1.

THIRD DIVISION

[G.R. No. 150094. August 18, 2004]

FEDERAL EXPRESS CORPORATION, petitioner, vs. AMERICAN HOME ASSURANCE COMPANY and
PHILAM INSURANCE COMPANY, INC., respondents.

DECISION

PANGANIBAN, J.:

Basic is the requirement that before suing to recover loss of or damage to transported goods,
the plaintiff must give the carrier notice of the loss or damage, within the period prescribed by
the Warsaw Convention and/or the airway bill.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the June 4,
2001 Decision[2] and the September 21, 2001 Resolution[3] of the Court of Appeals (CA) in CA-
GR CV No. 58208. The assailed Decision disposed as follows:

WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of merit.
The appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil Case No.
95-1219, entitled American Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL
EXPRESS CORPORATION and/or CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.), is hereby
AFFIRMED and REITERATED.

Costs against the [petitioner and Cargohaus, Inc.].[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The antecedent facts are summarized by the appellate court as follows:

On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA
delivered to Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express
Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee
SMITHKLINE and French Overseas Company in Makati City, Metro Manila. The shipment was
covered by Burlington Airway Bill No. 11263825 with the words, REFRIGERATE WHEN NOT IN
TRANSIT and PERISHABLE stamp marked on its face. That same day, Burlington insured the
cargoes in the amount of $39,339.00 with American Home Assurance Company (AHAC). The
following day, Burlington turned over the custody of said cargoes to Federal Express which
transported the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila
on January 29, 1994 in Flight No. 0071-28NRT and was immediately stored at [Cargohaus Inc.s]
warehouse. While the second, consisting of 17 cartons, came in two (2) days later, or on
January 31, 1994, in Flight No. 0071-30NRT which was likewise immediately stored at
Cargohaus warehouse. Prior to the arrival of the cargoes, Federal Express informed GETC Cargo
International Corporation, the customs broker hired by the consignee to facilitate the release of
its cargoes from the Bureau of Customs, of the impending arrival of its clients cargoes.

On February 10, 1994, DARIO C. DIONEDA (DIONEDA), twelve (12) days after the cargoes
arrived in Manila, a non-licensed customs broker who was assigned by GETC to facilitate the
release of the subject cargoes, found out, while he was about to cause the release of the said
cargoes, that the same [were] stored only in a room with two (2) air conditioners running, to
cool the place instead of a refrigerator. When he asked an employee of Cargohaus why the
cargoes were stored in the cool room only, the latter told him that the cartons where the
vaccines were contained specifically indicated therein that it should not be subjected to hot or
cold temperature. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with the
withdrawal of the vaccines and instead, samples of the same were taken and brought to the
Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE
for examination wherein it was discovered that the ELISA reading of vaccinates sera are below
the positive reference serum.

As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE

abandoned the shipment and, declaring total loss for the unusable shipment, filed a claim with
AHAC through its representative in the Philippines, the Philam Insurance Co., Inc. (PHILAM)
which recompensed SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND
THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action
for damages against the [petitioner] imputing negligence on either or both of them in the
handling of the cargo.

Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held
solidarily liable for the loss as follows:

WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and its Co-
Defendant Cargohaus] are directed to pay [respondents], jointly and severally, the following:

1. Actual damages in the amount of the peso equivalent of US$39,339.00 with interest from the
time of the filing of the complaint to the time the same is fully paid.

2. Attorneys fees in the amount of P50,000.00 and

3. Costs of suit.

SO ORDERED.

Aggrieved, [petitioner] appealed to [the CA].[5]

Ruling of the Court of Appeals

The Test Report issued by the United States Department of Agriculture (Animal and Plant
Health Inspection Service) was found by the CA to be inadmissible in evidence. Despite this
ruling, the appellate court held that the shipping Receipts were a prima facie proof that the
goods had indeed been delivered to the carrier in good condition. We quote from the ruling as
follows:

Where the plaintiff introduces evidence which shows prima facie that the goods were delivered
to the carrier in good condition [i.e., the shipping receipts], and that the carrier delivered the
goods in a damaged condition, a presumption is raised that the damage occurred through the
fault or negligence of the carrier, and this casts upon the carrier the burden of showing that the
goods were not in good condition when delivered to the carrier, or that the damage was
occasioned by some cause excepting the carrier from absolute liability. This the [petitioner] failed
to discharge. x x x.[6]

Found devoid of merit was petitioners claim that respondents had no personality to sue. This
argument was supposedly not raised in the Answer or during trial.

Hence, this Petition.[7]

The Issues

In its Memorandum, petitioner raises the following issues for our consideration:

I.

Are the decision and resolution of the Honorable Court of Appeals proper subject for review by
the Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure?

II.

Is the conclusion of the Honorable Court of Appeals petitioners claim that respondents have no
personality to sue because the payment was made by the respondents to Smithkline when the
insured under the policy is Burlington Air Express is devoid of merit correct or not?

III.

Is the conclusion of the Honorable Court of Appeals that the goods were received in good
condition, correct or not?

IV.

Are Exhibits F and G hearsay evidence, and therefore, not admissible?

V.

Is the Honorable Court of Appeals correct in ignoring and disregarding respondents own
admission that petitioner is not liable? and

VI.

Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?[8]

Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme
Court? (2) Is Federal Express liable for damage to or loss of the insured goods?

This Courts Ruling

The Petition has merit.

Preliminary Issue:
Propriety of Review

The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a
question of law cognizable by the Supreme Court.[9]

In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning
the conclusions drawn from such facts. Hence, this case is a proper subject for review by this
Court.

Main Issue:
Liability for Damages

Petitioner contends that respondents have no personality to sue -- thus, no cause of action
against it -- because the payment made to Smithkline was erroneous.

Pertinent to this issue is the Certificate of Insurance[10] (Certificate) that both opposing parties
cite in support of their respective positions. They differ only in their interpretation of what their
rights are under its terms. The determination of those rights involves a question of law, not a
question of fact. As distinguished from a question of law which exists when the doubt or
difference arises as to what the law is on a certain state of facts -- there is a question of fact
when the doubt or difference arises as to the truth or the falsehood of alleged facts; or when
the query necessarily invites calibration of the whole evidence considering mainly the credibility
of witnesses, existence and relevancy of specific surrounding circumstance, their relation to
each other and to the whole and the probabilities of the situation.[11]
Proper Payee

The Certificate specifies that loss of or damage to the insured cargo is payable to order x x x
upon surrender of this Certificate. Such wording conveys the right of collecting on any such
damage or loss, as fully as if the property were covered by a special policy in the name of the
holder itself. At the back of the Certificate appears the signature of the representative of
Burlington. This document has thus been duly indorsed in blank and is deemed a bearer
instrument.

Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or
of being indemnified for loss of or damage to the insured shipment, as fully as if the property
were covered by a special policy in the name of the holder. Hence, being the holder of the
Certificate and having an insurable interest in the goods, Smithkline was the proper payee of
the insurance proceeds.

Subrogation

Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation
Receipt[12] in favor of respondents. The latter were thus authorized to file claims and begin
suit against any such carrier, vessel, person, corporation or government. Undeniably, the
consignee had a legal right to receive the goods in the same condition it was delivered for
transport to petitioner. If that right was violated, the consignee would have a cause of action
against the person responsible therefor.

Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods,
the insurers entitlement to subrogation pro tanto -- being of the highest equity -- equips it with
a cause of action in case of a contractual breach or negligence.[13] Further, the insurers
subrogatory right to sue for recovery under the bill of lading in case of loss of or damage to the
cargo is jurisprudentially upheld.[14]

In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all
intents and purposes, it stands in the place and in substitution of the consignee. A fortiori, both
the insurer and the consignee are bound by the contractual stipulations under the bill of
lading.[15]

Prescription of Claim

From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed
out that respondents claim and right of action are already barred. The latter, and even the
consignee, never filed with the carrier any written notice or complaint regarding its claim for
damage of or loss to the subject cargo within the period required by the Warsaw Convention
and/or in the airway bill. Indeed, this fact has never been denied by respondents and is plainly
evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:

6. No action shall be maintained in the case of damage to or partial loss of the shipment unless
a written notice, sufficiently describing the goods concerned, the approximate date of the
damage or loss, and the details of the claim, is presented by shipper or consignee to an office of
Burlington within (14) days from the date the goods are placed at the disposal of the person
entitled to delivery, or in the case of total loss (including non-delivery) unless presented within
(120) days from the date of issue of the [Airway Bill].[16]

Relevantly, petitioners airway bill states:

12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the
case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage and
at the latest within fourteen (14) days from receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days from the date of
receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his
disposal; and
12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from
the date of the issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill
was used, or to the first carrier or to the last carrier or to the carrier who performed the
transportation during which the loss, damage or delay took place.[17]

Article 26 of the Warsaw Convention, on the other hand, provides:

ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without
complaint shall be prima facie evidence that the same have been delivered in good condition
and in accordance with the document of transportation.

(2) In case of damage, the person entitled to delivery must complain to the carrier forthwith
after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in
the case of baggage and 7 days from the date of receipt in the case of goods. In case of delay
the complaint must be made at the latest within 14 days from the date on which the baggage
or goods have been placed at his disposal.

(3) Every complaint must be made in writing upon the document of transportation or by
separate notice in writing dispatched within the times aforesaid.

(4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in
the case of fraud on his part.[18]

Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor
actually constitutes a condition precedent to the accrual of a right of action against a carrier for
loss of or damage to the goods.[19] The shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in
favor of the former. The aforementioned requirement is a reasonable condition precedent; it
does not constitute a limitation of action.[20]

The requirement of giving notice of loss of or injury to the goods is not an empty formalism.
The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has
been damaged, and that it is being charged with liability therefor; and (2) to give it an
opportunity to examine the nature and extent of the injury. This protects the carrier by
affording it an opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims.[21]

When an airway bill -- or any contract of carriage for that matter -- has a stipulation that
requires a notice of claim for loss of or damage to goods shipped and the stipulation is not
complied with, its enforcement can be prevented and the liability cannot be imposed on the
carrier. To stress, notice is a condition precedent, and the carrier is not liable if notice is not given
in accordance with the stipulation.[22] Failure to comply with such a stipulation bars recovery for the
loss or damage suffered.[23]

Being a condition precedent, the notice must precede a suit for enforcement.[24] In the
present case, there is neither an allegation nor a showing of respondents compliance with this
requirement within the prescribed period. While respondents may have had a cause of action
then, they cannot now enforce it for their failure to comply with the aforesaid condition
precedent.

In view of the foregoing, we find no more necessity to pass upon the other issues raised by
petitioner.

We note that respondents are not without recourse. Cargohaus, Inc. -- petitioners co-defendant
in respondents Complaint below -- has been adjudged by the trial court as liable for, inter alia,
actual damages in the amount of the peso equivalent of US $39,339.[25] This judgment was
affirmed by the Court of Appeals and is already final and executory.[26]

WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it
pertains to Petitioner Federal Express Corporation. No pronouncement as to costs.

SO ORDERED.

Corona, and Carpio-Morales, JJ., concur.

Sandoval-Gutierrez, J., on leave.

2. FIRST DIVISION

[G.R. No. 154514. July 28, 2005]

WHITE GOLD MARINE SERVICES, INC., petitioner, vs. PIONEER INSURANCE AND SURETY
CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)
LTD., respondents.

DECISION

QUISUMBING, J.:

This petition for review assails the Decision[1] dated July 30, 2002 of the Court of Appeals in
CA-G.R. SP No. 60144, affirming the Decision[2] dated May 3, 2000 of the Insurance
Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was no violation of
the Insurance Code and the respondents do not need license as insurer and insurance
agent/broker.

The facts are undisputed.

White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage
for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited
(Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently,
White Gold was issued a Certificate of Entry and Acceptance.[3] Pioneer also issued receipts
evidencing payments for the coverage. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
recover the latters unpaid balance. White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual violated Sections 186[4] and 187[5] of
the Insurance Code, while Pioneer violated Sections 299,[6] 300[7] and 301[8] in relation to
Sections 302 and 303, thereof.

The Insurance Commission dismissed the complaint. It said that there was no need for
Steamship Mutual to secure a license because it was not engaged in the insurance business. It
explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise,
Pioneer need not obtain another license as insurance agent and/or a broker for Steamship
Mutual because Steamship Mutual was not engaged in the insurance business. Moreover,
Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship
Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the
appellate court distinguished between P & I Clubs vis--vis conventional insurance. The appellate
court also held that Pioneer merely acted as a collection agent of Steamship Mutual.

In this petition, petitioner assigns the following errors allegedly committed by the appellate
court,

FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING
BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS
THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE
TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES.

SECOND ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE
THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.

THIRD ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A
LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.

FOURTH ASSIGNMENT OF ERROR

THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN
NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER.[9]

Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the
insurance business in the Philippines? (2) Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?

The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not
have a license to do business in the Philippines although Pioneer is its resident agent. This
relationship is reflected in the certifications issued by the Insurance Commission.

Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To
buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v.
Court of Appeals[10] as an association composed of shipowners in general who band together
for the specific purpose of providing insurance cover on a mutual basis against liabilities
incidental to shipowning that the members incur in favor of third parties. It stresses that as a P
& I Club, Steamship Mutuals primary purpose is to solicit and provide protection and indemnity
coverage and for this purpose, it has engaged the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have
come together to provide mutual protection against liabilities incidental to shipowning.[11]
Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the
jurisdiction of the court over Hyopsung.

Is Steamship Mutual engaged in the insurance business?

Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance business or
transacting an insurance business. These are:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing
in a manner designed to evade the provisions of this Code.

...

The same provision also provides, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions, or that no separate or direct consideration is
received therefor, shall not preclude the existence of an insurance business.[12]

The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light
of the occurrence, contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called.[13]

Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a

consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event.[14]

In particular, a marine insurance undertakes to indemnify the assured against marine losses,
such as the losses incident to a marine adventure.[15] Section 99[16] of the Insurance Code
enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are
both the insurer and insured. In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and liabilities are paid, and where
the profits are divided among themselves, in proportion to their interest.[17] Additionally,
mutual insurance associations, or clubs, provide three types of coverage, namely, protection
and indemnity, war risks, and defense costs.[18]

A P & I Club is a form of insurance against third party liability, where the third party is anyone
other than the P & I Club and the members.[19] By definition then, Steamship Mutual as a P & I
Club is a mutual insurance association engaged in the marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without the
requisite certificate of authority mandated by Section 187[20] of the Insurance Code. It
maintains a resident agent in the Philippines to solicit insurance and to collect payments in its
behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was cancelled
due to non-payment of the calls. Thus, to continue doing business here, Steamship Mutual or
through its agent Pioneer, must secure a license from the Insurance Commission.

Since a contract of insurance involves public interest, regulation by the State is necessary. Thus,
no insurer or insurance company is allowed to engage in the insurance business without a
license or a certificate of authority from the Insurance Commission.[21]

Does Pioneer, as agent/broker of Steamship Mutual, need a special license?

Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of

registration[22] issued by the Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certificate of authority[23] issued by the same agency.
However, a Certification from the Commission states that Pioneer does not have a separate
license to be an agent/broker of Steamship Mutual.[24]

Although Pioneer is already licensed as an insurance company, it needs a separate license to act
as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:

SEC. 299 . . .

No person shall act as an insurance agent or as an insurance broker in the solicitation or

procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. . .

Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its
directors and officers. Regrettably, we are not the forum for these issues.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court
of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby
REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and
Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper
authorizations to do business as insurer and insurance agent, respectively. The petitioners
prayer for the revocation of Pioneers Certificate of Authority and removal of its directors and
officers, is DENIED. Costs against respondents.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

THIRD DIVISION

3. VIOLETA R. LALICAN,

THE INSULAR LIFE ASSURANCE

COMPANY LIMITED, AS REPRESENTED
BY THE PRESIDENT VICENTE R. AVILON,

Respondent.

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

DECISIOn

CHICO-NAZARIO, J.:

Challenged in this Petition for Review on Certiorari1[1] under Rule 45 of the Rules of
Court are the Decision2[2] dated 30 August 2007 and the Orders dated 10 April 20083[3] and 3
July 20084[4] of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No. 2177.
In its assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner Violeta
R. Lalican (Violeta) against respondent Insular Life Assurance Company Limited (Insular Life);
while in its questioned Orders dated 10 April 2008 and 3 July 2008, respectively, the RTC
declared the finality of the aforesaid Decision and denied petitioners Notice of Appeal.

The factual and procedural antecedents of the case, as culled from the records, are as
follows:

Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).

During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April
1997, Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan City, issued in
favor of Eulogio Policy No. 9011992,5[5] which contained a 20-Year Endowment Variable
Income Package Flexi Plan worth P500,000.00,6[6] with two riders valued at P500,000.00
each.7[7] Thus, the value of the policy amounted to P1,500,000.00. Violeta was named as the
primary beneficiary.

Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly
basis in the amount of P8,062.00, payable every 24 April, 24 July, 24 October and 24 January of
each year, until the end of the 20-year period of the policy. According to the Policy Contract,
there was a grace period of 31 days for the payment of each premium subsequent to the first. If
any premium was not paid on or before the due date, the policy would be in default, and if the
premium remained unpaid until the end of the grace period, the policy would automatically
lapse and become void.8[8]

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he
failed to pay the premium due on 24 January 1998, even after the lapse of the grace period of
31 days. Policy No. 9011992, therefore, lapsed and became void.
 Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on
26 May 1998, an Application for Reinstatement9[9] of Policy No. 9011992, together with the
amount of P8,062.00 to pay for the premium due on 24 January 1998. In a letter10[10] dated
17 July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be
fully processed because, although he already deposited P8,062.00 as payment for the 24
January 1998 premium, he left unpaid the overdue interest thereon amounting to P322.48.
Thus, Insular Life instructed Eulogio to pay the amount of interest and to file another
application for reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums
that subsequently became due on 24 April 1998 and 24 July 1998, plus interest.

On 17 September 1998, Eulogio went to Malaluans house and submitted a second

Application for Reinstatement11[11] of Policy No. 9011992, including the amount of
P17,500.00, representing payments for the overdue interest on the premium for 24 January
1998, and the premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan
was away on a business errand, her husband received Eulogios second Application for
Reinstatement and issued a receipt for the amount Eulogio deposited.

A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory
arrest secondary to electrocution.
 Without knowing of Eulogios death, Malaluan forwarded to the Insular Life Regional
Office in the City of San Fernando, on 18 September 1998, Eulogios second Application for
Reinstatement of Policy No. 9011992 and P17,500.00 deposit. However, Insular Life no longer
acted upon Eulogios second Application for Reinstatement, as the former was informed on 21
September 1998 that Eulogio had already passed away.

On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full
proceeds of Policy No. 9011992.

In a letter12[12] dated 14 January 1999, Insular Life informed Violeta that her claim
could not be granted since, at the time of Eulogios death, Policy No. 9011992 had already
lapsed, and Eulogio failed to reinstate the same. According to the Application for
Reinstatement, the policy would only be considered reinstated upon approval of the application
by Insular Life during the applicants lifetime and good health, and whatever amount the
applicant paid in connection thereto was considered to be a deposit only until approval of said
application. Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP Check
No. 0000309734, for the amount of P25,417.00, drawn in Violetas favor, representing the full
refund of the payments made by Eulogio on Policy No. 9011992.
 On 12 February 1998, Violeta requested a reconsideration of the disallowance of her
claim. In a letter13[13] dated 10 March 1999, Insular Life stated that it could not find any
reason to reconsider its decision rejecting Violetas claim. Insular Life again tendered to Violeta
the above-mentioned check in the amount of P25,417.00.

Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the
Cabanatuan District Office of Insular Life. Violetas counsel subsequently sent a letter14[14]
dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy No.
9011992. On 11 August 1999, Insular Life responded to the said demand letter by agreeing to
conduct a re-evaluation of Violetas claim.

Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the
RTC, on 11 October 1999, a Complaint for Death Claim Benefit,15[15] which was docketed as
Civil Case No. 2177. Violeta alleged that Insular Life engaged in unfair claim settlement practice
and deliberately failed to act with reasonable promptness on her insurance claim. Violeta
prayed that Insular Life be ordered to pay her death claim benefits on Policy No. 9011992, in
the amount of P1,500,000.00, plus interests, attorneys fees, and cost of suit.
 Insular Life filed with the RTC an Answer with Counterclaim,16[16] asserting that
Violetas Complaint had no legal or factual bases. Insular Life maintained that Policy No.
9011992, on which Violeta sought to recover, was rendered void by the non-payment of the 24
January 1998 premium and non-compliance with the requirements for the reinstatement of the
same. By way of counterclaim, Insular Life prayed that Violeta be ordered to pay attorneys fees
and expenses of litigation incurred by the former.

Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for
the reinstatement of Policy No. 9011992 had been complied with and the defenses put up by
Insular Life were purely invented and illusory.

After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.

The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have
the same reinstated:

[The] arguments [of Insular Life] are not without basis. When the
premiums for April 24 and July 24, 1998 were not paid by [Eulogio] even after
the lapse of the 31-day grace period, his insurance policy necessarily lapsed. This
is clear from the terms and conditions of the contract between [Insular Life] and
[Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 x x
x.17[17]
 The RTC, taking into account the clear provisions of the Policy Contract between Eulogio
and Insular Life and the Application for Reinstatement Eulogio subsequently signed and
submitted to Insular Life, held that Eulogio was not able to fully comply with the requirements
for the reinstatement of Policy No. 9011992:

The well-settled rule is that a contract has the force of law between the
parties. In the instant case, the terms of the insurance contract between
[Eulogio] and [Insular Life] were spelled out in the policy provisions of Insurance
Policy No. 9011992. There is likewise no dispute that said insurance contract is
by nature a contract of adhesion[,] which is defined as one in which one of the
contracting parties imposes a ready-made form of contract which the other party
may accept or reject but cannot modify. (Polotan, Sr. vs. CA, 296 SCRA 247).

xxxx

The New Lexicon Websters Dictionary defines ambiguity as the quality of

having more than one meaning and an idea, statement or expression capable of
being understood in more than one sense. In Nacu vs. Court of Appeals, 231
SCRA 237 (1994), the Supreme Court stated that[:]

Any ambiguity in a contract, whose terms are susceptible of

different interpretations as a result thereby, must be read and
construed against the party who drafted it on the assumption that
it could have been avoided by the exercise of a little care.

In the instant case, the dispute arises from the afore-quoted provisions
written on the face of the second application for reinstatement. Examining the
said provisions, the court finds the same clearly written in terms that are
simple enough to admit of only one interpretation. They are clearly not
ambiguous, equivocal or uncertain that would need further construction. The
same are written on the very face of the application just above the space
where [Eulogio] signed his name. It is inconceivable that he signed it without
reading and understanding its import.

Similarly, the provisions of the policy provisions (sic) earlier mentioned

are written in simple and clear laymans language, rendering it free from any
ambiguity that would require a legal interpretation or construction. Thus, the
court believes that [Eulogio] was well aware that when he filed the said
application for reinstatement, his lapsed policy was not automatically reinstated
and that its approval was subject to certain conditions. Nowhere in the policy or
in the application for reinstatement was it ever mentioned that the payment of
premiums would have the effect of an automatic and immediate renewal of
the lapsed policy. Instead, what was clearly stated in the application for
reinstatement is that pending approval thereof, the premiums paid would be
treated as a deposit only and shall not bind the company until this application
is finally approved during my/our lifetime and good health[.]

Again, the court finds nothing in the aforesaid provisions that would even
suggest an ambiguity either in the words used or in the manner they were
written. [Violeta] did not present any proof that [Eulogio] was not conversant
with the English language. Hence, his having personally signed the application for
reinstatement[,] which consisted only of one page, could only mean that he has
read its contents and that he understood them. x x x

Therefore, consistent with the above Supreme Court ruling and finding no
ambiguity both in the policy provisions of Policy No. 9011992 and in the
application for reinstatement subject of this case, the court finds no merit in
[Violetas] contention that the policy provision stating that [the lapsed policy of
Eulogio] should be reinstated during his lifetime is ambiguous and should be
construed in his favor. It is true that [Eulogio] submitted his application for
reinstatement, together with his premium and interest payments, to [Insular
Life] through its agent Josephine Malaluan in the morning of September 17,
1998. Unfortunately, he died in the afternoon of that same day. It was only on
the following day, September 18, 1998 that Ms. Malaluan brought the said
document to [the regional office of Insular Life] in San Fernando, Pampanga for
approval. As correctly pointed out by [Insular Life] there was no more
application to approve because the applicant was already dead and no
insurance company would issue an insurance policy to a dead person.18[18]
(Emphases ours.)

The RTC, in the end, explained that:

While the court truly empathizes with the [Violeta] for the loss of her
husband, it cannot express the same by interpreting the insurance agreement in
 her favor where there is no need for such interpretation. It is conceded that
[Eulogios] payment of overdue premiums and interest was received by [Insular
Life] through its agent Ms. Malaluan. It is also true that [the] application for
reinstatement was filed by [Eulogio] a day before his death. However, there is
nothing that would justify a conclusion that such receipt amounted to an
automatic reinstatement of the policy that has already lapsed. The evidence
suggests clearly that no such automatic renewal was contemplated in the
contract between [Eulogio] and [Insular Life]. Neither was it shown that Ms.
Malaluan was the officer authorized to approve the application for
reinstatement and that her receipt of the documents submitted by [Eulogio]
amounted to its approval.19[19] (Emphasis ours.)

The fallo of the RTC Decision thus reads:

WHEREFORE, all the foregoing premises considered and finding that

[Violeta] has failed to establish by preponderance of evidence her cause of
action against the defendant, let this case be, as it is hereby DISMISSED.20[20]

On 14 September 2007, Violeta filed a Motion for Reconsideration21[21] of the afore-

mentioned RTC Decision. Insular Life opposed22[22] the said motion, averring that the
arguments raised therein were merely a rehash of the issues already considered and addressed
by the RTC. In an Order23[23] dated 8 November 2007, the RTC denied Violetas Motion for
Reconsideration, finding no cogent and compelling reason to disturb its earlier findings. Per the
Registry Return Receipt on record, the 8 November 2007 Order of the RTC was received by
Violeta on 3 December 2007.

In the interim, on 22 November 2007, Violeta filed with the RTC a Reply24[24] to the
Motion for Reconsideration, wherein she reiterated the prayer in her Motion for
Reconsideration for the setting aside of the Decision dated 30 August 2007. Despite already
receiving on 3 December 2007, a copy of the RTC Order dated 8 November 2007, which denied
her Motion for Reconsideration, Violeta still filed with the RTC, on 26 February 2008, a Reply
Extended Discussion elaborating on the arguments she had previously made in her Motion for
Reconsideration and Reply.

On 10 April 2008, the RTC issued an Order,25[25] declaring that the Decision dated 30
August 2007 in Civil Case No. 2177 had already attained finality in view of Violetas failure to file
the appropriate notice of appeal within the reglementary period. Thus, any further discussions
on the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot and
academic.
 Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion,26[26]
praying that the Order dated 10 April 2008 be set aside and that she be allowed to file an
appeal with the Court of Appeals.

In an Order27[27] dated 3 July 2008, the RTC denied Violetas Notice of Appeal with
Motion given that the Decision dated 30 August 2007 had long since attained finality.

Violeta directly elevated her case to this Court via the instant Petition for Review on
Certiorari, raising the following issues for consideration:

1. Whether or not the Decision of the court a quo dated August 30,
2007, can still be reviewed despite having allegedly attained finality and
despite the fact that the mode of appeal that has been availed of by
Violeta is erroneous?

2. Whether or not the Regional Trial Court in its original jurisdiction has
decided the case on a question of law not in accord with law and
applicable decisions of the Supreme Court?
 Violeta insists that her former counsel committed an honest mistake in filing a Reply,
instead of a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the
computation of the reglementary period for appealing the said judgment. Violeta claims that
her former counsel suffered from poor health, which rapidly deteriorated from the first week of
July 2008 until the latters death just shortly after the filing of the instant Petition on 8 August
2008. In light of these circumstances, Violeta entreats this Court to admit and give due course
to her appeal even if the same was filed out of time.

Violeta further posits that the Court should address the question of law arising in this
case involving the interpretation of the second sentence of Section 19 of the Insurance Code,
which provides:

Section. 19. x x x [I]nterest in the life or health of a person insured must

exist when the insurance takes effect, but need not exist thereafter or when the
loss occurs.

On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own
life when he reinstated Policy No. 9011992 just before he passed away on 17 September 1998.
The RTC should have construed the provisions of the Policy Contract and Application for
Reinstatement in favor of the insured Eulogio and against the insurer Insular Life, and
considered the special circumstances of the case, to rule that Eulogio had complied with the
requisites for the reinstatement of Policy No. 9011992 prior to his death, and that Violeta is
entitled to claim the proceeds of said policy as the primary beneficiary thereof.

The Petition lacks merit.

 At the outset, the Court notes that the elevation of the case to us via the instant
Petition for Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court,28[28]
provides that no appeal may be taken from an order disallowing or dismissing an appeal. In
such a case, the aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of
Court.29[29]

Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long
become final and executory. Violeta filed a Motion for Reconsideration thereof, but the RTC
denied the same in an Order dated 8 November 2007. The records of the case reveal that
Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus, Violeta had
15 days30[30] from said date of receipt, or until 18 December 2007, to file a Notice of Appeal.
Violeta filed a Notice of Appeal only on 20 May 2008, more than five months after receipt of
the RTC Order dated 8 November 2007 denying her Motion for Reconsideration.

Violetas claim that her former counsels failure to file the proper remedy within the
reglementary period was an honest mistake, attributable to the latters deteriorating health, is
unpersuasive.
 Violeta merely made a general averment of her former counsels poor health, lacking
relevant details and supporting evidence. By Violetas own admission, her former counsels
health rapidly deteriorated only by the first week of July 2008. The events pertinent to Violetas
Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order dated 8
November 2007, denying Violetas Motion for Reconsideration of the Decision dated 30 August
2007, was received on 3 December 2007; and Violetas Notice of Appeal was filed on 20 May
2008. There is utter lack of proof to show that Violetas former counsel was already suffering
from ill health during these times; or that the illness of Violetas former counsel would have
affected his judgment and competence as a lawyer.

Moreover, the failure of her former counsel to file a Notice of Appeal within the
reglementary period binds Violeta, which failure the latter cannot now disown on the basis of
her bare allegation and self-serving pronouncement that the former was ill. A client is bound by
his counsels mistakes and negligence.31[31]

The Court, therefore, finds no reversible error on the part of the RTC in denying Violetas
Notice of Appeal for being filed beyond the reglementary period. Without an appeal having
been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177 already became
final and executory.
 A judgment becomes "final and executory" by operation of law. Finality becomes a fact
when the reglementary period to appeal lapses and no appeal is perfected within such period.
As a consequence, no court (not even this Court) can exercise appellate jurisdiction to review a
case or modify a decision that has become final.32[32] When a final judgment is executory, it
becomes immutable and unalterable. It may no longer be modified in any respect either by the
court, which rendered it or even by this Court. The doctrine is founded on considerations of
public policy and sound practice that, at the risk of occasional errors, judgments must become
final at some definite point in time.33[33]

The only recognized exceptions to the doctrine of immutability and unalterability are
the correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice to
any party, and void judgments.34[34] The instant case does not fall under any of these
exceptions.

Even if the Court ignores the procedural lapses committed herein, and proceeds to
resolve the substantive issues raised, the Petition must still fail.
 Violeta makes it appear that her present Petition involves a question of law,
particularly, whether Eulogio had an existing insurable interest in his own life until the day of
his death.

An insurable interest is one of the most basic and essential requirements in an insurance
contract. In general, an insurable interest is that interest which a person is deemed to have in
the subject matter insured, where he has a relation or connection with or concern in it, such
that the person will derive pecuniary benefit or advantage from the preservation of the subject
matter insured and will suffer pecuniary loss or damage from its destruction, termination, or
injury by the happening of the event insured against.35[35] The existence of an insurable
interest gives a person the legal right to insure the subject matter of the policy of
insurance.36[36] Section 10 of the Insurance Code indeed provides that every person has an
insurable interest in his own life.37[37] Section 19 of the same code also states that an interest
in the life or health of a person insured must exist when the insurance takes effect, but need
not exist thereafter or when the loss occurs.38[38]
 Upon more extensive study of the Petition, it becomes evident that the matter of
insurable interest is entirely irrelevant in the case at bar. It is actually beyond question that
while Eulogio was still alive, he had an insurable interest in his own life, which he did insure
under Policy No. 9011992. The real point of contention herein is whether Eulogio was able to
reinstate the lapsed insurance policy on his life before his death on 17 September 1998.

The Court rules in the negative.

Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30
August 2007 Decision that Policy No. 9011992 lapsed because of Eulogios non-payment of the
premiums which became due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had lapsed
and become void earlier, on 24 February 1998, upon the expiration of the 31-day grace period
for payment of the premium, which fell due on 24 January 1998, without any payment having
been made.

That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogios filing of
his first Application for Reinstatement with Insular Life, through Malaluan, on 26 May 1998,
constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life did not act on
Eulogios first Application for Reinstatement, since the amount Eulogio simultaneously
deposited was sufficient to cover only the P8,062.00 overdue premium for 24 January 1998, but
not the P322.48 overdue interests thereon. On 17 September 1998, Eulogio submitted a second
Application for Reinstatement to Insular Life, again through Malaluan, depositing at the same
time P17,500.00, to cover payment for the overdue interest on the premium for 24 January
1998, and the premiums that had also become due on 24 April 1998 and 24 July 1998. On the
very same day, Eulogio passed away.
 To reinstate a policy means to restore the same to premium-paying status after it has
been permitted to lapse.39[39] Both the Policy Contract and the Application for Reinstatement
provide for specific conditions for the reinstatement of a lapsed policy.

The Policy Contract between Eulogio and Insular Life identified the following conditions
for reinstatement should the policy lapse:

10. REINSTATEMENT

You may reinstate this policy at any time within three years after it lapsed
if the following conditions are met: (1) the policy has not been surrendered for
its cash value or the period of extension as a term insurance has not expired; (2)
evidence of insurability satisfactory to [Insular Life] is furnished; (3) overdue
premiums are paid with compound interest at a rate not exceeding that which
would have been applicable to said premium and indebtedness in the policy
years prior to reinstatement; and (4) indebtedness which existed at the time of
lapsation is paid or renewed.40[40]

Additional conditions for reinstatement of a lapsed policy were stated in the Application
for Reinstatement which Eulogio signed and submitted, to wit:

I/We agree that said Policy shall not be considered reinstated until this
application is approved by the Company during my/our lifetime and good
 health and until all other Company requirements for the reinstatement of said
Policy are fully satisfied.

I/We further agree that any payment made or to be made in connection with
this application shall be considered as deposit only and shall not bind the
Company until this application is finally approved by the Company during
my/our lifetime and good health. If this application is disapproved, I/We also
agree to accept the refund of all payments made in connection herewith,
without interest, and to surrender the receipts for such payment.41[41]
(Emphases ours.)

In the instant case, Eulogios death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed
to file his Application for Reinstatement and deposit the amount for payment of his overdue
premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be
considered reinstated after the Application for Reinstatement had been processed and
approved by Insular Life during Eulogios lifetime and good health.

Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life
Insurance Company,42[42] citing McGuire v. The Manufacturer's Life Insurance Co.43[43]:

The stipulation in a life insurance policy giving the insured the privilege to
reinstate it upon written application does not give the insured absolute right to
 such reinstatement by the mere filing of an application. The insurer has the right
to deny the reinstatement if it is not satisfied as to the insurability of the insured
and if the latter does not pay all overdue premium and all other indebtedness to
the insurer. After the death of the insured the insurance Company cannot be
compelled to entertain an application for reinstatement of the policy because
the conditions precedent to reinstatement can no longer be determined and
satisfied. (Emphases ours.)

It does not matter that when he died, Eulogios Application for Reinstatement and
deposits for the overdue premiums and interests were already with Malaluan. Insular Life,
through the Policy Contract, expressly limits the power or authority of its insurance agents,
thus:

Our agents have no authority to make or modify this contract, to extend

the time limit for payment of premiums, to waive any lapsation, forfeiture or any
of our rights or requirements, such powers being limited to our president, vice-
president or persons authorized by the Board of Trustees and only in
writing.44[44] (Emphasis ours.)

Malaluan did not have the authority to approve Eulogios Application for Reinstatement.
Malaluan still had to turn over to Insular Life Eulogios Application for Reinstatement and
accompanying deposits, for processing and approval by the latter.

The Court agrees with the RTC that the conditions for reinstatement under the Policy
Contract and Application for Reinstatement were written in clear and simple language, which
could not admit of any meaning or interpretation other than those that they so obviously
embody. A construction in favor of the insured is not called for, as there is no ambiguity in the
said provisions in the first place. The words thereof are clear, unequivocal, and simple enough
so as to preclude any mistake in the appreciation of the same.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand
the import and meaning of the provisions of his Policy Contract and/or Application for
Reinstatement, both of which he voluntarily signed. 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, 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.45[45]

Eulogios death, just hours after filing his Application for Reinstatement and depositing
his payment for overdue premiums and interests with Malaluan, does not constitute a special
circumstance that can persuade this Court to already consider Policy No. 9011992 reinstated.
Said circumstance cannot override the clear and express provisions of the Policy Contract and
Application for Reinstatement, and operate to remove the prerogative of Insular Life
thereunder to approve or disapprove the Application for Reinstatement. Even though the Court
commiserates with Violeta, as the tragic and fateful turn of events leaves her practically empty-
handed, the Court cannot arbitrarily burden Insular Life with the payment of proceeds on a
lapsed insurance policy. Justice and fairness must equally apply to all parties to a case. Courts
are not permitted to make contracts for the parties. The function and duty of the courts consist
simply in enforcing and carrying out the contracts actually made.46[46]

Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance
with the Policy Contract and Application for Reinstatement before Eulogios death. Violeta,
therefore, cannot claim any death benefits from Insular Life on the basis of Policy No. 9011992;
but she is entitled to receive the full refund of the payments made by Eulogio thereon.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on
Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10 April
2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying
petitioner Violeta R. Lalicans Notice of Appeal, on the ground that the Decision dated 30 August
2007 subject thereof, was already final and executory. No costs.
4. FIRST DIVISION

G.R. No. 147839 June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000
of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August
31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and
upheld the causes of action for damages of Insurance Company of North America (respondent)
against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which
denied petitioner's motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss
& Co.. IMC and LSPI separately obtained from respondent fire insurance policies with book debt
endorsements. The insurance policies provide for coverage on "book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines."2 The policies defined book debts as the
"unpaid account still appearing in the Book of Account of the Insured 45 days after the time of
the loss covered under this Policy."3 The policies also provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of
the merchandise sold and delivered by the Insured which are outstanding at the date of
loss for a period in excess of six (6) months from the date of the covering invoice or
actual delivery of the merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after
the close of every calendar month all amount shown in their books of accounts as
unpaid and thus become receivable item from their customers and dealers. x x x 4

xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the
Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by
fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges
that IMC and LSPI filed with respondent their claims under their respective fire insurance
policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of
petitioner on the sale and delivery of ready-made clothing materials with IMC was
P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and
LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner; that
respondent made several demands for payment upon petitioner but these went unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be
held liable because the property covered by the insurance policies were destroyed due to
fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch
as there was no breach of contract committed by it since the loss was due to fire which it could
not prevent or foresee; that IMC and LSPI never communicated to it that they insured their
properties; that it never consented to paying the claim of the insured.6

At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on
the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It held
that the fire was purely accidental; that the cause of the fire was not attributable to the
negligence of the petitioner; that it has not been established that petitioner is the debtor of
IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for
purpose of securing the payment of purchase price, the above-described merchandise remains
the property of the vendor until the purchase price is fully paid", IMC and LSPI retained
ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision
setting aside the decision of the RTC. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a
new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant

to the insured Inter Capitol Marketing Corporation, plus legal interest from the time of
demand until fully paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to

the insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully
paid.
With costs against the defendant-appellee.

SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature,
quantity and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner
since the proviso contained in the sales invoices is an exception under Article 1504 (1) of the
Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is borne by
the owner of the thing at the time the loss under the principle of res perit domino; that
petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of
its unpaid account and as such the obligation to pay is not extinguished, even if the fire is
considered a fortuitous event; that by subrogation, the insurer has the right to go against
petitioner; that, being a fire insurance with book debt endorsements, what was insured was the
vendor's interest as a creditor.11

Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution
dated April 11, 2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of
Errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS
ONE OVER CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE
INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION
UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14

Anent the first error, petitioner contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the insured goods to fire and not because of the
non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over
credit, there was no loss as the accounts were not yet due since no prior demands were made
by IMC and LSPI against petitioner for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under the fire insurance policies. 15

As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC
and LSPI assumed the risk of loss when they secured fire insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk had
transferred to petitioner upon delivery of the goods; that petitioner was not privy to the
insurance contract or the payment between respondent and its insured nor was its consent or
approval ever secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from
fire.

For its part, respondent counters that while ownership over the ready- made clothing materials
was transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said
goods as creditors who stand to suffer direct pecuniary loss from its destruction by fire; that
petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the
presumption of liability under Article 126516 of the Civil Code; that the fire was caused through
petitioner's negligence in failing to provide stringent measures of caution, care and
maintenance on its property because electric wires do not usually short circuit unless there are
defects in their installation or when there is lack of proper maintenance and supervision of the
property; that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's
valid claim and should be liable to respondent for contracted lawyer's fees, litigation expenses
and cost of suit.17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it
from the CA is limited to reviewing questions of law which involves no examination of the
probative value of the evidence presented by the litigants or any of them. 18 The Supreme Court
is not a trier of facts; it is not its function to analyze or weigh evidence all over again. 19
Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme
Court.20

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be
resolved by this Court, such as: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its
findings the CA went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in the petitioner's main
and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion.21 Exceptions (4), (5), (7), and
(11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that
the CA erred in construing a fire insurance policy on book debts as one covering the unpaid
accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no
room for construction.22 In this case, the questioned insurance policies provide coverage for
"book debts in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the Philippines." 23 ; and
defined book debts as the "unpaid account still appearing in the Book of Account of the Insured
45 days after the time of the loss covered under this Policy."24 Nowhere is it provided in the
questioned insurance policies that the subject of the insurance is the goods sold and delivered
to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract.25 Thus, what were insured against were
the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss
through fire, and not the loss or destruction of the goods delivered.

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the
goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of
securing the payment of the purchase price the above described merchandise remains the
property of the vendor until the purchase price thereof is fully paid."26

The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations under the contract, the goods are
at the buyer's risk from the time of such delivery; (Emphasis supplied)

xxxx

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk
of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods
delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest
until full payment of the value of the delivered goods. Unlike the civil law concept of res perit
domino, where ownership is the basis for consideration of who bears the risk of loss, in
property insurance, one's interest is not determined by concept of title, but whether insured
has substantial economic interest in the property.28

Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b)
an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or
a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest, it is sufficient that the
insured is so situated with reference to the property that he would be liable to loss should it be
injured or destroyed by the peril against which it is insured. 29 Anyone has an insurable interest
in property who derives a benefit from its existence or would suffer loss from its destruction.30
Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has
any interest therein, in other words, so long as he would suffer by its destruction, as where he
has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid
accounts appearing in their Books of Account 45 days after the time of the loss covered by the
policies.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but
for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire.
Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA,
where the obligation consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his liability.33 The
rationale for this is that the rule that an obligor should be held exempt from liability when the
loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery
of a determinate thing and there is no stipulation holding him liable even in case of fortuitous
event. It does not apply when the obligation is pecuniary in nature.34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." If the obligation is
generic in the sense that the object thereof is designated merely by its class or genus without
any particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has
incurred in delay will not have the effect of extinguishing the obligation.35 This rule is based on
the principle that the genus of a thing can never perish. Genus nunquan perit.36 An obligation to
pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of
the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to
this case. What is relevant here is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-
22"38 show that petitioner has an outstanding account with IMC in the amount of
P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F"40 is
the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance
proceeds. All these documents have been properly identified, presented and marked as exhibits
in court. The subrogation receipt, by itself, is sufficient to establish not only the relationship of
respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207
of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No
evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from
petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's
unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of
P535,613.00 in the fire that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation
receipt was offered in evidence. Thus, there is no evidence that respondent has been
subrogated to any right which LSPI may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED
with the MODIFICATION that the order to pay the amount of P535,613.00 to respondent is
DELETED for lack of factual basis.

No pronouncement as to costs.
SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

5. FIRST DIVISION

[G.R. No. 125678. March 18, 2002]

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS,
respondents.

DECISION

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage
with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered
no to the following question:

Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).i[1]

The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,
respondents husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of out-patient benefits such as annual
physical examinations, preventive health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March
1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage
was increased to a maximum sum of P75,000.00 per disability.ii[2]

During the period of his coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was
in the hospital, respondent tried to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the Health Care Agreement was void.
According to petitioner, there was a concealment regarding Ernanis medical history. Doctors at
the MMC allegedly discovered at the time of Ernanis confinement that he was hypertensive,
diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid
the hospitalization expenses herself, amounting to about P76,000.00.

After her husband was discharged from the MMC, he was attended by a physical therapist at
home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties,
however, respondent brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to
the Chinese General Hospital where he died on the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an
action for damages against petitioner and its president, Dr. Benito Reverente, which was
docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral
damages and attorneys fees. After trial, the lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita
Trinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani
Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who
paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to

plaintiff;

4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.

SO ORDERED.iii[3]

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards
for damages and absolved petitioner Reverente.iv[4] Petitioners motion for reconsideration
was denied.v[5] Hence, petitioner brought the instant petition for review, raising the primary
argument that a health care agreement is not an insurance contract; hence the incontestability
clause under the Insurance Codevi[6] does not apply.

Petitioner argues that the agreement grants living benefits, such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of
the agreement until its expiration one-year thereafter. Petitioner also points out that only
medical and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is indemnified for his loss.
Moreover, since Health Care Agreements are only for a period of one year, as compared to
insurance contracts which last longer,vii[7] petitioner argues that the incontestability clause
does not apply, as the same requires an effectivity period of at least two years. Petitioner
further argues that it is not an insurance company, which is governed by the Insurance
Commission, but a Health Maintenance Organization under the authority of the Department of
Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby
one undertakes for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event. An insurance contract exists where the following
elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and

5. In consideration of the insurers promise, the insured pays a premium.viii[8]

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which may damnify a person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life and health of himself. Section 10
provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support,
or in whom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or prevent
the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondents husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity.ix[9] Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other stipulated contingent, the
health care provider must pay for the same to the extent agreed upon under the contract.

Petitioner argues that respondents husband concealed a material fact in his application. It
appears that in the application for health coverage, petitioners required respondents husband
to sign an express authorization for any person, organization or entity that has any record or
knowledge of his health to furnish any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination.x[10] Specifically, the
Health Care Agreement signed by respondents husband states:

We hereby declare and agree that all statement and answers contained herein and in any
addendum annexed to this application are full, complete and true and bind all parties in
interest under the Agreement herein applied for, that there shall be no contract of health care
coverage unless and until an Agreement is issued on this application and the full Membership
Fee according to the mode of payment applied for is actually paid during the lifetime and good
health of proposed Members; that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that
any physician is, by these presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed Members and that
the acceptance of any Agreement issued on this application shall be a ratification of any
correction in or addition to this application as stated in the space for Home Office
Endorsement.xi[11] (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for
authorization to inquire about the applicants medical history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge of my
health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all
information relative to any hospitalization, consultation, treatment or any other medical advice
or examination. This authorization is in connection with the application for health care
coverage only. A photographic copy of this authorization shall be as valid as the original.xii[12]
(Underscoring ours)

Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:

Failure to disclose or misrepresentation of any material information by the member in the

application or medical examination, whether intentional or unintentional, shall automatically
invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to
return of all Membership Fees paid. An undisclosed or misrepresented information is deemed
material if its revelation would have resulted in the declination of the applicant by Philamcare
or the assessment of a higher Membership Fee for the benefit or benefits applied for.xiii[13]

The answer assailed by petitioner was in response to the question relating to the medical
history of the applicant. This largely depends on opinion rather than fact, especially coming
from respondents husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without intent to deceive will not
avoid a policy even though they are untrue.xiv[14] Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of

the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the
risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the
statement is material to the risk, if the statement is obviously of the foregoing character, since
in such case the insurer is not justified in relying upon such statement, but is obligated to make
further inquiry. There is a clear distinction between such a case and one in which the insured is
fraudulently and intentionally states to be true, as a matter of expectation or belief, that which
he then knows, to be actually untrue, or the impossibility of which is shown by the facts within
his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to
actual fraud.xv[15] (Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of
the insurance contract.xvi[16] Concealment as a defense for the health care provider or insurer
to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory
and convincing evidence rests upon the provider or insurer. In any case, with or without the
authority to investigate, petitioner is liable for claims made under the contract. Having assumed
a responsibility under the agreement, petitioner is bound to answer the same to the extent
agreed upon. In the end, the liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a
contract of insurance. The right to rescind should be exercised previous to the commencement
of an action on the contract.xvii[17] In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies require the concurrence of the
following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or
more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the
policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and
upon request of insured, to furnish facts on which cancellation is based.xviii[18]

None of the above pre-conditions was fulfilled in this case. When the terms of insurance
contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.xix[19] Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party
which prepared the contract the insurer.xx[20] By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in favor of the insured, especially to
avoid forfeiture.xxi[21] This is equally applicable to Health Care Agreements. The phraseology
used in medical or hospital service contracts, such as the one at bar, must be liberally construed
in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.xxii[22]

Anent the incontestability of the membership of respondents husband, we quote with approval
the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc.
had twelve months from the date of issuance of the Agreement within which to contest the
membership of the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie.xxiii[23]

Finally, petitioner alleges that respondent was not the legal wife of the deceased member
considering that at the time of their marriage, the deceased was previously married to another
woman who was still alive. The health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party who incurred the expenses. It is not
controverted that respondent paid all the hospital and medical expenses. She is therefore
entitled to reimbursement. The records adequately prove the expenses incurred by respondent
for the deceaseds hospitalization, medication and the professional fees of the attending
physicians.xxiv[24]

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court
of Appeals dated December 14, 1995 is AFFIRMED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.

FIRST DIVISION

6. G.R. No. 105135 June 22, 1995

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,

vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI, respondents.
QUIASON, J.:

This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse
and set aside the Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No.
29068, and its Resolution dated April 22, 1992, denying reconsideration thereof.

We grant the petition.

On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity
in case of accidental death. The designated beneficiary was his mother, respondent Bernarda
Bacani.

On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim
with petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner
conducted an investigation and its findings prompted it to reject the claim.

In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose
material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00 was
attached to said letter.

Petitioner claimed that the insured gave false statements in his application when he answered
the following questions:

5. Within the past 5 years have you:

a) consulted any doctor or other health practitioner?

b) submitted to:

EGG?
X-rays?
blood tests?
other tests?

c) attended or been admitted to any hospital or other medical

facility?

6. Have you ever had or sought advice for:

xxx xxx xxx

 b) urine, kidney or bladder disorder? (Rollo, p. 53)

The deceased answered question No. 5(a) in the affirmative but limited his answer to a
consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other questions were answered in the
negative (Rollo, p. 53).

Petitioner discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal
failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and
hematology tests.

On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando
Bacani, filed an action for specific performance against petitioner with the Regional Trial Court,
Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list of
exhibits consisting of medical records furnished by the Lung Center of the Philippines.

On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for
Summary Judgment" where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by the decedent of his health
condition (Rollo, p. 62).

Petitioner filed its Request for Admissions relative to the authenticity and due execution of
several documents as well as allegations regarding the health of the insured. Private
respondents failed to oppose said request or reply thereto, thereby rendering an admission of
the matters alleged.

Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against

the defendant, condemning the latter to pay the former the amount of One
Hundred Thousand Pesos (P100,000.00) the face value of insured's Insurance
Policy No. 3903766, and the Accidental Death Benefit in the amount of One
Hundred Thousand Pesos (P100,000.00) and further sum of P5,000.00 in the
concept of reasonable attorney's fees and costs of suit.

Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).

In ruling for private respondents, the trial court concluded that the facts concealed by the
insured were made in good faith and under a belief that they need not be disclosed. Moreover,
it held that the health history of the insured was immaterial since the insurance policy was
"non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The
appellate court ruled that petitioner cannot avoid its obligation by claiming concealment
because the cause of death was unrelated to the facts concealed by the insured. It also
sustained the finding of the trial court that matters relating to the health history of the insured
were irrelevant since petitioner waived the medical examination prior to the approval and
issuance of the insurance policy. Moreover, the appellate court agreed with the trial court that
the policy was "non-medical" (Rollo, pp. 4-5).

Petitioner's motion for reconsideration was denied; hence, this petition.

II

We reverse the decision of the Court of Appeals.

The rule that factual findings of the lower court and the appellate court are binding on this
Court is not absolute and admits of exceptions, such as when the judgment is based on a
misappreciation of the facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).

In weighing the evidence presented, the trial court concluded that indeed there was
concealment and misrepresentation, however, the same was made in "good faith" and the facts
concealed or misrepresented were irrelevant since the policy was "non-medical". We disagree.

Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to

communicate to the other, in good faith, all facts within his knowledge which are material to
the contract and as to which he makes no warranty, and which the other has no means of
ascertaining. Said Section provides:

A neglect to communicate that which a party knows and ought to communicate,

is called concealment.

Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec.
31).

The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health.

The information which the insured failed to disclose were material and relevant to the approval
and issuance of the insurance policy. The matters concealed would have definitely affected
petitioner's action on his application, either by approving it with the corresponding adjustment
for a higher premium or rejecting the same. Moreover, a disclosure may have warranted a
medical examination of the insured by petitioner in order for it to reasonably assess the risk
involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it
depend on the actual or physical events which ensue.

Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that
he was hospitalized for two weeks prior to filing his application for insurance, raises grave
doubts about his bonafides. It appears that such concealment was deliberate on his part.

The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v.
Philippine American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a
medical examination [in a non-medical insurance contract] renders even more material the
information required of the applicant concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy or not . . . "

Moreover, such argument of private respondents would make Section 27 of the Insurance
Code, which allows the injured party to rescind a contract of insurance where there is
concealment, ineffective (See Vda. de Canilang v. Court of Appeals, supra).

Anent the finding that the facts concealed had no bearing to the cause of death of the insured,
it is well settled that the insured need not die of the disease he had failed to disclose to the
insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the
risks of the proposed insurance policy or in making inquiries (Henson v. The Philippine American
Life Insurance Co., 56 O.G. No. 48 [1960]).

We, therefore, rule that petitioner properly exercised its right to rescind the contract of
insurance by reason of the concealment employed by the insured. It must be emphasized that
rescission was exercised within the two-year contestability period as recognized in Section 48 of
The Insurance Code.

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED
and SET ASIDE.

SO ORDERED.
 7.Heirs of Maramag v. Maramag
G.R. No. 181132 , June 5, 2009
FACTS:

The case stems from a petition filed against respondents with the RTC for revocation and/or
reduction of insurance proceeds for being void and/or inofficious. The petition alleged that: (1)
petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while
respondents were Loreto’s illegitimate family; (2) Eva de Guzman Maramag (Eva) was a
concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to receive
any proceeds from his insurance policies from Insular Life Assurance Company, Ltd. (Insular)
and Great Pacific Life Assurance Corporation (Grepalife) (3) the illegitimate children of Loreto—
Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of the legitime of the
legitimate children, thus, the proceeds released to Odessa and those to be released to Karl
Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not
be deprived of their legitimes, which should be satisfied first. Insular admitted that
Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as
his legitimate children, and that they filed their claims for the insurance proceeds of the
insurance policies; that when it ascertained that Eva was not the legal wife of Loreto, it
disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha
Angelie, as the remaining designated beneficiaries; and that it released Odessa’s share as she
was of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie
pending submission of letters of guardianship. Insular alleged that the complaint or petition
failed to state a cause of action insofar as it sought to declare as void the designation of Eva as
beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it
disqualified her in Policy No. A001693029; and insofar as it sought to declare as inofficious the
shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of
Loreto’s estate had been filed nor had the respective shares of the heirs been
determined. Insular further claimed that it was bound to honor the insurance policies
designating the children of Loreto with Eva as beneficiaries pursuant to Section 53 of the
Insurance Code. Grepalife alleged that Eva was not designated as an insurance policy
beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie were denied
because Loreto was ineligible for insurance due to a misrepresentation in his application
form that he was born on December 10, 1936 and, thus, not more than 65 years old when
he signed it in September 2001; that the case was premature, there being no claim filed by the
legitimate family of Loreto; and that the law on succession does not apply where
the designation of insurance beneficiaries is clear.

ISSUE:
Whether or not illegitimate children can be beneficiaries in an insurance contract.

RULING:

Yes. Section 53 of the Insurance Code states that 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. Pursuant thereto, it is obvious that the only persons
entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if
the insured is already deceased, upon the maturation of the policy.The exception to this rule is
a situation where the insurance contract was intended to benefit third persons who are not
parties to the same in the form of favorable stipulations or indemnity. In such a case, third
parties may directly sue and claim from the insurer.

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are
not entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no
legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a
beneficiary in one policy and her disqualification as such in another are of no moment
considering that the designation of the illegitimate children as beneficiaries in Loreto’s
insurance policies remains valid. Because no legal proscription exists in naming as beneficiaries
the children of illicit relationships by the insured, the shares of Eva in the insurance proceeds,
whether forfeited by the court in view of the prohibition on donations under Article 739 of the
Civil Code or by the insurers themselves for reasons based on the insurance contracts, must be
awarded to the said illegitimate children, the designated beneficiaries, to the exclusion of
petitioners. It is only in cases where the insured has not designated any beneficiary, or when
the designated beneficiary is disqualified by law to receive the proceeds, that the
insurance policy proceeds shall redound to the benefit of the estate of the insure

8. FIRST DIVISION

[G.R. No. 138941. October 8, 2001]

AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO ENTERPRISES, INC.,

respondent.

DECISION

PUNO, J.:
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals in
CA-G.R. CV No. 52221 promulgated on January 14, 1999, which affirmed in toto the Decision of
the Regional Trial Court, Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.

Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry.
It owns two oil mills. Both are located at its factory compound at Iyam, Lucena City. It appears
that respondent commenced its business operations with only one oil mill. In 1988, it started
operating its second oil mill. The latter came to be commonly referred to as the new oil mill.

The two oil mills were separately covered by fire insurance policies issued by petitioner
American Home Assurance Co., Philippine Branch.xxv[1] The first oil mill was insured for three
million pesos (P3,000,000.00) under Policy No. 306-7432324-3 for the period March 1, 1991 to
1992.xxvi[2] The new oil mill was insured for six million pesos (P6,000,000.00) under Policy No.
306-7432321-9 for the same term.xxvii[3] Official receipts indicating payment for the full
amount of the premium were issued by the petitioner's agent.xxviii[4]

A fire that broke out in the early morning of September 30,1991 gutted and consumed the new
oil mill. Respondent immediately notified the petitioner of the incident. The latter then sent its
appraisers who inspected the burned premises and the properties destroyed. Thereafter, in a
letter dated October 15, 1991, petitioner rejected respondents claim for the insurance
proceeds on the ground that no policy was issued by it covering the burned oil mill. It stated
that the description of the insured establishment referred to another building thus: Our policy
nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance coverage to your oil
mill under Building No. 5, whilst the affected oil mill was under Building No. 14.xxix[5]

A complaint for specific performance and damages was consequently instituted by the
respondent with the RTC, Branch 53 of Lucena City. On October 16, 1995, after trial, the lower
court rendered a Decision finding the petitioner liable on the insurance policy thus:

WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay plaintiff:

(a) P4,406,536.40 representing damages for loss by fire of its insured property with interest at
the legal rate;

(b) P80,000.00 for litigation expenses;

(c) P300,000.00 for and as attorneys fees; and

(d) Pay the costs.

SO ORDERED.xxx[6]

Petitioner assailed this judgment before the Court of Appeals. The appellate court upheld the
same in a Decision promulgated on January 14, 1999, the pertinent portion of which states:
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial courts
Decision dated October 16, 1995 is hereby AFFIRMED in toto.

SO ORDERED.xxxi[7]

Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in a
Resolution promulgated on June 10, 1999.

Hence, the present course of action, where petitioner ascribes to the appellate court the
following errors:

(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the
premium was beyond its jurisdiction because it was raised for the first time on
appeal.xxxii[8]

(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances
Warranty' of the policy.xxxiii[9]

(3) With due respect, the conclusion of the Court of Appeals giving no regard to the parole
evidence rule and the principle of estoppel is erroneous.xxxiv[10]

The petition is devoid of merit.

The primary reason advanced by the petitioner in resisting the claim of the respondent is that
the burned oil mill is not covered by any insurance policy. According to it, the oil mill insured is
specifically described in the policy by its boundaries in the following manner:

Front: by a driveway thence at 18 meters distance by Bldg. No. 2.

Right: by an open space thence by Bldg. No. 4.

Left: Adjoining thence an imperfect wall by Bldg. No. 4.

Rear: by an open space thence at 8 meters distance.

However, it argues that this specific boundary description clearly pertains, not to the burned oil
mill, but to the other mill. In other words, the oil mill gutted by fire was not the one described
by the specific boundaries in the contested policy.

What exacerbates respondents predicament, petitioner posits, is that it did not have the
supposed wrong description or mistake corrected. Despite the fact that the policy in question
was issued way back in 1988, or about three years before the fire, and despite the Important
Notice in the policy that Please read and examine the policy and if incorrect, return it
immediately for alteration, respondent apparently did not call petitioners attention with
respect to the misdescription.

By way of conclusion, petitioner argues that respondent is barred by the parole evidence rule
from presenting evidence (other than the policy in question) of its self-serving intention (sic)
that it intended really to insure the burned oil mill, just as it is barred by estoppel from claiming
that the description of the insured oil mill in the policy was wrong, because it retained the
policy without having the same corrected before the fire by an endorsement in accordance with
its Condition No. 28.

These contentions can not pass judicial muster.

In construing the words used descriptive of a building insured, the greatest liberality is shown
by the courts in giving effect to the insurance.xxxv[11] In view of the custom of insurance
agents to examine buildings before writing policies upon them, and since a mistake as to the
identity and character of the building is extremely unlikely, the courts are inclined to consider
that the policy of insurance covers any building which the parties manifestly intended to insure,
however inaccurate the description may be.xxxvi[12]

Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind,
that what the parties manifestly intended to insure was the new oil mill. This is obvious from
the categorical statement embodied in the policy, extending its protection:

On machineries and equipment with complete accessories usual to a coconut oil mill including
stocks of copra, copra cake and copra mills whilst contained in the new oil mill building, situate
(sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.xxxvii[13]
(emphasis supplied.)

If the parties really intended to protect the first oil mill, then there is no need to specify it as
new.

Indeed, it would be absurd to assume that respondent would protect its first oil mill for
different amounts and leave uncovered its second one. As mentioned earlier, the first oil mill is
already covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkable for
respondent to obtain the other policy from the very same company. The latter ought to know
that a second agreement over that same realty results in its overinsurance.

The imperfection in the description of the insured oil mills boundaries can be attributed to a
misunderstanding between the petitioners general agent, Mr. Alfredo Borja, and its policy
issuing clerk, who made the error of copying the boundaries of the first oil mill when typing the
policy to be issued for the new one. As testified to by Mr.Borja:

Atty. G. Camaligan:
Q: What did you do when you received the report?

A: I told them as will be shown by the map the intention really of Mr. Edison Tantuco is to
cover the new oil mill that is why when I presented the existing policy of the old policy, the
policy issuing clerk just merely (sic) copied the wording from the old policy and what she typed
is that the description of the boundaries from the old policy was copied but she inserted
covering the new oil mill and to me at that time the important thing is that it covered the new
oil mill because it is just within one compound and there are only two oil mill[s] and so just
enough, I had the policy prepared. In fact, two policies were prepared having the same date
one for the old one and the other for the new oil mill and exactly the same policy period,
sir.xxxviii[14] (emphasis supplied)

It is thus clear that the source of the discrepancy happened during the preparation of the
written contract.

These facts lead us to hold that the present case falls within one of the recognized exceptions
to the parole evidence rule. Under the Rules of Court, a party may present evidence to modify,
explain or add to the terms of the written agreement if he puts in issue in his pleading, among
others, its failure to express the true intent and agreement of the parties thereto.xxxix[15]
Here, the contractual intention of the parties cannot be understood from a mere reading of the
instrument. Thus, while the contract explicitly stipulated that it was for the insurance of the
new oil mill, the boundary description written on the policy concededly pertains to the first oil
mill. This irreconcilable difference can only be clarified by admitting evidence aliunde, which
will explain the imperfection and clarify the intent of the parties.

Anent petitioners argument that the respondent is barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, we find that the same proceeds from
a wrong assumption. Evidence on record reveals that respondents operating manager, Mr.
Edison Tantuco, notified Mr. Borja (the petitioners agent with whom respondent negotiated for
the contract) about the inaccurate description in the policy. However, Mr. Borja assured Mr.
Tantuco that the use of the adjective new will distinguish the insured property. The assurance
convinced respondent that, despite the impreciseness in the specification of the boundaries,
the insurance will cover the new oil mill. This can be seen from the testimony on cross of Mr.
Tantuco:

"ATTY. SALONGA:

Q: You mentioned, sir, that at least in so far as Exhibit A is concern you have read what the
policy contents.(sic)

Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2 particularly
the boundaries of the property insured by the insurance policy Exhibit A, will you tell us as the
manager of the company whether the boundaries stated in Exhibit A-2 are the boundaries of
the old (sic) mill that was burned or not.
A: It was not, I called up Mr. Borja regarding this matter and he told me that what is
important is the word new oil mill. Mr. Borja said, as a matter of fact, you can never insured
(sic) one property with two (2) policies, you will only do that if you will make to increase the
amount and it is by indorsement not by another policy, sir."xl[16]

We again stress that the object of the court in construing a contract is to ascertain the intent of
the parties to the contract and to enforce the agreement which the parties have entered into.
In determining what the parties intended, the courts will read and construe the policy as a
whole and if possible, give effect to all the parts of the contract, keeping in mind always,
however, the prime rule that in the event of doubt, this doubt is to be resolved against the
insurer. In determining the intent of the parties to the contract, the courts will consider the
purpose and object of the contract.xli[17]

In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewal
policy for its failure to pay the full amount of the premium and breach of the Fire Extinguishing
Appliances Warranty.

The amount of the premium stated on the face of the policy was P89,770.20. From the
admission of respondents own witness, Mr. Borja, which the petitioner cited, the former only
paid it P75,147.00, leaving a difference of P14,623.20. The deficiency, petitioner argues, suffices
to invalidate the policy, in accordance with Section 77 of the Insurance Code.xlii[18]

The Court of Appeals refused to consider this contention of the petitioner. It held that this issue
was raised for the first time on appeal, hence, beyond its jurisdiction to resolve, pursuant to
Rule 46, Section 18 of the Rules of Court.xliii[19]

Petitioner, however, contests this finding of the appellate court. It insists that the issue was
raised in paragraph 24 of its Answer, viz.:

24. Plaintiff has not complied with the condition of the policy and renewal certificate that
the renewal premium should be paid on or before renewal date.

Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, who
acknowledged that the paid amount was lacking by P14,623.20 by reason of a discount or
rebate, which rebate under Sec. 361 of the Insurance Code is illegal.

The argument fails to impress. It is true that the asseverations petitioner made in paragraph 24
of its Answer ostensibly spoke of the policys condition for payment of the renewal premium on
time and respondents non-compliance with it. Yet, it did not contain any specific and definite
allegation that respondent did not pay the premium, or that it did not pay the full amount, or
that it did not pay the amount on time.

Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial
proceedings, the question of the supposed inadequate payment was never raised. Most
significant to point, petitioner fatally neglected to present, during the whole course of the trial,
any witness to testify that respondent indeed failed to pay the full amount of the premium. The
thrust of the cross-examination of Mr. Borja, on the other hand, was not for the purpose of
proving this fact. Though it briefly touched on the alleged deficiency, such was made in the
course of discussing a discount or rebate, which the agent apparently gave the respondent.
Certainly, the whole tenor of Mr. Borjas testimony, both during direct and cross examinations,
implicitly assumed a valid and subsisting insurance policy. It must be remembered that he was
called to the stand basically to demonstrate that an existing policy issued by the petitioner
covers the burned building.

Finally, petitioner contends that respondent violated the express terms of the Fire Extinguishing
Appliances Warranty. The said warranty provides:

WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as
mentioned below shall be maintained in efficient working order on the premises to which
insurance applies:

- PORTABLE EXTINGUISHERS

- INTERNAL HYDRANTS

- EXTERNAL HYDRANTS

- FIRE PUMP

- 24-HOUR SECURITY SERVICES

BREACH of this warranty shall render this policy null and void and the Company shall no
longer be liable for any loss which may occur.xliv[20]

Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances
specified therein. The breach occurred when the respondent failed to install internal fire
hydrants inside the burned building as warranted. This fact was admitted by the oil mills
expeller operator, Gerardo Zarsuela.

Again, the argument lacks merit. We agree with the appellate courts conclusion that the
aforementioned warranty did not require respondent to provide for all the fire extinguishing
appliances enumerated therein. Additionally, we find that neither did it require that the
appliances are restricted to those mentioned in the warranty. In other words, what the
warranty mandates is that respondent should maintain in efficient working condition within the
premises of the insured property, fire fighting equipments such as, but not limited to, those
identified in the list, which will serve as the oil mills first line of defense in case any part of it
bursts into flame.
To be sure, respondent was able to comply with the warranty. Within the vicinity of the new oil
mill can be found the following devices: numerous portable fire extinguishers, two fire
hoses,xlv[21] fire hydrant,xlvi[22] and an emergency fire engine.xlvii[23] All of these
equipments were in efficient working order when the fire occurred.

It ought to be remembered that not only are warranties strictly construed against the insurer,
but they should, likewise, by themselves be reasonably interpreted.xlviii[24] That
reasonableness is to be ascertained in light of the factual conditions prevailing in each case.
Here, we find that there is no more need for an internal hydrant considering that inside the
burned building were: (1) numerous portable fire extinguishers, (2) an emergency fire engine,
and (3) a fire hose which has a connection to one of the external hydrants.

IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition is
hereby DISMISSED.

SO ORDERED.