[G.R. No. 82036.

May 22, 1997]

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner, vs. HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

DECISION HERMOSISIMA, JR., J.: The petition herein seeks the review and reversal of the decision of respondent Court of Appeals affirming in [3] [4] [5] toto the judgment of the Regional Trial Court in an action for damages filed by private respondent Vicente Mendoza, Jr. as heir of his mother who was killed in a vehicular accident. Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and the alleged insurer of the vehicle which featured in the vehicular accident into one complaint. The erring taxicab was allegedly covered by a third-party liability insurance policy issued by petitioner Travellers Insurance & Surety Corporation. The evidence presented before the trial court established the following facts: At about 5:30 oclock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking along Tayuman corner Gregorio Perfecto Streets, she was bumped by a taxi that was running fast. Several persons witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping, the old woman was seen sprawled on the pavement. Right away, the good Samaritan that he was, Marvilla ran towards the old woman and held her on his lap to inquire from her what had happened, but obviously she was already in shock and could not talk. At this moment, a private jeep stopped. With the driver of that vehicle, the two helped board the old woman on the jeep and brought her to the Mary Johnston Hospital in Tondo. x x x Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was on his return trip from Rizal Avenue when Lopez saw the plaintiff and his brother who were crying near the scene of the accident. Upon learning that the two were the sons of the old woman, Lopez told them what had happened. The Mendoza brothers were then able to trace their mother at the Mary Johnston Hospital where they were advised by the attending physician that they should bring the patient to the National Orthopedic Hospital because of her fractured bones. Instead, the victim was brought to the U.S.T. Hospital where she expired at 9:00 oclock that same morning. Death was caused by traumatic shock as a result of the severe injuri es she sustained x x x x. x x x The evidence shows that at the moment the victim was bumped by the vehicle, the latter was running fast, so much so that because of the strong impact the old woman was thrown away and she fell on the pavement. x x x In truth, in that related criminal case against defendant Dumlao x x x the trial court found as a fact that therein accused was driving the subject taxicab in a careless, reckless and imprudent manner and at a speed greater than what was reasonable and proper without taking the necessary precaution to avoid accident to persons x x x considering the condition of the traffic at the place at the time aforementioned x x x. Moreover, the driver fled from the scene of the accident and without rendering assistance to the victim. x x x x x x Three (3) witnesses who were at the scene at the time identified the taxi involved, though not necessarily the driver thereof. Marvilla saw a lone taxi speeding away just after the bumping which, when it passed by him, said witness noticed to be a Lady Love Taxi with Plate No. 438, painted maroon, with baggage bar attached on the baggage compartment and with an antenae[sic] attached at the right rear side. The same descriptions were revealed by Ernesto Lopez, who further described the taxi to have x x x reflectorized decorations on the edges of the glass at the back. x x x A third witness in the person of Eulogio Tabalno x x x made similar descriptions although, because of the fast speed of the taxi, he was only able to detect the last digit of the plate number which is 8. x x x [T]he police proceeded to the garage of Lady Love Taxi and then and there they took possession of such a taxi and later impounded it in the impounding area of the agency concerned. x x x [T]he eyewitnesses x x x were unanimous in pointing to that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein. x x x During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact that the vehicle was driven last July 20, 1980 by one Rodrigo Dumlao x x x x x x It was on the basis of this affidavit of the registered owner that caused the police to apprehend Rodrigo Dumlao, and consequently to have him prosecuted and eventually convicted of the offense x x x. x x x [S]aid Dumlao absconded in that criminal case, specially at the time of the promulgation of the judgment therein so much so that he is now a fugitive from [6] justice. Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped privat e respondents mother. Subsequently, private respondent amended his complaint to include petitioner as the compulsory insurer of the said taxicab under Certificate of Cover No. 1447785-3.
[1] [2]

After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the Heirs of the late Feliza Vineza de Mendoza, and against defendants Rodrigo Dumlao, Armando Abellon and Travell ers Insurance and Surety Corporation, by ordering the latter to pay, jointly and severally, the former the following amounts: (a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the rate of 12% per annum from October 17, 1980, when the complaint was filed, until the said amount is fully paid; (b) P30,000.00 as death indemnity; (c) P25,000.00 as moral damages; (d) P10,000.00 as by way of corrective or exemplary damages; and (e) Another P10,000.00 by way of attorneys fees and other litigation expenses. Defendants are further ordered to pay, jointly and severally, the costs of this suit. SO ORDERED.
[7]

Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of the trial court [8] was affirmed by respondent appellate court. Petitioners Motion for Reconsideration of September 22, 1987 was denied [9] in a Resolution dated February 9, 1988. Hence this petition. Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for third-party liability insurance, private respondent failed to file a written notice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance Code. We find the petition to be meritorious. I When private respondent filed his amended complaint to implead petitioner as party defendant and therein alleged that petitioner was the third-party liability insurer of the Lady Love taxicab that fatally hit private respondents mother, private respondent did not attach a copy of the insurance contract to the amended complaint. Private respondent does not deny this omission. It is significant to point out at this juncture that the right of a third person to sue the insurer depends on whether the contract of insurance is intended to benefit third persons also or only the insured. [A] policy x x x whereby the insurer agreed to indemnify the insured against all sums x x x which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person x x x is one for indemnity against liability; from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer. The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit third persons also or on the insured. And the test applied has been this: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment [10] to third persons, said third persons recourse being thus limited to the insured alone. Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial court could not have been able to apprise itself of the real nature and pecuniary limits of petitioners liability. More importantly, the trial court could not have possibly ascertained the right of private respondent as third person to sue petitioner as insurer of the Lady Love taxicab because the trial court never saw nor read the insurance contract and learned of its terms and conditions. Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love taxicab that fatally hit private respondents mother, considering that petitioner precisely presented the defense of lack of insurance coverage before the trial court. Neither did the trial court issue a subpoena duces tecum to have the insurance contract produced before it under pain of contempt. We thus find hardly a basis in the records for the trial court to have validly found petitioner liable jointly and severally with the owner and the driver of the Lady Love taxicab, for damages accruing to private respondent. Apparently, the trial court did not disting uish between the private respondents cause of action against the owner and the driver of the Lady Love taxicab and his cause of action against petitioner. The former is based on torts and quasidelicts while the latter is based on contract. Confusing these two sources of obligations as they arise from the same act of the taxicab fatally hitting private respondents mother, and in the face of overwhelming evidence of the reckless imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its ignorance of the terms and conditions of the insurance contract and forthwith found all three - the driver of the taxicab, the owner of the taxicab, and the alleged

insurer of the taxicab - jointly and severally liable for actual, moral and exemplary damages as well as attorneys fees and litigation expenses. This is clearly a misapplication of the law by the trial court, and respondent appellate court grievously erred in not having reversed the trial court on this ground. While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against thirdparty liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at [11] fault. The liability of the insurer is based on contract; that of the insured is based on tort. Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case that: In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. On the other hand, insurance is defined as a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that petitioners liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,103.00, notwithstanding the qualification made by the trial court. But, how can petitioner be obliged to pay 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 [12] an evident breach of the concept of a solidary obligation. The above principles take on more significance in the light of the counter-allegation of petitioner that, assuming arguendo that it is the insurer of the Lady Love taxicab in question, its liability is limited to only P50,000.00, this being its standard amount of coverage in vehicle insurance policies. It bears repeating that no copy of the insurance contract was ever proffered before the trial court by the private respondent, notwithstanding knowledge of the fact that the latters complaint against petitioner is one under a written contract. Thus, the trial court proceeded to hold petitioner liable for an award of damages exceeding its limited liability of P50,000.00. This only shows beyond doubt that the trial court was under the erroneous presumption that petitioner could be found liable absent proof of the contract and based merely on the proof of reckless imprudence on the part of the driver of the Lady Love taxicab that fatally hit private respondents mother. II Petitioner did not tire in arguing before the trial court and the respondent appellate court that, assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private respondents cause of action against petitioner did not successfully accrue because he failed to file with petitioner a written notice of claim within six (6) months from the date of the accident as required by Section 384 of the Insurance Code. At the time of the vehicular incident which resulted in the death of private respondents mother, during which time the Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows: Any person having any claim upon the policy issued pursuant to this chapter shall, without any u nnecessary delay, present to the insurance company concerned a written notice of claim setting forth the amount of his loss, and/or the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commission or the Courts within one year from date of accident, otherwise the claimants right of action shall prescribe [emphasis and underscoring supplied]. In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, we ruled that the one year prescription period to bring suit in court against the insurer should be counted from the time that the insurer rejects the written claim filed therewith by the insured, the beneficiary or the third person interested under the insurance policy. We explained: It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to hide itself from its liabilities. The facts of these cases evidently reflect the deliberate efforts of petitioner company to prevent the filing of a formal action against it. Bearing in mind that if it succeeds in doing so until one year lapses from the date of the accident it could set up the defense of prescription, petitioner company made private respondents believe that their claims would be settled in order that the latter will not find it necessary to immediately bring suit. In violation of its duties to adopt and implement reasonable standards for the prompt investigation of claims and to effectuate prompt, fair and equitable settlement of claims, and with manifest bad faith, petitioner company devised means and ways of stalling the settlement proceedings. x x x [N]o steps were taken to process the claim and no rejection of said claim was ever made even if private respondent had already complied with all the requirements. x x x This Court has made the observation that some insurance companies have been inventing excuses to avoid their just obligations and it is only the State that can give the protection which the insuring public needs from possible abuses of the [14] insurers. It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically provide that action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise the claimants right of action shall prescribe [emphasis [15] ours].
[13]

We have certainly ruled with consistency that the prescriptive period to bring suit in court under an insurance policy, begins to run from the date of the insurers rejection of the claim filed by the insured, the beneficiary or any person claiming under an insurance contract. This ruling is premised upon the compliance by the persons suing under an insurance contract, with the indispensable requirement of having filed the written claim mandated by Section 384 of the Insurance Code before and after its amendment. Absent such written claim filed by the person suing under an insurance contract, no cause of action accrues under such insurance contract, considering that it is the rejection of that claim that triggers the running of the one-year prescriptive period to bring suit in court, and there can be no opportunity for the insurer to even reject a claim if none has been filed in the first place, as in the instant case. The one-year period should instead be counted from the date of rejection by the insurer as this is the time when the cause of action accrues. x x x In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled: The plaintiffs cause of action did not accrue until his claim was finally rejected by the insurance company. This is because, before such final rejection, there was no real necessity for bringing suit. The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha Insurance and Surety Co., viz.: Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a correlative obligatio n of the defendant but also an act or omission of the defendant in violation of said legal right, the cause of action does not [16] accrue until the party obligated refuses, expressly or impliedly, to comply with its duty. When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected by petitioner, and private respondent does not dispute such asseveration through a denial in his pleadings, we are constrained to rule that respondent appellate court committed reversible error in finding petitioner liable under an insurance contract the existence of which had not at all been proven in court. Even if there were such a contract, private respondents cause of action can not prevail because he failed to file the written claim mandated by Section 384 of the Insurance Code. He is deemed, under this legal provision, to have waived his rights as against petitioner-insurer. WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil Case No. 135486 are REVERSED and SET ASIDE insofar as Travellers Insurance & Surety Corporation was found jointly and severally liable to pay actual, moral and exemplary damages, death indemnity, attorneys fees and litigation expenses in Civil Case No. 135486. The complaint against Travellers Insurance & Surety Corporation in said case is hereby ordered dismissed. No pronouncement as to costs. SO ORDERED. Bellosillo, Vitug, and Kapunan, JJ., concur. Padilla, (Chairman), J., on leave.

G.R. No. L-16215

June 29, 1963

SIMEON DEL ROSARIO, plaintiff-appellee, vs. THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant. Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee. K. V. Faylona for defendant-appellant. PAREDES, J.: On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of the insured. The pertinent provisions of the Policy, recite: Part I. Indemnity For Death If the insured sustains any bodily injury which is effected solely through violent, external, visible and accidental means, and which shall result, independently of all other causes and within sixty (60) days from the occurrence thereof, in the Death of the Insured, the Company shall pay the amount set opposite such injury: Section 1. Injury sustained other than those specified below unless excepted hereinafter. . . . . . . . Section 2. Injury sustained by the wrecking or disablement of a railroad passenger car or street railway car in or on which the Insured is travelling as a farepaying passenger. . . . . . . . Section 3. Injury sustained by the burning of a church, theatre, public library or municipal administration building while the Insured is therein at the commencement of the fire. ....... 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. . . . . . . . xxx xxx xxx P3,000.00

P1,000.00

P1,500.00

P2,000.00

Part VI. Exceptions This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability, Hospital fees, or Loss of Time, caused to the insured: . . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of a passenger steam or motor vessel in which the Insured is travelling as a farepaying passenger; . . . . A rider to the Policy contained the following: IV. DROWNING It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby waived by the company, and to form a part of the provision covered by the policy. On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump off said launch on account of fire which broke out on said vessel, resulting in the death of drowning, of the insured and beneficiary in the waters of Jolo. 1wph1.t On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with defendant company, and on September 13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The receipt signed by plaintiff reads RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS ONE THOUSAND (P1,000.00) Philippine Currency, being settlement in full for all claims and demands against said Company as a result of an accident which occurred on February 26, 1957, insured under out ACCIDENT Policy No. 7136, causing the death of the Assured.

In view of the foregoing, this policy is hereby surrendered and CANCELLED. LOSS COMPUTATION Amount of Insurance P1,000.00 __________ vvvvv

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing said company that said amount was not the correct one. Atty. Francisco claimed The amount payable under the policy, I believe should be P1,500.00 under the provision of Section 2, part 1 of the policy, based on the rule of pari materia as the death of the insured occurred under the circumstances similar to that provided under the aforecited section. Defendant company, upon receipt of the letter, referred the matter to the Insurance Commissioner, who rendered an opinion that the liability of the company was only P1,000.00, pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because of the above opinion, defendant insurance company refused to pay more than P1,000.00. In the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery of the balance of P2,000.00 more was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII), praying for it further sum of P10,000.00 as attorney's fees, expenses of litigation and costs. Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or claim is set forth in the complaint had already been released, plaintiff having received the full amount due as appearing in policy and as per opinion of the Insurance Commissioner. An opposition to the motion to dismiss, was presented by plaintiff, and other pleadings were subsequently file by the parties. On December 28, 1957, the trial court deferred action on the motion to dismiss until termination of the trial of the case, it appearing that the ground thereof was not indubitable. In the Answer to the complaint, defendant company practically admitted all the allegations therein, denying only those which stated that under the policy its liability was P3,000.00. On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions of which read xxx xxx xxx

Since the contemporaneous and subsequent acts of the parties show that it was not their intention that the payment of P1,000.00 to the plaintiff and the signing of the loss receipt exhibit "1" would be considered as releasing the defendant completely from its liability on the policy in question, said intention of the parties should prevail over the contents of the loss receipt "1" (Articles 1370 and 1371, New Civil Code). ". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to P3,000.00 as indemnity for the death of the insured. The insured died of drowning. Death by drowning is covered by the policy the pertinent provisions of which reads as follows: xxx xxx xxx

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

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

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the amount of P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the amount to which plaintiff is entitled to recover under the policy Exhibit "A".

The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation. However, since it is evident that the defendant had not acted in bad faith in refusing to pay plaintiff's claim, the Court cannot award plaintiff's claim for attorney's fees and expenses of litigation. IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision dated July 21, 1958 and hereby renders judgment, ordering the defendant to pay plaintiff the sum of Two Thousand (P2,000.00) Pesos and to pay the costs. The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a Resolution dated September 29, 1959, elevated the case to this Court, stating that the genuine issue is purely legal in nature. All the parties agree that indemnity has to be paid. The conflict centers on how much should the indemnity be. We believe that under the proven facts and circumstances, the findings and conclusions of the trial court, are well taken, for they are supported by the generally accepted principles or rulings on insurance, which enunciate that where there is an ambiguity with respect to the terms and conditions of the policy, the same will be resolved against the one responsible thereof. It should be recalled in this connection, that generally, the insured, has little, if any, participation in the preparation of the policy, together with the drafting of its terms and Conditions. The interpretation of obscure stipulations in a contract should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the insurance company. . . . . And so it has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal or uncertain . . . are to be construed strictly against, the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved," (29 Am. Jur. 181) and the reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955. . . . . Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749). At any event, the policy under consideration, covers death or disability by accidental means, and the appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the insured. In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised in the appeal. The judgment appealed from is hereby affirmed. Without costs. Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon and Regala, JJ., concur. Makalintal, J., reserves his vote.

G.R. No. L-24833

September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner, vs. MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF APPEALS, respondents. Jose S. Suarez for petitioner. Eligio G. Lagman for respondents.

FERNANDO, J.: An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability under a common carrier insurance policy on the pretext that what was insured, not once but twice, was a private vehicle and not a common carrier, the policy being issued upon the insistence of its agent who discounted fears of the insured that his privately owned vehicle might not fall within its terms, the insured moreover being "a man of scant education," finishing only the first grade. So it was held in a decision of the lower court thereafter affirmed by respondent Court of Appeals. Petitioner in seeking the review of the above decision of respondent Court of Appeals cannot be so sanguine as to entertain the belief that a different outcome could be expected. To be more explicit, we sustain the Court of Appeals. The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case. Federico Songco of Floridablanca, Pampanga, a man of scant education being only a first grader ..., owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such private vehicle owner, he was induced by Fieldmen's Insurance Company Pampanga agent Benjamin Sambat to apply for a Common Carrier's Liability Insurance Policy covering his motor vehicle ... Upon paying an annual premium of P16.50, defendant Fieldmen's Insurance Company, Inc. issued on September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO- 4254 ... the duration of which will be for one (1) year, effective September 15, 1960 to September 15, 1961. On September 22, 1961, the defendant company, upon payment of the corresponding premium, renewed the policy by extending the coverage from October 15, 1961 to October 15, 1962. This time Federico Songco's private jeepney carried Plate No. J-68136-Pampanga-1961. ... On October 29, 1961, during the effectivity of the renewed policy, the insured vehicle while being driven by Rodolfo Songco, a duly licensed driver and son of Federico (the vehicle owner) collided with a car in the municipality of Calumpit, province of Bulacan, as a result of which mishap Federico Songco (father) and Rodolfo Songco (son) died, Carlos Songco (another son), the latter's wife, Angelita Songco, and a family friend by the name of Jose Manuel sustained physical injuries of 1 varying degree." It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-year-old son of deceased Federico Songco, testifying as witness, declared that when insurance agent Benjamin Sambat was inducing his father to insure his vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is an "owner" private vehicle and not for passengers,' to which agent Sambat replied: 'whether our vehicle was an "owner" type or for passengers it could be insured because their company is not owned by the Government and the Government has nothing to do with their company. So they could do what they please whenever they believe a vehicle is insurable' ... In spite of the fact that the present case was filed and tried in the CFI of Pampanga, the defendant company did not even care to rebut 2 Amor Songco's testimony by calling on the witness-stand agent Benjamin Sambat, its Pampanga Field Representative." The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of the deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts they prevailed, as had been mentioned, in the lower court and in the respondent Court of Appeals.1awphl.nt The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and Rock Insurance Co., 3 Ltd., with Justice J. B. L. Reyes speaking for the Court. It is now beyond question that where inequitable conduct is shown by an insurance firm, it is "estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition on 4 the insured." As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of estoppel undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the insured Federico Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such representation, be permitted to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this case would result in a gross travesty of justice. That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in the policy. lt would now rely on the fact that the insured owned a private vehicle, not a common carrier, something which it knew all along when not once but twice its agent, no doubt without any objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into such a contract. Nor is there any merit to the second alleged error of respondent Court that no legal liability was incurred under the policy 5 by petitioner. Why liability under the terms of the policy was inescapable was set forth in the decision of respondent

Court of Appeals. Thus: "Since some of the conditions contained in the policy issued by the defendant-appellant were impossible to comply with under the existing conditions at the time and 'inconsistent with the known facts,' the insurer 'is estopped from asserting breach of such conditions.' From this jurisprudence, we find no valid reason to deviate and consequently hold that the decision appealed from should be affirmed. The injured parties, to wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the defendant company was being made liable, were passengers of the jeepney at the time of the occurrence, and Rodolfo Songco, for whose burial expenses the defendant company was also being made liable was the driver of the vehicle in question. Except for the fact, that they were not fare 6 paying passengers, their status as beneficiaries under the policy is recognized therein." Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision would reveal anew the weakness of petitioner's contention. Thus: "Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly interpreted against the party that caused them, the 'memo of warranty' invoked by appellant bars the latter from questioning the existence of the appliances called for in the insured premises, since its initial expression, 'the undernoted appliances for the extinction of fire being kept on the premises insured hereby, ... it is hereby warranted ...,' admits of interpretation as an admission of the existence of such appliances which appellant cannot now 7 contradict, should the parol evidence rule apply." To the same effect is the following citation from the same leading case: "This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' ( contrats d'adhesion), in contrast to those entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime examples) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming 8 traps for the unwary (New Civil Code. Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942)." The last error assigned which would find fault with the decision of respondent Court of Appeals insofar as it affirmed the lower court award for exemplary damages as well as attorney's fees is, on its face, of no persuasive force at all. The conclusion that inescapably emerges from the above is the correctness of the decision of respondent Court of Appeals sought to be reviewed. For, to borrow once again from the language of the Qua Chee Gan opinion: "The contract of insurance is one of perfect good faith (uberima fides) not for the insured alone,but equally so for the insurer; in fact, it is 9 more so for the latter, since its dominant bargaining position carries with it stricter responsibility." This is merely to stress that while the morality of the business world is not the morality of institutions of rectitude like the pulpit and the academe, it cannot descend so low as to be another name for guile or deception. Moreover, should it happen thus, no court of justice should allow itself to lend its approval and support. 1awphl.nt We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance Co., Inc. It did not succeed in its persistent effort to avoid complying with its obligation in the lower court and the Court of Appeals. Much less should it find any receptivity from us for its unwarranted and unjustified plea to escape from its liability. WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety. Costs against petitioner Fieldmen's Insurance Co., Inc. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur. Footnotes
1

Brief for Defendant-Appellant, Appendix A, pp. 27-28. Ibid, p. 31. 98 Phil. 85 (1955). Ibid, p. 92.

The policy provided as follows: "The company will, subject to the limits of liability and under terms of this policy, indemnify the insured in the event of accident caused by or arising out of the use of motor vehicle against all sums which the insured will become liable to pay in respect of: death or bodily injury to any fare-paying passenger including the driver, conductor, and/or inspector who is riding in the motor vehicle insured at the time of the accident or injury (RA 9)." (Brief for Defendant-Appellant, p. 36.)
6

Ibid, p. 37. 98 Phil. 85, 92-93 (1955). Ibid, p. 95. Ibid, p. 95.

G.R. No. L-28866 March 17, 1972 FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor children, RAFAEL J. LANDICHO and MA. LOURDES EUGENIA LANDICHO,plaintiffs-appellees, vs. GOVERNMENT SERVICE INSURANCE SYSTEM,defendant-appellant. . Vedasto J. Hernandez for plaintiffs-appellees.Government Corporate Counsel Leopoldo M. Abellera and Trial Attorney Arsenio J. Magpale defendant-appellant.

CONCEPCION, C.J.:p Appeal of the Government Service Insurance System hereinafter referred to as GSIS, for the sake of brevity from a decision of the Court of First Instance of Manila directing said defendant to pay to the plaintiffs-appellees, Fe de Joya Landicho and her minor children, Rafael J. and Maria Lourdes Eugenia, both surnamed Landicho, the sum of P15,800, with interest thereon, at the legal rate, from September 26, 1967, until fully paid, in addition to the sum of P1,000, as and for attorney's fees, and the costs. The facts are not in dispute. On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a civil engineer of the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental, optional additional life insurance policy No. OG136107 in the sum of P7,900. The policy states on its face: This insurance is granted subject to the terms and conditions hereinafter set forth and in consideration of the "Information" therefor and of the payment on the day this Policy takes effect of the monthly premiums stated above, due from and payable by the Insured, and the like payments on the last day of every month during the lifetime of the Insured until maturity of this Policy or until prior death of the Insured. On page 2 of said policy, condition No. 1 provides, in part: . 1. PAYMENT OF PREMIUMS: . ... . Premiums are due and payable at the Office of the System in Manila or at any of its branches. When any premium or installment thereof remains unpaid after its due date, such due date is the date of default in payment of premiums. The mere possession of this Policy does not imply that it is in force unless the premiums due thereon are paid on time or the policy has sufficient cash value to keep it in force. Condition No. 18, on page 8 of the policy, is of the following tenor: . 18. ENTIRE CONTRACT IN THIS POLICY: . This Policy together with the "Information" sheet signed by the Insured, a copy of which is attached hereto, is issued under the provisions of Commonwealth Act No. 186, as amended, and constitutes the entire contract. All statements made by the Insured shall, in the absence of fraud, be deemed representations and no warranties, and no statement shall void the Policy or be used as a defense to claim hereunder unless it be contained in written information and a copy of such information be endorsed upon or attached to the Policy when issued. Before the issuance of said policy, the insured had filed an application, by filing and signing a printed form of the GSIS on the basis of which the policy was issued. Paragraph 7 of said application States: 7. I hereby declare that all the above statements and answers as well as those I may make to the System's Medical Examiner in continuation of this application, to be true and co direct to the best of my knowledge and belief, and I hereby agree as follows: . a. That this declaration, with the answers to be given by me to the Medical Officer, shall be made the basis the policy and form part of the same; . b. That acceptance of my policy issued on this application will constitute a ratification by me of any correction or addition to this application made by the System; . c. That this application serves as a letter of authority to the Collecting Officer of our Office thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36, beginning the month of May, 1964, and every month thereafter until notice of its discontinuance shall have beenreceived from the System; .

d. That the failure to deduct from my salary the month premiums shall not make the policy lapse, however, the premium account shall be considered as indebtedness which, I bind myself to pay the System; . e. That my policy shall be made effective on the first day of the month next following the month the first premium is paid; provided, that it is not more ninety (90) days before or after the date of the medical examination,was conducted if required." . While still under the employment of the Bureau of Public Works, Mr. Landicho met his death, on June 29, 1966, in an airplane crash in Mindoro. Thereupon, Mrs. Landicho, in her own behalf and that of her co-plaintiffs and minor children, Rafael J. and Maria Lourdes Eugenia, filed with the GSIS a claim for P15,800, as the double indemnity due under policy No. OG-136107, because of the untimely death of the insured owing to said accident. The GSIS denied the claim, upon the ground that the policy had never been in force because, pursuant to subdivision (e) of the above-quoted paragraph 7 of the application, the policy "shall be ... effective on the first day of the month next following the month the first premium is paid," and no premium had ever been paid on said policy. Upon refusal of the GSIS to reconsider its stand, this action was filed, September 22, 1967, in the Court of First Instance of Manila, in which the GSIS reiterated its aforementioned defense. Thereafter submitted by both parties for judgment on the pleadings, upon the ground thatthe case involve purely questions of law, said court rendered, in due course, its abovementioned decision, from which the GSIS has taken the present appeal. The main issue therein is whether or not the insurance policy in question has ever been in force, not a single premium having been paid thereon. In support of the affirmative, plaintiffs invoke the stipulation in the policy to the effect that the information contained in the application filed by the insured shall form part of the contract between him and the GSIS, and, especially, subdivisions (c) and (d) of paragraph 7 of said application stating that the same shall serve "as a letter of authority to the Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36 beginning the month of May, 1964, and every month thereafter," and that "failure to deduct from my salary the monthly premiums shall notmake the policy lapse, however, the premium account 1 shall be considered as indebtedness which, I" the insured "bind myself to pay the System." The GSIS maintains, however, the negative, relying upon subdivision (e) of the same paragraph No. 7, which provides that the "policy shall be made effective on the first day of the month next following the month the first premium is paid." Under this theory, subdivisions (c) and (d) of said paragraph 7 would not apply unless and until the first premium shall have been actually paid, pursuant to subdivision (e) of the same paragraph. Although it may not be entirely farfetched, this view is not likely to be in accord with the understanding of many, if not most, government employees who obtain an optional additional life insurance policy. As a consequence, the actual receipt by them of their full pay without any deduction for premiums on their optional additional life insurance policies may not impart to them the warning which, otherwise, it would necessarily convey that said policy is not, as yet, in force, for they are liable to believe "that failure to deduct" from the salary of the insured "the monthly premiums shall not" in the language of subdivision (d) "make the policy lapse" and that "the premiums account shall be considered as indebtedness," to be paid or deducted later, because, after all, the so called "payment" of premiums is nothing but a "paper" or "accounting" process, whereby funds are merely transferred, not physically, but constructively, from one office of the government to another. In other words, the language, of subdivisions (c), (d) and (e) is such as to create an ambiguity that should be resolved against the party responsible therefor defendant GSIS, as the party who prepared and furnished the application form and in favor of the party misled thereby, the insured employee. Indeed, our Civil Code provides: The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the 2 obscurity. 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 ... 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 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." 3 (44 C.J.S., p. 1174.) . The equitable and ethical considerations justifying the foregoing view are bolstered up by two (2) factors, namely: (a) The aforementioned subdivision (c) states "that this application serves as a letter of authority to the Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36." No such deduction was made and, consequently, not even the first premium "paid" because the collecting officer of the Bureau of Public Works was not advised by the GSIS to make it (the deduction) pursuant to said authority. Surely, this omission of the GSIS should not inure to its benefit. . (b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in force, he having been paid by the GSIS the dividends corresponding to said policy . Had the insured had the slightest inkling that the latter was not, as yet, effective for non-payment of the first premium, he would have, in all probability, caused the same to be forthwith satisfied.

WHEREFORE, the decision appealed from should be, it is hereby affirmed, with costs against the defendant-appellant, Government Service Insurance System. It is so ordered. . Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Villamor, Barredo and Makasiar, JJ., concur.

Footnotes 1 Emphasis ours. . 2 Art. 1377 thereof.. 3 Calanoc v. Court of Appeals, 98 Phil. 79, 84. See, also, H.E. Heacock Co. v. Macondray, 42 Phil. 205; Rivero v. Robe, 54 Phil. 982; Asturias Sugar Central v. The Pure Cane Molasses Co., 57 Phil. 519; Gonzales v. La Previsora Filipina, 74 Phil. 165; Del Rosario v. The Equitable Insurance, 620 O.G. 5400, 5403-04. G.R. No. 94071 March 31, 1992 NEW LIFE ENTERPRISES and JULIAN SY, petitioners, vs. HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN GUARANTY CORPORATION, respondents.

REGALADO, J.: This appeal by certiorari seeks the nullification of the decision of respondent Court of Appeals in CA-G.R. CV No. 13866 which reversed the decision of the Regional Trial Court, Branch LVII at Lucena City, jointly deciding Civil Cases Nos. 684, 7-84 and 8-84 thereof and consequently ordered the dismissal of the aforesaid actions filed by herein petitioners. The undisputed background of this case as found by the court a quo and adopted by respondent court, being sustained by 2 the evidence on record, we hereby reproduce the same with approval. The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a business partnership in the City of Lucena. Under the business name of New Life Enterprises, the partnership engaged in the sale of construction materials at its place of business, a two storey building situated at Iyam, Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life Enterpriseswith Western Guaranty Corporation, Reliance Surety and Insurance. Co., Inc., and Equitable Insurance Corporation. On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the amount of P350,000.00. This policy was renewed on May, 13, 1982. On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy No. 69135 inthe amount of P300,000.00 (Renewed under Renewal Certificate No. 41997) An additional insurancewas issued by the same company on November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of P700,000.00. On February 8, 1982, Equitable Insurance Corporation issued Fire Insurance Policy No. 39328 in the amount of P200,000.00. Thus when the building occupied by the New Life Enterprises was gutted by fire at about 2:00 o'clockin the morning of October 19, 1982, the stocks in the trade inside said building were insured against fire in the total amount of P1,550,000.00. According to the certification issued by the Headquarters,Philippine Constabulary /Integrated National Police, Camp Crame, the cause of fire was electrical innature. According to the plaintiffs, the building and the stocks inside were burned. After the fire, JulianSy went to the agent of Reliance Insurance whom he asked to accompany him to the office of thecompany so that he can file his claim. He averred that in support of his claim, he submitted the fireclearance, the insurance policies and inventory of stocks. He further testified that the three insurance companies are sister companies, and as a matter of fact when he was followingup his claim with Equitable Insurance, the Claims Manager told him to go first to Reliance Insurance and if saidcompany agrees to pay, they would also pay. The same treatment was given him by the otherinsurance companies. Ultimately, the three insurance companies denied plaintiffs' claim for payment. In its letter of denial dated March 9, 1983, (Exhibit "C" No. 884) Western Guaranty Corporationthrough Claims Manager Bernard S. Razon told the plaintiff that his claim "is denied for breach ofpolicy conditions." Reliance Insurance purveyed the same message in its letter dated November 23, 1982 and signed by Executive Vice-President Mary Dee Co (Exhibit "C" No. 71

84) which said that "plaintiff's claim is denied for breach of policy conditions." The letter of denial received by the plaintifffrom Equitable Insurance Corporation (Exhibit "C" No. 6-84) was of the same tenor, as said letter dated February 22, 1983, and signed by Vice-President Elma R. Bondad, said "we find that certain policy conditions were violated, therefore, we regret, we have to deny your claim, as it is hereby denied in its entirety." In relation to the case against Reliance Surety and Insurance Company, a certain Atty. Serafin D.Dator, acting in behalf of the plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 784) toExecutive Vice-President Mary Dee Co asking that he be informed as to the specific policy conditions allegedly violated by the plaintiff. In her reply-letter dated March 30, 1983, Executive VicePresidentMary Dee Co informed Atty. Dator that Julian Sy violated Policy Condition No. "3" which requires theinsured to give notice of any insurance or insurances already effected covering the 3 stocks in trade. Because of the denial of their claims for payment by the three (3) insurance companies, petitioner filed separate civil actions against the former before the Regional Trial Court of Lucena City, which cases were consolidated for trial, and thereafter the court below rendered its decision on December 19, l986 with the following disposition: WHEREFORE, judgment in the above-entitled cases is rendered in the following manner, viz: 1. In Civil Case No. 6-84, judgment is rendered for the plaintiff New Life Enterprises and against the defendant Equitable Insurance Corporation ordering the latter to pay the former the sum of TwoHundred Thousand (P200,000.00) Pesos and considering that payment of the claim of the insuredhas been unreasonably denied, pursuant to Sec. 244 of the Insurance Code, defendant is furtherordered to pay the plaintiff attorney's fees in the amount of Twenty Thousand (P20,000.00) Pesos. Allsums of money to be paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec.244 of the Insurance Code) from February 14, 1983, (91st day from November 16, 1982, when SwornStatement of Fire Claim was received from the insured) until they are fully paid; 2. In Civil Case No. 7-84, judgment is rendered for the plaintiff Julian Sy and against the defendantReliance Surety and Insurance Co., Inc., ordering the latter to pay the former the sum ofP1,000,000.00 (P300,000.00 under Policy No. 69135 and P700,000.00 under Policy No. 71547) andconsidering that payment of the claim of the insured has been unreasonably denied, pursuant to Sec.244 of the Insurance Code, defendant is further ordered to pay the plaintiff the amount of P100,000.00 as attorney's fees. All sums of money to be paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec. 244 of the Insurance Code) from February 14, 1983, (91st day from November 16, 1982 when SwornStatement of Fire Claim was received from the insured) until they are fully paid; 3. In Civil Case No. 8-84, judgment is rendered for the plaintiff New Life Enterprises and against thedefendant Western Guaranty Corporation ordering the latter to pay the sum of P350,000.00 to theConsolidated Bank and Trust Corporation, Lucena Branch, Lucena City, as stipulated on the face ofPolicy No. 37201, and considering that payment of the aforementioned sum of money has been unreasonably denied, pursuant to Sec. 244 of the Insurance Code, defendant is further ordered topay the plaintiff attorney's fees in the amount of P35,000.00. All sums of money to be paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec. 244 of the Insurance Code) from February 5, 1982, (91st day from 1st week of November 1983 when insured filed formal claim for full indemnity according to adjuster Vetremar Dela Merced) until they are 4 fully paid. As aforestated, respondent Court of Appeals reversed said judgment of the trial court, hence this petition the cruxwherein is whether or not Conditions Nos. 3 and 27 of the insurance contracts were violated by petitioners thereby resulting in their forfeiture of all the benefits thereunder. Condition No. 3 of said insurance policies, otherwise known as the "Other Insurance Clause," is uniformlycontained in all the aforestated insurance contracts of herein petitioners, as follows: 3. The insured shall give notice to the Company of any insurance or insurances already effected, orwhich may subsequently be effected, covering any of the property or properties consisting of stocksin trade, goods in process and/or inventories only hereby insured, and unless such notice be givenand the particulars of such insurance or insurances be stated therein or endorsed on this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrenceof any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in 5 force at the time of loss ordamage not more than P200,000.00. Petitioners admit that the respective insurance policies issued by private respondents did not state or endorse thereon the other insurance coverage obtained or subsequently effected on the same stocks in trade for the loss of which

compensation is claimed by petitioners. The policy issued by respondent Western Guaranty Corporation(Western) did not declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent Equitable Insurance Corporation (Equitable) as co-insurers on the same stocks, while Reliance's Policies covering the same stocks didnot likewise declare Western and Equitable as such co-insurers. It is further admitted by petitioners that Equitable's policy stated "nil" in the space thereon requiring indication of any co-insurance although there were three (3) policies subsisting on the same stocks in trade at the time of the loss, namely, that of Western in the amount of P350,000.00 7 and two (2) policies of Reliance in the total amount of P1,000,000.00. In other words, the coverage by other insurance or co-insurance effected or subsequently arranged by petitioners were neither stated nor endorsed in the policies of the three (3) private respondents, warranting forfeiture of all benefits thereunder if we are to follow the express stipulation in the aforequoted Policy Condition No. 3. Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the existence of the additional insurance coverage and that they were not informed about the requirement that such other or additional insurance 8 should be stated in the policy, as they have not even read policies. These contentions cannot pass judicial muster. The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject matter. Theknowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is notthe "notice" that would estop the insurers from denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being of dubious applicabilityhere has likewise been roundly refuted by respondent court whose factual findings we find acceptable. Thus, it points out that while petitioner Julian Sy claimed that he had informed insurance agent Alvarez regarding the coinsurance on the property, he contradicted himself by inexplicably claiming that he had not read the termsof the policies; that Yap Dam Chuan could not likewise have obtained such knowledge for the same reason, asidefrom the fact that the insurance with Western was obtained before those of Reliance and Equitable; and that theconclusion of the trial court that Reliance and Equitable are "sister companies" is an unfounded conjecture drawnfrom the mere fact that Yap Kam Chuan was an agent for both companies which also had the same insuranceclaims adjuster. Availment of the services of the same agents and adjusters by different companies is a commonpractice in the insurance business and such facts do not warrant the speculative conclusion of the trial court. Furthermore, when the words and language of documents are clear and plain or readily understandable by an ordinary 9 reader thereof, there is absolutely no room for interpretation or construction anymore. Courts are not allowed to make contracts for the parties; rather, they will intervene only when the terms of the policy are ambiguous, equivocal, 10 or uncertain. The parties must abide by the terms of the contract because such terms constitute the measureof the insurer's liability and compliance therewith is a condition precedent to the insured's right of recovery from 11 the insurer. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally infavor of the insured and strictly against the insurer company, yet contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If suchterms are 12 clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Moreover, obligations arising from contracts have the force of law between the contracting parties and should be compliedwith in 13 good faith. Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care and prudence that would be exacted in relation to other contracts. The conformity of the insured to the terms of the 14 policy is implied from his failure to express any disagreement with what is provided for. It may be true that themajority rule, as cited by petitioners, is that injured persons may accept policies without reading them, and that this is not negligence per se. 15 But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering that he has been a businessman since 16 1965 and the contract concerns indemnity in case ofloss in his money-making trade of which important consideration he could not have been unaware as it was pre-in case of loss in his money-making trade of which important consideration he could not have been unaware as it was precisely the reason for his procuring the same. We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. Yap:
17

... And considering the terms of the policy which required the insured to declare other insurances,the statem ent in question must be deemed to be a statement (warranty) binding on both insurer and insured, that there were no other insurance on the property. . . . The annotation then, must be deemed to be a warranty that the property was not insured by any other policy. Violation thereof entitled the insurer to rescind (Sec. 69, Insurance Act). Suchmisrepresentation is fatal in the light of our views in Santa Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329. The materiality of non-disclosure of other insurance policies is not open to doubt. xxx xxx xxx

The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation in which a fire would be profitable to the insured. According to Justice Story: "The insured has no right to complain, for he assents to comply with all the stipulations on his side, in order toentitle himself to the benefit of the contract, which, upon reason or principle, he has no right to askthe court to dispense with the performance of his own part of the agreement, and yet to bind the otherparty to obligations, which, but for those stipulations, would not have been entered into." Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al.,
18

we held:

It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a falsedeclaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many coinsurances, it could have hesitated or plainly desisted from entering into such contract. Hence, theinsured was guilty of clear fraud (Rollo, p. 25). Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and "OtherInsurance Clause" are materially different from the actual number of co-insurances taken over thesubject property. Consequently, "the whole foundation of the contract fails, the risk does not attachand the policy never becomes a contract between the parties." Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise.Falsehood in such representations is not shown to vary or add to the contract, or to terminate a contract which has once been made, but to show that no contract has ever existed (Tolentino,Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification (Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986). As the insurance policy against fire expressly required that notice should be given by the insured ofother insurance upon the same property, the total absence of such notice nullifies the policy. To further warrant and justify the forfeiture of the benefits under the insurance contracts involved, we need merelyto turn to Policy Condition No. 15 thereof, which reads in part: 15. . . . if any false declaration be made or used in support thereof, . . . all benefits under this Policy shall 19 be forfeited . . . . Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the complaint for recovery was filed in court by petitioners only on January 31, 1984, or after more than one (1) year had elapsedfrom petitioners' receipt of the insurers' letter of denial on November 29, 1982. Policy Condition No. 27 of their insurance contract with Reliance provides: 27. Action or suit clause. If a claim be made and rejected and an action or suit be not commenced either in the Insurance Commission or any court of competent jurisdiction of notice of such rejection,or in case of arbitration taking place as provided herein, within twelve (12) months after due notice ofthe award made by the arbitrator or arbitrators or umpire, then the claim shall for all purposes be 20 deemed to have been abandoned and shall not thereafter be recoverable hereunder. On this point, the trial court ruled: . . . However, because of the peculiar circumstances of this case, we hesitate in concluding thatplaintiff's right to ventilate his claim in court has been barred by reason of the time const raint providedin the insurance contract. It is evident that after the plaintiff had received the letter of denial, he stillfound it necessary to be informed of the specific causes or reasons for the denial of his claim, reasonfor which his lawyer, Atty. Dator deemed it wise to send a letter of inquiry to the defendant which wasanswered by defendant's Executive Vice-President in a letter dated March 30, 1983, . . . . Assuming,gratuitously, that the letter of Executive Vice-President Mary Dee Co dated March 30, 1983, was received by plaintiff on the same date, the period of limitation should 21 start to run only from said date in the spirit of fair play and equity. . . . We have perforce to reject this theory of the court below for being contrary to what we have heretofore declared: It is important to note the principle laid down by this Court in the case of Ang vs. Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit: The condition contained in an insurance policy that claims must be presented within one year after rejection is not merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance companies as it

demandsthat insurance suits be brought by the insured while the evidence as to the origin andcause of destruction have not yet disappeared. In enunciating the above-cited principle, this Court had definitely settled the rationale for the necessity of bringing suits against the Insurer within one year from the rejection of the claim. The contention of the respondents that the one-year prescriptive period does not start to run until thepetition for reconsideration had been resolved by the insurer, runs counter to the d eclared purpose for requiring that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from the denial of the claim. To uphold respondents' contention would contradict anddefeat the very principle which this Court had laid down. Moreover, it can easily be used by insured persons as a scheme or device to waste time until any evidence which may be considered againstthem is destroyed. xxx xxx xxx While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the samecannot be taken to mean the rejection of a petition for reconsideration as insisted by respondents. Such was clearly not the meaning contemplated by this Court. The insurance policy in said caseprovides that the insured should file his claim first, with the carrier and then with the insurer. 22 The "finalrejection" being referred to in said case is the rejection by the insurance company. Furthermore, assuming arguendo that petitioners felt the legitimate need to be clarified as to the policy condition violated, there was a considerable lapse of time from their receipt of the insurer's clarificatory letter dated March 30, 1983, up to the time the complaint was filed in court on January 31, 1984. The one-year prescriptive periodwas yet to expire on November 29, 1983, or about eight (8) months from the receipt of the clarificatory letter, butpetitioners let the period lapse without bringing their action in court. We accordingly find no "peculiarcircumstances" sufficient to relax the enforcement of the one-year prescriptive period and we, therefore, hold thatpetitioners' claim was definitely filed out of time. WHEREFORE, finding no cogent reason to disturb the judgment of respondent Court of Appeals, the same ishereby AFFIRMED. SO ORDERED. Melencio-Hererra and Nocon, JJ., concur. Paras, J., took no part. Padilla, J., took no part.

Footnotes 1 Justice Serafin V.C. Guingona, ponente, with Justices Gloria C. Paras and Bonifacio A. Cacdac, Jr., concurring Rollo, 51. 2 Per Judge Hoover S. Abling. 3 Rollo, 34-36. 4 Ibid., 32-33. 5 Exhibits "20-c", "18-b", "14-b"; Folder of Exhibit, 20, 29, 31. 6 Memorandum for Petitioners, 13. 7 Rollo, 35. 8 Memorandum for the Petitioners, 13. 9 Marina Port Services, Inc. vs. Iniego, et al., 181 SCRA 304 (1990). 10 Pan Malayan Insurance Corporation vs. Court of Appeals, et al., 184 SCRA 54 (1990). 11 Perla Compania de Seguros, Inc. vs. Court of Appeals, et al., 185 SCRA 741 (1990). 12 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., 195 SCRA 193 (1991).

13 Article 1159, Civil Code. 14 Ang Giok Chip, etc. vs. Springfield Fire & Marine Insurance Company, 56 SCRA 375 (1931). 15 Vance on Insurance, 1951 ed., 257; Memorandum for the Petitioners, 22. 16 TSN, February 11, 1986, 28. 17 61 SCRA 426 (1974), citing General Insurance & Surety Corporation vs. Ng Hua, 106 Phil. 1117, 1119-1120 (1960). 18 168 SCRA 1 (1988). 19 Exhibits "20-d", "18-e, "14-e"; Folder of Exhibits, 21, 30, 33. 20 Exhibit "14-f"; Folder of Exhibits, 33. 21 Rollo, 49. 22 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., supra, Fn. 12. G.R. No. L-68037 July 29, 1992 PARAMOUNT INSURANCE CORPORATION, petitioner, vs. HON. MAXIMO M. JAPZON, Presiding Judge, Br. 36, RTC, Manila; City Sheriff and Deputy Sheriffs Nestor Macabilin & Teodoro Episcope, public respondents, JOSE LARA and ARSENIO PAED, private respondents.

ROMERO, J.: Assailed in this petition for certiorari and prohibition with preliminary injunction is the decision of the Regional Trial Court of Manila, Branch 36 dated August 30, 1983 in Civil Case No. 82-4416 entitled "Jose Lara and Arsenio Paed v. Willy Garcia, Emilio Macasieb, Domingo Natividad, Willy Manuel, and Paramount Insurance Co. Inc." ordering petitioner to pay private respondents an aggregate sum of P175,000.00 as insurer of a motor vehicle owned by Domingo Natividad despite the absence of jurisdiction over its persons. It appears that on May 27, 1978, Jose Lara contracted the services of a passenger jeepney with Plate No. PUJ K5-826, owned and operated by Willy Garcia (Garcia for brevity), to transport his family, relatives and friends from Manila to Pangasinan. The said jeepney was then driven by Emilio Macasieb (Macasieb for brevity). On the very same date, within the vicinity of Barangay Parsolingan in Gerona, Tarlac, a Ford truck F-600 with Plate No. WL-628, then driven by Willy Manuel (Manuel for brevity) while cruising the National Highway on its way to Manila, overtook an unidentified motor vehicle and in the process hit and sideswept the said passenger jeepney then driven by Macasieb. As a consequence of such mishap, the two (2) passengers of the jeepney, namely: Jose Lara (Lara for brevity) and Arsenio Paed (Paed for brevity) sustained physical injuries of varying degrees. Specifically, Lara suffered serious physical injuries resulting in the amputation of his right arm while Paed suffered serious physical injuries which incapacitated him to work for more than two (2) weeks. Aside from bodily injuries suffered by its passengers, both vehicles suffered minor damages at their respective points of impact. The insurer of said truck is herein petitioner Paramount 2 Surety and Insurance Co. Inc. After the said accident, Natividad filed a notice of claim with Paramount and the latter lost no time in dispatching and/or contracting an independent adjuster handling casualty and marine claims, the EM Salvatierra Adjustment Office. Thereafter, the adjustment of Natividad's claims were transferred to Speedway Adjustment and Appraisal Corporation which investigated the facts surrounding the incident and recommended petitioner to pay Natividad under its policy, using the "no fault" clause under the Insurance Code as its basis of liability. A check in the amount of Eight Hundred Pesos (P800.00) covered by Check No. EBC-10036191F was paid to Paed's 3 wife, Priscilla Paed. It was covered by Voucher No. 32358. In addition to said amount, another check in the amount of Five Thousand Pesos (P5,000.00) covered by EBC Check No. 3082 was paid by Paramount to Central Luzon Doctor's Hospital covering the expense for medical treatment and 4 hospitalization of the victims, Lara and Paed. It was covered by Voucher No. 32196. On or about June 5, 1978, Lara and Paed filed a criminal case against Manuel for Reckless Imprudence resulting in 5 Damage to Property docketed as Criminal Case No. 2227 before the Municipal Trial Court of Gerona, Tarlac.
1

During the pendency of said criminal case, Lara filed a manifestation reserving the right to file a separate civil action against the operators of the two (2) vehicles, namely: Natividad and Garcia as well as the two (2) drivers, Manuel and 6 Macasieb. Accordingly, Lara and Paed filed on September 17, 1978 a civil case for damages docketed as Civil Case No. 82-4416 7 against Garcia, Macasieb, Manuel, Natividad, and impleaded Paramount, the latter as insurer of the Ford truck. A certain Atty. Segundo Gloria filed a notice of appearance dated November 16, 1978 where he informed the court that he was appearing for and in behalf of the defendants Natividad, Manuel and Paramount. 8 Subsequently, on December 14, 9 1978, he filed an answer with crossclaim and counterclaim. During the trial of Criminal Case No. 2227 for Reckless Imprudence resulting in Damage to Property, accused Manuel pleaded guilty to the crime charged on September 18, 1979, and was accordingly, sentenced to imprisonment of six 10 months of arresto mayor maximum under Article 365 of the Revised Penal Code. In the interim period, a fire gutted the City Hall of Manila on November 19, 1981 and the records of the case were burned to ashes. Subsequently, on January 25, 1982, plaintiffs (herein private respondents Lara and Paed) filed a petition for 11 reconstitution of the judicial records of the case which was approved without any opposition in the order of the court 12 dated November 4, 1982. On February 17, 1983, the court reiterated its order before the reconstitution of the judicial records declaring defendants Natividad, Manuel and Paramount in default in view of their continued failure to appear during the trial of the case and 13 allowed the plaintiffs (Lara and Paed) to make a formal offer of exhibits and considered the case submitted for decision. After protracted proceedings which lasted for almost five years, the Regional Trial Court of Manila, rendered a decision dated August 30, 1983, the decretal portion of which states: WHEREFORE, finding the evidence presented by plaintiff sufficient to prove the allegations of the complaint, judgment is hereby rendered in favor of the plaintiffs and against the defendants ordering the latter to pay jointly and severally plaintiff Jose Lara, the amount of P15,000.00 for medical and hospitalization expenses; the sum of P80,000.00 as moral and exemplary damages; the sum of P50,000.00 as compensatory damages; to pay jointly and severally plaintiff Arsenio Paed the sum of P20,000.00 as moral and actual damages and to pay the sum of P10,000.00 by way of attorney's fees 14 and the costs of suit. A copy of the said decision was served on the petitioner's counsel, Atty. Segundo Gloria, on October 5, 1981. No appeal from the judgment having been filed within the reglementary period or up to October 20, 1983, the same became final and executory. So, on March 2, 1984, Lara and Paed, now private respondents, filed an ex-parte motion for execution of the 16 said judgment and the trial court granted the same on July 10, 1984. It was only on March 3, 1984 that Paramount, now petitioner, filed a motion to set aside the Decision raising the issue that 17 the court has not validly acquired jurisdiction over its person. Hence, the present recourse. After deliberating on the petition, the Court issued a temporary restraining order on July 30, 1984 as prayed for and enjoined the respondents from enforcing the Decision dated August 30, 1983 and the Writ of Execution dated July 10, 18 1984, both rendered and issued in Civil Case No. 82-4416. The pivotal issue to be resolved in this case is whether or not the court validly acquired jurisdiction over petitioner despite 19 the appearance of Atty. Segundo M. Gloria who allegedly was not retained or authorized to file an answer for it. Petitioner now claims that the Decision of the trial court dated August 30, 1983, should be set aside since the court has not validly acquired jurisdiction over its person, not having been validly served with summons and a copy of the complaint nor did it actively participate in the said proceedings. It alleged that Atty. Segundo Gloria was not its retained counsel at that time nor was he authorized by petitioner to act for and in its behalf; and that private respondents' claims for moral, 20 exemplary and compensatory damages as well as attorney's fees are not recoverable from petitioner. The petition is devoid of merit. Jurisdiction is the power with which courts are invested for administering justice, that is, for hearing and deciding 21 cases. In order for the court to have authority to dispose of the case on the merits, it must acquire jurisdiction over the 22 subject matter and the parties. Jurisdiction over the person of the defendant in civil cases is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons. The service of summons is intended to give notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the 23 demands of the plaintiff or the petitioner. Consequently, petitioner's contentions that it was not properly served with summons and that Atty. Segundo Gloria was not authorized to appear for and in its behalf are untenable.
15

In the case at bar, although petitioner questioned the propriety of the service of summons, it however failed to substantiate its allegation that it was not properly served with summons. Hence, the disputable presumption that official 24 duty has been regularly performed prevails. The records of the case, however, showed that all the pleadings, including the answer with crossclaim and counterclaim filed by Atty. Segundo Gloria stated that he represented the defendants Natividad, Manuel and Paramount. In fact, he 25 even filed a notice of appearance informing the court that he is representing the said defendants. It is worth noting that this is not the first time petitioner raised the issue of warrant of jurisdiction over its person as well as warrant of authority of a lawyer to appear for and in its behalf. In the case docketed as G.R. No. 68066 entitled "Paramount Insurance Corp. v. Luna," this Court had the opportunity to rule that "the mere filling of the answer with crossclaim raised a presumption of authority to appear for petitioner Paramount Insurance Corporation . . . in accordance with Section 21, Rule 138 of the Rules of Court. Such presumption is rebuttable, but only by clear and positive proof. In the absence of such clear and positive proof, the presumption of authority . . . should prevail over the petitioner's selfserving denial of such authority. It strains credulity that a counsel who has no personal interest in the case would fight for and defend a case with 26 persistence and vigor if he has not been authorized or employed by the party concerned. To the mind of the Court, the instant petition is filed merely to derail its execution. It took Paramount almost six years to question the jurisdiction of the lower court. Moreover, as earlier adverted to, the controverted Decision of August 30, 1983, became final and executory on October 20, 1983. In any event, it is axiomatic that there is no justification in law and in fact for the reopening of a case which has long become final and which in fact was already executed on July 18, 1984. Time and again, this Court has said that the doctrine of finality of judgment is grounded on fundamental considerations of public policy and sound practice and at the risk of occasional error, the judgments of courts must become final at some 27 definite date fixed by law. However, there is merit in petitioner's contention that its liability is limited only to P50,000.00 as expressed in Insurance 28 Policy No. CV-3466 issued on February 23, 1978. The said insurance policy clearly and categorically placed the petitioners liability for all damages arising out of death or bodily injury sustained by one person as a result of any one accident at P50,000.00. Said amount complied with the minimum fixed by law then prevailing, Section 377 of Presidential Decree No. 6123 (which was retained by P.D. No. 1460, the Insurance Code of 1978), which provided that the liability of land transportation vehicle operators for bodily injuries sustained by a passenger arising out of the use of their vehicles shall not be less than P12,000.00. Since the petitioner's liability under the insurance contract is neither less than P12,000.00 nor contrary to law, morals, good customs, public order or public policy, said stipulation must be upheld as effective and binding between the parties. Therefore, the terms of the contract constitute the measure of the insurer's 29 liability. WHEREFORE, the petition is DISMISSED and the temporary restraining order of July 30, 1984 is LIFTED. The decision of the Regional Trial Court of Manila, Branch 36, dated August 30, 1983, is hereby AFFIRMED with the MODIFICATION that petitioner be held liable to pay respondents Jose Lara and Arsenio Paed the amount of P50,000.00 each which is the limit of its liability under the insurance policy minus the amounts of P5,000.00 and P800.00 which it paid for the hospitalization and medical expenses, respectively, of respondents. Costs against petitioner. SO ORDERED. Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

Footnotes 1 Penned by Judge Alfredo C. Florendo; Rollo, Annex "C," p. 14. 2 Rollo, p. 44. 3 Rollo, Annex "A," p. 12. 4 Rollo, Annex "B," p, 13. 5 Id., p. 57. 6 Rollo, p. 45. 7 Id. 8 Original Records, p. 11.

9 Rollo; Annex "E," p. 23. 10 Id., pp. 58-60. 11 Original Records, p. 145. 12 Rollo, p. 14. 13 Id., Annex "BB," p. 124. 14 Id., Annex "C," p. 14. 15 Original Records, p. 167. 16 Id., pp. 168-169. 17 Id., pp. 170-175. 18 Id., p. 176. 19 Rollo, p. 144. 20 Rollo, pp. 148-153. 21 Velunta v. Philippine Constabulary, G.R. No. 71855, January 20, 1988, 157 SCRA 147. 22 Republic Planters Bank v. Hon. Conrado Molina, G.R. No. 54287, September 28, 1988, 166 SCRA 39. 23 Paramount Insurance Corp. v. Luna, G.R. No. 61404, March 16, l987, 148 SCRA 564. 24 Section 5(m) of Rule 131 of the Rules of Court. 25 Annex "C" of Original Records, p. 11. 26 Fortunato Mercado, et al. v. Hon. Alberto Q. Ubay, et al., L-35830, July 2, 1990, 187 SCRA 719. 27 Alvendia v. Intermediate Appellate Court, G.R. No. 72138, January 22, 1990, 181 SCRA 252. 28 Rollo, Annex "C," p. 157. 29 Perla Compania de Seguros v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741. G.R. No. 75605 January 22, 1993 RAFAEL (REX) VERENDIA, petitioner, vs. COURT OF APPEALS and FIDELITY & SURETY CO. OF THE PHILIPPINES, respondents. G.R. No. 76399 January 22, 1993 FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner, vs. RAFAEL VERENDIA and THE COURT OF APPEALS, respondents. B.L. Padilla for petitioner. Sabino Padilla, Jr. for Fidelity & Surety, Co.

MELO, J.: The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety Insurance Company of the Philippines (Fidelity for short) of its Fire Insurance Policy No. F-18876 effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia also insured the same building with two other companies, namely, The Country Bankers

Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on May 12, 1981, and The Development Insurance for P400,000.00 under Policy No. F-48867 expiring on June 30, 198l. While the three fire insurance policies were in force, the insured property was completely destroyed by fire on the early morning of December 28, 1980. Fidelity was accordingly informed of the loss and despite demands, refused payment under its policy, thus prompting Verendia to file a complaint with the then Court of First Instance of Quezon City, praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation expenses. The complaint was later amended to include Monte de Piedad as an "unwilling defendant" (P. 16, Record). Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of overinsurance; that Verendia maliciously represented that the building at the time of the fire was leased under a contract executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee. On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the policy was also violated by Verendia in that the insured failed to inform Fidelity of his other insurance coverages with Country Bankers Insurance and Development Insurance. Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated on March 31, 1986, (CA-G.R. No. CV No. 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court reversed for the following reasons: (a) there was no misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity of other contracts of insurance was waived by Fidelity as shown by its conduct in attempting to settle the claim of Verendia (pp. 32-33, Rollo of G.R. No. 76399). Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of directly filing a motion for reconsideration within 15 days therefrom, Fidelity filed on April 21, 1986, a motion for extension of 3 days within which to file a motion for reconsideration. The motion for extension was not filed on April 19, 1986 which was the 15th day after receipt of the decision because said 15th day was a Saturday and of course, the following day was a Sunday (p. 14., Rollo of G.R. No. 75605). The motion for extension was granted by the appellate court on April 30, 1986 (p. 15. ibid.), but Fidelity had in the meantime filed its motion for reconsideration on April 24, 1986 (p. 16, ibid.). Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground that the motion for extension was filed out of time because the 15th day from receipt of the decision which fell on a Saturday was ignored by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate Court has personnel receiving pleadings even on Saturdays. The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion for reconsideration was similarly brushed aside on July 22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No. 75605 was initiated. Subsequently, or more specifically on October 21, 1986, the appellate court denied Fidelity's motion for reconsideration and account thereof. Fidelity filed on March 31, 1986, the petition for review on certiorari now docketed as G.R. No. 76399. The two petitions, inter-related as they are, were consolidated (p. 54, Rollo of G.R. No. 76399) and thereafter given due course. Before we can even begin to look into the merits of the main case which is the petition for review oncertiorari, we must first determine whether the decision of the appellate court may still be reviewed, or whether the same is beyond further judicial scrutiny. Stated otherwise, before anything else, inquiry must be made into the issue of whether Fidelity could have legally asked for an extension of the 15-day reglementary period for appealing or for moving for reconsideration. As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine that the pendency of a motion for extension of time to perfect an appeal does not suspend the running of the period sought to be extended (Garcia vs. Buenaventura 74 Phil. 611 [1944]). To the same effect were the rulings in Gibbs vs. CFI of Manila (80 Phil. 160 [1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King (20 SCRA 1120 [1967]). The above cases notwithstanding and because the Rules of Court do not expressly prohibit the filing of a motion for extension of time to file a motion for reconsideration in regard to a final order or judgment, magistrates, including those in the Court of Appeals, held sharply divided opinions on whether the period for appealing which also includes the period for moving to reconsider may be extended. The matter was not definitely settled until this Court issued its Resolution in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA [1986]), declaring that beginning one month from the promulgation of the resolution on May 30, 1986 . . . the rule shall be strictly enforced that no motion for extension of time to file a motion for new trial or reconsideration shall be filed . . . (at p. 212.) In the instant case, the motion for extension was filed and granted before June 30, 1986, although, of course, Verendia's motion to expunge the motion for reconsideration was not finally disposed until July 22, 1986, or after the dictum in Habaluyas had taken effect. Seemingly, therefore, the filing of the motion for extension came before its formal proscription under Habaluyas, for which reason we now turn our attention to G.R. No. 76399.

Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the contract of lease submitted by Verendia to support his claim on the fire insurance policy constitutes a false declaration which would forfeit his benefits under Section 13 of the policy and (b) whether or not, in submitting the subrogation 1 receipt in evidence, Fidelity had in effect agreed to settle Verendia's claim in the amount stated in said receipt. Verging on the factual, the issue of the veracity or falsity of the lease contract could have been better resolved by the appellate court for, in a petition for review on certiorari under Rule 45, the jurisdiction of this Court is limited to the review of errors of law. The appellate court's findings of fact are, therefore, conclusive upon this Court except in the following cases: (1) when the conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (2) when the inference made is manifestly absurd, mistaken, or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the judgment is premised on a misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals in making its findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee (Ronquillo v. Court of Appeals, 195 SCRA 433 [1991]). In view of the conflicting findings of the trial court and the appellate court on important issues in these consolidated cases and it appearing that the appellate court judgment is based on a misapprehension of facts, this Court shall review the evidence on record. The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered into between him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple of days after the effectivity of the insurance policy. When the rented residential building was razed to the ground on December 28, 1980, it appears that Robert Garcia (or Roberto Garcia) was still within the premises. However, according to the investigation report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to have "no occupant" and that Mr. Roberto Garcia was "renting on the otherside (sic) portion of said compound" (Exh. "E"). These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia, whom he considered as the real lessee, was occupying the building when it was burned (TSN, July 27, 1982, p.10). Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to locate him. Robert Garcia then executed an affidavit before the National Intelligence and Security Authority (NISA) to the effect that he was not the lessee of Verendia's house and that his signature on the contract of lease was a complete forgery. Thus, on the strength of these facts, the adjuster submitted a report dated December 4, 1981 recommending the denial of Verendia's claim (Exh. "2"). Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract. According to Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had been paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his cousin's name when he in fact was paying for the rent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to have sufficient bases; Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had assessed the property's fair market value to be only P40,300.00, insured the same property with two other insurance companies for a total coverage of around P900,000, and created a dead-end for the adjuster by the disappearance of Robert Garcia. Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery from the insurer (Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion, an insurance contract should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it (Western Guaranty Corporation vs. Court of Appeals, 187 SCRA 652 [1980]). Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision (Pacific Banking Corporation vs. Court of Appeals , supra). Worse yet, by presenting a false lease contract, Verendia, reprehensibly disregarded the principle that insurance contracts areuberrimae fidae and demand the most abundant good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]). There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete as the blank spaces for a witness and his address are not filled up. More significantly, the same receipt states that Verendia had received the aforesaid amount. However, that Verendia had not received the amount stated therein, is proven by the fact that Verendia himself filed the complaint for the full amount of P385,000.00 stated in the policy. It might be that there had been efforts to settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational basis but would be substituting the will of the Court for that of the parties.

WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED and the decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE and that of the trial court is hereby REINSTATED and UPHELD. SO ORDERED. Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur .

# Footnotes 1 Fidelity appears to have agreed with the appellate court that it had waived Verendia's failure to abide by policy condition No. 3 on disclosure of other insurance policies by its failure to assign it as an error in the petition in G.R. No. 76399. It must have likewise realized the futility of assigning it as an error because on the first page of the policy the following is typewritten: "Other insurances allowed, the amounts to be declared in the event of loss or when required." G.R. No. 98414 February 8, 1993 FIRST QUEZON CITY INSURANCE COMPANY, INC., petitioner, vs. THE HON. COURT OF APPEALS and DE DIOS MARIKINA TRANSPORTATION CO., respondents. Ponciano U. Pitarque for petitioner. De Dios & Taoingan Law Offices and Ponce Enrile, Cayetano, Reyes for private respondent.

GRIO-AQUINO, J.: Before the Court is a petition filed by the First Quezon City Insurance Company, Inc., seeking to limit to P12,000.00, the amount specified in the insurance contract, its liability to indemnify the respondent, De Dios Marikina Transportation Company (DMTC, for short), for the damages suffered by a passenger, Jose V. del Rosario, who accidentally fell off the bus. The undisputed facts are: On June 10, 1984, at about 3:00 p.m., after sending off certain seamen at the departure area of then known as Manila International Airport (MIA), Plaintiff Jose V. del Rosario proceeded to the loading and unloading zone for public utility bus stop, which was located in front of the MIA, to wait for a passenger bus bound for Quezon City. While at the bus stop, the plaintiff saw a DMTC bus bearing body No. 236 and plate No. NVU-798 and which, per its signboard, was plying the Pasay to Quezon City (passing Espaa) route. As it approach the bus stop, the bus slowed down with all its doors wide open: while moving at a crawling pace, i.e., as slow as an "ordinary walk," it was taking several passengers, about five or seven of them including the plaintiff, all of whom managed to board the bus while it was already at the bus stop; plaintiff was the last one to board the bus. While the plaintiff was still on the bus' running board with his hand on the bus door's handle bar, the slowly moving bus sped forward at a high speed, as a result of which, the plaintiff lost his balance and fell from the bus. As plaintiff clung instinctively to the handle bar, he was dragged by the bus along the asphalted road for about two (2) seconds. Plaintiff screamed of pain and anguished even as the other passengers shouted and the bus' driver, Gil Agpalo, an employee of defendant and third-party plaintiff DMTC, abruptly stopped the bus. Then, Gil forthwith fled from the scene, leaving the bus and the injured plaintiff behind. Thereafter, the plaintiff was brought to the Manila Sanitarium and Hospital where he was given immediate medical treatment at the emergency ward. The doctors performed a major surgical operation on plaintiff's right leg. This leg was extensively lacerated: its skin and tissues were exposed and detached from the muscles. Treatment was done under special anesthesia and consisted of debridement or cleaning repair and suturing of the injured tissue. While at the hospital, plaintiff was febrile or feverish for about forty (40) days. On July 12, 1984, a second major surgical operation, i.e., a skin grafting operation, was performed on plaintiff's right leg. Plaintiff was confined at the hospital for a total period of forty (40) days, from June 10, 1984 to August 26, 1984. During his stay at the hospital, plaintiff incurred medical expenses in the total amount of P69,444.41. Plaintiff's medical expenses were advanced by his employer Maglines but he was required to reimburse Maglines on a staggered basis by way of salary deductions. Plaintiff was released from the hospital on August 29, 1984. After his release, he returned to the hospital from time to time for further treatment and checkup. The injuries had left plaintiff with a huge, ugly scar running almost the entire

length of his right leg. Also, the plaintiff incurred lost earning by way of unearned salaries amounting to P7,500.00 due to said physical injuries and the consequent hospital confinement. Plaintiff filed on June 26, 1985 the aforesaid complaint against DMTC and its driver, Gil Agpalo. Agpalo was later dropped as a party defendant because he could not be served with summons. Upon filing its answer on August 20, 1985, defendant DMTC filed a third-party complaint against First Quezon City Insurance Co. Inc. Sometime on September 17, 1985 this third-party defendant filed its answer to the third-party complaint. After the trial, the court a quo rendered the appealed decision, the decretal portion of which ordains: WHEREFORE, the judgment is hereby rendered dismissing defendant De Dios Marikina Transportation Co. Inc.'s counterclaim for lack of merit and ordering said defendant to pay plaintiff Jose V. del Rosario: (a) the sum of P76,944.41, as the actual and compensatory damages; (b) the sum of P15,000.00, as moral and exemplary damages; and (c) the sum of P33,641.50 as attorney's fees, as well as to pay the cost of suit; and as regards the third-party complaint herein ordering third-party defendant First Quezon City Insurance Co., Inc. to indemnify third-party plaintiff De Dios Marikina Transportation Co., Inc. in the sum of P12,000.00 with interest thereon at the legal rate from date of filing of the third-party complaint on August 20, 1985, until full payment thereof. Further, there being no satisfactory warrant therefor, the court hereby dismisses the rest of the claims in the complaint and third-party complaint herein. (pp. 11-13, Rollo.) The bus company appealed to the Court of Appeals on February 11, 1991. The Court of Appeals modified the dispositive part of the decision of the trial court as follows: WHEREFORE, with the following modifications, first in appellee's complaint: that the award of attorney's fees be reduced to P5,000.00 and that the cost of suit be deleted; and second, as regards the third-party complaint, that the third-party defendant First Quezon City Insurance Co ., Inc., be ordered to indemnify third-party plaintiff DMTC, herein appellant the sum of P50,090 .00 with legal interest thereon from date of filing of the third-party complaint on August 20, 1985 until its full payment, the decision appealed from is AFFIRMED in all other respects. No costs. (p. 19, Rollo.) The insurance company (now the petitioner) filed a motion for reconsideration which was denied in a resolution dated April 22, 1991. Hence, this petition for review, assailing the appellate courts' interpretation of the provision of the insurance contract on the limit of the insurer's liability. We find merit in the petition. The insurance company clearly passed the maximum limit of the petitioner's liability for damages arising from death or bodily injury at P12,000.00 per passenger and its maximum liability per accident at P50,000.00. Since only one passenger was injured in the accident, the insurer's liability for the damages suffered by said passenger is pegged to the amount of P12,000.00 only. What does the limit of P50,000.00 per accident mean? It means that the insurer's liability for any single accident will not exceed P50,000.00 regardless of the number of passengers killed or injured therein. For example, if ten (10) passengers had been injured by the operation of the insured bus, the insurer's liability for the accident would not be P120,000.00 (at the rate of P12,000.00 per passenger) but would be limited to only P50,000.00 for the entire accident, as provided in the insurance contract. The bus company may not recover from the insurance company (herein petitioner) more than P 12,000.00 per passenger killed or injured, or fifty thousand (P50,000.00) pesos per accident even if under the judgment of the court, the erring bus operator will have to pay more than P12,000.00 to each injured passenger. The trial court's interpretation of the insurance contract was the correct interpretation. WHEREFORE, the petition for review is GRANTED. The decision promulgated on February 11, 1991 by the Court of Appeals in CA-G.R. No. 24938, ordering the third-party defendant, First Quezon City Insurance Co., to indemnify the private respondent, De Dios Marikina Transportation Co. Inc. (DMTC), the sum of P50,000.00 for the damages of the passenger Jose V. Del Rosario, is hereby modified by reducing the award to P12,000.00 only. Costs against the private respondent, De Dios Marikina Transportation Co., Inc. SO ORDERED. Cruz, Padilla and Bellosillo , JJ., concur. G.R. No. L-109937 March 21, 1994 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.

COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents. Office of the Legal Counsel for petitioner. Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying reconsideration thereof. We affirm the decision of the Court of Appeals with modification. I In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool). A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool." On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit. On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of application. On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered. On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the time of application, required him to apply for MRI, and later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid; and (3) that damages be awarded. The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim against the latter. At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent Estate. As a result of these admissions, the trial court narrowed down the issues and, without opposition from the parties, found the case ripe for summary judgment. Consequently, the trial court ordered the parties to submit their respective position papers and documentary evidence, which may serve as basis for the judgment. On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting the premium and the service fee, despite knowledge of his age ineligibility. The dispositive portion of the decision read as follows: WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity, the Court finds judgment for the plaintiff and against Defendant DBP, ordering the latter: 1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as amortization payment paid under protest; 2. To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans; 3. To pay plaintiff the amount of P10,000.00 as attorney's fees;

4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and other relief just and equitable. The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Cross-claim of Defendant DBP is likewise dismissed (Rollo, p. 79) The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a resolution dated April 20, 1993. Hence, this recourse. II When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the following declaration: I hereby declare and agree that all the statements and answers contained herein are true, complete and correct to the best of my knowledge and belief and form part of my application for insurance. It is understood and agreed that no insurance coverage shall be effected unless and until this application is approved and the full premium is paid during my continued good health (Records, p. 40). Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full premium is paid during the continued good health of the applicant. These two conditions, being joined conjunctively, must concur. Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist. The liability of DBP is another matter. It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on August 11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10 percent of the premium collected by it from Dans. In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1-Pool"). Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers." The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the insurance premium, and deducting its agent's commission and service fee. The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI. If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts without authority is founded upon the supposition that there has been some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the implication that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play.

Article 19 provides: 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 20 provides: Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. Article 21 provides: Any person, who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another insurance company, and therefore would have been fully insured by the time he died, is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an insurance coverage from another company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of release of his loan. One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capable of proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]). While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art. 2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code. The assessment of moral damages is left to the discretion of the court according to the circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its authority amounted to a deception to its client, an award of moral damages in the amount of P50,000.00 would be reasonable. The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines, Article 2208 [11]). WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs against petitioner. SO ORDERED. Cruz, Davide, Jr., Bellosillo and Kapunan, JJ., concur. 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 1 2 3 15, 1993 Decision and October 22, 1993 Resolution of the Court of Appeals in CA-G.R. CV NO. 28779, which modified 4 the Ruling 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. xxx xxx xxx

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 5 Magdalo Street; on its right and left by driveway, thence open spaces, and at the rear by open spaces.'" 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 6 interest, P400,000.00 as attorney's fees, exemplary damages, expenses of litigation ofP50,000.00 and costs of suit. Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span 7 building, which was partly burned, and not the damage caused by the fire on the two-storey annex building. 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 11 CODE). 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 12 (four-span), and did not include those stored in the two-storey annex building. On the other hand, the private respondent 13 theorized that the so called "annex" was not an annex but was actually an integral part of the four-span building 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 14 form part of the building described in the policy xxx" '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 15 the findings of fact arrived at by the lower court. 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 16 intercommunicating with the repair of the first right span of the lofty storey building and thence by property fence wall." Verily, the two-storey building involved, a permanent structure which adjoins and intercommunicates with the "first right 17 span of the lofty storey building", 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 18 contract was entered into on January 12, 1981, having been constructed sometime in 1978, 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 19 provision of law in point, the Court in Landicho vs. Government Service Insurance System , 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 20 company.' (44 C.J.S., p. 1174)."" Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, Inc. vs. Vda. De Songco, wit:
21

to

"'This rigid application of the rule on ambiguities has become necessary in view of current business practices.1wphi1The 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 22 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942.)'" 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 23 matters actually and directly controverted and determined and not as to matters merely involved therein." Applying the abovecited pronouncement, the Court, in Smith Bell and Company (Phils.), Inc. vs. Court of Appeals, 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 25 Appeals fell into clear and reversible error when it disregarded the Decision of this Court affirming the Reyes Decision." 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.
24

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 26 damage suffered by Transworld for which petitioner Rizal Insurance is liable. All things studiedly considered and viewed in proper perspective, the Court is of the irresistible conclusion, and so finds, that the Court of Appeals erred not in holding the petitioner, Rizal Surety Insurance Company, liable for the destruction and loss of the insured buildings and articles of the private respondent. WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto. No pronouncement as to costs. SO ORDERED. Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

Footnotes
1

Annex "A"; Rollo, pp. 27-49. Annex "B"; Rollo, pp. 51- 52.

Special Tenth Division; composed of Associate Justices: Cezar D. Francisco (Ponente), Gloria C. Paras (Chairman), and Ricardo P. Galvez (Member)
4

Penned by Judge Efren D. Villanueva. Decision, Annex "A"; Rollo, pp. 28-29. Rollo, p. 59. Rollo, p. 62. Decision, Rollo, pp. 78-79. Decision, Rollo, p. 49. Resolution, Rollo, p. 52. Petition, Rollo, pp. 12-13. Answer, Rollo, p. 62. Rollo, p. 76. Rollo, p. 77.

10

11

12

13

14

15

Borromeo vs. Court of Appeals, G.R. No. 75908, October 22, 1999; citing: Meneses vs. Court of Appeals,246 SCRA 162, p.171; Coca Cola Bottlers Phil., Inc vs. Court of Appeals, 229 SCRA 533; and Binalay vs.Manalo, 195 SCRA 374.
16

Petitioner, Rollo, p. 17. Rollo, p. 17. Decision, Rollo, p. 69. 44 SCRA 7.

17

18

19

20

Ibid., pp. 12-13, citing: Calanoc vs. Court of Appeals, 98 Phil. 79, 84. See, also, H.E. Heacock Co. vs.Macondray, 42, Phil. 205; Rivero vs. Robe, 54 Phil. 982; Asturias Sugar Central vs. The Pure Cane Molasses Co., 57 Phil. 519; Gonzales vs. La Previsora Filipina, 74 Phil. 165; Del Rosario vs. The Equitable Insurance, 620 O.G. 5400, 5403-04.

21

25 SCRA 70. Ibid., p. 75.

22

23

Smith Bell and Company (Phils.), Inc. vs. Court of Appeals, 197 SCRA 201, p. 209; citing: Tingson vs. Court of Appeals, 49 SCRA 429.
24

Smith Bell and Company (Phils.), Inc. vs. Court of Appeals, supra. Ibid., pp. 210-211. Rollo, p. 43.

25

26

TRADERS INSURANCE & SURETY CO., recurrente, contra JUAN GOLANGCO Y OTRA, recurridos. Sres. Quisumbing, Sycip, Quisumbing y Salazar, en representacion del recurrente. Sres. Ramon Diokno y Jose W. Diokno, en representacion del recurrido.

SYLLABUS

1. APELACION; RELACION DE ERRORES; ESTA OBLIGADO EL TRIBUNAL DE APELACION A CONSIDERAR TODOS LOS ERRORES SEALADOS EN LA RELACION DE ERRORES, PERO NO TODAS QUE SE SUSCITEN EN EL CURSO DE LOS ARGUMENTOS. La Ley No. 296 se discutio y se aprobo en ingles; tenemos que adoptar el texto ingles y no la traduccion al castellano. El artivulo 22 de dicha ley, hablar de cuestiones que se susciten debidamente ante el Tribunal de Apelacion no quire decir este tiene que resolver todas las cuestiones que de los argumentos. No es ese el lugar apropriado; hay que suscitarlo en la relacion de errores. Notese que emplea las plabras "properly raised" y no raised solamente. No basta suscitar la cuestion: es necesario suscitarla en el lugar y tiempo opurtunos. Es una bien establecida practica forense la de que no se considerara ninguna cuestion que no se haya suscitado debidamente en la relacion de errores, a menos que se trate de falta de jurisdiccion, que se puede suscitar en cuaquier estado del asunto.

DECISION

PABLO, M. :

Se trata del cobro de una poliza de seguro contra incendio porvalor de P10,000. El demandante tenia derecho a recibir P1,100 mensuales de Melitona Estrella en concepto de alquileres del edificio No. 34 Plaza Sta. Cruz, Manila, por espacio de cinco aos. El demandante aseguro este derecho, pago la prima y la demandada expidio la poliza correspondiente. Dos meses despues de haberse incendiado el edificio, el demandante requirio a la Traders Insurance & Surety Co. el pago del importe del seguro. Como la demandada rehusaba pagarlo, el demandante acudio al Juzgado de Primera Instancia de Manila, el cual dicto sentencia a favor de este. El Tribunal de Apelacion confirmo la sentencia. En recurso de certiorari, la Traders Insurance & Surety Co. acude a este Tribunal, alegando que el Tribunal de Apelacion cometio dos errores: 1 (a) al dictar sentencia sin una completa conclusion de hechos de todas las cuestiones suscitadas, como requiere el articulo 33 de la Ley No. 296, y 1 (b) al no hacer conclusiones de hecho en cuanto a la aplicacion de la regla de prueba oral; y (2) al dictar sentencia sin conclusiones de hecho en cuanto a los Exhibits 10-H y 10-I. Cuanto al error 1 (a). Cuales son las cuestiones que habian sido propiamente suscitadas ante el Tribunal de Apelacion? La mejor contestacion es la primera pagina del alegato de la apelante (hoy recurrente) que dice asi:chanrob1es virtual 1aw library BRIEF FOR THE APPELLANT "ASSIGNMENT OF ERRORS I "THE LOWER COURT ERRED IN HOLDING THAT THE FIRE INSURANCE POLICY EXHIBIT A COVERS ALL APPELLEES INTERESTS IN THE PREMISES NO. 34 PLAZA STA. CRUZ, MANILA, ESPECIALL Y HIS RIGHT TO COLLECT RENTALS THEREFROM, II

"THE LOWER COURT ERRED IN HOLDING THAT THE APPELLEE HAD INSURABLE INTEREST CONSISTING OF A RIGHT TO RECEIVE RENTALS BOTH AT THE TIME WHEN THE INSURANCE TOOK EFFECT AND WHEN THE LOSS OCCURRED."cralaw virtua1aw library Al resolver estas cuestiones el Tribunal de Apelacion, despues de transcribir toda la decision del Juzgado de Primera Instancia, dijo lo siguiente en su decision:jgc:chanrobles.com.ph "As stated by the lower court, the basic facts on which both parties base their respective contentions are not disputed, and we have quoted the decision appealed from in full because we find that the facts established in the case cannot lead to other conclusions than those arrived at by the trial judge. There is no doubt in our mind that both at the time of the execution of the fire policy (Exhibit A) on April 7, 1949, and on June 5, 1949, when the destruction by fire of the property for which the said policy was issued took place, plaintiff Juan Golangco had an insurable interest on the property insured which included the rents of premises No. 34 Plaza Sta. Cruz, Manila, Philippines, District 4, Block No. 47; and it is particularly so because the policy prepared and issued by the very defendant specifically states that all insurance covered under said policy, includes the rent or other subject matter of insurance in respect of or in connection with any building o r any property contained in any building. Under the evidence on record We cannot alter in the least the de cision aforequoted which is hereby adopted by this Court."cralaw virtua1aw library Las conclusiones de hecho del Juzgado de Primera Instancia (sin incluir la relacion de hechos) que fueron adoptadas por el Tribunal de Apelacion son las siguientes:jgc:chanrobles.com.ph "After considering the manner of testifying of these witnesses, the evasiveness of the witness Limpe, the improbability of his testimony, and the failure of defendant to present Antonio Paredes, the clerk who admittedly investigated the premises in question, the Court finds that plaintiffs version is more credible; that, before the policy (Exhibit A) was issued, plain tiff made full and clear exposal of his interests in the premises; and that the said fire policy, (Exhibit A) covers all of pl aintiffs interests in the premises No. 34 Plaza Sta. Cruz, Manila, especially his right to collect rentals therefrom under the decision of this Court in Civil Case No. 6306 (Exhibit C). This finding is further strengthened by the fact that paragraph 4 of the said fire policy (Exhibit A), above quoted, includes insurance on rent; and accords with rule that a policy is to be interpreted in favor of the assured. "The argument of the defendant that, under section 49 of the Insurance Law, a policy of insurance must specify the interest of the insured in the property insured, if he is not the absolute owner thereof, is not meritorious because it was the defendant, not plaintiff, who prepared that policy, and it cannot take advantage of its own acts to plainti ffs detriment; and, in any case, this provision was substantially complied with by plaintiff when he made a full and clear statement of his interests to defendants manager. "Having found that the policy covered all of plaintiffs interests in the premi ses described therein, including his right to receive rentals, we must next determine whether he had any insurable interest therein when the policy was issued and when the fire occurred. We find that he did so have. By virtue of the contract between Tomas B. Lianco and the Archbishop, Lianco erected the building of which the premises in question form part and became owner thereof (Exhibit 4D). He transferred the ownership of the premises in question to kaw Eng Si (Exhibit D), who in turn transferred it to plaintiff Juan Golangco (Exhibit E). Lianco and the actual occupant of the premises acknowledged plaintiffs right to collect rentals thereon in a compromise agreement which was incorporated in a judicial judgment (Exhibit C). Both at the time of the issuance of the policy and at the time of the fire, plaintiff Golangco was in legal possession of the premises, collecting rentals from its occupant (tr., Nov. 7, 1950, pp. 8, 10). It seems plain that if the premises were destroyed as they were by fire, Golangco would be, as he was, directly damnified thereby; and hence he had an insurable interest therein (section 12, Insurance Law). "Defendants contrary contentions are without merit. The contract between Lianco and the Archbishop only forbade Lianco from transferring his rights as LESSEE (Exhibit. 4-D); but the contracts Lianco made in favor of Kaw Eng Si (Exhibit D) and plaintiff Golangco (Exhibit C) did not transfer such rights; and hence no written consent thereto was necessary. At worst, the contract would be voidable, but not a void contract, at the option of the Archbishop; but this would not deprive Golangco of his insurable interest until such option were exercised; and it does not appear that it was ever exercised. "The ejectment case filed by the Archbishop against Lianco did not remove nor destroy plaintiffs insurable interest: first, because plaintiff was not a party thereto and cannot be bound thereby; and second, because the judgment of the Municipal Court, at least as late as February 14, 1950, had not been executed so far as possession of the premises were concerned (Exhibit G-10). In fact, not even garnishments were issued against Melitona Estrella, So Eng Si (her husband) or plaintiff Golangco, the actual and legal possessors of the premises (Exhibit F); so that, as far as plaintiff Golangco was concerned, his right to the premises and to the rentals thereon continued to exist on June 5, 1949 when the fire took place."cralaw virtua1aw library Las conclusiones de hecho adoptadas por el Tribunal de Apelacion establecen que el demandante aseguro su interes en el edificio No. 34 Plaza Sta. Cruz, consistente en el derecho de cobrar alquileres y que dicho inters asegurable existia al tiempo del seguro y al ocurrir el incendio. Carece de base, por tanto, la contencion de la recurrente de que la decision del Tribunal de Apelacion no contiene conclusiones de hecho de las cuestiones debidamente suscitadas. Error 1 (b). La contencion de la recurrente de que el Tribunal de Apelacion debio de haber hecho constar en su decision las conclusiones de hecho relativas a la aplicacion de la regla sobre prueba oral tampoco tiene fundamento. Si la apelante queria suscitar la indebida admision del testimonio oral del demandante, o si queria pedir el descarte de dicho testimonio, debio de haberlo sealado en la relacion de errores, diciendo que el juez erro al admitir el testimonio oral del demandante, o que el Juez erro al no descartar el testimonio oral del demandante a pesar de la peticion debidamente presentada. En el parrafo 3 de los argumentos en apoyo del primer error, bajo el titulo de Argument, (pag. 13 del alegato presentado

en el Tribunal de Apelacion), es cuando tal cuestion se planteo por primera vez, en vez de suscitarla en la relacion de errores: no se planteo, pues, en su debido lugar y en el tiempo oportuno. (Regla 48, art. 17). El Tribunal de Apelacion no es un buzo que tiene que buscar en los argumentos del alegato cuales son los errores cometidos. En cuanto al segundo error, o sea, que el Tribunal de Apelacion no ha establecido conclusiones de hecho sobre los Exhibits 10-H y 10- I, opinamos que esta despojado de merito, por dos razones: 1. porque no se suscito en la relacion de errores, y 2.a porque en la decision existen tales conclusiones, aunque no son del agrado de la recurrente. Ella dice en su alegato, pagina 31:jgc:chanrobles.com.ph "The Court of Appeals adopted the finding of the trial court that not even garnishment was issued against Melitona Estrella, So Eng Si (her husband), or plaintiff Golangco. The decision of the Court of Appeals should therefore contain the following finding of fact:chanrob1es virtual 1aw library (a) That Exhibits 10-H and 10-I clearly prove that notice of garnishment was served on No. 34 Plaza St a. Cruz (the property in question) and the occupants of No. 34 Plaza Sta. Cruz made return to the said garnishment."cralaw virtua1aw library Por lo visto, la recurrente desea que este Tribunal enmiende las conclusiones de hecho del Tribunal de Apelacion sobre los Exhibits 10- H y 10-I, cosa que no podemos hacer. No revisamos las pruebas. De si ha errado o no el Tribunal de Apelacion en dichas conclusiones, no esta en nosotros el enderezarlas. No debemos inmiscuirnos en las funciones que, por disposicion de la ley, corresponden a dicho tribunal. La ley citada por la recurrente dice asi:jgc:chanrobles.com.ph "Every decision of the Court of Appeals shall contain complete findings of fact on all issues properly raised before it."cralaw virtua1aw library Pero en espaol dice asi:jgc:chanrobles.com.ph "Toda decision del Tribunal de Apelaciones contendra una relacion completa de los hechos de todas las cuestiones que se susciten ante el mismo."cralaw virtua1aw library La traduccion al castellano no es exacta. Si nos atuviesemos a la traduccion al espaol, la decision del Tribunal de Apelacion no deberia contener mas que una "relacion completa de los hechos de todas las cuestiones" que se hubieren suscitado en el mismo. Faltaria algo, a saber: las conclusiones de hecho del tribunal. La "relacion completa de los hechos" no es equivalente a "la relacion completa de las conclusiones de hecho." La relacion de hechos "statement of facts" viene a ser la narracion de los hechos del asunto para que se sepa en que consiste. La ley en ingles habla de complete findings of fact o conclusiones completas de hecho. Las conclusiones de hecho (findings of fact) son las que el tribunal adopta despues de estudiar, discutir y considerar las pruebas contradictorias presentadas en juicio. Como la Ley No. 296 se discutio y se aprobo en ingles, tenemos que adoptar el texto ingles y no la deficiente traduccion al castellano. El articulo 33 de dicha ley, al hablar de cuestiones que se susciten debidamente ante el Tribunal de Apelacion, no quiere decir que este tiene que resolver todas las cuestiones que se susciten en cualquier estado de la causa o en el curso de los argumentos. No es ese el lugar apropiado: hay que suscitarlo en la relacion de errores. Notese que emplea las palabras "properly raised" y no raised solamente. No basta suscitar la cuestion: es necesario suscitarla en el lugar y tiempo oportunos. Es una bien establecida practica forense la de que no se considerara ninguna cuestion que no se haya suscitado debidamente en la relacion de errores, a menos que se trate de falta de jurisdiccion, que se puede suscitar en cualquier estado del asunto. (Enriquez y otros contra Enriquez y otra, 8 Jur. Fil., 574; Capellania de Tambobong contra Antonio, 8 Jur. Fil., 693; Paterno contra Ciudad de Manila, 17 Jur. Fil., 26; Santiago contra Felix, 24 Jur. Fil., 391; Tan Me Nio contra Administrador de Aduanas, 34 Jur. Fil., 992; Granados y Granados contra Bandelaria, 45 Jur. Fil., 530; Gemora contra Concejo Municipal de Ilog, 58 Jur. Fil., 377; Sanchez contra Director de Terrenos, 63 Jur. Fil., 403; Tan Si Kiok, Et. Al. v. Macario Tiacho, 45 Off. Gaz., 2466, 79 Phil., 696; y Villareal v. The People of the Philippines, 47 Off. Gaz., 191, 84 Phil., 264.) "Where an appeal is taken to this court from any court, the appellant shall file with the clerk of the court below, with his petition for appeal, an assignment of errors, which shall set out separately and particularly each error asserted. No appeal shall be allowed unless such an assignment of errors shall accompany the petition." (Rule 9, Revised Rules of the Supreme Court of the United States, 11 U. S. Supreme Court Report Digest.) "The Supreme Court of the United States will not consider a question not raised below, not discussed by the lower court, and not included in the assignment of errors." (Pacific States Box & Basket Co. v. S. T. White, Et Al., 80 L ed., 138.) Podriamos enumerar una larga lista de decisiones de los Tribunales Supremos de los estados de la Union Americana que tienen reglamento similar al nuestro; pero los casos citados bastan. "Error no apuntado en la relacion de errores en una causa civil se considera error consentido por la parte interesada." (Vitug v. Montemayor, 49 Off. Gaz., 5350.) Declaramos que una cuestion no especificada en la relacion de errores no esta debidamente planteada, y el Tribunal de Apelacion no esta obligado a resolverla. Se deniega la peticion con costas contra la recurrente. Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Concepcion y Reyes, J.B.L., MM., estan conformes.

[G.R. No. L-7667. November 28, 1955.] CHERIE PALILEO, Plaintiff-Appellee, v. BEATRIZ COSIO, Defendant-Appellant. Claro M. Recto for Appellant. Bengson, Villegas, Jr. & Villar for Appellee.

SYLLABUS

1. PLEADING AND PRACTICE; JUDGMENT; SETTING ASIDE JUDGMENT ON GROUND OF MISTAKE OR EXCUSABLE NEGLIGENCE IS DISCRETIONARY UPON COURT; CASE AT BAR. The granting of a motion to set aside a judgment or order on the ground of mistake or excusable negligence is addressed to the sound discretion of the court (See Combs v. Santos, 24 Phil., 446; Daipan v. Sigabu, 25 Phil., 184). And an order issued in the exercise of such discretion is ordinarily not to be disturbed unless it is shown that the court has abused such discretion. (See Tell v. Tell, 48 Phil., 70; Macke vs Camps, 5 Phil., 185; Calvo v. De Gutierez, 4 Phil., 203; Manzanares v. Moreta, 38 Phil., 821; Sava v. Palacio & Leuterio, 90 Phil., 731.) Where, as in the present case, counsel for defendant was given almost one month notice before the sale date set for trial, and upon counsels failure to appear threat, the trial court received the evidence of the plaintiff and granted the relief prayed for, the trial court did not abuse its discretion in refusing to reopen the case to give defendant an opportunity to present their evidence. 2. INSURANCE; WHERE MORTGAGED PROPERTY WAS INSURED BY MORTGAGEE IN HIS OWN NAME; EFFECT OF. Where a mortgagee, indecently of the mortgagor, insures the mortgaged property in his own name and for his own interest, he is entitled to the insurance proceeds in case of loss, but in such case , he is not allowed to retain his claim against the mortgagor, but is passed by subrogation to the insurer to the extent of the money paid. (Vance on Insurance, 2d ed., p. 654.)

DECISION

BAUTISTA ANGELO, J.:

Plaintiff filed a complaint against defendant in the Court of First Instance of Manila praying that (1) the transaction entered into between them on December 18, 1951 be declared as one of loan, and the document executed covering the transaction as one of equitable mortgage to secure the payment of said loan; (2) the defendant be ordered to credit to the plaintiff with the necessary amount from the sum received by the defendant from the Associated Insurance & Surety Co., Inc. and to apply the same to the payment of plaintiffs obligation thus considering it as fully paid; and (3) the defendant be ordered to pay to plaintiff the difference between the alleged indebtedness of plaintiff and the sum received by defendant from the aforementioned insurance company, plus the sum allegedly paid to defendant as interest on the alleged indebtedness. On December 19, 1952, defendant filed her answer setting up as special defense that the transaction entered into between the plaintiff and defendant is one of sale with option to repurchase but that the period for repurchase had expired without plaintiff having returned the price agreed upon as a result of which the ownership of the property had become consolidated in the defendant. Defendant also set up certain counterclaims which involve a total amount of P4,900. On April 7, 1953, the case was set for trial on the merits, but because of several postponements asked by the parties, the same has to be set anew for trial on January 12, 1954. On this date, neither the defendant nor her counsel appeared, even if the latter had been notified of the postponement almost a month earlier, and so the court received the evidence of the plaintiff. On January 18, 1954, the court, having in view the evidence presented, rendered judgment granting the relief prayed for in the complaint. On February 2, 1954, the original counsel for the defendant was substituted and the new counsel immediately moved that the judgment be set aside on the ground that, due to mistake or excusable negligence, defendant was unable to present her evidence and the decision was contrary to law, and this motion having been denied, defendant took the present appeal. The important issue to be determined in this appeal is whether the lower court committed a grave abuse of discretion in not reopening the case to give defendant an opportunity to present her evidence considering that the failure of her original counsel to appear was due to mistake or excusable negligence which ordinary prudence could not have guarded against. The original counsel of defendant was Atty. Leon Ma. Guerrero. As early as February 11, 1953, said counsel showed interest in the early disposal of this case by moving the court to have it set for trial. The first date set was April 7, 1953, but no hearing was had on that date because plaintiff had moved to postpone it. The case was next set for hearing on April 28, 1953, but on motion again of plaintiff, the hearing was transferred to November 6, 1953. Then, upon petition of defendant, the trial had to be moved to December 15, 1953, and because Atty. Guerrero could not appear on said date because of a case he had in Cebu City, the hearing was postponed to January 18, 1954.

And on January 4, 1954, or nineteen days after receiving the notice of hearing, Atty. Guerrero was appointed Undersecretary of Foreign Affairs. It is now contended that the appointment was so sudden and unexpected that Atty. Guerrero, after taking his oath, was unable to wind up his private cases or make any preparation at all. It is averred that "The days that followed his appointment were very busy days for defendants former counsel. There was an immediate need for clearing the backlog of official business, including the reorganization of the Department of Foreign Affairs and our Foreign Service, and more importantly, he had to assist the Secretary of Foreign Affairs in negotiations of national importance like the Japanese reparations, and the revision of the trade agreement with the United States, that, Atty. Guerrero had to work as much as fourteen hours daily . . . Because of all these unavoidable confusion that followed in the wake of Atty. Guerreros sudden and unexpected appointment, the trial of this case scheduled for January 18, 1954 escaped his memory, and consequently, Atty. Guerrero and the defendant were unable to appear when the case was called for trial." These reasons, it is intimated, constitute excusable negligence which ordinary prudence could not have guarded against and should have been considered by the trial court as sufficient justification to grant the petition of defendant for a rehearing. It is a well-settled rule that the granting of a motion to set aside a judgment or order on the ground of mistake or excusable negligence is addressed to the sound discretion of the court (See Coombs v. Santos, 24 Phil., 446; Daipan v. Sigabu, 25 Phil., 184). And an order issued in the exercise of such discretion is ordinarily not to be disturbed unless it is shown that the court has gravely abused such discretion. (See Tell v. Tell, 48 Phil., 70; Macke v. Camps, 5 Phil., 185; Calvo v. De Gutierrez, 4 Phil., 203; Manzanares v. Moreta, 38 Phil., 821; Salva v. Palacio and Leuterio, 90 Phil., 731.) In denying the motion for reopening the trial court said: "After going over the same arguments, this Court is of the opinion, and so holds that the decision of this Court of January 18, 1954 should not be disturbed." Considering the stature, ability and experience of counsel Leon Ma. Guerrero, and the fact that he was given almost one month notice before the date set for trial, we are persuaded to conclude that the trial court did not abuse its discretion in refusing to reconsider its decision. Coming now to the merits of the case, we note that the lower court made the following findings: On December 18, 1951, plaintiff obtained from defendant a loan in the sum of P12,000 subject to the following conditions: (a) that plaintiff shall pay to defendant an interest in the amount of P250 a month; (b) that defendant shall deduct from the loan certain obligations of plaintiff to third persons amounting to P4,550, plus the sum of P250 as interest for the first month; and (c) that after making the above deductions, defendant shall deliver to plaintiff only the balance of the loan of P12,000. Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a total of P2,250.00 corresponding to nine months from December 18, 1951, on the basis of P250.00 a month, which is more than the maximum interest authorized by law. To secure the payment of the aforesaid loan, defendant required plaintiff to sign a document known as "Conditional Sale of Residential Building", purporting to convey to defendant, with right to repurchase, a two-story building of strong materials belonging to plaintiff. This document did not express the true intention of the parties which was merely to place said property as security for the payment of the loan. After the execution of the aforesaid document, defendant insured the building against fire with the Associated Insurance & Surety Co., Inc. for the sum of P15,000, the insurance policy having been issued in the name of defendant. The building was partly destroyed by fire and, after proper demand, defendant collected from the insurance company an indemnity of P13,107.00 Plaintiff demanded from defendant that she be credited with the necessary amount to pay her obligation out of the insurance proceeds but defendant refused to do so. And on the strength of these facts, the court rendered decision the dispositive part of which reads as follows:jgc:chanrobles.com.ph "Wherefore, judgment is hereby rendered declaring the transaction had between plaintiff and defendant, as shown in Exhibit A, an equitable mortgage to secure the payment of the sum of P12,000 loaned by the defendant to plaintiff; ordering the defendant to credit the sum of P13,107 received by the defendant from the Associated Insurance & Surety Co., Inc. to the payment of plaintiffs obligation in the sum of P12,000.00 as stated in the complaint, thus considering the agreement of December 18, 1951 between the herein plaintiff and defendant completely paid and leaving still a balance in the sum of P1,107 from the insurance collected by defendant; that as plaintiff had paid to the defendant the sum of P2,250.00 for nine months as interest on the sum of P12,000 loaned to plaintiff and the legal interest allowed by law in this transaction does not exceed 12 per cent per annum, or the sum of P1,440 for one year, so the herein plaintiff and overpaid the sum of P810 to the defendant, which this Court hereby likewise orders the said defendant to refund to herein plaintiff, plus the balance of P1,107 representing the difference of the sum loan of P12,000 and the collected insurance of P13,107 from the insurance company above mentioned to which the herein plaintiff is entitled to receive, and to pay the costs."cralaw virtua1aw library The question that now arises is: Is the trial court justified in considering the obligation of plaintiff fully compensated by the insurance amount and in ordering defendant to refund to plaintiff the sum of P1,107 representing the difference of the loan of P12,000 and the sum of P13,107 collected by said defendant from the insurance company notwithstanding the fact that it was not proven that the insurance was taken for the benefit of the mortgagor? It is our opinion that on this score the court is in error for its ruling runs counter to the rule governing an insurance taken by a mortgagee independently of the mortgagor. The rule is that "where a mortgagee, independently of the mortgagor, insures the mortgaged property in his own name and for his own interest, he is entitled to the insurance proceeds in case of loss, but in such case, he is not allowed to retain his claim against the mortgagor, but is passed by subrogation to the insurer to the extent of the money paid." (Vance on Insurance, 2d ed., p. 654) Or, stated in another way, "the mortgagee may insure his interest in the property independently of the mortgagor. In that event, upon the destruction of the property the insurance money paid to the mortgagee will not inure to the benefit of the mortgagor, and the amount due under the mortgage debt remains unchanged. The mortgagee, however, is not allowed to retain his claim against the mortgagor, but it passes by subrogation to the insurer, to the extent of the insurance money paid." (Vance on Insurance, 3rd ed., pp. 772773) This is the same rule upheld by this Court in a case that arose in this jurisdiction. In the case mentioned, an insurance contract was taken out by the mortgagee upon his own interest, it being stipulated that the proceeds would be paid to him only and when the case came up for decision, this Court held that the mortgagee, in case of loss, may only

recover upon the policy to the extent of his credit at the time of the loss. It was declared that the mortgaged had no right of action against the mortgagee on the policy. (San Miguel Brewery v. Law Union, 40 Phil., 674.) It is true that there are authorities which hold that "if a mortgagee procures insurance on his separate interest at his own expense and for his own benefit, without any agreement with the mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled to have the insurance proceeds applied in reduction of the mortgage debt" (19 R. C. L., p. 405), and that, furthermore, the mortgagee "has still a right to recover his whole debt of the mortgagor." (King v. State Mut. F. Ins. Co., 7 Cush. 1; Suffolk F. Ins. Co. v. Boyden, 9 Allen, 123; See also Loomis v. Eagle Life & Health Ins. Co., 6 Gray, 396; Washington Mills Emery Mfg. Co. v. Weymouth & B. Mut. F. Ins. Co., 135 Mass. 506; Foster v. Equitable Mut. F. Ins. Co., 2 Gray 216.) But these authorities merely represent the minority view (See case note, 3 Lawyers Report Annotated, new series, p. 79). "The general rule and the weight of authority is, that the insurer is thereupon subrogated to the rights of the mortgagee under the mortgage. This is put upon the analogy of the situation of the insurer to that of a surety." (Jones on Mortgages, Vol. I, pp. 671-672.) Considering the foregoing rules, it would appear that the lower court erred in declaring that the proceeds of the insurance taken out by the defendant on the property mortgaged inured to the benefit of the plaintiff and in ordering said defendant to deliver to the plaintiff the difference between her indebtedness and the amount of insurance received by the defendant, for, in the light of the majority rule we have above enunciated, the correct solution should be that the proceeds of the insurance should be delivered to the defendant but that her claim against the plaintiff should be considered assigned to the insurance company who is deemed subrogated to the rights of the defendant to the extent of the money paid as indemnity. Consistent with the foregoing pronouncement, we therefore modify the judgment of the lower court as follows: (1) the transaction had between the plaintiff and defendant as shown in Exhibit A is merely an equitable mortgage intended to secure the payment of the loan of P12,000; (2) that the proceeds of the insurance amounting to P13,107.00 was properly collected by defendant who is not required to account for it to the plaintiff; (3) that the collection of said insurance proceeds shall not be deemed to have compensated the obligation of the plaintiff to the defendant, but bars the latter from claiming its payment from the former; and (4) defendant shall pay to the plaintiff the sum of P810.00 representing the overpayment made by plaintiff by way of interest on the loan. No pronouncement as to costs. Bengzon, Montemayor, Reyes, A., Jugo, Labrador, Concepcion and Reyes, J.B.L., JJ., concur.

G.R. No. 114427 February 6, 1995 ARMANDO GEAGONIA, petitioner, vs. COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.: Four our review under Rule 45 of the Rules of Court is the decision of the Court of Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia," reversing the decision of the Insurance Commission in I.C. Case No. 3340 which awarded the claim of petitioner Armando Geagonia against private respondent Country Bankers Insurance Corporation. The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On 22 2 December 1989, he obtained from the private respondent fire insurance policy No. F-14622 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other usual to assured's business." The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks amounting to P392,130.50, itemized as follows: Zenco Sales, Inc. F. Legaspi Gen. Merchandise Cebu Tesing Textiles P55,698.00 86,432.50 250,000.00 (on credit) P392,130.50 The policy contained the following condition: 3. The insured shall give notice to the Company of any insurance or insurances already affected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or
1

damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00. On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed prompting him to file with the private respondent a claim under the policy. On 28 December 1990, the private respondent denied the claim because it found that at the time of the loss the petitioner's stocks-in-trade were likewise covered by fire insurance policies No. GA-28146 and No. GA28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. 3 (hereinafter PFIC). These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading: MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. Phils. First 4 CEB/F 24758. The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy. The petitioner then filed a complaint against the private respondent with the Insurance Commission (Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for attorney's fees and costs of litigation. He 6 attached as Annex "AM" thereof his letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted in the said letter that at the time he obtained the private respondent's fire insurance policy he knew that the two policies issued by the PFIC were already in existence; however, he had no knowledge of the provision in the private respondent's policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by the private respondent's agent; and had it been mentioned, he would not have withheld such information. He further asserted that the total of the amounts claimed under the three policies was below the actual value of his stocks at the time of loss, which was P1,000,000.00. In its answer, the private respondent specifically denied the allegations in the complaint and set up as its principal defense the violation of Condition 3 of the policy. In its decision of 21 June 1993, the Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were based on the petitioner's testimony that he came to know of the PFIC policies only when he filed his claim with the private respondent and that Cebu Tesing Textile obtained them and paid for their premiums without informing him thereof. The Insurance Commission then decreed: WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is hereby dismissed. Its motion for the reconsideration of the decision having been denied by the Insurance Commission in its resolution of 20 10 August 1993, the private respondent appealed to the Court of Appeals by way of a petition for review. The petition was docketed as CA-G.R. SP No. 31916. In its decision of 29 December 1993, the Court of Appeals reversed the decision of the Insurance Commission because it found that the petitioner knew of the existence of the two other policies issued by the PFIC. It said: It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken in the name of private respondent [petitioner herein]. The policy states that "DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)" was the assured and that "TESING TEXTILES" [was] only the mortgagee of the goods. In addition, the premiums on both policies were paid for by private respondent, not by the Tesing Textiles which is alleged to have taken out the other insurance without the knowledge of private respondent. This is shown by Premium Invoices nos. 46632 and 46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be only the mortgagee of the goods insured but the party to which they were issued were the "DISCOUNT MART (MR. ARMANDO GEAGONIA)." In is clear that it was the private respondent [petitioner herein] who took out the policies on the same property subject of the insurance with petitioner. Hence, in failing to disclose the existence of these insurances private respondent violated Condition No. 3 of Fire Policy No. 1462. . . . Indeed private respondent's allegation of lack of knowledge of the provisions insurances is belied by his letter to petitioner [of 18 January 1991. The body of the letter reads as follows;] xxx xxx xxx
11 9 8 7 5

Please be informed that I have no knowledge of the provision requiring me to inform your office about my prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention about said requirement at the time he was convincing me to insure with you. If he only die or even inquired if I had other existing policies covering my establishment, I would have told him so. You will note that at the time he talked to me until I decided to insure with your company the two policies aforementioned were already in effect. Therefore I would have no reason to withhold such information and I would have desisted to part with my hard earned peso to pay the insurance premiums [if] I know I could not recover anything. Sir, I am only an ordinary businessman interested in protecting my investments. The actual value of my stocks damaged by the fire was estimated by the Police Department to be P1,000,000.00 (Please see xerox copy of Police Report Annex "A"). My Income Statement as of December 31, 1989 or five months before the fire, shows my merchandise inventory was already some P595,455.75. . . . These will support my claim that the amount claimed under the three policies are much below the value of my stocks lost. xxx xxx xxx The letter contradicts private respondent's pretension that he did not know that there were other insurances taken on the stock-in-trade and seriously puts in question his credibility. His motion to reconsider the adverse decision having been denied, the petitioner filed the instant petition. He contends therein that the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of jurisdiction: A . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS; B . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND C . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE RESPONDENT. The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance policy from the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy, and (b) if he had, whether he is precluded from recovering therefrom. The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter was not offered in evidence and thus should not have been considered in deciding the case. However, as correctly pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral part of the 12 complaint. It has attained the status of a judicial admission and since its due execution and authenticity was not denied 13 by the other party, the petitioner is bound by it even if it were not introduced as an independent evidence. As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the previous two policies. The Court of Appeals disagreed and found otherwise in view of the explicit admission by the petitioner in his letter to the private respondent of 18 January 1991, which was quoted in the challenged decision of the Court of Appeals. These divergent findings of fact constitute an exception to the general rule that in petitions for review under Rule 45, only 14 questions of law are involved and findings of fact by the Court of Appeals are conclusive and binding upon this Court. We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary before the Insurance Commissioner and which the latter relied upon cannot prevail over a written admission made ante litem motam. It was, indeed, incredible that he did not know about the prior policies since these policies were not new or original. Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA-28146 had been renewed twice, the previous policy being F-24792. Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law. Its incorporation 15 in the policy is allowed by Section 75 of the Insurance Code which provides that "[a] policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy." Such a condition is a provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid the 16 policy. However, in order to constitute a violation, the other insurance must be upon same subject matter, the same 17 interest therein, and the same risk.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both interests may be one policy, or each may take out a separate policy covering his interest, either at the same or at 18 separate times. The mortgagor's insurable interest covers the full value of the mortgaged property, even though the 19 mortgage debt is equivalent to the full value of the property. The mortgagee's insurable interest is to the extent of the debt, since the property is relied upon as security thereof, and in insuring he is not insuring the property but his interest or lien thereon. His insurable interest is prima facie the value mortgaged and extends only to the amount of the debt, not 20 exceeding the value of the mortgaged property. Thus, separate insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee. A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice. The mortgagee may be made the beneficial payee in several ways. He may become the assignee of the policy with the consent of the insurer; or the mere pledgee without such consent; or the original policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as his interest may appear" may be attached; or a "standard mortgage clause," containing a collateral independent contract between the mortgagee and insurer, may be attached; or the policy, though by its terms payable absolutely to the mortgagor, may have been procured by a mortgagor under a contract duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon the 21 proceeds. In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by the insurer but not made a party to the contract himself. Hence, any act of the mortgagor which defeats his right will also defeat the right of the 22 23 mortgagee. This kind of policy covers only such interest as the mortgagee has at the issuing of the policy. On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the terms of an 24 agreement by which the mortgagor is to pay the premiums upon such insurance. It has been noted, however, that although the mortgagee is himself the insured, as where he applies for a policy, fully informs the authorized agent of his interest, pays the premiums, and obtains on the assurance that it insures him, the policy is in fact in the form used to 25 insure a mortgagor with loss payable clause. The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage clause which reads: Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the terms of this policy. This is clearly a simple loss payable clause, not a standard mortgage clause. It must, however, be underscored that unlike the "other insurance" clauses involved in General Insurance and Surety 26 27 Corp. vs. Ng Hua or in Pioneer Insurance & Surety Corp. vs. Yap, which read: The insured shall give notice to the company of any insurance or insurances already effected, or which may subsequently be effected covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited. or in the 1930 case of Santa Ana vs. Commercial Union Assurance 28 Co. which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by the insured in writing and he must cause the company to add or insert it in the policy, without which such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3in the private respondent's policy No. F-14622 does not absolutely declare void any violation thereof. It expressly provides that the condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor of the insured and strictly against the company, the reason being, undoubtedly, to afford the greatest protection which the insured was endeavoring to secure when he applied for insurance. It is also a cardinal principle of law that forfeitures are not favored and that any construction which would result in the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is possible to construe the policy in a manner which would permit recovery, as, for example, by finding a 29 waiver for such forfeiture. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance policies should be construed most strictly against those for whose benefits they are inserted, and 30 most favorably toward those against whom they are intended to operate. The reason for this is that, except for riders which may later be inserted, the insured sees the contract already in its final form and has had no voice in the selection or arrangement of the words employed therein. On the other hand, the language of the contract was carefully chosen and deliberated upon by experts and legal advisers who had acted exclusively in the interest of the insurers and the technical 31 language employed therein is rarely understood by ordinary laymen. With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and separate. Since the two policies of the PFIC do not cover the same interest as that covered by the policy of the private respondent, no double insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's right to recover on the private respondent's policy. Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. 32 The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured. WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 is REINSTATED. Costs against private respondent Country Bankers Insurance Corporation. SO ORDERED. Padilla, Bellosillo, Quiason and Kapunan, JJ., concur.

Footnotes 1 Annex "A" of Petition; Rollo, 18-26. Per Associate Justice Vicente V. Mendoza, concurred in by Associate Justices Jesus M. Elbinias and Lourdes K. Tayao-Jaguros. 2 Exhibit "1"; Original Records (OR) (CA-G.R. SP. No. 31916), 34. 3 Exhibit "4"; Annex "C" of Petition; OR (CA-G.R. SP No. 31916), 27. 4 Exhibits "2" and "3"; Annexes "F" and "G," Id., 45-46. 5 Annex "E," Id.; Rollo, 38. 6 Annex "L," Id.; OR (CA-G.R. SP No. 31916), 66. 7 Annex "E" of Petition; Rollo, 43. 8 Annex "D," Id.; Id., 32. 9 Annex "G," Id.; Id., 47. 10 Annex "H" of Petition; Rollo, 52. 11 Annex "A," Id.; Id., 18. 12 It is specifically referred to in paragraph 7 of the complaint. Rollo, 40. 13 Philippine Bank of Communications vs. Court of Appeals, 195 SCRA 567 [1991]. 14 Tolentino vs. De Jesus, 56 SCRA 167 [1974]; Remalante vs. Tibe, 158 SCRA 138 [1988]. 15 P.D. No. 1460. 16 MARIA CLARA L. CAMPOS, Insurance (1983 ed.) citing General Insurance & Surety Corp. vs. Ng Hua, 106 Phil. 1117 [1960]; Petitioner Insurance & Surety Corp. vs. Yap, 61 SCRA 426 [1974]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 271 [1972]. 17 Id., JOHN F. DOBBYN, Insurance Law in a Nutshell 204 (2d ed. 1989.) 18 COUCH on Insurance 2d 24:68 (1960 ed.).

19 Id., 24:69. 20 Id., 24:72. 21 WILLIAM R. VANCE, Handbook on the Law on Insurance 773-774 (3rd ed.) 22 Id., 775. 23 COUCH, op cit., 24:72. 24 VANCE, op cit., 775. 25 COUCH, op cit., 23:36. 26 Supra note 16. 27 Supra note 16. 28 55 Phil. 329, 334 [1930]. 29 2 TEODORICO C. MARTIN, Commentaries and Jurisprudence on the Philippine Commercial Laws,143 (1986 rev. ed.). 30 Trinidad vs. Orient Protective Assurance Association, 67 Phil. 181 [1939]. 31 CAMPOS, op cit., 12. 32 Pioneer Insurance and Surety Corp. vs. Yap, supra note 16. G.R. No. 34774. September 21, 1931.] EL ORIENTE, FABRICA DE TABACOS, INC., Plaintiff-Appellant, v. JUAN POSADAS, Collector of Internal Revenue, Defendant-Appellee. Gibbs & McDonough and Roman Ozaeta, for Appellant. Attorney-General Jaranilla, for Appellee. SYLLABUS 1. TAXATION; CORPORATIONS; INCOME TAX LAW CONSTRUED; PROCEEDS OF INSURANCE BY CORPORATE BENEFICIARIES, WHETHER TAXABLE AS INCOME. The proceeds of insurance taken by a corporation on the life of an important official to indemnify it against loss in case of his death, are not taxable as income under the Philippine Income Tax Law. The indefiniteness of the local law is emphasized.

DECISION

MALCOLM, J.:

The issue in this case is whether the proceeds of insurance taken by a corporation on the life of an important official to indemnify it against loss in case of his death, are taxable as income under the Philippine Income Tax Law. The parties submitted the case to the Court of First Instance of Manila for decision upon the following agreed statement of facts:jgc:chanrobles.com.ph "1. That the plaintiff is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippine Islands, having its principal office at No. 732 Calle Evangelista, Manila, P. I.; and that the defendant is the duly appointed, qualified and acting Collector of Internal Revenue of the Philippine Islands. "2. That on March 18, 1925, plaintiff, in order to protect itself against the loss that it might suffer by reason of the death of its manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the manufacture of cigars in the Philippine Islands, and whose death would be a serious loss to the plaintiff, procured from the Manufacturers Life Insurance Co., of Toronto, Canada, thru its local agent E. E. Elser, an insurance policy on the life of the said A. Velhagen for the sum of $50,000, United States currency. "3. That the plaintiff, El Oriente, Fabrica de Tabacos, Inc., designated itself as the sole beneficiary of said policy on the life of its said manager. "4. That during the time the life insurance policy hereinbefore referred to was in force and effect plaintiff paid from its funds

all the insurance premiums due thereon. "5. That the plaintiff charged as expenses of its business all the said premiums and deducted the same from its gross incomes as reported in its annual income tax returns, which deductions were allowed by the defendant upon a showing made by the plaintiff that such premiums were legitimate expenses of its (plaintiffs) business. "6. That the said A. Velhagen, the insured, had no interest or participation in the proceeds of said life insurance policy. "7. That upon the death of said A. Velhagen in the year 1929, the plaintiff received all the proceeds of the said life insurance policy, together with the interests and the dividends accruing thereon, aggregating P104,957.88. "8. That over the protest of the plaintiff, which claimed exemption under section 4 of the Income Tax Law, the defendant Collector of Internal Revenue assessed and levied the sum of P3,148.74 as income tax on the proceeds of the insurance policy mentioned in the preceding paragraph, which tax the plaintiff paid under instant protest on July 2, 1930; and that defendant overruled said protest on July 9, 1930."cralaw virtua1aw library Thereupon, a decision was handed down which absolved the defendant from the complaint, with costs against the plaintiff. From this judgment, the plaintiff appealed, and its counsel now allege that:jgc:chanrobles.com.ph "1. The trial court erred in holding that section 4 of the Income Tax Law (Act No. 2833) is not applicable to the present case. "2. The trial court erred in reading into the law certain exceptions and distinctions not warranted by its clear and unequivocal provisions. "3. The trial court erred in assuming that the proceeds of the life insurance policy in question represented a net profit to the plaintiff when, as a matter of fact, it merely represented an indemnity for the loss suffered by it thru the death of its manager, the insured. "4. The trial court erred in refusing to hold that the proceeds of the life insurance policy in question is not taxable income, and in absolving the defendant from the complaint."cralaw virtua1aw library The Income Tax Law for the Philippines is Act No. 2833, as amended. It is divided into four chapters: Chapter I On Individuals, Chapter II On Corporations, Chapter III General Administrative Provisions, and Chapter IV General Provisions. In Chapter I On Individuals, is to be found section 4 which provides that, "The following incomes shall be exempt from the provisions of this law: (a) The proceeds of life insurance policies paid to beneficiaries upon the death of the insured . . ." Section 10, as amended, in Chapter II On Corporations, provides that, "There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation . . .a tax of three per centum upon such income . . ." Section 11 in the same chapter, provides the exemptions under the law, but neither here nor in any other section is reference made to the provisions of section 4 in Chapter I. Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous and vague condition of the law. It is certain that the proceeds of life insurance policies paid to individual beneficiaries upon the death of the insured are exempt. It is not so certain that the proceeds of life insurance policies paid to corporate beneficiaries upon the death of the insured are likewise exempt. But at least, it may be said that the law is indefinite in phraseology and does not permit us unequivocally to hold that the proceeds of life insurance policies received by corporations constitute income which is taxable. The situation will be better elucidated by a brief reference to laws on the same subject in the United States. The Income Tax Law of 1916 extended to the Philippine Islands. It was natural, therefore, for the Philippine Legislature, when it came to enact Act No. 2833, to copy the American statute. Subsequently, the Congress of the United States enacted its Income Tax Law of 1919, in which certain doubtful subjects were clarified. Thus, as to the point before us, it was made clear, when not only in the part of the law concerning individuals were exemptions provided for beneficiaries, but also in the part concerning corporations, specific reference was made to the exemptions in favor of individuals, thereby making the same applicable to corporations. This was authoritatively pointed out and decided by the United States Supreme Court in the case of United States v. Supplee-Biddle Hardware Co. ([1924], 265 U.S., 189), which involved facts quite similar to those before us. We do not think the decision of the higher court in this case is necessarily controlling on account of the divergences noted in the federal statute and the local statute, but we do find in the decision certain language of a general nature which appears to furnish the clue to the correct disposition of the instant appeal. Conceding, therefore, without necessarily having to decide, that assignments of errors Nos. 1 and 2 are not well taken, we would turn to the third assignment of error. It will be recalled that El Oriente, Fabrica de Tabacos, Inc., took out the insurance on the life of its manager, who had had more than thirty-five years experience in the manufacture of cigars in the Philippines, to protect itself against the loss it might suffer by reason of the death of its manager. We do not believe that this fact signifies that when the plaintiff received P104,957.88 from the insurance on the life of its manager, it thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting individual beneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very slight indication of legislative intention. In reality, what the plaintiff received was in the nature of an indemnity for the loss which it actually suffered because of the death of its manager. To quote the exact words in the cited case of Chief Justice Taft delivering the opinion of the court:jgc:chanrobles.com.ph "It is earnestly pressed upon us that proceeds of life insurance paid on the death of the insured are in fact capital, and cannot be taxed as income under the Sixteenth Amendment. Eiser v. Macomber, 252 U.S., 189, 207; Merchants Loan & Trust Co. v. Smietanka, 255 U. S., 509, 518. We are not required to meet this question. It is enough to sustain our

construction of the act to say that proceeds of a life insurance policy paid on the death of the insured are not usually classed as income. ". . . Life insurance in such as case is like that of fire and marine insurance, a contract of indemnity. Central Nat. Bank v. Hume, 128 U. S., 195. The benefit to be gained by death has no periodicity. It is a substitution of money value for something permanently lost, either in a house, a ship, or a life. Assuming, without deciding, that Congress could call the proceeds of such indemnity income, and validity tax it as such, we think that, in view of the popular conception of the life insurance as resulting in a single addition of a total sum to the resources of the beneficiary, and not in a periodical return, such a purpose on its part should be express, as it certainly is not here."cralaw virtua1aw library Considering, therefore, the purport of the stipulated facts, considering the uncertainty of Philippine law, and considering the lack of express legislative intention to tax the proceeds of life insurance policies paid to corporate beneficiaries, particularly when in the exemption in favor of individual beneficiaries in the chapter on this subject, the clause is inserted "exempt from the provisions of this law," we deem it reasonable to hold the proceeds of the life insurance policy in question as representing an indemnity and not taxable income. The foregoing pronouncements will result in the judgment being reversed and in another judgment being rendered in favor of the plaintiff and against the defendant for the sum of P3,148.74. So ordered, without costs in either instance. Avancea, C.J., Street, Villamor, Ostrand, Romualdez, Villa-Real and Imperial, JJ., concur.

[G.R. No. L-6114. October 30, 1954.] SOUTHERN LUZON EMPLOYEES ASSOCIATION, Plaintiff, v. JUANITA GOLPEO, ET AL., defendants and appellants; AQUILINA MALOLES, ET AL., defendants and appellees; ELSIE HICBAN, ET AL., defendants; MARCELINO CONCEPCION, ET AL., intervenor and appellants. Enrique Al. Capistrano, Pio O. Golfeo, Jose E. Erfe and Hilario Mutuc for Appellants. Manuel Alvero and Eden B. Brion for Appellees. Juan A. Baes for defendant Elsie Hicban.

SYLLABUS ASSOCIATIONS; MUTUAL BENEFIT ASSOCIATIONS; DEATH BENEFIT ANALOGOUS TO INSURANCE. The plaintiff association is composed of laborers and employees and one of its purposes is mutual aid of its members and their dependents in case of death. The association adopted a resolution allowing a member to name as his beneficiaries his common law wife and/or children had with her. In this case, the deceased member listed as his beneficiaries his common law wife and the latters children. Held, that said beneficiaries are exclusively entitled to the death benefit, the agreemen t between the deceased member and the association being analogous to insurance.

DECISION

PARAS, C.J. : The plaintiff, Southern Luzon Employees Association, is composed of laborers and employees of Laguna Tayabas Bus Co., and Batangas Transportation Company, and one of its purposes is mutual aid of its members and their dependents in case of death Roman A. Concepcion was a member until his death on December 13, 1950. The association adopted on September 17, 1949 the following resolution:jgc:chanrobles.com.ph "RESOLVED: That a family record card of each member be printed wherein the members will put down his dependents and/or beneficiaries. "BE IT RESOLVED, FURTHER, that a member may, if he chooses, put down his common-law wife as his beneficiary and/or children had with her as the case may be; that in case of a widower, he may put down his legitimate children with the first marriage who are below 21 years of age, single, and may at the same time, also name his common-law wife, if he has any, as dependents and/or beneficiaries; and "BE IT RESOLVED: That such person so named by the member will be the sole persons to be recognized by the Association regarding claims for condolence contributions."cralaw virtua1aw library In the form required by the association to be accomplished by its members, with reference to the death benefit, Roman A. Concepcion listed as his beneficiaries Aquilina Maloles, Roman M. Concepcion, Jr., Estela M. Concepcion, Rolando M. Concepcion and Robin M. Concepcion. After the death of Roman A. Concepcion, the association was able to collect voluntary contributions from its members amounting to P2,505. Three sets of claimants presented themselves, namely, (1) Juanita Golpeo, legal wife of Roman A. Concepcion, and her children; (2) Aquilina Maloles, common law wife of

Roman A. Concepcion, and her children, named beneficiaries by the deceased; and (3) Elsie Hicban, another common law wife of Roman A. Concepcion, and her child. The plaintiff association was accordingly constrained to institute in the Court of First Instance of Laguna the present action for interpleading against the three conflicting claimants as defendants. Marcelino and Josefina Concepcion, children of the deceased Roman A. Concepcion with Juanita Golpeo, intervened in their own rights, aligning themselves with the defendants Juanita Golpeo and her minor children. After hearing, the court rendered a decision, declaring the defendants Aquilina Maloles and her children the sole beneficiaries of the sum of P2,505.00, and ordering the plaintiff to deliver said amount to them. From this decision only the defendants Juanita Golpeo and her minor children and the intervenors Marcelino and Josefina Concepcion have appealed to this court. The decision is based mainly on the theory that the contract between the plaintiff and the deceased Roman A. Concepcion partook of the nature of an insurance and that, therefore, the amount in question belonged exclusively to the beneficiaries, invoking the following pronouncements of this Court in the case of Del Val v. Del Val, 29 Phil., 534:jgc:chanrobles.com.ph "With the finding of the trial court that the proceeds of the life-insurance policy belongs exclusively to the defendant as his individual and separate property, we agree. That the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary and not of the heirs of the person whose life was insured, is the doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of section 428 of the Code of Commerce, which reads:red:chanrobles.com.ph "The amounts which the underwriter must deliver to the person insured, in fulfillment of the contract, shall be the property of the latter, even against the claims of the legitimate heirs or creditors of any kind whatsoever of the person who effected the insurance in favor of the former.. "It is claimed by the attorney for the plaintiffs that the section just quoted in subordinated to the provisions of the Civil Code as found in article 1035. This article reads:red:chanrobles.com.ph "An heir by force of law surviving with others of the same character to a succession must bring into the hereditary estate the property or securities he may have received from the deceased during the life of the same, by way of dowry, gift, or for any good consideration, in order to compute it in fixing the legal portions and in the account of the division.. "Counsel also claims that the proceeds of the insurance policy were a donation or gift made by the father during his lifetime to the defendant and that, as such, its ultimate destination is determined by those provisions of the Civil Code which relate to donations, especially article 819. This article provides that gifts made to children which are not betterments shall be considered as part of their legal, portion. "We cannot agree with these contentions. The contract of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal exclusively with that subject. The Civil Code has no provisions which relate directly and specifically to life-insurance contracts or to the destination of life-insurance proceeds. That subject is regulated exclusively by the Code of Commerce which provides for the terms of the contract, the relations of the parties and the destination of the proceeds of the policy." (Supra, pp. 540-541.) It is argued for the appellants, however, that the Insurance Law is not applicable because the plaintiff is a mutual benefit association as defined in section 1628 of the Revised Administrative Code. This argument evidently ignores the fact that the trial court has not considered the plaintiff as a regular insurance company but merely ruled that the death benefit in question is analogous to an insurance. Moreover, section 1628 of the Revised Administrative Code defines a mutual benefit association as one, among others, "providing for any method of accident or life insurance among its members out of dues or assessments collected from the membership." The comparison made in the appealed decision is, therefore, well taken. Appellants also contend that the stipulation between the plaintiff and the deceased Roman A. Concepcion regarding the specification of the latters beneficiaries, and the resolution of September 17, 1949, are void for being contrary to law, moral or public policy. Specifically, the appellants cite article 2012 of the new Civil Code providing that "Any person who is forbidden from receiving any donation under article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article." Inasmuch as, according to article 739 of the new Civil Code, a donation is void when made "between persons who are guilty of adultery or concubinage at the time of the donation," it is alleged that the defendant-appellee, Aquilina Maloles, cannot be named a beneficiary, even assuming that the insurance law is applicable. Without considering the intimation in the brief for the defendants-appellees that appellant Juanita Golpeo, by her silence and actions, had acquiesced in the illicit relations between her husband and appellee Aquilina Maloles, appellants argument would certainly not apply to the children of Aquilina, likewise named beneficiaries by the deceased Roman A. Concepcion. As a matter of fact the new Civil Code recognizes certain successional rights of illegitimate children. (Article 287.) The other contentions advanced rather exhaustively by counsel for appellants, and the citations in support thereof, are either negatived or rendered inapplicable by the decisive considerations already stated. In this connection it is noteworthy that the estate of the deceased Roman A. Concepcion was not entirely left without anything legally due it, since it is an admitted fact that the sum of P2,500 was paid by Laguna Tayabas Bus Co., employer of the deceased, to the appellants under the Workmens Compensation Act. Wherefore, the appealed decision is affirmed, and it is so ordered without costs. Bengzon, Jugo, and Bautista Angelo, JJ., concur. . Padilla and Reyes, A., JJ., concur in the result.

REYES, J. B. L., J., concurring:chanrob1es virtual 1aw library I concur in the result for the reason that the contract here involved was perfected before the new Civil Code took effect, and hence its provisions cannot be made to apply retroactively. Concepcion and Montemayor, JJ., concur.

[G.R. No. L-17598. June 17, 1922. ] HENRY HARDING, Plaintiff-Appellee, v. SAN MIGUEL BREWERY CO., Defendant-Appellant. Fisher & DeWitt for Appellant. Kincaid, Perkins & Kincaid for Appellee. SYLLABUS DEFENDANT LIABLE FOR ITS CONDUCT. Under the relations existing between them, the defendant had no legal right to mislead or deceive the plaintiff as to the terms or conditions of certain insurance policies which were in its possession, and plaintiff relying thereon and having paid the insurance premiums to the defendant, it should pay the plaintiff the amount of any damages which he sustained by reason thereof.

DECISION

STATEMENT January 12,1916, D.P. Dunn was the sole owner of a certain business, known as the "Non-Commissioned Officers Club" at Stotsenburg in the Province of Pampanga, and the building, fixture, furniture, and dynamo used in connection therewith, and executed to the defendant a mortgage thereon for P9,000 to secure an existing debt, and, among other things, the mortgage recites that until such time as the debt was paid Dunn would keep the property "insured against loss by fire in such companies as the Brewery may designate, for their full insurable value, and will indorse the insurance policies to the Brewery so that the latter may be authorized to received the insurance money in the event of loss and retain such part thereof as may be necessary to satisfy any indebtedness still existing."cralaw virtua1aw library At the time of the execution of the mortgage, and in compliance with its terms, at the request and with the approval of the defendant, Dunn authorized and instructed it to insure the property at its full estimated value of P15,000, with loss, if any, payable to the defendant, as its interest may appear, and the remainder to him. It is claimed that, notwithstanding such agreement and instructions, the defendant took out the policies of insurance in its own name for P15,000 with a provision that the loss, if any, should be payable to the defendant only, as its interest may appear, without any insurance in favor of Dunn for his remaining interest. That at the request of the defendant, he paid premiums on an insured value of P15,000, and that it represented to him that, by the terms of the policies, in the event of loss by fire, it would collect and retain the amount of its mortgage debt, and pay the remainder of the loss to Dunn. May 27, 1917, with the consent and approval of the defendant, and subject to the terms and condition of the mortgage, Dunn sold the property to the plaintiff, who thereby acquired all interest of Dunn and became subjugated to all his right, including the policies of insurance. That plaintiff never saw the policies which were at all times in the possession of the defendant, and claims that he accepted and relied on the statements and representations of the of the property was insured for the full value of P15,000, and in such a manner that, in the event of loss by fire, the plaintiffs interests were fully protected. After the execution of the tripartite agreement, and on June 20,1917, the property was totally destroyed by fire, and meanwhile, through payments which had been made on the mortgage debt to the defendant from time to time by the plaintiff and Dunn, its claim was reduced from P9,000 to P3,600. That after the fire, and relying upon the express terms of the policies, the insurance companies denied any liability over and above the amount then due and vowing the defendant on its mortgage debt, which was then P3,000, and refused to pay any more. An action was brought by the defendant on the policies against the insurance companies to recover the full amount of P15,000, which resulted in a final decision of this court that under the terms of the policies, the insurance companies were only liable for P3,600. 1 The plaintiff then commenced this action against the defendant to recover from it P11,400, the difference between P3,600 and P15,000, claiming and alleging that he was misled and deceived, through the fault and negligence of the defendant, as to the true terms and conditions of the insurance policies, and that, by reason thereof, the defendant should pay him P11,400 with interest. In substance, for answer, the defendant admits the execution of the mortgage and the insurance of the property, and, as a further and separate defense, alleges that on October 8, 1917, it commenced a civil against the insurance companies to recover upon the policies P15,000, in which Harding, the plaintiff, filed an answer, a copy of which is attached to its plea in this action, and that in such action the plaintiff here, as defendant there, failed and omitted "to set up by counterclaim the alleged rights which he now seeks to assert in this cause of action," and that he is now estopped.

As a further defense, the company alleges that Dunn "ratified and confirmed the action of this defendant in taking out policies of insurance on the property described in paragraph three of said complaint in the form and manner alleged in paragraph six thereof." That, thereafter, the plaintiff also ratified the defendants action, and that, when plaintiff purchased Dunns interest, he did not "acquire any right to have said property insured by this defendant, or any right of action against this defendant because of the form and manner in which said insurance had theretofore been taken out."cralaw virtua1aw library The lower court rendered judgment for the plaintiff, as prayed for in his complaint from which defendant appeals, assigning seven different errors in substance that the court erred in rendering judgment for the plaintiff as prayed for in his complaint, and in denying defendants motion for a new trial. JOHNS, J. :

The testimony is conclusive that the premiums on an insurance of P15,000 were paid, and the policies kept in force by either Dunn or the plaintiff, and that they fully complied with the provision of the mortgage above quoted. At the time plaintiff purchased the property from Dunn, the defendant wrote him the following letter:jgc:chanrobles.com.ph "We beg to enclose herewith debit note No. 6 for P188.46 as premium paid on P15,000, divided into two policies No. 2366 and No. 1749871 of the Filipinas Insurance Co., and the Law union & Rock Insurance Co., Ltd., respectively, the same being the amount in which has been insured the premises, furniture, fixture, etc., of that Club as per agreement with us. "Kindly note that in case of fire, we will cash the value of these policies and will withdraw the sum advanced to you, and the remainder will be handed then to you."cralaw virtua1aw library In substance, this is a statement and representation to the plaintiff that the property was insured for P15,000, and that, in the event of a loss by fire, the defendant would collect the full amount of the policies out of which it would satisfy its own mortgage debt, and then pay the balance of the loss to the plaintiff. Based upon that letter, the plaintiff paid the full amount of the premium of P188.46 for an insurance of P15,000 on the property, and paid all the premium and kept the policies in full force up to and including the date of the fire. After the fire, and under the provision of the policies, it became necessary to submit proofs of loss, and in compliance therewith, the defendant requested the plaintiff to make out and submit such proofs. It appears that there was some delay in doing this as a result of which the defendant wrote the plaintiff the following letter:jgc:chanrobles.com.ph "There has been ample time given you to produce plans and specifications to conform with the requirements of the Insurance Companies. . As we cannot wait any longer, you are advised that, if on the 10th of September next, said specifications, also a detailed valuation of the furniture, fixtures, machinery, etc,. are not submitted, we will have to file our claim the Insurance Companies for our interests in the said property, and you have to attend to the business of obtaining the balance from the Insurance Companies, yourself."cralaw virtua1aw library This letter clearly shows that, at the time it was written, the defendant then understood that the plaintiffs interests were fully insured, and that, under the terms of the policies, he was entitled to received any amount which would remain after the amount of the insurance for P15,000 due upon defendants mortgage debt was paid in full. This is further evidenced by the fact that after the final proofs were submitted, the defendant commenced an action on the policies against the insurance companies to recover the full amount of P15,000 upon which the plaintiff had paid the premium. The plaintiffs place of business was at Stotsenburg, and the defendants at Manila, who at all time had the physical possession and control of the policies, which were never seen by the plaintiff, and for aught that appears in the record, all that he knew about their terms and provisions were the statements and representations of the defendant, which were made in the letter above quoted At the time the mortgage was given, the defendants claim was for P9,000 upon which p ayments were made from time to time, so that when the fire occurred the amount of the mortgage debt was only 3,600. Yet, during all of this time, the plaintiff was paying premiums to, and at the request of, the defendant on an insurance of P15,000, and made such payments under the provisions of the mortgage, and the defendant alone had possession of the policies. In all things and respects plaintiff and Dunn complied with the provision of the mortgage, and kept preformed their part of the contract. As a result of payments, the mortgage debt was reduced from P9,000 to P3,600. They paid premiums upon an insurance for P15,000, and it is very apparent that, in the making of such payments, the plaintiff was acting in goodfaith, and that he relied upon the statement and representations of the defendant, that the property was insured for P15,000 and that, in the event of a destruction by fire, the defendant would retain the amount of its debt, and that any balance of the P15,000 remaining would be paid to the plaintiff, and under the relation existing between them, the plaintiff had a right to rely upon such statements and representations. It also clearly appears that the defendant itself thought and understood that the defendant itself thought and understood that the property was insured for P15,000, and that, in the event of a loss by fire, the plaintiff would have and receive any amount which remained over and above the defendants mortgage debt. This is clearly evidence by each of the letters above quoted, and the further fact the defendant commenced an action against the insurance companies to recover P15,000. The fact are peculiar, and the law of this case is more or less sui generis. It is very apparent that the plaintiff was acting in good faith, and that he was misled and deceived by the statements and representations of the defendant, who had the actual possession of the policies, and that plaintiff relied upon such statement and representations, and that, upon the

payment of the premiums, he had a right to rely upon the statement made in the letter, because the policies were in possession of the defendant and never submitted to the plaintiff for inspection. The contention of the defendant, that plaintiff is estopped and cannot maintain this action, is not c. The case of the defendant was brought against the insurance companies to recover the full amount of P15,000, and the only question there involved was the amount of the liability of the companies under the policies. Here, plaintiffs claim is not aga inst the insurance companies, but against the defendant. There is no estoppel. Under the relation existing between them, with the policies in its possession, the defendant had no legal right to make any false statements or to mislead or deceive the plaintiff as to the terms or provisions of the policies. With the policies in its possession, and, under the relations existing between them, the defendant, having made such statements and representations, and the plaintiff relying thereon and having paid premiums to the defendant for an insurance of P15,000, in the interest of justice and fair dealing, the defendant should pay the plaintiff the amount of damages which he sustained by reason of such false statements. Judgment of the lower court is affirmed, with costs. So ordered. Araullo, C.J., Avancena, Villamor, Ostrand, and Romualdez, JJ., concur.

G.R. No. L-43766 February 26, 1988 PHILIPPINE NATIONAL BANK, petitioner, vs. THE HON. COURT OF APPEALS (SPECIAL THIRD DIVISION), IGNACIO DESIDERIO AND VICTORIA F. DESIDERIO, respondents.

SARMIENTO, J.: In its resolve to recover the trifling sum of P 3,855.60, petitioner Philippine National Bank (PNB), a premier banking institution, incredulous of the adverse decisions of three lower courts, to wit: the City Court of Zamboanga City which rendered a decision the dispositive portion of which reads: WHEREFORE, this Court hereby renders judgment in the following tenor: That the complaint for the unpaid balance of the contractual loan of the Defendant Ignacio Desiderio and Victoria F. Desiderio filed by the Philippine National Bank, is hereby ordered dismissed and that the amount of P 1,089.60 which the Defendants paid as partial payment to the Plaintiff Bank on account of the loss contracted, is hereby declared unrecoverable and the same shall inure to the benefit of the Philippine National Bank. That no pronouncement as to damages, costs and attorney's fees is hereby made, as the loss of the things mortgaged were presumed to be caused by accident, no evidence having been presented to prove 1 the contrary; the then CFI of Zamboanga City which affirmed the above in a decision the dispositive portion of which reads: . IN VIEW OF THE FOREGOING, the appealed judgment of the City Court is affirmed insofar as it dismisses the complaint 2 as well as the counter-claim filed in the above entitled case; and the Court of Appeals which likewise affirmed the above in a decision the dispositive portion of which reads: WHEREFORE, the appealed judgment, being in accordance with law and the evidence, is hereby 3 affirmed in toto, with costs against the petitioner; has elevated this case to the highest court of the land with the following errors assigned: I THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER, AS ATTORNEY-IN-FACT OF PRIVATE RESPONDENTS, IS BOUND TO SUCCESSFULLY COLLECT THE INSURANCE PROCEEDS OF THE MORTGAGED PROPERTY OF THE LATTER. II

THE COURT OF APPEALS ERRED IN EXONERATING PRIVATE RESPONDENTS, BY WAY OF IMPLIED OFFSETTING FROM ITS LOAN ACCOUNT WITH PETITIONER, THERE BEING NO COUNTERCLAIM FOR DAMAGES 4 FILED BASED ON BREACH OF DUTY. The facts of the case are as follows: More than a quarter century ago, on January 10, 1963, the private respondents-spouses applied for a retailers' loan with the petitioner. The loan which was subsequently approved was secured by a chattel mortgage consisting of the verified inventory of stocks in the store of the private respondents, located at Marahui Street, Zamboanga City. In addition to this, the goods and merchandise, subject matter of the mortgage, were insured with the Cosmopolitan Insurance Go. in the amount of P 4,000.00 with the petitioner as the beneficiary pursuant to the requirements of the latter. On August 1, 1964, while the insurance and the chattel mortgage were still in force, and after the private respondents had paid the petitioner the amount of P 1,089.60 as partial payment of the loan in accordance with the loan agreement, the insured building and merchandise of the private respondents were totally destroyed by fire. The petitioner sent several letters to the insurance company for the purpose of recovering the proceeds of the insurance but to no avail. Sometime in 1966, the said insurance company became the subject of liquidation. Seven years after the insured chattels mortgaged were burned, the petitioner filed a complaint for collection against the private respondents. We find no cogent reasons to disturb the ruling of the Court of Appeals. The petitioner as the attorney-in-fact of the private respondents and as the beneficiary of the insurance policy had the obligation to collect the proceeds of the policy. The argument of the petitioner to the effect that there is no express provision in the Chattel Mortgage Contract which compels the petitioner to collect the proceeds of the insurance in case of loss is a mere rationalization of one trying hard to put the blame on another for its own fault or negligence. For "under the chattel mortgage covering the goods offered as security for payment of the loan, the private respondents as mortgagors constituted and appointed the petitioner as mortgagee their attorney-in-fact with full power and authority to collect and receive any interest, income or benefits produced by the mortgaged property and apply such amount collected and received in payment of the interest accruing and of the principal obligation. The petitioner was itself the beneficiary of the 5 insurance policy to which it was duly indorsed and made payable, and was in possession thereof." Indeed, and as found by the lower courts, the petitioner could have collected the insurance proceeds if only it were not negligent. It had ample time and enough legal remedies, not to mention resources, to collect the insurance proceeds when the same became due, yet, it merely sent demand letters to the insurance company. And when the company did not act on the letters, the petitioner did not pursue other remedies to press its claim. It did not even file a suit for the recovery of the insurance proceeds against the insurance company before and even during the liquidation of the company. It allowed seven long years to pass before finally deciding to file a collection case. Realizing that it could no longer collect from the insurance company because the same had already folded up, the petitioner directed the collection suit against the private respondents whose obligation with the petitioner had long been extinguished. For, indeed, under the facts obtaining, the private respondents cannot have been expected to initiate moves for the collection of the insurance proceeds. It was the petitioner which was duty bound to enforce the claim for the insurance proceeds, being, as earlier mentioned, the attorney-in-fact of the private respondents and the beneficiary of the insurance policy. It is sad that the private respondents, small time sari-sari store keepers, had to be dragged into this suit if only because of the petitioner's resoluteness to recover what, to our minds, is too measly an amount, not really worth litigating upon, in fact, not even worth wasting the time of this Court. WHEREFORE, the petition is hereby DISMISSED and the appealed judgment AFFIRMED, in toto, with triple costs against the petitioner. SO ORDERED. Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

Footnotes 1 Original Record, 31. 2 Id., 49-50. 3 Rollo, 37; Busran, Mama, J., Dela Fuente, Buenaventura and Ericta, Vicente, JJ., Concurring. 4 Id., 18. 5 Id., 35.

G.R. No. 128833 April 20, 1998 RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO, petitioners, vs. COURT OF APPEALS and GOYU & SONS, INC., respondents. G.R. No. 128834 April 20, 1998 RIZAL COMMERCIAL BANKING CORPORATION, petitioners, vs. COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY GO, respondents. G.R. No. 128866 April 20, 1998 MALAYAN INSURANCE INC., petitioners, vs. GOYU & SONS, INC. respondent. MELO, J.: The issue relevant to the herein three consolidated petitions revolve around the fire loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance Company, Inc. (MICO) in connection with the mortgage contracts entered into by and between Rizal Commercial Banking Corporation (RCBC) and GOYU. The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of P74,040,518.58, plus 37% interest per annum commending July 27, 1992. RCBC was ordered to pay actual and compensatory damages in the amount of P5,000,000.00. MICO and RCBC were held solidarily liable to pay GOYU P1,500,000.00 as exemplary damages and P1,500,000.00 for attorney's fees. GOYU's obligation to RCBC was fixed at P68,785,069.04 as of April 1992, without any interest, surcharges, and penalties. RCBC and MICO appealed separately but, in view of the common facts and issues involved, their individual petitions were consolidated. The undisputed facts may be summarized as follows: GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended GOYU's application for approval by RCBC's executive committee. A credit facility in the amount of P30 million was initially granted. Upon GOYU's application and Uy's and Lao's recommendation, RCBC's executive committee increased GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million. As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel mortgages in favor of RCBC, which were registered with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance polices to RCBC. GOYU obtained in its name a total of ten insurance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of GOYU (Exhibits "1-Malayan" to "9-Malayan"). On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU alleging better rights to the proceeds than the insured. GOYU filed a complaint for specific performance and damages which was docketed at the Regional Trial Court of the National Capital Judicial Region (Manila, Branch 3) as Civil Case No. 93-65442, now subject of the present G.R. No. 128833 and 128866. RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that MICO denied GOYU's claims. In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional Trial Court of Manila (Branch 3), confirmed that GOYU's other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective writs of attachments from various courts, covering an aggregate amount of P14,938,080.23, and ordered that the proceeds of the ten insurance policies be deposited with the said court minus the aforementioned P14,938,080.23. Accordingly, on January 7, 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC.

In the meantime, another notice of garnishment was handed down by another Manila RTC sala (Branch 28) for the amount of P8,696,838.75 (Exhibit "22-Malayan"). After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, Malayan Insurance Company, Inc. and Rizal Commercial Banking Corporation, ordering the latter as follows: 1. For defendant Malayan Insurance Co., Inc.: a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the amount of P50,000,000.00 which is deposited with this Court; b. To pay the plaintiff damages by was of interest for the duration of the delay since July 27, 1992 (ninety days after defendant insurer's receipt of the required proof of loss and notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the following amounts: 1) P50,000,000.00 from July 27, 1992 up to the time said amount was deposited with this Court on January 7, 1994; 2) P24,040,518.58 from July 27, 1992 up to the time when the writs of attachments were received by defendant Malayan; 2. For defendant Rizal Commercial Banking Corporation: a. To pay the plaintiff actual and compensatory damages in the amount of P2,000,000.00; 3. For both defendants Malayan and RCBC: a. To pay the plaintiff, jointly and severally, the following amounts: 1) P1,000,000.00 as exemplary damages; 2) P1,000,000.00 as, and for, attorney's fees; 3) Costs of suit. and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan obligations with defendant RCBC in the amount of P68,785,069.04, as of April 27, 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B & 14-C. FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to release immediately to the plaintiff the amount of P50,000,000.00 deposited with the Court by defendant Malayan, together with all the interest earned thereon. (Record, pp. 478-479.) From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied with the amount awarded in its favor. MICO and RCBC disputed the trial court's findings of liability on their part. The Court of Appeals party granted GOYU's appeal, but sustained the findings of the trial court with respect to MICO and RCBC's liabilities, thusly: WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as follows: 1. FOR DEFENDANT MALAYAN INSURANCE CO., INC: a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the amount of P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and damages by way of interest commencing July 27, 1992 until the time Goyu receives the said amount at the rate of thirty-seven (37%) percent per annum which is twice the ceiling prescribed by the Monetary Board. 2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION;

a) To pay the plaintiff actual and compensatory damages in the amount of P5,000,000.00. 3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO: a) To pay the plaintiff jointly and severally the following amounts: 1. P1,500,000.00 as exemplary damages; 2. P1,500,000.00 as and for attorney's fees. 4. And on RCBC's Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any interest, surcharges and penalties. The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to immediately release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No. 3649285) deposited with it by Malayan Insurance Co., Inc., together with all the interests thereon. (Rollo, p. 200.) RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking review and consequent reversal of the above dispositions of the Court of Appeals. In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376, which case, by virtue of the Court of Appeals' resolution dated August 7, 1996, was consolidated with C.A. G.R. No. CV-46162 (subject of herein G.R. No. 128833). At issue in said petition is RCBC's right to intervene in the action between Alfredo C. Sebastian (the creditor) and GOYU (the debtor), where the subject insurance policies were attached in favor of Sebastian. After a careful reviews of the material facts as found by the two courts below in relation to the pertinent and applicable laws, we find merit in the submission of RCBC and MICO. The several causes of action pursued below by GOYU gave rise to several related issues which are now submitted in the petitions before us. This Court, however, discerns one primary and central issue, and this is, whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss. As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU, the latter executed several mortgage contracts in favor of RCBC. It was expressly stipulated in these mortgage contracts that GOYU shall insure the mortgaged property with any of the insurance companies acceptable to RCBC. GOYU indeed insured the mortgaged property with MICO, an insurance company acceptable to RCBC. Bases on their stipulations in the mortgage contracts, GOYU was supposed to endorse these insurance policies in favor of, and deliver them, to RCBC. Alchester Insurance Agency, Inc., MICO's underwriter from whom GOYU obtained the subject insurance policies, prepared the nine endorsements (see Exh. "1-Malayan" to "9-Malayan"; also Exh. "51-RCBC" to "59-RCBC"), copies of which were delivered to GOYU, RCBC, and MICO. However, because these endorsements do not bear the signature of any officer of GOYU, the trial court, as well as the Court of Appeals, concluded that the endorsements are defective. We do not quite agree. It is settled that a mortgagor and a mortgagee have separated and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity. It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYU's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not have endorsed the policies to RCBC had it not been so directed by GOYU. On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. The basis and purpose of the doctrine was explained in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to wit: The doctrine of estoppel is based upon the grounds of public, policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the

injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice might result. It has been applied by this Court wherever and whenever special circumstances of a case so demand. (p. 368.) Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement documents for GOYU's nine insurance policies in favor of RCBC. The original copies of each of these nine endorsement documents were sent to GOYU, and the others were sent to RCBC and MICO, while the fourth copies were detained for Alchester's file (tsn, February 23, pp. 7-8). GOYU has not denied having received from Alchester the originals of these documents. RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the circumstances of the case. GOYU failed to seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insure against, it was too late for GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their operative effects. To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of the insurance polices if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel. GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus the following: 1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC. 2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC. 3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity of said endorsements. 4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover the mortgaged properties. This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by Alchester, GOYU, despite the absence of its written conformity thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its credits facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have to be given full force and effect particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the polices were clearly intended. Moreover, the law's evident intention to protect the interests of the mortgage upon the mortgaged property is expressed in Article 2127 of the Civil Code which states: Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person. Significantly, the Court notes that out of the 10 insurance policies subject of this case, only 8 of them appear to have been subject of the endorsements prepared and delivered by Alchester for and upon instructions of GOYU as shown below: INSURANCE POLICY PARTICULARS ENDORSEMENT a. Policy Number F-114-07795 None Issue Date March 18, 1992

Expiry Date April 5, 1993 Amount P9,646,224.92 b. Policy Number ACIA/F-174-07660 Exhibit "1-Malayan" Issue Date January 18, 1992 Expiry Date February 9, 1993 Amount P4,307,217.54 c. Policy Number ACIA/F-114-07661 Exhibit "2-Malayan" Issue Date January 18, 1992 Expiry Date February 15, 1993 Amount P6,603,586.43 d. Policy Number ACIA/F-114-07662 Exhibit "3-Malayan" Issue Date January 18, 1992 Expiry Date (not legible) Amount P6,603,586.43 e. Policy Number ACIA/F-114-07663 Exhibit "4-Malayan" Issue Date January 18, 1992 Expiry Date February 9, 1993 Amount P9,457,972.76 f. Policy Number ACIA/F-114-07623 Exhibit "7-Malayan" Issue Date January 13, 1992 Expiry Date January 13, 1993 Amount P24,750,000.00 g. Policy Number ACIA/F-174-07223 Exhibit "6-Malayan" Issue Date May 29, 1991 Expiry Date June 27, 1992 Amount P6,000,000.00 h. Policy Number CI/F-128-03341 None Issue Date May 3, 1991 Expiry Date May 3, 1992 Amount P10,000,000.00 i. Policy Number F-114-07402 Exhibit "8-Malayan" Issue Date September 16, 1991 Expiry Date October 19, 1992 Amount P32,252,125.20 j. Policy Number F-114-07525 Exhibit "9-Malayan" Issue Date November 20, 1991 Expiry Date December 5, 1992 Amount P6,603,586.43 (pp. 456-457, Record; Folder of Exhibits for MICO.) Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted by MICO's witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record shows no endorsement for Policy Number CI/F-128-03341 [(h) above]. Also, one of the endorsement documents, Exhibit "5-Malayan", refers to a certain insurance policy number ACIAF-07066, which is not among the insurance policies involved in the complaint. The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being excessively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an endorsement by GOYU itself, these 8 policies can not be attached by GOYU's other creditors up to the extent of the GOYU's outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of GOYU's obligation with RCBC, the interest of GOYU in the subject policies had been transferred to RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other creditors of GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by GOYU's other creditors. To the extent of GOYU's outstanding obligation with RCBC, all the rest of the other insurance policies above-listed which were endorsed to RCBC, are, therefore, to be released from attachment, garnishment, and levy by the other creditors of GOYU. This brings us to the next issue to be resolved, which is, the extent of GOYU's outstanding obligation with RCBC which the proceeds of the 8 insurance policies will discharge and liquidate, or put differently, the actual amount of GOYU's liability to RCBC.

The Court of Appeals simply echoed the declaration of the trial court finding that GOYU's total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning the trial court's exclusion of Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91) on the ground that their execution is highly questionable for not only are these dated after the fire, but also because the signatures of either GOYU or any its representative are conspicuously absent. Accordingly, the Court of Appeals speculated thusly: . . . Hence, this Court is inclined to conclude that said promissory notes were pre-signed by plaintiff in bank terms, as averred by plaintiff, in contemplation of the speedy grant of future loans, for the same practice of procedure has always been adopted in its previous dealings with the bank. (Rollo, pp. 181-182.) The fact that the promissory notes bear dates posterior to the fire does not necessarily mean that the documents are spurious, for it is presumed that the ordinary course of business had been followed (Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 22 SCRA 486 [1993]). The obligor and not the holder of the negotiable instrument has the burden of proof of showing that he no longer owes the obligee any amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]). Even casting aside the presumption of regularity of private transactions, receipt of the loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the testimony of Go Song Hiap when he answered the queries of the trial court. ATTY. NATIVIDAD Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the amounts stated therein? A: Yes, sir, I received the amount. COURT He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC? WITNESS: Yes, Your Honor, I received all the amounts. COURT Indicated in the Promissory Notes? WITNESS A. The promissory Notes they did not give to me but the amount I asked which is correct, Your Honor. COURT Q Your mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct? A Yes, Your Honor. (tsn, Jan. 14, 1994, p. 26.) Furthermore, aside from its judicial admission of having received all the proceeds of the 29 promissory notes as hereinabove quotes, GOYU also offered and admitted to RCBC that is obligation be fixed at P116,301,992.60 as shown in its letter date March 9, 1993, which pertinently reads: We wish to inform you, therefore that we are ready and willing to pay the current past due account of this company in the amount of P116,301,992.60 as of 21 January 1993, specified in pars. 15, p. 10, and 18, p. 13 of your affidavits of Third Party Claims in the Urban case at Makati, Metro Manila and in the Zamboanga case at Zamboanga city, respectively, less the total of P8,851,519.71 paid from the Seaboard and Equitable insurance companies and other legitimate deductions. We accept and confirm this amount of P116,301,992.60 as stated as true and correct. (Exhibit BB.) The Court of Appeals erred in placing much significance on the fact that the excluded promissory notes are dated after the fire. It failed to consider that said notes had for their origin transactions consummated prior to the fire. Thus, careful

attention must be paid to the fact that Promissory Notes No. 420-92 and 421-92 are mere renewalsof Promissory Notes No. 908-91 and 952-91, loans already availed of by GOYU. The two courts below erred in failing to see that the promissory notes which they ruled should be excluded for bearing dates which are after that of the fire, are mere renewals of previous ones. The proceeds of the loan represented by these promissory notes were admittedly received by GOYU. There is ample factual and legal basis for giving GOYU's judicial admission of liability in the amount of P116,301,992.60 full force and effect. It should, however, be quickly added that whatever amount RCBC may have recovered from the other insurers of the mortgage property will, nonetheless, have to be applied as payment against GOYU's obligation. But, contrary to the lower courts' findings, payments effected by GOYU prior to January 21, 1993 should no longer be deducted. Such payments had obviously been duly considered by GOYU, in its aforequoted letter date March 9, 1993, wherein it admitted that its past due account totaled P116,301,992.60 as of January 21, 1993. The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of January 21, 1993, to wit: Total Obligation as admitted by GOYU as of January 21, 1993: P116,301,992.60 Broken down as follows: Principal 1 Interest Regular 80,535,946.32 FDU 27,548,025.17 ____________ Total 108,083,971.49 8,218,021.11 2 LESS: 1) Proceeds from Seaboard Eastern Insurance Company 6,095,145.81 2) Proceeds from Equitable Insurance Company 2,756,373.00 3) Payment from foreign department negotiation: 203,584.89 ___________ 9,055,104.70 3 ================ NET AMOUNT as of January 21, 1993 P107,246,887.90 The need for the payment of interest due the principal amount of the obligation, which is the cost of money to RCBC, the primary end and the ultimate reason for RCBC's existence and being, was duly recognized by the trial court when it ruled favorably on RCBC's counterclaim, ordering GOYU "to pay its loan obligation with RCBC in the amount of P68,785,069.04, as of April 27, 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B 14-C" (Record, p. 479). Inexplicably, the Court of Appeals, without even laying down the factual or legal justification for its ruling, modified the trial court's ruling and ordered GOYU "to pay the principal amount of P68,785,069.04 without any interest, surcharges and penalties" (Rollo, p. 200). It is to be noted in this regard that even the trial court hedgingly and with much uncertainty deleted the payment ofadditional interest, penalties, and charges, in this manner: Regarding defendant RCBC's commitment not to charge additional interest, penalties and surcharges, the same does not require that it be embodied in a document or some form of writing to be binding and enforceable. The principle is well known that generally a verbal agreement or contract is no less binding and effective than a written one. And the existence of such a verbal agreement has been amply established by the evidence in this case. In any event, regardless of the existence of such verbal agreement, it would still be unjust and inequitable for defendant RCBC to charge the plaintiff with surcharges and penalties considering the latter's pitiful situation. (Emphasis supplied). (Record, p. 476) The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and penalties. What may justify a court in not allowing the creditor to charge surcharges and penalties despite express

stipulation therefor in a valid agreement, may not equally justify non-payment of interest. The charging of interest for loans forms a very essential and fundamental element of the banking business, which may truly be considered to be at the very core of its existence or being. It is inconceivable for a bank to grant loans for which it will not charge any interest at all. We fail to find justification for the Court of Appeal's outright deletion of the payment of interest as agreed upon in the respective promissory notes. This constitutes gross error. For the computation of the interest due to be paid to RCBC, the following rules of thumb laid down by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals (234 SCRA 78 [1994]), shall apply, to wit: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the actual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (pp. 95-97). There being written stipulations as to the rate of interest owing on each specific promissory note as summarized and tabulated by the trial court in its decision (pp. 470 and 471, Record) such agreed interest rates must be followed. This is very clear from paragraph II, sub-paragraph 1 quoted above. On the issue of payment of surcharges and penalties, we partly agree that GOYU's pitiful situation must be taken into account. We do not agree, however, that payment of any amount as surcharges and penalties should altogether be deleted. Even assuming that RCBC, through its responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may have relayed its assurance for assistance to GOYU immediately after the occurrence of the fire, we cannot accept the lower courts' finding that RCBC had thereby ipso facto effectively waived collection of any additional interests, surcharges, and penalties from GOYU. Assurances of assistance are one thing, but waiver of additional interests, surcharges, and penalties is another. Surcharges and penalties agreed to be paid by the debtor in case of default partake of the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof provides: Art. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be equitably reduced if they are iniquitous and unconscionable. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. It should be stressed that the Court will not make any sweeping ruling that surcharges and penalties imposed by banks for non-payment of the loans extended by them are generally iniquitous and unconscionable. What may be iniquitous and unconscionable in one case, may be totally just and equitable in another. This provision of law will have to be applied to the established facts of any given case. Given the circumstance under which GOYU found itself after the occurrence of the fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates to 2% and 3%, respectively. Furthermore, in the light of GOYU's offer to pay the amount of P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"), which RCBC refused, we find it more in keeping with justice and equity for RCBC not to charge additional interest, surcharges, and penalties from that time onward. Given the factual milieu hereover, we rule that it was error to hold MICO liable in damages for denying or withholding the proceeds of the insurance claim to GOYU.

Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance policies, RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said insurance policies. Secondly, for an insurance company to be held liable for unreasonably delaying and withholding payment of insurance proceeds, the delay must be wanton, oppressive, or malevolent (Zenith Insurance Corporation vs. CA. 185 SCRA 403 [1990]). It is generally agreed, however, that an insurer may in good faith and honesty entertain a difference of opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a claim should not be inflicted unless the evidence and circumstances show that such refusal was willful and without reasonable cause as the facts appear to a reasonable and prudent man (Bufallo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St. Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not show that MICO wantonly and in bad faith delayed the release of the proceeds. The problem in the determination of who is the actual beneficiary of the insurance policies, aggravated by the claim of various creditors who wanted to partake of the insurance proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and as now borne out by the outcome herein, justified MICO in withholding payment to GOYU. In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid creditor, one for specific performance and the other for foreclosure. In doing so, said the appellate court, the second action is deemed barred, RCBC having split a single cause of action (Rollo, pp. 195-199). The Court of Appeals was too accommodating in giving due consideration to this argument of GOYU, for the foreclosure suit is still pending appeal before the same Court of Appeals in CA G.R. CV No. 46247, the case having been elevated by RCBC. In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of Appeals pre-empted the resolution of said foreclosure case which is not before it. This is plain reversible error if not grave abuse of discretion. As held in Pea vs. Court of Appeals (245 SCRA 691 [1995]): It should have been enough, nonetheless, for the appellate court to merely set aside the questioned ordered of the trial court for having been issued by the latter with grave abuse of discretion. In likewise enjoining permanently herein petitioner "from entering in and interfering with the use or occupation and enjoyment of petitioner's (now private respondent) residential house and compound," the appellate court in effect, precipitately resolved with finality the case for injunction that was yet to be heard on the merits by the lower court. Elevated to the appellate court, it might be stressed, were mere incidents of the principal case still pending with the trial court. In Municipality of Bian, Laguna vs. Court of Appeals, 219 SCRA 69, we ruled that the Court of Appeals would have "no jurisdiction in a certiorari proceeding involving an incident in a case to rule on the merits of the main case itself which was not on appeal before it. (pp. 701-702.) Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga Regional Trial Court, since it has been determined that RCBC has the right to the insurance proceeds, the subject matter of intervention is rendered moot and academic. Respondent Sebastian must, however, yield to the preferential right of RCBC over the MICO insurance policies. It is basic and fundamental that the first mortgagee has superior rights over junior mortgagees or attaching creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil. 271 [1928]). WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED and SET ASIDE, and a new one entered: 1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442 before Branch 3 of the Manila Trial Court for lack of merit; 2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking Corporation the proceeds of the insurance policies in the amount of P51,862,390.94 (per report of adjuster Toplis & Harding (Far East), Inc., Exhibits "2" and "2-1"), less the amount of P50,505,594.60 (per O.R. No. 3649285); 3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the interests earned to Rizal Commercial Banking Corporation; 4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking Corporation in the principal amount of P107,246,887.90, with interest at the respective rates stipulated in each promissory note from January 21, 1993 until finality of this judgment, and surcharges at 2% and penalties at 3% from January 21, 1993 to March 9, 1993, minus payments made by Malayan Insurance Company, Inc. and the proceeds of the amount deposited with the trial court and its earned interest. The total amount due RCBC at the time of the finality of this judgment shall earn interest at the legal rate of 12% in lieu of all other stipulated interests and charges until fully paid. The petition of Rizal Commercial Banking Corporation against the respondent Court in CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results herein arrived at. Respondent Sebastian's right as attaching creditor

must yield to the preferential rights of Rizal Commercial Banking Corporation over the Malayan insurance policies as first mortgagee. SO ORDERED. Regalado, Puno, Mendoza and Martinez, JJ., concur. Footnotes 1 See: Exhibit "70-RCBC" 2 Computed by deducting P108,083,971.49 from the admitted amount of P116,301,992.60. 3 To be deducted from interest payments due in accordance with Article 1253 of the Civil Code which provides: Art. 1253. If debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.

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: +.wph!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: +.wph!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 1 whose name it is made" 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 2 personal in character. Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by 3 the general rules of the civil law regulating contracts. 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 4 person who cannot make a donation to him. Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides: +.wph!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. 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 6 of a clause designating the beneficiary by rules under which wins are interpreted. 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. 7 Cervantes, this Court, through Justice Fernando, said: +.wph!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: +.wph!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 8 consequence, no longer require proof and cannot be contradicted. A fortiori, on the basis of these admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on this agreement and stipulation of facts as to who among the two claimants is entitled to the policy." ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado. SO ORDERED. Teehankee (Chairman), Makasiar, Mu;oz Palma, Fernandez and Guerrero, JJ., concur.1wph1.t

Footnotes+.wph!1 1 Sec. 53 of PD 612 provides: "The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy." 2 See Vance, at 99. 3 Musigi v. West Coast Life Insurance Co., 61 Phil. 867(1935). 4 See Tolentino, Civil Code, Vol. II, 1972, ed., at 525-26. 5 See Padilla, Civil Code Anno., Vol. VI, 1974 ed., at 501. 6 44 Am Jur. 2d 639 7 38 SCRA 287-88 (1971). 8 PVTA v. Delos Angeles, 61 SCRA 489 (1974).

G.R. No. L-21642

July 30, 1966

SOCIAL SECURITY SYSTEM, petitioner-appellee, vs. CANDELARIA D. DAVAC, ET AL., respondents; LOURDES Tuplano, respondent-appellant. J. Ma. Francisco and N. G. Bravo for respondent-appellant. Office of the Solicitor General Arturo A. Alafriz, Solicitor Camilo D. Quiason and E. T. Duran for petitioner-appellee. BARRERA, J.: This is an appeal from the resolution of the Social Security Commission declaring respondent Candelaria Davac as the person entitled to receive the death benefits payable for the death of Petronilo Davac. The facts of the case as found by the Social Security Commission, briefly are: The late Petronilo Davac, a former employee of Lianga Bay Logging Co., Inc. became a member of the Social Security System (SSS for short) on September 1, 1957. As such member, he was assigned SS I.D. No. 08-007137. In SSS form E-1 (Member's Record) which he accomplished and filed with the SSS on November 21, 1957, he designated respondent Candelaria Davac as his beneficiary and indicated his relationship to her as that of "wife". He died on April 5, 1959 and, thereupon, each of the respondents (Candelaria Davac and Lourdes Tuplano) filed their claims for death benefit with the SSS. It appears from their respective claims and the documents submitted in support thereof, that the deceased contracted two marriages, the first, with claimant Lourdes Tuplano on August 29, 1946, who bore him a child, Romeo Davac, and the second, with Candelaria Davac on January 18, 1949, with whom he had a minor daughter Elizabeth Davac. Due to their conflicting claims, the processing thereof was held in abeyance, whereupon the SSS filed this petition praying that respondents be required to interpose and litigate between themselves their conflicting claims over the death benefits in question.1wph1.t On February 25, 1963, the Social Security Commission issued the resolution referred to above, Not satisfied with the said resolution, respondent Lourdes Tuplano brought to us the present appeal. The only question to be determined herein is whether or not the Social Security Commission acted correctly in declaring respondent Candelaria Davac as the person entitled to receive the death benefits in question. Section 13, Republic Act No. 1161, as amended by Republic Act No. 1792, in force at the time Petronilo Davac's death on April 5, 1959, provides: 1. SEC. 13. Upon the covered employee's death or total and permanent disability under such conditions as the Commission may define, before becoming eligible for retirement and if either such death or disability is not compensable under the Workmen's Compensation Act, he or, in case of his death, his beneficiaries, as recorded by his employer shall be entitled to the following benefit: ... . (emphasis supplied.) Under this provision, the beneficiary "as recorded" by the employee's employer is the one entitled to the death benefits. In the case of Tecson vs. Social Security System, (L-15798, December 28, 1961), this Court, construing said Section 13, said:

It may be true that the purpose of the coverage under the Social Security System is protection of the employee as well as of his family, but this purpose or intention of the law cannot be enforced to the extent of contradicting the very provisions of said law as contained in Section 13, thereof, ... . When the provision of a law are clear and explicit, the courts can do nothing but apply its clear and explicit provisions (Velasco vs. Lopez, 1 Phil, 270; Caminetti vs. U.S., 242 U.S. 470, 61 L. ed. 442). But appellant contends that the designation herein made in the person of the second and, therefore, bigamous wife is null and void, because (1) it contravenes the provisions of the Civil Code, and (2) it deprives the lawful wife of her share in the conjugal property as well as of her own and her child's legitime in the inheritance. As to the first point, appellant argues that a beneficiary under the Social Security System partakes of the nature of a beneficiary in life insurance policy and, therefore, the same qualifications and disqualifications should be applied. Article 2012 of the New Civil Code provides: ART. 2012. Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him according to said article. And Article 739 of the same Code prescribes: ART. 739. The following donations shall be void: (1) Those made between persons who were guilty of adultery or concubinage at the time of the donation; xxx xxx xxx

Without deciding whether the naming of a beneficiary of the benefits accruing from membership in the Social Security System is a donation, or that it creates a situation analogous to the relation of an insured and the beneficiary under a life insurance policy, it is enough, for the purpose of the instant case, to state that the disqualification mentioned in Article 739 is not applicable to herein appellee Candelaria Davac because she was not guilty of concubinage, there being no proof 1 that she had knowledge of the previous marriage of her husband Petronilo. Regarding the second point raised by appellant, the benefits accruing from membership in the Social Security System do not form part of the properties of the conjugal partnership of the covered member. They are disbursed from a public special fund created by Congress in pursuance to the declared policy of the Republic "to develop, establish gradually and perfect a social security system which ... shall provide protection against the hazards of disability, sickness, old age and 2 death." The sources of this special fund are the covered employee's contribution (equal to 2- per cent of the employee's monthly 3 compensation); the employer's contribution (equivalent to 3- per cent of the monthly compensation of the covered 4 employee); and the Government contribution which consists in yearly appropriation of public funds to assure the 5 maintenance of an adequate working balance of the funds of the System. Additionally, Section 21 of the Social Security Act, as amended by Republic Act 1792, provides: SEC. 21. Government Guarantee. The benefits prescribed in this Act shall not be diminished and to guarantee said benefits the Government of the Republic of the Philippines accepts general responsibility for the solvency of the System. From the foregoing provisions, it appears that the benefit receivable under the Act is in the nature of a special privilege or an arrangement secured by the law, pursuant to the policy of the State to provide social security to the workingmen. The amounts that may thus be received cannot be considered as property earned by the member during his lifetime. His contribution to the fund, it may be noted, constitutes only an insignificant portion thereof. Then, the benefits are 6 7 specifically declared not transferable, and exempted from tax legal processes, and lien. Furthermore, in the settlement of claims thereunder the procedure to be observed is governed not by the general provisions of law, but by rules and regulations promulgated by the Commission. Thus, if the money is payable to the estate of a deceased member, it is the 8 Commission, not the probate or regular court that determines the person or persons to whom it is payable. that the benefits under the Social Security Act are not intended by the lawmaking body to form part of the estate of the covered members may be gathered from the subsequent amendment made to Section 15 thereof, as follows: SEC. 15. Non-transferability of benefit. The system shall pay the benefits provided for in this Act to such persons as may be entitled thereto in accordance with the provisions of this Act. Such benefits are not transferable, and no power of attorney or other document executed by those entitled thereto in favor of any agent, attorney, or any other individual for the collection thereof in their behalf shall be recognized except when they are physically and legally unable to collect personally such benefits: Provided, however, That in the case of death benefits, if no beneficiary has been designated or the designation there of is void, said benefits shall be paid to the legal heirs in accordance with the laws of succession. (Rep. Act 2658, amending Rep. Act 1161.) In short, if there is a named beneficiary and the designation is not invalid (as it is not so in this case), it is not the heirs of the employee who are entitled to receive the benefits (unless they are the designated beneficiaries themselves). It is only when there is no designated beneficiaries or when the designation is void, that the laws of succession are applicable. And 9 we have already held that the Social Security Act is not a law of succession.

Wherefore, in view of the foregoing considerations, the resolution of the Social Security Commission appealed from is hereby affirmed, with costs against the appellant. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, concur. Footnotes
1

For a woman to be guilty of concubinage, she must know the man to be married (Viada y Vilaseca, Vol. 5, p. 217).
2

Sec. 1, Rep. Act 1792, in force at the time of death of herein covered member. See. 18, id. Sec. 19, id. Sec. 20, id. Sec. 15, id. See. 16, id. Sec. 5, id. See Tecson vs. Social Security System, supra.

G.R. No. L-41014 November 28, 1988 PACIFIC BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents. Flores, Ocampo, Dizon and Domingo Law Office for petitioner. Cabochan and Reyes Law Office for respondents.

PARAS, J.: This is a petition for review on certiorari of the decision of respondent Court of Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Oriental Assurance Corporation ", which set aside the decision of the Court of First Instance (CFI) of Manila, ** which had in turn granted the complaint for a sum of money in Civil Case No. 56889. As gathered from the records, the undisputed facts of this case are as follows: On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured, for brevity), by which private respondent Oriental Assurance Corporation bound itself to indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by fire to its property consisting of stocks, materials and supplies usual to a shirt factory, including furniture, fixtures, machinery and equipment while contained in the ground, second and third floors of the building situated at number 256 Jaboneros St., San Nicolas, Manila, for a period of one year commencing from that date to October 21, 1964. The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner in the amount of not less than Eight Hundred Thousand Pesos (P800,000.00) and the goods described in the policy were held in trust by the insured for the petitioner under thrust receipts (Record on Appeal, p. 4). Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured, with the knowledge and consent of private respondent to the effect that "loss if any under this policy is payable to the Pacific Banking Corporation". On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the subject premises destroying the goods contained in its ground and second floors (Record on Appeal, p.5) On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for indemnity due to the loss of property by fire under the endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17).

On January 28, 1964, private respondent informed counsel for the petitioner that it was not yet ready to accede to the latter's demand as the former is awaiting the final report of the insurance adjuster, H.H. Bayne Adjustment Company (Brief for Plaintiff-Appellee, pp. 17-18). On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the insured under the policy had not filed any claim with it, nor submitted proof of loss which is a clear violation of Policy Condition No.11, and for which reason, determination of the liability of private respondent could not be had (Supra, pp. 19-20). On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance adjuster to verify from the records of the Bureau of Customs the entries of merchandise taken into the customs bonded warehouse razed by fire as a reliable proof of loss (Supra, pp. 21-22). For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff therein) on April 28, 1 964, filed in the court a quo an action for a sum of money against the private respondent, Oriental Assurance Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-36). On May 25, 1964, private respondent raised the following defenses in its answer to wit: (a) lack of formal claim by insured over the loss and (b) premature filing of the suit as neither plaintiff nor insured had submitted any proof of loss on the basis of which defendant would determine its liability and the amount thereof, either to the private respondent or its ad . adjuster H.H. Bayne Adjustment Co., both in violation of Policy Condition No.11 (Record on Appeal, pp. 37-38). At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated December 22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc., revealing undeclared co-insurances with the following: P30,000.00 with Wellington Insurance; P25,000. 00 with Empire Surety and P250,000.00 with Asian Surety; undertaken by insured Paramount on the same property covered by its policy with private respondent whereas the only co-insurances declared in the subject policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 with Victory (Brief for the Defendant pp. 13-14). It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in the form of non-declaration of co-insurances which was not pleaded in the answer was also not pleaded in the Motion to Dismiss. At any rate, on June 30, 1967, the trial court denied private respondent's motion on the ground that the defense of lack of proof of loss or defects therein was raised for the first time after the commencement of the suit and that it must be deemed to have waived the requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61). On September 9, 1967, the case was considered submitted for decision from which order private respondent filed a motion for reconsideration to set the case or further reception of private respondent's additional evidence, "in order to prove that 'insured has committed a violation of condition No. 3 of the policy in relation to the other Insurance Clause.' " (Record on Appeal, pp. 61-69). On September 30,1967, the case was set for the continuation of the hearing for the reception merely of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co., over the vehement opposition of the petitioner (Record on Appeal, p. 129). On April 18, 1 968, the trial court rendered a decision adjudging private respondent liable to the petitioner under the said contract of insurance, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff P61,000.00, with interest at the rate of 8% per annum from January 4, 1964, to April 28, 1964, and 12% from April 29, 1964, until the amount is fully paid, P6,100.00, as attorney's fees, and the costs. SO ORDERED. (Record on Appeal, pp. 140-141) On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated on April 23, 1975, Rollo, pp. 21-33). Petitioner filed a motion for reconsideration of the said decision of the respondent Court of Appeals, but this was denied on July 3,1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition with the following assigned errors; I RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING FRAUD FROM THE BARE FACT THAT THE INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES OTHER THAN THOSE STATED IN THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY PRESUMPTIONS AND ADMITTED FACT AND CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF SAID CONCLUSION. (a) The respondent Court did not consider the legal presumption against the existence of fraud, which should be established with such quantum of proof as is required for any crime. (b) The record of the case is bereft of proof of such fraud.

(c) The private respondent insurer did not even plead or in anywise raise fraud as a defense in its answer or motion to dismiss and, therefore, it should have been considered waived. (d) The total amount of insurance procured by the insured from the different companies amounted to hardly onehalf () of the value of the goods insured. II RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON THE PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT THEREON SHOULD BE CONSIDERED AFFIRMED. III THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN HOLDING THAT THE ACTION WAS PREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE INSURANCE LAW HAS NOT BEEN FILED, NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF PETITIONER-APPELLANT'S LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER-APPELLANT FOR ITS FAILURE TO CALL THE ATTENTION OF THE LAYER TO SUCH ALLEGED DEFECTS AND FOR ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING. IV RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT INTERPRETING THE PROVISIONS OF THE POLICY LIBERALLY IN FAVOR OF THE HEREIN PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT ONLY THE ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED. V RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN DISMISSING THE CASE AND IN NOT AFFIRMING THE APPEALED DECISION OF THE TRIAL COURT. (Brief for Petitioners, pp. 1-3) The crux of the controversy centers on two points: (a) unrevealed co-insurances which violated policy conditions No. 3 and (b) failure of the insured to file the required proof of loss prior to court action. Policy Condition No. 3 explicitly provides: 3. The Insured shall give notice to the Company of any insurance already effected, or which may subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefit under this policy shall be forfeited. (Record on Appeal, p. 12) It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many co-insurances, it could have hesitated or plainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25). Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are materially different from the actual number of co-insurances taken over the subject property. Consequently, "the whole foundation of the contract fails, the risk does not attach and the policy never becomes a contract between the parties. Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such representations is not shown to vary or add to the contract, or to terminate a contract which has once been made, but to show that no contract has ever existed (Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]). As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon the same property, the total absence of such notice nullifies the policy (Sta. Ana v. Commercial Union Assurance Co., 55 Phil. 333 [1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA 432 [1974]).

The argument that notice of co-insurances may be made orally is preposterous and negates policy condition No. 20 which requires every notice and other communications to the insurer to be written or printed. Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance clause" supposedly to have been violated, cannot certainly defeat the right of the petitioner to recover the insurance as mortgagee/assignee. Particularly referring to the mortgage clause of the policy, petitioner argues that considering the purpose for which the endorsement or assignment was made, that is, to protect the mortgagee/assignee against any untoward act or omission of the insured, it would be absurd to hold that petitioner is barred from recovering the insurance on account of the alleged violation committed by the insured (Rollo, Brief for the petitioner, pp, 33-35). It is obvious that petitioner has missed all together the import of subject mortgage clause which specifically provides: Mortgage Clause Loss, if any, under this policy, shall be payable to the PACIFIC BANKING CORPORATION Manila mortgagee/trustor as its interest may appear, it being hereby understood and agreed that this insurance as to the interest of the mortgagee/trustor only herein, shall not be invalidated by any act or neglect except fraud or misrepresentation, or arsonof the mortgagor or owner/trustee of the property insured; provided, that in case the mortgagor or owner/ trustee neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand pay the same. (Rollo, p. 26) The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or arson. As correctly found by the Court of Appeals, concealment of the aforecited co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27). Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by its fraud and/or misrepresentation, forfeited said right, with more reason petitioner which is merely claiming as indorsee of said insured, cannot be entitled to such proceeds. Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's answer or motion to dismiss, should be deemed to have been waived. It will be noted that the fact of fraud was tried by express or at least implied consent of the parties. Petitioner did not only object to the introduction of evidence but on the contrary, presented the very evidence that proved its existence. Be that as it may, it is established that the Supreme Court has ample authority to give beyond the pleadings where in the interest of justice and the promotion of public policy, there is a need to make its own finding to support its conclusion. Otherwise stated, the Court can consider a fact which surfaced only after trial proper (Maharlika Publishing Corp. v. Tagle, 142 SCRA 561 [1986]). Generally, the cause of action on the policy accrues when the loss occurs, But when the policy provides that no action shall be brought unless the claim is first presented extrajudicially in the manner provided in the policy, the cause of action will accrue from the time the insurer finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]). In the case at bar, policy condition No. 11 specifically provides that the insured shall on the happening of any loss or damage give notice to the company and shall within fifteen (15) days after such loss or damage deliver to the private respondent (a) a claim in writing giving particular account as to the articles or goods destroyed and the amount of the loss or damage and (b) particulars of all other insurances, if any. Likewise, insured was required "at his own expense to produce, procure and give to the company all such further particulars, plans, specifications, books, vouchers, invoices, duplicates or copies thereof, documents, proofs and information with respect to the claim". (Record on Appeal, pp. 18-20). The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote letters to private respondent to serve as a notice of loss, thereafter, the former did not furnish the latter whatever pertinent documents were necessary to prove and estimate its loss. Instead, petitioner shifted upon private respondent the burden of fishing out the necessary information to ascertain the particular account of the articles destroyed by fire as well as the amount of loss. It is noteworthy that private respondent and its adjuster notified petitioner that insured had not yet filed a written claim nor submitted the supporting documents in compliance with the requirements set forth in the policy. Despite the notice, the latter remained unheedful. Since the required claim by insured, together with the preliminary submittal of relevant documents had not been complied with, it follows that private respondent could not be deemed to have finally rejected petitioner's claim and therefore the latter's cause of action had not yet arisen. Compliance with condition No. 11 is a requirement sine qua non to the right to maintain an action as prior thereto no violation of petitioner's right can be attributable to private respondent. This is so, as before such final rejection, there was no real necessity for bringing suit. Petitioner should have endeavored to file the formal claim and procure all the documents, papers, inventory needed by private respondent or its adjuster to ascertain the amount of loss and after compliance await the final rejection of its claim. Indeed, the law does not encourage unnecessary litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 701, supra).<re||an1w> Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was warranted under the circumstances. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra;

Taurus Taxi Co., Inc. v. The Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v. CA, 145 SCRA 533 [1986]), yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385 [1986]). Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability, and in order to recover, the insured must show himself within those terms. The compliance of the insured with the terms of the policy is a condition precedent to the light of recovery (Stokes v. Malayan Insurance Co., Inc., 127 SCRA 766 [1984]). It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the contract, and such violation or want of performance has not been waived by the insurer, the insured cannot recover, much less the herein petitioner. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p. 276 supra). Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals when supported by substantial evidence, are not reviewable on appeal by certiorari, deserves reiteration. Said findings of the appellate court are final and cannot be disturbed by the Supreme Court except in certain cases Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA 480 [1982] Director of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v. Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]). PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision appealed from is AFFIRMED. No costs. SO ORDERED. Melencio-Herrera, (Chairman), Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes * Penned by Hon. Magno S. Gatmaitan, then Associate Justice, Court of Appeals, with the concurrence of then Associate Justices Hon. Efren I. Plana & Francisco Ma. Chanco, and Hon. Crisolito Pascual & Hon. Sixto A. Domondon, then Associate Justices, dissenting. ** Penned by Hon. Jose L. Moya, then Presiding Judge, CFI of Manila, Branch X. G.R. No. 124520 August 18, 1997 Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents.

PADILLA, J.: This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent Court of Appeals. The undisputed facts of the case are as follows: 1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988. 2. One of the stipulations of the one (1) year lease contract states: 18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is 1 deemed assigned and transferred to the LESSOR for its own benefit; . . .

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire the merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United) without the written consent of private respondent CKS. 4. On the day that the lease contract was to expire, fire broke out inside the leased premises. 5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses. 6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United. 7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs of suit. 8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11 January 1996, affirming the trial court decision, deleting however the awards for exemplary damages and attorney's fees. A motion for reconsideration by United was denied on 29 March 1996. In the present petition, the following errors are assigned by petitioners to the Court of Appeals: I THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY II THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER III THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW IV THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR 2 BEING TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written consent of the latter. It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals, 3 good customs, public order or public policy. Sec. 18 of the Insurance Code provides: Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured. A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect 4 and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides: Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide: Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof. Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured. The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case. WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision is hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha. SO ORDERED. Bellosillo, Vitug, Kapunan and Hermosisima, Jr., JJ., concur. Footnotes 1 Rollo, p. 50. * Penned by Judge Roberto M. Lagman. ** Penned by Justice Conchita Carpio-Morales with Justices Fidel P. Purisima and Fermin A. Matin, Jr., concurring. 2 Rollo, p. 18. 3 Article 1409(i), Civil Code. 4 Section 19, Insurance Code.

G.R. No. 85141 November 28, 1989 FILIPINO MERCHANTS INSURANCE CO., INC., petitioner, vs. COURT OF APPEALS and CHOA TIEK SENG, respondents. Balgos & Perez Law Offices for petitioner. Lapuz Law office for private respondent.

REGALADO, J.: This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive part of which reads: WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino Merchants Insurance Company to pay the plaintiff the sum of P51,568.62 with interest at legal rate from the date of filing of the complaint, and is modified with respect to the third party complaint in that (1) third party defendant E. Razon, Inc. is ordered to reimburse third party plaintiff the sum of P25,471.80 with legal interest from the date of payment until the date of reimbursement, and (2) the third-party complaint 1 against third party defendant Compagnie Maritime Des Chargeurs Reunis is dismissed. The facts as found by the trial court and adopted by the Court of Appeals are as follows:

This is an action brought by the consignee of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover from the defendant insurance company the amount of P51,568.62 representing damages to said shipment which has been insured by the defendant insurance company under Policy No. M-2678. The defendant brought a third party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third (sic) defendants in case Judgment is rendered against the third party plaintiff. It appears from the evidence presented that in December 1976, plaintiff insured said shipment with defendant insurance company under said cargo Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of Bad Order cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and 6- Razon. The cargo was also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags in bad order condition. Defendant's surveyor has conducted a final and detailed survey of the cargo in the warehouse for which he prepared a survey report Exhibit F with the findings on the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on said computation the plaintiff made a formal claim against the defendant Filipino Merchants Insurance Company for P51,568.62 (Exhibit C) the computation of which claim is contained therein. A formal claim statement was also presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B, but the defendant Filipino Merchants Insurance Company refused to pay the claim. Consequently, the plaintiff brought an action against said defendant as adverted to above and defendant presented a third party complaint 2 against the vessel and the arrastre contractor. The court below, after trial on the merits, rendered judgment in favor of private respondent, the decretal portion whereof reads: WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co., ordering the defendants to pay the plaintiff the following amount: The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint; On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff jointly and severally reimbursement of the amounts paid by the third party plaintiff with legal interest from the date of such payment until the date of such reimbursement. Without pronouncement as to costs.
3

On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the complaint is concerned and modified the same with regard to the adjudication of the third-party complaint. A motion for reconsideration of the aforesaid decision was denied, hence this petition with the following assignment of errors: 1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of the marine insurance policy when it held the petitioner liable to the private respondent for the partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous event, casualty, or accidental cause to which the loss is attributable, thereby contradicting the very precedents cited by it in its decision as well as a prior decision of the same Division of the said court (then composed of Justices Cacdac, CastroBartolome, and Pronove); 2. The Court of Appeals erred in not holding that the private respondent had no insurable interest in the subject cargo, hence, the marine insurance policy taken out by private respondent is null and void; 3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in not disclosing the fact, it being bound out of utmost good faith to do so, that it had no insurable interest in the 4 subject cargo, which bars its recovery on the policy. On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity, " "casualty" or "accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover from the insurance policy. We find said contention untenable. The "all risks clause" of the Institute Cargo Clauses read as follows:

5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of 5 percentage. An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from 6 an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other than 7 a willful and fraudulent act of the insured. This is pursuant to the very purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or 8 damage to property. An "all asks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor creating 9 liability in the ship; it is written against all losses, that is, attributable to external causes. The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured. Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to 10 the insurer to show the exception to the coverage. As we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance 11 Co., Ltd. the basic rule is that the insurance company has the burden of proving that the loss is caused by the risk excepted and for want of such proof, the company is liable. Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific 12 provision expressly excludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are usually 13 contemplated, and covers all losses except such as arise from the fraud of the insured. The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance. In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due consideration of the authorities and jurisprudence it discussed ... it is believed that in the absence of any showing that the losses/damages were caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing, the lower court did not err in holding that the loss was covered by the policy. There is no evidence presented to show that the condition of the gunny bags in which the fishmeal was packed was such that they could not hold their contents in the course of the necessary transit, much less any evidence that the bags of cargo had burst as the result of the weakness of the bags themselves. Had there been such a showing that spillage would have been a certainty, there may have been good reason to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims, Ibid, p. 125). Under an 'all risks' policy, it was sufficient to show that there was damage occasioned by some accidental cause of any kind, and there is no necessity to point to any particular 14 cause. Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such 15 terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods. Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property

y. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing 17 interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be the 18 subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before 19 delivery or before be performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance. Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods 20 and paid the insurance premium covering them. C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods 21 and freight to the named destination. It simply means that the seller must pay the costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to the buyer 22 when the goods pass the ship's rail in the port of shipment. Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners answer. It was neither an issue agreed upon by the parties at the pre-trial conference nor was it raised during the trial in the court below. It is a settled rule that an issue which has not been raised in the court a quo cannot be raised for the first time on appeal as it 23 would be offensive to the basic rules of fair play, justice and due process. This is but a permuted restatement of the long settled rule that when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so, would be 24 unfair to the adverse party. If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts in this case and also to dispose of petitioner's third assignment of error which consequently needs no further discussion. WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is AFFIRMED in toto. SO ORDERED. Paras, Padilla and Sarmiento, JJ., concur. Melencio-Herrera (Chairperson), J., is on leave.

16

Footnotes 1 Rollo, 41; Justice Gonzaga-Reyes, ponente, with Justices Serafin E. Camilon and Pedro A. Ramirez concurring. 2 Rollo, 26-28. 3 Ibid., 8-29. 4 Ibid., 10-11. 5 Original Record, Civil Case No. (112091) R-81-750, 26. 6 29A Am. Jur., 308-309. 7 Phoenix Ins. Co. vs. Branch (Fla. App) 234 So 2d 396. 8 Morrison Grain Co. vs. Utica Mut. Ins. Co. (.1 980, CA S Fla.) 632 F. 2d 424 9 Gilmore and Black, The Law of Admiralty, 68,169. 10 See Footnote 8, ante. 11 49 Phil. 753 (1926).

12 Walker vs. Traveller's Indemnity Co., (La. App.) 289 So. 2nd 864,869. 13 Goix vs. Knox, 1 Johns. Cas. 337, cited in Words and Phrases, Permanent Ed., Vol. 3, (1953 ed.) 310. 14 Rollo, 32. 15 Pacific Banking Corp. vs. Court of Appeals, G.R. No. 41014, Nov. 28,1988. 16 43 Am. Jur. 2d, 507-508. 17 Sec. 14, Insurance Code. 18 Original Record, Folder of Exhibits, Exh. C-2, 6. 19 43 Am. Jur. 2d, 522; Vance on Insurance, 164-168. 20 Rattan Arts & Decorations, Inc. vs. Collector of Internal Revenue, et al., 13 SCRA 626 (1965). 21 Business Law Principles and Cases by Harold Luck, Charles M. Hewitt, John D. Donnel, and A. James Barns, Second Uniform Commercial Code Edition, 751-752. 22 Guide to INCO Terms, 1980 Ed., 48-50. 23 De Los Santos vs. Court of Appeals, et al., 140 SCRA 44 (1985); Dulos Realty & Development Corp. vs. Court of Appeals, et al., 157 SCRA 425 (1988); Ramos, et al. vs. Intermediate Appellate Court, et. al. G.R. No. 78282, July 5,1989. 24 Molina vs. Somes, 24 Phil. 49 (1913); Agoncillo, et al. vs. Javier, 38 Phil, 424 (1918). G.R. No. L-55397 February 29, 1988 TAI TONG CHUACHE & CO., petitioner, vs. THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY CORPORATION, respondents.

GANCAYCO, J.: This petition for review on certiorari seeks the reversal of the decision of the Insurance Commission in IC Case 1 2 #367 dismissing the complaint for recovery of the alleged unpaid balance of the proceeds of the Fire Insurance Policies issued by herein respondent insurance company in favor of petitioner-intervenor. The facts of the case as found by respondent Insurance Commission are as follows: Complainants acquired from a certain Rolando Gonzales a parcel of land and a building located at San Rafael Village, Davao City. Complainants assumed the mortgage of the building in favor of S.S.S., which building was insured with respondent S.S.S. Accredited Group of Insurers for P25,000.00. On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of P100,000.00. To secure the payment of the loan, a mortgage was executed over the land and the building in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975, Arsenio Chua, representative of Thai Tong Chuache & Co. insured the latter's interest with Travellers MultiIndemnity Corporation for P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents thereof) (Exhibit "A-a," contents thereof) (Exhibit "A-a"). On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500 (Exhibit "A"), covering the building for P50,000.00 with respondent Zenith Insurance Corporation. On July 16, 1975, another Fire Insurance Policy No. 8459 (Exhibit "B") was procured from respondent Philippine British Assurance Company, covering the same building for P50,000.00 and the contents thereof for P70,000.00. On July 31, 1975, the building and the contents were totally razed by fire. Adjustment Standard Corporation submitted a report as follow xxx xxx xxx ... Thus the apportioned share of each company is as follows:

Po lic y No .. MI R O F02 50 0

Comp any

Risk

Insur es

Pays

Zenith

Buildin g

P50,0 00

P17,61 0.93

Insura nce

Corp. F84 59 0 Phil. House hold 70,00 0 24,655. 31

British Assco . Co. Inc. Po lic y No . FI C15 38 1 Comp any FFF & F5 Risk 50,00 0 Insur es 39,186. 10 Pays

SSSA ccre

dited Group of Insure rs Buildin g Totals P25,0 00 P195, 000 P8,805. 47 P90,25 7.81

We are showing hereunder another apportionment of the loss which includes the Travellers MultiIndemnity policy for reference purposes. Pol icy No . MI RO / F02 50 0 Comp any Risk Injure s Pays

Zenith

Insura nce

Corp. F84 Phil.

Buildin g

P50,0 00

P11,87 7.14

59 0 British Assco . Co. IBuildin g 70,00 0 IIBuildi ng FFF & PE PV C15 18 1 SSS Accred ited 50,00 0 24,918. 79 16,628. 00

Group of Insure rs F59 9 DV Insure rs Buildin g I-Ref 25,00 0 30,00 0 5,938.5 0 14,467. 31

Multi

IIBuildin g Totals

70,00 0 P295. 000

16,628. 00 P90,25 7.81

Based on the computation of the loss, including the Travellers Multi- Indemnity, respondents, Zenith Insurance, Phil. British Assurance and S.S.S. Accredited Group of Insurers, paid their corresponding shares of the loss. Complainants were paid the following: P41,546.79 by Philippine British Assurance Co., P11,877.14 by Zenith Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited Insurers (Par. 6. Amended Complaint). Demand was made from respondent Travellers Multi-Indemnity for its share in the loss but the same was refused. Hence, complainants demanded from the other three (3) respondents the balance of each share in the loss based on the computation of the Adjustment Standards Report excluding Travellers Multi-Indemnity in the amount of P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and P2,866.90, SSS Accredited) but the same was refused, hence, this action. In their answers, Philippine British Assurance and Zenith Insurance Corporation admitted the material allegations in the complaint, but denied liability on the ground that the claim of the complainants had already been waived, extinguished or paid. Both companies set up counterclaim in the total amount of P 91,546.79. Instead of filing an answer, SSS Accredited Group of Insurers informed the Commission in its letter of July 22, 1977 that the herein claim of complainants for the balance had been paid in the amount of P 5,938.57 in full, based on the Adjustment Standards Corporation Report of September 22, 1975. Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV and alleged as its special and affirmative defenses the following, to wit: that Fire Policy No. 599 DV, covering the furniture and building of complainants was secured by a certain Arsenio Chua, mortgage creditor, for the purpose of protecting his mortgage credit against the complainants; that the said policy was issued in the name of Azucena Palomo, only to indicate that she owns the insured premises; that the policy contains an endorsement in favor of Arsenio Chua as his mortgage interest may appear to indicate that insured was Arsenio Chua and the complainants; that the premium due on said fire policy was paid by Arsenio Chua; that respondent Travellers is not liable to pay complainants. On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of the fire Insurance Policy No. F-559 DV, issued by respondent Travellers Multi-Indemnity. Travellers Insurance, in answer to the complaint in intervention, alleged that the Intervenor is not entitled to indemnity under its Fire Insurance Policy for lack of insurable interest before the loss of the insured

premises and that the complainants, spouses Pedro and Azucena Palomo, had already paid in full their 3 mortgage indebtedness to the intervenor. As adverted to above respondent Insurance Commission dismissed spouses Palomos' complaint on the ground that the insurance policy subject of the complaint was taken out by Tai Tong Chuache & Company, petitioner herein, for its own interest only as mortgagee of the insured property and thus complainant as mortgagors of the insured property have no right of action against herein respondent. It likewise dismissed petitioner's complaint in intervention in the following words: We move on the issue of liability of respondent Travellers Multi-Indemnity to the Intervenor-mortgagee. The complainant testified that she was still indebted to Intervenor in the amount of P100,000.00. Such allegation has not however, been sufficiently proven by documentary evidence. The certification (Exhibit 'E-e') issued by the Court of First Instance of Davao, Branch 11, indicate that the complainant was 4 Antonio Lopez Chua and not Tai Tong Chuache & Company. From the above decision, only intervenor Tai Tong Chuache filed a motion for reconsideration but it was likewise denied hence, the present petition. It is the contention of the petitioner that respondent Insurance Commission decided an issue not raised in the pleadings of the parties in that it ruled that a certain Arsenio Lopez Chua is the one entitled to the insurance proceeds and not Tai Tong Chuache & Company. This Court cannot fault petitioner for the above erroneous interpretation of the decision appealed from considering the 5 manner it was written. As correctly pointed out by respondent insurance commission in their comment, the decision did not pronounce that it was Arsenio Lopez Chua who has insurable interest over the insured property. Perusal of the decision reveals however that it readily absolved respondent insurance company from liability on the basis of the commissioner's conclusion that at the time of the occurrence of the peril insured against petitioner as mortgagee had no more insurable interest over the insured property. It was based on the inference that the credit secured by the mortgaged property was already paid by the Palomos before the said property was gutted down by fire. The foregoing conclusion was arrived at on the basis of the certification issued by the then Court of First Instance of Davao, Branch II that in a certain civil action against the Palomos, Antonio Lopez Chua stands as the complainant and not petitioner Tai Tong Chuache & Company. We find the petition to be impressed with merit. It is a well known postulate that the case of a party is constituted by his 6 own affirmative allegations. Under Section 1, Rule 131 each party must prove his own affirmative allegations by the amount of evidence required by law which in civil cases as in the present case is preponderance of evidence. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of presenting at the trial such 7 amount of evidence as required by law to obtain favorable judgment. Thus, petitioner who is claiming a right over the insurance must prove its case. Likewise, respondent insurance company to avoid liability under the policy by setting up an affirmative defense of lack of insurable interest on the part of the petitioner must prove its own affirmative allegations. It will be recalled that respondent insurance company did not assail the validity of the insurance policy taken out by petitioner over the mortgaged property. Neither did it deny that the said property was totally razed by fire within the period covered by the insurance. Respondent, as mentioned earlier advanced an affirmative defense of lack of insurable interest on the part of the petitioner that before the occurrence of the peril insured against the Palomos had already paid their credit due the petitioner. Respondent having admitted the material allegations in the complaint, has the burden of proof to show that petitioner has no insurable interest over the insured property at the time the contingency took place. Upon that point, there is a failure of proof. Respondent, it will be noted, exerted no effort to present any evidence to substantiate its claim, while petitioner did. For said respondent's failure, the decision must be adverse to it. However, as adverted to earlier, respondent Insurance Commission absolved respondent insurance company from liability on the basis of the certification issued by the then Court of First Instance of Davao, Branch II, that in a certain civil action against the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong Chuache. From said evidence respondent commission inferred that the credit extended by herein petitioner to the Palomos secured by the insured property must have been paid. Such is a glaring error which this Court cannot sanction. Respondent Commission's findings are based upon a mere inference. The record of the case shows that the petitioner to support its claim for the insurance proceeds offered as evidence the contract of mortgage (Exh. 1) which has not been cancelled nor released. It has been held in a long line of cases that 8 when the creditor is in possession of the document of credit, he need not prove non-payment for it is presumed. The validity of the insurance policy taken b petitioner was not assailed by private respondent. Moreover, petitioner's claim that the loan extended to the Palomos has not yet been paid was corroborated by Azucena Palomo who testified that they are 9 still indebted to herein petitioner. Public respondent argues however, that if the civil case really stemmed from the loan granted to Azucena Palomo by petitioner the same should have been brought by Tai Tong Chuache or by its representative in its own behalf. From the above premise respondent concluded that the obligation secured by the insured property must have been paid. The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 respondent pointed out that the action must be brought in the name of the real party in interest. We agree. However, it should be borne in mind that petitioner being a partnership may sue and be sued in its name or by its duly authorized representative. The fact that Arsenio Lopez Chua is the representative of petitioner is not questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the managing 11 partner of the partnership was corroborated by respondent insurance company. Thus Chua as the managing partner of
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the partnership may execute all acts of administration including the right to sue debtors of the partnership in case of their failure to pay their obligations when it became due and demandable. Or at the very least, Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an agent, it is understood that he acted for 13 and in behalf of the firm. Public respondent's allegation that the civil case flied by Arsenio Chua was in his capacity as personal creditor of spouses Palomo has no basis. The respondent insurance company having issued a policy in favor of herein petitioner which policy was of legal force and effect at the time of the fire, it is bound by its terms and conditions. Upon its failure to prove the allegation of lack of insurable interest on the part of the petitioner, respondent insurance company is and must be held liable. IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and ANOTHER judgment is rendered order private respondent Travellers Multi-Indemnity Corporation to pay petitioner the face value of Insurance Policy No. 599-DV in the amount of P100,000.00. Costs against said private respondent. SO ORDERED. Teehankee, C.J., Narvasa, Cruz and Grio-Aquino, JJ., concur.

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Footnotes 1 Penned by Commissioner Gregoria Cruz-Arnaldo 2 Filed by Pedro Palomo and Azucena Palomo. 3 Pages 30-34, Rollo. 4 Pages 35-36, Rollo. 5 See Supra. 6 Revised Rules of Court. 7 Vol. 6, Moran, Revised Rules of Court, Page 4,1980 Ed. 8 Veloso vs. Veloso, 8 Phil. 83; Merchant vs. International Banking Corporation, 9 Phil. 554; Miller vs. Jones, 9 Phil. 648; Chua vs. Vargas, 11 Phil. 219; Gana va. Sheriff of Laguna, et al., 32 Phil. 236. 9 Pages 4, 6, Decision, I.C. Case No. 367. 10 Revised Rules of Court. 11 Page 4, Decision, Supra. (Respondent referred to the petitioner and Arsenio Lopez Chua interchangeably). 12 Art. 1800 Civil Code. 13 Bachrach vs. a Protectors, 37 Phil. 441, 1918.