1.

CORONA, J.:
DANZAS CORPORATION and G.R. No. 141462
ALL TRANSPORT NETWORK, Petitioner Danzas Corporation, through its agent,
INC., petitioner All Transport Network brings to us this
Petitioners, Present: petition for review on certiorari[1] questioning the
PANGANIBAN, J., Chairman, decision[2] and resolution[3] of the Court of Appeals
SANDO which affirmed two orders issued by the Regional
VAL- Trial Court, Makati City, Branch 150.[4]
GUTIERR
EZ, The facts of the case follow.[5]
- v e r s u s - CORONA,
C On February 22, 1994, petitioner Danzas took a
A shipment of nine packages of ICS watches for
R transport to Manila. The consignee, International
P Freeport Traders, Inc. (IFTI) secured Marine Risk
I Note No. 0000342 from private respondent
O Seaboard.
- On March 2, 1994, the Korean Airlines plane
M carrying the goods arrived in Manila and
O discharged the goods to the custody of private
R respondent Philippine Skylanders, Inc. for
A safekeeping. On withdrawal of the shipment from
L private respondent Skylanders warehouse, IFTI
E noted that one package containing 475 watches
S was shortlanded while the remaining eight were
found to have sustained tears on sides and the
a retape of flaps. On further examination and
n inventory of the cartons, it was discovered that 176
d Guess watches were missing. Private respondent
G Seaboard, as insurer, paid the losses to IFTI.
A
R On February 23, 1995, Seaboard, invoking
C its right of subrogation, filed a complaint against
I Skylanders, petitioner and its authorized
A representative, petitioner All Transport Network,
, Inc. (ATN), praying for actual damages in the
amount of P612,904.97 plus legal interest,
J attorneys fees and cost of suit. Petitioners
J impleaded Korean Airlines (KAL) as third-party
. defendant.

HON. ZEUS C. ABROGAR, While the case was pending, IFTIs treasurer,
Presiding Judge of Br. 150 of Mary Eileen Gozon accepted the proposal of KAL to
Makati City, SEABOARD settle consignees claim by paying the amount of US
EASTERN INSURANCE CO., $522.20. On May 8, 1996, Felipe Acebedo, IFTIs
INC. and PHILIPPINE representative received a check from KAL and
SKYLANDERS, INC., correspondingly signed a release form.
Respondents. Promulgated :
On July 2, 1996, petitioners filed a motion
Decem to dismiss the case on the ground that private
ber 15, respondent Seaboards demand had been paid or
2005 otherwise extinguished by KAL.

x------------------------------------------x On December 9, 1996, the trial court issued

an order denying the motion to dismiss.
Petitioners, private respondent Skylanders and KAL
DECISION filed separate motions for reconsideration. Prior to
the resolution of these motions, the trial court
allowed private respondent Skylanders to present
evidence in a preliminary hearing on November 14,
1997, after which the court set a date to hear the
presentation of rebuttal evidence.
On December 5, 1997, petitioners filed a
manifestation and motion for reconsideration of
the order of the trial court dated November 14,
1997, questioning the propriety of the preliminary
hearing.
On February 18, 1998, the trial court issued
an order denying: (1) the motion for
reconsideration of the December 9, 1996 order
filed by petitioners, private respondent Skylanders
and KAL; (2) the motion to dismiss filed by
Skylanders and (3) petitioners motion for
reconsideration of the November 14, 1997 order.
On April 6, 1998, petitioners filed in the
Court of Appeals a special civil action for certiorari
under Rule 65 of the Rules of Court. On March 5,
1999, the CA dismissed the petition.[6] Petitioners
filed[7] a motion for reconsideration but this was
denied.[8]
Hence, this petition.
Petitioners principal contention is that
private respondents right of subrogation was
extinguished when IFTI received payment from KAL
in settlement of its obligation. They also claim that
public respondent committed grave abuse of
discretion by refusing to dismiss the case on that
ground. Finally, they claim that, by granting private
respondent Skylanders a preliminary hearing on an
affirmative defense other than one of the grounds
stated in Section 1, Rule 16 of the 1997 Rules of
Civil Procedure, public respondent committed
another grave abuse of discretion.
For its part, private respondent Seaboard
argues that the payment made by the tortfeasor
did not relieve it of liability because at the time of
payment, its (Seaboards) suit against petitioners
was already ongoing. It also insists that because
the assailed order was interlocutory, it was not a
proper subject for certiorari.[9]
Private respondent Skylanders likewise
contends that the order denying dismissal cannot
be the subject of certiorari in the absence of grave
abuse of discretion. It also defends the trial courts
order granting a preliminary hearing, saying that,
assuming the trial court had erroneously granted
such a hearing, such error was merely one of
judgment and not of jurisdiction as to merit
certiorari.[10]
The petition has no merit.
It is true that the doctrine in Manila
Mahogany Manufacturing Corporation v. Court of
Appeals[11]remains the controlling doctrine on the
issue of whether the tortfeasor, by settling with the
insured, defeats the right to subrogation of the
insurer. According to Manila Mahogany:
Since the insurer can be
subrogated to only such rights as the
insured may have, should the
insured, after receiving payment
from the insurer, release the
wrongdoer who caused the loss, the
insurer loses his rights against the
latter. But in such a case, the insurer
will be entitled to recover from the
insured whatever it has paid to the
latter, unless the release was made
with the consent of the insurer.
This is buttressed by a later decision, Pan
Malayan Insurance Corporation v. Court of
Appeals,[12] in which we cited a number of
exceptions to the rule laid down in Article 2207 of
the Civil Code.[13] Under the first of these
exceptions, if the assured by his own act releases
the wrongdoer or third party liable for the loss or
damage from liability, the insurers right of
subrogation is defeated.
However, certain factual differences
pointed out by private respondent Seaboard
render this doctrine inapplicable. In Manila
Mahogany, the tortfeasor San Miguel Corporation
paid the insured without knowing that the insurer
had already made such payment. KAL was not
similarly situated, being fully aware of the prior
payment made by the insurer to the consignee.
Private respondent Seaboard asserts that, being in
bad faith, KAL should bear the consequences of its
actions. [14]
While Manila Mahogany is silent on
whether the existence of good faith or bad faith on
the tortfeasors part affects the insurers right of
subrogation, there exists a wealth of U.S.
jurisprudence holding that whenever the
wrongdoer settles with the insured without the
consent of the insurer and with knowledge of the
insurers payment and right of subrogation, such
right is not defeated by the settlement.[15] Because
this doctrine is actually consistent with the facts
of Mahogany and helps fill a slight gap left by our
ruling in that case, we adopt it now. The trial court
correctly refused to dismiss the case. In that
respect, therefore, the trial court did not commit
grave abuse of discretion which would justify
certiorari.
We likewise find that no grave abuse of
discretion was committed by public respondent
when it granted private respondent Skylanders
motion for a preliminary hearing.
In California and Hawaiian Sugar Company
v. Pioneer Insurance and Surety Corporation,[16] we
held that a preliminary hearing was not mandatory
but was rather subject to the discretion of the trial
court. We found in that instance that the trial court
had committed grave abuse of discretion in
refusing the partys motion for a preliminary
hearing on the ground that the case was
premature, not having been submitted for
arbitration. A preliminary hearing could have
settled the entire case, thereby helping decongest
the dockets. It was therefore the refusal to allow
the most efficient and expeditious process which
we condemned.
In the instant case, we are not convinced that
public respondents act of allowing a preliminary
hearing constituted grave abuse of discretion.
In Land Bank of the Philippines v. the Court
of Appeals[17] we discussed the meaning of grave
abuse of discretion:
Grave abuse of discretion implies
such capricious and whimsical
exercise of judgment as is equivalent
to lack of jurisdiction or, in other
words, where the power is exercised
in an arbitrary manner by reason of
passion, prejudice, or personal
hostility, and it must be so patent or
gross as to amount to an evasion of
a positive duty or to a virtual refusal
to perform the duty enjoined or to
act at all in contemplation of law.
The special civil action for
certiorari is a remedy designed for
the correction of errors of
jurisdiction and not errors of
judgment. The raison detre for the
rule is when a court exercises its
jurisdiction, an error committed
while so engaged does not deprive it
of the jurisdiction being exercised
when the error is committed. If it
did, every error committed by a
court would deprive it of its
jurisdiction and every erroneous
judgment would be a void judgment.
In such a scenario, the
administration of justice would not
survive. Hence, where the issue or
question involved affects the
wisdom or legal soundness of the
decisionnot the jurisdiction of the
court to render said decisionthe
same is beyond the province of a
special civil action for certiorari.
(emphasis supplied)
Public respondents order granting the
preliminary hearing does not at all fit the
description above. At worst, it was an error in
judgment which is beyond the domain of certiorari.
WHEREFORE, in view of the foregoing, the
petition is hereby DENIED. The decision and
resolution of the Court of Appeals are AFFIRMED.
Costs against petitioners.
SO ORDERED.
2.
G.R. No. L-52732 August 29, 1988
F.F. CRUZ and CO., INC., petitioner,
vs.
THE COURT OF APPEALS, GREGORIO MABLE as
substituted by his wife LUZ ALMONTE MABLE and
children DOMING, LEONIDAS, LIGAYA, ELENA,
GREGORIO, JR., SALOME, ANTONIO, and
BERNARDO all surnamed MABLE, respondents.
Luis S. Topacio for petitioner.
Mauricio M. Monta for respondents.
CORTES, J.:
This petition to review the decision of the Court of
Appeals puts in issue the application of the
common law doctrine of res ipsa loquitur.
The essential facts of the case are not disputed.
The furniture manufacturing shop of petitioner in
Caloocan City was situated adjacent to the
residence of private respondents. Sometime in
August 1971, private respondent Gregorio Mable
first approached Eric Cruz, petitioner's plant
manager, to request that a firewall be constructed
between the shop and private respondents'
residence. The request was repeated several times
but they fell on deaf ears. In the early morning of
September 6, 1974, fire broke out in petitioner's
shop. Petitioner's employees, who slept in the shop
premises, tried to put out the fire, but their efforts
proved futile. The fire spread to private
respondents' house. Both the shop and the house
were razed to the ground. The cause of the
conflagration was never discovered. The National
Bureau of Investigation found specimens from the
burned structures negative for the presence of
inflammable substances.
Subsequently, private respondents collected
P35,000.00 on the insurance on their house and
the contents thereof.
On January 23, 1975, private respondents filed an
action for damages against petitioner, praying for a
judgment in their favor awarding P150,000.00 as
actual damages, P50,000.00 as moral damages,
P25,000.00 as exemplary damages, P20,000.00 as
attorney's fees and costs. The Court of First
Instance held for private respondents:
WHEREFORE, the Court hereby
renders judgment, in favor of
plaintiffs, and against the defendant:
1. Ordering the defendant to pay to
the plaintiffs the amount of
P80,000.00 for damages suffered by
said plaintiffs for the loss of their
house, with interest of 6% from the
date of the filing of the Complaint
on January 23, 1975, until fully paid;
2. Ordering the defendant to pay to
the plaintiffs the sum of P50,000.00
for the loss of plaintiffs' furnitures,
religious images, silverwares,
chinawares, jewelries, books,
kitchen utensils, clothing and other
valuables, with interest of 6% from
date of the filing of the Complaint
on January 23, 1975, until fully paid;
3. Ordering the defendant to pay to
the plaintiffs the sum of P5,000.00
as moral damages, P2,000.00 as
exemplary damages, and P5,000.00
as and by way of attorney's fees;
4. With costs against the defendant;
5. Counterclaim is ordered
dismissed, for lack of merit. [CA
Decision, pp. 1-2; Rollo, pp. 29-30.]
On appeal, the Court of Appeals, in a decision
promulgated on November 19, 1979, affirmed the
decision of the trial court but reduced the award of
damages:
WHEREFORE, the decision declaring
the defendants liable is affirmed.
The damages to be awarded to
plaintiff should be reduced to
P70,000.00 for the house and
P50,000.00 for the furniture and
other fixtures with legal interest
from the date of the filing of the
complaint until full payment
thereof. [CA Decision, p. 7; Rollo, p.
35.]
A motion for reconsideration was filed on
December 3, 1979 but was denied in a resolution
dated February 18, 1980. Hence, petitioner filed
the instant petition for review on February 22,
1980. After the comment and reply were filed, the
Court resolved to deny the petition for lack of
merit on June 11, 1980.
However, petitioner filed a motion for
reconsideration, which was granted, and the
petition was given due course on September 12,
1980. After the parties filed their memoranda, the
case was submitted for decision on January 21,
1981.
Petitioner contends that the Court of Appeals
erred:
1. In not deducting the sum of P35,000.00, which
private respondents recovered on the insurance on
their house, from the award of damages.
2. In awarding excessive and/or unproved
damages.
3. In applying the doctrine of res ipsa loquitur to
the facts of the instant case.
The pivotal issue in this case is the applicability of
the common law doctrine of res ipsa loquitur, the
issue of damages being merely consequential. In
view thereof, the errors assigned by petitioner shall
be discussed in the reverse order.
1. The doctrine of res ipsa loquitur, whose
application to the instant case petitioner objects
to, may be stated as follows:
Where the thing which caused the
injury complained of is shown to be
under the management of the
defendant or his servants and the
 accident is such as in the ordinary
course of things does not happen if
those who have its management or
control use proper care, it affords
reasonable evidence, in the absence
of explanation by the defendant,
that the accident arose from want of
care. [Africa v. Caltex (Phil.), Inc.,
G.R. No. L-12986, March 31, 1966,
16 SCRA 448.]
Thus, in Africa, supra, where fire broke out in a
Caltex service station while gasoline from a tank
truck was being unloaded into an underground
storage tank through a hose and the fire spread to
and burned neighboring houses, this Court,
applying the doctrine of res ipsa loquitur, adjudged
Caltex liable for the loss.
The facts of the case likewise call for the
application of the doctrine, considering that in the
normal course of operations of a furniture
manufacturing shop, combustible material such as
wood chips, sawdust, paint, varnish and fuel and
lubricants for machinery may be found thereon.
It must also be noted that negligence or want of
care on the part of petitioner or its employees was
not merely presumed. The Court of Appeals found
that petitioner failed to construct a firewall
between its shop and the residence of private
respondents as required by a city ordinance; that
the fire could have been caused by a heated motor
or a lit cigarette; that gasoline and alcohol were
used and stored in the shop; and that workers
sometimes smoked inside the shop [CA Decision, p.
5; Rollo, p. 33.]
Even without applying the doctrine of res ipsa
loquitur, petitioner's failure to construct a firewall
in accordance with city ordinances would suffice to
support a finding of negligence.
Even then the fire possibly would
not have spread to the neighboring
houses were it not for another
negligent omission on the part of
defendants, namely, their failure to
provide a concrete wall high enough
to prevent the flames from leaping
over it. As it was the concrete wall
was only 2-1/2 meters high, and
beyond that height it consisted
merely of galvanized iron sheets,
which would predictably crumble
and melt when subjected to intense
heat. Defendant's negligence,
therefore, was not only with respect
to the cause of the fire but also with
respect to the spread thereof to the
neighboring houses.[Africa v. Caltex
(Phil.), Inc., supra; Emphasis
supplied.]
In the instant case, with more reason should
petitioner be found guilty of negligence since it had
failed to construct a firewall between its property
and private respondents' residence which
sufficiently complies with the pertinent city
ordinances. The failure to comply with an
ordinance providing for safety regulations had
been ruled by the Court as an act of negligence
[Teague v. Fernandez, G.R. No. L-29745, June 4,
1973, 51 SCRA 181.]
The Court of Appeals, therefore, had more than
adequate basis to find petitioner liable for the loss
sustained by private respondents.
2. Since the amount of the loss sustained by private
respondents constitutes a finding of fact, such
finding by the Court of Appeals should not be
disturbed by this Court [M.D. Transit & Taxi Co.,
Inc. v. Court of Appeals, G.R. No. L-23882, February
17, 1968, 22 SCRA 559], more so when there is no
showing of arbitrariness.
In the instant case, both the CFI and the Court of
Appeals were in agreement as to the value of
private respondents' furniture and fixtures and
personal effects lost in the fire (i.e. P50,000.00).
With regard to the house, the Court of Appeals
reduced the award to P70,000.00 from P80,000.00.
Such cannot be categorized as arbitrary considering
that the evidence shows that the house was built in
1951 for P40,000.00 and, according to private
respondents, its reconstruction would cost
P246,000.00. Considering the appreciation in value
of real estate and the diminution of the real value
of the peso, the valuation of the house at
P70,000.00 at the time it was razed cannot be said
to be excessive.
3. While this Court finds that petitioner is liable for
damages to private respondents as found by the
Court of Appeals, the fact that private respondents
have been indemnified by their insurer in the
amount of P35,000.00 for the damage caused to
their house and its contents has not escaped the
attention of the Court. Hence, the Court holds that
in accordance with Article 2207 of the Civil Code
the amount of P35,000.00 should be deducted
from the amount awarded as damages. Said article
provides:
Art. 2207. If the plaintiffs 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, 3.
the insurance company is
subrogated to the rights of the G.R. No. L-52756 October 12, 1987
insured against the wrongdoer or
the person who violated the MANILA MAHOGANY MANUFACTURING
contract. If the amount paid by the CORPORATION, petitioner,
vs.
insurance company does not fully
COURT OF APPEALS AND ZENITH INSURANCE
cover the injury or loss, the
CORPORATION, respondents.
aggrieved party shall be entitled to
recover the deficiency from the
person causing the loss or injury.
(Emphasis supplied.]
PADILLA, J:
The law is clear and needs no interpretation.
Petition to review the decision * of the Court of
Having been indemnified by their insurer, private
Appeals, in CA-G.R. No. SP-08642, dated 21 March
respondents are only entitled to recover the
1979, ordering petitioner Manila Mahogany
deficiency from petitioner.
Manufacturing Corporation to pay private
respondent Zenith Insurance Corporation the sum
On the other hand, the insurer, if it is so minded,
of Five Thousand Pesos (P5,000.00) with 6% annual
may seek reimbursement of the amount it
interest from 18 January 1973, attorney's fees in
indemnified private respondents from petitioner.
the sum of five hundred pesos (P500.00), and costs
This is the essence of its right to be subrogated to
of suit, and the resolution of the same Court, dated
the rights of the insured, as expressly provided in
8 February 1980, denying petitioner's motion for
Article 2207. Upon payment of the loss incurred by
reconsideration of it's decision.
the insured, the insurer is entitled to be
subrogated pro tanto to any right of action which
From 6 March 1970 to 6 March 1971, petitioner
the insured may have against the third person
insured its Mercedes Benz 4-door sedan with
whose negligence or wrongful act caused the loss
respondent insurance company. On 4 May 1970
[Fireman's Fund Insurance Co. v. Jamila & Co., Inc.,
the insured vehicle was bumped and damaged by a
G.R. No. L-27427, April 7, 1976, 70 SCRA 323.]
truck owned by San Miguel Corporation. For the
damage caused, respondent company paid
Under Article 2207, the real party in interest with
petitioner five thousand pesos (P5,000.00) in
regard to the indemnity received by the insured is
amicable settlement. Petitioner's general manager
the insurer [Phil. Air Lines, Inc. v. Heald Lumber Co.,
executed a Release of Claim, subrogating
101 Phil. 1031, (1957).] Whether or not the insurer
respondent company to all its right to action
should exercise the rights of the insured to which it
against San Miguel Corporation.
had been subrogated lies solely within the former's
sound discretion. Since the insurer is not a party to
On 11 December 1972, respondent company wrote
the case, its identity is not of record and no claim is
Insurance Adjusters, Inc. to demand
made on its behalf, the private respondent's
reimbursement from San Miguel Corporation of
insurer has to claim his right to reimbursement of
the amount it had paid petitioner. Insurance
the P35,000.00 paid to the insured.
Adjusters, Inc. refused reimbursement, alleging
that San Miguel Corporation had already paid
WHEREFORE, in view of the foregoing, the decision
petitioner P4,500.00 for the damages to
of the Court of Appeals is hereby AFFIRMED with
petitioner's motor vehicle, as evidenced by a cash
the following modifications as to the damages
voucher and a Release of Claim executed by the
awarded for the loss of private respondents' house,
General Manager of petitioner discharging San
considering their receipt of P35,000.00 from their
Miguel Corporation from "all actions, claims,
insurer: (1) the damages awarded for the loss of
demands the rights of action that now exist or
the house is reduced to P35,000.00; and (2) the
hereafter [sic] develop arising out of or as a
right of the insurer to subrogation and thus seek
consequence of the accident."
reimbursement from petitioner for the P35,000.00
it had paid private respondents is recognized.
Respondent insurance company thus demanded
from petitioner reimbursement of the sum of
SO ORDERED.
P4,500.00 paid by San Miguel Corporation.
Petitioner refused; hence, respondent company
filed suit in the City Court of Manila for the
recovery of P4,500.00. The City Court ordered
petitioner to pay respondent P4,500.00. On appeal
the Court of First Instance of Manila affirmed the
City Court's decision in toto, which CFI decision was
affirmed by the Court of Appeals, with the
modification that petitioner was to pay respondent
the total amount of P5,000.00 that it had earlier
received from the respondent insurance company.
Petitioner now contends it is not bound to pay
P4,500.00, and much more, P5,000.00 to
respondent company as the subrogation in the
Release of Claim it executed in favor of respondent
was conditioned on recovery of the total amount of
damages petitioner had sustained. Since total
damages were valued by petitioner at P9,486.43
and only P5,000.00 was received by petitioner from
respondent, petitioner argues that it was entitled
to go after San Miguel Corporation to claim the
additional P4,500.00 eventually paid to it by the
latter, without having to turn over said amount to
respondent. Respondent of course disputes this
allegation and states that there was no
qualification to its right of subrogation under the
Release of Claim executed by petitioner, the
contents of said deed having expressed all the
intents and purposes of the parties.
To support its alleged right not to return the
P4,500.00 paid by San Miguel Corporation,
petitioner cites Art. 2207 of the Civil Code, which
states:
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. If the amount paid by the
insurance company does not fully
cover the injury or loss the
aggrieved party shall be entitled to
recover the deficiency from the
person causing the loss or injury.
Petitioner also invokes Art. 1304 of the Civil Code,
stating.
A creditor, to whom partial payment
has been made, may exercise his
right for the remainder, and he shall
be preferred to the person who has
been subrogated in his place in
virtue of the partial payment of the
same credit.
We find petitioners arguments to be untenable and
without merit. In the absence of any other
evidence to support its allegation that a
gentlemen's agreement existed between it and
respondent, not embodied in the Release of Claim,
such ease of Claim must be taken as the best
evidence of the intent and purpose of the parties.
Thus, the Court of Appeals rightly stated:
Petitioner argues that the release
claim it executed subrogating
Private respondent to any right of
action it had against San Miguel
Corporation did not preclude Manila
Mahogany from filing a deficiency
claim against the wrongdoer. Citing
Article 2207, New Civil Code, to the
effect that if the amount paid by an
insurance company does not fully
cover the loss, the aggrieved party
shall be entitled to recover the
deficiency from the person causing
the loss, petitioner claims a
preferred right to retain the amount
coming from San Miguel
Corporation, despite the
subrogation in favor of Private
respondent.
Although petitioners right to file a
deficiency claim against San Miguel
Corporation is with legal basis,
without prejudice to the insurer's
right of subrogation, nevertheless
when Manila Mahogany executed
another release claim (Exhibit K)
discharging San Miguel Corporation
from "all actions, claims, demands
and rights of action that now exist or
hereafter arising out of or as a
consequence of the accident" after
the insurer had paid the proceeds of
the policy- the compromise
agreement of P5,000.00 being based
on the insurance policy-the insurer
is entitled to recover from the
insured the amount of insurance
money paid (Metropolitan Casualty
Insurance Company of New York vs.
Badler, 229 N.Y.S. 61, 132 Misc. 132
cited in Insurance Code and
Insolvency Law with comments and
annotations, H.B. Perez 1976, p.
151). Since petitioner by its own acts
released San Miguel Corporation,
thereby defeating private
 respondents, the right of
subrogation, the right of action of
petitioner against the insurer was
also nullified. (Sy Keng & Co. vs.
Queensland Insurance Co., Ltd., 54
O.G. 391) Otherwise stated: private
respondent may recover the sum of
P5,000.00 it had earlier paid to
petitioner. 1
As held in Phil. Air Lines v. Heald Lumber Co., 2
If a property is insured and the
owner receives the indemnity from
the insurer, it is provided in [Article
2207 of the New Civil Code] that the
insurer is deemed subrogated to the
rights of the insured against the
wrongdoer and if the amount paid
by the insurer does not fully cover
the loss, then the aggrieved party is
the one entitled to recover the
deficiency. ... Under this legal
provision, the real party in interest
with regard to the portion of the
indemnity paid is the insurer and not
the insured 3 (Emphasis supplied)
The decision of the respondent court ordering
petitioner to pay respondent company, not the
P4,500.00 as originally asked for, but P5,000.00,
the amount respondent company paid petitioner
as insurance, is also in accord with law and
jurisprudence. In disposing of this issue, the Court
of Appeals held:
... petitioner is entitled to keep the
sum of P4,500.00 paid by San Miguel
Corporation under its clear right to
file a deficiency claim for damages
incurred, against the wrongdoer,
should the insurance company not
fully pay for the injury caused
(Article 2207, New Civil
Code). However, when petitioner
released San Miguel Corporation
from any liability, petitioner's right
to retain the sum of P5,000.00 no
longer existed, thereby entitling
private respondent to recover the
same. (Emphasis supplied)
As has been observed:
... The right of subrogation can only
exist after the insurer has paid the
otherwise the insured will be
deprived of his right to full
indemnity. If the insurance proceeds
are not sufficient to cover the
damages suffered by the insured,
then he may sue the party
responsible for the damage for the
the [sic] remainder. To the extent of
the amount he has already received
from the insurer enjoy's [sic] the
right of subrogation.
Since the insurer can be subrogated
to only such rights as the insured
may have, should the insured, after
receiving payment from the insurer,
release the wrongdoer who caused
the loss, the insurer loses his rights
against the latter. But in such a case,
the insurer will be entitled to recover
from the insured whatever it has
paid to the latter, unless the release
was made with the consent of the
insurer. 4(Emphasis supplied.)
And even if the specific amount asked for in the
complaint is P4,500.00 only and not P5,000.00, still,
the respondent Court acted well within its
discretion in awarding P5,000.00, the total amount
paid by the insurer. The Court of Appeals rightly
reasoned as follows:
It is to be noted that private
respondent, in its companies, prays
for the recovery, not of P5,000.00 it
had paid under the insurance policy
but P4,500.00 San Miguel
Corporation had paid to petitioner.
On this score, We believe the City
Court and Court of First Instance
erred in not awarding the proper
relief. Although private respondent
prays for the reimbursement of
P4,500.00 paid by San Miguel
Corporation, instead of P5,000.00
paid under the insurance policy, the
trial court should have awarded the
latter, although not prayed for,
under the general prayer in the
complaint "for such further or other
relief as may be deemed just or
equitable, (Rule 6, Sec. 3, Revised
Rules of Court; Rosales vs. Reyes
Ordoveza, 25 Phil. 495 ; Cabigao vs.
Lim, 50 Phil. 844; Baguiro vs. Barrios
Tupas, 77 Phil 120).
WHEREFORE, premises considered, the petition is
DENIED. The judgment appealed from is hereby
AFFIRMED with costs against petitioner.
SO ORDERED.

4.
G.R. No. L-15895 November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate
of the late Joaquin Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF
CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.
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 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 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 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 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.
5.
G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY,
LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO, defendants-appellants.
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.
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 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
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. 2Otherwise, 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;
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 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 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, 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.
6.
G.R. No. L-8151 December 16, 1955
VIRGINIA CALANOC, petitioner,
vs.
COURT OF APPEALS and THE PHILIPPINE
AMERICAN LIFE INSURANCE CO., respondents.
Lucio Javillonar for petitioner.
J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and
Anselmo A. Reyes for respondents.
BAUTISTA ANGELO, J.:
This suit involves the collection of P2,000
representing the value of a supplemental policy
covering accidental death which was secured by
one Melencio Basilio from the Philippine American
Life Insurance Company. The case originated in the
Municipal Court of Manila and judgment being
favorable to the plaintiff it was appealed to the
court of first instance. The latter court affirmed the
judgment but on appeal to the Court of Appeals
the judgment was reversed and the case is now
before us on a petition for review.
Melencio Basilio was a watchman of the Manila
Auto Supply located at the corner of Avenida Rizal
and Zurbaran. He secured a life insurance policy
from the Philippine American Life Insurance
Company in the amount of P2,000 to which was
attached a supplementary contract covering death
by accident. On January 25, 1951, he died of a
gunshot wound on the occasion of a robbery
committed in the house of Atty. Ojeda at the
corner of Oroquieta and Zurbaan streets. Virginia
Calanoc, the widow, was paid the sum of P2,000,
face value of the policy, but when she demanded
the payment of the additional sum of P2,000
representing the value of the supplemental policy,
the company refused alleging, as main defense,
that the deceased died because he was murdered
by a person who took part in the commission of the
robbery and while making an arrest as an officer of
the law which contingencies were expressly
excluded in the contract and have the effect of
exempting the company from liability.
The pertinent facts which need to be considered
for the determination of the questions raised are
those reproduced in the decision of the Court of
Appeals as follows:
The circumstances surrounding the death of
Melencio Basilio show that when he was
killed at about seven o'clock in the night of
January 25, 1951, he was on duty as
watchman of the Manila Auto Supply at the
corner of Avenida Rizal and Zurbaran; that it
turned out that Atty. Antonio Ojeda who
had his residence at the corner of Zurbaran
and Oroquieta, a block away from Basilio's
station, had come home that night and
found that his house was well-lighted, but
with the windows closed; that getting
suspicious that there were culprits in his
house, Atty. Ojeda retreated to look for a
policeman and finding Basilio in khaki
uniform, asked him to accompany him to
the house with the latter refusing on the
ground that he was not a policeman, but
suggesting that Atty. Ojeda should ask the
traffic policeman on duty at the corner of
Rizal Avenue and Zurbaran; that Atty. Ojeda
went to the traffic policeman at said corner
and reported the matter, asking the
policeman to come along with him, to
which the policeman agreed; that on the
way to the Ojeda residence, the policeman
and Atty. Ojeda passed by Basilio and
somehow or other invited the latter to
come along; that as the tree approached
the Ojeda residence and stood in front of
the main gate which was covered with
galvanized iron, the fence itself being partly
concrete and partly adobe stone, a shot was
fired; that immediately after the shot, Atty.
Ojeda and the policeman sought cover; that
the policeman, at the request of Atty.
Ojeda, left the premises to look for
reinforcement; that it turned out
afterwards that the special watchman
Melencio Basilio was hit in the abdomen,
the wound causing his instantaneous death;
that the shot must have come from inside
the yard of Atty. Ojeda, the bullet passing
through a hole waist-high in the galvanized
iron gate; that upon inquiry Atty. Ojeda
found out that the savings of his children in
the amount of P30 in coins kept in his
aparador contained in stockings were taken
away, the aparador having been ransacked;
that a month thereafter the corresponding
investigation conducted by the police
authorities led to the arrest and
prosecution of four persons in Criminal Case
No. 15104 of the Court of First Instance of
Manila for 'Robbery in an Inhabited House
and in Band with Murder'.
It is contended in behalf of the company that
Basilio was killed which "making an arrest as an
officer of the law" or as a result of an "assault or
murder" committed in the place and therefore his
death was caused by one of the risks excluded by
the supplementary contract which exempts the
company from liability. This contention was upheld
by the Court of Appeals and, in reaching this
conclusion, made the following comment:
From the foregoing testimonies, we find
that the deceased was a watchman of the
Manila Auto Supply, and, as such, he was
not boud to leave his place and go with
Atty. Ojeda and Policeman Magsanoc to see
the trouble, or robbery, that occurred in the
house of Atty. Ojeda. In fact, according to
the finding of the lower court, Atty. Ojeda
finding Basilio in uniform asked him to
accompany him to his house, but the latter
refused on the ground that he was not a
policeman and suggested to Atty. Ojeda to
ask help from the traffic policeman on duty
at the corner of Rizal Avenue and Zurbaran,
but after Atty. Ojeda secured the help of
the traffic policeman, the deceased went
with Ojeda and said traffic policeman to the
residence of Ojeda, and while the deceased
was standing in front of the main gate of
 said residence, he was shot and thus died.
The death, therefore, of Basilio, although
unexpected, was not caused by an accident,
being a voluntary and intentional act on the
part of the one wh robbed, or one of those
who robbed, the house of Atty. Ojeda.
Hence, it is out considered opinion that the
death of Basilio, though unexpected, cannot
be considered accidental, for his death
occurred because he left his post and joined
policeman Magsanoc and Atty. Ojeda to
repair to the latter's residence to see what
happened thereat. Certainly, when Basilio
joined Patrolman Magsanoc and Atty.
Ojeda, he should have realized the danger
to which he was exposing himself, yet,
instead of remaining in his place, he went
with Atty. Ojeda and Patrolman Magsanoc
to see what was the trouble in Atty. Ojeda's
house and thus he was fatally shot.
We dissent from the above findings of the Court of
Appeals. For one thing, Basilio was a watchman of
the Manila Auto Supply which was a block away
from the house of Atty. Ojeda where something
suspicious was happening which caused the latter
to ask for help. While at first he declied the
invitation of Atty. Ojeda to go with him to his
residence to inquire into what was going on
because he was not a regular policeman, he later
agreed to come along when prompted by the
traffic policeman, and upon approaching the gate
of the residence he was shot and died. The
circumstance that he was a mere watchman and
had no duty to heed the call of Atty. Ojeda should
not be taken as a capricious desire on his part to
expose his life to danger considering the fact that
the place he was in duty-bound to guard was only a
block away. In volunteering to extend help under
the situation, he might have thought, rightly or
wrongly, that to know the truth was in the interest
of his employer it being a matter that affects the
security of the neighborhood. No doubt there was
some risk coming to him in pursuing that errand,
but that risk always existed it being inherent in the
position he was holding. He cannot therefore be
blamed solely for doing what he believed was in
keeping with his duty as a watchman and as a
citizen. And he cannot be considered as making an
arrest as an officer of the law, as contended, simply
because he went with the traffic policeman, for
certainly he did not go there for that purpose nor
was he asked to do so by the policeman.
Much less can it be pretended that Basilio died in
the course of an assault or murder considering the
very nature of these crimes. In the first place, there
is no proof that the death of Basilio is the result of
either crime for the record is barren of any
circumstance showing how the fatal shot was fired.
Perhaps this may be clarified in the criminal case
now pending in court as regards the incident but
before that is done anything that might be said on
the point would be a mere conjecture. Nor can it
be said that the killing was intentional for there is
the possibility that the malefactor had fired the
shot merely to scare away the people around for
his own protection and not necessarily to kill or hit
the victim. In any event, while the act may not
excempt the triggerman from liability for the
damage done, the fact remains that the happening
was a pure accident on the part of the victim. The
victim could have been either the policeman or
Atty. Ojeda for it cannot be pretended that the
malefactor aimed at the deceased precisely
because he wanted to take his life.
We take note that these defenses are included
among the risks exluded in the supplementary
contract which enumerates the cases which may
exempt the company from liability. While as a
general rule "the parties may limit the coverage of
the policy to certain particular accidents and risks
or causes of loss, and may expressly except other
risks or causes of loss therefrom" (45 C. J. S. 781-
782), however, it is to be desired that the terms
and phraseology of the exception clause be clearly
expressed so as to be within the easy grasp and
understanding of the insured, for if the terms are
doubtful or obscure the same must of necessity be
interpreted or resolved aganst the one who has
caused the obscurity. (Article 1377, new Civil Code)
And so it has bene generally held that the "terms in
an insurance policy, which are ambiguous,
equivacal, or uncertain . . . are to be construed
strictly and most strongly against the insurer, and
liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the
insured, especially where a forfeiture is involved"
(29 Am. Jur., 181), and the reason for this rule is
that he "insured usually has no voice in the
selection or arrangement of the words employed
and that the language of the contract is selected
with great care and deliberation by experts and
legal advisers employed by, and acting exclusively
in the interest of, the insurance company." (44 C. J.
S., p. 1174.)
Insurance is, in its nature, complex and
difficult for the layman to understand.
Policies are prepared by experts who know
and can anticipate the bearings and
possible complications of every
contingency. So long as insurance
companies insist upon the use of
ambiguous, intricate and technical
provisions, which conceal rather than
frankly disclose, their own intentions, the
 courts must, in fairness to those who
purchase insurance, construe every
ambiguity in favor of the insured. (Algoe vs.
Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA
1917A, 1237.)lawphi1.net
An insurer should not be allowed, by the
use of obscure phrases and exceptions, to
defeat the very purpose for which the
policy was procured. (Moore vs. Aetna Life
Insurance Co., LRA 1915D, 264.)
We are therefore persuaded to conclude that the
circumstances unfolded in the present case do not
warrant the finding that the death of the
unfortunate victim comes within the purview of
the exception clause of the supplementary policy
and, hence, do not exempt the company from
liability.
Wherefore, reversing the decision appealed from,
we hereby order the company to pay petitioner-
appellant the amount of P2,000, with legal interest
from January 26, 1951 until fully paid, with costs.
xxx...............xxx...............xxx
7.
[G.R. No. 112360. July 18, 2000]
RIZAL SURETY & INSURANCE
COMPANY, petitioner, vs. COURT OF
APPEALS and TRANSWORLD KNITTING
MILLS, INC., respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Review
on Certiorari under Rule 45 of the Rules of
Court seeking to annul and set aside the
July 15, 1993 Decision[1] and October 22,
1993 Resolution[2] of the Court of
Appeals[3] in CA-G.R. CV NO. 28779, which
modified the Ruling[4] of the Regional Trial
Court of Pasig, Branch 161, in Civil Case No.
46106.
The antecedent facts that matter are as
follows:
On March 13, 1980, Rizal Surety &
Insurance Company (Rizal Insurance) issued
Fire Insurance Policy No. 45727 in favor of
Transworld Knitting Mills, Inc. (Transworld),
initially for One Million (P1,000,000.00)
Pesos and eventually increased to One
Million Five Hundred Thousand
(P1,500,000.00) Pesos, covering the period
from August 14, 1980 to March 13, 1981.
Pertinent portions of subject policy on the
buildings insured, and location thereof,
read:
"On stocks of finished and/or
unfinished products, raw materials
and supplies of every kind and
description, the properties of the
Insureds and/or held by them in
trust, on commission or on joint
account with others and/or for
which they (sic) responsible in case
of loss whilst contained and/or
stored during the currency of this
Policy in the premises occupied by
them forming part of the buildings
situate (sic) within own Compound
at MAGDALO STREET, BARRIO
UGONG, PASIG, METRO MANILA,
PHILIPPINES, BLOCK NO. 601.
Said building of four-span lofty one
storey in height with mezzanine
portions is constructed of reinforced
concrete and hollow blocks and/or
concrete under galvanized iron roof
and occupied as hosiery mills,
garment and lingerie factory,
transistor-stereo assembly plant,
offices, warehouse and caretaker's
quarters.
'Bounds in front partly by one-storey
concrete building under galvanized
iron roof occupied as canteen and
guardhouse, partly by building of
two and partly one storey
constructed of concrete below,
timber above undergalvanized iron
roof occupied as garage and
 quarters and partly by open space
and/or tracking/ packing, beyond
which is the aforementioned
Magdalo Street; on its right and left
by driveway, thence open spaces,
and at the rear by open spaces.'"[5]
The same pieces of property insured with
the petitioner were also insured with New
India Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the
compound of Transworld, razing the middle
portion of its four-span building and partly
gutting the left and right sections thereof. A
two-storey building (behind said four-span
building) where fun and amusement
machines and spare parts were stored, was
also destroyed by the fire.
Transworld filed its insurance claims with
Rizal Surety & Insurance Company and New
India Assurance Company but to no avail.
On May 26, 1982, private respondent
brought against the said insurance
companies an action for collection of sum
of money and damages, docketed as Civil
Case No. 46106 before Branch 161 of the
then Court of First Instance of Rizal; praying
for judgment ordering Rizal Insurance and
New India to pay the amount of P2,747,
867.00 plus legal interest, P400,000.00 as
attorney's fees, exemplary damages,
expenses of litigation of P50,000.00 and
costs of suit.[6]
Petitioner Rizal Insurance countered that its
fire insurance policy sued upon covered
only the contents of the four-span building,
which was partly burned, and not the
damage caused by the fire on the two-
storey annex building.[7]
On January 4, 1990, the trial court rendered
its decision; disposing as follows:
"ACCORDINGLY, judgment is hereby
rendered as follows:
(1)Dismissing the case as against The
New India Assurance Co., Ltd.;
(2) Ordering defendant Rizal Surety
And Insurance Company to pay
Transwrold (sic) Knitting Mills, Inc.
the amount of P826, 500.00
representing the actual value of the
losses suffered by it; and
(3) Cost against defendant Rizal
Surety and Insurance Company.
SO ORDERED."[8]
Both the petitioner, Rizal Insurance
Company, and private respondent,
Transworld Knitting Mills, Inc., went to the
Court of Appeals, which came out with its
decision of July 15, 1993 under attack, the
decretal portion of which reads:
"WHEREFORE, and upon all the
foregoing, the decision of the court
below is MODIFIED in that
defendant New India Assurance
Company has and is hereby required
to pay plaintiff-appellant the
amount of P1,818,604.19 while the
other Rizal Surety has to pay the
plaintiff-appellant P470,328.67,
based on the actual losses sustained
by plaintiff Transworld in the fire,
totalling P2,790,376.00 as against
the amounts of fire insurance
coverages respectively extended by
New India in the amount of
P5,800,000.00 and Rizal Surety and
Insurance Company in the amount
of P1,500,000.00.
No costs.
SO ORDERED."[9]
On August 20, 1993, from the aforesaid
judgment of the Court of Appeals New India
appealed to this Court theorizing inter
alia that the private respondent could not
be compensated for the loss of the fun and
amusement machines and spare parts
stored at the two-storey building because it
(Transworld) had no insurable interest in
said goods or items.
On February 2, 1994, the Court denied the
appeal with finality in G.R. No. L-111118
(New India Assurance Company Ltd. vs.
Court of Appeals).
Petitioner Rizal Insurance and private
respondent Transworld, interposed a
Motion for Reconsideration before the
Court of Appeals, and on October 22, 1993,
the Court of Appeals reconsidered its
decision of July 15, 1993, as regards the
imposition of interest, ruling thus:
 "WHEREFORE, the Decision of July
15, 1993 is amended but only
insofar as the imposition of legal
interest is concerned, that, on the
assessment against New India
Assurance Company on the amount
of P1,818,604.19 and that against
Rizal Surety & Insurance Company
on the amount of P470,328.67, from
May 26, 1982 when the complaint
was filed until payment is made. The
rest of the said decision is retained
in all other respects.
SO ORDERED."[10]
Undaunted, petitioner Rizal Surety &
Insurance Company found its way to this
Court via the present Petition, contending
that:
I.....SAID DECISION (ANNEX A) ERRED
IN ASSUMING THAT THE ANNEX
BUILDING WHERE THE BULK OF THE
BURNED PROPERTIES WERE
STORED, WAS INCLUDED IN THE
COVERAGE OF THE INSURANCE
POLICY ISSUED BY RIZAL SURETY TO
TRANSWORLD.
II.....SAID DECISION AND
RESOLUTION (ANNEXES A AND B)
ERRED IN NOT CONSIDERING THE
PICTURES (EXHS. 3 TO 7-C-RIZAL
SURETY), TAKEN IMMEDIATELY
AFTER THE FIRE, WHICH CLEARLY
SHOW THAT THE PREMISES
OCCUPIED BY TRANSWORLD,
WHERE THE INSURED PROPERTIES
WERE LOCATED, SUSTAINED
PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED
IN NOT HOLDING THAT
TRANSWORLD HAD ACTED IN
PALPABLE BAD FAITH AND WITH
MALICE IN FILING ITS CLEARLY
UNFOUNDED CIVIL ACTION, AND IN
NOT ORDERING TRANSWORLD TO
PAY TO RIZAL SURETY MORAL AND
PUNITIVE DAMAGES (ART. 2205,
CIVIL CODE), PLUS ATTORNEY'S FEES
AND EXPENSES OF LITIGATION (ART.
2208 PARS. 4 and 11, CIVIL CODE).[11]
The Petition is not impressed with merit.
It is petitioner's submission that the fire
insurance policy litigated upon protected
only the contents of the main building
(four-span),[12]and did not include those
stored in the two-storey annex building. On
the other hand, the private respondent
theorized that the so called "annex" was
not an annex but was actually an integral
part of the four-span building[13] and
therefore, the goods and items stored
therein were covered by the same fire
insurance policy.
Resolution of the issues posited here hinges
on the proper interpretation of the
stipulation in subject fire insurance policy
regarding its coverage, which reads:
"xxx contained and/or stored during
the currency of this Policy in the
premises occupied by them forming
part of the buildings situate (sic)
within own Compound xxx"
Therefrom, it can be gleaned unerringly
that the fire insurance policy in question did
not limit its coverage to what were stored
in the four-span building. As opined by the
trial court of origin, two requirements must
concur in order that the said fun and
amusement machines and spare parts
would be deemed protected by the fire
insurance policy under scrutiny, to wit:
"First, said properties must be
contained and/or stored in the areas
occupied by Transworld and second,
said areas must form part of the
building described in the policy
xxx"[14]
'Said building of four-
span lofty one storey
in height with
mezzanine portions is
constructed of
reinforced concrete
and hollow blocks
and/or concrete
under galvanized iron
roof and occupied as
hosiery mills,
garment and lingerie
factory, transistor-
stereo assembly
plant, offices, ware
house and caretaker's
quarter.'
The Court is mindful of the well-entrenched
doctrine that factual findings by the Court
of Appeals are conclusive on the parties and
not reviewable by this Court, and the same
carry even more weight when the Court of
Appeals has affirmed the findings of fact
arrived at by the lower court.[15]
In the case under consideration, both the
trial court and the Court of Appeals found
that the so called "annex " was not an
annex building but an integral and
inseparable part of the four-span building
described in the policy and consequently,
the machines and spare parts stored
therein were covered by the fire insurance
in dispute. The letter-report of the Manila
Adjusters and Surveyor's Company, which
petitioner itself cited and invoked, describes
the "annex" building as follows:
"Two-storey building constructed of
partly timber and partly concrete
hollow blocks under g.i. roof which
is adjoining and intercommunicating
with the repair of the first right span
of the lofty storey building and
thence by property fence wall."[16]
Verily, the two-storey building involved, a
permanent structure which adjoins and
intercommunicates with the "first right
span of the lofty storey building",[17] formed
part thereof, and meets the requisites for
compensability under the fire insurance
policy sued upon.
So also, considering that the two-storey
building aforementioned was already
existing when subject fire insurance policy
contract was entered into on January 12,
1981, having been constructed sometime in
1978,[18] petitioner should have specifically
excluded the said two-storey building from
the coverage of the fire insurance if minded
to exclude the same but if did not, and
instead, went on to provide that such fire
insurance policy covers the products, raw
materials and supplies stored within the
premises of respondent Transworld which
was an integral part of the four-span
building occupied by Transworld, knowing
fully well the existence of such building
adjoining and intercommunicating with the
right section of the four-span building.
After a careful study, the Court does not
find any basis for disturbing what the lower
courts found and arrived at.
Indeed, the stipulation as to the coverage of
the fire insurance policy under controversy
has created a doubt regarding the portions
of the building insured thereby. Article 1377
of the New Civil Code provides:
"Art.1377. The interpretation of
obscure words or stipulations in a
contract shall not favor the party
who caused the obscurity"
Conformably, it stands to reason that the
doubt should be resolved against the
petitioner, Rizal Surety Insurance Company,
whose lawyer or managers drafted the fire
insurance policy contract under scrutiny.
Citing the aforecited provision of law in
point, the Court in Landicho vs. Government
Service Insurance System,[19] ruled:
"This is particularly true as regards
insurance policies, in respect of
which it is settled that the 'terms in
an insurance policy, which are
ambiguous, equivocal, or uncertain x
x x are to be construed strictly and
most strongly against the insurer,
and liberally in favor of the insured
so as to effect the dominant purpose
of indemnity or payment to the
insured, especially where forfeiture
is involved' (29 Am. Jur., 181), and
the reason for this is that the
'insured usually has no voice in the
selection or arrangement of the
words employed and that the
language of the contract is selected
with great care and deliberation by
experts and legal advisers employed
by, and acting exclusively in the
interest of, the insurance company.'
(44 C.J.S., p. 1174).""[20]
Equally relevant is the following disquisition
of the Court in Fieldmen's Insurance
Company, Inc. vs. Vda. De Songco,[21] to wit:
"'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
[sic] d'adhesion), in contrast to these
entered into by parties bargaining
on an equal footing, such contracts
(of which policies of insurance and
international bills of lading are
prime example) 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.)'"[22]
The issue of whether or not Transworld has
an insurable interest in the fun and
amusement machines and spare parts,
which entitles it to be indemnified for the
loss thereof, had been settled in G.R. No. L-
111118, entitled New India Assurance
Company, Ltd., vs. Court of Appeals, where
the appeal of New India from the decision
of the Court of Appeals under review, was
denied with finality by this Court on
February 2, 1994.
The rule on conclusiveness of judgment,
which obtains under the premises,
precludes the relitigation of a particular fact
or issue in another action between the
same parties based on a different claim or
cause of action. "xxx the judgment in the
prior action operates as estoppel only as to
those matters in issue or points
controverted, upon the determination of
which the finding or judgment was
rendered. In fine, the previous judgment is
conclusive in the second case, only as those
matters actually and directly controverted
and determined and not as to matters
merely involved therein."[23]
Applying the abovecited pronouncement,
the Court, in Smith Bell and Company
(Phils.), Inc. vs. Court of Appeals,[24] held
that the issue of negligence of the shipping
line, which issue had already been passed
upon in a case filed by one of the insurers,
is conclusive and can no longer be
relitigated in a similar case filed by another
insurer against the same shipping line on
the basis of the same factual circumstances.
Ratiocinating further, the Court opined:
"In the case at bar, the issue of
which vessel ('Don Carlos' or 'Yotai
Maru') had been negligent, or so
negligent as to have proximately
caused the collision between them,
was an issue that was actually,
directly and expressly raised,
controverted and litigated in C.A.-
G.R. No. 61320-R. Reyes, L.B., J.,
resolved that issue in his Decision
and held the 'Don Carlos' to have
been negligent rather than the 'Yotai
Maru' and, as already noted, that
Decision was affirmed by this Court
in G.R. No. L-48839 in a Resolution
dated 6 December 1987. The Reyes
Decision thus became final and
executory approximately two (2)
years before the Sison Decision,
which is assailed in the case at bar,
was promulgated. Applying the rule
of conclusiveness of judgment, the
question of which vessel had been
negligent in the collision between
the two (2) vessels, had long been
settled by this Court and could no
longer be relitigated in C.A.-G.R. No.
61206-R. Private respondent Go
Thong was certainly bound by the
ruling or judgment of Reyes, L.B., J.
and that of this Court. The Court of
Appeals fell into clear and reversible
error when it disregarded the
Decision of this Court affirming the
Reyes Decision."[25]
The controversy at bar is on all fours with
the aforecited case. Considering that
private respondent's insurable interest in,
and compensability for the loss of subject
fun and amusement machines and spare
parts, had been adjudicated, settled and
sustained by the Court of Appeals in CA-G.R.
CV NO. 28779, and by this Court in G.R. No.
L-111118, in a Resolution, dated February 2,
1994, the same can no longer be relitigated
and passed upon in the present case.
Ineluctably, the petitioner, Rizal Surety
Insurance Company, is bound by the ruling
of the Court of Appeals and of this Court
that the private respondent has an
insurable interest in the aforesaid fun and
amusement machines and spare parts; and
should be indemnified for the loss of the
same.
So also, the Court of Appeals correctly
adjudged petitioner liable for the amount of
P470,328.67, it being the total loss and
 damage suffered by Transworld for which If the insured sustains any bodily injury
petitioner Rizal Insurance is liable.[26] which is effected solely through violent,
external, visible and accidental means, and
All things studiedly considered and viewed which shall result, independently of all
in proper perspective, the Court is of the other causes and within sixty (60) days from
irresistible conclusion, and so finds, that the the occurrence thereof, in the Death of the
Court of Appeals erred not in holding the Insured, the Company shall pay the amount
petitioner, Rizal Surety Insurance Company, set opposite such injury:
liable for the destruction and loss of the
insured buildings and articles of the privateSection 1. Injury sustained other than those specified
respondent. below unless excepted hereinafter. . . . . . . . P1,000.00
WHEREFORE, the Decision, dated July 15,Section 2. Injury sustained by the wrecking or
1993, and the Resolution, dated Octoberdisablement of a railroad passenger car or street
22, 1993, of the Court of Appeals in CA-G.R.railway car in or on which the Insured is travelling as a
CV NO. 28779 are AFFIRMED in toto. Nofarepaying passenger. . . . . . . . P1,500.00
pronouncement as to costs.
Section 3. Injury sustained by the burning of a church,
SO ORDERED. theatre, public library or municipal administration
building while the Insured is therein at the
commencement of the fire. . . . . . . . P2,000.00
Section 4. Injury sustained by the wrecking or
disablement of a regular passenger elevator car in
which the Insured is being conveyed as a passenger
(Elevator in mines excluded) P2,500.00
Section 5. Injury sustained by a stroke of lightning or
by a cyclone. . . . . . . . P3,000.00

xxx xxx xxx

Part VI. Exceptions

8. This policy shall not cover disappearance of

the Insured nor shall it cover Death,
G.R. No. L-16215 June 29, 1963 Disability, Hospital fees, or Loss of Time,
caused to the insured:
SIMEON DEL ROSARIO, plaintiff-appellee,
vs. . . . (h) By drowning except as a
THE EQUITABLE INSURANCE AND CASUALTY CO., consequence of the wrecking or
INC., defendant-appellant. disablement in the Philippine waters of a
passenger steam or motor vessel in which
Vicente J. Francisco and Jose R. Francisco for the Insured is travelling as a farepaying
plaintiff-appellee. passenger; . . . .
K. V. Faylona for defendant-appellant.
A rider to the Policy contained the following:
PAREDES, J.:
IV. DROWNING
On February 7, 1957, the defendant Equitable
Insurance and Casualty Co., Inc., issued Personal It is hereby declared and agreed that exemption
Accident Policy No. 7136 on the life of Francisco del clause Letter (h) embodied in PART VI of the policy
Rosario, alias Paquito Bolero, son of herein is hereby waived by the company, and to form a
plaintiff-appellee, binding itself to pay the sum of part of the provision covered by the policy.
P1,000.00 to P3,000.00, as indemnity for the death
of the insured. The pertinent provisions of the On February 24, 1957, the insured Francisco del
Policy, recite: Rosario, alias Paquito Bolero, while on board the
motor launch "ISLAMA" together with 33 others,
Part I. Indemnity For Death including his beneficiary in the Policy, Remedios
Jayme, were forced to jump off said launch on
account of fire which broke out on said vessel,
resulting in the death of drowning, of the insured
and beneficiary in the waters of Jolo. 1äwphï1.ñët
On April 13, 1957, Simeon del Rosario, father of the
insured, and as the sole heir, filed a claim for
payment with defendant company, and on
September 13, 1957, defendant company paid to
him (plaintiff) the sum of P1,000.00, pursuant to
Section 1 of Part I of the policy. The receipt signed
by plaintiff reads —
RECEIVED of the EQUITABLE
INSURANCE & CASUALTY CO., INC.,
the sum of PESOS — ONE
THOUSAND (P1,000.00) Philippine
Currency, being settlement in full for
all claims and demands against said
Company as a result of an accident
which occurred on February 26,
1957, insured under out ACCIDENT
Policy No. 7136, causing the death
of the Assured.
In view of the foregoing, this policy
is hereby surrendered and
CANCELLED.
LOSS COMPUTATION
Amount of
Insurance P1,000.00
__________
vvvvv
On the same date (September 13, 1957), Atty.
Vicente J. Francisco, wrote defendant company
acknowledging receipt by his client (plaintiff
herein), of the P1,000.00, but informing said
company that said amount was not the correct
one. Atty. Francisco claimed —
The amount payable under the policy, I
believe should be P1,500.00 under the
provision of Section 2, part 1 of the policy,
based on the rule of pari materia as the
death of the insured occurred under the
circumstances similar to that provided
under the aforecited section.
Defendant company, upon receipt of the letter,
referred the matter to the Insurance
Commissioner, who rendered an opinion that the
liability of the company was only P1,000.00,
pursuant to Section 1, Part I of the Provisions of the
policy (Exh. F, or 3). Because of the above opinion,
defendant insurance company refused to pay more
than P1,000.00. In the meantime, Atty. Vicente
Francisco, in a subsequent letter to the insurance
company, asked for P3,000.00 which the Company
refused, to pay. Hence, a complaint for the
recovery of the balance of P2,000.00 more was
instituted with the Court of First Instance of Rizal
(Pasay City, Branch VII), praying for it further sum
of P10,000.00 as attorney's fees, expenses of
litigation and costs.
Defendant Insurance Company presented a Motion
to Dismiss, alleging that the demand or claim is set
forth in the complaint had already been released,
plaintiff having received the full amount due as
appearing in policy and as per opinion of the
Insurance Commissioner. An opposition to the
motion to dismiss, was presented by plaintiff, and
other pleadings were subsequently file by the
parties. On December 28, 1957, the trial court
deferred action on the motion to dismiss until
termination of the trial of the case, it appearing
that the ground thereof was not indubitable. In the
Answer to the complaint, defendant company
practically admitted all the allegations therein,
denying only those which stated that under the
policy its liability was P3,000.00.
On September 1, 1958, the trial court promulgated
an Amended Decision, the pertinent portions of
which read —
xxx xxx xxx
Since the contemporaneous and
subsequent acts of the parties show that it
was not their intention that the payment of
P1,000.00 to the plaintiff and the signing of
the loss receipt exhibit "1" would be
considered as releasing the defendant
completely from its liability on the policy in
question, said intention of the parties
should prevail over the contents of the loss
receipt "1" (Articles 1370 and 1371, New
Civil Code).
". . . . Under the terms of this policy,
defendant company agreed to pay
P1,000.00 to P3,000.00 as indemnity for the
death of the insured. The insured died of
drowning. Death by drowning is covered by
the policy the pertinent provisions of which
reads as follows:
xxx xxx xxx
"Part I of the policy fixes specific
amounts as indemnities in case of
death resulting from "bodily injury
which is effected solely thru
violence, external, visible and
accidental means" but, Part I of the
 Policy is not applicable in case of
death by drowning because death
by drowning is not one resulting
from "bodily injury which is affected
solely thru violent, external, visible
and accidental means" as "Bodily
Injury" means a cut, a bruise, or a
wound and drowning is death due to
suffocation and not to any cut,
bruise or wound."
xxx xxx xxx
Besides, on the face of the policy Exhibit "A"
itself, death by drowning is a ground for
recovery apart from the bodily injury
because death by bodily injury is covered by
Part I of the policy while death by drowning
is covered by Part VI thereof. But while the
policy mentions specific amounts that may
be recovered for death for bodily injury,
yet, there is not specific amount mentioned
in the policy for death thru drowning
although the latter is, under Part VI of the
policy, a ground for recovery thereunder.
Since the defendant has bound itself to pay
P1000.00 to P3,000.00 as indemnity for the
death of the insured but the policy does not
positively state any definite amount that
may be recovered in case of death by
drowning, there is an ambiguity in this
respect in the policy, which ambiguity must
be interpreted in favor of the insured and
strictly against the insurer so as to allow
greater indemnity.
xxx xxx xxx
. . . plaintiff is therefore entitled to recover
P3,000.00. The defendant had already paid
the amount of P1,000.00 to the plaintiff so
that there still remains a balance of
P2,000.00 of the amount to which plaintiff
is entitled to recover under the policy
Exhibit "A".
The plaintiff asks for an award of
P10,000.00 as attorney's fees and expenses
of litigation. However, since it is evident
that the defendant had not acted in bad
faith in refusing to pay plaintiff's claim, the
Court cannot award plaintiff's claim for
attorney's fees and expenses of litigation.
IN VIEW OF THE FOREGOING, the Court
hereby reconsiders and sets aside its
decision dated July 21, 1958 and hereby
renders judgment, ordering the defendant
to pay plaintiff the sum of Two Thousand
(P2,000.00) Pesos and to pay the costs.
The above judgment was appealed to the Court of
Appeals on three (3) counts. Said Court, in a
Resolution dated September 29, 1959, elevated the
case to this Court, stating that the genuine issue is
purely legal in nature.
All the parties agree that indemnity has to be paid.
The conflict centers on how much should the
indemnity be. We believe that under the proven
facts and circumstances, the findings and
conclusions of the trial court, are well taken, for
they are supported by the generally accepted
principles or rulings on insurance, which enunciate
that where there is an ambiguity with respect to
the terms and conditions of the policy, the same
will be resolved against the one responsible
thereof. It should be recalled in this connection,
that generally, the insured, has little, if any,
participation in the preparation of the policy,
together with the drafting of its terms and
Conditions. The interpretation of obscure
stipulations in a contract should not favor the party
who cause the obscurity (Art. 1377, N.C.C.), which,
in the case at bar, is the insurance company.
. . . . And so it has been generally held that
the "terms in an insurance policy, which are
ambiguous, equivocal or uncertain . . . are
to be construed strictly against, the insurer,
and liberally in favor of the insured so as to
effect the dominant purpose of indemnity
or payment to the insured, especially where
a forfeiture is involved," (29 Am. Jur. 181)
and the reason for this rule is that the
"insured usually has no voice in the
selection or arrangement of the words
employed and that the language of the
contract is selected with great care and
deliberation by expert and legal advisers
employed by, and acting exclusively in the
interest of, the insurance company" (44
C.J.S. 1174). Calanoc v. Court of Appeals, et
al., G.R. No. L-8151, Dec. 16, 1955.
. . . . Where two interpretations, equally
fair, of languages used in an insurance
policy may be made, that which allows the
greater indemnity will prevail. (L'Engel v.
Scotish Union & Nat. F. Ins. Co., 48 Fla. 82,
37 So. 462, 67 LRA 581 111 Am. St. Rep. 70,
5 Ann. Cas. 749).
At any event, the policy under consideration,
covers death or disability by accidental means, and
the appellant insurance company agreed to pay
P1,000.00 to P3,000.00. is indemnity for death of
the insured.
In view of the conclusions reached, it would seem
unnecessary to discuss the other issues raised in
the appeal.
The judgment appealed from is hereby affirmed.
Without costs.
9.
G.R. No. L-23491 July 31, 1968
TAURUS TAXI CO., INC., FELICITAS V. MONJE, ET
AL., plaintiffs-appellees,
vs.
THE CAPITAL INSURANCE & SURETY CO.,
INC., defendant-appellant.
Vergara and Dayot for plaintiffs-appellees.
Achacoso, Nera and Ocampo for defendant-
appellant.
FERNANDO, J.:
The principal legal question in this appeal from a
lower court decision, ordering defendant-appellant
The Capital Insurance & Surety Co., Inc. to pay the
plaintiff-appellee Taurus Taxi Co., Inc. as well as
plaintiffs-appellees, widow and children of the
deceased Alfredo Monje, who, in his lifetime, was
employed as a taxi driver of such plaintiff-appellee,
"the sum of P5,000.00 with interest thereon at the
legal rate from the filing of the complaint until fully
paid," with P500.00 as attorney's fees and the costs
of the suit, is whether or not a provision in the
insurance contract that defendant-appellant will
indemnify any authorized driver provided that [he]
is not entitled to any indemnity under any other
policy, it being shown that the deceased was paid
his workman's compensation from another
insurance policy, should defeat such a right to
recover under the insurance contract subject of
this suit. The lower court answered in the negative.
Its holding cannot be successfully impugned.
The appealed decision stated at the outset that the
motion for judgment on the pleadings filed by the
plaintiffs was granted, the defendant having no
objection and the issue presented being capable of
resolution without the need of presenting any
evidence. Then the decision continues: "Alfredo
Monje, according to the complaint, was employed
as taxi driver by the plaintiff Taurus Taxi Co., Inc.
On December 6, 1962, the taxi he was driving
collided with a Transport Taxicab at the
intersection of Old Sta. Mesa and V. Mapa Streets,
Manila, resulting in his death. At the time of the
accident, there was subsisting and in force
Commercial Vehicle Comprehensive Policy No. 101,
737 ... issued by the defendant to the Taurus Taxi
Co., Inc. The amount for which each passenger,
including the driver, is insured is P5,000.00. After
the issuance of policy No. 101, 737, the defendant
issued the Taurus Taxi Co., Inc. Indorsement No. 1
which forms part of the policy ... " 1 Reference was
then made to plaintiff-appellee Felicitas Monje
being the widow of the taxi driver, the other
plaintiffs-appellees with the exception of the
Taurus Taxi Co., Inc., being the children of the
couple. After which it was noted that plaintiff
Taurus Taxi Co., Inc. made representations "for the
payment of the insurance benefit corresponding to
her and her children since it was issued in its name,
benefit corresponding to her and her children, ...
but despite demands ... the defendant refused and
still refuses to pay them." 2
On the above facts, the liability apparently clear,
the defenses interposed by defendant insurance
company being in the opinion of the lower court
without merit, the aforesaid judgment was
rendered. This being a direct appeal, to us on
questions of law, the facts as found by the lower
court cannot be controverted.
Defendant-appellant Capital Insurance & Surety Co.
Inc. alleged as the first error of the lower court its
failure to hold "that in view of the fact that the
deceased Alfredo Monje was entitled to indemnity
under another insurance policy issued by Ed. A.
Keller Co., Ltd., the heirs of the said deceased are
not entitled to indemnity under the insurance
policy issued by appellant for the reason that the
latter policy contains a stipulation that "the
company will indemnify any authorized driver
provided that such authorized driver is not entitled
to indemnity under any other policy." " 3 In the
discussion of the above error, defendant-appellant
stated the following: "The facts show that at the
time of his death, the deceased Alfredo Monje, as
authorized driver and employee of plaintiff Taurus
Taxi Co., Inc., was entitled to indemnity under
another insurance policy, then subsisting, which
was Policy No. 50PH-1605 issued by Ed. A. Keller
Co., Ltd. to plaintiff Taurus Taxi Co., Inc. As a
matter of fact, the indemnity to which the
deceased Alfredo Monje was entitled under the
said Policy No. 50PH-1605 was paid by Ed. A. Keller
Co., Ltd. to the heirs of Alfredo Monje on
December 28, 1962, as evidenced by the records of
W.C.C. Case No. A88637 entitled "Felicitas V.
Monje, et al. vs. Taurus Taxi Co., Inc.", Regional
Office No. 4, Department of Labor, Manila ... " 4
The above defense, based on a fact which was not
disputed, was raised and rightfully rejected by the
lower court. From its own version, defendant-
appellant would seek to escape liability on the plea
that the workman's compensation to which the
deceased driver was rightfully entitled was settled
by the employer through a policy issued by another
insurance firm. What was paid therefore was not
indemnity but compensation.
Since what is prohibited by the insurance policy in
question is that any "authorized driver of plaintiff
Taurus Taxi Co., Inc." should not be "entitled to any
indemnity under any policy", it would appear
indisputable that the obligation of defendant-
appellant under the policy had not in any wise
been extinguished. It is too well-settled to need the
citation of authorities that what the law requires
enters into and forms part of every contract. The
Workmen's Compensation Act, explicitly requires
that an employee suffering any injury or death
arising out of or in the course of employment be
compensated. The fulfillment of such statutory
obligation cannot be the basis for evading the
clear, explicit and mandatory terms of a policy.
In the same way as was held in Benguet
Consolidated, Inc. v. Social Security System 5 that
sickness benefits under the Social Security Act may
be recovered simultaneously with disability
benefits under the Workmen's Compensation Act,
the previous payment made of the compensation
under such legislation is no obstacle by virtue of a
clause like that invoked by defendant-appellant to
the payment of indemnity under the insurance
policy.
Assuming however that there is a doubt concerning
the liability of defendant-appellant insurance firm,
nonetheless, it should be resolved against its
pretense and in favor of the insured. It was the
holding in Eagle Star Insurance, Ltd. v. Chia Yu 6 that
courts are to regard "with extreme jealousy"
limitations of liability found in insurance policies
and to construe them in such a way as to preclude
the insurer from non-compliance with his
obligation. In other words, to quote a noted
authority on the subject, "a contract of insurance
couched in language chosen by the insurer is, if
open to the construction contended for by the
insured, to be construed most strongly, or strictly,
against the insurer and liberally in favor of the
contention of the insured, which means in
accordance with the rule contra
proferentem."7 Enough has been said therefore to
dispose of the first assigned error.
The point is made in the second alleged error that
the lower court ought to have held "that by joining
the heirs of Alfredo Monje as a party plaintiff,
plaintiff Taurus Taxi Co., Inc. committed a breach of
policy condition and thus forfeited whatever
benefits, if any, to which it might be entitled under
appellant's policy." 8 The basis for such an
allegation is one of the conditions set forth in the
policy. Thus: " "5. No admission, offer, promise or
payment shall be made by or on behalf of the
insured without the written consent of the
Company which shall be entitled if it so desires to
take over and conduct in his name the defense or
settlement of any claim or to prosecute in his name
for its own benefit any claim for indemnity or
damages or otherwise and shall have full discretion
in the conduct of any proceedings and in the
settlement of any claim and the Insured shall give
all such information and assistance as the Company
may require ... " 9
Such a plea is even less persuasive. It is
understandable then why the lower court refused
to be swayed by it. The plaintiff Taurus Taxi Co.,
inc. had to join the suit on behalf of the real
beneficiaries, the heirs of the deceased driver, who
are the other plaintiffs as it was a party to the
policy.
Moreover, as noted in the decision appealed from:
"The institution of the action cannot possibly be
construed as an admission, offer, promise, or
payment by the company, for it merely seeks to
enforce, by court action, the only legal remedy
available to it, its rights under the contract of
insurance to which it is a party. To consider,
furthermore, the commencement of an action by
the insured, alone or with others, as a breach of
the policy, resulting in forfeiture of the benefits
thereunder, to place in the hands of the insurer the
power to nullify at will the whole contract of
insurance by the simple expedient of refusing to
make payment and compelling the insured to bring
a suit to enforce the policy." 10
To so construe the policy to yield a contrary result
is to put a premium on technicality. If such a
defense is not frowned upon and rejected, the time
will come when the confidence on the part of the
public in the good faith of insurance firms would be
minimized, if not altogether lost. Such a deplorable
consequence ought to be avoided and a
construction of any stipulation that would be
fraught with such a risk repudiated. What the
lower court did then cannot be characterized as
error.
The third error assigned, namely, that the lower
court should have considered the filing of the
complaint against defendant-appellant as unjust
and unwarranted, is, in the light of the above,
clearly without merit.
WHEREFORE, the appealed decision of the lower
court ordering defendant-appellant "to pay the
plaintiffs the sum of P5,000.00 with interest
thereon at the legal rate from the filing of the
complaint until fully paid, P500.00 as attorney's
fees," 11 with costs is affirmed. Costs against
defendant-appellant.
10.
G.R. No. L-54171 October 28, 1980
JEWEL VILLACORTA, assisted by her husband,
GUERRERO VILLACORTA, petitioner,
vs.
THE INSURANCE COMMISSION and EMPIRE
INSURANCE COMPANY, respondents.
TEEHANKEE, Acting C.J.:
The Court sets aside respondent Insurance
Commission's dismissal of petitioner's complaint
and holds that where the insured's car is
wrongfully taken without the insured's consent
from the car service and repair shop to whom it
had been entrusted for check-up and repairs
(assuming that such taking was for a joy ride, in the
course of which it was totally smashed in an
accident), respondent insurer is liable and must pay
insured for the total loss of the insured vehicle
under the theft clause of the policy.
The undisputed facts of the case as found in the
appealed decision of April 14, 1980 of respondent
insurance commission are as follows:
Complainant [petitioner] was the
owner of a Colt Lancer, Model 1976,
insured with respondent company
under Private Car Policy No. MBI/PC-
0704 for P35,000.00 — Own
Damage; P30,000.00 — Theft; and
P30,000.00 — Third Party Liability,
effective May 16, 1977 to May 16,
1978. On May 9, 1978, the vehicle
was brought to the Sunday Machine
Works, Inc., for general check-up
and repairs. On May 11, 1978, while
it was in the custody of the Sunday
Machine Works, the car was
allegedly taken by six (6) persons
and driven out to Montalban, Rizal.
While travelling along Mabini St.,
Sitio Palyasan, Barrio Burgos, going
North at Montalban, Rizal, the car
figured in an accident, hitting and
bumping a gravel and sand truck
parked at the right side of the road
going south. As a consequence, the
gravel and sand truck veered to the
right side of the pavement going
south and the car veered to the right
side of the pavement going north.
The driver, Benito Mabasa, and one
of the passengers died and the other
four sustained physical injuries. The
car, as well, suffered extensive
damage. Complainant, thereafter,
filed a claim for total loss with the
respondent company but claim was
denied. Hence, complainant, was
compelled to institute the present
action.
The comprehensive motor car insurance policy for
P35,000.00 issued by respondent Empire Insurance
Company admittedly undertook to indemnify the
petitioner-insured against loss or damage to the
car (a) by accidental collision or overturning, or
collision or overturning consequent upon
mechanical breakdown or consequent upon wear
and tear; (b) by fire, external explosion, self-
ignition or lightning or burglary, housebreaking or
theft; and (c) by malicious act.
Respondent insurance commission, however,
dismissed petitioner's complaint for recovery of the
total loss of the vehicle against private respondent,
sustaining respondent insurer's contention that the
accident did not fall within the provisions of the
policy either for the Own Damage or Theft
coverage, invoking the policy provision on
"Authorized Driver" clause. 1
Respondent commission upheld private
respondent's contention on the "Authorized
Driver" clause in this wise: "It must be observed
that under the above-quoted provisions, the policy
limits the use of the insured vehicle to two (2)
persons only, namely: the insured himself or any
person on his (insured's) permission. Under the
second category, it is to be noted that the words
"any person' is qualified by the phrase
... on the insured's order or with his
permission.' It is therefore clear that
if the person driving is other than
the insured, he must have been duly
authorized by the insured, to drive
 the vehicle to make the insurance
company liable for the driver's
negligence. Complainant admitted
that she did not know the person
who drove her vehicle at the time of
the accident, much less consented
to the use of the same (par. 5 of the
complaint). Her husband likewise
admitted that he neither knew this
driver Benito Mabasa (Exhibit '4').
With these declarations of
complainant and her husband, we
hold that the person who drove the
vehicle, in the person of Benito
Mabasa, is not an authorized driver
of the complainant. Apparently, this
is a violation of the 'Authorized
Driver' clause of the policy.
Respondent commission likewise upheld private
respondent's assertion that the car was not stolen
and therefore not covered by the Theft clause,
ruling that "The element of 'taking' in Article 308 of
the Revised Penal Code means that the act of
depriving another of the possession and dominion
of a movable thing is coupled ... with the intention.
at the time of the 'taking', of withholding it with
the character of permanency (People vs. Galang, 7
Appt. Ct. Rep. 13). In other words, there must have
been shown a felonious intent upon the part of the
taker of the car, and the intent must be an intent
permanently to deprive the insured of his car," and
that "Such was not the case in this instance. The
fact that the car was taken by one of the residents
of the Sunday Machine Works, and the withholding
of the same, for a joy ride should not be construed
to mean 'taking' under Art. 308 of the Revised
Penal Code. If at all there was a 'taking', the same
was merely temporary in nature. A temporary
taking is held not a taking insured against (48 A LR
2d., page 15)."
The Court finds respondent commission's dismissal
of the complaint to be contrary to the evidence
and the law.
First, respondent commission's ruling that the
person who drove the vehicle in the person of
Benito Mabasa, who, according to its finding, was
one of the residents of the Sunday Machine Works,
Inc. to whom the car had been entrusted for
general check-up and repairs was not an
"authorized driver" of petitioner-complainant is too
restrictive and contrary to the established principle
that insurance contracts, being contracts of
adhesion where the only participation of the other
party is the signing of his signature or his
"adhesion" thereto, "obviously call for greater
strictness and vigilance on the part of courts of
justice with a view of protecting the weaker party
from abuse and imposition, and prevent their
becoming traps for the unwary. 2
The main purpose of the "authorized driver"
clause, as may be seen from its text, supra, is that a
person other than the insured owner, who drives
the car on the insured's order, such as his regular
driver, or with his permission, such as a friend or
member of the family or the employees of a car
service or repair shop must be duly licensed drivers
and have no disqualification to drive a motor
vehicle.
A car owner who entrusts his car to an established
car service and repair shop necessarily entrusts his
car key to the shop owner and employees who are
presumed to have the insured's permission to drive
the car for legitimate purposes of checking or road-
testing the car. The mere happenstance that the
employee(s) of the shop owner diverts the use of
the car to his own illicit or unauthorized purpose in
violation of the trust reposed in the shop by the
insured car owner does not mean that the
"authorized driver" clause has been violated such
as to bar recovery, provided that such employee is
duly qualified to drive under a valid driver's license.
The situation is no different from the regular or
family driver, who instead of carrying out the
owner's order to fetch the children from school
takes out his girl friend instead for a joy ride and
instead wrecks the car. There is no question of his
being an "authorized driver" which allows recovery
of the loss although his trip was for a personal or
illicit purpose without the owner's authorization.
Secondly, and independently of the foregoing
(since when a car is unlawfully taken, it is the theft
clause, not the "authorized driver" clause, that
applies), where a car is admittedly as in this case
unlawfully and wrongfully taken by some people,
be they employees of the car shop or not to whom
it had been entrusted, and taken on a long trip to
Montalban without the owner's consent or
knowledge, such taking constitutes or partakes of
the nature of theft as defined in Article 308 of the
Revised Penal Code, viz. "Who are liable for theft.
— Theft is committed by any person who, with
intent to gain but without violence against or
intimidation of persons nor force upon things, shall
take personal property of another without the
latter's consent," for purposes of recovering the
loss under the policy in question.
The Court rejects respondent commission's
premise that there must be an intent on the part of
the taker of the car "permanently to deprive the
insured of his car" and that since the taking here
was for a "joy ride" and "merely temporary in
nature," a "temporary taking is held not a taking
insured against."
The evidence does not warrant respondent
commission's findings that it was a mere "joy ride".
From the very investigator's report cited in its
comment, 3 the police found from the waist of the
car driver Benito Mabasa Bartolome who smashed
the car and was found dead right after the incident
"one cal. 45 Colt. and one apple type grenade,"
hardly the materials one would bring along on a
"joy ride". Then, again, it is equally evident that the
taking proved to be quite permanent rather than
temporary, for the car was totally smashed in the
fatal accident and was never returned in
serviceable and useful condition to petitioner-
owner.
Assuming, despite the totally inadequate evidence,
that the taking was "temporary" and for a "joy
ride", the Court sustains as the better view that
which holds that when a person, either with the
object of going to a certain place, or learning how
to drive, or enjoying a free ride, takes possession of
a vehicle belonging to another, without the
consent of its owner, he is guilty of theft because
by taking possession of the personal property
belonging to another and using it, his intent to gain
is evident since he derives therefrom utility,
satisfaction, enjoyment and pleasure. Justice
Ramon C. Aquino cites in his work Groizard who
holds that the use of a thing constitutes gain and
Cuello Calon who calls it "hurt de uso. " 4
The insurer must therefore indemnify the
petitioner-owner for the total loss of the insured
car in the sum of P35,000.00 under the theft clause
of the policy, subject to the filing of such claim for
reimbursement or payment as it may have as
subrogee against the Sunday Machine Works, Inc.
ACCORDINGLY, the appealed decision is set aside
and judgment is hereby rendered sentencing
private respondent to pay petitioner the sum of
P35,000.00 with legal interest from the filing of the
complaint until full payment is made and to pay the
costs of suit.
SO ORDERED.
11.
G.R. No. L-35529 July 16, 1984
NORA CANSING SERRANO, petitioner,
vs.
COURT OF APPEALS and SOCIAL SECURITY
COMMISSION, respondents.
MAKASIAR, J., Chairman:
This petition for certiorari seeks to review the
decision of the then Court of Appeals (now
Intermediate Appellate Court under BP 129) dated
August 31, 1972, affirming the validity of the
resolution of the Social Security Commission
denying favorable consideration of the claim for
benefits of the petitioner under the Group
Redemption Insurance plan of the Social Security
System (SYSTEM). The dispositive portion of the
respondent Court's decision reads as follows:
WHEREFORE, the Court hereby
upholds the validity of the appealed
resolution No. 1365, dated
December 24, 1968, of appellee
Social Security Commission; without
pronouncement as to costs (p. 31,
Rec.).
The undisputed facts are as follows:
On or about January 1, 1965, upon application of
the SYSTEM, Group Mortgage Redemption Policy
No. GMR-1 was issued by Private Life Insurance
Companies operating in the Philippines for a group
life insurance policy on the lives of housing loan
mortgagors of the SYSTEM. Under this Group
Mortgage Redemption scheme, a grantee of a
housing loan of the SYSTEM is required to
mortgage the house constructed out of the loan
and the lot on which it stands. The SYSTEM takes a
life insurance on the eligible mortgagor to the
extent of the mortgage indebtedness such that if
the mortgagor dies, the proceeds of his life
insurance under the Group Redemption Policy will
be used to pay his indebtedness to the SYSTEM and
the deceased's heirs will thereby be relieved of the
burden of paying for the amortization of the
deceased's still unpaid loan to the SYSTEM (p. 25,
rec.).
Petitioner herein is the widow of the late Bernardo
G. Serrano, who, at the time of his death, was an
airline pilot of Air Manila, Inc. and as such was a
member of the Social Security System.
On November 10, 1967, the SYSTEM approved the
real estate mortgage loan of the late Bernardo G.
Serrano for P37,400.00 for the construction of the
applicant's house (pp. 25-26, rec.).
On December 26, 1967, a partial release in the
amount of P35,400.00 was effected and devoted to
the construction of the house (p. 2, rec.). As a
consequence, a mortgage contract was executed in
favor of the SYSTEM by the late Captain Serrano
with his wife as co-mortgagor.
On March 8, 1968, Captain Serrano died in a plane
crash and because of his death, the SYSTEM closed
his housing loan account to the released amount of
P35,400.00 (p. 26, rec.).
On December 2, 1968, the petitioner sent a letter
addressed to the Chairman of the Social Security
Commission requesting that the benefits of the
Group Mortgage Redemption Insurance be
extended to her.
The letter of the petitioner was referred to the
Administrator of the SYSTEM, who recommended
its disapproval on the ground that the late Captain
Serrano was not yet covered by the Group
Mortgage Redemption Insurance policy at the time
of his death on March 8, 1968. In its resolution No.
1365 dated December 24, 1968, the Social Security
Commission sustained the said stand of the
SYSTEM and thereby formally denied the request
of the petitioner (p. 26, rec.).
On appeal to the then Court of Appeals, the
respondent Court affirmed the decision of the
Social Security Commission.
Hence, this petition.
The only issue to be resolved is the correctness of
the interpretation given by the respondent
Commission which was upheld by the respondent
Court as to the applicability of the Mortgage
Redemption Insurance plan particularly on when
coverage on the life of the mortgagor commences.
Article II (Insurance Coverage) of the Group
Mortgage Redemption Police No. GMR-1 provides:
Section 1. Eligibility.— Every
mortgagor who is not over age 65
nearest birthday at the time the
Mortgage Loan is granted (or, in the
case of a Mortgagor applying for
insurance coverage on a Mortgage
Loan granted before the Date of
Issue, at the time he makes such
application) and who would not be
over 75 nearest birthday on the date
on which the original term of the
Mortgage Loan expires shall be
eligible for insurance coverage
under this Policy, provided that if
the total indebtedness to the
Creditor under the new Mortgage
Loan and the outstanding balance of
any prior Mortgage Loan or Loans
insured hereunder, exceeds
P70,000.00, he will be eligible for
insurance coverage up to this
maximum limit only.
Co-makers or co-signers of mortgage
contract are not eligible for
coverage under this Policy.
Section 2. Mode of Acceptance. —
Any Mortgagor who is eligible for
coverage on or after the Date of
Issue shall be automatically
insured, subject to the amount of
insurance limit in Section 1 hereof,
without proof of insurability
provided that he is not more than
age 60 nearest birthday at the time
the Mortgage Loan is granted. Such
a mortgagor who is over age 60
nearest birthday at the time the
Mortgage Loan is granted may be
accepted for insurance only subject
to the submission of evidence of
insurability satisfactory to the
Subscribing Companies.
Any eligible Mortgagor who was
already a Mortgagor before the Date
of Issue shall be automatically
insured, subject to the amount of
insurance limit in Section 1 hereof,
without proof of insurability
provided that he is not more than
age 60 nearest birthday on the Date
of Issue and that he makes written
application to the Creditor for
coverage within ninety (90) days
from the Date of Issue. If such a
Mortgagor applies for coverage after
ninety (90) days from the Date of
Issue. he may be accepted for
insurance upon written application
therefor, subject to the submission
of evidence of insurability to the
Subscribing Companies.
Section 3. Effective Date of
Insurance. — The insurance on the
life of each eligible Mortgagor Loan
 or partial release of Mortgage Loan
accepted for coverage who becomes
a Mortgagor on or after the Date of
Issue shall take effect from the
beginning of the amortization period
of such Mortgage Loan or partial
release of Mortgage Loan.
The beginning of the amortization
period as used herein shall mean the
first day of the month preceding the
month in which the first monthly
amortization payment falls due.
It is hereby understood that before
any release on any approved
Mortgage Loan is made by the
Creditor, the requisites binding the
Mortgagor and the Creditor as
regards to said Mortgage Loan shall
have been completed
xxx xxx xxx
(pp. 59-60, rec.; emphasis supplied).
A careful analysis of the provisions leads to the
conclusion that the respondent Court of Appeals
erred in construing the effectivity date of insurance
coverage from the beginning of the amortization
period of the loan.
WE REVERSE.
There can be no doubt as to the eligibility of the
late Captain Serrano for coverage under Section 1
of Article II of the Group Mortgage Redemption
Insurance Policy as he was a mortgagor of the
Social Security System not over the age of 65
nearest his birthday at the time when the
mortgage loan was granted to him (p. 26, rec.). This
fact was admitted not only by the Social Security
Commission but also accepted by the Court of
Appeals.
The problem manifests itself in Sections 2 and 3 of
the same article of the Group Mortgage
Redemption Insurance Policy. Section 2 provides
that "any mortgagor who is eligible for coverage on
or after the Date of Issue shall be automatically
insured, ..." (emphasis supplied); while Section 3
provides that the insurance "shall take effect from
the beginning of the amortization period of such
Mortgage loan or partial release of Mortgage
Loan " (emphasis supplied).
Section 2 of Article II of the Group Mortgage
Redemption Insurance Policy provides that
insurance coverage shall be "automatic" and
limited only by the amount of insurance and age
requirement. While the same section has for its
title the mode of acceptance, what is controlling is
the meaning of the provision itself. The said section
can only convey the Idea that the mortgagor who is
eligible for coverage on or after the date of issue
shall be automatically insured. The only condition is
that the age requirement should be satisfied, which
had been complied with by the deceased
mortgagor in the instant case.
Under said Section 2, mortgage redemption
insurance is not just automatic; it is compulsory for
all qualified borrowers. This is the same automatic
redemption insurance applied to all qualified
borrowers by the GSIS (Government Service
Insurance System) and the DBP (Development Bank
of the Philippines). Indeed, the Mortgage
Redemption Insurance Policy of the GSIS provides:
Sec. 2. ... This policy is granted
subject to the terms and conditions
set forth at the back hereof and in
consideration of the application
therefor and shall take effect on the
date of the first date of the
aforementioned loan (p. 126, CA
rec.; emphasis supplied).
WE take judicial notice of the Mortgage Contract
being issued by the Social Security System in
connection with applications for housing loans,
specifically Section 16 thereof:
Section 16. — (a) The loan shall be
secured against the death of the
borrower through the Mortgage
Redemption Insurance Plan;
(b) Coverage shall take effect on the
date of the first release voucher of
the loan and shall continue until the
real estate mortgage loan is fully
paid; ... (emphasis supplied).
However, Section 3 of Article II presents an
ambiguity. The effective date of coverage can be
interpreted to mean that the insurance contract
takes effect "from the beginning of the
amortization period of such Mortgage Loan" or
"partial release of Mortgage Loan."
Applying Article 1374 of the new Civil Code, the
mortgagor in the instant case was already covered
by the insurance upon the partial release of the
loan.
Article 1374, NCC, reads thus:
 The various stipulations of a
contract shall be interpreted
together, attributing to the doubtful
ones that sense which may result
from all of them taken jointly.
The ambiguity in Section 3 of Article II should be
resolved in favor of the petitioner. "The
interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the
obscurity" (Article 1377, Civil Code). WE have held
that provisions, conditions or exceptions tending to
work a forfeiture of insurance policies should be
construed most strongly against those for whose
benefit they are inserted, and most favorably
toward those against whom they are intended to
operate (Trinidad vs. Orient Protective Ass., 67 Phil.
181).
While the issuance of the Group Mortgage
Redemption Insurance is a contract between the
Social Security System and the Private Life
Insurance Companies, the fact is that the SYSTEM
entered into such a contract to afford protection
not only to itself should the mortgagor die before
fully paying the loan but also to afford protection
to the mortgagor. WE take note of the following:
I. Insurance Coverage.
1. Fire insurance. — The SSS-
financed house shall be covered by
fire insurance equal to its appraised
value or the amount of the loan,
whichever is lesser.
2. Mortgage Redemption Insurance.
— Coverage shall be compulsory for
any mortgagor who is not more than
60 years old.
The insured indebtedness on the
mortgage as provided in the policy
shall be deemed paid upon the death
of a mortgagor covered under the
MRI (Employees' Benefits & Social
Welfare, 1983 Rev. Ed., CBSI, pp. 50-
51; emphasis supplied).
It is imperative to dissect the rationale of the
insurance scheme envisioned by the Social Security
System. The Mortgage Redemption Insurance
device is not only for the protection of the SYSTEM
but also for the benefit of the mortgagor. On the
part of the SYSTEM, 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. The SYSTEM
insures the payment to itself of the loan with the
insurance proceeds. It also negates any future
problem that can crop up should the heirs be not in
a position to pay the mortgage loan. In short, the
process of amortization is hastened and possible
litigation in the future is avoided. In a similar vein,
ample protection is given to the mortgagor under
such a concept so that in the event of his death;
the mortgage obligation will be extinguished by the
application of the insurance proceeds to the
mortgage indebtedness.
The interpretation of the Social Security
Commission goes against the very rationale of the
insurance scheme. It cannot unjustly enrich itself at
the expense of another (Nemo cum alterius
detrimento protest). "Every person must, in the
exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and
observe honesty and good faith" (Article 19, Civil
Code). Simply put, the SYSTEM cannot be allowed
to have the advantage of collecting the insurance
benefits from the private life insurance companies
and at the same time avoid its responsibility of
giving the benefits of the Mortgage Redemption
Insurance plan to the mortgagor. The very reason
for the existence of the Social Security System is to
extend social benefits. For SSS to be allowed to
deny benefits to its members, is certainly not in
keeping with its policy "... to establish, develop,
promote and perfect a sound and viable tax-
exempt social security service suitable to the needs
of the people throughout the Philippines, which
shall provide to covered employees and their
families protection against the hazards of disability,
sickness, old age, and death with a view to
promote their well-being in the spirit of social
justice" (The Social Security Law, R.A. No. 1161, as
amended).
To sustain the position of the SSS is to allow it to
collect twice the same amount — first from the
insurance companies which paid to it the amount
of the MRI and then from the heirs of the deceased
mortgagor. This result is unconscionable as it is
iniquitous.
It is very clear that the spirit of social justice
permeates the insurance scheme under the Group
Mortgage Redemption Insurance. It is a welcome
innovation in these times when the concept of
social justice is not just an empty slogan nor a mere
shibboleth. Social justice is explicitly
institutionalized and guaranteed under the
Constitution (Article II, Section 6, 1973
Constitution). The construction that would
enhance the State's commitment on social justice
mandates Us to hold for the petitioner.
Usually, among the items to be deducted by the
SYSTEM from the first release of the loan is the
premium corresponding to the mortgage
redemption insurance (MRI). However, if the
premium corresponding to the amount to be
deducted from the first release of the loan was not
paid by the borrower, the deceased mortgagor, the
said unpaid premium should be refunded by the
heirs of the borrower.
WHEREFORE, THE DECISION OF THE RESPONDENT
COURT OF APPEALS AFFIRMING RESOLUTION NO.
1365 OF RESPONDENT COMMISSION IS HEREBY
SET ASIDE. THE SOCIAL SECURITY SYSTEM IS
HEREBY DIRECTED TO RELEASE THE PETITIONER
FROM PAYING THE MORTGAGE LOAN. THE
PETITIONER IS HEREBY DIRECTED TO REFUND TO
THE SSS THE PREMIUM CORRESPONDING TO THE
RELEASED AMOUNT, IF THE SAME HAD NOT BEEN
DEDUCTED THEREFROM. NO COSTS.
SO ORDERED.
12.
G.R. No. L-36413 September 26, 1988
MALAYAN INSURANCE CO., INC., petitioner,
vs.
THE HON. COURT OF APPEALS (THIRD DIVISION)
MARTIN C. VALLEJOS, SIO CHOY, SAN LEON RICE
MILL, INC. and PANGASINAN TRANSPORTATION
CO., INC., respondents.
Freqillana Jr. for petitioner.
B.F. Estrella & Associates for respondent Martin
Vallejos.
Vicente Erfe Law Office for respondent Pangasinan
Transportation Co., Inc.
Nemesio Callanta for respondent Sio Choy and San
Leon Rice Mill, Inc.
PADILLA, J.:
Review on certiorari of the judgment * of the
respondent appellate court in CA-G.R. No. 47319-R,
dated 22 February 1973, which affirmed, with
some modifications, the decision, ** dated 27 April
1970, rendered in Civil Case No. U-2021 of the
Court of First Instance of Pangasinan.
The antecedent facts of the case are as follows:
On 29 March 1967, herein petitioner, Malayan
Insurance Co., Inc., issued in favor of private
respondent Sio Choy Private Car Comprehensive
Policy No. MRO/PV-15753, effective from 18 April
1967 to 18 April 1968, covering a Willys jeep with
Motor No. ET-03023 Serial No. 351672, and Plate
No. J-21536, Quezon City, 1967. The insurance
coverage was for "own damage" not to exceed
P600.00 and "third-party liability" in the amount of
P20,000.00.
During the effectivity of said insurance policy, and
more particularly on 19 December 1967, at about
3:30 o'clock in the afternoon, the insured jeep,
while being driven by one Juan P. Campollo an
employee of the respondent San Leon Rice Mill,
Inc., collided with a passenger bus belonging to the
respondent Pangasinan Transportation Co., Inc.
(PANTRANCO, for short) at the national highway in
Barrio San Pedro, Rosales, Pangasinan, causing
damage to the insured vehicle and injuries to the
driver, Juan P. Campollo, and the respondent
Martin C. Vallejos, who was riding in the ill-fated
jeep.
As a result, Martin C. Vallejos filed an action for
damages against Sio Choy, Malayan Insurance Co.,
Inc. and the PANTRANCO before the Court of First
Instance of Pangasinan, which was docketed as
Civil Case No. U-2021. He prayed therein that the
defendants be ordered to pay him, jointly and
severally, the amount of P15,000.00, as
reimbursement for medical and hospital expenses;
P6,000.00, for lost income; P51,000.00 as actual,
moral and compensatory damages; and P5,000.00,
for attorney's fees.
Answering, PANTRANCO claimed that the jeep of
Sio Choy was then operated at an excessive speed
and bumped the PANTRANCO bus which had
moved to, and stopped at, the shoulder of the
highway in order to avoid the jeep; and that it had
observed the diligence of a good father of a family
to prevent damage, especially in the selection and
supervision of its employees and in the
maintenance of its motor vehicles. It prayed that it
be absolved from any and all liability.
Defendant Sio Choy and the petitioner insurance
company, in their answer, also denied liability to
the plaintiff, claiming that the fault in the accident
was solely imputable to the PANTRANCO.
Sio Choy, however, later filed a separate answer
with a cross-claim against the herein petitioner
wherein he alleged that he had actually paid the
plaintiff, Martin C. Vallejos, the amount of
P5,000.00 for hospitalization and other expenses,
and, in his cross-claim against the herein
petitioner, he alleged that the petitioner had
issued in his favor a private car comprehensive
policy wherein the insurance company obligated
itself to indemnify Sio Choy, as insured, for the
damage to his motor vehicle, as well as for any
liability to third persons arising out of any accident
during the effectivity of such insurance contract,
which policy was in full force and effect when the
vehicular accident complained of occurred. He
prayed that he be reimbursed by the insurance
company for the amount that he may be ordered
to pay.
Also later, the herein petitioner sought, and was
granted, leave to file a third-party complaint
against the San Leon Rice Mill, Inc. for the reason
that the person driving the jeep of Sio Choy, at the
time of the accident, was an employee of the San
Leon Rice Mill, Inc. performing his duties within the
scope of his assigned task, and not an employee of
Sio Choy; and that, as the San Leon Rice Mill, Inc. is
the employer of the deceased driver, Juan P.
Campollo, it should be liable for the acts of its
employee, pursuant to Art. 2180 of the Civil Code.
The herein petitioner prayed that judgment be
rendered against the San Leon Rice Mill, Inc.,
making it liable for the amounts claimed by the
plaintiff and/or ordering said San Leon Rice Mill,
Inc. to reimburse and indemnify the petitioner for
any sum that it may be ordered to pay the plaintiff.
After trial, judgment was rendered as follows:
WHEREFORE, in view of the
foregoing findings of this Court
judgment is hereby rendered in
favor of the plaintiff and against Sio
Choy and Malayan Insurance Co.,
Inc., and third-party defendant San
Leon Rice Mill, Inc., as follows:
(a) P4,103 as actual damages;
(b) P18,000.00 representing the
unearned income of plaintiff Martin
C. Vallejos for the period of three (3)
years;
(c) P5,000.00 as moral damages;
(d) P2,000.00 as attomey's fees or
the total of P29,103.00, plus costs.
The above-named parties against
whom this judgment is rendered are
hereby held jointly and severally
liable. With respect, however, to
Malayan Insurance Co., Inc., its
liability will be up to only
P20,000.00.
As no satisfactory proof of cost of
damage to its bus was presented by
defendant Pantranco, no award
should be made in its favor. Its
counter-claim for attorney's fees is
also dismissed for not being
proved. 1
On appeal, the respondent Court of Appeals
affirmed the judgment of the trial court that Sio
Choy, the San Leon Rice Mill, Inc. and the Malayan
Insurance Co., Inc. are jointly and severally liable
for the damages awarded to the plaintiff Martin C.
Vallejos. It ruled, however, that the San Leon Rice
Mill, Inc. has no obligation to indemnify or
reimburse the petitioner insurance company for
whatever amount it has been ordered to pay on its
policy, since the San Leon Rice Mill, Inc. is not a
privy to the contract of insurance between Sio
Choy and the insurance company. 2
Hence, the present recourse by petitioner
insurance company.
The petitioner prays for the reversal of the
appellate court's judgment, or, in the alternative,
to order the San Leon Rice Mill, Inc. to reimburse
petitioner any amount, in excess of one-half (1/2)
of the entire amount of damages, petitioner may
be ordered to pay jointly and severally with Sio
Choy.
The Court, acting upon the petition, gave due
course to the same, but "only insofar as it concerns
the alleged liability of respondent San Leon Rice
Mill, Inc. to petitioner, it being understood that no
other aspect of the decision of the Court of Appeals
shall be reviewed, hence, execution may already
issue in favor of respondent Martin C. Vallejos
against the respondents, without prejudice to the
determination of whether or not petitioner shall be
entitled to reimbursement by respondent San Leon
Rice Mill, Inc. for the whole or part of whatever the
former may pay on the P20,000.00 it has been
adjudged to pay respondent Vallejos." 3
However, in order to determine the alleged liability
of respondent San Leon Rice Mill, Inc. to petitioner,
it is important to determine first the nature or
basis of the liability of petitioner to respondent
Vallejos, as compared to that of respondents Sio
Choy and San Leon Rice Mill, Inc.
Therefore, the two (2) principal issues to be
resolved are (1) whether the trial court, as upheld
by the Court of Appeals, was correct in holding
petitioner and respondents Sio Choy and San Leon
Rice Mill, Inc. "solidarily liable" to respondent
Vallejos; and (2) whether petitioner is entitled to
be reimbursed by respondent San Leon Rice Mill,
Inc. for whatever amount petitioner has been
adjudged to pay respondent Vallejos on its
insurance policy.
As to the first issue, it is noted that the trial court
found, as affirmed by the appellate court, that
petitioner and respondents Sio Choy and San Leon
Rice Mill, Inc. are jointly and severally liable to
respondent Vallejos.
We do not agree with the aforesaid ruling. We hold
instead that it is only respondents Sio Choy and San
Leon Rice Mill, Inc, (to the exclusion of the
petitioner) that are solidarily liable to respondent
Vallejos for the damages awarded to Vallejos.
It must be observed that respondent Sio Choy is
made liable to said plaintiff as owner of the ill-fated
Willys jeep, pursuant to Article 2184 of the Civil
Code which provides:
Art. 2184. In motor vehicle mishaps,
the owner is solidarily liable with his
driver, if the former, who was in the
vehicle, could have, by the use of
due diligence, prevented the
misfortune it is disputably presumed
that a driver was negligent, if he had
been found guilty of reckless driving
or violating traffic regulations at
least twice within the next
preceding two months.
If the owner was not in the motor
vehicle, the provisions of article
2180 are applicable.
On the other hand, it is noted that the basis of
liability of respondent San Leon Rice Mill, Inc. to
plaintiff Vallejos, the former being the employer of
the driver of the Willys jeep at the time of the
motor vehicle mishap, is Article 2180 of the Civil
Code which reads:
Art. 2180. The obligation imposed by
article 2176 is demandable not only
for one's own acts or omissions, but
also for those of persons for whom
one is responsible.
xxx xxx xxx
Employers shall be liable for the
damages caused by their employees
and household helpers acting within
the scope of their assigned tasks,
even though the former are not
engaged ill any business or industry.
xxx xxx xxx
The responsibility treated in this
article shall cease when the persons
herein mentioned proved that they
observed all the diligence of a good
father of a family to prevent
damage.
It thus appears that respondents Sio Choy and San
Leon Rice Mill, Inc. are the principal tortfeasors
who are primarily liable to respondent Vallejos. The
law states that the responsibility of two or more
persons who are liable for a quasi-delict is
solidarily. 4
On the other hand, the basis of petitioner's liability
is its insurance contract with respondent Sio Choy.
If petitioner is adjudged to pay respondent Vallejos
in the amount of not more than P20,000.00, this is
on account of its being the insurer of respondent
Sio Choy under the third party liability clause
included in the private car comprehensive policy
existing between petitioner and respondent Sio
Choy at the time of the complained vehicular
accident.
In Guingon vs. Del Monte, 5 a passenger of a
jeepney had just alighted therefrom, when he was
bumped by another passenger jeepney. He died as
a result thereof. In the damage suit filed by the
heirs of said passenger against the driver and
owner of the jeepney at fault as well as against the
insurance company which insured the latter
jeepney against third party liability, the trial court,
affirmed by this Court, adjudged the owner and the
driver of the jeepney at fault jointly and severally
liable to the heirs of the victim in the total amount
of P9,572.95 as damages and attorney's fees; while
the insurance company was sentenced to pay the
heirs the amount of P5,500.00 which was to be
applied as partial satisfaction of the judgment
rendered against said owner and driver of the
jeepney. Thus, in said Guingoncase, it was only the
owner and the driver of the jeepney at fault, not
including the insurance company, who were held
solidarily liable to the heirs of the victim.
While it is true that where the insurance contract
provides for indemnity against liability to third
persons, such third persons can directly sue the
insurer, 6 however, the direct liability of the insurer
under indemnity contracts against third party
liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other
parties found at fault. The liability of the insurer is
based on contract; that of the insured is based on
tort.
In the case at bar, petitioner as insurer of Sio Choy,
is liable to respondent Vallejos, but it cannot, as
incorrectly held by the trial court, be made
"solidarily" liable with the two principal tortfeasors
namely respondents Sio Choy and San Leon Rice
Mill, Inc. For if petitioner-insurer were solidarily
liable with said two (2) respondents by reason of
the indemnity contract against third party liability-
under which an insurer can be directly sued by a
third party — this will result in a violation of the
principles underlying solidary obligation and
insurance contracts.
In solidary obligation, the creditor may enforce the
entire obligation against one of the solidary
debtors. 7 On the other hand, insurance is defined
as "a contract whereby one undertakes for a
consideration to indemnify another against loss,
damage, or liability arising from an unknown or
contingent event." 8
In the case at bar, the trial court held petitioner
together with respondents Sio Choy and San Leon
Rice Mills Inc. solidarily liable to respondent
Vallejos for a total amount of P29,103.00, with the
qualification that petitioner's liability is only up to
P20,000.00. In the context of a solidary obligation,
petitioner may be compelled by respondent
Vallejos to pay the entire obligation of P29,013.00,
notwithstanding the qualification made by the trial
court. But, how can petitioner be obliged to pay
the entire obligation when the amount stated in its
insurance policy with respondent Sio Choy for
indemnity against third party liability is only
P20,000.00? Moreover, the qualification made in
the decision of the trial court to the effect that
petitioner is sentenced to pay up to P20,000.00
only when the obligation to pay P29,103.00 is
made solidary, is an evident breach of the concept
of a solidary obligation. Thus, We hold that the trial
court, as upheld by the Court of Appeals, erred in
holding petitioner, solidarily liable with
respondents Sio Choy and San Leon Rice Mill, Inc.
to respondent Vallejos.
As to the second issue, the Court of Appeals, in
affirming the decision of the trial court, ruled that
petitioner is not entitled to be reimbursed by
respondent San Leon Rice Mill, Inc. on the ground
that said respondent is not privy to the contract of
insurance existing between petitioner and
respondent Sio Choy. We disagree.
The appellate court overlooked the principle of
subrogation in insurance contracts. Thus —
... Subrogation is a normal incident
of indemnity insurance (Aetna L. Ins.
Co. vs. Moses, 287 U.S. 530, 77 L. ed.
477). Upon payment of the loss, the
insurer is entitled to be
subrogated pro tanto to any right of
action which the insured may have
against the third person whose
negligence or wrongful act caused
the loss (44 Am. Jur. 2nd 745, citing
Standard Marine Ins. Co. vs. Scottish
Metropolitan Assurance Co., 283
U.S. 284, 75 L. ed. 1037).
The right of subrogation is of the
highest equity. The loss in the first
instance is that of the insured but
after reimbursement or
compensation, it becomes the loss
of the insurer (44 Am. Jur. 2d, 746,
note 16, citing Newcomb vs.
Cincinnati Ins. Co., 22 Ohio St. 382).
Although many policies including
policies in the standard form, now
provide for subrogation, and thus
determine the rights of the insurer
in this respect, the equitable right of
subrogation as the legal effect of
payment inures to the insurer
without any formal assignment or
any express stipulation to that effect
in the policy" (44 Am. Jur. 2nd 746).
Stated otherwise, when the
insurance company pays for the loss,
such payment operates as an
equitable assignment to the insurer
of the property and all remedies
which the insured may have for the
recovery thereof. That right is not
dependent upon , nor does it grow
out of any privity of
contract (emphasis supplied) or
upon written assignment of claim,
and payment to the insured makes
the insurer assignee in equity
(Shambley v. Jobe-Blackley Plumbing
and Heating Co., 264 N.C. 456, 142
SE 2d 18). 9
It follows, therefore, that petitioner, upon paying
respondent Vallejos the amount of riot exceeding
P20,000.00, shall become the subrogee of the
insured, the respondent Sio Choy; as such, it is
subrogated to whatever rights the latter has
against respondent San Leon Rice Mill, Inc. Article
1217 of the Civil Code gives to a solidary debtor
who has paid the entire obligation the right to be
reimbursed by his co-debtors for the share which
corresponds to each.

Art. 1217. Payment made by one of

the solidary debtors extinguishes
the obligation. If two or more
solidary debtors offer to pay, the
creditor may choose which offer to
accept.

He who made the payment may

claim from his co-debtors only the
share which corresponds to each,
with the interest for the payment
already made. If the payment is
made before the debt is due, no
interest for the intervening period
may be demanded.

xxx xxx xxx

In accordance with Article 1217, petitioner, upon

payment to respondent Vallejos and thereby
becoming the subrogee of solidary debtor Sio
Choy, is entitled to reimbursement from
respondent San Leon Rice Mill, Inc.

To recapitulate then: We hold that only

respondents Sio Choy and San Leon Rice Mill, Inc.
are solidarily liable to the respondent Martin C.
Vallejos for the amount of P29,103.00. Vallejos
may enforce the entire obligation on only one of
said solidary debtors. If Sio Choy as solidary debtor
is made to pay for the entire obligation
(P29,103.00) and petitioner, as insurer of Sio Choy,
is compelled to pay P20,000.00 of said entire
obligation, petitioner would be entitled, as
subrogee of Sio Choy as against San Leon Rice Mills,
Inc., to be reimbursed by the latter in the amount
of P14,551.50 (which is 1/2 of P29,103.00 )

WHEREFORE, the petition is GRANTED. The

decision of the trial court, as affirmed by the Court
of Appeals, is hereby AFFIRMED, with the
modification above-mentioned. Without
pronouncement as to costs.

SO ORDERED.