the
merchandise a claim may be made against the carrier on account of
damage or average found upon opening the packages, provided that the
indications of the damage or average giving rise to the claim cannot be
ascertained from the exterior of said packages, in which case said claim
shall only be admitted at the time of the receipt of the packages.
After the periods mentioned have elapsed, or after the transportation
charges have been paid, no claim whatsoever shall be admitted against
Page 28
the carrier with regard to the condition in which the goods transported
were delivered.
As to the first issue, the petitioner contends that the notice of
contamination was given by Alfredo Chan, an employee of PGP, to Ms.
Encarnacion Abastillas, Vice President for Administration and
Operations of the respondent, at the time of the delivery of the cargo,
and therefore, within the required period.[25] This was done by
telephone.
The respondent, however, claims that the supposed notice given by PGP
over the telephone was denied by Ms. Abastillas. Between the
testimonies of Alfredo Chan and Encarnacion Abastillas, the latters
testimony is purportedly more credible because it would be quite
unbelievable and contrary to business practice for Alfredo Chan to
merely make a verbal notice of claim that involves millions of pesos.[26]
On this point, the Court of Appeals declared:
. . . We are inclined to sustain the view that a telephone call made to
defendant-company could constitute substantial compliance with the
requirement of notice considering that the notice was given to a
responsible official, the Vice-President, who promptly replied that she
will look into the matter. However, it must be pointed out that
compliance with the period for filing notice is an essential part of the
requirement, i.e.. immediately if the damage is apparent, or otherwise
within twenty-four hours from receipt of the goods, the clear import
being that prompt examination of the goods must be made to ascertain
damage if this is not immediately apparent. We have examined the
evidence, and We are unable to find any proof of compliance with the
required period, which is fatal to the accrual of the right of action
against the carrier.[27]
Insurance Law JD4301
The petitioner is of the view that there was an incongruity in the
findings of facts of the trial court and the Court of Appeals, the former
allegedly holding that the period to file the notice had been complied
with, while the latter held otherwise.
We do not agree. On the matter concerning the giving of the notice of
claim as required by Article 366 of the Code of Commerce, the finding of
fact of the Court of Appeals does not actually contradict the finding of
fact of the trial court. Both courts held that, indeed, a telephone call
was made by Alfredo Chan to Encarnacion Abastillas, informing the
latter of the contamination. However, nothing in the trial courts
decision stated that the notice of claim was relayed or filed with the
respondent-carrier immediately or within a period of twenty-four hours
from the time the goods were received. The Court of Appeals made the
same finding. Having examined the entire records of the case, we
cannot find a shred of evidence that will precisely and ultimately point
to the conclusion that the notice of claim was timely relayed or filed.
The allegation of the petitioner that not only the Vice President of the
respondent was informed, but also its drivers, as testified by Alfredo
Chan, during the time that the delivery was actually being made, cannot
be given great weight as no driver was presented to the witness stand
to prove this. Part of the testimony of Alfredo Chan is revealing:
Q:
Mr. Witness, were you in your plant site at the time these various
cargoes were delivered?
A: No, sir.
Q: So, do you have a first hand knowledge that your plant
representative informed the driver of the alleged contamination?
Page 29
A: What do you mean by that?
Q: Personal knowledge [that] you yourself heard or saw them [notify]
the driver?
A: No, sir.[28]
From the preceding testimony, it is quite palpable that the witness
Alfredo Chan had no personal knowledge that the drivers of the
respondent were informed of the contamination.
The requirement that a notice of claim should be filed within the period
stated by Article 366 of the Code of Commerce is not an empty or
worthless proviso. In a case, we held:
The object sought to be attained by the requirement of the submission
of claims in pursuance of this article is to compel the consignee of goods
entrusted to a carrier to make prompt demand for settlement of alleged
damages suffered by the goods while in transport, so that the carrier
will be enabled to verify all such claims at the time of delivery or within
twenty-four hours thereafter, and if necessary fix responsibility and
secure evidence as to the nature and extent of the alleged damages to
the goods while the matter is still fresh in the minds of the parties.[29]
In another case, we ruled, thus:
More particularly, where the contract of shipment contains a
reasonable requirement of giving notice of loss of or injury to the goods,
the giving of such notice is a condition precedent to the action for loss
or injury or the right to enforce the carriers liability. Such requirement is
not an empty formalism. The fundamental reason or purpose of such a
stipulation is not to relieve the carrier from just liability, but reasonably
to inform it that the shipment has been damaged and that it is charged
with liability therefore, and to give it an opportunity to examine the
Insurance Law JD4301
nature and extent of the injury. This protects the carrier by affording it
an opportunity to make an investigation of a claim while the matter is
fresh and easily investigated so as to safeguard itself from false and
fraudulent claims.[30]
The filing of a claim with the carrier within the time limitation therefore
actually constitutes a condition precedent to the accrual of a right of
action against a carrier for loss of, or damage to, the goods. The shipper
or consignee must allege and prove the fulfillment of the condition. If it
fails to do so, no right of action against the carrier can accrue in favor of
the former. The aforementioned requirement is a reasonable condition
precedent; it does not constitute a limitation of action.[31]
The second paragraph of Article 366 of the Code of Commerce is also
edifying. It is not only when the period to make a claim has elapsed that
no claim whatsoever shall be admitted, as no claim may similarly be
admitted after the transportation charges have been paid.
In this case, there is no question that the transportation charges have
been paid, as admitted by the petitioner, and the corresponding official
receipt[32] duly issued. But the petitioner is of the view that the
payment for services does not invalidate its claim. It contends that
under the second paragraph of Article 366 of the Code of Commerce, it
is clear that if notice or protest has been made prior to payment of
services, claim against the bad order condition of the cargo is allowed.
We do not believe so. As discussed at length above, there is no evidence
to confirm that the notice of claim was filed within the period provided
for under Article 366 of the Code of Commerce. Petitioners contention
proceeds from a false presupposition that the notice of claim was timely
filed.
Considering that we have resolved the first issue in the negative, it is
therefore unnecessary to make a resolution on the second issue.
Page 30

WHEREFORE, in view of all the foregoing, the Decision of the Court of
Appeals dated 18 December 1998, which reversed and set aside the
decision of the trial court, is hereby AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
as the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this Policy."3
The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid
account in respect of the merchandise sold and delivered by the Insured
which are outstanding at the date of loss for a period in excess of six (6)
months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.

GAISANO CAGAYAN, INC. vs. 2. Warranted that the Insured shall submit to the Company within
twelve (12) days after the close of every calendar month all amount
INSURANCE COMPANY OF NORTH AMERICA,
shown in their books of accounts as unpaid and thus become receivable
DECISION
item from their customers and dealers. x x x4
AUSTRIA-MARTINEZ, J.:
xxxx
Before the Court is a petition for review on certiorari of the Decision1
dated October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No.
Petitioner is a customer and dealer of the products of IMC and LSPI. On
61848 which set aside the Decision dated August 31, 1998 of the
February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro
Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322
City, owned by petitioner, was consumed by fire. Included in the items
and upheld the causes of action for damages of Insurance Company of
lost or destroyed in the fire were stocks of ready-made clothing
North America (respondent) against Gaisano Cagayan, Inc. (petitioner);
materials sold and delivered by IMC and LSPI.
and the CA Resolution dated April 11, 2001 which denied petitioner's
motion for reconsideration.
On February 4, 1992, respondent filed a complaint for damages against
petitioner. It alleges that IMC and LSPI filed with respondent their claims
The factual background of the case is as follows:
under their respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the unpaid accounts of
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue
petitioner on the sale and delivery of ready-made clothing materials
Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products
with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that
bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI
respondent paid the claims of IMC and LSPI and, by virtue thereof,
separately obtained from respondent fire insurance policies with book
respondent was subrogated to their rights against petitioner; that
debt endorsements. The insurance policies provide for coverage on
respondent made several demands for payment upon petitioner but
"book debts in connection with ready-made clothing materials which
these went unheeded.5
have been sold or delivered to various customers and dealers of the
Insured anywhere in the Philippines."2 The policies defined book debts

Insurance Law JD4301 Page 31

In its Answer with Counter Claim dated July 4, 1995, petitioner contends
that it could not be held liable because the property covered by the
insurance policies were destroyed due to fortuities event or force
majeure; that respondent's right of subrogation has no basis inasmuch
as there was no breach of contract committed by it since the loss was
due to fire which it could not prevent or foresee; that IMC and LSPI
never communicated to it that they insured their properties; that it
never consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable
settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing
respondent's complaint.8 It held that the fire was purely accidental; that
the cause of the fire was not attributable to the negligence of the
petitioner; that it has not been established that petitioner is the debtor
of IMC and LSPI; that since the sales invoices state that "it is further
agreed that merely for purpose of securing the payment of purchase
price, the above-described merchandise remains the property of the
vendor until the purchase price is fully paid", IMC and LSPI retained
ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the
CA rendered its decision setting aside the decision of the RTC. The
dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSED and SET ASIDE and a new one is entered ordering defendant-
appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the
plaintiff-appellant to the insured Inter Capitol Marketing Corporation,
plus legal interest from the time of demand until fully paid;
Insurance Law JD4301
2. the amount of P535,613.00 representing the amount paid by the
plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal
interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed
statements of the nature, quantity and cost of the thing sold; that loss
of the goods in the fire must be borne by petitioner since the proviso
contained in the sales invoices is an exception under Article 1504 (1) of
the Civil Code, to the general rule that if the thing is lost by a fortuitous
event, the risk is borne by the owner of the thing at the time the loss
under the principle of res perit domino; that petitioner's obligation to
IMC and LSPI is not the delivery of the lost goods but the payment of its
unpaid account and as such the obligation to pay is not extinguished,
even if the fire is considered a fortuitous event; that by subrogation, the
insurer has the right to go against petitioner; that, being a fire insurance
with book debt endorsements, what was insured was the vendor's
interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the
CA in its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the
following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN
THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE
SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO
PETITIONER UPON DELIVERY THEREOF.
Page 32

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN
FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the
present case cannot be deemed to be over credit since an insurance "on
credit" belies not only the nature of fire insurance but the express terms
of the policies; that it was not credit that was insured since respondent
paid on the occasion of the loss of the insured goods to fire and not
because of the non-payment by petitioner of any obligation; that, even
if the insurance is deemed as one over credit, there was no loss as the
accounts were not yet due since no prior demands were made by IMC
and LSPI against petitioner for payment of the debt and such demands
came from respondent only after it had already paid IMC and LSPI under
the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of the
goods, petitioner-buyer IMC and LSPI assumed the risk of loss when
they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no
subrogation in favor of respondent as no valid insurance could be
maintained thereon by IMC and LSPI since all risk had transferred to
petitioner upon delivery of the goods; that petitioner was not privy to
the insurance contract or the payment between respondent and its
insured nor was its consent or approval ever secured; that this lack of
privity forecloses any real interest on the part of respondent in the
obligation to pay, limiting its interest to keeping the insured goods safe
from fire.
For its part, respondent counters that while ownership over the ready-
made clothing materials was transferred upon delivery to petitioner,
IMC and LSPI have insurable interest over said goods as creditors who
Insurance Law JD4301
stand to suffer direct pecuniary loss from its destruction by fire; that
petitioner is liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article 126516 of
the Civil Code; that the fire was caused through petitioner's negligence
in failing to provide stringent measures of caution, care and
maintenance on its property because electric wires do not usually short
circuit unless there are defects in their installation or when there is lack
of proper maintenance and supervision of the property; that petitioner
is guilty of gross and evident bad faith in refusing to pay respondent's
valid claim and should be liable to respondent for contracted lawyer's
fees, litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in
cases brought before it from the CA is limited to reviewing questions of
law which involves no examination of the probative value of the
evidence presented by the litigants or any of them.18 The Supreme
Court is not a trier of facts; it is not its function to analyze or weigh
evidence all over again.19 Accordingly, findings of fact of the appellate
court are generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which
factual issues may be resolved by this Court, such as: (1) when the
findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the CA went
beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings
are contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioner's main and
reply briefs are not disputed by the respondent; (10) when the findings
of fact are premised on the supposed absence of evidence and
Page 33
contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion.21
Exceptions (4), (5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy.
Petitioner claims that the CA erred in construing a fire insurance policy
on book debts as one covering the unpaid accounts of IMC and LSPI
since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction.22 In this case, the
questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in
the Philippines."23 ; and defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time
of the loss covered under this Policy."24 Nowhere is it provided in the
questioned insurance policies that the subject of the insurance is the
goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that
they do not justify an attempt to read into it any alleged intention of the
parties, the terms are to be understood literally just as they appear on
the face of the contract.25 Thus, what were insured against were the
accounts of IMC and LSPI with petitioner which remained unpaid 45
days after the loss through fire, and not the loss or destruction of the
goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly
reserved ownership of the goods by stipulating in the sales invoices that
Insurance Law JD4301
"[i]t is further agreed that merely for purpose of securing the payment
of the purchase price the above described merchandise remains the
property of the vendor until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the
Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's
risk until the ownership therein is transferred to the buyer, but when
the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a
bailee for the buyer, in pursuance of the contract and the ownership in
the goods has been retained by the seller merely to secure performance
by the buyer of his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer
will pay its debt, the risk of loss is borne by the buyer.27 Accordingly,
petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have
an insurable interest until full payment of the value of the delivered
goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in
property insurance, one's interest is not determined by concept of title,
but whether insured has substantial economic interest in the
property.28
Page 34
Section 13 of our Insurance Code defines insurable interest as "every
interest in property, whether real or personal, or any relation thereto,
or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14 of
the same Code, an insurable interest in property may consist in: (a) an
existing interest; (b) an inchoate interest founded on existing interest;
or (c) an expectancy, coupled with an existing interest in that out of
which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the subject matter
of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest, it is sufficient that the
insured is so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril against which
it is insured.29 Anyone has an insurable interest in property who derives
a benefit from its existence or would suffer loss from its destruction.30
Indeed, a vendor or seller retains an insurable interest in the property
sold so long as he has any interest therein, in other words, so long as he
would suffer by its destruction, as where he has a vendor's lien.31 In
this case, the insurable interest of IMC and LSPI pertain to the unpaid
accounts appearing in their Books of Account 45 days after the time of
the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous
event under Article 117432 of the Civil Code is misplaced. As held
earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for
loss of goods by fire but for petitioner's accounts with IMC and LSPI that
remained unpaid 45 days after the fire. Accordingly, petitioner's
obligation is for the payment of money. As correctly stated by the CA,
Insurance Law JD4301
where the obligation consists in the payment of money, the failure of
the debtor to make the payment even by reason of a fortuitous event
shall not relieve him of his liability.33 The rationale for this is that the
rule that an obligor should be held exempt from liability when the loss
occurs thru a fortuitous event only holds true when the obligation
consists in the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event. It does not apply
when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a
generic thing, the loss or destruction of anything of the same kind does
not extinguish the obligation." If the obligation is generic in the sense
that the object thereof is designated merely by its class or genus
without any particular designation or physical segregation from all
others of the same class, the loss or destruction of anything of the same
kind even without the debtor's fault and before he has incurred in delay
will not have the effect of extinguishing the obligation.35 This rule is
based on the principle that the genus of a thing can never perish. Genus
nunquan perit.36 An obligation to pay money is generic; therefore, it is
not excused by fortuitous loss of any specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are
matters immaterial to this case. What is relevant here is whether it has
been established that petitioner has outstanding accounts with IMC and
LSPI.
With respect to IMC, the respondent has adequately established its
claim. Exhibits "C" to "C-22"38 show that petitioner has an outstanding
account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the
check voucher evidencing payment to IMC. Exhibit "F"40 is the
subrogation receipt executed by IMC in favor of respondent upon
receipt of the insurance proceeds. All these documents have been
properly identified, presented and marked as exhibits in court. The
subrogation receipt, by itself, is sufficient to establish not only the
Page 35
relationship of respondent as insurer and IMC as the insured, but also
the amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the
insurance claim.41 Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. x x
x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its
cause of action. No evidentiary weight can be given to Exhibit "F Levi
Strauss",42 a letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an admission of
petitioner's unpaid account with LSPI. It only confirms the loss of Levi's
products in the amount of P535,613.00 in the fire that razed petitioner's
building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of
LSPI; no subrogation receipt was offered in evidence. Thus, there is no
evidence that respondent has been subrogated to any right which LSPI
may have against petitioner. Failure to substantiate the claim of
subrogation is fatal to petitioner's case for recovery of the amount of
P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision
dated October 11, 2000 and Resolution dated April 11, 2001 of the
Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the
Insurance Law JD4301
MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
FIELDMEN'S INSURANCE CO., INC.
vs.
MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT
OF APPEALS
FERNANDO, J.:
An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not
allowed to escape liability under a common carrier insurance policy on
the pretext that what was insured, not once but twice, was a private
vehicle and not a common carrier, the policy being issued upon the
insistence of its agent who discounted fears of the insured that his
privately owned vehicle might not fall within its terms, the insured
moreover being "a man of scant education," finishing only the first
grade. So it was held in a decision of the lower court thereafter affirmed
by respondent Court of Appeals. Petitioner in seeking the review of the
above decision of respondent Court of Appeals cannot be so sanguine as
to entertain the belief that a different outcome could be expected. To
be more explicit, we sustain the Court of Appeals.
The facts as found by respondent Court of Appeals, binding upon us,
follow: "This is a peculiar case. Federico Songco of Floridablanca,
Pampanga, a man of scant education being only a first grader ..., owned
a private jeepney with Plate No. 41-289 for the year 1960. On
Page 36
September 15, 1960, as such private vehicle owner, he was induced by
Fieldmen's Insurance Company Pampanga agent Benjamin Sambat to
apply for a Common Carrier's Liability Insurance Policy covering his
motor vehicle ... Upon paying an annual premium of P16.50, defendant
Fieldmen's Insurance Company, Inc. issued on September 19, 1960,
Common Carriers Accident Insurance Policy No. 45-HO- 4254 ... the
duration of which will be for one (1) year, effective September 15, 1960
to September 15, 1961. On September 22, 1961, the defendant
company, upon payment of the corresponding premium, renewed the
policy by extending the coverage from October 15, 1961 to October 15,
1962. This time Federico Songco's private jeepney carried Plate No. J-
68136-Pampanga-1961. ... On October 29, 1961, during the effectivity of
the renewed policy, the insured vehicle while being driven by Rodolfo
Songco, a duly licensed driver and son of Federico (the vehicle owner)
collided with a car in the municipality of Calumpit, province of Bulacan,
as a result of which mishap Federico Songco (father) and Rodolfo
Songco (son) died, Carlos Songco (another son), the latter's wife,
Angelita Songco, and a family friend by the name of Jose Manuel
sustained physical injuries of varying degree." 1
It was further shown according to the decision of respondent Court of
Appeals: "Amor Songco, 42-year-old son of deceased Federico Songco,
testifying as witness, declared that when insurance agent Benjamin
Sambat was inducing his father to insure his vehicle, he butted in saying:
'That cannot be, Mr. Sambat, because our vehicle is an "owner" private
vehicle and not for passengers,' to which agent Sambat replied:
'whether our vehicle was an "owner" type or for passengers it could be
insured because their company is not owned by the Government and
the Government has nothing to do with their company. So they could do
what they please whenever they believe a vehicle is insurable' ... In spite
of the fact that the present case was filed and tried in the CFI of
Pampanga, the defendant company did not even care to rebut Amor
Songco's testimony by calling on the witness-stand agent Benjamin
Sambat, its Pampanga Field Representative." 2
Insurance Law JD4301
The plaintiffs in the lower court, likewise respondents here, were the
surviving widow and children of the deceased Federico Songco as well
as the injured passenger Jose Manuel. On the above facts they
prevailed, as had been mentioned, in the lower court and in the
respondent Court of Appeals.1awphîl.nèt
The basis for the favorable judgment is the doctrine announced in Qua
Chee Gan v. Law Union and Rock Insurance Co., Ltd., 3 with Justice J. B.
L. Reyes speaking for the Court. It is now beyond question that where
inequitable conduct is shown by an insurance firm, it is "estopped from
enforcing forfeitures in its favor, in order to forestall fraud or imposition
on the insured." 4
As much, if not much more so than the Qua Chee Gan decision, this is a
case where the doctrine of estoppel undeniably calls for application.
After petitioner Fieldmen's Insurance Co., Inc. had led the insured
Federico Songco to believe that he could qualify under the common
carrier liability insurance policy, and to enter into contract of insurance
paying the premiums due, it could not, thereafter, in any litigation
arising out of such representation, be permitted to change its stand to
the detriment of the heirs of the insured. As estoppel is primarily based
on the doctrine of good faith and the avoidance of harm that will befall
the innocent party due to its injurious reliance, the failure to apply it in
this case would result in a gross travesty of justice.
That is all that needs be said insofar as the first alleged error of
respondent Court of Appeals is concerned, petitioner being adamant in
its far-from-reasonable plea that estoppel could not be invoked by the
heirs of the insured as a bar to the alleged breach of warranty and
condition in the policy. lt would now rely on the fact that the insured
owned a private vehicle, not a common carrier, something which it
knew all along when not once but twice its agent, no doubt without any
Page 37
objection in its part, exerted the utmost pressure on the insured, a man
of scant education, to enter into such a contract.
Nor is there any merit to the second alleged error of respondent Court
that no legal liability was incurred under the policy by petitioner. Why
liability under the terms of the policy 5 was inescapable was set forth in
the decision of respondent Court of Appeals. Thus: "Since some of the
conditions contained in the policy issued by the defendant-appellant
were impossible to comply with under the existing conditions at the
time and 'inconsistent with the known facts,' the insurer 'is estopped
from asserting breach of such conditions.' From this jurisprudence, we
find no valid reason to deviate and consequently hold that the decision
appealed from should be affirmed. The injured parties, to wit, Carlos
Songco, Angelito Songco and Jose Manuel, for whose hospital and
medical expenses the defendant company was being made liable, were
passengers of the jeepney at the time of the occurrence, and Rodolfo
Songco, for whose burial expenses the defendant company was also
being made liable was the driver of the vehicle in question. Except for
the fact, that they were not fare paying passengers, their status as
beneficiaries under the policy is recognized therein." 6
Even if it be assumed that there was an ambiguity, an excerpt from the
Qua Chee Gan decision would reveal anew the weakness of petitioner's
contention. Thus: "Moreover, taking into account the well known rule
that ambiguities or obscurities must be strictly interpreted against the
party that caused them, the 'memo of warranty' invoked by appellant
bars the latter from questioning the existence of the appliances called
for in the insured premises, since its initial expression, 'the undernoted
appliances for the extinction of fire being kept on the premises insured
hereby, ... it is hereby warranted ...,' admits of interpretation as an
admission of the existence of such appliances which appellant cannot
now contradict, should the parol evidence rule apply." 7
Insurance Law JD4301
To the same effect is the following citation from the same leading case:
"This rigid application of the rule on ambiguities has become necessary
in view of current business practices. The courts cannot ignore that
nowadays monopolies, cartels and concentration of capital, endowed
with overwhelming economic power, manage to impose upon parties
dealing with them cunningly prepared 'agreements' that the weaker
party may not change one whit, his participation in the 'agreement'
being reduced to the alternative to 'take it or leave it' labelled since
Raymond Saleilles 'contracts by adherence' (contrats d'adhesion), in
contrast to those entered into by parties bargaining on an equal footing,
such contracts (of which policies of insurance and international bills of
lading are prime examples) obviously call for greater strictness and
vigilance on the part of courts of justice with a view to protecting the
weaker party from abuses and imposition, and prevent their becoming
traps for the unwary (New Civil Code. Article 24; Sent. of Supreme Court
of Spain, 13 Dec. 1934, 27 February 1942)." 8
The last error assigned which would find fault with the decision of
respondent Court of Appeals insofar as it affirmed the lower court
award for exemplary damages as well as attorney's fees is, on its face, of
no persuasive force at all.
The conclusion that inescapably emerges from the above is the
correctness of the decision of respondent Court of Appeals sought to be
reviewed. For, to borrow once again from the language of the Qua Chee
Gan opinion: "The contract of insurance is one of perfect good faith
(uberima fides) not for the insured alone,but equally so for the insurer;
in fact, it is more so for the latter, since its dominant bargaining position
carries with it stricter responsibility." 9
This is merely to stress that while the morality of the business world is
not the morality of institutions of rectitude like the pulpit and the
academe, it cannot descend so low as to be another name for guile or
Page 38
deception. Moreover, should it happen thus, no court of justice should
allow itself to lend its approval and support.1awphîl.nèt
We have no choice but to recognize the monetary responsibility of
petitioner Fieldmen's Insurance Co., Inc. It did not succeed in its
persistent effort to avoid complying with its obligation in the lower
court and the Court of Appeals. Much less should it find any receptivity
from us for its unwarranted and unjustified plea to escape from its
liability.
WHEREFORE, the decision of respondent Court of Appeals of July 20,
1965, is affirmed in its entirety. Costs against petitioner Fieldmen's
Insurance Co., Inc.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,
Castro and Angeles, JJ., concur.
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF
APPEALS and JULITA TRINOS
DECISION
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for
a health care coverage with petitioner Philamcare Health Systems, Inc.
In the standard application form, he answered no to the following
question:
Have you or any of your family members ever consulted or been treated
for high blood pressure, heart trouble, diabetes, cancer, liver disease,
asthma or peptic ulcer? (If Yes, give details).[1]
The application was approved for a period of one year from March 1,
1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondents husband
Insurance Law JD4301
was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of out-patient
benefits such as annual physical examinations, preventive health care
and other out-patient services.
Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from March 1,
1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.[2]
During the period of his coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital,
respondent tried to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the Health Care
Agreement was void. According to petitioner, there was a concealment
regarding Ernanis medical history. Doctors at the MMC allegedly
discovered at the time of Ernanis confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the
application form. Thus, respondent paid the hospitalization expenses
herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a
physical therapist at home. Later, he was admitted at the Chinese
General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was
constrained to bring him back to the Chinese General Hospital where he
died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against petitioner and its
president, Dr. Benito Reverente, which was docketed as Civil Case No.
90-53795. She asked for reimbursement of her expenses plus moral
Page 39
damages and attorneys fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in
favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage
of the late Ernani Trinos in the amount of P76,000.00 plus interest, until
the amount is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of
P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary
damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
SO ORDERED.[3]
On appeal, the Court of Appeals affirmed the decision of the trial court
but deleted all awards for damages and absolved petitioner
Reverente.[4] Petitioners motion for reconsideration was denied.[5]
Hence, petitioner brought the instant petition for review, raising the
primary argument that a health care agreement is not an insurance
contract; hence the incontestability clause under the Insurance Code[6]
does not apply.
Petitioner argues that the agreement grants living benefits, such as
medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also points
out that only medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an insurance contract
Insurance Law JD4301
where the insured is indemnified for his loss. Moreover, since Health
Care Agreements are only for a period of one year, as compared to
insurance contracts which last longer,[7] petitioner argues that the
incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it
is not an insurance company, which is governed by the Insurance
Commission, but a Health Maintenance Organization under the
authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a
premium.[8]
Section 3 of the Insurance Code states that any contingent or unknown
event, whether past or future, which may damnify a person having an
insurable interest against him, may be insured against. Every person has
an insurable interest in the life and health of himself. Section 10
provides:
Page 40
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education
or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of
money, respecting property or service, of which death or illness might
delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him
depends.
In the case at bar, the insurable interest of respondents husband in
obtaining the health care agreement was his own health. The health
care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity.[9] Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to
the extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in
his application. It appears that in the application for health coverage,
petitioners required respondents husband to sign an express
authorization for any person, organization or entity that has any record
or knowledge of his health to furnish any and all information relative to
any hospitalization, consultation, treatment or any other medical advice
or examination.[10] Specifically, the Health Care Agreement signed by
respondents husband states:
We hereby declare and agree that all statement and answers contained
herein and in any addendum annexed to this application are full,
complete and true and bind all parties in interest under the Agreement
Insurance Law JD4301
herein applied for, that there shall be no contract of health care
coverage unless and until an Agreement is issued on this application and
the full Membership Fee according to the mode of payment applied for
is actually paid during the lifetime and good health of proposed
Members; that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in writing in
the application; that any physician is, by these presents, expressly
authorized to disclose or give testimony at anytime relative to any
information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the
Proposed Members and that the acceptance of any Agreement issued
on this application shall be a ratification of any correction in or addition
to this application as stated in the space for Home Office
Endorsement.[11] (Underscoring ours)
In addition to the above condition, petitioner additionally required the
applicant for authorization to inquire about the applicants medical
history, thus:
I hereby authorize any person, organization, or entity that has any
record or knowledge of my health and/or that of __________ to give to
the PhilamCare Health Systems, Inc. any and all information relative to
any hospitalization, consultation, treatment or any other medical advice
or examination. This authorization is in connection with the application
for health care coverage only. A photographic copy of this authorization
shall be as valid as the original.[12] (Underscoring ours)
Petitioner cannot rely on the stipulation regarding Invalidation of
agreement which reads:
Failure to disclose or misrepresentation of any material information by
the member in the application or medical examination, whether
intentional or unintentional, shall automatically invalidate the
Agreement from the very beginning and liability of Philamcare shall be
Page 41
limited to return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its revelation would
have resulted in the declination of the applicant by Philamcare or the
assessment of a higher Membership Fee for the benefit or benefits
applied for.[13]
The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends on
opinion rather than fact, especially coming from respondents husband
who was not a medical doctor. Where matters of opinion or judgment
are called for, answers made in good faith and without intent to deceive
will not avoid a policy even though they are untrue.[14] Thus,
(A)lthough false, a representation of the expectation, intention, belief,
opinion, or judgment of the insured will not avoid the policy if there is
no actual fraud in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule although the
statement is material to the risk, if the statement is obviously of the
foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry.
There is a clear distinction between such a case and one in which the
insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue,
or the impossibility of which is shown by the facts within his knowledge,
since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.[15] (Underscoring ours)
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract.[16] Concealment as a
defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer.
In any case, with or without the authority to investigate, petitioner is
liable for claims made under the contract. Having assumed a
Insurance Law JD4301
responsibility under the agreement, petitioner is bound to answer the
same to the extent agreed upon. In the end, the liability of the health
care provider attaches once the member is hospitalized for the disease
or injury covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the
injured party to rescind a contract of insurance. The right to rescind
should be exercised previous to the commencement of an action on the
contract.[17] In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies require
the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address
shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on which
cancellation is based.[18]
None of the above pre-conditions was fulfilled in this case. When the
terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-
compliance with his obligation.[19] Being a contract of adhesion, the
terms of an insurance contract are to be construed strictly against the
party which prepared the contract the insurer.[20] By reason of the
exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured,
Page 42
especially to avoid forfeiture.[21] This is equally applicable to Health
Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of
the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted,
and exclusionary clauses of doubtful import should be strictly construed
against the provider.[22]
Anent the incontestability of the membership of respondents husband,
we quote with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the date of
issuance of the Agreement within which to contest the membership of
the patient if he had previous ailment of asthma, and six months from
the issuance of the agreement if the patient was sick of diabetes or
hypertension. The periods having expired, the defense of concealment
or misrepresentation no longer lie.[23]
Finally, petitioner alleges that respondent was not the legal wife of the
deceased member considering that at the time of their marriage, the
deceased was previously married to another woman who was still alive.
The health care agreement is in the nature of a contract of indemnity.
Hence, payment should be made to the party who incurred the
expenses. It is not controverted that respondent paid all the hospital
and medical expenses. She is therefore entitled to reimbursement. The
records adequately prove the expenses incurred by respondent for the
deceaseds hospitalization, medication and the professional fees of the
attending physicians.[24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed decision of the Court of Appeals dated December 14, 1995 is
AFFIRMED.
Insurance Law JD4301
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.
2. The Contract of Insurance
DBP POOL OF ACCREDITED INSURANCE COMPANIES vs.
RADIO MINDANAO NETWORK, INC.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the petition for certiorari under Rule 45 of the Rules of
Court seeking the review of the Decision1 dated November 16, 2000 of
the Court of Appeals (CA) in CA-G.R. CV No. 56351, the dispositive
portion of which reads:
Wherefore, premises considered, the appealed Decision of the Regional
Trial Court of Makati City, Branch 138 in Civil Case No. 90-602 is hereby
AFFIRMED with MODIFICATION in that the interest rate is hereby
reduced to 6% per annum.
Costs against the defendants-appellants.
SO ORDERED.2
The assailed decision originated from Civil Case No. 90-602 filed by
Radio Mindanao Network, Inc. (respondent) against DBP Pool of
Accredited Insurance Companies (petitioner) and Provident Insurance
Corporation (Provident) for recovery of insurance benefits. Respondent
owns several broadcasting stations all over the country. Provident
covered respondent’s transmitter equipment and generating set for the
amount of P13,550,000.00 under Fire Insurance Policy No. 30354, while
petitioner covered respondent’s transmitter, furniture, fixture and other
Page 43
transmitter facilities for the amount of P5,883,650.00 under Fire
Insurance Policy No. F-66860.
In the evening of July 27, 1988, respondent’s radio station located in SSS
Building, Bacolod City, was razed by fire causing damage in the amount
of P1,044,040.00. Respondent sought recovery under the two insurance
policies but the claims were denied on the ground that the cause of loss
was an excepted risk excluded under condition no. 6 (c) and (d), to wit:
6. This insurance does not cover any loss or damage occasioned by or
through or in consequence, directly or indirectly, of any of the following
consequences, namely:
(c) War, invasion, act of foreign enemy, hostilities, or warlike operations
(whether war be declared or not), civil war.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion,
revolution, military or usurped power.3
The insurance companies maintained that the evidence showed that the
fire was caused by members of the Communist Party of the
Philippines/New People’s Army (CPP/NPA); and consequently, denied
the claims. Hence, respondent was constrained to file Civil Case No. 90-
602 against petitioner and Provident.
After trial on the merits, the Regional Trial Court of Makati, Branch 138,
rendered a decision in favor of respondent. The dispositive portion of
the decision reads:
IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant
Provident Insurance Corporation is directed to pay plaintiff the amount
of P450,000.00 representing the value of the destroyed property
insured under its Fire Insurance Policy plus 12% legal interest from
March 2, 1990 the date of the filing of the Complaint. Defendant DBP
Insurance Law JD4301
Pool Accredited Insurance Companies is likewise ordered to pay plaintiff
the sum of P602,600.00 representing the value of the destroyed
property under its Fire Insurance Policy plus 12% legal interest from
March 2, 1990.
SO ORDERED.4
Both insurance companies appealed from the trial court’s decision but
the CA affirmed the decision, with the modification that the applicable
interest rate was reduced to 6% per annum. A motion for
reconsideration was filed by petitioner DBP which was denied by the CA
per its Resolution dated January 30, 2001.5
Hence, herein petition by DBP Pool of Accredited Insurance
Companies,6 with the following assignment of errors:
Assignment of Errors
THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT
THERE WERE NO SUFFICIENT EVIDENCE SHOWING THAT THE
APPROXIMATELY TENTY [sic] (20) ARMED MEN WHO CUSED [sic] THE
FIRE AT RESPONDENT’S RMN PROPERTY AT BACOLOD CITY WERE
MEMBERS OF THE CPP-NPA.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT
RESPONDENT RMN CANNOT BEHELD [sic] FOR DAMAGES AND
ATTORNEY’S FEES FOR INSTITUTING THE PRESENT ACTION AGAINST THE
PETITIONER UNDER ARTICLES 21, 2208, 2229 AND 2232 OF THE CIVIL
CODE OF THE PHILIPPINES.7
Petitioner assails the factual finding of both the trial court and the CA
that its evidence failed to support its allegation that the loss was caused
by an excepted risk, i.e., members of the CPP/NPA caused the fire. In
upholding respondent’s claim for indemnity, the trial court found that:
Page 44

The only evidence which the Court can consider to determine if the fire
was due to the intentional act committed by the members of the New
People’s Army (NPA), are the testimony [sic] of witnesses Lt. Col. Nicolas
Torres and SPO3 Leonardo Rochar who were admittedly not present
when the fire occurred. Their testimony [sic] was [sic] limited to the fact
that an investigation was conducted and in the course of the
investigation they were informed by bystanders that "heavily armed
men entered the transmitter house, poured gasoline in (sic) it and then
lighted it. After that, they went out shouting "Mabuhay ang NPA" (TSN,
p. 12., August 2, 1995). The persons whom they investigated and
actually saw the burning of the station were not presented as witnesses.
The documentary evidence particularly Exhibits "5" and "5-C" do not
satisfactorily prove that the author of the burning were members of the
NPA. Exhibit "5-B" which is a letter released by the NPA merely
mentions some dissatisfaction with the activities of some people in the
media in Bacolod. There was no mention there of any threat on media
facilities.8
The CA went over the evidence on record and sustained the findings of
the trial court, to wit:
To recapitulate, defendants-appellants presented the following to
support its claim, to wit: police blotter of the burning of DYHB,
certification of the Negros Occidental Integrated National Police,
Bacolod City regarding the incident, letter of alleged NPA members
Celso Magsilang claiming responsibility for the burning of DYHB, fire
investigation report dated July 29, 1988, and the testimonies of Lt. Col.
Nicolas Torres and SFO III Leonardo Rochas. We examined carefully the
report on the police blotter of the burning of DYHB, the certification
issued by the Integrated National Police of Bacolod City and the fire
investigation report prepared by SFO III Rochas and there We found that
none of them categorically stated that the twenty (20) armed men
which burned DYHB were members of the CPP/NPA. The said
Insurance Law JD4301
documents simply stated that the said armed men were ‘believed’ to be
or ‘suspected’ of being members of the said group. Even SFO III Rochas
admitted that he was not sure that the said armed men were members
of the CPP-NPA, thus:
…
In fact the only person who seems to be so sure that that the CPP-NPA
had a hand in the burning of DYHB was Lt. Col. Nicolas Torres. However,
though We found him to be persuasive in his testimony regarding how
he came to arrive at his opinion, We cannot nevertheless admit his
testimony as conclusive proof that the CPP-NPA was really involved in
the incident considering that he admitted that he did not personally see
the armed men even as he tried to pursue them. Note that when Lt. Col.
Torres was presented as witness, he was presented as an ordinary
witness only and not an expert witness. Hence, his opinion on the
identity or membership of the armed men with the CPP-NPA is not
admissible in evidence.
Anent the letter of a certain Celso Magsilang, who claims to be a
member of NPA-NIROC, being an admission of person which is not a
party to the present action, is likewise inadmissible in evidence under
Section 22, Rule 130 of the Rules of Court. The reason being that an
admission is competent only when the declarant, or someone identified
in legal interest with him, is a party to the action.9
The Court will not disturb these factual findings absent compelling or
exceptional reasons. It should be stressed that a review by certiorari
under Rule 45 is a matter of discretion. Under this mode of review, the
jurisdiction of the Court is limited to reviewing only errors of law, not of
fact.10
Moreover, when supported by substantial evidence, findings of fact of
the trial court as affirmed by the CA are conclusive and binding on the
Page 45
parties,11 which this Court will not review unless there are exceptional
circumstances. There are no exceptional circumstances in this case that
would have impelled the Court to depart from the factual findings of
both the trial court and the CA.
Both the trial court and the CA were correct in ruling that petitioner
failed to prove that the loss was caused by an excepted risk.
Petitioner argues that private respondent is responsible for proving that
the cause of the damage/loss is covered by the insurance policy, as
stipulated in the insurance policy, to wit:
… proof to obtain a favorable judgment. For the plaintiff, the burden of
Any loss or damage happening during the existence of abnormal
conditions (whether physical or otherwise) which are occasioned by or
through in consequence directly or indirectly, of any of the said
occurrences shall be deemed to be loss or damage which is not covered
by the insurance, except to the extent that the Insured shall prove that
such loss or damage happened independently of the existence of such
abnormal conditions.
In any action, suit or other proceeding where the Companies allege that
by reason of the provisions of this condition any loss or damage is not
covered by this insurance, the burden of proving that such loss or
damage is covered shall be upon the Insured.12
An insurance contract, being a contract of adhesion, should be so
interpreted as to carry out the purpose for which the parties entered
into the contract which is to insure against risks of loss or damage to the
goods. Limitations of liability should be regarded with extreme jealousy
and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.13
Insurance Law JD4301
The "burden of proof" contemplated by the aforesaid provision actually
refers to the "burden of evidence" (burden of going forward).14 As
applied in this case, it refers to the duty of the insured to show that the
loss or damage is covered by the policy. The foregoing clause
notwithstanding, the burden of proof still rests upon petitioner to prove
that the damage or loss was caused by an excepted risk in order to
escape any liability under the contract.
Burden of proof is the duty of any party to present evidence to establish
his claim or defense by the amount of evidence required by law, which
is preponderance of evidence in civil cases. The party, whether plaintiff
or defendant, who asserts the affirmative of the issue has the burden of
proof never parts.15 For the defendant, an affirmative defense is one
which is not a denial of an essential ingredient in the plaintiff’s cause of
action, but one which, if established, will be a good defense – i.e. an
"avoidance" of the claim.16
Particularly, in insurance cases, where a risk is excepted by the terms of
a policy which insures against other perils or hazards, loss from such a
risk constitutes a defense which the insurer may urge, since it has not
assumed that risk, and from this it follows that an insurer seeking to
defeat a claim because of an exception or limitation in the policy has the
burden of proving that the loss comes within the purview of the
exception or limitation set up. If a proof is made of a loss apparently
within a contract of insurance, the burden is upon the insurer to prove
that the loss arose from a cause of loss which is excepted or for which it
is not liable, or from a cause which limits its liability.17
Consequently, it is sufficient for private respondent to prove the fact of
damage or loss. Once respondent makes out a prima facie case in its
favor, the duty or the burden of evidence shifts to petitioner to
controvert respondent’s prima facie case.18 In this case, since petitioner
alleged an excepted risk, then the burden of evidence shifted to
Page 46
petitioner to prove such exception. It is only when petitioner has
sufficiently proven that the damage or loss was caused by an excepted
risk does the burden of evidence shift back to respondent who is then
under a duty of producing evidence to show why such excepted risk
does not release petitioner from any liability. Unfortunately for
petitioner, it failed to discharge its primordial burden of proving that the
damage or loss was caused by an excepted risk.
Petitioner however, insists that the evidence on record established the
identity of the author of the damage. It argues that the trial court and
the CA erred in not appreciating the reports of witnesses Lt. Col Torres
and SFO II Rochar that the bystanders they interviewed claimed that the
perpetrators were members of the CPP/NPA as an exception to the
hearsay rule as part of res gestae.
A witness can testify only to those facts which he knows of his personal
knowledge, which means those facts which are derived from his
perception.19 A witness may not testify as to what he merely learned
from others either because he was told or read or heard the same. Such
testimony is considered hearsay and may not be received as proof of
the truth of what he has learned. The hearsay rule is based upon serious
concerns about the trustworthiness and reliability of hearsay evidence
inasmuch as such evidence are not given under oath or solemn
affirmation and, more importantly, have not been subjected to cross-
examination by opposing counsel to test the perception, memory,
veracity and articulateness of the out-of-court declarant or actor upon
whose reliability on which the worth of the out-of-court statement
depends.20
Res gestae, as an exception to the hearsay rule, refers to those
exclamations and statements made by either the participants, victims,
or spectators to a crime immediately before, during, or after the
commission of the crime, when the circumstances are such that the
statements were made as a spontaneous reaction or utterance inspired
Insurance Law JD4301
by the excitement of the occasion and there was no opportunity for the
declarant to deliberate and to fabricate a false statement. The rule in
res gestae applies when the declarant himself did not testify and
provided that the testimony of the witness who heard the declarant
complies with the following requisites: (1) that the principal act, the res
gestae, be a startling occurrence; (2) the statements were made before
the declarant had the time to contrive or devise a falsehood; and (3)
that the statements must concern the occurrence in question and its
immediate attending circumstances.21
The Court is not convinced to accept the declarations as part of res
gestae. While it may concede that these statements were made by the
bystanders during a startling occurrence, it cannot be said however,
that these utterances were made spontaneously by the bystanders and
before they had the time to contrive or devise a falsehood. Both SFO III
Rochar and Lt. Col. Torres received the bystanders’ statements while
they were making their investigations during and after the fire. It is
reasonable to assume that when these statements were noted down,
the bystanders already had enough time and opportunity to mill around,
talk to one another and exchange information, not to mention theories
and speculations, as is the usual experience in disquieting situations
where hysteria is likely to take place. It cannot therefore be ascertained
whether these utterances were the products of truth. That the
utterances may be mere idle talk is not remote.
At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these
statements were made may be considered as independently relevant
statements gathered in the course of their investigation, and are
admissible not as to the veracity thereof but to the fact that they had
been thus uttered.22
Furthermore, admissibility of evidence should not be equated with its
weight and sufficiency.23 Admissibility of evidence depends on its
relevance and competence, while the weight of evidence pertains to
Page 47
evidence already admitted and its tendency to convince and CPP/NPA. But suspicion alone is not sufficient, preponderance of
persuade.24 Even assuming that the declaration of the bystanders that evidence being the quantum of proof.
it was the members of the CPP/NPA who caused the fire may be
admitted as evidence, it does not follow that such declarations are All told, the Court finds no reason to grant the present petition.
sufficient proof. These declarations should be calibrated vis-à-vis the
other evidence on record. And the trial court aptly noted that there is a WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision
need for additional convincing proof, viz.: dated November 16, 2000 and Resolution dated January 30, 2001
rendered in CA-G.R. CV No. 56351 are AFFIRMED in toto.
The Court finds the foregoing to be insufficient to establish that the
cause of the fire was the intentional burning of the radio facilities by the SO ORDERED.
rebels or an act of insurrection, rebellion or usurped power. Evidence
that persons who burned the radio facilities shouted "Mabuhay ang MA. ALICIA AUSTRIA-MARTINEZ
NPA" does not furnish logical conclusion that they are member [sic] of Associate Justice
the NPA or that their act was an act of rebellion or insurrection.
Additional convincing proof need be submitted. Defendants failed to AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO
discharge their responsibility to present adequate proof that the loss
ENTERPRISES, INC.
was due to a risk excluded.25
DECISION
PUNO, J.:
While the documentary evidence presented by petitioner, i.e., (1) the
police blotter; (2) the certification from the Bacolod Police Station; and
Before us is a Petition for Review on Certiorari assailing the Decision of
(3) the Fire Investigation Report may be considered exceptions to the
the Court of Appeals in CA-G.R. CV No. 52221 promulgated on January
hearsay rule, being entries in official records, nevertheless, as noted by
14, 1999, which affirmed in toto the Decision of the Regional Trial Court,
the CA, none of these documents categorically stated that the
Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.
perpetrators were members of the CPP/NPA.26 Rather, it was stated in
the police blotter that: "a group of persons accompanied by one (1)
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil
woman all believed to be CPP/NPA … more or less 20 persons suspected
milling and refining industry. It owns two oil mills. Both are located at its
to be CPP/NPA,"27 while the certification from the Bacolod Police
factory compound at Iyam, Lucena City. It appears that respondent
station stated that "… some 20 or more armed men believed to be
commenced its business operations with only one oil mill. In 1988, it
members of the New People’s Army NPA,"28 and the fire investigation
started operating its second oil mill. The latter came to be commonly
report concluded that "(I)t is therefore believed by this Investigating
referred to as the new oil mill.
Team that the cause of the fire is intentional, and the armed men
suspected to be members of the CPP/NPA where (sic) the ones
The two oil mills were separately covered by fire insurance policies
responsible …"29 All these documents show that indeed, the
issued by petitioner American Home Assurance Co., Philippine
"suspected" executor of the fire were believed to be members of the
Branch.[1] The first oil mill was insured for three million pesos

Insurance Law JD4301 Page 48

(P3,000,000.00) under Policy No. 306-7432324-3 for the period March 1,
1991 to 1992.[2] The new oil mill was insured for six million pesos
(P6,000,000.00) under Policy No. 306-7432321-9 for the same term.[3]
Official receipts indicating payment for the full amount of the premium
were issued by the petitioner's agent.[4]
A fire that broke out in the early morning of September 30,1991 gutted
and consumed the new oil mill. Respondent immediately notified the
petitioner of the incident. The latter then sent its appraisers who
inspected the burned premises and the properties destroyed.
Thereafter, in a letter dated October 15, 1991, petitioner rejected
respondents claim for the insurance proceeds on the ground that no
policy was issued by it covering the burned oil mill. It stated that the
description of the insured establishment referred to another building
thus: Our policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps
3M) extend insurance coverage to your oil mill under Building No. 5,
whilst the affected oil mill was under Building No. 14.[5]
A complaint for specific performance and damages was consequently
instituted by the respondent with the RTC, Branch 53 of Lucena City. On
October 16, 1995, after trial, the lower court rendered a Decision
finding the petitioner liable on the insurance policy thus:
WHEREFORE, judgment is rendered in favor of the plaintiff ordering
defendant to pay plaintiff:
(a) P4,406,536.40 representing damages for loss by fire of its insured
property with interest at the legal rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorneys fees; and
(d) Pay the costs.
Insurance Law JD4301
SO ORDERED.[6]
Petitioner assailed this judgment before the Court of Appeals. The
appellate court upheld the same in a Decision promulgated on January
14, 1999, the pertinent portion of which states:
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit
and the trial courts Decision dated October 16, 1995 is hereby
AFFIRMED in toto.
SO ORDERED.[7]
Petitioner moved for reconsideration. The motion, however, was denied
for lack of merit in a Resolution promulgated on June 10, 1999.
Hence, the present course of action, where petitioner ascribes to the
appellate court the following errors:
(1) The Court of Appeals erred in its conclusion that the issue of non-
payment of the premium was beyond its jurisdiction because it was
raised for the first time on appeal.[8]
(2) The Court of Appeals erred in its legal interpretation of 'Fire
Extinguishing Appliances Warranty' of the policy.[9]
(3) With due respect, the conclusion of the Court of Appeals giving no
regard to the parole evidence rule and the principle of estoppel is
erroneous.[10]
The petition is devoid of merit.
The primary reason advanced by the petitioner in resisting the claim of
the respondent is that the burned oil mill is not covered by any
Page 49
insurance policy. According to it, the oil mill insured is specifically
described in the policy by its boundaries in the following manner:
Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance.
However, it argues that this specific boundary description clearly
pertains, not to the burned oil mill, but to the other mill. In other words,
the oil mill gutted by fire was not the one described by the specific
boundaries in the contested policy.
What exacerbates respondents predicament, petitioner posits, is that it
did not have the supposed wrong description or mistake corrected.
Despite the fact that the policy in question was issued way back in 1988,
or about three years before the fire, and despite the Important Notice in
the policy that Please read and examine the policy and if incorrect,
return it immediately for alteration, respondent apparently did not call
petitioners attention with respect to the misdescription.
By way of conclusion, petitioner argues that respondent is barred by the
parole evidence rule from presenting evidence (other than the policy in
question) of its self-serving intention (sic) that it intended really to
insure the burned oil mill, just as it is barred by estoppel from claiming
that the description of the insured oil mill in the policy was wrong,
because it retained the policy without having the same corrected before
the fire by an endorsement in accordance with its Condition No. 28.
These contentions can not pass judicial muster.
Insurance Law JD4301
In construing the words used descriptive of a building insured, the
greatest liberality is shown by the courts in giving effect to the
insurance.[11] In view of the custom of insurance agents to examine
buildings before writing policies upon them, and since a mistake as to
the identity and character of the building is extremely unlikely, the
courts are inclined to consider that the policy of insurance covers any
building which the parties manifestly intended to insure, however
inaccurate the description may be.[12]
Notwithstanding, therefore, the misdescription in the policy, it is
beyond dispute, to our mind, that what the parties manifestly intended
to insure was the new oil mill. This is obvious from the categorical
statement embodied in the policy, extending its protection:
On machineries and equipment with complete accessories usual to a
coconut oil mill including stocks of copra, copra cake and copra mills
whilst contained in the new oil mill building, situate (sic) at UNNO.
ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.[13]
(emphasis supplied.)
If the parties really intended to protect the first oil mill, then there is no
need to specify it as new.
Indeed, it would be absurd to assume that respondent would protect its
first oil mill for different amounts and leave uncovered its second one.
As mentioned earlier, the first oil mill is already covered under Policy
No. 306-7432324-4 issued by the petitioner. It is unthinkable for
respondent to obtain the other policy from the very same company. The
latter ought to know that a second agreement over that same realty
results in its overinsurance.
The imperfection in the description of the insured oil mills boundaries
can be attributed to a misunderstanding between the petitioners
general agent, Mr. Alfredo Borja, and its policy issuing clerk, who made
Page 50
the error of copying the boundaries of the first oil mill when typing the
policy to be issued for the new one. As testified to by Mr.Borja:
Atty. G. Camaligan:
Q: What did you do when you received the report?
A: I told them as will be shown by the map the intention really of Mr.
Edison Tantuco is to cover the new oil mill that is why when I presented
the existing policy of the old policy, the policy issuing clerk just merely
(sic) copied the wording from the old policy and what she typed is that
the description of the boundaries from the old policy was copied but
she inserted covering the new oil mill and to me at that time the
important thing is that it covered the new oil mill because it is just
within one compound and there are only two oil mill[s] and so just
enough, I had the policy prepared. In fact, two policies were prepared
having the same date one for the old one and the other for the new oil
mill and exactly the same policy period, sir.[14] (emphasis supplied)
It is thus clear that the source of the discrepancy happened during the
preparation of the written contract.
These facts lead us to hold that the present case falls within one of the
recognized exceptions to the parole evidence rule. Under the Rules of
Court, a party may present evidence to modify, explain or add to the
terms of the written agreement if he puts in issue in his pleading,
among others, its failure to express the true intent and agreement of
the parties thereto.[15] Here, the contractual intention of the parties
cannot be understood from a mere reading of the instrument. Thus,
while the contract explicitly stipulated that it was for the insurance of
the new oil mill, the boundary description written on the policy
concededly pertains to the first oil mill. This irreconcilable difference
can only be clarified by admitting evidence aliunde, which will explain
the imperfection and clarify the intent of the parties.
Insurance Law JD4301
Anent petitioners argument that the respondent is barred by estoppel
from claiming that the description of the insured oil mill in the policy
was wrong, we find that the same proceeds from a wrong assumption.
Evidence on record reveals that respondents operating manager, Mr.
Edison Tantuco, notified Mr. Borja (the petitioners agent with whom
respondent negotiated for the contract) about the inaccurate
description in the policy. However, Mr. Borja assured Mr. Tantuco that
the use of the adjective new will distinguish the insured property. The
assurance convinced respondent that, despite the impreciseness in the
specification of the boundaries, the insurance will cover the new oil mill.
This can be seen from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q: You mentioned, sir, that at least in so far as Exhibit A is concern you
have read what the policy contents.(sic)
Kindly take a look in the page of Exhibit A which was marked as Exhibit
A-2 particularly the boundaries of the property insured by the insurance
policy Exhibit A, will you tell us as the manager of the company whether
the boundaries stated in Exhibit A-2 are the boundaries of the old (sic)
mill that was burned or not.
A: It was not, I called up Mr. Borja regarding this matter and he told me
that what is important is the word new oil mill. Mr. Borja said, as a
matter of fact, you can never insured (sic) one property with two (2)
policies, you will only do that if you will make to increase the amount
and it is by indorsement not by another policy, sir."[16]
We again stress that the object of the court in construing a contract is to
ascertain the intent of the parties to the contract and to enforce the
agreement which the parties have entered into. In determining what
the parties intended, the courts will read and construe the policy as a
Page 51
whole and if possible, give effect to all the parts of the contract, keeping
in mind always, however, the prime rule that in the event of doubt, this
doubt is to be resolved against the insurer. In determining the intent of
the parties to the contract, the courts will consider the purpose and
object of the contract.[17]
In a further attempt to avoid liability, petitioner claims that respondent
forfeited the renewal policy for its failure to pay the full amount of the
premium and breach of the Fire Extinguishing Appliances Warranty.
The amount of the premium stated on the face of the policy was
P89,770.20. From the admission of respondents own witness, Mr. Borja,
which the petitioner cited, the former only paid it P75,147.00, leaving a
difference of P14,623.20. The deficiency, petitioner argues, suffices to
invalidate the policy, in accordance with Section 77 of the Insurance
Code.[18]
The Court of Appeals refused to consider this contention of the
petitioner. It held that this issue was raised for the first time on appeal,
hence, beyond its jurisdiction to resolve, pursuant to Rule 46, Section 18
of the Rules of Court.[19]
Petitioner, however, contests this finding of the appellate court. It
insists that the issue was raised in paragraph 24 of its Answer, viz.:
24. Plaintiff has not complied with the condition of the policy and
renewal certificate that the renewal premium should be paid on or
before renewal date.
Petitioner adds that the issue was the subject of the cross-examination
of Mr. Borja, who acknowledged that the paid amount was lacking by
P14,623.20 by reason of a discount or rebate, which rebate under Sec.
361 of the Insurance Code is illegal.
Insurance Law JD4301
The argument fails to impress. It is true that the asseverations petitioner
made in paragraph 24 of its Answer ostensibly spoke of the policys
condition for payment of the renewal premium on time and
respondents non-compliance with it. Yet, it did not contain any specific
and definite allegation that respondent did not pay the premium, or
that it did not pay the full amount, or that it did not pay the amount on
time.
Likewise, when the issues to be resolved in the trial court were
formulated at the pre-trial proceedings, the question of the supposed
inadequate payment was never raised. Most significant to point,
petitioner fatally neglected to present, during the whole course of the
trial, any witness to testify that respondent indeed failed to pay the full
amount of the premium. The thrust of the cross-examination of Mr.
Borja, on the other hand, was not for the purpose of proving this fact.
Though it briefly touched on the alleged deficiency, such was made in
the course of discussing a discount or rebate, which the agent
apparently gave the respondent. Certainly, the whole tenor of Mr.
Borjas testimony, both during direct and cross examinations, implicitly
assumed a valid and subsisting insurance policy. It must be remembered
that he was called to the stand basically to demonstrate that an existing
policy issued by the petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms
of the Fire Extinguishing Appliances Warranty. The said warranty
provides:
WARRANTED that during the currency of this Policy, Fire Extinguishing
Appliances as mentioned below shall be maintained in efficient working
order on the premises to which insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
Page 52

- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the
Company shall no longer be liable for any loss which may occur.[20]
Petitioner argues that the warranty clearly obligates the insured to
maintain all the appliances specified therein. The breach occurred when
the respondent failed to install internal fire hydrants inside the burned
building as warranted. This fact was admitted by the oil mills expeller
operator, Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate courts
conclusion that the aforementioned warranty did not require
respondent to provide for all the fire extinguishing appliances
enumerated therein. Additionally, we find that neither did it require
that the appliances are restricted to those mentioned in the warranty.
In other words, what the warranty mandates is that respondent should
maintain in efficient working condition within the premises of the
insured property, fire fighting equipments such as, but not limited to,
those identified in the list, which will serve as the oil mills first line of
defense in case any part of it bursts into flame.
To be sure, respondent was able to comply with the warranty. Within
the vicinity of the new oil mill can be found the following devices:
numerous portable fire extinguishers, two fire hoses,[21] fire
hydrant,[22] and an emergency fire engine.[23] All of these equipments
were in efficient working order when the fire occurred.
Insurance Law JD4301
It ought to be remembered that not only are warranties strictly
construed against the insurer, but they should, likewise, by themselves
be reasonably interpreted.[24] That reasonableness is to be ascertained
in light of the factual conditions prevailing in each case. Here, we find
that there is no more need for an internal hydrant considering that
inside the burned building were: (1) numerous portable fire
extinguishers, (2) an emergency fire engine, and (3) a fire hose which
has a connection to one of the external hydrants.
IN VIEW WHEREOF, finding no reversible error in the impugned
Decision, the instant petition is hereby DISMISSED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Pardo, and Ynares-Santiago, JJ., concur.
Kapunan, J., on official leave.
NEW LIFE ENTERPRISES and JULIAN SY vs. HON. COURT OF
APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE
SURETY AND INSURANCE CO., INC. and WESTERN
GUARANTY CORPORATION,
REGALADO, J.:
This appeal by certiorari seeks the nullification of the decision 1 of
respondent Court of Appeals in CA-G.R. CV No. 13866 which reversed
the decision of the Regional Trial Court, Branch LVII at Lucena City,
jointly deciding Civil Cases Nos. 6-84, 7-84 and 8-84 thereof and
consequently ordered the dismissal of the aforesaid actions filed by
herein petitioners.
Page 53
The undisputed background of this case as found by the court a quo and
adopted by respondent court, being sustained by the evidence on
record, we hereby reproduce the same with approval. 2
The antecedents of this case show that Julian Sy and Jose Sy Bang have
formed a business partnership in the City of Lucena. Under the business
name of New Life Enterprises, the partnership engaged in the sale of
construction materials at its place of business, a two storey building
situated at Iyam, Lucena City. The facts show that Julian Sy insured the
stocks in trade of New Life Enterprises with Western Guaranty
Corporation, Reliance Surety and Insurance. Co., Inc., and Equitable
Insurance Corporation.
On May 15, 1981, Western Guaranty Corporation issued Fire Insurance
Policy No. 37201 in the amount of P350,000.00. This policy was
renewed on May, 13, 1982.
On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
Insurance Policy No. 69135 in the amount of P300,000.00 (Renewed
under Renewal Certificate No. 41997) An additional insurance was
issued by the same company on November 12, 1981 under Fire
Insurance Policy No. 71547 in the amount of P700,000.00.
On February 8, 1982, Equitable Insurance Corporation issued Fire
Insurance Policy No. 39328 in the amount of P200,000.00.
Thus when the building occupied by the New Life Enterprises was gutted
by fire at about 2:00 o'clock in the morning of October 19, 1982, the
stocks in the trade inside said building were insured against fire in the
total amount of P1,550,000.00. According to the certification issued by
the Headquarters, Philippine Constabulary /Integrated National Police,
Camp Crame, the cause of fire was electrical in nature. According to the
plaintiffs, the building and the stocks inside were burned. After the fire,
Julian Sy went to the agent of Reliance Insurance whom he asked to
Insurance Law JD4301
accompany him to the office of the company so that he can file his
claim. He averred that in support of his claim, he submitted the fire
clearance, the insurance policies and inventory of stocks. He further
testified that the three insurance companies are sister companies, and
as a matter of fact when he was following-up his claim with Equitable
Insurance, the Claims Manager told him to go first to Reliance Insurance
and if said company agrees to pay, they would also pay. The same
treatment was given him by the other insurance companies. Ultimately,
the three insurance companies denied plaintiffs' claim for payment.
In its letter of denial dated March 9, 1983, (Exhibit "C" No. 8-84)
Western Guaranty Corporation through Claims Manager Bernard S.
Razon told the plaintiff that his claim "is denied for breach of policy
conditions." Reliance Insurance purveyed the same message in its letter
dated November 23, 1982 and signed by Executive Vice-President Mary
Dee Co (Exhibit "C" No. 7-84) which said that "plaintiff's claim is denied
for breach of policy conditions." The letter of denial received by the
plaintiff from Equitable Insurance Corporation (Exhibit "C" No. 6-84) was
of the same tenor, as said letter dated February 22, 1983, and signed by
Vice-President Elma R. Bondad, said "we find that certain policy
conditions were violated, therefore, we regret, we have to deny your
claim, as it is hereby denied in its entirety."
In relation to the case against Reliance Surety and Insurance Company, a
certain Atty. Serafin D. Dator, acting in behalf of the plaintiff, sent a
letter dated February 13, 1983 (Exhibit "G-l" No 7-84) to Executive Vice-
President Mary Dee Co asking that he be informed as to the specific
policy conditions allegedly violated by the plaintiff. In her reply-letter
dated March 30, 1983, Executive Vice-President Mary Dee Co informed
Atty. Dator that Julian Sy violated Policy Condition No. "3" which
requires the insured to give notice of any insurance or insurances
already effected covering the stocks in trade. 3
Page 54
Because of the denial of their claims for payment by the three (3)
insurance companies, petitioner filed separate civil actions against the
former before the Regional Trial Court of Lucena City, which cases were
consolidated for trial, and thereafter the court below rendered its
decision on December 19, l986 with the following disposition:
WHEREFORE, judgment in the above-entitled cases is rendered in the
following manner, viz:
1. In Civil Case No. 6-84, judgment is rendered for the plaintiff New
Life Enterprises and against the defendant Equitable Insurance
Corporation ordering the latter to pay the former the sum of Two
Hundred Thousand (P200,000.00) Pesos and considering that payment
of the claim of the insured has been unreasonably denied, pursuant to
Sec. 244 of the Insurance Code, defendant is further ordered to pay the
plaintiff attorney's fees in the amount of Twenty Thousand (P20,000.00)
Pesos. All sums of money to be paid by virtue hereof shall bear interest
at 12% per annum (pursuant to Sec. 244 of the Insurance Code) from
February 14, 1983, (91st day from November 16, 1982, when Sworn
Statement of Fire Claim was received from the insured) until they are
fully paid;
2. In Civil Case No. 7-84, judgment is rendered for the plaintiff
Julian Sy and against the defendant Reliance Surety and Insurance Co.,
Inc., ordering the latter to pay the former the sum of P1,000,000.00
(P300,000.00 under Policy No. 69135 and P700,000.00 under Policy No.
71547) and considering that payment of the claim of the insured has
been unreasonably denied, pursuant to Sec. 244 of the Insurance Code,
defendant is further ordered to pay the plaintiff the amount of
P100,000.00 as attorney's fees.
All sums of money to be paid by virtue hereof shall bear interest at 12%
per annum (pursuant to Sec. 244 of the Insurance Code) from February
Insurance Law JD4301
14, 1983, (91st day from November 16, 1982 when Sworn Statement of
Fire Claim was received from the insured) until they are fully paid;
3. In Civil Case No. 8-84, judgment is rendered for the plaintiff New
Life Enterprises and against the defendant Western Guaranty
Corporation ordering the latter to pay the sum of P350,000.00 to the
Consolidated Bank and Trust Corporation, Lucena Branch, Lucena City,
as stipulated on the face of Policy No. 37201, and considering that
payment of the aforementioned sum of money has been unreasonably
denied, pursuant to Sec. 244 of the Insurance Code, defendant is further
ordered to pay the plaintiff attorney's fees in the amount of P35,000.00.
All sums of money to be paid by virtue hereof shall bear interest at 12%
per annum (pursuant to Sec. 244 of the Insurance Code) from February
5, 1982, (91st day from 1st week of November 1983 when insured filed
formal claim for full indemnity according to adjuster Vetremar Dela
Merced) until they are fully paid. 4
As aforestated, respondent Court of Appeals reversed said judgment of
the trial court, hence this petition the crux wherein is whether or not
Conditions Nos. 3 and 27 of the insurance contracts were violated by
petitioners thereby resulting in their forfeiture of all the benefits
thereunder.
Condition No. 3 of said insurance policies, otherwise known as the
"Other Insurance Clause," is uniformly contained in all the aforestated
insurance contracts of herein petitioners, as follows:
3. The insured shall give notice to the Company of any insurance
or insurances already effected, or which may subsequently be effected,
covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured, and unless
such notice be given and the particulars of such insurance or insurances
be stated therein or endorsed on this policy pursuant to Section 50 of
Page 55
the Insurance Code, by or on behalf of the Company before the
occurrence of any loss or damage, all benefits under this policy shall be
deemed forfeited, provided however, that this condition shall not apply
when the total insurance or insurances in force at the time of loss or
damage not more than P200,000.00. 5
Petitioners admit that the respective insurance policies issued by private
respondents did not state or endorse thereon the other insurance
coverage obtained or subsequently effected on the same stocks in trade
for the loss of which compensation is claimed by petitioners. 6 The
policy issued by respondent Western Guaranty Corporation (Western)
did not declare respondent Reliance Surety and Insurance Co., Inc.
(Reliance) and respondent Equitable Insurance Corporation (Equitable)
as co-insurers on the same stocks, while Reliance's Policies covering the
same stocks did not likewise declare Western and Equitable as such co-
insurers. It is further admitted by petitioners that Equitable's policy
stated "nil" in the space thereon requiring indication of any co-
insurance although there were three (3) policies subsisting on the same
stocks in trade at the time of the loss, namely, that of Western in the
amount of P350,000.00 and two (2) policies of Reliance in the total
amount of P1,000,000.00. 7
In other words, the coverage by other insurance or co-insurance
effected or subsequently arranged by petitioners were neither stated
nor endorsed in the policies of the three (3) private respondents,
warranting forfeiture of all benefits thereunder if we are to follow the
express stipulation in the aforequoted Policy Condition No. 3.
Petitioners contend that they are not to be blamed for the omissions,
alleging that insurance agent Leon Alvarez (for Western) and Yap Kam
Chuan (for Reliance and Equitable) knew about the existence of the
additional insurance coverage and that they were not informed about
the requirement that such other or additional insurance should be
Insurance Law JD4301
stated in the policy, as they have not even read policies.8 These
contentions cannot pass judicial muster.
The terms of the contract are clear and unambiguous. The insured is
specifically required to disclose to the insurer any other insurance and
its particulars which he may have effected on the same subject matter.
The knowledge of such insurance by the insurer's agents, even assuming
the acquisition thereof by the former, is not the "notice" that would
estop the insurers from denying the claim. Besides, the so-called theory
of imputed knowledge, that is, knowledge of the agent is knowledge of
the principal, aside from being of dubious applicability here has likewise
been roundly refuted by respondent court whose factual findings we
find acceptable.
Thus, it points out that while petitioner Julian Sy claimed that he had
informed insurance agent Alvarez regarding the co-insurance on the
property, he contradicted himself by inexplicably claiming that he had
not read the terms of the policies; that Yap Dam Chuan could not
likewise have obtained such knowledge for the same reason, aside from
the fact that the insurance with Western was obtained before those of
Reliance and Equitable; and that the conclusion of the trial court that
Reliance and Equitable are "sister companies" is an unfounded
conjecture drawn from the mere fact that Yap Kam Chuan was an agent
for both companies which also had the same insurance claims adjuster.
Availment of the services of the same agents and adjusters by different
companies is a common practice in the insurance business and such
facts do not warrant the speculative conclusion of the trial court.
Furthermore, when the words and language of documents are clear and
plain or readily understandable by an ordinary reader thereof, there is
absolutely no room for interpretation or construction anymore.9 Courts
are not allowed to make contracts for the parties; rather, they will
intervene only when the terms of the policy are ambiguous, equivocal,
or uncertain. 10 The parties must abide by the terms of the contract
Page 56
because such terms constitute the measure of the insurer's liability and
compliance therewith is a condition precedent to the insured's right of
recovery from the insurer. 11
While it is a cardinal principle of insurance law that a policy or contract
of insurance is to be construed liberally in favor of the insured and
strictly against the insurer company, yet contracts of insurance, like
other contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have used. If such
terms are clear and unambiguous, they must be taken and understood
in their plain, ordinary and popular sense. 12 Moreover, obligations
arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. 13
Petitioners should be aware of the fact that a party is not relieved of the
duty to exercise the ordinary care and prudence that would be exacted
in relation to other contracts. The conformity of the insured to the
terms of the policy is implied from his failure to express any
disagreement with what is provided for.14 It may be true that the
majority rule, as cited by petitioners, is that injured persons may accept
policies without reading them, and that this is not negligence per se. 15
But, this is not without any exception. It is and was incumbent upon
petitioner Sy to read the insurance contracts, and this can be reasonably
expected of him considering that he has been a businessman since
196516 and the contract concerns indemnity in case of loss in his
money-making trade of which important consideration he could not
have been unaware as it was pre-in case of loss in his money-making
trade of which important consideration he could not have been
unaware as it was precisely the reason for his procuring the same.
We reiterate our pronouncement in Pioneer Insurance and Surety
Corporation vs. Yap: 17
Insurance Law JD4301
. . . And considering the terms of the policy which required the insured
to declare other insurances, the statement in question must be deemed
to be a statement (warranty) binding on both insurer and insured, that
there were no other insurance on the property. . . .
The annotation then, must be deemed to be a warranty that the
property was not insured by any other policy. Violation thereof entitled
the insurer to rescind (Sec. 69, Insurance Act). Such misrepresentation is
fatal in the light of our views in Santa Ana vs. Commercial Union
Assurance Company, Ltd., 55 Phil. 329. The materiality of non-disclosure
of other insurance policies is not open to doubt.
xxx xxx xxx
The obvious purpose of the aforesaid requirement in the policy is to
prevent over-insurance and thus avert the perpetration of fraud. The
public, as well as the insurer, is interested in preventing the situation in
which a fire would be profitable to the insured. According to Justice
Story: "The insured has no right to complain, for he assents to comply
with all the stipulations on his side, in order to entitle himself to the
benefit of the contract, which, upon reason or principle, he has no right
to ask the court to dispense with the performance of his own part of the
agreement, and yet to bind the other party to obligations, which, but for
those stipulations, would not have been entered into."
Subsequently, in the case of Pacific Banking Corporation vs. Court of
Appeals, et al., 18 we held:
It is not disputed that the insured failed to reveal before the loss three
other insurances. As found by the Court of Appeals, by reason of said
unrevealed insurances, the insured had been guilty of a false
declaration; a clear misrepresentation and a vital one because where
the insured had been asked to reveal but did not, that was deception.
Otherwise stated, had the insurer known that there were many co-
Page 57
insurances, it could have hesitated or plainly desisted from entering into
such contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but a mere
inference or suspicion is untenable. In fact, concrete evidence of fraud
or false declaration by the insured was furnished by the petitioner itself
when the facts alleged in the policy under clauses "Co-Insurances
Declared" and "Other Insurance Clause" are materially different from
the actual number of co-insurances taken over the subject property.
Consequently, "the whole foundation of the contract fails, the risk does
not attach and the policy never becomes a contract between the
parties." Representations of facts are the foundation of the contract and
if the foundation does not exist, the superstructure does not arise.
Falsehood in such representations is not shown to vary or add to the
contract, or to terminate a contract which has once been made, but to
show that no contract has ever existed (Tolentino, Commercial Laws of
the Philippines, p. 991, Vol. II, 8th Ed.,) A void or inexistent contract is
one which has no force and effect from the very beginning, as if it had
never been entered into, and which cannot be validated either by time
or by ratification (Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145
SCRA, 1986).
As the insurance policy against fire expressly required that notice should
be given by the insured of other insurance upon the same property, the
total absence of such notice nullifies the policy.
To further warrant and justify the forfeiture of the benefits under the
insurance contracts involved, we need merely to turn to Policy
Condition No. 15 thereof, which reads in part:
15. . . . if any false declaration be made or used in support thereof, .
. . all benefits under this Policy shall be forfeited . . . . 19
Insurance Law JD4301
Additionally, insofar as the liability of respondent Reliance is concerned,
it is not denied that the complaint for recovery was filed in court by
petitioners only on January 31, 1984, or after more than one (1) year
had elapsed from petitioners' receipt of the insurers' letter of denial on
November 29, 1982. Policy Condition No. 27 of their insurance contract
with Reliance provides:
27. Action or suit clause. — If a claim be made and rejected and an
action or suit be not commenced either in the Insurance Commission or
any court of competent jurisdiction of notice of such rejection, or in
case of arbitration taking place as provided herein, within twelve (12)
months after due notice of the award made by the arbitrator or
arbitrators or umpire, then the claim shall for all purposes be deemed to
have been abandoned and shall not thereafter be recoverable
hereunder. 20
On this point, the trial court ruled:
. . . However, because of the peculiar circumstances of this case, we
hesitate in concluding that plaintiff's right to ventilate his claim in court
has been barred by reason of the time constraint provided in the
insurance contract. It is evident that after the plaintiff had received the
letter of denial, he still found it necessary to be informed of the specific
causes or reasons for the denial of his claim, reason for which his
lawyer, Atty. Dator deemed it wise to send a letter of inquiry to the
defendant which was answered by defendant's Executive Vice-President
in a letter dated March 30, 1983, . . . . Assuming, gratuitously, that the
letter of Executive Vice-President Mary Dee Co dated March 30, 1983,
was received by plaintiff on the same date, the period of limitation
should start to run only from said date in the spirit of fair play and
equity. . . . 21
We have perforce to reject this theory of the court below for being
contrary to what we have heretofore declared:
Page 58

It is important to note the principle laid down by this Court in the case
of Ang vs. Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit:
The condition contained in an insurance policy that claims must be
presented within one year after rejection is not merely a procedural
requirement but an important matter essential to a prompt settlement
of claims against insurance companies as it demands that insurance
suits be brought by the insured while the evidence as to the origin and
cause of destruction have not yet disappeared.
In enunciating the above-cited principle, this Court had definitely settled
the rationale for the necessity of bringing suits against the Insurer
within one year from the rejection of the claim. The contention of the
respondents that the one-year prescriptive period does not start to run
until the petition for reconsideration had been resolved by the insurer,
runs counter to the declared purpose for requiring that an action or suit
be filed in the Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. To uphold respondents'
contention would contradict and defeat the very principle which this
Court had laid down. Moreover, it can easily be used by insured persons
as a scheme or device to waste time until any evidence which may be
considered against them is destroyed.
xxx xxx xxx
While in the Eagle Star case (96 Phil. 701), this Court uses the phrase
"final rejection", the same cannot be taken to mean the rejection of a
petition for reconsideration as insisted by respondents. Such was clearly
not the meaning contemplated by this Court. The insurance policy in
said case provides that the insured should file his claim first, with the
carrier and then with the insurer. The "final rejection" being referred to
in said case is the rejection by the insurance company. 22
Insurance Law JD4301
Furthermore, assuming arguendo that petitioners felt the legitimate
need to be clarified as to the policy condition violated, there was a
considerable lapse of time from their receipt of the insurer's
clarificatory letter dated March 30, 1983, up to the time the complaint
was filed in court on January 31, 1984. The one-year prescriptive period
was yet to expire on November 29, 1983, or about eight (8) months
from the receipt of the clarificatory letter, but petitioners let the period
lapse without bringing their action in court. We accordingly find no
"peculiar circumstances" sufficient to relax the enforcement of the one-
year prescriptive period and we, therefore, hold that petitioners' claim
was definitely filed out of time.
WHEREFORE, finding no cogent reason to disturb the judgment of
respondent Court of Appeals, the same is hereby AFFIRMED.
SO ORDERED.
Melencio-Hererra and Nocon, JJ., concur.
Paras, J., took no part.
Padilla, J., took no part.
THE INSULAR LIFE ASSURANCE COMPANY, LTD. Vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO (on
disqualification of common-law wife as beneficiary)
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife
named as beneficiary in the life insurance policy of a legally married
man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The
Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00
Page 59
with a, rider for Accidental Death for the same amount Buenaventura C.
Ebrado designated T. Ebrado as the revocable beneficiary in his policy.
He to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t
when he was hit by a failing branch of a tree. As the policy was in force,
The Insular Life Assurance Co., Ltd. liable to pay the coverage in the
total amount of P11,745.73, representing the face value of the policy in
the amount of P5,882.00 plus the additional benefits for accidental
death also in the amount of P5,882.00 and the refund of P18.00 paid for
the premium due November, 1969, minus the unpaid premiums and
interest thereon due for January and February, 1969, in the sum of
P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the
Policy as the designated beneficiary therein, although she admits that
she and the insured Buenaventura C. Ebrado were merely living as
husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the
deceased insured. She asserts that she is the one entitled to the
insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer,
The Insular Life Assurance Co., Ltd. commenced an action for
Interpleader before the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on
July 8, 1972, after which, a pre-trial order was entered reading as
follows: ñé+.£ªwph!1
During the pre-trial conference, the parties manifested to the court.
that there is no possibility of amicable settlement. Hence, the Court
proceeded to have the parties submit their evidence for the purpose of
Insurance Law JD4301
the pre-trial and make admissions for the purpose of pretrial. During
this conference, parties Carponia T. Ebrado and Pascuala Ebrado agreed
and stipulated: 1) that the deceased Buenaventura Ebrado was married
to Pascuala Ebrado with whom she has six — (legitimate) namely;
Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed
Ebrado; 2) that during the lifetime of the deceased, he was insured with
Insular Life Assurance Co. Under Policy No. 009929 whole life plan,
dated September 1, 1968 for the sum of P5,882.00 with the rider for
accidental death benefit as evidenced by Exhibits A for plaintiffs and
Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado;
3) that during the lifetime of Buenaventura Ebrado, he was living with
his common-wife, Carponia Ebrado, with whom she had 2 children
although he was not legally separated from his legal wife; 4) that
Buenaventura in accident on October 21, 1969 as evidenced by the
death Exhibit 3 and affidavit of the police report of his death Exhibit 5;
5) that complainant Carponia Ebrado filed claim with the Insular Life
Assurance Co. which was contested by Pascuala Ebrado who also filed
claim for the proceeds of said policy 6) that in view ofthe adverse claims
the insurance company filed this action against the two herein claimants
Carponia and Pascuala Ebrado; 7) that there is now due from the Insular
Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the
beneficiary designated by the insured in the policy is Carponia Ebrado
and the insured made reservation to change the beneficiary but
although the insured made the option to change the beneficiary, same
was never changed up to the time of his death and the wife did not have
any opportunity to write the company that there was reservation to
change the designation of the parties agreed that a decision be
rendered based on and stipulation of facts as to who among the two
claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their
simultaneous memoranda from the receipt of this order.
SO ORDERED.
Page 60

On September 25, 1972, the trial court rendered judgment declaring
among others, Carponia T. Ebrado disqualified from becoming
beneficiary of the insured Buenaventura Cristor Ebrado and directing
the payment of the insurance proceeds to the estate of the deceased
insured. The trial court held: ñé+.£ªwph!1
It is patent from the last paragraph of Art. 739 of the Civil Code that a
criminal conviction for adultery or concubinage is not essential in order
to establish the disqualification mentioned therein. Neither is it also
necessary that a finding of such guilt or commission of those acts be
made in a separate independent action brought for the purpose. The
guilt of the donee (beneficiary) may be proved by preponderance of
evidence in the same proceeding (the action brought to declare the
nullity of the donation).
It is, however, essential that such adultery or concubinage exists at the
time defendant Carponia T. Ebrado was made beneficiary in the policy
in question for the disqualification and incapacity to exist and that it is
only necessary that such fact be established by preponderance of
evidence in the trial. Since it is agreed in their stipulation above-quoted
that the deceased insured and defendant Carponia T. Ebrado were living
together as husband and wife without being legally married and that
the marriage of the insured with the other defendant Pascuala Vda. de
Ebrado was valid and still existing at the time the insurance in question
was purchased there is no question that defendant Carponia T. Ebrado
is disqualified from becoming the beneficiary of the policy in question
and as such she is not entitled to the proceeds of the insurance upon
the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of
Appeals, but on July 11, 1976, the Appellate Court certified the case to
Us as involving only questions of law.
Insurance Law JD4301
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as
amended) or even the new Insurance Code (PD No. 612, as amended)
does not contain any specific provision grossly resolutory of the prime
question at hand. Section 50 of the Insurance Act which provides that
"(t)he insurance shag be applied exclusively to the proper interest of the
person in whose name it is made" 1 cannot be validly seized upon to
hold that the mm includes the beneficiary. The word "interest" highly
suggests that the provision refers only to the "insured" and not to the
beneficiary, since a contract of insurance is personal in character. 2
Otherwise, the prohibitory laws against illicit relationships especially on
property and descent will be rendered nugatory, as the same could
easily be circumvented by modes of insurance. Rather, the general rules
of civil law should be applied to resolve this void in the Insurance Law.
Article 2011 of the New Civil Code states: "The contract of insurance is
governed by special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life
insurance is governed by the general rules of the civil law regulating
contracts. 3 And under Article 2012 of the same Code, "any person who
is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a fife insurance policy by the person who cannot
make a donation to him. 4 Common-law spouses are, definitely, barred
from receiving donations from each other. Article 739 of the new Civil
Code provides: ñé+.£ªwph!1
The following donations shall be void:
1. Those made between persons who were guilty of adultery or
concubinage at the time of donation;
Those made between persons found guilty of the same criminal offense,
in consideration thereof;
Page 61

3. Those made to a public officer or his wife, descendants or
ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may
be brought by the spouse of the donor or donee; and the guilt of the
donee may be proved by preponderance of evidence in the same action.
2. In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are founded upon
the same consideration: liberality. A beneficiary is like a donee, because
from the premiums of the policy which the insured pays out of liberality,
the beneficiary will receive the proceeds or profits of said insurance. As
a consequence, the proscription in Article 739 of the new Civil Code
should equally operate in life insurance contracts. The mandate of
Article 2012 cannot be laid aside: any person who cannot receive a
donation cannot be named as beneficiary in the life insurance policy of
the person who cannot make the donation. 5 Under American law, a
policy of life insurance is considered as a testament and in construing it,
the courts will, so far as possible treat it as a will and determine the
effect of a clause designating the beneficiary by rules under which wins
are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the
institution of a barrier between common law spouses in record to
Property relations since such hip ultimately encroaches upon the nuptial
and filial rights of the legitimate family There is every reason to hold
that the bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance policies
since the same are based on similar consideration As above pointed out,
a beneficiary in a fife insurance policy is no different from a donee. Both
are recipients of pure beneficence. So long as manage remains the
threshold of family laws, reason and morality dictate that the
impediments imposed upon married couple should likewise be imposed
Insurance Law JD4301
upon extra-marital relationship. If legitimate relationship is
circumscribed by these legal disabilities, with more reason should an
illicit relationship be restricted by these disabilities. Thus, in Matabuena
v. Cervantes, 7 this Court, through Justice Fernando, said: ñé+.£ªwph!1
If the policy of the law is, in the language of the opinion of the then
Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit
donations in favor of the other consort and his descendants because of
and undue and improper pressure and influence upon the donor, a
prejudice deeply rooted in our ancient law;" por-que no se enganen
desponjandose el uno al otro por amor que han de consuno' (According
to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No
Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De
donat, inter virum et uxorem); then there is very reason to apply the
same prohibitive policy to persons living together as husband and wife
without the benefit of nuptials. For it is not to be doubted that assent to
such irregular connection for thirty years bespeaks greater influence of
one party over the other, so that the danger that the law seeks to avoid
is correspondingly increased. Moreover, as already pointed out by
Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such
donations should subsist, lest the condition 6f those who incurred guilt
should turn out to be better.' So long as marriage remains the
cornerstone of our family law, reason and morality alike demand that
the disabilities attached to marriage should likewise attach to
concubinage.
It is hardly necessary to add that even in the absence of the above
pronouncement, any other conclusion cannot stand the test of scrutiny.
It would be to indict the frame of the Civil Code for a failure to apply a
laudable rule to a situation which in its essentials cannot be
distinguished. Moreover, if it is at all to be differentiated the policy of
the law which embodies a deeply rooted notion of what is just and what
is right would be nullified if such irregular relationship instead of being
visited with disabilities would be attended with benefits. Certainly a
Page 62
legal norm should not be susceptible to such a reproach. If there is
every any occasion where the principle of statutory construction that
what is within the spirit of the law is as much a part of it as what is
written, this is it. Otherwise the basic purpose discernible in such codal
provision would not be attained. Whatever omission may be apparent in
an interpretation purely literal of the language used must be remedied
by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is
exacted before the disabilities mentioned in Article 739 may effectuate.
More specifically, with record to the disability on "persons who were
guilty of adultery or concubinage at the time of the donation," Article
739 itself provides: ñé+.£ªwph!1
In the case referred to in No. 1, the action for declaration of nullity may
be brought by the spouse of the donor or donee; and the guilty of the
donee may be proved by preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for
the offense is a condition precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On the contrary,
the law plainly states that the guilt of the party may be proved "in the
same acting for declaration of nullity of donation. And, it would be
sufficient if evidence preponderates upon the guilt of the consort for
the offense indicated. The quantum of proof in criminal cases is not
demanded.
In the caw before Us, the requisite proof of common-law relationship
between the insured and the beneficiary has been conveniently
supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein that
the deceased insured Buenaventura C. Ebrado was married to Pascuala
Ebrado with whom she has six legitimate children; that during his
lifetime, the deceased insured was living with his common-law wife,
Insurance Law JD4301
Carponia Ebrado, with whom he has two children. These stipulations are
nothing less than judicial admissions which, as a consequence, no longer
require proof and cannot be contradicted. 8 A fortiori, on the basis of
these admissions, a judgment may be validly rendered without going
through the rigors of a trial for the sole purpose of proving the illicit
liaison between the insured and the beneficiary. In fact, in that pretrial,
the parties even agreed "that a decision be rendered based on this
agreement and stipulation of facts as to who among the two claimants
is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby
affirmed. Carponia T. Ebrado is hereby declared disqualified to be the
beneficiary of the late Buenaventura C. Ebrado in his life insurance
policy. As a consequence, the proceeds of the policy are hereby held
payable to the estate of the deceased insured. Costs against Carponia T.
Ebrado.
SO ORDERED.
Teehankee (Chairman), Makasiar, Muñ;oz Palma, Fernandez and
Guerrero, JJ., concur.
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF
APPEALS and JULITA TRINOS (on insurable interest in a
healthcare agreement)
DECISION
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for
a health care coverage with petitioner Philamcare Health Systems, Inc.
In the standard application form, he answered no to the following
question:
Page 63
Have you or any of your family members ever consulted or been treated
for high blood pressure, heart trouble, diabetes, cancer, liver disease,
asthma or peptic ulcer? (If Yes, give details).[1]
The application was approved for a period of one year from March 1,
1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondents husband
was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of out-patient
benefits such as annual physical examinations, preventive health care
and other out-patient services.
Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from March 1,
1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.[2]
During the period of his coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital,
respondent tried to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the Health Care
Agreement was void. According to petitioner, there was a concealment
regarding Ernanis medical history. Doctors at the MMC allegedly
discovered at the time of Ernanis confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the
application form. Thus, respondent paid the hospitalization expenses
herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a
physical therapist at home. Later, he was admitted at the Chinese
General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was
Insurance Law JD4301
constrained to bring him back to the Chinese General Hospital where he
died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against petitioner and its
president, Dr. Benito Reverente, which was docketed as Civil Case No.
90-53795. She asked for reimbursement of her expenses plus moral
damages and attorneys fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in
favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage
of the late Ernani Trinos in the amount of P76,000.00 plus interest, until
the amount is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of
P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary
damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
SO ORDERED.[3]
On appeal, the Court of Appeals affirmed the decision of the trial court
but deleted all awards for damages and absolved petitioner
Reverente.[4] Petitioners motion for reconsideration was denied.[5]
Hence, petitioner brought the instant petition for review, raising the
primary argument that a health care agreement is not an insurance
contract; hence the incontestability clause under the Insurance Code[6]
does not apply.
Page 64
Petitioner argues that the agreement grants living benefits, such as
medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also points
out that only medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an insurance contract
where the insured is indemnified for his loss. Moreover, since Health
Care Agreements are only for a period of one year, as compared to
insurance contracts which last longer,[7] petitioner argues that the
incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it
is not an insurance company, which is governed by the Insurance
Commission, but a Health Maintenance Organization under the
authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a
premium.[8]
Insurance Law JD4301
Section 3 of the Insurance Code states that any contingent or unknown
event, whether past or future, which may damnify a person having an
insurable interest against him, may be insured against. Every person has
an insurable interest in the life and health of himself. Section 10
provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education
or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of
money, respecting property or service, of which death or illness might
delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him
depends.
In the case at bar, the insurable interest of respondents husband in
obtaining the health care agreement was his own health. The health
care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity.[9] Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to
the extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in
his application. It appears that in the application for health coverage,
petitioners required respondents husband to sign an express
authorization for any person, organization or entity that has any record
or knowledge of his health to furnish any and all information relative to
Page 65
any hospitalization, consultation, treatment or any other medical advice
or examination.[10] Specifically, the Health Care Agreement signed by
respondents husband states:
We hereby declare and agree that all statement and answers contained
herein and in any addendum annexed to this application are full,
complete and true and bind all parties in interest under the Agreement
herein applied for, that there shall be no contract of health care
coverage unless and until an Agreement is issued on this application and
the full Membership Fee according to the mode of payment applied for
is actually paid during the lifetime and good health of proposed
Members; that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in writing in
the application; that any physician is, by these presents, expressly
authorized to disclose or give testimony at anytime relative to any
information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the
Proposed Members and that the acceptance of any Agreement issued
on this application shall be a ratification of any correction in or addition
to this application as stated in the space for Home Office
Endorsement.[11] (Underscoring ours)
In addition to the above condition, petitioner additionally required the
applicant for authorization to inquire about the applicants medical
history, thus:
I hereby authorize any person, organization, or entity that has any
record or knowledge of my health and/or that of __________ to give to
the PhilamCare Health Systems, Inc. any and all information relative to
any hospitalization, consultation, treatment or any other medical advice
or examination. This authorization is in connection with the application
for health care coverage only. A photographic copy of this authorization
shall be as valid as the original.[12] (Underscoring ours)
Insurance Law JD4301
Petitioner cannot rely on the stipulation regarding Invalidation of
agreement which reads:
Failure to disclose or misrepresentation of any material information by
the member in the application or medical examination, whether
intentional or unintentional, shall automatically invalidate the
Agreement from the very beginning and liability of Philamcare shall be
limited to return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its revelation would
have resulted in the declination of the applicant by Philamcare or the
assessment of a higher Membership Fee for the benefit or benefits
applied for.[13]
The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends on
opinion rather than fact, especially coming from respondents husband
who was not a medical doctor. Where matters of opinion or judgment
are called for, answers made in good faith and without intent to deceive
will not avoid a policy even though they are untrue.[14] Thus,
(A)lthough false, a representation of the expectation, intention, belief,
opinion, or judgment of the insured will not avoid the policy if there is
no actual fraud in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule although the
statement is material to the risk, if the statement is obviously of the
foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry.
There is a clear distinction between such a case and one in which the
insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue,
or the impossibility of which is shown by the facts within his knowledge,
since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.[15] (Underscoring ours)
Page 66
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract.[16] Concealment as a
defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer.
In any case, with or without the authority to investigate, petitioner is
liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer the
same to the extent agreed upon. In the end, the liability of the health
care provider attaches once the member is hospitalized for the disease
or injury covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the
injured party to rescind a contract of insurance. The right to rescind
should be exercised previous to the commencement of an action on the
contract.[17] In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies require
the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address
shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on which
cancellation is based.[18]
None of the above pre-conditions was fulfilled in this case. When the
terms of insurance contract contain limitations on liability, courts should
Insurance Law JD4301
construe them in such a way as to preclude the insurer from non-
compliance with his obligation.[19] Being a contract of adhesion, the
terms of an insurance contract are to be construed strictly against the
party which prepared the contract the insurer.[20] By reason of the
exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture.[21] This is equally applicable to Health
Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of
the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted,
and exclusionary clauses of doubtful import should be strictly construed
against the provider.[22]
Anent the incontestability of the membership of respondents husband,
we quote with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the date of
issuance of the Agreement within which to contest the membership of
the patient if he had previous ailment of asthma, and six months from
the issuance of the agreement if the patient was sick of diabetes or
hypertension. The periods having expired, the defense of concealment
or misrepresentation no longer lie.[23]
Finally, petitioner alleges that respondent was not the legal wife of the
deceased member considering that at the time of their marriage, the
deceased was previously married to another woman who was still alive.
The health care agreement is in the nature of a contract of indemnity.
Hence, payment should be made to the party who incurred the
expenses. It is not controverted that respondent paid all the hospital
and medical expenses. She is therefore entitled to reimbursement. The
records adequately prove the expenses incurred by respondent for the
Page 67
deceaseds hospitalization, medication and the professional fees of the
attending physicians.[24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed decision of the Court of Appeals dated December 14, 1995 is
AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.
GREAT PACIFIC LIFE ASSURANCE CORP. vs. COURT OF
APPEALS AND MEDARDA V. LEUTERIO (on insurable interest
in mortgaged properties)
DECISION
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the
Decision[1] dated May 17, 1993, of the Court of Appeals and its
Resolution[2] dated January 4, 1994 in CA-G.R. CV No. 18341. The
appellate court affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim filed by private
respondent against Great Pacific Life Assurance Co. The dispositive
portion of the trial courts decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT
PACIFIC LIFE ASSURANCE CORPORATION as insurer under its Group
policy No. G-1907, in relation to Certification B-18558 liable and ordered
to pay to the DEVELOPMENT BANK OF THE PHILIPPINES as creditor of
the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND
TWO HUNDRED PESOS (P86,200.00); dismissing the claims for damages,
attorneys fees and litigation expenses in the complaint and
counterclaim, with costs against the defendant and dismissing the
Insurance Law JD4301
complaint in respect to the plaintiffs, other than the widow-beneficiary,
for lack of cause of action.[3]
The facts, as found by the Court of Appeals, are as follows:
A contract of group life insurance was executed between petitioner
Great Pacific Life Assurance Corporation (hereinafter Grepalife) and
Development Bank of the Philippines (hereinafter DBP). Grepalife
agreed to insure the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing
debtor of DBP applied for membership in the group life insurance plan.
In an application form, Dr. Leuterio answered questions concerning his
health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition,
high blood pressure, cancer, diabetes, lung, kidney or stomach disorder
or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.[4]
On November 15, 1983, Grepalife issued Certificate No. B-18558, as
insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage
indebtedness amounting to eighty-six thousand, two hundred
(P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to massive cerebral
hemorrhage. Consequently, DBP submitted a death claim to Grepalife.
Grepalife denied the claim alleging that Dr. Leuterio was not physically
healthy when he applied for an insurance coverage on November 15,
Page 68
1983. Grepalife insisted that Dr. Leuterio did not disclose he had been
suffering from hypertension, which caused his death. Allegedly, such
non-disclosure constituted concealment that justified the denial of the
claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent
Medarda V. Leuterio, filed a complaint with the Regional Trial Court of
Misamis Oriental, Branch 18, against Grepalife for Specific Performance
with Damages.[5] During the trial, Dr. Hernando Mejia, who issued the
death certificate, was called to testify. Dr. Mejias findings, based partly
from the information given by the respondent widow, stated that Dr.
Leuterio complained of headaches presumably due to high blood
pressure. The inference was not conclusive because Dr. Leuterio was
not autopsied, hence, other causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of
respondent widow and against Grepalife. On May 17, 1993, the Court of
Appeals sustained the trial courts decision. Hence, the present petition.
Petitioners interposed the following assigned errors:
"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT
LIABLE TO THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH
IS NOT A PARTY TO THE CASE FOR PAYMENT OF THE PROCEEDS OF A
MORTGAGE REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFFS
HUSBAND WILFREDO LEUTERIO ONE OF ITS LOAN BORROWERS,
INSTEAD OF DISMISSING THE CASE AGAINST DEFENDANT-APPELLANT
[Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT
OF JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND
OVER THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO
PAY TO DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY
Insurance Law JD4301
EVIDENCE TO SHOW HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE
TO DBP IN ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT WITH
DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO
CONCEALMENT OF MATERIAL INFORMATION ON THE PART OF
WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN THE
GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF
THE INSURANCE CLAIM ARISING FROM THE DEATH OF WILFREDO
LEUTERIO.[6]
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in holding petitioner liable to
DBP as beneficiary in a group life insurance contract from a complaint
filed by the widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio
concealed that he had hypertension, which would vitiate the insurance
contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in the
amount of eighty six thousand, two hundred (P86,200.00) pesos without
proof of the actual outstanding mortgage payable by the mortgagor to
DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr.
Leuterio, not the real party in interest, hence the trial court acquired no
jurisdiction over the case. It argues that when the Court of Appeals
affirmed the trial courts judgment, Grepalife was held liable to pay the
proceeds of insurance contract in favor of DBP, the indispensable party
who was not joined in the suit.
Page 69
To resolve the issue, we must consider the insurable interest in
mortgaged properties and the parties to this type of contract. The
rationale of a group insurance policy of mortgagors, otherwise known as
the mortgage redemption insurance, is a device for the protection of
both the mortgagee and the mortgagor. On the part of the mortgagee,
it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will be applied to
the payment of the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation.[7] In a similar vein, ample
protection is given to the mortgagor under such a concept so that in the
event of death; the mortgage obligation will be extinguished by the
application of the insurance proceeds to the mortgage indebtedness.[8]
Consequently, where the mortgagor pays the insurance premium under
the group insurance policy, making the loss payable to the mortgagee,
the insurance is on the mortgagors interest, and the mortgagor
continues to be a party to the contract. In this type of policy insurance,
the mortgagee is simply an appointee of the insurance fund, such loss-
payable clause does not make the mortgagee a party to the contract.[9]
Section 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects
insurance in his own name providing that the loss shall be payable to
the mortgagee, or assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the mortgagor, who
does not cease to be a party to the original contract, and any act of his,
prior to the loss, which would otherwise avoid the insurance, will have
the same effect, although the property is in the hands of the mortgagee,
but any act which, under the contract of insurance, is to be performed
by the mortgagor, may be performed by the mortgagee therein named,
with the same effect as if it had been performed by the mortgagor.
Insurance Law JD4301
The insured private respondent did not cede to the mortgagee all his
rights or interests in the insurance, the policy stating that: In the event
of the debtors death before his indebtedness with the Creditor [DBP]
shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the creditor and the balance of sum
assured, if there is any, shall then be paid to the beneficiary/ies
designated by the debtor.[10] When DBP submitted the insurance claim
against petitioner, the latter denied payment thereof, interposing the
defense of concealment committed by the insured. Thereafter, DBP
collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent.[11] In Gonzales
La O vs. Yek Tong Lin Fire & Marine Ins. Co.[12] we held:
Insured, being the person with whom the contract was made, is
primarily the proper person to bring suit thereon. * * * Subject to some
exceptions, insured may thus sue, although the policy is taken wholly or
in part for the benefit of another person named or unnamed, and
although it is expressly made payable to another as his interest may
appear or otherwise. * * * Although a policy issued to a mortgagor is
taken out for the benefit of the mortgagee and is made payable to him,
yet the mortgagor may sue thereon in his own name, especially where
the mortgagees interest is less than the full amount recoverable under
the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although he has
assigned the policy for the purpose of collection, or has assigned as
collateral security any judgment he may obtain.[13]
And since a policy of insurance upon life or health may pass by transfer,
will or succession to any person, whether he has an insurable interest or
not, and such person may recover it whatever the insured might have
Page 70
recovered,[14] the widow of the decedent Dr. Leuterio may file the suit
against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the
petitioner interposed as its defense to annul the insurance contract.
Petitioner contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death. Concealment exists
where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should
communicate it to the assured, but he designedly and intentionally
withholds the same.[15]
Petitioner merely relied on the testimony of the attending physician, Dr.
Hernando Mejia, as supported by the information given by the widow of
the decedent. Grepalife asserts that Dr. Mejias technical diagnosis of
the cause of death of Dr. Leuterio was a duly documented hospital
record, and that the widows declaration that her husband had possible
hypertension several years ago should not be considered as hearsay,
but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr.
Mejia did not conduct an autopsy on the body of the decedent. As the
attending physician, Dr. Mejia stated that he had no knowledge of Dr.
Leuterios any previous hospital confinement.[16] Dr. Leuterios death
certificate stated that hypertension was only the possible cause of
death. The private respondents statement, as to the medical history of
her husband, was due to her unreliable recollection of events. Hence,
the statement of the physician was properly considered by the trial
court as hearsay.
The question of whether there was concealment was aptly answered by
the appellate court, thus:
Insurance Law JD4301
The insured, Dr. Leuterio, had answered in his insurance application that
he was in good health and that he had not consulted a doctor or any of
the enumerated ailments, including hypertension; when he died the
attending physician had certified in the death certificate that the former
died of cerebral hemorrhage, probably secondary to hypertension. From
this report, the appellant insurance company refused to pay the
insurance claim. Appellant alleged that the insured had concealed the
fact that he had hypertension.
Contrary to appellants allegations, there was no sufficient proof that the
insured had suffered from hypertension. Aside from the statement of
the insureds widow who was not even sure if the medicines taken by Dr.
Leuterio were for hypertension, the appellant had not proven nor
produced any witness who could attest to Dr. Leuterios medical
history...
xxx
Appellant insurance company had failed to establish that there was
concealment made by the insured, hence, it cannot refuse payment of
the claim.[17]
The fraudulent intent on the part of the insured must be established to
entitle the insurer to rescind the contract.[18] Misrepresentation as a
defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence
rests upon the insurer.[19] In the case at bar, the petitioner failed to
clearly and satisfactorily establish its defense, and is therefore liable to
pay the proceeds of the insurance.
And that brings us to the last point in the review of the case at bar.
Petitioner claims that there was no evidence as to the amount of Dr.
Leuterios outstanding indebtedness to DBP at the time of the
mortgagors death. Hence, for private respondents failure to establish
Page 71
the same, the action for specific performance should be dismissed.
Petitioners claim is without merit. A life insurance policy is a valued
policy.[20] Unless the interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity under a policy of
insurance upon life or health is the sum fixed in the policy.[21] The
mortgagor paid the premium according to the coverage of his insurance,
which states that:
The policy states that upon receipt of due proof of the Debtors death
during the terms of this insurance, a death benefit in the amount of
P86,200.00 shall be paid.
(P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio
(deceased), upon presentation of proof of prior settlement of
mortgagors indebtedness to Development Bank of the Philippines. Costs
against petitioner.
SO ORDERED.
Mendoza, Buena, and De Leon Jr., JJ., concur.
Bellosillo, (Chairman), J., on official leave.

In the event of the debtors death before his indebtedness with the
creditor shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the Creditor and the balance of the
Sum Assured, if there is any shall then be paid to the beneficiary/ies
designated by the debtor.[22] (Emphasis omitted)

However, we noted that the Court of Appeals decision was promulgated

on May 17, 1993. In private respondents memorandum, she states that
DBP foreclosed in 1995 their residential lot, in satisfaction of
mortgagors outstanding loan. Considering this supervening event, the
insurance proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity dictates that DBP should
not unjustly enrich itself at the expense of another (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds,
after it already foreclosed on the mortgage. The proceeds now rightly
belong to Dr. Leuterios heirs represented by his widow, herein private
respondent Medarda Leuterio.

WHEREFORE, the petition is hereby DENIED. The Decision and

Resolution of the Court of Appeals in CA-G.R. CV 18341 is AFFIRMED
with MODIFICATION that the petitioner is ORDERED to pay the
insurance proceeds amounting to Eighty-six thousand, two hundred

Insurance Law JD4301 Page 72