Commrev - Insurance - Loti Notes

ETERNAL GARDENS MEMORIAL PARK CORPORATION, vs THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY
• On December 10, 1980, (Philamlife) entered into an agreement denominated as CREDITOR GROUP LIFE
POLICY No. P-19202 with (Eternal). Clients of Eternal who purchased burial lots from it on installment basis
would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.
• The relevant provisions of the policy are:
o ELIGIBILITY: Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is
indebted to the Assured for the unpaid balance of his loan with the Assured, and is accepted for Life
Insurance coverage by the Company on its effective date is eligible for insurance under the Policy.
o EVIDENCE OF INSURABILITY: No medical examination shall be required for amounts of insurance up
to P50,000.00. However, a declaration of good health shall be required for all Lot Purchasers as part of the
application. The Company reserves the right to require further evidence of insurability satisfactory to the
Company in respect of the following: 1. Any amount of insurance in excess of P50,000.00. 2. Any lot
purchaser who is more than 55 years of age.
o LIFE INSURANCE BENEFIT: The Life Insurance coverage of any Lot Purchaser at any time shall be the
amount of the unpaid balance of his loan (including arrears up to but not exceeding 2 months) as reported
by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such benefit shall be paid
to the Assured if the Lot Purchaser dies while insured under the Policy.
o EFFECTIVE DATE OF BENEFIT: The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company. 3
• Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of
the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers.
o Eternal complied by submitting a letter dated December 29, 1982, 4 containing a list of insurable balances of
its lot buyers for October 1982. One of those included in the list as "new business" was a certain John
Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.
• Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuang’s death.
Attached to the claim were the following documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate
stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending
Physician; and (5) Assured’s Certificate.
o In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the
following documents relative to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with
form attached); (2) Assured’s Certificate (with form attached); (3) Application for Insurance accomplished and
signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of
Chuang before his death.
• Eternal transmitted the required documents through a letter dated November 14, 1984, 7 which was received by
Philamlife on November 15, 1984.
• After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim. This
prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8
o In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20,
1986,9 a portion of which reads:
▪ The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal
Gardens Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00
each. No application for Group Insurance was submitted in our office prior to his death on August
2, 1984.
▪ In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of Insurability
provision, "a declaration of good health shall be required for all Lot Purchasers as party of the
application." We cite further the provision on Effective Date of Coverage under the policy which
states that "there shall be no insurance if the application is not approved by the Company." Since
no application had been submitted by the Insured/Assured, prior to his death, for our approval but
was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not
covered under the Policy. We wish to point out that Eternal Gardens being the Assured was a party
to the Contract and was therefore aware of these pertinent provisions.
▪ With regard to our acceptance of premiums, these do not connote our approval per se of the
insurance coverage but are held by us in trust for the payor until the prerequisites for insurance
coverage shall have been met. We will however, return all the premiums which have been paid in
behalf of John Uy Chuang.
RTC MAKATI: IN FAVOR OF ETERNAL {ULTIMATELY MODIFIED}

• WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against
Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the
proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum of
P10,000.00 as attorney’s fees.
COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 1

oEternal submitted Chuang’s application for insurance which he accomplished before his death, as testified to
by Eternal’s witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl:
Phil-Am Life Insurance Application Forms & Cert."10
o Philamlife’s inaction from the submission of the requirements of the group insurance on December 29,
1982 to Chuang’s death on August 2, 1984, as well as Philamlife’s acceptance of the premiums during the
same period, Philamlife was deemed to have approved Chuang’s application.
o Since the contract is a group life insurance, once proof of death is submitted, payment must follow.
CA REVERSED [WRONG]:
• WHEREFORE, RTC is REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs.
• Chuang’s application was not enclosed in Eternal’s letter dated December 29, 1982. It further ruled that the non-
accomplishment of the submitted application form violated Sec. 26 of IC. Thus, the CA concluded, there being no
application form, Chuang was not covered by Philamlife’s insurance.
GROUNDS of the PETITION:

• The application for insurance was not duly submitted to respondent PhilamLife before the death of John Chuang;
• There was no valid insurance coverage; and
• Reversing and setting aside the Decision of RTC dated May 29, 1996.
CONTENTION:
• Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy
of the insurance application of Chuang before his death.
o In Eternal’s letter dated December 29, 1982, a list of insurable interests of buyers for October 1982 was
attached, including Chuang in the list of new businesses.
o Eternal added it was noted at the BOTTOM OF SAID LETTER that the corresponding " Phil-Am Life
Insurance Application Forms & Cert." were enclosed in the letter that was apparently received by
Philamlife on January 15, 1983.
• Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must present evidence
showing that Philamlife received a copy of Chuang’s insurance application.
THE COURT’S RULING

1-The evidence on record supports Eternal’s position.
• The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the
insurance forms for the attached list of burial lot buyers were attached to the letter. SUCH STAMP OF RECEIPT
HAS THE EFFECT OF ACKNOWLEDGING RECEIPT OF THE LETTER TOGETHER WITH THE
ATTACHMENTS. SUCH RECEIPT IS AN ADMISSION BY PHILAMLIFE AGAINST ITS OWN
INTEREST.13 The burden of evidence has shifted to Philamlife, which must prove that the letter did not contain
Chuang’s insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have received
Chuang’s insurance application
• To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped as received, the
contents of the letter are correct and accounted for.
2-Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to inconsistencies is groundless.
• An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts
of substance and value. Philamlife primarily claims that Eternal did not even know where the original insurance
application of Chuang was, as shown by the testimony of Edilberto Mendoza:
o [Mendoza:] SOP: for the new client to fill up two copies of this form and the original of this is submitted to
Philamlife together with the monthly remittances and the second copy is remained or retained with the
marketing department of Eternal Gardens.
o [Mendoza:] I do not know where the original but when I submitted with that payment together with the
new clients all the originals, I see to it before I sign the transmittal letter the originals are attached therein.16
o The witness admitted not knowing where the original insurance application was, but believed that the
application was transmitted to Philamlife as an attachment to a transmittal letter.
• As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance
application forms were accomplished and the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the witnesses.
o number of copies of the insurance application that Chuang executed is not at issue, neither is whether the
insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by
Philamlife are minor and do not affect the credibility of Eternal’s witnesses.
3-Whether Philamlife assumed the risk of loss without approving the application = YES
• Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated
December 10, 1980. EFFECTIVE DATE OF BENEFIT: The insurance of any eligible Lot Purchaser shall be
effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the application of
the Lot Purchaser is not approved by the Company.

• An examination of the above provision would show ambiguity between its two sentences. It must be remembered
that an insurance contract is a contract of adhesion which must be CONSTRUED LIBERALLY IN FAVOR OF
THE INSURED and strictly against the insurer in order to safeguard the latter’s interest.
o Malayan Insurance Corporation v. CA: Indemnity and liability insurance policies are construed in
accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be
construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.
o Philamcare Health Systems, Inc. v. CA: 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. 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. 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. 20
• Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must
be construed in favor of the insured and in favor of the effectivity of the insurance contract.
• The seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid,
and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of
Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition
which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the
insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.
• As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best.
Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully
used to its advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms
and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish
to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever
the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest
of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to
either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective
insurance contract.
WHEREFORE, The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is
hereby ORDERED:
• (1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang;
• (2) To pay Eternal legal interest at the rate of 6% per annum of PhP 100,000 from the time of extra-judicial demand
by Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17, 1996;
• (3) To pay Eternal legal interest at the rate of 12% per annum of PhP 100,000 from June 17, 1996 until full payment
of this award; and
• (4) To pay Eternal attorney’s fees in the amount of PhP 10,000.

PHILAMCARE HEALTH SYSTEMS, INC., vs. CA and JULITA TRINOS.
• Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner
Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question: Have
you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).1
• The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was
issued Health Care Agreement No. P010194. Under the agreement, respondent’s 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.
o Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to
March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.2
• During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center
(MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim
the benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care
Agreement was void. According to petitioner, there was a concealment regarding Ernani’s medical history. Doctors
at the MMC allegedly discovered at the time of Ernani’s 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 RTC 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 attorney’s fees.
o RTC RULED AGAINST PHILAMCARE
▪ 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 attorney’s fees of P20,000.00, plus costs of suit.
o CA JUST deleted all awards for damages and absolved petitioner Reverente {AFFIRMED}
ARGUMENT OF PHILAMCARE:
• A health care agreement is not an insurance contract; hence the "incontestability clause" under IC6 does not
apply.1âwp
• 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.
Only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss.
• Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance contracts
which last longer,7 petitioner argues that the incontestability clause does not apply, as the same requires an effectivity
period of at least two years.
• 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.
IMPORTANT PROVISIONS:
• Sec. 2 (1) of IC 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 insurer’s promise, the insured pays a premium. 8
• Sec. 3 of IC 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
• Sec. 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 respondent’s husband in obtaining the health care agreement was his own
health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of
indemnity.9 Once the member incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.
HELD:
FACTS RECALLED:
• Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that in the
application for health coverage, petitioners required respondent’s 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.
• HEALTH CARE AGREEMENT: 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.
o Petitioner additionally required the applicant for authorization to inquire about the applicant’s 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.
• Petitioner cannot rely on the stipulation regarding " Invalidation of agreement" which reads: Failure to disclose or
misrepresentation of any material information by the member in the application or medical examination, whether
intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of
Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is
deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the
assessment of a higher Membership Fee for the benefit or benefits applied for. 13
o 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 respondent’s 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.
o (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured
will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such case the insurer is not justified in relying
upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a
case and one in which the insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is
shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.15
• The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract.16 Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense
and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In
any case, WITH OR WITHOUT THE AUTHORITY TO INVESTIGATE, petitioner is liable for claims made
under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to
the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has
prepaid.
o Under Sec. 27 of IC, "a concealment entitles the injured party to rescind a contract of insurance." The right
to rescind should be exercised previous to the commencement of an action on the contract. 17 In this case,
no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require
the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be
based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must
be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the

grounds relied upon provided in Sec. 64 of IC and upon request of insured, to furnish facts on which
cancellation is based.1
o None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation.19 Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract – the insurer.20 By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid
forfeiture.21 This is equally applicable to Health Care Agreements. The phraseology used in medical or
hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. 2
• ANENT THE INCONTESTABILITY OF THE MEMBERSHIP OF RESPONDENT’S HUSBAND, we quote
with approval the following findings of the trial court: (U)nder the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to
contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the
agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of
concealment or misrepresentation no longer lie. 23
• Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time
of their marriage, the deceased was previously married to another woman who was still alive. The health care
agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred
the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore
entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased’s
hospitalization, medication and the professional fees of the attending physicians.24
WHEREFORE, CA is AFFIRMED.

ASIAN TERMINALS, INC. vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION
• On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags complete and in good
condition were loaded and received on board M/V "Da Feng" owned by China Ocean Shipping Co. (COSCO) in
favor of consignee, Grand Asian Sales, Inc. (GASI). Based on a Certificate of Insurance 4 dated August 24, 1995, it
appears that the shipment was insured against all risks by GASI with FIRST LEPANTO for ₱7,959,550.50 under
Marine Open Policy No. 0123.
• The shipment arrived in Manila on July 18, 1996 and was discharged into the possession and custody of ATI, a
domestic corporation engaged in arrastre business. The shipment remained for quite some time at ATI’s storage area
until it was withdrawn by broker, Proven Customs Brokerage Corporation (PROVEN), on August 8 and 9, 1996
for delivery to the consignee. Upon receipt of the shipment,5 GASI subjected the same to inspection and found that
the delivered goods incurred shortages of 8,600 kilograms and spillage of 3,315 kg for a total of11,915 kg of
loss/damage valued at ₱166,772.41.
• GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines, Inc. (SMITH
BELL),6 ATI7 and PROVEN8 but was denied. Hence, it pursued indemnification from the shipment’s insurer.9
• After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount of ₱165,772.40 as
insurance indemnity.10
• Thereafter, GASI executed a Release of Claim11 discharging FIRST LEPANTO from any and all liabilities pertaining
to the lost/damaged shipment and subrogating it to all the rights of recovery and claims the former may have against
any person or corporation in relation to the lost/damaged shipment.
• As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the Philippines, SMITH
BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI. When FIRST LEPANTO’s demands
were not heeded, it filed on May 29, 1997 a Complaint12 for sum of money before the (MeTC) of Manila, Branch
3. FIRST LEPANTO sought that it be reimbursed the amount of 166,772.41, (25%) thereof as attorney’s fees, and
costs of suit.
o ATI denied liability for the lost/damaged shipment and claimed that it exercised due diligence and care in
handling the same.13 ATI averred that upon arrival of the shipment, SMITH BELL requested for its
inspection14 and it was discovered that one jumbo bag thereof sustained loss/damage while in the custody of
COSCO as evidenced by Turn Over Survey of Bad Order Cargo No. 47890 dated August 6, 1996 15 jointly
executed by the respective representatives of ATI and COSCO. During the withdrawal of the shipment by
PROVEN from ATI’s warehouse, the entire shipment was re-examined and it was found to be exactly in
the same condition as when it was turned over to ATI such that one jumbo bag was damaged. To bolster
this claim, ATI submitted Request for Bad Order Survey No. 40622 dated August 9, 199616 jointly executed
by the respective representatives of ATI and PROVEN. ATI also submitted various Cargo Gate
Passes 17 showing that PROVEN was able to completely withdraw all the shipment from ATI’s warehouse
in good order condition except for that one damaged jumbo bag.
▪ In the alternative, ATI asserted that even if it is found liable for the lost/damaged portion of the
shipment, its contract for cargo handling services limits its liability to not more than ₱5,000.00 per
package. ATI interposed a counterclaim of ₱20,000.00 against FIRST LEPANTO as and for
attorney’s fees. It also filed a cross-claim against its co-defendants COSCO and SMITH BELL in
the event that it is made liable to FIRST LEPANTO.18
o PROVEN denied any liability for the lost/damaged shipment and averred that the complaint alleged no
specific acts or omissions that makes it liable for damages. PROVEN claimed that the damages in the
shipment were sustained before they were withdrawn from ATI’s custody under which the shipment was
left in an open area exposed to the elements, thieves and vandals. PROVEN contended that it exercised
due diligence and prudence in handling the shipment. PROVEN also filed a counterclaim for attorney’s
fees and damages.19
• Despite receipt of summons on December 4, 1996,20 COSCO and SMITH BELL failed to file an answer to the
complaint. FIRST LEPANTO thus moved that they be declared in default 21 but the motion was denied by the
MeTC on the ground that under Rule 9, Sec. 3 of the Rules of Civil Procedure, "when a pleading asserting a claim
states a common cause of action against several defending parties, some of whom answer and the other fail to do so,
the Court shall try the case against all upon the answers thus filed, and render judgment upon the evidence
presented."22
ARGUMENT OF ATI IN CHALLENGING RTC’s finding that FIRST LEPANTO was validly subrogated to the rights
of GASI with respect to the lost/damaged shipment:
• There was no valid subrogation because FIRSTLEPANTO failed to present a valid, existing and enforceable Marine
Open Policy or insurance contract. ATI reasoned that the Certificate of Insurance or Marine Cover Note submitted
by FIRST LEPANTO as evidence is not the same as an actual insurance contract.
WHAT CA DID:
• Dismissed the appeal and held that the Release of Claim and the Certificate of Insurance presented by FIRST
LEPANTO sufficiently established its relationship with the consignee and that upon proof of payment of the latter’s
claim for damages, FIRST LEPANTO was subrogated to its rights against those liable for the lost/damaged
shipment.

• Affirmed the ruling of the RTC that the subject shipment was damaged while in the custody of ATI.
ISSUES:
• The presentation of the insurance policy is indispensable in proving the right of FIRST LEPANTO to be
subrogated to the right of the consignee pursuant to the ruling in Wallem Philippines Shipping, Inc. v. Prudential
Guarantee and Assurance Inc.;30
• ATI cannot be barred from invoking the defense of prescription as provided for in the gate passes in consonance
with the ruling in International Container Terminal Services, Inc. v. Prudential Guarantee and Assurance Co, Inc.31
HELD = THE COURT DENIES THE PETITION.

ATI FAILED TO PROVE THAT IT EXERCISED DUE CARE AND DILIGENCE WHILE THE SHIPMENT
WAS UNDER ITS CUSTODY, CONTROL AND POSSESSION AS ARRASTRE OPERATOR.
• ATI is liable as the arrastre operator for the lost/damaged portion of the shipment.
o The relationship between the consignee and the arrastre operator is akin to that existing between the
consignee and/or the owner of the shipped goods and the common carrier, or that between a depositor and
a warehouseman. Hence, in the performance of its obligations, an arrastre operator should observe the same
degree of diligence as that required of a common carrier and a warehouseman. Being the custodian of the
goods discharged from a vessel, an arrastre operator’s duty is to take good care of the goods and to turn
them over to the party entitled to their possession. 34
o In a claim for loss filed by the consignee (or the insurer), the burden of proof to show compliance with the
obligation to deliver the goods to the appropriate party DEVOLVES UPON THE ARRASTRE
OPERATOR. Since the safekeeping of the goods is its responsibility, it must prove that the losses were not
due to its negligence or to that of its employees. To avoid liability, the arrastre operator must prove that it
exercised diligence and due care in handling the shipment. 35
o To prove the exercise of diligence in handling the subject cargoes, an arrastre operator must do more than
merely show the possibility that some other party could be responsible for the loss or the damage. 37 It must
prove that it used all reasonable means to handle and store the shipment with due care and diligence
including safeguarding it from weather elements, thieves or vandals.
▪ ATI failed to discharge its burden of proof. Instead, it insisted on shifting the blame to COSCO on
the basis of the Request for Bad Order Survey dated August 9, 1996 purportedly showing that when
ATI received the shipment, one jumbo bag thereof was already in damaged condition.
▪ The RTC and CA were both correct in concluding that ATI’s contention was IMPROBABLE
AND ILLOGICAL. As judiciously discerned by the courts a quo, the date of the document was
too distant from the date when the shipment was actually received by ATI from COSCO on July
18, 1996. In fact, what the document established is that when the loss/damage was discovered, the
shipment has been in ATI’s custody for at least two weeks. This circumstance, coupled with the
undisputed declaration of PROVEN’s witnesses that while the shipment was in ATI’s custody, it
was left in an open area exposed to the elements, thieves and vandals,36 all generate the conclusion
that ATI failed to exercise due care and diligence while the subject shipment was under its custody,
control and possession as arrastre operator.
NON-PRESENTATION OF THE INSURANCE CONTRACT IS NOT FATAL TO FIRST LEPANTO’S CAUSE

OF ACTION FOR REIMBURSEMENT AS SUBROGEE.
• It is conspicuous from the records that ATI put in issue the submission of the insurance contract for the first time
before the CA. Despite opportunity to study FIRST LEPANTO’s complaint before the MeTC, ATI failed to allege
in its answer the necessity of the insurance contract. Neither was the same considered during pre-trial as one of the
decisive matters in the case. Further, ATI never challenged the relevancy or materiality of the Certificate of
Insurance presented by FIRST LEPANTO as evidence during trial as proof of its right to be subrogated in the
consignee’s stead. Since it was not agreed during the pre-trial proceedings that FIRST LEPANTO will have to
prove its subrogation rights by presenting a copy of the insurance contract, ATI is barred from pleading the absence of
such contract in its appeal. It is imperative for the parties to disclose during pre-trial all issues they intend to raise
during the trial because, they are bound by the delimitation of such issues. The determination of issues during the
pre-trial conference BARS THE CONSIDERATION OF OTHER QUESTIONS, WHETHER DURING
TRIAL OR ON APPEAL.38
o A faithful adherence to the rule by litigants is ensured by the equally settled principle that a party cannot
change his theory on appeal as such act violates the basic rudiments of fair play and due process. [Jose v.
Alfuerto] While the Court may adopt a liberal stance and relax the rule, no reasonable explanation,
however, was introduced to justify ATI’s failure to timely question the basis of FIRST LEPANTO’s rights
as a subrogee.
• At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s right to collect
reimbursement as the subrogee of GASI.
o "Subrogation is the substitution of one person in the place of another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities." 42 The right of subrogation springs from Article 2207 of the Civil Code

which states: 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 wrong-doer or the person
who has violated the contract. If the amount paid by the insurance company does not fully cover the injury
or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or
injury.
o As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may
recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right.
▪ In MALAYAN INSURANCE CO., INC. V.REGIS BROKERAGE CORP .,43 the Court stated
that the presentation of the contract constitutive of the insurance relationship between the
consignee and insurer is critical because it is the legal basis of the latter’s right to subrogation. 44
▪ In Home Insurance Corporation v. CA,45 the Court also held that the insurance contract was
necessary to prove that it covered the hauling portion of the shipment and was not limited to the
transport of the cargo while at sea. The shipment in that case passed through six stages with
different parties involved in each stage until it reached the consignee. The insurance contract,
which was not presented in evidence, was necessary to determine the scope of the insurer’s liability,
if any, since no evidence was adduced indicating at what stage in the handling process the damage
to the cargo was sustained.46
▪ An analogous disposition was arrived at in the Wallem 47 case cited by ATI wherein the Court held
that the insurance contract must be presented in evidence in order to determine the extent of its
coverage. It was further ruled therein that the liability of the carrier from whom reimbursement
was demanded was not established with certainty because the alleged shortage incurred by the
cargoes was not definitively determined.48
o Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by declaring
that a marine insurance policy is dispensable evidence in reimbursement claims instituted by the insurer.
▪ In Delsan Transport Lines, Inc. v. CA,49 the Court ruled that the right of subrogation accrues
simply upon payment by the insurance company of the insurance claim. Hence, presentation in
evidence of the marine insurance policy is not indispensable before the insurer may recover from
the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The
subrogation receipt, by itself, was held sufficient to establish not only the relationship between the
insurer and consignee, but also the amount paid to settle the insurance claim. The presentation of
the insurance contract was deemed not fatal to the insurer’s cause of action because the loss of the
cargo undoubtedly occurred while on board the petitioner’s vessel.50
▪ The same rationale was the basis of the judgment in International Container Terminal Services,
Inc. v. FGU Insurance Corporation,51 wherein the arrastre operator was found liable for the lost
shipment despite the failure of the insurance company to offer in evidence the insurance contract
or policy. As in Delsan, it was certain that the loss of the cargo occurred while in the petitioner’s
custody.52
o BASED ON THE ATTENDANT FACTS OF THE INSTANT CASE, THE APPLICATION OF
THE EXCEPTION IS WARRANTED.1âwphi1The loss/damage to the GASI’s shipment occurred
while they were in ATI’s custody, possession and control as arrastre operator. Verily, the Certificate of
Insurance53 and the Release of Claim54 presented as evidence sufficiently established FIRST LEPANTO’s
right to collect reimbursement as the subrogee of the consignee, GASI.
o With ATI’s liability having been positively established, to strictly require the presentation of the insurance
contract will run counter to the principle of equity upon which the doctrine of subrogation is premised.
Subrogation is designed to promote and to accomplish justice and is the mode which equity adopts to
compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay. 55
o The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the
remedies which the insured may have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or
upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the
insurance company of the insurance claim. 56
ATI CANNOT INVOKE PRESCRIPTION

• ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred from seeking payment for the
lost/damaged shipment because the claim letter of GASI to ATI was served only on September 27, 1996 or more
than one month from the date the shipment was delivered to the consignee’s warehouse on August 9, 1996. The
claim of GASI was thus filed beyond the 15-day period stated in ATI’s Management Contract with PPA which in
turn was reproduced in the gate passes issued to the consignee’s broker, PROVEN, as follows: Issuance of this Gate
Pass Constitutes delivery to and receipt by consignee of the goods as described above in good order and condition
unless an accompanying x x x certificates duly issued and noted on the face of this Gate Pass appeals. [sic] This Gate
pass is subject to all terms and conditions defined in the Management Contract between the Philippine Port[s]
Authority and Asian Terminals, Inc. and amendment thereto and alterations thereof particularly but not limited to
the [A]rticle VI thereof, limiting the contractor’s liability to [P]5,000.00 per package unless the importation is

otherwise specified or manifested or communicated in writing together with the invoice value and supported by a
certified packing list to the contractor by the interested party or parties before the discharge of the goods and
corresponding arrastre charges have been paid providing exception or restrictions from liability releasing the
contractor from liability among others unless a formal claim with the required annexes shall have been filed with the
contractor within fifteen (15) days from date of issuance by the contractors or certificate of loss, damages, injury, or
Certificate of non-delivery.57
• The contention is bereft of merit. As clarified in INSURANCE COMPANY OF NORTH AMERICA V. ASIAN
TERMINALS, INC.,58 substantial compliance with the 15-day time limitation is allowed provided that the consignee
has made a provisional claim thru a request for bad order survey or examination report, viz:
o Although the formal claim was filed beyond the 15-day period from the issuance of the examination report
on the request for bad order survey, the purpose of the time limitations for the filing of claims had already
been fully satisfied by the request of the consignee’s broker for a bad order survey and by the examination
report of the arrastre operator on the result thereof, as the arrastre operator had become aware of and had
verified the facts giving rise to its liability. Hence, the arrastre operator suffered no prejudice by the lack of
strict compliance with the 15-day limitation to file the formal complaint.59
o In the present case, ATI was notified of the loss/damage to the subject shipment as early as August 9, 1996
thru a Request for Bad Order Survey60 jointly prepared by the consignee’s broker, PROVEN, and the
representatives of ATI. For having submitted a provisional claim, GASI is thus deemed to have substantially
complied with the notice requirement to the arrastre operator notwithstanding that a formal claim was sent
to the latter only on September 27, 1996. ATI was not deprived the best opportunity to probe immediately
the veracity of such claims. Verily then, GASI, thru its subrogee FIRST LEPANTO, is not barred by filing
the herein action in court.
o ATI CANNOT RELY ON THE RULING IN PRUDENTIAT 61 BECAUSE THE CONSIGNEE
THEREIN MADE NO PROVISIONAL CLAIM THRU REQUEST FOR BAD ORDER SURVEY
AND INSTEAD FILED A CLAIM FOR THE FIRST TIME AFTER FOUR MONTHS FROM
RECEIPT OF THE SHIPMENT.
ATTORNEY'S FEES AND INTERESTS

• All told, ATI is liable to pay FIRST LEPANTO the amount of the Pl 65, 772.40 representing the insurance
indemnity paid by the latter to GASI. Pursuant to Nacar v. Gallery Frames, 62 the said amount shall earn a legal
interest at the rate of 6% per annum from the date of finality of this judgment until its full satisfaction.
• As correctly imposed by the RTC and the CA, (10%) of the judgment award is reasonable as and for attorney's fees
considering the length of time that has passed in prosecuting the claim. 63
• WHEREFORE, CA is AFFIRMED insofar as it adjudged liable and ordered Asian Terminals, Inc., to pay First
Lepanto-Taisho Insurance Corp., the amount of ₱165,772.40, (10%) thereof as and for attorney's fees, plus costs of
suit. The said amount shall earn legal interest at ( 6%) per annum from the date of finality of this judgment until its
full satisfaction.

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC.
vs. CA and CKS DEVELOPMENT CORPORATION
• Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS
Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.
• One of the stipulations of the one (1) year lease contract states: 18. The LESSEE shall not insure against fire the
chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without
first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof
without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own
benefit
• Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire the
merchandise inside the leased premises for (P500,000.00) with the United Insurance Co., Inc. (hereinafter United)
without the written consent of private respondent CKS.
• On the day that the lease contract was to expire, fire broke out inside the leased premises.
• When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer
(United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United)
be paid directly to CKS, based on its lease contract with the Cha spouses
• UNITED REFUSED TO PAY CKS. HENCE, THE LATTER FILED A COMPLAINT AGAINST THE
CHA SPOUSES AND UNITED.
• RTC: United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary
damages, P20,000.00 as attorney's fees and costs of suit.
• CA: affirming the trial court decision, deleting however the awards for exemplary damages and attorney's fees.
CORE ISSUE: W/N PAR 18 of the lease contract entered into between CKS and the Cha spouses is valid insofar as it
provides that any fire insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased premises
is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written consent of the latter.
HELD:
• It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law,
morals, good customs, public order or public policy. 3
• Sec. 18 of IC provides: Sec. 18. No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured.
• A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes
effect and at the time the loss occurs.4 The basis of such requirement of insurable interest in property insured is based
on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no
insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract
of insurance is a mere wager which is void under Sec. 25: Every stipulation in a policy of Insurance for the payment
of loss, whether the person insured has or has not any interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed by way of gaming or wagering, is void.
• In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the
leased premises under the provisions of Sec. 17: The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss of injury thereof.
o Therefore, respondent CKS cannot, under IC — a special law — be validly a beneficiary of the fire
insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS
under the provision of the lease contract previously quoted is void for being contrary to law and/or public
policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella
Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire
insurance policy to a person (CKS) who has no insurable interest in the property insured.
o The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a
fire insurance policy over their own merchandise, without the consent of CKS, is a SEPARATE AND
DISTINCT ISSUE WHICH WE DO NOT RESOLVE IN THIS CASE.
• WHEREFORE, CA WAS SET ASIDE and a new decision is hereby entered, awarding the proceeds of the fire
insurance policy to petitioners Nilo Cha and Stella Uy-Cha.

GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF NORTH AMERICA
• 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:
o 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.
o 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 x4
• 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
o 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.
• RTC: Dismissed 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.
• CA set aside RTC and ordered Cagayan to pay:
o 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;
o 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. {deleted in the final decision}
o 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), 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
ASSIGNMENT OF ERRORS:
• THE CA ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER
CREDIT.
o 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
o

• THE CA ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT
CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
o 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.
• THE CA ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART.
2207 IN FAVOR OF RESPONDENT.
o 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.
RESPONDENT’S ARGUMENT:
•
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
• Factual issues may be resolved by this Court because: (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (7) when the findings are contrary to the trial court; (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify
a different conclusion.
• At issue is the proper interpretation of the questioned insurance policy.
THE COURT DISAGREES WITH PETITIONER'S STAND 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.
• 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.
THE COURT IS NOT PERSUADED WHEN PETITIONER ARGUED 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 present case clearly falls under paragraph (1), Article 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;
• 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

o Sec. 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 Sec. 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.
o 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.
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.
• 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. 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 RATIONALE: 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
o Article 1263: "[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
o 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: 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.
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. CA is AFFIRMED with the MODIFICATION that the
order to pay the amount of P535,613.00 to respondent is DELETED for lack of factual basis.

SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY' S. SIBYA, JESUS MANUEL S. SIBYA
III, JAIME LUIS S. SIBYA, AND THE ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR.
• On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his Application
for Insurance, he indicated that he had sought advice for kidney problems. 5 Atty. Jesus Jr. indicated the following in
his application: "Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at
National Kidney Institute, discharged after 3 days, no recurrence as claimed." 6ChanRoblesVirtualawlibrary
• On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy No. 031097335.
The policy indicated the respondents as beneficiaries and entitles them to a death benefit of P1,000,000.00 should
Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty. Jesus Jr. is still living on the
endowment date.7
• On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma. Daisy filed
a Claimant's Statement with Sun Life to seek the death benefits indicated in his insurance policy. 8
o In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details on
Atty. Jesus Jr.'s medical history were not disclosed in his application. Simultaneously, Sun Life tendered a
check representing the refund of the premiums paid by Atty. Jesus Jr. 9
• The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun Life, however,
refused to heed the respondents' requests and instead filed a Complaint for Rescission before the RTC and prayed
for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy.10
• In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his previous
medical treatment at the National Kidney Transplant Institute in May and August of 1994. According to Sun Life,
the undisclosed fact suggested that the insured was in "renal failure" and at a high risk medical condition.
Consequently, had it known such fact, it would not have issued the insurance policy in favor of Atty. Jesus Jr. 11
o For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his
application for insurance. They averred that Atty. Jesus Jr. was in good faith when he signed the insurance
application and even authorized Sun Life to inquire further into his medical history for verification
purposes. According to them, the complaint is just a ploy to avoid the payment of insurance claims. 12
CA:
• affirmed RTC decision in ordering Sun Life to pay death benefits and damages in favor of the respondents.
• CA, however, modified the RTC by absolving Sun Life from the charges of violation of Sec.s 241 and 242 of IC.
• evidence on records show that there was no fraudulent intent on the part of Atty. Jesus Jr. in submitting his
insurance application. Instead, it found that Atty. Jesus Jr. admitted in his application that he had sought medical
treatment for kidney ailment.19
ISSUE: whether or not the CA erred when it affirmed the RTC decision finding that there was no concealment or
misrepresentation when Atty. Jesus Jr. submitted his insurance application with Sun Life.
Ruling of the Court = The petition has no merit.

• In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within the two-year
contestability period, the insurer is bound to make good its obligation under the policy, regardless of the presence or
lack of concealment or misrepresentation. The Court held: Sec. 48 serves a noble purpose, as it regulates the actions
of both the insurer and the insured. Under the provision, an insurer is given two years - from the effectivity of a life
insurance contract and while the insured is alive - to discover or prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-
year period lapses, or when the insured dies within the period, the insurer must make good on the policy, even though
the policy was obtained by fraud, concealment, or misrepresentation. This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business must be penalized, for
such recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of insurance and the
public in general.23 (Emphasis ours)
o In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years from
its issuance, to investigate and verify whether the policy was obtained by fraud, concealment, or
misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three months
from the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers,
the death of the insured within the two-year period will render the right of the insurer to rescind the policy
nugatory. As such, the incontestability period will now set in.
• Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the Court agrees,
nonetheless, with the CA when it held that Sun Life failed to show that Atty. Jesus Jr. committed concealment and
misrepresentation.
o As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for kidney
ailment. Moreover, he executed an authorization in favor of Sun Life to conduct investigation in reference
with his medical history. The decision in part states:
▪ Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought
medical treatment for kidney ailment. When asked to provide details on the said medication, [Atty.
Jesus Jr.] indicated the following information: year (" 1987"), medical procedure ("undergone
lithotripsy due to kidney stone"), length of confinement ("3 days"), attending physician ("Dr. Jesus
Benjamin Mendoza") and the hospital ("National Kidney Institute").
▪ It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun Life] the opportunity
to obtain information on the facts disclosed by [Atty. Jesus Jr.] in his insurance application. x x x
▪ Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed
his medical history since [Sun Life] had the means of ascertaining [Atty. Jesus Jr.'s] medical record.
▪ With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical
doctor, and his answer "no recurrence" may be construed as an honest opinion. 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.
• Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the insurance
contract. Concealment as a defense for the 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. 25 In the present case, Sun
Life failed to clearly and satisfactorily establish its allegations, and is therefore liable to pay the proceeds of the
insurance.
• WHEREFORE, CA AFFIRMED.

ARMANDO GEAGONIA CA and COUNTRY BANKERS INSURANCE CORPORATION
• The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance
Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks
amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc. P55,698.00
F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
—————
P392,130.50
• The policy contained the following condition: 3 . The insured shall give notice to the Company of any insurance or
insurances already affected, or which may subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless such notice be
given and the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to Sec.
50 of IC, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy
shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or
insurances in force at the time of the loss or damage is not more than P200,000.00.
• On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco,
Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed prompting him to file with the
private respondent a claim under the policy. On 28 December 1990, the private respondent denied the claim
because it found that at the time of the loss the petitioner's stocks-in-trade were likewise covered by fire insurance
policies No. GA-28146 and No. GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines
First Insurance Co., Inc. (hereinafter PFIC). 3 These policies indicate that the insured was "Messrs. Discount Mart
(Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
o MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest
may appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. — Phils. First
CEB/F 24758.4
• The basis of the private respondent' s denial was the petitioner' s alleged violation of Condition 3 of the policy.
• The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission (Case No.
3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for attorney's fees and costs of
litigation. He attached as Annex "AM" 6 thereof his letter of 18 January 1991 which asked for the reconsideration of
the denial. He admitted in the said letter that at the time he obtained the private respondent's fire insurance policy
he knew that the two policies issued by the PFIC were already in existence; however, he had no knowledge of the
provision in the private respondent's policy requiring him to inform it of the prior policies; this requirement was not
mentioned to him by the private respondent's agent; and had it been mentioned, he would not have withheld such
information. He further asserted that the total of the amounts claimed under the three policies was below the actual
value of his stocks at the time of loss, which was P1,000,000.00.
o In its answer,7 the private respondent specifically denied the allegations in the complaint and set up as its
principal defense the violation of Condition 3 of the policy.
IC:
• petitioner did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies
obtained from the PFIC;
• that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or securing his consent;
and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.
• These findings were based on the petitioner's testimony that he came to know of the PFIC policies only when he
filed his claim with the private respondent and that Cebu Tesing Textile obtained them and paid for their premiums
without informing him thereof.
• HEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the sum of
P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of
P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is hereby dismissed.
CA reversed IC because it found that the petitioner knew of the existence of the two other policies issued by the PFIC. It
said:
• It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken in the
name of private respondent [petitioner herein]. The policy states that "DISCOUNT MART (MR. ARMANDO
GEAGONIA, PROP)" was the assured and that "TESING TEXTILES" [was] only the mortgagee of the goods.
• In addition, the premiums on both policies were paid for by private respondent, not by the Tesing Textiles which is
alleged to have taken out the other insurance without the knowledge of private respondent. This is shown by
Premium Invoices nos. 46632 and 46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be
only the mortgagee of the goods insured but the party to which they were issued were the "DISCOUNT MART
(MR. ARMANDO GEAGONIA)."

• In is clear that it was the private respondent [petitioner herein] who took out the policies on the same property
subject of the insurance with petitioner. Hence, in failing to disclose the existence of these insurances private
respondent violated Condition No. 3 of Fire Policy No. 1462. . . .
• Indeed private respondent's allegation of lack of knowledge of the provisions insurances is belied by his letter to
petitioner [of 18 January 1991. The body of the letter reads as follows;
o Please be informed that I have no knowledge of the provision requiring me to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention about said
requirement at the time he was convincing me to insure with you. If he only die or even inquired if I had
other existing policies covering my establishment, I would have told him so. You will note that at the time
he talked to me until I decided to insure with your company the two policies aforementioned were already
in effect. Therefore I would have no reason to withhold such information and I would have desisted to part
with my hard earned peso to pay the insurance premiums [if] I know I could not recover anything.
o Sir, I am only an ordinary businessman interested in protecting my investments. The actual value of my
stocks damaged by the fire was estimated by the Police Department to be P1,000,000.00 (Please see xerox
copy of Police Report Annex "A"). My Income Statement as of December 31, 1989 or five months before
the fire, shows my merchandise inventory was already some P595,455.75. . . . These will support my claim
that the amount claimed under the three policies are much below the value of my stocks lost.
• The letter contradicts private respondent's pretension that he did not know that there were other insurances taken
on the stock-in-trade and seriously puts in question his credibility.
Petitioner contends therein that the CA acted with grave abuse of discretion amounting to lack or excess of jurisdiction:
• B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS
EVIDENCE DURING THE HEARING OR TRIAL
o The petitioner claims that the said letter was not offered in evidence and thus should not have been
considered in deciding the case. However, as correctly pointed out by the CA, a copy of this letter was
attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral
part of the complaint. 12 It has attained the status of a judicial admission and since its due execution and
authenticity was not denied by the other party, the petitioner is bound by it even if it were not introduced
as an independent evidence. 13
• A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A
QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM
AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS;
o As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the previous
two policies. The CA disagreed and found otherwise in view of the explicit admission by the petitioner in
his letter to the private respondent of 18 January 1991, which was quoted in the challenged decision of the
CA. These divergent findings of fact constitute an exception to the general rule that in petitions for review
under Rule 45, only questions of law are involved and findings of fact by the CA are conclusive and
binding upon this Court. 14
o We agree with the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of 18
January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary
before the Insurance Commissioner and which the latter relied upon cannot prevail over a written
admission made ante litem motam. It was, indeed, incredible that he did not know about the prior policies
since these policies were not new or original. Policy No. GA-28144 was a renewal of Policy No. F-24758,
while Policy No. GA-28146 had been renewed twice, the previous policy being F-24792.
• C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE
RESPONDENT.
o The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior
knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance policy
from the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy, and
(b) if he had, whether he is precluded from recovering therefrom.
HELD:
• Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law. Its
incorporation in the policy is allowed by Sec. 75 of IC 15 which provides that "[a] policy may declare that a violation
of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the
policy." Such a condition is a provision which invariably appears in fire insurance policies and is intended to prevent
an increase in the moral hazard. It is commonly known as the additional or "other insurance" clause and has been
upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject matter, the
same interest therein, and the same risk.17
• As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein
and both interests may be one policy, or each may take out a separate policy covering his interest, either at the same
or at separate times. 18 The mortgagor's insurable interest covers the full value of the mortgaged property, even
though the mortgage debt is equivalent to the full value of the property. 19 The mortgagee's insurable interest is to
the extent of the debt, since the property is relied upon as security thereof, and in insuring he is not insuring the
property but his interest or lien thereon. His insurable interest is prima facie the value mortgaged and extends only
to the amount of the debt, not exceeding the value of the mortgaged property. 20 Thus, separate insurances covering
different insurable interests may be obtained by the mortgagor and the mortgagee.
• A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice. The
mortgagee may be made the beneficial payee in several ways. He may become the assignee of the policy with the
consent of the insurer; or the mere pledgee without such consent; or the original policy may contain a mortgage
clause; or a rider making the policy payable to the mortgagee "as his interest may appear" may be attached; or a
"standard mortgage clause," containing a collateral independent contract between the mortgagee and insurer, may be
attached; or the policy, though by its terms payable absolutely to the mortgagor, may have been procured by a
mortgagor under a contract duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an
equitable lien upon the proceeds. 21
• In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest may appear,
the mortgagee is only a beneficiary under the contract, and recognized as such by the insurer but not made a party to
the contract himself. Hence, any act of the mortgagor which defeats his right will also defeat the right of the
mortgagee. 22 This kind of policy covers only such interest as the mortgagee has at the issuing of the policy.23
• On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the terms of an
agreement by which the mortgagor is to pay the premiums upon such insurance. 24 It has been noted, however, that
although the mortgagee is himself the insured, as where he applies for a policy, fully informs the authorized agent of
his interest, pays the premiums, and obtains on the assurance that it insures him, the policy is in fact in the form used
to insure a mortgagor with loss payable clause. 25
The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage clause which reads:
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the terms
of this policy. This is clearly a simple loss payable clause, not a standard mortgage clause.
• It must, however, be underscored that unlike the "other insurance" clauses involved in General Insurance and Surety
Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27 which read: The insured shall give notice to
the company of any insurance or insurances already effected, or which may subsequently be effected covering any of
the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be
stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all
benefits under this Policy shall be forfeited. or in the 1930 case of Santa Ana vs. Commercial Union Assurance
Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured
must be declared by the insured in writing and he must cause the company to add or insert it in the policy, without
which such policy shall be null and void, and the insured will not be entitled to indemnity in case of
loss," Condition 3 in the private respondent's policy No. F-14622 DOES NOT ABSOLUTELY DECLARE
VOID ANY VIOLATION THEREOF. It expressly provides that the condition "shall not apply when the total
insurance or insurances in force at the time of the loss or damage is not more than P200,000.00."
• It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor of the
insured and strictly against the company, the reason being, undoubtedly, to afford the greatest protection which the
insured was endeavoring to secure when he applied for insurance. It is also a cardinal principle of law that forfeitures
are not favored and that any construction which would result in the forfeiture of the policy benefits for the person
claiming thereunder, will be avoided, if it is possible to construe the policy in a manner which would permit
recovery, as, for example, by finding a waiver for such forfeiture. 29 Stated differently, provisions, conditions or
exceptions in policies which tend to work a forfeiture of insurance policies should be construed most strictly against
those for whose benefits they are inserted, and most favorably toward those against whom they are intended to
operate. 30 The reason for this is that, except for riders which may later be inserted, the insured sees the contract
already in its final form and has had no voice in the selection or arrangement of the words employed therein. On the
other hand, the language of the contract was carefully chosen and deliberated upon by experts and legal advisers who
had acted exclusively in the interest of the insurers and the technical language employed therein is rarely understood
by ordinary laymen. 31
• With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally free from
ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition
applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of
the total policies obtained.
o The first conclusion is supported by the portion of the condition referring to other insurance "covering any
of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby
insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE that the
co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the
same person is insured by several insurers separately in respect of the same subject and interest. As earlier
stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and
separate. Since the two policies of the PFIC do not cover the same interest as that covered by the policy of
the private respondent, no double insurance exists. The non-disclosure then of the former policies was not
fatal to the petitioner's right to recover on the private respondent's policy.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in
o
force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-
insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-
insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to
prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance
policies from two or more insurers in a total amount that exceeds the property's value, the insured may have
an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the
insurer is interested in preventing a situation in which a fire would be profitable to the insured. 32
WHEREFORE, decision of the Insurance Commission in Case No. 3340 is REINSTATED.

THE INSULAR LIFE ASSURANCE COMPANY, LTD. PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK
Y. KHU
DEL CASTILLO, J.: The date of last reinstatement mentioned in Sec. 48 of IC pertains to the date that the insurer
approved· the application for reinstatement. However, in light of the ambiguity in the insurance documents to this case, this
Court adopts the interpretation favorable to the insured in determining the date when the reinstatement was approved.
Factual Antecedents
• On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter’s
Diamond Jubilee Insurance Plan. Felipe accomplished the required medical questionnaire wherein he did not declare
any illness or adverse medical condition. Insular Life thereafter issued him Policy Number A000015683 with a face
value of P1 million. This took effect on June 22, 1997. 5
• On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium covering the period from June 22,
1999 to June 23, 2000.6
• On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as premium. Except
for the change in his occupation of being self-employed to being the Municipal Mayor of Binuangan, Misamis
Oriental, all the other information submitted by Felipe in his application for reinstatement was virtually identical to
those mentioned in his original policy. 7
• On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be considered if he
agreed to certain conditions such as payment of additional premium and the cancellation of the riders pertaining to
premium waiver and accidental death benefits. Felipe agreed to these conditions 8 and on December 27, 1999 paid
the agreed additional premium of P3,054.50.9
• On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which reads: This certifies that as agreed
by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the
following changes are made on the policy effective June 22, 1999: 1. The EXTRA PREMIUM is imposed; and 2.
The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider
originally attached to and forming parts of this policy [are] deleted. In consequence thereof, the premium rates on
this policy are adjusted to P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly, Philippine
currency.10
• On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period from June 22,
2000 to June 22, 2001. And on July 2, 2001, he also paid the same amount as annual premium covering the period
from June 22, 2001 to June 21, 2002.11
• On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of death:
Immediate cause: a. End stage renal failure, Hepatic failure
Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia. 12
• On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe’s beneficiaries or
respondents) filed with Insular Life a claim for benefit under the reinstated policy. This claim was denied. Instead,
Insular Life advised Felipe’s beneficiaries that it had decided to rescind the reinstated policy on the grounds of
concealment and misrepresentation by Felipe.
• Hence, respondents instituted a complaint for specific performance with damages. Respondents prayed that the
reinstated life insurance policy be declared valid, enforceable and binding on Insular Life; and that the latter be
ordered to pay unto Felipe’s beneficiaries the proceeds of this policy, among others. 13
o In its Answer, Insular Life countered that Felipe did not disclose the ailments ( viz., Type 2 Diabetes
Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior to his
application for reinstatement of his insurance policy; and that it would not have reinstated the insurance
policy had Felipe disclosed the material information on his adverse health condition. It contended that
when Felipe died, the policy was still contestable. 14
Ruling of the RTC = RTC, Branch 39 of Cagayan de Oro City found for Felipe’s beneficiaries, thus:
• WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by preponderance of evidence,
judgment is hereby rendered in their favor and against defendants, ordering the latter to pay jointly and severally the
sum of (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it is fully paid representing the
face value of Plan Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N. Khu[,] Sr; the sum of
P20,000.00 as moral damages; P30,000.00 as attorney’s fees; P10,000.00 as litigation expenses.In ordering Insular
Life to pay Felipe’s beneficiaries, the RTC agreed with the latter’s claim that the insurance policy was reinstated on
June 22, 1999.
• The RTC cited the ruling in Malayan Insurance Corporation v. Court of Appeals17 that any ambiguity in a contract
of insurance should be resolved strictly against the insurer upon the principle that an insurance contract is a contract
of adhesion.18 The RTC also held that the reinstated insurance policy had already become incontestable by the time
of Felipe’s death on September 22, 2001 since more than two years had already lapsed from the date of the policy’s
reinstatement on June 22, 1999. The RTC noted that since it was Insular Life itself that supplied all the pertinent
forms relative to the reinstated policy, then it is barred from taking advantage of any ambiguity/obscurity perceived
therein particularly as regards the date when the reinstated insurance policy became effective.

Ruling of the CA = AFFIRMED with the MODIFICATION that moral damages, attorney’s fees and litigation expenses [is]
DELETED.
• The CA upheld the RTC’s ruling on the non-contestability of the reinstated insurance policy on the date the
insured died.
• There in fact exists a genuine ambiguity or obscurity in the language of the two documents prepared by Insular Life
itself, viz., Felipe’s Letter of Acceptance and Insular Life’s Endorsement; that given the obscurity/ambiguity in the
language of these two documents, the construction/interpretation that favors the insured’s right to recover should be
adopted; and
• that in keeping with this principle, the insurance policy in dispute must be deemed reinstated as of June 22, 1999. 21
Issue: whether Felipe’s reinstated life insurance policy is already incontestable at the time of his death.
Petitioner’s Arguments
• In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should not be allowed to
recover on the reinstated insurance policy because the two-year contestability period had not yet lapsed inasmuch as
the insurance policy was reinstated only on December 27, 1999, whereas Felipe died on September 22, 2001; 24
• that the CA overlooked the fact that Felipe paid the additional extra premium only on December 27, 1999, hence,
it is only upon this date that the reinstated policy had become effective; that the CA erred in declaring that resort to
the principles of statutory construction is still necessary to resolve that question given that the Application for
Reinstatement, the Letter of Acceptance and the Endorsement in and by themselves already embodied unequivocal
provisions stipulating that the two-year contestability clause should be reckoned from the date of approval of the
reinstatement;25 and
• that Felipe’s misrepresentation and concealment of material facts in regard to his health or adverse medical condition
gave it (Insular Life) the right to rescind the contract of insurance and consequently, the right to deny the claim of
Felipe’s beneficiaries for death benefits under the disputed policy. 26
Respondents’ Arguments
• Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of Acceptance and in the
Endorsement is unclear whether it refers to the subject of the sentence, i.e., the "reinstatement of this policy" or to
the subsequent phrase "changes are made on the policy;"
• that granting that there was any obscurity or ambiguity in the insurance policy, the same should be laid at the door
of Insular Life as it was this insurance company that prepared the necessary documents that make up the same; 27 and
• that given the CA’s finding which effectively affirmed the RTC’s finding on this particular issue, it stands to reason
that the insurance policy had indeed become incontestable upon the date of Felipe’s death. 28
OUR RULING = WE DENY THE PETITION.

• IC pertinently provides that: Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by
any provision of this chapter, such right must be exercised previous to the commencement of an action on the
contract. After a policy of life insurance made payable on the death of the insured shall have been in force during the
lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
• The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance Corporation v. Aban :
o Sec. 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers
enough time to inquire whether the policy was obtained by fraud, concealment, or misrepresentation; on
the other hand, it forewarns scheming individuals that their attempts at insurance fraud would be timely
uncovered – thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate
policy holders are absolutely protected from unwarranted denial of their claims or delay in the collection of
insurance proceeds occasioned by allegations of fraud, concealment, or misrepresentation by insurers, claims
which may no longer be set up after the two-year period expires as ordained under the law.
o ‘The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as
long as the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when
the insured dies in order to defeat the right of the beneficiary to recover under the policy.
o At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the
stability to recover under the policy when the insured dies. The provision also makes clear when the two-
year period should commence in case the policy should lapse and is reinstated, that is, from the date of the
last reinstatement’.
• In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also involves the herein
petitioner, it was there held that the reinstatement of the insured’s policy is to be reckoned from the date when the
application was processed and approved by the insurer. There, we stressed that: To reinstate a policy means to
restore the same to premium-paying status after it has been permitted to lapse. In the instant case, Eulogio’s 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 Eulogio’s
lifetime and good health.31 Thus, it is settled that the reinstatement of an insurance policy should be reckoned from
the date when the same was approved by the insurer.
In this case, the parties differ as to when the reinstatement was actually approved. Insular Life claims that it approved the
reinstatement only on December 27, 1999. On the other hand, respondents contend that it was on June 22, 1999 that the
reinstatement took effect. The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the
Endorsement.
The Letter of Acceptance32 wherein Felipe affixed his signature was actually drafted and prepared by Insular Life. This pro-
forma document reads as follows:
LETTER OF ACCEPTANCE
Place: Cag. De [O]ro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683
Gentlemen:
Thru your Reinstatement Sec., I/WE learned that this policy may be reinstated provided I/we agree to the following
condition/s indicated with a check mark:
[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per thousand of insurance;
effective June 22, 1999
[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the standard rates; the SAR at P____
annually per thousand of Insurance;
[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.
[]
I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of the policy.
Very truly yours,
Felipe N. Khu, Sr.
After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager, Jesse James R. Toyhorada,
issued an Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is again quoted as follows:
ENDORSEMENT
PN-A000015683
This certifies that as agreed to by the Insured, the reinstatement of this policy has been approved by the Company on the
understanding that the following changes are made on the policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider
originally attached to and forming parts of this policy is deleted.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00 annuallly, [P]14,843.00 semi-
annually and [P]7,557.00 quarterly, Philippine Currency.
Cagayan de Oro City, 07 January 2000.
RCV/
(Signed) Authorized Signature
• Based on the foregoing, we find that the CA did not commit any error in holding that the subject insurance policy
be considered as reinstated on June 22, 1999. This finding must be upheld not only because it accords with the
evidence, but also because this is favorable to the insured who was not responsible for causing the ambiguity or
obscurity in the insurance contract.34
• In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance Company, 36 we ruled in
favor of the insured and in favor of the effectivity of the insurance contract in the midst of ambiguity in
the insurance contract provisions. We held that: It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. CA, this Court held that: Indemnity and
liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in
favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract
of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be
construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded
with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its
obligations.
• As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best.
Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully
used to its advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms
and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish

to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever
the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest
of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to
either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective
insurance contract.37
• The CA expounded on this point thus –
o The Court discerns a genuine ambiguity or obscurity in the language of the two documents.
o In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an extra/additional x x
x premium of P5.00 a year per thousand of insurance; effective June 22, 1999". It is true that the phrase as
used in this particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the
Court notes that the reinstatement was conditioned upon the payment of additional premium not only
prospectively, that is, to cover the remainder of the annual period of coverage, but also retroactively, that is
for the period starting June 22, 1999. Hence, by paying the amount of P3,054.50 on December 27, 1999 in
addition to the P25,020.00 he had earlier paid on September 7, 1999, Khu had paid for the insurance
coverage starting June 22, 1999. At the very least, this circumstance has engendered a true lacuna.
o In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear
whether the phrase "effective June 22, 1999" refers to the subject of the sentence, namely "the
reinstatement of this policy," or to the subsequent phrase "changes are made on the policy."
• The court below is correct. Given the obscurity of the language, the construction favorable to the insured will be
adopted by the courts. Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of
contestability has lapsed.35
• Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated on June 22, 1999
vis-a-vis Felipe’s death on September 22, 2001. As such, the subject insurance policy has already become
incontestable at the time of Felipe’s death.
• WHEREFORE, CA AFFIRMED.

SUN LIFE OF CANADA (PHILIPPINES), INC. vs. SANDRA TAN KIT and The Estate of the Deceased
NORBERTO TAN KIT
DEL CASTILLO, J.: (CA) imposition of 12o/o interest on the ₱13,080.93 premium refund is the only matter in question
in this case.
• Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto), whose application
for a life insurance policy,4 with face value of ₱300,000.00, was granted by petitioner on October 28, 1999. On
February 19, 2001, or within the two-year contestability period,5 Norberto died of disseminated gastric
carcinoma.6 Consequently, respondent Tan Kit filed a claim under the subject policy.
• In a Letter7 dated September 3, 2001, petitioner denied respondent Tan Kit’s claim on account of Norberto’s failure
to fully and faithfully disclose in his insurance application certain material and relevant information about his health
and smoking history. Specifically, Norberto answered "No" to the question inquiring whether he had smoked
cigarettes or cigars within the last 12 months prior to filling out said application. 8 However, the medical report of
Dr. Anna Chua (Dr. Chua), one of the several physicians that Norberto consulted for his illness, reveals that he was a
smoker and had only stopped smoking in August 1999. According to petitioner, its underwriters would not have
approved Norberto’s application for life insurance had they been given the correct information. Believing that the
policy is null and void, petitioner opined that its liability is limited to the refund of all the premiums paid.
Accordingly, it enclosed in the said letter a check for ₱13,080.93 representing the premium refund.
• In a letter9 dated September 13, 2001, respondent Tan Kit refused to accept the check and insisted on the payment
of the insurance proceeds.
• On October 4, 2002, petitioner filed a Complaint 10 for Rescission of Insurance Contract before the RTC of Makati
City.
Ruling of the CA
o On appeal, the CA reversed and set aside the RTC’s ruling in its Decision16 dated October 17, 2007.
o From the records, the CA found that prior to his death, Norberto had consulted two physicians, Dr. Chua
on August 19, 2000, and Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to whom he confided
that he had stopped smoking only in 1999. At the time therefore that he applied for insurance policy on
October 28, 1999, there is no truth to his claim that he did not smoke cigarettes within 12 months prior to
the said application. The CA thus held that Norberto is guilty of concealment which misled petitioner in
forming its estimates of the risks of the insurance policy. This gave petitioner the right to rescind the
insurance contract which it properly exercised in this case.
o In addition, the CA held that the content of Norberto’s medical records are deemed admitted by
respondents since they failed to deny the same despite having received from petitioner a Request for
Admission pursuant to Rule 26 of the Rules of Court. 17 And since an admission is in the nature of evidence
the legal effects of which form part of the records, the CA discredited the RTC’s ruling that the subject
medical records and the affidavits executed by Norberto’s physicians attesting to the truth of the same were
hearsay.
o WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the appealed
Decision REVERSED and SET ASIDE, and in lieu thereof, a judgment is hereby rendered GRANTING
the complaint a quo. Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of ₱13,080.93
representing the [premium] paid by the insured with interest at the rate of 12% per annum from the time of
the death of the insured until fully paid.
ISSUE: whether petitioner is liable to pay interest on the premium to be refunded to respondents.
The Parties’ Arguments
• Petitioner argues that no interest should have been imposed on the premium to be refunded because the CA
Decision does not provide any legal or factual basis therefor; that petitioner directly and timely tendered to
respondents an amount representing the premium refund but they rejected it since they opted to pursue their claim
for the proceeds of the insurance policy; that respondents should bear the consequence of their unsound decision of
rejecting the refund tendered to them; and, that petitioner is not guilty of delay or of invalid or unjust rescission as
to make it liable for interest. Hence, following the ruling in Tio Khe Chio v. CA, 22 no interest can be assessed
against petitioner.
• Respondents, on the other hand, contend that the reimbursement of premium is clearly a money obligation or one
that arises from forbearance of money, hence, the imposition of 12% interest per annum is just, proper and
supported by jurisprudence. While they admit that they refused the tender of payment of the premium refund, they
aver that they only did so because they did not want to abandon their claim for the proceeds of the insurance policy.
In any case, what petitioner should have done under the circumstances was to consign the amount of payment in
court during the pendency of the case.
OUR RULING
TIO KHE CHIO IS NOT APPLICABLE IN THIS CASE.
• Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the issue of payment of
interest. There, the Court pointed to Sec.s 243 and 244 of IC which explicitly provide for payment of interest when

there is unjustified refusal or withholding of payment of the claim by the insurer, 23 and to Article 220924 of the New
Civil Code which likewise provides for payment of interest when the debtor is in delay.
• The Court finds, however, that Tio Khe Chio is not applicable here as it deals with payment of interest on the
insurance proceeds in which the claim therefor was either unreasonably denied or withheld or the insurer incurred
delay in the payment thereof. In this case, what is involved is an order for petitioner to refund to respondents the
insurance premium paid by Norberto as a consequence of the rescission of the insurance contract on account of the
latter’s concealment of material information in his insurance application. Moreover, petitioner did not unreasonably
deny or withhold the insurance proceeds as it was satisfactorily established that Norberto was guilty of concealment.
NATURE OF INTEREST IMPOSED BY THE CA

• There are two kinds of interest – monetary and compensatory."Monetary interest refers to the compensation set by
the parties for the use or forbearance of money."25 No such interest shall be due unless it has been expressly
stipulated in writing.26 "On the other hand, compensatory interest refers to the penalty or indemnity for damages
imposed by law or by the courts."27 The interest mentioned in Articles 2209 and 221228of the Civil Code applies to
compensatory interest.29
• The CA incorrectly imposed compensatory interest on the premium refund reckoned from the time of death of the
insured until fully paid As a form of damages, compensatory interest is due only if the obligor is proven to have
failed to comply with his obligation.31
o The interest imposed by the CA is not monetary interest because aside from the fact that there is no use or
forbearance of money involved in this case, the subject interest was not one which was agreed upon by the
parties in writing. This being the case and judging from the tenor of the CA, to wit: Accordingly,
[petitioner] is ordered to reimburse [respondents] the sum of ₱13,080.93 representing the [premium] paid
by the insured with interest at the rate of 12% per annum from time of death of the insured until fully
paid.30 There can be no other conclusion than that the interest imposed by the appellate court is in the
nature of compensatory interest.
o In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was rescinding
the policy due to concealment, petitioner tendered the refund of premium by attaching to the said notice a
check representing the amount of refund. However, respondents refused to accept the same since they were
seeking for the release of the proceeds of the policy. Because of this discord, petitioner filed for judicial
rescission of the contract. Petitioner, after receiving an adverse judgment from the RTC, appealed to the
CA. And as may be recalled, the appellate court found Norberto guilty of concealment and thus upheld the
rescission of the insurance contract and consequently decreed the obligation of petitioner to return to
respondents the premium paid by Norberto. Moreover, we find that petitioner did not incur delay or
unjustifiably deny the claim. Based on the foregoing, we find that petitioner properly complied with its
obligation under the law and contract. Hence, it should not be made liable to pay compensatory interest.
o Considering the prevailing circumstances of the case, we hereby direct petitioner to reimburse the premium paid within
15 days from date of finality of this Decision. If petitioner fails to pay within the said period, then the amount shall be
deemed equivalent to a forbearance of credit.32 In such a case, the rate of interest shall be 6% per annum. 33
• WHEREFORE, CA is MODIFIED in that petitioner Sun Life of Canada (Philippines), Inc. is ordered to reimburse to
respondents Sandra Tan Kit and the Estate of the Deceased Norberto Tan Kit the sum of ~13,080.93 representing the
premium paid by the insured within fifteen (15) days from date of finality of this Decision. If the amount is not
reimbursed within said period, the same shall earn interest of 6% per annum until fully paid.

WILLIAM TIU, doing business under the name and style of " D’ Rough Riders," and VIRGILIO TE LAS PIÑAS vs
PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY
AND INSURANCE, INC.,
• At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks and General Merchandise"
bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon reaching
Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The
driver, Sergio Pedrano, then parked along the right side of the national highway and removed the damaged tire to
have it vulcanized at a nearby shop, about 700 meters away. 3 Pedrano left his helper, Jose Mitante, Jr. to keep watch
over the stalled vehicle, and instructed the latter to place a spare tire six fathoms away 4 behind the stalled truck to
serve as a warning for oncoming vehicles. The truck’s tail lights were also left on. It was about 12:00 a.m., March
16, 1987.
• At about 4:45 a.m., D’ Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te Laspiñas was
cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also
bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses
Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or
four (4) places from the front seat.
• As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about 25 meters away.5 He
applied the breaks and tried to swerve to the left to avoid hitting the truck. But it was too late; the bus rammed into
the truck’s left rear. The impact damaged the right side of the bus and left several passengers injured. Pedro
Arriesgado lost consciousness and suffered a fracture in his right colles. 6 His wife, Felisa, was brought to the Danao
City Hospital. She was later transferred to the Southern Island Medical Center where she died shortly thereafter.7
• Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and attorney’s
fees before RTC of Cebu City, Branch 20, against the petitioners, D’ Rough Riders bus operator William Tiu and
his driver, Virgilio Te Laspiñas on May 27, 1987. The respondent alleged that the passenger bus in question was
cruising at a fast and high speed along the national road, and that petitioner Laspiñas did not take precautionary
measures to avoid the accident.8 Thus:
6. That the accident resulted to the death of the plaintiff’s wife, Felisa Pepito Arriesgado, as evidenced by a
Certificate of Death, a xerox copy of which is hereto attached as integral part hereof and marked as ANNEX – "A",
and physical injuries to several of its passengers, including plaintiff himself who suffered a "COLLES FRACTURE
RIGHT," per Medical Certificate, a xerox copy of which is hereto attached as integral part hereof and marked as
ANNEX – "B" hereof.
7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspiñas of the said Rough Riders
passenger bus, plaintiff and his wife, Felisa Pepito Arriesgado, failed to safely reach their destination which was Cebu
City, the proximate cause of which was defendant-driver’s failure to observe utmost diligence required of a very
cautious person under all circumstances.
8. That defendant William Tiu, being the owner and operator of the said Rough Riders passenger bus which
figured in the said accident, wherein plaintiff and his wife were riding at the time of the accident, is therefore
directly liable for the breach of contract of carriage for his failure to transport plaintiff and his wife safely to their
place of destination which was Cebu City, and which failure in his obligation to transport safely his passengers was
due to and in consequence of his failure to exercise the diligence of a good father of the family in the selection and
supervision of his employees, particularly defendant-driver Virgilio Te Laspiñas.9
• The respondent prayed that judgment be rendered in his favor and that the petitioners be condemned to pay the
following damages
• The petitioners, for their part, filed a Third-Party Complaint11 on August 21, 1987 against the following: respondent
Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent Benjamin Condor, the
registered owner of the cargo truck; and respondent Sergio Pedrano, the driver of the truck. They alleged that
petitioner Laspiñas was negotiating the uphill climb along the national highway of Sitio Aggies, Poblacion,
Compostela, in a moderate and normal speed. It was further alleged that the truck was parked in a slanted manner,
its rear portion almost in the middle of the highway, and that no early warning device was displayed. Petitioner
Laspiñas promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but despite his
efforts to avoid damage to property and physical injuries on the passengers, the right side portion of the bus hit the
cargo truck’s left rear. The petitioners further alleged, thus:
5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered in the name of the third-
party defendant Benjamin Condor and was left unattended by its driver Sergio Pedrano, one of the third-party
defendants, at the time of the incident;
6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked (sic) "Condor Hollow
Blocks & General Merchandise," with Plate No. GBP-675 which was recklessly and imprudently parked along the
national highway of Compostela, Cebu during the vehicular accident in question, and third-party defendant
Benjamin Condor, as the registered owner of the cargo truck who failed to exercise due diligence in the selection
and supervision of third-party defendant Sergio Pedrano, are jointly and severally liable to the third-party plaintiffs
for whatever liability that may be adjudged against said third-party plaintiffs or are directly liable of (sic) the alleged
death of plaintiff’s wife;

7. That in addition to all that are stated above and in the answer which are intended to show reckless imprudence on
the part of the third-party defendants, the third-party plaintiffs hereby declare that during the vehicular accident in
question, third-party defendant was clearly violating Sec. 34, par. (g) of the Land Transportation and Traffic Code…
…
10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William Tiu, is covered by a
common carrier liability insurance with Certificate of Cover No. 054940 issued by Philippine Phoenix Surety and
Insurance, Inc., Cebu City Branch, in favor of third-party plaintiff William Tiu which covers the period from July
22, 1986 to July 22, 1987 and that the said insurance coverage was valid, binding and subsisting during the time of
the aforementioned incident (Annex "A" as part hereof);
11. That after the aforesaid alleged incident, third-party plaintiff notified third-party defendant Philippine Phoenix
Surety and Insurance, Inc., of the alleged incident hereto mentioned, but to no avail;
12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be adversely adjudged, they stand to
pay damages sought by the plaintiff and therefore could also look up to the Philippine Phoenix Surety and
Insurance, Inc., for contribution, indemnification and/or reimbursement of any liability or obligation that they
might [be] adjudged per insurance coverage duly entered into by and between third-party plaintiff William Tiu and
third-party defendant Philippine Phoenix Surety and Insurance, Inc.;… 12
• The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu, but averred that it
had already attended to and settled the claims of those who were injured during the incident. 13 It could not accede
to the claim of respondent Arriesgado, as such claim was way beyond the scheduled indemnity as contained in the
contract of insurance.14
CA affirmied the trial court’s decision with the modification that the awards for moral and exemplary damages were reduced
to ₱25,000.
• According to the appellate court, the action of respondent Arriesgado was based not on quasi-delict but on breach of
contract of carriage. As a common carrier, it was incumbent upon petitioner Tiu to prove that extraordinary
diligence was observed in ensuring the safety of passengers during transportation. Since the latter failed to do so, he
should be held liable for respondent Arriesgado’s claim. The CA also ruled that no evidence was presented against
the respondent PPSII, and as such, it could not be held liable for respondent Arriesgado’s claim, nor for
contribution, indemnification and/or reimbursement in case the petitioners were adjudged liable.
PETITIONER:
• CA erred in failing to appreciate the absence of an early warning device and/or built-in reflectors at the front and
back of the cargo truck, in clear violation of Sec. 34, par. (g) of the Land Transportation and Traffic Code. They
aver that such violation is only a proof of respondent Pedrano’s negligence, as provided under Article 2185 of the
New Civil Code. They also question the appellate court’s failure to take into account that the truck was parked in
an oblique manner, its rear portion almost at the center of the road. As such, the proximate cause of the incident was
the gross recklessness and imprudence of respondent Pedrano, creating the presumption of negligence on the part of
respondent Condor in supervising his employees, which presumption was not rebutted. The petitioners then
contend that respondents Condor and Pedrano should be held jointly and severally liable to respondent Arriesgado
for the payment of the latter’s claim.
• Expert evidence should have been presented to prove that petitioner Laspiñas was driving at a very fast speed, and
that the CA could not reach such conclusion by merely considering the damages on the cargo truck. It was also
pointed out that petitioner Tiu presented evidence that he had exercised the diligence of a good father of a family in
the selection and supervision of his drivers.
• There is no legal and factual basis to require petitioner Tiu to pay exemplary damages as no evidence was presented
to show that the latter acted in a fraudulent, reckless and oppressive manner, or that he had an active participation in
the negligent act of petitioner Laspiñas.
• PPSII admitted in its answer that while it had attended to and settled the claims of the other injured passengers,
respondent Arriesgado’s claim remained unsettled as it was beyond the scheduled indemnity under the insurance
contract. The petitioners argue that said respondent PPSII should have settled the said claim in accordance with the
scheduled indemnity instead of just denying the same.
RESPONDENT:
Arriesgado
• Two of the issues raised by the petitioners involved questions of fact, not reviewable by the Supreme Court: the
finding of negligence on the part of the petitioners and their liability to him; and the award of exemplary damages,
attorney’s fees and litigation expenses in his favor. Invoking the principle of equity and justice, respondent
Arriesgado pointed out that if there was an error to be reviewed in the CA decision, it should be geared towards the
restoration of the moral and exemplary damages to ₱50,000 each, or a total of ₱100,000 which was reduced by the
CA to ₱25,000 each, or a total of only ₱50,000.
• Respondents Condor and Pedrano, and respondent Phoenix Surety, are parties with whom he had no contract of
carriage, and had no cause of action against. It was pointed out that only the petitioners needed to be sued, as driver
and operator of the ill-fated bus, on account of their failure to bring the Arriesgado Spouses to their place of

destination as agreed upon in the contract of carriage, using the utmost diligence of very cautious persons with due
regard for all circumstances.
Condor and Pedrano
• Respondents Condor and Pedrano point out that, as correctly ruled by the CA, the proximate cause of the
unfortunate incident was the fast speed at which petitioner Laspiñas was driving the bus owned by petitioner Tiu.
According to the respondents, the allegation that the truck was not equipped with an early warning device could not
in any way have prevented the incident from happening. It was also pointed out that respondent Condor had always
exercised the due diligence required in the selection and supervision of his employees, and that he was not a party to
the contract of carriage between the petitioners and respondent Arriesgado.
PPSII,
• Respondent PPSII, for its part, alleges that contrary to the allegation of petitioner Tiu, it settled all the claims of
those injured in accordance with the insurance contract. It further avers that it did not deny respondent Arriesgado’s
claim, and emphasizes that its liability should be within the scheduled limits of indemnity under the said contract.
The respondent concludes that while it is true that insurance contracts are contracts of indemnity, the measure of the
insurer’s liability is determined by the insured’s compliance with the terms thereof.
The Court’s Ruling

Petitioner Laspiñas Was negligent in driving The Ill-fated bus
• In his testimony before the trial court, petitioner Laspiñas claimed that he was traversing the two-lane road at
Compostela, Cebu at a speed of only forty (40) to fifty (50) kilometers per hour before the incident occurred. 23 He
also admitted that he saw the truck which was parked in an "oblique position" at about 25 meters before
impact,24 and tried to avoid hitting it by swerving to the left. However, even in the absence of expert evidence, the
damage sustained by the truck25 itself supports the finding of both the trial court and the appellate court, that the D’
Rough Rider bus driven by petitioner Laspiñas was traveling at a fast pace. Since he saw the stalled truck at a
distance of 25 meters, petitioner Laspiñas had more than enough time to swerve to his left to avoid hitting it; that is,
if the speed of the bus was only 40 to 50 kilometers per hour as he claimed. As found by the CA, it is easier to
believe that petitioner Laspiñas was driving at a very fast speed, since at 4:45 a.m., the hour of the accident, there
were no oncoming vehicles at the opposite direction. Petitioner Laspiñas could have swerved to the left lane with
proper clearance, and, thus, could have avoided the truck. 26 Instinct, at the very least, would have prompted him to
apply the breaks to avert the impending disaster which he must have foreseen when he caught sight of the stalled
truck.
• As we had occasion to reiterate: A man must use common sense, and exercise due reflection in all his acts; it is his
duty to be cautious, careful and prudent, if not from instinct, then through fear of recurring punishment. He is
responsible for such results as anyone might foresee and for acts which no one would have performed except
through culpable abandon. Otherwise, his own person, rights and property, and those of his fellow beings, would
ever be exposed to all manner of danger and injury.2
• We agree with the following findings of the trial court, which were affirmed by the CA on appeal: A close study and
evaluation of the testimonies and the documentary proofs submitted by the parties which have direct bearing on the
issue of negligence, this Court as shown by preponderance of evidence that defendant Virgilio Te Laspiñas failed to
observe extraordinary diligence as a driver of the common carrier in this case. It is quite hard to accept his version of
the incident that he did not see at a reasonable distance ahead the cargo truck that was parked when the Rough
Rider [Bus] just came out of the bridge which is on an (sic) [more] elevated position than the place where the cargo
truck was parked. With its headlights fully on, defendant driver of the Rough Rider was in a vantage position to see
the cargo truck ahead which was parked and he could just easily have avoided hitting and bumping the same by
maneuvering to the left without hitting the said cargo truck. Besides, it is (sic) shown that there was still much room
or space for the Rough Rider to pass at the left lane of the said national highway even if the cargo truck had
occupied the entire right lane thereof. It is not true that if the Rough Rider would proceed to pass through the left
lane it would fall into a canal considering that there was much space for it to pass without hitting and bumping the
cargo truck at the left lane of said national highway. The records, further, showed that there was no incoming
vehicle at the opposite lane of the national highway which would have prevented the Rough Rider from not
swerving to its left in order to avoid hitting and bumping the parked cargo truck. But the evidence showed that the
Rough Rider instead of swerving to the still spacious left lane of the national highway plowed directly into the
parked cargo truck hitting the latter at its rear portion; and thus, the (sic) causing damages not only to herein plaintiff
but to the cargo truck as well.28
• Indeed, petitioner Laspiñas’ negligence in driving the bus is apparent in the records. By his own admission, he had
just passed a bridge and was traversing the highway of Compostela, Cebu at a speed of 40 to 50 kilometers per hour
before the collision occurred. The maximum speed allowed by law on a bridge is only 30 kilometers per
hour.29 And, as correctly pointed out by the trial court, petitioner Laspiñas also violated Sec. 35 of the Land
Transportation and Traffic Code, Republic Act No. 4136, as amended: eSec. 35. Restriction as to speed. – (a) Any
person driving a motor vehicle on a highway shall drive the same at a careful and prudent speed, not greater nor less
than is reasonable and proper, having due regard for the traffic, the width of the highway, and or any other
condition then and there existing; and no person shall drive any motor vehicle upon a highway at such speed as to
endanger the life, limb and property of any person, nor at a speed greater than will permit him to bring the vehicle
to a stop within the assured clear distance ahead. 30

• Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of the mishap,
he was violating any traffic regulation.31
Petitioner Tiu failed to Overcome the presumption Of negligence against him as One engaged in the business Of common
carriage
• The rules which common carriers should observe as to the safety of their passengers are set forth in the Civil Code,
Articles 1733,32 175533 and 1756.34 In this case, respondent Arriesgado and his deceased wife contracted with
petitioner Tiu, as owner and operator of D’ Rough Riders bus service, for transportation from Maya, Daanbantayan,
Cebu, to Cebu City for the price of ₱18.00.35 It is undisputed that the respondent and his wife were not safely
transported to the destination agreed upon. In actions for breach of contract, only the existence of such contract, and
the fact that the obligor, in this case the common carrier, failed to transport his passenger safely to his destination are
the matters that need to be proved.36 This is because under the said contract of carriage, the petitioners assumed the
express obligation to transport the respondent and his wife to their destination safely and to observe extraordinary
diligence with due regard for all circumstances.37 Any injury suffered by the passengers in the course thereof is
immediately attributable to the negligence of the carrier. 38 Upon the happening of the accident, the presumption of
negligence at once arises, and it becomes the duty of a common carrier to prove that he observed extraordinary
diligence in the care of his passengers. 39 It must be stressed that in requiring the highest possible degree of diligence
from common carriers and in creating a presumption of negligence against them, the law compels them to curb the
recklessness of their drivers.40
• While evidence may be submitted to overcome such presumption of negligence, it must be shown that the carrier
observed the required extraordinary diligence, which means that the carrier must show the utmost diligence of very
cautious persons as far as human care and foresight can provide, or that the accident was caused by fortuitous
event.41 As correctly found by the trial court, petitioner Tiu failed to conclusively rebut such presumption. The
negligence of petitioner Laspiñas as driver of the passenger bus is, thus, binding against petitioner Tiu, as the owner
of the passenger bus engaged as a common carrier. 42
The Doctrine of Last Clear Chance Is Inapplicable in the Case at Bar

• Contrary to the petitioner’s contention, the principle of last clear chance is inapplicable in the instant case, as it only
applies in a suit between the owners and drivers of two colliding vehicles. It does not arise where a passenger
demands responsibility from the carrier to enforce its contractual obligations, for it would be inequitable to exempt
the negligent driver and its owner on the ground that the other driver was likewise guilty of negligence. 43 The
common law notion of last clear chance permitted courts to grant recovery to a plaintiff who has also been negligent
provided that the defendant had the last clear chance to avoid the casualty and failed to do so. Accordingly, it is
difficult to see what role, if any, the common law of last clear chance doctrine has to play in a jurisdiction where the
common law concept of contributory negligence as an absolute bar to recovery by the plaintiff, has itself been
rejected, as it has been in Article 2179 of the Civil Code. 44
• Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgado’s wife due to the negligence of
petitioner Laspiñas, his employee, on this score.
Respondents Pedrano and Condor were likewise Negligent

• In Phoenix Construction, Inc. v. Intermediate Appellate Court,45 where therein respondent Dionisio sustained
injuries when his vehicle rammed against a dump truck parked askew, the Court ruled that the improper parking of
a dump truck without any warning lights or reflector devices created an unreasonable risk for anyone driving within
the vicinity, and for having created such risk, the truck driver must be held responsible. In ruling against the
petitioner therein, the Court elucidated, thus: … In our view, Dionisio’s negligence, although later in point of time
than the truck driver’s negligence, and therefore closer to the accident, was not an efficient intervening or
independent cause. What the petitioners describe as an "intervening cause" was no more than a foreseeable
consequence of the risk created by the negligent manner in which the truck driver had parked the dump truck. In
other words, the petitioner truck driver owed a duty to private respondent Dionisio and others similarly situated not
to impose upon them the very risk the truck driver had created. Dionisio’s negligence was not that of an
independent and overpowering nature as to cut, as it were, the chain of causation in fact between the improper
parking of the dump truck and the accident, nor to sever the juris vinculum of liability. … We hold that private
respondent Dionisio’s negligence was "only contributory," that the "immediate and proximate cause" of the injury
remained the truck driver’s "lack of due care."…46
• In this case, both the trial and the appellate courts failed to consider that respondent Pedrano was also negligent in
leaving the truck parked askew without any warning lights or reflector devices to alert oncoming vehicles, and that such
failure created the presumption of negligence on the part of his employer, respondent Condor, in supervising his
employees properly and adequately.
• As we ruled in Poblete v. Fabros:47 It is such a firmly established principle, as to have virtually formed part of the law
itself, that the negligence of the employee gives rise to the presumption of negligence on the part of the employer.
This is the presumed negligence in the selection and supervision of employee. The theory of presumed negligence,
in contrast with the American doctrine of respondeat superior, where the negligence of the employee is conclusively
presumed to be the negligence of the employer, is clearly deducible from the last paragraph of Article 2180 of the

Civil Code which provides that the responsibility therein mentioned shall cease if the employers prove that they
observed all the diligence of a good father of a family to prevent damages.
• The petitioners were correct in invoking respondent Pedrano’s failure to observe Article IV, Sec. 34(g) of the Rep.
Act No. 4136, which provides: (g) Lights when parked or disabled. – Appropriate parking lights or flares visible one
hundred meters away shall be displayed at a corner of the vehicle whenever such vehicle is parked on highways or in
places that are not well-lighted or is placed in such manner as to endanger passing traffic.
• The manner in which the truck was parked clearly endangered oncoming traffic on both sides, considering that the
tire blowout which stalled the truck in the first place occurred in the wee hours of the morning. The Court can only
now surmise that the unfortunate incident could have been averted had respondent Condor, the owner of the truck,
equipped the said vehicle with lights, flares, or, at the very least, an early warning device. 49 Hence, we cannot
subscribe to respondents Condor and Pedrano’s claim that they should be absolved from liability because, as found
by the trial and appellate courts, the proximate cause of the collision was the fast speed at which petitioner Laspiñas
drove the bus. To accept this proposition would be to come too close to wiping out the fundamental principle of
law that a man must respond for the foreseeable consequences of his own negligent act or omission. Indeed, our law
on quasi-delicts seeks to reduce the risks and burdens of living in society and to allocate them among its members.
To accept this proposition would be to weaken the very bonds of society. 50
The Liability of Respondent PPSII as Insurer

• The trial court in this case did not rule on the liability of respondent PPSII, while the appellate court ruled that, as
no evidence was presented against it, the insurance company is not liable.
• A perusal of the records will show that when the petitioners filed the Third-Party Complaint against respondent
PPSII, they failed to attach a copy of the terms of the insurance contract itself. Only Certificate of Cover No.
05494051 issued in favor of "Mr. William Tiu, Lahug, Cebu City" signed by Cosme H. Boniel was appended to the
third-party complaint. The date of issuance, July 22, 1986, the period of insurance, from July 22, 1986 to July 22,
1987, as well as the following items, were also indicated therein:
SCHEDULED VEHICLE
MODEL MAKE TYPE OF COLOR BLT FILE NO.

Isuzu Forward BODY blue mixed
Bus
PLATE SERIAL/CHASSIS MOTOR NO. AUTHORIZED UNLADEN

NO. NO. 677836 CAPACITY WEIGHT
PBP-724 SER450-1584124 50 6 Cyls. Kgs.
SEC. 1/11 *LIMITS OF LIABILITY PREMIUMS PAID

₱50,000.00 ₱540.0052
A. THIRD PARTY LIABILITY
B. PASSENGER LIABILITY Per Person Per Accident

₱12,000.00 ₱50,000
• In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted the existence of the contract of
insurance, in view of its failure to specifically deny the same as required under then Sec. 8(a), Rule 8 of ROC:
When an action or defense is founded upon a written instrument copied in or attached to the corresponding
pleading as provided in the preceding Sec., the genuineness and due execution of the instrument shall be deemed
admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts;
but the requirement of an oath does not apply when the adverse party does not appear to be a party to the
instrument or when compliance with an order for inspection of the original instrument is refused.
• In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it was liable thereon. It
claimed, however, that it had attended to and settled the claims of those injured during the incident, and set up the
following as special affirmative defenses:
Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and incorporates by way of
reference the preceding paragraphs and further states THAT:-
8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali Palces who sustained
injuries during the incident in question. In fact, it settled financially their claims per vouchers duly signed by
them and they duly executed Affidavit[s] of Desistance to that effect, xerox copies of which are hereto
attached as Annexes 1, 2, 3, 4, 5, and 6 respectively;
9. With respect to the claim of plaintiff, herein answering third party defendant through its authorized
insurance adjuster attended to said claim. In fact, there were negotiations to that effect. Only that it cannot
accede to the demand of said claimant considering that the claim was way beyond the scheduled indemnity
as per contract entered into with third party plaintiff William Tiu and third party defendant (Philippine
Phoenix Surety and Insurance, Inc.). Third party Plaintiff William Tiu knew all along the limitation as
earlier stated, he being an old hand in the transportation business; 55…

• Considering the admissions made by respondent PPSII, the existence of the insurance contract and the salient terms
thereof cannot be dispatched. It must be noted that after filing its answer, respondent PPSII no longer objected to
the presentation of evidence by respondent Arriesgado and the insured petitioner Tiu. Even in its
Memorandum56 before the Court, respondent PPSII admitted the existence of the contract, but averred as follows:
Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification and/or reimbursement. This
has no basis under the contract. Under the contract, PPSII will pay all sums necessary to discharge liability of the
insured subject to the limits of liability but not to exceed the limits of liability as so stated in the contract. Also, it is
stated in the contract that in the event of accident involving indemnity to more than one person, the limits of
liability shall not exceed the aggregate amount so specified by law to all persons to be indemnified. 57
• As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the Compulsory
Motor Vehicle Liability Insurance Law. It was expressly provided therein that the limit of the insurer’s liability for
each person was ₱12,000, while the limit per accident was pegged at ₱50,000. An insurer in an indemnity contract
for third party liability is directly liable to the injured party up to the extent specified in the agreement but it cannot
be held solidarily liable beyond that amount. 58 The respondent PPSII could not then just deny petitioner Tiu’s
claim; it should have paid ₱12,000 for the death of Felisa Arriesgado,59 and respondent Arriesgado’s hospitalization
expenses of ₱1,113.80, which the trial court found to have been duly supported by receipts. The total amount of the
claims, even when added to that of the other injured passengers which the respondent PPSII claimed to have
settled,60 would not exceed the ₱50,000 limit under the insurance agreement.
• Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to provide
compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of the
negligent operation and use of motor vehicles. The victims and/or their dependents are assured of immediate
financial assistance, regardless of the financial capacity of motor vehicle owners. 61
• As the Court, speaking through Associate Justice Leonardo A. Quisumbing, explained in Government Service
Insurance System v. CA:62 However, although the victim may proceed directly against the insurer for indemnity, the
third party liability is only up to the extent of the insurance policy and those required by law. While it is true that
where the insurance contract provides for indemnity against liability to third persons, and such persons can directly
sue the insurer, the direct liability of the insurer under indemnity contracts against third party liability does not mean
that the insurer can be held liable in solidum with the insured and/or the other parties found at fault. For the liability
of the insurer is based on contract; that of the insured carrier or vehicle owner is based on tort. …
• Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract of
insurance, in accordance with the CMVLI law. At the time of the incident, the schedule of indemnities for death
and bodily injuries, professional fees and other charges payable under a CMVLI coverage was provided for under the
Insurance Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As therein
provided, the maximum indemnity for death was twelve thousand (₱12,000.00) pesos per victim. The schedules for
medical expenses were also provided by said IMC, specifically in paragraphs (C) to (G). 63
Damages to be Awarded
• The trial court correctly awarded moral damages in the amount of ₱50,000 in favor of respondent Arriesgado. The
award of exemplary damages by way of example or correction of the public good, 64 is likewise in order.
• As the Court ratiocinated in Kapalaran Bus Line v. Coronado: 65 …While the immediate beneficiaries of the standard
of extraordinary diligence are, of course, the passengers and owners of cargo carried by a common carrier, they are
not the only persons that the law seeks to benefit. For if common carriers carefully observed the statutory standard of
extraordinary diligence in respect of their own passengers, they cannot help but simultaneously benefit pedestrians
and the passengers of other vehicles who are equally entitled to the safe and convenient use of our roads and
highways. The law seeks to stop and prevent the slaughter and maiming of people (whether passengers or not) on
our highways and buses, the very size and power of which seem to inflame the minds of their drivers. Article 2231
of the Civil Code explicitly authorizes the imposition of exemplary damages in cases of quasi-delicts "if the
defendant acted with gross negligence."…66
• The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is entitled to indemnity
in the amount of ₱50,000.00.67
• The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly and severally liable for
said amount, conformably with the following pronouncement of the Court in Fabre, Jr. vs. CA: 68
• The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff
was riding concurred with the negligence of a third party who was the driver of another vehicle, thus causing an
accident. In Anuran v. Buño, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila
Transit Corporation v. CA, the bus company, its driver, the operator of the other vehicle and the driver of the
vehicle were jointly and severally held liable to the injured passenger or the latter’s heirs.
• The basis of this allocation of liability was explained in Viluan v. CA, thus: "Nor should it make difference that the
liability of petitioner [bus owner] springs from contract while that of respondents [owner and driver of other vehicle]
arises from quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of
injury to a passenger due to the negligence of the driver of the bus on which he was riding and of the driver of
another vehicle, the drivers as well as the owners of the two vehicles are jointly and severally liable for damages.
Some members of the Court, though, are of the view that under the circumstances they are liable on quasi-delict."69

CA is AFFIRMED with MODIFICATIONS:
• Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu are ORDERED to pay,
jointly and severally, respondent Pedro A. Arriesgado the total amount of ₱13,113.80;
• (2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano are ORDERED to pay, jointly and
severally, respondent Pedro A. Arriesgado ₱50,000.00 as indemnity; ₱26,441.50 as actual damages; ₱50,000.00 as
moral damages; ₱50,000.00 as exemplary damages; and ₱20,000.00 as attorney’s fees.

JAIME T. GAISANO vs. DEVELOPMENT INSURANCE AND SURETY CORPORATION
• Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number GTJ-777 (vehicle), while
respondent is a domestic corporation engaged in the insurance business. 6 On September 27, 1996, respondent issued
a comprehensive commercial vehicle policy7 to petitioner in the amount of ₱1,500,000.00 over the vehicle for a
period of one year commencing on September 27, 1996 up to September 27, 1997. 8 Respondent also issued two
other commercial vehicle policies to petitioner covering two other motor vehicles for the same period. 9
• To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific Underwriters Agency
(Trans-Pacific), issued a statement of account to petitioner's company, Noah's Ark Merchandising (Noah's
Ark).10 Noah's Ark immediately processed the payments and issued a Far East Bank check dated September 27, 1996
payable to Trans-Pacific on the same day.11 The check bearing the amount of ₱140,893.50 represents payment for
the three insurance policies, with ₱55,620.60 for the premium and other charges over the vehicle. 12 However,
nobody from Trans-Pacific picked up the check that day (September 27) because its president and general manager,
Rolando Herradura, was celebrating his birthday. Trans-Pacific informed Noah's Ark that its messenger would get
the check the next day, September 28.13
• In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing manager Achilles
Pacquing (Pacquing) as a service company vehicle, the vehicle was stolen in the vicinity of SM Megamall at Ortigas,
Mandaluyong City. Pacquing reported the loss to the Philippine National Police Traffic Management Command at
Camp Crame in Quezon City.14 Despite search and retrieval efforts, the vehicle was not recovered. 15
• Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an official receipt
numbered 124713 dated September 28, 1996, acknowledging the receipt of ₱55,620.60 for the premium and other
charges over the vehicle.16 The check issued to Trans-Pacific for ₱140,893.50 was deposited with Metrobank for
encashment on October 1, 1996.17
• On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner reported the loss and
filed a claim with respondent for the insurance proceeds of ₱1,500,000.00.18 After investigation, respondent denied
petitioner's claim on the ground that there was no insurance contract.19 Petitioner, through counsel, sent a final
demand on July 7, 1997.20 Respondent, however, refused to pay the insurance proceeds or return the premium paid
on the vehicle.
• On October 9, 1997, petitioner filed a complaint for collection of sum of money and damages 21 with the RTC
where it sought . to collect the insurance proceeds from respondent. In its Answer, 22 respondent asserted that the
non-payment of the premium rendered the policy ineffective. The premium was received by the respondent only
on October 2, 1996, and there was no known loss covered by the policy to which the payment could be applied. 23
• In its Decision24 dated September 24, 2003, the RTC ruled in favor of petitioner. It considered the premium paid as
of September 27, even if the check was received only on September 28 because (1) respondent's agent, Trans-
Pacific, acknowledged payment of the premium on that date, September 27, and (2) the check that petitioner issued
was honored by respondent in acknowledgment of the authority of the agent to receive it. 25 Instead of returning the
premium, respondent sent a checklist of requirements to petitioner and assigned an underwriter to investigate the
claim.26 The RTC ruled that it would be unjust and inequitable not to allow a recovery on the policy while
allowing respondent to retain the premium paid.27 Thus, petitioner was awarded an indemnity of ₱l,500,000.00 and
attorney's fees of ₱50,000.00.28
• After respondent's motion for reconsideration was denied,29 it filed a Notice of Appeal.30 Records were forwarded to
the CA.31
• The CA granted respondent's appeal.32 The CA upheld respondent's position that an insurance contract becomes
valid and binding only after the premium is paid pursuant to Sec. 77 of IC (Presidential Decree No. 612, as amended
by Republic Act No. 10607).33 It found that the premium was not yet paid at the time of the loss on September 27,
but only a day after or on September 28, 1996, when the check was picked up by Trans-Pacific.34 It also found that
none of the exceptions to Sec. 77 obtains in this case. 35 Nevertheless, the CA ordered respondent to return the
premium it received in the amount of ₱55,620.60, with interest at the rate of 6% per annum from the date of the
denial of the claim on October 9, 1996 until payment. 36
• Hence petitioner filed this petition. He argues that there was a valid and binding insurance contract between him
and respondent.37 He submits that it comes within the exceptions to the rule in Sec. 77 of IC that no contract of
insurance becomes binding unless and until the premium thereof has been paid. The prohibitive tenor of Sec. 77
does not apply because the parties stipulated for the payment of premiums.38 The parties intended the contract of
insurance to be immediately effective upon issuance, despite non-payment of the premium, because respondent
trusted petitioner.39 He adds that respondent waived its right to a pre-payment in full of the terms of the policy, and
is in estoppel.40
• Petitioner also argues that assuming he is not entitled to recover insurance proceeds, but only to the return of the
premiums paid, then he should be able to recover the full amount of ₱140,893.50, and not merely
₱55,620.60.41 The insurance policy covered three vehicles yet respondent's intention was merely to disregard the
contract for only the lost vehicle.42 According to petitioner, the principle of mutuality of contracts is violated, at his
expense, if respondent is allowed to be excused from performance on the insurance contract only for one vehicle,
but not as to the two others, just because no loss is suffered as to the two. To allow this "would be to place
exclusively in the hands of one of the contracting parties the right to decide whether the contract should stand or
not x x x. "43

WHETHER THERE IS A BINDING INSURANCE CONTRACT BETWEEN PETITIONER AND
RESPONDENT.
• Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. 45 Just like any other contract, it requires a cause or
consideration. The consideration is the premium, which must be paid at the time and in the way and manner
specified in the policy.46 If not so paid, the policy will lapse and be forfeited by its own terms.47
• The law, however, limits the parties' autonomy as to when payment of premium may be made for the contract to
take effect. The general rule in insurance laws is that unless the premium is paid, the insurance policy is not valid and
binding.48 Sec. 77 of IC, applicable at the time of the issuance of the policy, provides: Sec. 77. An insurer is entitled
to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever
the grace period provision applies.
• In Tibay v. CA,49 we emphasized the importance of this rule. We explained that in an insurance contract, both the
insured and insurer undertake risks. On one hand, there is the insured, a member of a group exposed to a particular
peril, who contributes premiums under the risk of receiving nothing in return in case the contingency does not
happen; on the other, there is the insurer, who undertakes to pay the entire sum agreed upon in case the
contingency happens. This risk-distributing mechanism operates under a system where, by prompt payment of the
premiums, the insurer is able to meet its legal obligation to maintain a legal reserve fund needed to meet its
contingent obligations to the public. The premium, therefore, is the elixir vitae or source of life of the insurance
business:
• In the desire to safeguard the interest of the assured, it must not be ignored that the contract of insurance is primarily
a risk-distributing device, a mechanism by which all members of a group exposed to a particular risk contribute
premiums to an insurer. From these contributory funds are paid whatever losses occur due to exposure to the peril
insured against. Each party therefore takes a risk: the insurer, that of being compelled upon the happening of the
contingency to pay the entire sum agreed upon, and the insured, that of parting with the amount required as
premium. without receiving anything therefor in case the contingency does not happen. To ensure payment for
these losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming
under their policies. It should be understood that the integrity of this fund cannot be secured and maintained if by
judicial fiat partial offerings of premiums were to be construed as a legal nexus between the applicant and the insurer
despite an express agreement to the contrary. For what could prevent the insurance applicant from deliberately or
willfully holding back full premium payment and wait for the risk insured against to transpire and then conveniently
pass on the balance of the premium to be deducted from the proceeds of the insurance? x x x
• And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law
the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative
need for its prompt payment and full satisfaction. It must be emphasized here that all actuarial calculations and
various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of
prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to
the public at favorable rates. x x x50 (Citations omitted.)
• Here, there is no dispute that the check was delivered to and was accepted by respondent's agent, Trans-Pacific, only
on September 28, 1996. No payment of premium had thus been made at the time of the loss of the vehicle on
September 27, 1996. While petitioner claims that Trans-Pacific was informed that the check was ready for pick-up
on September 27, 1996, the notice of the availability of the check, by itself, does not produce the effect of payment
of the premium. Trans-Pacific could not be considered in delay in accepting the check because when it informed
petitioner that it will only be able to pick-up the check the next day, petitioner did not protest to this, but instead
allowed Trans-Pacific to do so. Thus, at the time of loss, there was no payment of premium yet to make the
insurance policy effective.
• There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is paid. In UCPB
General Insurance Co., Inc. v. Masagana Telamart, Inc.,51 we said: It can be seen at once that Sec. 77 does not
restate the portion of Sec. 72 expressly permitting an agreement to extend the period to pay the premium. But are
there exceptions to Sec. 77? The answer is in the affirmative.
o The first exception is provided by Sec. 77 itself, and that is, in case of a life or industrial life policy
whenever the grace period provision applies.
o The second is that covered by Sec. 78 of IC, which provides: SEC. 78. Any acknowledgment in a policy or
contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the
policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually
paid.
o A third exception was laid down in Makati Tuscany Condominium Corporation vs. CA, wherein we ruled
that Sec. 77 may not apply if the parties have agreed to the payment in installments of the premium and
partial payment has been made at the time of loss. We said therein, thus: We hold that the subject policies
are valid even if the premiums were paid on installments. The records clearly show that the petitioners and
private respondent intended subject insurance policies to be binding and effective notwithstanding the
staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in
1983, then in 1984. In those three years, the insurer accepted all the installment payments. Such acceptance
of payments speaks loudly of the insurer's intention to honor the policies it issued to petitioner. Certainly,
basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny liability on the lame excuse that the premiums
were not prepaid in full.
o Not only that. In Tuscany, we also quoted with approval the following pronouncement of the CA in its
Resolution denying the motion for reconsideration of its decision: While the import of Sec. 77 is that
prepayment of premiums is strictly required as a condition to the validity of the contract, We are not
prepared to rule that the request to make installment payments duly approved by the insurer would prevent
the entire contract of insurance from going into effect despite payment and acceptance of the initial
premium or first installment. Sec. 78 of IC in effect allows waiver by the insurer of the condition of
prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive
evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid.
Sec. 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid,
but does not expressly prohibit an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy (De Leon, IC, p. 175). So is an
understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both
parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.
o By the approval of the aforequoted findings and conclusion of the CA, Tuscany has provided a fourth
exception to Sec. 77, namely, that the insurer may grant credit extension for the payment of the premium.
This simply means that if the insurer has granted the insured a credit term for the payment of the premium
and loss occurs before the expiration of the tem1, recovery on the policy should be allowed even though
the premium is paid after the loss but within the credit term. xxx
o Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be
permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of
premiums despite its full awareness of Sec. 77. Estoppel bars it from taking refuge under said Sec., since
Respondent relied in good faith on such practice. Estoppel then is the fifth exception to Sec.
77.52 (Citations omitted.)
o In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or
industrial life policy, whenever the grace period provision applies, as expressly provided by Sec. 77 itself; (2)
where the insurer acknowledged in the policy or contract of insurance itself the receipt of premium, even if
premium has not been actually paid, as expressly provided by Sec. 78 itself; (3) where the parties agreed that
premium payment shall be in installments and partial payment has been made at the time of loss, as held
in Makati Tuscany Condominium Corp. v. CA;53(4) where the insurer granted the insured a credit term for
the payment of the premium, and loss occurs before the expiration of the term, as held in Makati Tuscany
Condominium Corp.; and (5) where the insurer is in estoppel as when it has consistently granted a 60 to
90-day credit term for the payment of premiums.
• The insurance policy in question does not fall under the first to third exceptions laid out in UCPB General
Insurance Co., Inc.: (1) the policy is not a life or industrial life policy; (2) the policy does not contain an
acknowledgment of the receipt of premium but merely a statement of account on its face; 54 and (3) no payment of
an installment was made at the time of loss on September 27.
WE DO NOT AGREE WITH PETITIONER WHEN IT ARGUED that his case falls under the fourth and fifth
exceptions because the parties intended the contract of insurance to be immediately effective upon issuance, despite non-
payment of the premium. This waiver to a pre-payment in full of the premium places respondent in estoppel.
• The fourth and fifth exceptions to Sec. 77 operate under the facts obtaining in Makati Tuscany Condominium
Corp. and UCPB General Insurance Co., Inc. Both contemplate situations where the insurers have consistently
granted the insured a credit extension or term for the payment of the premium. Here, however, petitioner failed to
establish the fact of a grant by respondent of a credit term in his favor, or that the grant has been consistent. While
there was mention of a credit agreement between Trans-Pacific and respondent, such arrangement was not proven
and was internal between agent and principal.55 Under the principle of relativity of contracts, contracts bind the
parties who entered into it. It cannot favor or prejudice a third person, even if he is aware of the contract and has
acted with knowledge.56
• We cannot sustain petitioner's claim that the parties agreed that the insurance contract is immediately effective upon
issuance despite nonpayment of the premiums.1âwphi1 Even if there is a waiver of pre-payment of premiums, that
in itself does not become an exception to Sec. 77, unless the insured clearly gave a credit term or extension. This is
the clear import of the fourth exception in the UCPB General Insurance Co., Inc. To rule otherwise would render
nugatory the requirement in Sec. 77 that "[n]otwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, x
x x." Moreover, the policy itself states: WHEREAS THE INSURED, by his corresponding proposal and
declaration, and which shall be the basis of this Contract and deemed incorporated herein, has applied to the
company for the insurance hereinafter contained, subject to the payment of the Premium as consideration for such
insurance.57 (Emphasis supplied.)

• The policy states that the insured's application for the insurance is subject to the payment of the premium. There is
no waiver of pre-payment, in full or in installment, of the premiums under the policy. Consequently, respondent
cannot be placed in estoppel.
• THUS, WE FIND THAT PETITIONER IS NOT ENTITLED TO THE INSURANCE PROCEEDS
BECAUSE NO INSURANCE POLICY BECAME EFFECTIVE FOR LACK OF PREMIUM PAYMENT.
• The consequence of this declaration is that petitioner is entitled to a return of the premium paid for the vehicle in
the amount of ₱55,620.60 under the principle of unjust enrichment. There is unjust enrichment when a person
unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience. 58 Petitioner cannot claim the full amount of
₱140,893.50, which includes the payment of premiums for the two other vehicles. These two policies are not
affected by our ruling on the policy subject of this case because they were issued as separate and independent
contracts of insurance.59 We, however, find that the award shall earn legal interest of 6% from the time of extra
judicial demand on July 7, 1997.60
WHEREFORE, CA AFFIRMED with the MODIFICATION that respondent should return the amount of P55,620.60
with the legal interest computed at the rate of 6% per annum reckoned from July 7, 1997 until finality of this judgment.
Thereafter, the total amount shall earn interest at the rate of 6% per annum from the finality of this judgment until its full
satisfaction.

ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber Enterprises and ONG CHIONG
vs. HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY CORPORATION
• On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier, entered into a
contract with the petitioners whereby the former would load and carry on board its barge Mable 10 about 422.18
cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured the logs
against loss for P100,000.00 with respondent Pioneer Insurance and Surety Corporation (Pioneer).
• On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for
carriage and delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable
10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. As alleged by the
petitioners in their complaint and as found by both the trial and appellate courts, the barge where the logs were
loaded was not seaworthy such that it developed a leak. The appellate court further found that one of the hatches
was left open causing water to enter the barge and because the barge was not provided with the necessary cover or
tarpaulin, the ordinary splash of sea waves brought more water inside the barge.
• On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of
the shipment plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to
respondent Pioneer claiming the full amount of P100,000.00 under the insurance policy but respondent refused to
pay on the ground that its hability depended upon the "Total loss by Total Loss of Vessel only". Hence, petitioners
commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer.
• After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision reads:
FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance and Surety
Corporation to pay plaintiffs, jointly and severally, the sum of P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in addition, the sum of
P50,000.00, plus P12,500.00, that the latter advanced to the former as down payment for transporting the
logs in question;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for lack of merit, but as to
its cross-claim against its co-defendant Manila Bay Lighterage Corporation, the latter is ordered to
reimburse the former for whatever amount it may pay the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for lack of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages are ordered
dismissed, for lack of merits; plaintiffs' claim for attorney's fees in the sum of P10,000.00 is hereby granted,
against both defendants, who are, moreover ordered to pay the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%) from March 25, 1975,
until amount is fully paid.
• Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal. According to the
petitioners, the transportation company is no longer doing business and is without funds.
• During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part of the logs. The
court ordered them to be sold to the highest bidder with the funds to be deposited in a bank in the name of Civil
Case No. 86599.
• On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer from liability after
finding that there was a breach of implied warranty of seaworthiness on the part of the petitioners and that the loss of
the insured cargo was caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is not
covered by the marine insurance policy.
• CA ERRED IN HOLDING THAT IN CASES OF MARINE CARGO INSURANCE, THERE IS A

WARRANTY OF SEAWORTHINESS BY THE CARGO OWNER.
• CA ERRED IN HOLDING THAT THE LOSS OF THE CARGO IN THIS CASE WAS CAUSED BY
"PERILS OF THE SHIP" AND NOT BY "PERILS OF THE SEA."
• CA ERRED IN NOT ORDERING THE RETURN TO PETITIONER OF THE AMOUNT OF P8,000.00
WHICH WAS DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT WERE
RECOVERED.
HELD:
IN THEIR FIRST ASSIGNMENT OF ERROR
• petitioners contend that the implied warranty of seaworthiness provided for in IC refers only to the responsibility of
the shipowner who must see to it that his ship is reasonably fit to make in safety the contemplated voyage.
• The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its
seaworthiness. They argue that a cargo owner has no control over the structure of the ship, its cables, anchors, fuel
and provisions, the manner of loading his cargo and the cargo of other shippers, and the hiring of a sufficient
number of competent officers and seamen. The petitioners' arguments have no merit.
• There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to appeal the
questioned decision. However, the petitioners state that Manila Bay has ceased operating as a firm and nothing may
be recovered from it. They are, therefore, trying to recover their losses from the insurer.

• The liability of the insurance company is governed by law. Sec. 113 of IC provides: In every marine insurance upon
a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that
the ship is seaworthy.
• Sec. 99 of the same Code also provides in part. Marine insurance includes: (1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
• From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the subject of
marine insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to
whoever is insuring the cargo whether he be the shipowner or not.
• As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40): The
same conclusion must be reached if the question be discussed with reference to the seaworthiness of the ship. It is
universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a
warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted
in our own Insurance Law (Act No. 2427, sec. 106). ...
• Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary
marine insurance and may not be used by him as a defense in order to recover on the marine insurance policy. As
was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406): There was no look-out,
and both that and the rate of speed were contrary to the Canadian Statute. The exception of losses occasioned by
unseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial.
• Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it
becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy
condition. The shipper of cargo may have no control over the vessel but he has full control in the choice of the
common carrier that will transport his goods. Or the cargo owner may enter into a contract of insurance which
specifically provides that the insurer answers not only for the perils of the sea but also provides for coverage of perils
of the ship.
• We are constrained to apply Sec. 113 of IC to the facts of this case. As stated by the private respondents: In marine
cases, the risks insured against are "perils of the sea" (Chute v. North River Ins. Co., Minn—214 NW 472, 55 ALR
933). The purpose of such insurance is protection against contingencies and against possible damages and such a
policy does not cover a loss or injury which must inevitably take place in the ordinary course of things. There is no
doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or by the violence of the elements,
and does not embrace all losses happening at sea. They insure against losses from extraordinary occurrences only,
such as stress of weather, winds and waves, lightning, tempests, rocks and the like. These are understood to be the
"perils of the sea" referred in the policy, and not those ordinary perils which every vessel must encounter. "Perils of
the sea" has been said to include only such losses as are of extraordinary nature, or arise from some overwhelming
power, which cannot be guarded against by the ordinary exertion of human skill and prudence. Damage done to a
vessel by perils of the sea includes every species of damages done to a vessel at sea, as distinguished from the ordinary
wear and tear of the voyage, and distinct from injuries suffered by the vessel in consequence of her not being
seaworthy at the outset of her voyage (as in this case). It is also the general rule that everything which happens thru
the inherent vice of the thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not
otherwise borne in the policy.
WITH REGARD TO THE SECOND ASSIGNMENT OF ERROR

• Petitioners maintain, that the loss of the cargo was caused by the perils of the sea, not by the perils of the ship
because as found by the trial court, the barge was turned loose from the tugboat east of Cabuli Point "where it was
buffeted by storm and waves." Moreover, petitioners also maintain that barratry, against which the cargo was also
insured, existed when the personnel of the tugboat and the barge committed a mistake by turning loose the barge
from the tugboat east of Cabuli Point. The trial court also found that the stranding and foundering of Mable 10 was
due to improper loading of the logs as well as to a leak in the barge which constituted negligence.
• On the contention of the petitioners that the trial court found that the loss was occasioned by the perils of the sea
characterized by the "storm and waves" which buffeted the vessel, the records show that the court ruled otherwise.
It stated:
xxx xxx xxx
... The other affirmative defense of defendant Lighterage, 'That the supposed loss of the logs was occasioned
by force majeure... "was not supported by the evidence. At the time Mable 10 sank, there was no typhoon
but ordinary strong wind and waves, a condition which is natural and normal in the open sea. The evidence
shows that the sinking of Mable 10 was due to improper loading of the logs on one side so that the barge
was tilting on one side and for that it did not navigate on even keel; that it was no longer seaworthy that
was why it developed leak; that the personnel of the tugboat and the barge committed a mistake when it
turned loose the barge from the tugboat east of Cabuli point where it was buffeted by storm and waves,
while the tugboat proceeded to west of Cabuli point where it was protected by the mountain side from the
storm and waves coming from the east direction. ..."
• In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier developed a leak
which allowed water to come in and that one of the hatches of said barge was negligently left open by the person in

charge thereof causing more water to come in and that "the loss of said plaintiffs' cargo was due to the fault,
negligence, and/or lack of skill of defendant carrier and/or defendant carrier's representatives on barge Mable 10."
• It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea.
The facts clearly negate the petitioners' claim under the insurance policy. In the case of Go Tiaoco y Hermanos v.
Union Ins. Society of Canton, supra, we had occasion to elaborate on the term "perils of the ship." We ruled:
It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results
from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the
negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo under
ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the "peril
of the ship." The insurer undertakes to insure against perils of the sea and similar perils, not against perils of
the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the
Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the insurer liable, be some casualty,
something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of
the policy is to secure an indemnity against accidents which may happen, not against events which must
happen.
In the present case the entrance of the sea water into the ship's hold through the defective pipe already
described was not due to any accident which happened during the voyage, but to the failure of the ship's
owner properly to repair a defect of the existence of which he was apprised. The loss was therefore more
analogous to that which directly results from simple unseaworthiness than to that which result from the
perils of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room to doubt the liability of the
shipowner for such a loss as occurred in this case. By parity of reasoning the insurer is not liable; for
generally speaking, the shipowner excepts the perils of the sea from his engagement under the bill of lading,
while this is the very perils against which the insurer intends to give protection. As applied to the present
case it results that the owners of the damaged rice must look to the shipowner for redress and not to the
insurer.
• Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of the vessel's
crew.
• Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or crew in pursuance
of some unlawful or fraudulent purpose without the consent of the owners, and to the prejudice of the owner's
interest."
• Barratry necessarily requires a willful and intentional act in its commission. No honest error of judgment or mere
negligence, unless criminally gross, can be barratry.
• In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the vessel's
crew. There was only simple negligence or lack of skill. Hence, the second assignment of error must likewise be
dismissed.
THIRD ASSIGNMENT OF ERROR

• We agree with the petitioners that the amount of P8,000.00 representing the amount of the salvaged logs should
have been awarded to them. However, this should be deducted from the amounts which have been adjudicated
against Manila Bay Lighterage Corporation by the trial court.
• WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of P8,000.00
representing the value of the salvaged logs which was ordered to be deposited in the Manila Banking Corporation in
the name of Civil Case No. 86599 is hereby awarded and ordered paid to the petitioners. The liability adjudged
against Manila Bay Lighterage Corporation in the decision of the trial court is accordingly reduced by the same
amount.

MANULIFE PHILIPPINES, INC. 1 vs. HERMENEGILDA YBAÑEZ
Factual Antecedents
• Before the RTC of Makati City, Manulife Philippines, Inc. (Manulife) instituted a Complaint 7 for Rescission of
Insurance Contracts against Hermenegilda Ybañez (Hermenegilda) and the BPI Family Savings Bank (BPI Family).
This was docketed as Civil Case No. 04-1119.
• It is alleged in the Complaint that Insurance Policy Nos. 6066517-18 and 6300532-69 (subject insurance policies)
which Manulife issued on October 25, 2002 and on July 25, 2003, respectively, both in favor of Dr. Gumersindo
Solidum Ybañez (insured), were void due to concealment or misrepresentation of material facts in the latter's
applications for life insurance, particularly the forms entitled Non-Medical Evidence dated August 28, 2002
(NME),10 Medical Evidence Exam dated September 10, 2002 (MEE),11 and the Declaration of Insurability in the
Application for Life Insurance (DOI) dated July 9, 2003;12 that He1menegilda, wife of the said insured, was
revocably designated as beneficiary in the subject insurance policies; that on November 17, 2003, when one of the
subject insurance policies had been in force for only one year and three months, while the other for only four
months, the insured died; that on December 10, 2003, Hermenegilda, now widow to the said insured, filed a
Claimant's Statement-Death Claim13 with respect to the subject insurance policies; that the Death Certificate dated
November 17, 200314 stated that the insured had "Hepatocellular CA., Crd Stage 4, secondary to Uric Acid
Nephropathy; SAM Nephropathy recurrent malignant pleural effusion; NASCVC"; that Manulife conducted an
investigation into the circumstances leading to the said insured's death, in view of the aforementioned entries in the
said insured's Death Certificate; that Manulife thereafter concluded that the insured misrepresented or concealed
material facts at the time the subject insurance policies were applied for; and that for this reason Manulife
accordingly denied Hermenegilda's death claims and refunded the premiums that the insured paid on the subject
insurance policies.15
• Manulife also set forth in said Complaint the details of the insured's supposed misrepresentation/s or concealment/s,
to wit:
2.6. On the basis of the authority granted by [Hermenegilda] in her Claimant's Statement (Annex "H"), [Manulife]
conducted an investigation [into] the Insured's medical records and history, and discovered that the Insured
concealed material facts which the law, good faith, and fair dealing required him to reveal when he answered the
[NME] (Annex ''C"), [the MEE] (Annex "D"), and [the DOI] (Annex "E"), as follows:
(1) Insured's confinement at the Cebu Doctors' Hospital [CDH] from 27 December 2000 to 3l December 2000,
wherein he underwent total parotidectomy on 28 December 2000 due to the swelling of his right parotid gland and
the presence of a tumor, and was found to have had a history of being hypertensive, and his kidneys have become
atretic or shrunken. A copy of each of the Admission and Discharge Record and PGIS' Interns' Progress Notes and
Operative Record of the [CDH] is attached hereto and made an integral part hereof as Annex "K", "K-1", and "K-
2'', respectively.
(2) Insured's confinement at the CDH from 9 May 2002 to 14 May 2002, wherein he was diagnosed to have acute
pancreatitis, in addition to being hypertensive. A copy [of] each of the Insured's Admission and Discharge Record
and Doctor's History/Progress Notes is attached hereto and made an integral part hereof as Annex "L" and "L-1",
respectively.
(3) Insured's diagnosis for leptospirosis in 2000. A copy [of] each of the Insured's Admission and Discharge Record
and History Sheet is attached hereto and made an integral part hereof as Annex "M" and "M-1",respectively.
x x xx
2.8. Due to the Insured's concealment of material facts at the time the subject insurance policies were applied for and
issued, [Manulife] exercised its right to rescind the subject insurance contracts and denied the claims on those
policies.
xxxx16
Manulife thus prayed that judgment be rendered finding its act of rescinding the subject insurance policies proper;
declaring these subject insurance policies null and void; and discharging it from any obligation whatsoever under
these policies.17
• In her Answer, Hermenegilda countered that:
6. [Manulife's own insurance agent, Ms. Elvira Monteclaros herself] assured [the insured,] that there would be no
problem regarding the application for the insurance policy. In fact, it was Monteclaros who filled up everything in
the questionnaire (Annex "C" of the [C]omplaint), so that [all that the insured needed to do was sign it,] and it's
done. [It was also Ms. Monteclaros who herself] checked in advance all the boxes in Annex "C," [that the insured
himself was required to answer or check].
xxxx
10. The four grounds for denial as enumerated in Annex "N" of the complaint are refuted as follows:
1) [The insured's] hospital confinement on 27 December 2000 at [the CDH was] due to right parotid swelling
secondary to tumor [for which he] underwent Parotidectomy on 28 December 2000. (- There is an obvious scar and
disfigurement in the right side of [the insured's] face, in front, and below his ear. This [ought to] have been easily
noticed by [Manulife's company] physician, Dr. [Winifredo] Lumapas.
2) [The insured's] history of Hypertension [has been] noted 03 years prior to [the insured's] admission on 27
December 2000. (This is not something serious or fatal)
3) [The insured's] history of Leptospirosis in 2000. (This is not confirmed)

4) [The insured's] hospital confinement [at the CDH] on 09 May 2002 with findings of Acute Pancreatitis (This is
related to the gallstones of [the insured]. When the gallbladder is diseased, distention is impossible and its pressure-
regulating function is lost - a fact that may explain high incidence of pancreatitis in patient with cholecystic disease.
[The insured] had cholecystitis, so his acute pancreatitis is related to the cholecystitis and chol[e]lithiasis (gallstones).
x x xx
11. [Manulife] accepted [the insured's] application, and now that a claim for the benefits [is] made, [Manulife now]
says that [the insured] misrepresented and concealed his past illnesses[!] In the form filled up by [Dr. Winifredo F.
Lumapas,] Manulife's [company] physician, dated 9/10/02, [the insured] checked the column which says ''yes" [to]
the following questions:
• Have you had electrocardiograms, when, why, result? ([Manulife's company physician] wrote the answer which
stated that result was normal.) ' .
• Have you seen a doctor, or had treatment operation on hospital case during the last five years?
12. x x x It is rather strange that [the insured's] parotidectomy was not included in the report when the scar of that
operation can not be concealed because it caused a disfigurement in the right side. of his face in front and below his
ear. This is just too obvious to be overlooked by [Manulife's company physician] who examined and interviewed
[the insured] before accepting the policy. x x x
13. x x x [Undoubtedly, Manulife] had the option to inquire further [into the insured's physical condition, because
the insured had given it authority to do so] based on the authority given by [the insured. And how come that
Manulife] was able to gather all [these] information now and not before [the insured] was ensured? x x x
xxxx
16. Moreover, in the comments of [the said] Dr. Lumapas, (Annex "D" of the Complaint), he said the physical
condition of [the] then prospective insurance policy holder, [the insured, was] "below average". x x x [Estoppel now
bars Manulife from claiming the contrary.]
17. [Especially] worth noting are the [following] comments of [the said Dr. Lumapas, on the insured's answer to the
questionnaires] - (Annex "D" of the Complaint ). [to wit:]
"4.d. Have you had any electrocardiograms, when, why, result. "Yes"
- on June 2002 at CDH, Cebu City
= Cardiac clearance for surgery
= Result normal
16. Have you seen a doctor, or had treatment, operation or hospital care during the last 5 years? " Yes" admitted at
[CDH,] Cebu City by Dr. Lamberto Garcia and Dr. Jorge Ang for Chronic Calculous Chol[e]cystitis
=Cholecystectomy done [J]une 7[,] 2002 by Dr. Ang
=Biopsy: Gallbladder Chronic Calculous Cholestitis
=CBC, Hepatitis Panel done – all negative results except hepatitis antigen(+)
18. Do you consume alcohol beverages? If so, how much? Yes, consumes 1-2 shots of whisky during socials.
25. The abdomen - Abnormality of any viscus, genitalia or evidence of hemia or operation - post cholecystectomy
scar.
26. The head and neck - vision, optic, fundi, hearing, speech, thyroid etc. Yes wears eyeglasses for reading. (This is
where [Manulife's company physician] should have written the scar of [the insured's] parotidectomy as shown in the
picture).
32. From your knowledge of this person would you consider his/ her health to be Average [] Below average[/] Poor
[]
(Underscoring ours)
18. It is interesting to note that the answers in the insurance agent's form for [the insured] (Annex "C" of the
Complaint) did not jibe with the answers [made by] Dr. Lumapas in Annex "D" of the Complaint. This only boosts
Hermenegilda's claim that x x x indeed, it was the Manulife's agent herself, (Ms. Montesclaros) who checked all the
items in the said form to speed up the insurance application and its approval, [so she could] get her commission as
soon as possible.
19. In fine, at the time when both insurance policies in question were submitted for approval to [Manulife, the latter
had had all the forewarnings that should have put it on guard or on notice that things were not what it wanted them
to be, reason enough to bestir it into exercising greater prudence and caution to further inquire into] the health or
medical history of [the insured]. In particular, Manulife ought to have noted the fact that the insured was at that time
already 65 years old, x x x that he had a previous operation, and x x x that his health was "below average. x x x 18
• On November 25, 2005, BPI Family filed a Manifestation19 praying that either it be dropped from the case or that
the case be dismissed with respect to it (BPI Family), because it no longer had any interest in the subject insurance
policies as asssignee because the insured’s obligation with it (BPI Family) had already been settled or paid. Since no
objection was interposed to this prayer by either Manulife or Hermenegilda, the RTC granted this prayer in its
Order of November 25, 2005.20
• Then in the Second Order dated November 25, 2005,21 the RTC considered the pre-trial as te1minated. Trial then
ensued.
• Manulife presented its sole witness in the person of Ms. Jessiebelle Victoriano (Victoriano ), the Senior Manager of
its Claims and Settlements Department.22 The oral testimony of this witness chiefly involved identifying herself as
the Senior Manager of Manulife's Claims and Settlements Department and also identifying the following pieces of
evidence;23 the subject insurance policies; NME, MEE, DOI; the Assignment of Policy No. 6066517-1 to BPI

Family as collateral, dated July 9, 2003; its Letter dated July 10, 2003 re: assignment of said Policy; death claim filed
by Hermenegilda on December 10, 2003; the insured's Death Certificate; the Marriage Contract between the
insured and Hermenegilda; copies of CDH's Admission and Discharge Records of the insured for December
2000 re: parotidectomy; copies of CDH's PGIS' Interns' Notes and CDH Operative Record dated December 28,
2000 re: hypertension; copies of CDH's Admission and Discharge Record of the insured for May 2002, and the
Doctor's History/Progress Notes re: acute pancreatitis and hypertension; copies of CDH's Admission and Discharge
Record of the insured for October 2003 re: leptospirosis; letters dated March 24, 2004 to Hermenegilda and BPI
Family; and BPI Checks deposited on April 10, 2004 and May 14, 2004 to the bank accounts of BPI Family and
Hermenegilda, respectively, representing the premium refund.
• In its Order of October 2, 2006, 24 the RTC admitted all these exhibits.
• Like Manulife, Hermenegilda, in amplication of her case, also called only one witness to the witness stand: her
counsel of record, Atty. Edgardo Mayol (Atty. Mayol), whose testimony focused on his professional engagement
with Hermenegilda and the monetary expenses he incurred in attending to the hearings in this case. 25 Hermenegilda
thereafter filed her Formal Offer of Evidence26 wherein she proffered the following: NME, MEE, DOI, the insured's
driver's license, her letter dated May 8, 2004 protesting the denial by Manulife of her insurance claim, the contract
of services between her and Atty. Mayol, the official receipts for plane tickets, terminal fees, and boarding passes,
attesting to Atty. Mayol's plane travels to and from Cebu City to attend to this case. These were all admitted by the
RTC.27
Ruling of RTC
• RTC dismissed Manulife's Complaint, thus: WHEREFORE, premises duly considered, judgment is hereby
rendered DISMISSING the instant case for insufficiency of evidence. [Manulife] is hereby ordered to pay
[Hermenegilda] actual expenses in the sum of ₱40,050.00 and attorney's fees in the sum of
₱l00,000.1âwphi1 [Hermenegilda's] claim for moral and exemplary damages is denied for lack of evidence.
• The RTC found no merit at all in Manulife's Complaint for rescission of the subject insurance policies because it
utterly failed to prove that the insured had committed the alleged misrepresentation/s or concealment/s. In fact,
Victoriano, the one and only witness that Manulife called to the witness stand, gave no first-hand, direct evidence at
all relative to the particulars of the alleged misrepresentation/s or concealment/s that the insured allegedly practiced
or committed against it. This witness did not testify at all in respect to the circumstances under which these
documentary exhibits were executed, nor yet about what these documentary exhibits purported to embody.
• The RTC stressed that the CDH medical records that might or could have established the insured's
misrepresentation/s or concealment/s were inadmissible for being hearsay, because Manulife did not present the
physician or doctor, or any responsible official of the CDH, who could confirm the due execution and authenticity
of its medical records; that if anything, Manulife itself admitted in its Reply 29 that its very own company physician,
Dr. Winifredo Lumapas, had duly noted the insured's scar, even as the same company physician also categorized in
the MEE the insured's health as "below average"; and that in short, it is evident that Manulife thus had had ample
opportunity to verify and to inquire further into the insured' s medical history commencing from the date of the
MEE but opted not to do so; and that if things did not come up to its standards or expectations, it was totally at
liberty to reject the insured's applications altogether, or it could have demanded a higher premium for the insurance
coverage.
• The RTC further ruled that Hermenegilda was entitled to attorney's fees in the sum of ₱l00,000.00 and actual
expenses in the amount of ₱40,050.00, because she was compelled to litigate to defend her interest against Manulife'
s patently unjustified act in rejecting her clearly valid and lawful claim. The RTC also found merit in
Hermenegilda’s claims relative to the expenses she paid her Cebu-based counsel.
Ruling of the CA
• virtually adopted en toto the findings of facts made by, and the conclusions of law arrived at, by the RTC. Thus, the
CA decreed:
• The CA, like the RTC, found Manulife's Complaint bereft of legal and factual bases. The CA ruled that it is settled
that misrepresentation or concealment in insurance is an affirmative defense, which the insurer must establish by
convincing evidence if it is to avoid liability; and that in this case the one and only witness presented by Manulife
utterly failed to prove the basic elements of the alleged misrepresentation/s or concealment/s of material facts
imputed by Manulife against the now deceased insured. The CA held that there is no basis for Manulife's claim that
it is exempted from the duty of proving the insured's supposed misrepresentation/s or concealment/s, as these had
allegedly been admitted already in Hermenegilda's Answer; that in the absence of authentication by a competent
witness, the purported CDH medical records of the insured are deemed hearsay hence, inadmissible, and devoid of
probative value; and that the medical certificate, even if admitted in evidence as an exception to the hearsay rule,
was still without probative value because the physician or doctor or the hospital's official who issued it, was not
called to the witness stand to validate it or to attest to it.
Issue
Whether the CA committed any reversible error in affirming the RTC Decision dismissing Manulife's Complaint for
rescission of insurance contracts for failure to prove concealment on the part of the insured.

Our Ruling
• The present recourse essentially challenges anew the findings of fact by both the RTC and the CA that the
Complaint for rescission of the insurance policies in question will not prosper because Manulife failed to prove
concealment on the part of the insured. This is not allowed. It is horn-book law that in appeal by certiorari to this
Court under Rule 45 of the Revised Rules of Court, the findings of fact by the CA, especially where such findings
of fact are affirmatory or confirmatory of the findings of fact of the RTC, as in this case, are conclusive upon this
Court. The reason is simple: this Court not being a trial court, it does not embark upon the task of dissecting,
analyzing, evaluating, calibrating or weighing all over again the evidence, testimonial or documentary, that the
parties adduced during trial. Of course, there are exceptions to this rule, such as (1) when the conclusion is grounded
upon speculations, surmises or conjectures; (2) when the inference is manifestly mistaken, absurd or impossible; (3)
when there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when there is no citation of specific evidence on which the factual findings are
based; (7) when the findings of absence of facts is contradicted by the presence of evidence on record; (8) when the
findings of the CA are contrary to the findings of the RTC; (9) when the CA manifestly overlooked certain relevant
and undisputed facts that, if properly considered, would justify a different conclusion; (10) when the findings of the
CA are beyond the issues of the case; and (11) when the CA’s findings are contrary to the admission of both
parties.38
• We are satisfied that none of these exceptions obtains in the Petition at bench. Thus, this Court must defer to the
findings of fact of the RTC – as affirmed or confirmed by the CA – that Manulife’s Complaint for rescission of the
insurance policies in question was totally bereft of factual and legal bases because it had utterly failed to prove that
the insured had committed the alleged misrepresentation/s or concealment/s of material facts imputed against him.
• The RTC correctly held that the CDH’s medical records that might have established the insured’s purported
misrepresentation/s or concealment/s was inadmissible for being hearsay, given the fact that Manulife failed to
present the physician or any responsible official of the CDH who could confirm or attest to the due execution and
authenticity of the alleged medical records. Manulife had utterly failed to prove by convincing evidence that it had
been beguiled, inveigled, or cajoled into selling the insurance to the insured who purportedly with malice and deceit
passed himself off as thoroughly sound and healthy, and thus a fit and proper applicant for life insurance. Manulife's
sole witness gave no evidence at all relative to the particulars of the purported concealment or misrepresentation
allegedly perpetrated by the insured. In fact, Victoriano merely perfunctorily identified the documentary exhibits
adduced by Manulife; she never testified in regard to the circumstances attending the execution of these
documentary exhibits much less in regard to its contents. Of course, the mere mechanical act of identifying these
documentary exhibits, without the testimonies of the actual participating parties thereto, adds up to nothing. These
documentary exhibits did not automatically validate or explain themselves. "The fraudulent intent on the part of the
insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer
to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer." 39 For failure of Manulife to prove intent to defraud on the part of the insured, it
cannot validly sue for rescission of insurance contracts.
WHEREFORE, CA AFFIRMED

LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR INTERNATIONAL SHIPPING
COMPANY, INCORPORATED vs. MALAYAN INSURANCE COMPANY, INCORPORATED, Respondent.
• Loadstar International Shipping, Inc.(Loadstar Shipping) and Philippine Associated Smelting and Refining
Corporation (PASAR) entered into a Contract of Affreightment for domestic bulk transport of the latter’s copper
concentrates for a period of one year from November 1, 1998 to October 31, 1999. The contract was extended up
to the end of October 2000.
• On September 10, 2000, 5,065.47 wet metric tons (WMT) of copper concentrates were loaded in Cargo Hold Nos.
1 and 2 of MV "Bobcat", a marine vessel owned by Loadstar International Shipping Co., Inc. (Loadstar
International) and operated by Loadstar Shipping under a charter party agreement. The shipper and consignee under
the Bill of Lading are Philex Mining Corporation (Philex) and PASAR, respectively. The cargo was insured with
Malayan Insurance Company, Inc. (Malayan) under Open Policy No. M/OP/2000/001-582. P & I Association is
the third party liability insurer of Loadstar Shipping.
• On said date (September 10, 2000), MV "Bobcat" sailed from Poro Point, San Fernando, La Union bound for
Isabel, Leyte. On September 12, 2000, while in the vicinity of Cresta de Gallo, the vessel’s chief officer on routine
inspection found a crack on starboard sideof the main deck which caused seawater to enter and wet the cargo inside
Cargo Hold No. 2 forward/aft. The cracks at the top deck starboard side of Cargo Hold No. 2, measuring 1.21
meters long x 0.39 meters wide, and at top deck aft Sec. starboard side on other point, measuring 0.82 meters long x
0.32 meters wide, were welded.
• Immediately after the vessel arrived at Isabel, Leyte anchorage area, on September 13, 2000, PASAR and Philex’s
representatives boarded and inspected the vessel and undertook sampling of the copper concentrates. In its
preliminary report dated September 15, 2000, the Elite Adjusters and Surveyor, Inc. (Elite Surveyor) confirmed that
samples of copper concentrates from Cargo Hold No. 2 were contaminated by seawater. Consequently, PASAR
rejected 750 MT of the 2,300 MT cargo discharged from Cargo Hold No. 2.
• On November 6, 2000, PASAR sent a formal notice of claim in the amount of [P]37,477,361.31 to Loadstar
Shipping. In its final report dated November 16, 2000, Elite Surveyor recommended payment to the assured the
amount of [P]32,351,102.32 as adjusted. On the basis of such recommendation, Malayan paid PASAR the amount
of [P]32,351,102.32.
• Meanwhile, on November 24, 2000, Malayan wrote Loadstar Shipping informing the latter of a prospective buyer
for the damaged copper concentrates and the opportunity to nominate/refer other salvage buyers to PASAR. On
November 29, 2000, Malayan wrote Loadstar Shipping informing the latter of the acceptance of PASAR’s proposal
to take the damaged copper concentrates at a residual value of US$90,000.00. On December 9, 2000, Loadstar
Shipping wrote Malayan requesting for the reversal of its decision to accept PASAR’s proposal and the conduct of a
public bidding to allow Loadstar Shipping to match or top PASAR’s bid by 10%.
• On January 23, 2001, PASAR signed a subrogation receipt in favor of Malayan. To recover the amount paid and in
the exercise of its right of subrogation, Malayan demanded reimbursement from Loadstar Shipping, which refused to
comply. Consequently, on September 19, 2001, Malayan instituted with the RTC a complaint for damages. The
complaint was later amended to include Loadstar International as party defendant.
• In its amended complaint, Malayan mainly alleged that as a direct and natural consequence of the unseaworthiness of
the vessel, PASAR suffered loss of the cargo. It prayed for the amount of [P]33,934,948.75, representing actual
damages plus legal interest fromdate of filing of the complaint until fully paid, and attorney’s fees in the amount of
not less than [P]500,000.00. It also sought to declare the bill of lading as void since it violates the provisions of
Articles 1734 and 1745 of the Civil Code.
• On October 30, 2002, Loadstar Shipping and Loadstar International filed their answer with counterclaim, denying
plaintiff appellant’s allegations and averring as follows: that they are not engaged in the business as common carriers
but as private carriers; that the vessel was seaworthy and defendants-appellees exercised the required diligence under
the law; that the entry of water into Cargo Hold No. 2 must have been caused by force majeureor heavy weather;
that due to the inherent nature of the cargo and the use of water in its production process, the same cannot be
considered damaged or contaminated; that defendants-appellees were denied reasonable opportunity to participate in
the salvage sale; that the claim had prescribed in accordance with the bill of lading provisions and the Code of
Commerce; that plaintiff-appellant’s claim is excessive, grossly overstated, unreasonable and unsubstantiated; that
their liability, if any, should not exceed the CIFvalue of the lost/damaged cargo as set forth in the bill of lading,
charter party or customary rules of trade; and that the arbitration clause in the contract of affreightment should be
followed.
• After trial, and considering that the billof lading, which was marked as Exhibit "B", is unreadable, the RTC issued
on February 17, 2004 an order directing the counsel for Malayan to furnish it with a clearer copy of the same within
three (3) days from receipt of the order. On February 23, 2004, Malayan filed a compliance attaching thereto copy
of the bill of lading.
RTC:
• DismissED the complaint as well as the counterclaim. The RTC was convinced that the vessel was seaworthy at the
time of loading and that the damage was attributable to the perils of the sea (natural disaster) and not due to the fault
or negligence of Loadstar Shipping.
• The RTC found that although contaminated by seawater, the copper concentrates can still be used. Itgave credence
to the testimony of Francisco Esguerra, defendants-appellees’ expert witness, that despite high chlorine content, the

copper concentrates remain intact and will not lose their value. The gold and silver remain with the
grains/concentrates even if soaked with seawater and does not melt. The RTC observed that the purchase
agreement between PASAR and Philex contains a penalty clause and has no rejection clause. Despite this agreement,
the parties failed to sit down and assess the penalty.
• The RTC also found that defendants-appellees were not afforded the opportunity to object or participate or
nominate a participant in the sale of the contaminated copper concentrates to lessen the damages to be paid. No
record was presented to show that a public bidding was conducted. Malayan sold the contaminated copper
concentrates to PASAR at a low price then paid PASAR the total value of the damaged concentrate without
deducting anything from the claim.
• Finally, the RTC denied the prayer to declare the Bill of Lading null and void for lack of basis because what was
attached to Malayan’s compliance was still an unreadable machine copy thereof.5 (Citations omitted)
Ruling of the CA {WRONG}

• The decision of this Court dated April 14, 2008 is PARTIALLY RECONSIDERED and MODIFIED.
Defendants-appellees are ORDERED to pay to plaintiff-appellant ₱33,934,948.74 as actual damages, less
US$90,000.00, computed at the exchange rate prevailing on November 29, 2000, plus legal interest at 6% annually
from the date of the trial court’s decision. Upon the finality of the decision, the total amount of the judgment shall
earn annual interest at 12% until full payment.
• The CA discussed that the amount of US$90,000.00 should have been deducted from Malayan’s claim against the
petitioners in order to prevent undue enrichment on the part of Malayan. Otherwise, Malayan would recover from
the petitioners not merely the entire amount of 33,934,948.74 as actual damages, but would also end up unjustly
enriching itself in the amount of US$90,000.00 – the residual value of the subject copper concentrates it sold to
Philippine Associated Smelting and Refining Corporation (PASAR) on November 29, 2000.
In sum, the grounds presented by the petitioners for the Court’s consideration are the following:
• THE [CA] HAS NO BASIS IN REVERSING THE DECISION OF THE TRIAL COURT. THERE IS
NOTHING IN THE DECISION OF THE HONORABLE COURT THAT REVERSED THE FACTUAL
FINDINGS AND CONCLUSIONS OF THE TRIAL COURT, THAT THERE WAS NO ACTUAL LOSS
OR DAMAGE TO THE CARGO OF COPPER CONCENTRATES WHICH WOULD MAKE LOADSTAR
AS THE SHIPOWNER LIABLE FOR A CARGO CLAIM. CONSEQUENTLY, THERE IS NO BASIS FOR
THE COURT TO ORDER LOADSTAR TO PAY ACTUAL DAMAGES IN THE AMOUNT OF PH₱33
MILLION.11
• M/V BOBCAT IS A PRIVATE CARRIER, THE HONORABLE COURT HAD NO BASIS IN RULING
THAT IT IS A COMMON CARRIER. THE DECISION OF THE TRIAL COURT IS BEREFT OF ANY
CATEGORICAL FINDING THAT M/V BOBCAT IS A COMMON CARRIER.12
• THE HONORABLE COURT OFAPPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT
RESPONDENT’S PAYMENT TO PASAR, ON THE BASIS OF THE LATTER’S FRAUDULENT CLAIM,
ENTITLED RESPONDENT AUTOMATIC RIGHT OF RECOVERY BY VIRTUE OF SUBROGATION. 13
RULING OF THE COURT

I. PROOF OF ACTUAL DAMAGES
• It is not disputed that the copper concentrates carried by M/V Bobcat from Poro Point, La Union to Isabel, Leyte
were indeed contaminated with seawater. The issue lies on whether such contamination resulted to damage, and the
costs thereof, if any,incurred by the insured PASAR.
• The petitioners argued that the copper concentrates, despite being dampened with seawater, is neither subject to
penalty nor rejection. Under the Philex Mining Corporation (Philex)-PASAR Purchase Contract Agreement, there
is no rejection clause. Instead, there is a pre-agreed formula for the imposition of penalty in case other elements
exceeding the provided minimum level would be found on the concentrates. 14 Since the chlorine content on the
copper concentrates is still below the minimum level provided under the Philex-PASAR purchase contract, no
penalty may be imposed against the petitioners.15
• Malayan opposed the petitioners’ invocation of the Philex-PASAR purchase agreement, stating that the contract
involved in this case is a contract of affreightment between the petitioners and PASAR, not the agreement between
Philex and PASAR, which was a contract for the sale of copper concentrates. 16
• On this score, the Court agrees with Malayan that contrary to the trial court’s disquisition, the petitioners cannot
validly invoke the penalty clause under the Philex-PASAR purchase agreement, where penalties are to be imposed
by the buyer PASAR against the seller Philex if some elements exceeding the agreed limitations are found on the
copper concentrates upon delivery. The petitioners are not privy tothe contract of sale of the copper concentrates.
The contract between PASAR and the petitioners is a contract of carriage of goods and not a contract of sale.
Therefore, the petitioners and PASAR are bound by the laws on transportation of goods and their contract of
affreightment. Since the Contract of Affreightment 17 between the petitioners and PASAR is silent as regards the
computation of damages, whereas the bill of lading presented before the trial court is undecipherable, the New Civil
Code and the Code ofCommerce shall govern the contract between the parties.

• Malayan paid PASAR the amount of 32,351,102.32 covering the latter’s claim of damage to the cargo. 18 This is
based on the recommendation of Elite Adjustors and Surveyors, Inc. (Elite) which both Malayan and PASAR agreed
to. The computation of Elite is presented as follows:
Computation of Loss Payable.We computed for the insured value of the loss and loss payable, based on the
following pertinent data:
1) Total quantity shipped - 5,065.47 wet metric tons and at risk or (Risk Note and B/L) 4,568.907 dry metric tons
2) Total sum insured - [P]212,032,203.77 (Risk Note and Endorsement)
3) Quantity damaged: 777.290 wet metric tons or (Pasar Laboratory Cert. & 696.336 dry metric tons discharge &
sampling Cert.dated September 21, 2000)
Computation:
Total sum insured x Qty. damaged= Insured value of damage
Total Qty. in DMT (DMT) (DMT)
[P] 212,032,203.77 x 696.336 DMT = [P]32,315,312.32
4,568.907 DMT
Insured value of damage = [P] 32,315,312.3219
• Based on the preceding computation, the sum of ₱32,315,312.32 represents damages for the total loss ofthat portion
of the cargo which were contaminated with seawater and not merely the depreciation in its value. Strangely though,
after claiming damages for the total loss of that portion, PASAR bought back the contaminated copper concentrates
from Malayan at the price of US$90,000.00. The fact of repurchase is enough to conclude that the contamination of
the copper concentrates cannot be considered as total loss on the part of PASAR.
• The following provisions of the Code of Commerce state how damages on goods delivered by the carrier should be
appraised:
o Article 361. The merchandise shall be transported at the risk and venture of the shipper, if the contrary has
not been expressly stipulated. As a consequence, all the losses and deteriorations which the goods may suffer
during the transportation by reason of fortuitous event, force majeure, or the inherent nature and defect of
the goods, shall be for the account and risk of the shipper. Proof of these accidents is incumbent upon the
carrier.
o Article 362. Nevertheless, the carrier shall be liable for the losses and damages resulting from the causes
mentioned in the preceding article if it is proved, as against him, that they arose through his negligence or
by reason of his having failed to take the precautions which usage has established among careful persons,
unless the shipper has committed fraud in the bill of lading, representing the goods to be of a kind or quality
different from what they really were. If, notwithstanding the precautions referred to in this article, the goods
transported run the risk of being lost, on account of their nature or by reason of unavoidable accident, there
being no time for their owners to dispose of them, the carrier may proceed to sell them, placing them for
this purpose at the disposal of the judicial authority or of the officials designated by special provisions.
o Article 364. If the effect of the damage referred to in Article 361 is merely a diminution in the value of the
goods, the obligation of the carrier shall be reduced to the payment of the amount which, in the judgment
of experts, constitutes such difference in value.
o Article 365. If, in consequence of the damage, the goods are rendered useless for sale and consumption for
the purposes for which they are properly destined, the consignee shall not be bound to receive them, and he
may have them in the hands of the carrier, demanding of the latter their value at the current price on that
day. If among the damaged goods there should be some pieces in good condition and without any defect,
the foregoing provision shall be applicable with respect to those damaged and the consignee shall receive
those which are sound, this segregation to be made by distinct and separate pieces and without dividing a
single object, unless the consignee proves the impossibility of conveniently making use of them in this form.
The same rule shall be applied to merchandise in bales or packages, separating those parcels which appear
sound.
• From the above-cited provisions, if the goods are delivered but arrived at the destination in damaged condition, the
remedies to be pursued by the consignee depend on the extent of damage on the goods.
• If the goods are rendered useless for sale, consumption or for the intended purpose, the consignee may reject the
goods and demand the payment of such goods at their marketprice on that day pursuant to Article 365. In case the
damaged portion of the goods can be segregated from those delivered in good condition, the consignee may reject
those in damaged condition and accept merely those which are in good condition. But if the consignee is able to
prove that it is impossible to use those goods which were delivered in good condition without the others, then the
entire shipment may be rejected. To reiterate, under Article 365, the nature of damage must be such that the goods
are rendered useless for sale, consumption or intended purpose for the consignee to be able to validly reject them.
• If the effect of damage on the goods consisted merely of diminution in value, the carrier is bound to pay only the
difference between its price on that day and its depreciated value as provided under Article 364.
• Malayan, as the insurer of PASAR, neither stated nor proved that the goods are rendered useless or unfit for the
purpose intended by PASAR due to contamination with seawater. Hence, there is no basis for the goods’ rejection
under Article 365 of the Code of Commerce. Clearly, it is erroneous for Malayan to reimburse PASAR as though
the latter suffered from total loss of goods in the absence of proof that PASAR sustained such kind of loss.
Otherwise, there will be no difference inthe indemnification of goods which were not delivered at all; or delivered
but rendered useless, compared against those which were delivered albeit, there is diminution in value.
• Malayan also failed to establish the legal basis of its decision to sell back the rejected copper concentrates to PASAR.
It cannot be ascertained how and when Malayan deemed itself asthe owner of the rejected copper concentrates to
have these validly disposed of. If the goods were rejected, it only means there was no acceptance on the part of
PASAR from the carrier. Furthermore, PASAR and Malayan simply agreed on the purchase price of US$90,000.00
without any allegation or proof that the said price was the depreciated value based on the appraisal of experts as
provided under Article 364 of the Code of Commerce.
II. Subrogation of Malayan to the rights of PASAR

• Malayan’s claim against the petitioners is based on subrogation to the rights possessed by PASAR as consignee of the
allegedly damaged goods. The right of subrogation stems from Article 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 wrong doer or the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.
• "The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer." 20 The right of
subrogation is however, not absolute. "There are a few recognized exceptions to this rule. For instance, if the
assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer’s
right of subrogation is defeated. x x x Similarly, where the insurer pays the assured the value of the lostgoods
without notifying the carrier who has in good faith settled the assured’s claim for loss, the settlement is binding on
both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation.
x x x And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting
‘voluntary payment,’ the former has no right of subrogation against the third party liable for the loss x x x." 21
• The rights of a subrogee cannot be superior to the rights possessed by a subrogor. "Subrogation is the substitution of
one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to
the rights of the other in relation to a debt or claim, including its remedies or securities. The rights to which the
subrogee succeeds are the same as, but not greaterthan, those of the person for whom he is substituted, that is, he
cannot acquire any claim, security or remedy the subrogor did not have. In other words, a subrogee cannot succeed
to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only
ifthe insured likewise could have recovered."22 Consequently, an insurer indemnifies the insured based on the loss or
injury the latter actually suffered from. If there is no loss or injury, then there is no obligation on the part of the
insurer to indemnify the insured. Should the insurer pay the insured and it turns out that indemnification is not due,
or if due, the amount paid is excessive, the insurer takes the risk of not being able to seek recompense from the
alleged wrongdoer. This is because the supposed subrogor did not possessthe right to be indemnified and therefore,
no right to collect is passed on to the subrogee. As regards the determination of actual damages, "[i]t is axiomatic that
actual damages must be proved with reasonable degree of certainty and a party is entitled only to such compensation
for the pecuniary loss that was duly proven." 23 Article 2199 of the New Civil Code speaks of how actual damages
are awarded: Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or
compensatory damages.
• Whereas the CA modified its Decision dated April 14, 2008 by deducting the amount of US$90,000.00 fromthe
award, the same is still iniquitous for the petitioners because PASAR and Malayan never proved the actual damages
sustained by PASAR. It is a flawed notion to merely accept that the salvage value of the goods is US$90,000.00,
since the price was arbitrarily fixed between PASAR and Malayan. Actual damages to PASAR, for example, could
include the diminution in value as appraised by experts or the expenses which PASAR incurred for the restoration
of the copper concentrates to its former condition, ifthere is damage and rectification is still possible.
• It is also note worthy that when the expert witness for the petitioners, Engineer Francisco Esguerra (Esguerra),
testified as regards the lack of any adverse effect of seawater on copper concentrates, Malayan never presented
evidence of its own in refutation to Esguerra’s testimony. And, even if the Court will disregard the entirety of his
testimony, the effect on Malayan’s cause of action is nil. As Malayan is claiming for actual damages, it bears the
burden of proof to substantiate its claim.
• "The burden of proof is on the party who would be defeated if no evidence would be presented on either side. The
burden is to establish one’s case by a preponderance of evidence which means that the evidence, as a whole, adduced
by one side, is superior tothat of the other. Actual damages are not presumed. The claimant must prove the actual
amount of loss with a reasonable degree of certainty premised upon competent proof and on the best evidence
obtainable. Specific facts that could afford a basis for measuring whatever compensatory or actual damages are borne
must be pointed out. Actual damages cannot be anchored on mere surmises, speculations or conjectures." 24
• Having ruled that Malayan did not adduce proof of pecuniary loss to PASAR for which the latter was questionably
indemnified, there is no necessity to expound further on the other issues raised by the petitioners and Malayan in
this case.
WHEREFORE, RTC REINSTATED.

ALPHA INSURANCE AND SURETY CO. vs. ARSENIA SONIA CASTOR
• On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-00186,
with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the
petitioner to pay the respondent the amount of Six Hundred Thirty Thousand Pesos (₱630,000.00) in case of loss or
damage to said vehicle during the period covered, which is from February 26, 2007 to February 26, 2008.
• On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring
the above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor
vehicle to respondent and despite diligent efforts to locate the same, said efforts proved futile. Resultantly,
respondent promptly reported the incident to the police and concomitantly notified petitioner of the said loss and
demanded payment of the insurance proceeds in the total sum of ₱630,000.00.
• In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others, thus:
• Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which states that
the culprit, who stole the Insure[d] unit, is employed with you. We would like to invite you on the provision of the
Policy under Exceptions to Sec.-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE
INSURED’S SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception
refers to damage of the motor vehicle and not to its loss. However, petitioner’s denial of respondent’s insured claim
remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the RTC of
Quezon City on September 10, 2007.
• In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise.
• CA AFFIRMED IN TOTO RTC.
SIMPLY, THE CORE ISSUE BOILS DOWN TO WHETHER OR NOT THE LOSS OF RESPONDENT’S
VEHICLE IS EXCLUDED UNDER THE INSURANCE POLICY = NO
• Significant portions of Sec. III of the Insurance Policy states:

SEC. III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the
Schedule Vehicle and its accessories and spare parts whilst thereon:
(a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or
consequent upon wear and tear;
(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c) by malicious act;
(d) whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland
waterway, lift or elevator.
xxxx
EXCEPTIONS TO SEC. III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and
every loss for each and every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the
Insured’s estimate of Fair Market Value as shown in the Policy Schedule with a minimum deductible amount of
Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service. 6
• In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of
"Exceptions to Sec. III," means loss due to injury or harm to person, property or reputation, and should be
construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss of respondent’s vehicle as a result of it
being stolen by the latter’s driver is excluded from the policy = WE DO NOT AGREE.
• Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by the driver
of the insured is not an exception to the coverage from the insurance policy, since Sec. III thereof did not qualify as
to who would commit the theft. Thus: Theft perpetrated by a driver of the insured is not an exception to the
coverage from the insurance policy subject of this case. This is evident from the very provision of Sec. III – "Loss or
Damage." The insurance company, subject to the limits of liability, is obligated to indemnify the insured against
theft. Said provision does not qualify as to who would commit the theft. Thus, even if the same is committed by the
driver of the insured, there being no categorical declaration of exception, the same must be covered. As correctly
pointed out by the plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for which the
parties entered into the contract which is to insure against risks of loss or damage to the goods. Such interpretation

should result from the natural and reasonable meaning of language in the policy. Where restrictive provisions are
open to two interpretations, that which is most favorable to the insured is adopted." The defendant would argue that
if the person employed by the insured would commit the theft and the insurer would be held liable, then this would
result to an absurd situation where the insurer would also be held liable if the insured would commit the theft. This
argument is certainly flawed. Of course, if the theft would be committed by the insured himself, the same would be
an exception to the coverage since in that case there would be fraud on the part of the insured or breach of material
warranty under Sec. 69 of IC.7
• Moreover, 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. 8 Accordingly, in interpreting the exclusions in an insurance
contract, the terms used specifying the excluded classes therein are to be given their meaning as understood in
common speech.9
• Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary usage. The
word "loss" refers to the act or fact of losing, or failure to keep possession, while the word "damage" means
deterioration or injury to property. 1âwphi1
• Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under paragraph 4
of "Exceptions to Sec. III," since the same refers only to "malicious damage," or more specifically, "injury" to the
motor vehicle caused by a person under the insured’s service. Paragraph 4 clearly does not contemplate "loss of
property," as what happened in the instant case.
• Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions
from coverage, is the damage that is the direct result from the deliberate or willful act of the insured, members of his
family, and any person in the insured’s service, whose clear plan or purpose was to cause damage to the insured
vehicle for purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly delineate
between the terms "loss" and "damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic
dictates that it should have used the term "damage" alone in the entire policy or otherwise included a clear definition
of the said term as part of the provisions of the said insurance contract. Which is why the Court finds it puzzling that
in the said policy’s provision detailing the exceptions to the policy’s coverage in Sec. III thereof, which is one of the
crucial parts in the insurance contract, the insurer, after liberally using the words "loss" and "damage" in the entire
policy, suddenly went specific by using the word "damage" only in the policy’s exception regarding "malicious
damage." Now, the defendant-appellant would like this Court to believe that it really intended the word "damage"
in the term "malicious damage" to include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to
the sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies,
the evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the various
terms and provisions embodied in the policy. However, when the terms of the insurance policy are ambiguous,
equivocal or uncertain, such that the parties themselves disagree about the meaning of particular provisions, the
policy will be construed by the courts liberally in favor of the assured and strictly against the insurer. 10
• Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the 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. Thus, in Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance
Company,11 this Court ruled –
• It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in
favor of the insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan
Insurance Corporation v. CA, this Court held that: Indemnity and liability insurance policies are construed in
accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or
policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of
the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must
be construed in such a way as to preclude the insurer from non-compliance with its obligations.
• In the more recent case of Philamcare Health Systems, Inc. v. CA, we reiterated the above ruling, stating that:
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. 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. 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.12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the Decision
dated May 31, 2011 and Resolution dated August 10, 2011 of the CA are hereby AFFIRMED.

MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY. EMMANUEL G. VILLANUEVA,
SONNY RUBIN, 1 ENGR. FRANCISCO MONDELO, and MICHAEL REQUIJO, 2 Petitioners. vs. EMMA
CONCEPCION L. LIN,3 Respondent.
• On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint9 for Collection of Sum of Money with
Damages against Malayan Insurance Co., Inc. (Malayan), Yvonne Yuchengco (Yvonne), Atty. Emmanuel
Villanueva, Sonny Rubin, Engr. Francisco Mondelo, Michael Angelo Requijo (collectively, the petitioners), and the
Rizal Commercial and Banking Corporation (RCBC). This was docketed as Civil Case No. 10-122738 of Branch
52 of the Manila RTC.
• Lin alleged that she obtained various loans from RCBC secured by six clustered warehouses located at Plaridel,
Bulacan; that the five warehouses were insured with Malayan against fire for ₱56 million while the remaining
warehouse was insured for ₱2 million; that on February 24, 2008, the five warehouses were gutted by fire; that on
April 8, 2008 the Bureau of Fire Protection (BFP) issued a Fire Clearance Certification to her (April 8, 2008 FCC)
after having determined that the cause of fire was accidental; that despite the foregoing, her demand for payment of
her insurance claim was denied since the forensic investigators hired by Malayan claimed that the cause of the fire
was arson and not accidental; that she sought assistance from the Insurance Commission (IC) which, after a meeting
among the parties and a conduct of reinvestigation into the cause/s of the fire, recommended that Malayan pay Lin's
insurance claim and/or accord great weight to the BFP's findings; that in defiance thereof, Malayan still denied or
refused to pay her insurance claim; and that for these reasons, Malayan's corporate officers should also be held liable
for acquiescing to Malayan's unjustified refusal to pay her insurance claim.
• As against RCBC, Lin averred that notwithstanding the loss of the mortgaged properties, the bank refused to go
after Malayan and instead insisted that she herself must pay the loans to RCBC, otherwise, foreclosure proceedings
would ensue; and that to add insult to injury, RCBC has been compounding the interest on her loans, despite
RCBC's failure or refusal to go after Malayan.
• Lin thus prayed in Civil Case No. 10-122738 that judgment be rendered ordering petitioners to pay her insurance
claim plus interest on the amounts due or owing her; that her loans and mortgage to RCBC be deemed
extinguished as of February 2008; that RCBC be enjoined from foreclosing the mortgage on the properties put up
as collaterals; and that petitioners he ordered to pay her ₱l,217,928.88 in the concept of filing foes, costs of suit,₱l
million as exemplary damages, and ₱500,000.00 as attorney’s fees.
• Some five months later, or on June 17, 2010, Lin filed before the IC an administrative case 10 against Malayan,
represented this time by Yvonne. This was docketed as Administrative Case No. 431.
o In this administrative case, Lin claimed that since it had been conclusively found that the cause of the fire
was "accidental," the only issue left to be resolved is whether Malayan should be held liable for unfair claim
settlement practice under Sec. 241 in relation to Sec. 247 of IC due to its unjustified refusal to settle her
claim; and that in consequence of the foregoing failings, Malayan's license to operate as a non-life insurance
company should be revoked or suspended, until such time that it fully complies with the IC Resolution
ordering it to accord more weight to the BFP's findings.
• On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-122738 based on forum shopping. It
argued that the administrative case was instituted to prompt or incite IC into ordering Malayan to pay her insurance
claim; that the elements of forum shopping are present in these two cases because there exists identity of parties since
Malayan's individual officers who were impleaded in the civil case are also involved in the administrative case; that
the same interests are shared and represented in both the civil and administrative cases; that there is identity of causes
of action and reliefs sought in the two cases since the administrative case is merely disguised as an unfair claim
settlement charge, although its real purpose is to allow Lin to recover her insurance claim from Malayan; that Lin
sought to obtain the same reliefs in the administrative case as in the civil case; that Lin did not comply with her
sworn undertaking in the Certification on Non-Forum Shopping which she attached to the civil case, because she
deliberately failed to notify the RTC about the pending administrative case within five days from the filing thereof.
• This motion to dismiss drew a Comment/Opposition, 11 which Lin filed on August 31, 2010.
Ruling of RTC
• In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss, thus: WHEREFORE,
the MOTION TO DISMISS filed by [petitioners] is hereby DENIED for lack of merit. Furnish the parties through
their respective [counsels] with a copy each [of] the Order.
• The RTC held that in the administrative case, Lin was seeking a relief clearly distinct from that sought in the civil
case; that while in the administrative case Lin prayed for the suspension or revocation of Malayan's license to operate
as a non-life insurance company, in the civil case Lin prayed for the collection of a sum of money with damages; that
it is abundantly clear that any judgment that would be obtained in either case would not be res judicata to the other,
hence, there is no forum shopping to speak of.
Ruling of the CA
• Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before the CA. However, in a
Decision 16 dated December 21, 2012, the CA upheld the RTC, and disposed as follows: WHEREFORE absent
grave abuse of discretion on the part of respondent Judge, the Petition for Certiorari and Prohibition (with
Temporary Restraining Order and Preliminary Injunction) is DISMISSED.

• The CA, as did the RTC, found that Lin did not commit forum shopping chiefly for the reason that the issues raised
and the reliefs prayed for in the civil case were essentially different from those in the administrative case, hence Lin
had no duty at all to inform the RTC about the institution or pendency of the administrative case.
• The CA ruled that forum shopping exists where the elements of litis pendentia concurred, and where a final
judgment in one case will amount to res judicata in the other. The CA held that of the three elements of forum
shopping viz., (l) identity of parties, or at least such parties as would represent the same interest in both actions, (2)
identity of rights asserted and reliefs prayed for, the relief being founded on the same facts, and (3) identity of the
two proceedings such that any judgment rendered in one action will, regardless of which party is successful, amount
to res judicata in the other action under consideration, only the first element may be deemed present in the instant
case. The CA held that there is here identity of parties in the civil and administrative cases because Lin is the
complainant in both the civil and administrative cases, and these actions were filed against the same petitioners, the
same RCBC and the same Malayan, represented by Yvonne, respectively. It held that there is however no identity
of rights asserted and reliefs prayed for because in the civil case, it was Lin's assertion that petitioners had violated her
rights to recover the full amount of her insurance claim, which is why she prayed/demanded that petitioners pay her
insurance claim plus damages; whereas in the administrative case, Lin's assertion was that petitioners were guilty of
unfair claim settlement practice, for which reason she prayed that Malayan's license to operate as an insurance
company be revoked or suspended; that the judgment in the civil case, regardless of which party is successful, would
not amount to res judicata in the administrative case in view of the different issues involved, the dissimilarity in the
quantum of evidence required, and the distinct mode or procedure to be observed in each case.
Issues
• The [CA] not only decided questions of substance contrary to law and the applicable decisions of this Honorable
Court, it also sanctioned a flagrant departure from the accepted and usual course of judicial proceedings
• The [CA] erred in not dismissing the Civil Case on the ground of willful and deliberate [forum shopping] despite
the fact that the civil case and the administrative case both seek the payment of the same fire insurance claim.
• The [CA] erred in not dismissing the civil case for failure on the part of [Lin] to comply with her undertaking in her
verification and certification of non-forum shopping appended to the civil complaint. 21
Petitioners' Arguments
• In praying for the reversal of the CA Decision, petitioners argue that regardless of nomenclature, it is Lin and no one
else who filed the administrative case, and that she is not a mere complaining witness therein; that it is settled that
only substantial identity of parties is required for res judicata to apply; that the sharing of the same interest is
sufficient to constitute identity of parties; that Lin has not denied that the subject of both the administrative case and
the civil case involved the same fire insurance claim; that there is here identity of causes of action, too, because the
ultimate objective of both the civil case and the administrative case is to compel Malayan to pay Lin's fire insurance
claim; that although the reliefs sought in the civil case and those in the administrative case are worded differently,
Lin was actually asking for the payment of her insurance claim in both cases; that it is well-entrenched that a party
cannot escape the operation of the principle in res judicata that a cause of action cannot be litigated twice just by
varying the form of action or the method of presenting the case; that Go v. Office of the Ombudsman22is
inapplicable because the issue in that case was whether there was unreasonable delay in withholding the insured's
claims, which would warrant the revocation or suspension of the insurers' licenses, and not whether the insurers
should pay the insured's insurance claim; that Almendras Mining Corporation v. Office of the Insurance
Commission23does not apply to this case either, because the parties in said case agreed to submit the case for
resolution on the sole issue of whether the revocation or suspension of the insurer's license was justified; and that
petitioners will suffer irreparable injury as a consequence of having to defend themselves in a case which should have
been dismissed on the ground of forum shopping.
Respondents Arguments
• Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an administrative case for unfair claim settlement
practice may proceed simultaneously with, or independently of, the civil case for collection of the insurance
proceeds filed by the same claimant since a judgment in one will not amount to res judicata to the other, and vice
versa, due to the variance or differences in the issues, in the quantum of evidence, and in the procedure to be
followed in prosecuting the cases; that in this case the CA cited the teaching in Go v. Office of the Ombudsman that
there was no grave abuse of discretion in the RTC's dismissal of petitioners' motion to dismiss; that the CA correctly
held that the RTC did not commit grave abuse of discretion in denying petitioners' motion to dismiss because the
elements of forum shopping were absent; that there is here no identity of parties because while she (respondent) is
the plaintiff in the civil case, she is only a complaining witness in the administrative case since it is the IC that is the
real party in interest in the administrative case; that the cause of action in the civil case consists of Malayan's failure
or refusal to pay her insurance claim, whereas in the administrative case, it consists of Malayan's unfair claim
settlement practice; that the issue in the civil case is whether Malayan is liable to pay Lin's insurance claim, while the
issue in the administrative case is whether Malayan's license to operate should be revoked or suspended for engaging
in unfair claim settlement practice; and that the relief sought in the civil case consists in the payment of a sum of
money plus damages, while the relief in the administrative case consists of the revocation or suspension of Malayan's
license to operate as an insurance company. According to Lin, although in the administrative case she prayed that the

IC Resolution ordering Malayan to accord weight to the BFP's findings be declared final, this did not mean that she
was therein seeking payment of her insurance claim, but rather that the IC can now impose the appropriate
administrative sanctions upon Malayan; that if Malayan felt compelled to pay Lin's insurance claim for fear that its
license to operate as an insurance firm might be suspended or revoked, then this is just a logical result of its failure or
refusal to pay the insurance claim; that the judgment in the civil case will not amount to res judicata in the
administrative case, and vice versa, pursuant to the case law ruling in Go v. Office of the Ombudsman25and
in Almendras v. Office of the Insurance Commission, 26 both of which categorically allowed the insurance clain1ants
therein to file both a civil and an administrative case against insurers; that the rule against forum shopping was
designed to serve a noble purpose, viz., to be an instrument of justice, hence, it can in no way be interpreted to
subvert such a noble purpose.
Our Ruling = We deny this Petition. Rulings in the Go and Almendras cases27 control and govern the case at bench.
• First off, it is elementary that "an order denying a motion to dismiss is merely interlocutory and, therefore, not
appealable, x x x to x x x avoid undue inconvenience to the appealing party by having to assail orders as they are
promulgated by the court, when all such orders may be contested in a single appeal."28
• Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the assailed Orders, acted with grave
abuse of discretion amounting to lack or excess of jurisdiction. "It is well-settled that an act of a court or tribunal
may only be considered to have been done in grave abuse of discretion when the same was performed in a
capricious or whimsical exercise of judgment which is equivalent to lack or excess of jurisdiction." 29 "[F]or grave
abuse of discretion to exist, the abuse of discretion must be patent and gross so as to amount to an evasion of a
positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law." 30
• In the present case, petitioners basically insist that Lin committed willful and deliberate forum shopping which
warrants the dismissal of her civil case because it is not much different from the administrative case in terms of the
parties involved, the causes of action pleaded, and the reliefs prayed for. Petitioners also posit that another ground
warranting the dismissal of the civil case was Lin's failure to notify the RTC about the pendency of the
administrative case within five days from the filing thereof.
• These arguments will not avail. The proscription against forum shopping is found in Sec. 5, Rule 7 of the Rules of
Court, which provides: SEC. 5. Certification against forum shopping. --The plaintiff or principal party shall certify
under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification
annexed thereto and simultaneously filed therewith; (a) that he has not theretofore commenced any action or filed
any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge,
no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim
has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid
complaint or initiatory pleading has been filed.
• Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or
other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided,
upon motion and after hearing. The submission of a false certification or non-compliance with any of the
undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate
forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct contempt,
as well as a cause for administrative sanctions. (n)
• The above-stated rule covers the very essence of forum shopping itself, and the constitutive elements
thereof viz., the cognate concepts of litis pendentia and res judicata - x x x [T]he essence of forum shopping is the
filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively,
for the purpose of obtaining a favorable judgment. It exists where the elements of litis pendentia are present or
where a final judgment in one case will amount to res judicata in another. On the other hand, for litis pendentia to
be a ground for the dismissal of an action, the following requisites must concur: (a) identity of parties, or at least such
parties who represent the same interests in both actions; (b) identity of rights asserted and relief prayed for, the relief
being founded on the same facts; and (c) the identity with respect to the two preceding particulars in the two cases is
such that any judgment that may be rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other case.31
• Res judicata, in turn, has the following requisites: "(1) the former judgment must be final; (2) it must have been
rendered by a court having jurisdiction over the subject matter and over the parties; (3) it must be a judgment on the
merits; and (4) there must be, between the first and second actions, (a) identity of parties, (b) identity of subject
matter, and (c) identity of cause of action." 32
• "The settled rule is that criminal and civil cases are altogether different from administrative matters, such that the
disposition in the first two will not inevitably govern the third and vice versa."33In the context of the case at bar,
matters handled by the IC are delineated as either regulatory or adjudicatory, both of which have distinct
characteristics, as postulated in Almendras Mining Corporation v. Office of the Insurance Commission: 34
• The provisions of IC (Presidential Decree [P.D.] No. 1460), as amended, clearly indicate that the Office of the [IC]
is an administrative agency vested with regulatory power as well as with adjudicatory authority. Among the several
regulatory or non-quasi-judicial duties of the Insurance Commissioner under IC is the authority to issue, or refuse

issuance of, a Certificate of Authority to a person or entity desirous of engaging in insurance business in the
Philippines, and to revoke or suspend such Certificate of Authority upon a finding of the existence of statutory
grounds for such revocation or suspension. The grounds for revocation or suspension of an insurer's Certificate of
Authority are set out in Sec. 241 and in Sec. 247 of IC as amended. The general regulatory authority of the
Insurance Commissioner is described in Sec. 414 of IC, as amended, in the following terms: 'Sec. 414. The
Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and other
insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall, notwithstanding any existing laws to the contrary, have sole and
exclusive authority to regulate the issuance and sale of variable contracts as defined in Sec. two hundred thirty-two
and to provide for the licensing of persons selling such contracts, and to issue such reasonable rules and regulations
governing the same. The Commissioner may issue such rulings, instructions, circulars, orders[,] and decisions as he
may deem necessary to secure the enforcement of the provisions of this Code, subject to the approval of the
Secretary of Finance [DOF Secretary]. Except as otherwise specified, decisions made by the Commissioner shall be
appealable to the [DOF Secretary].' (Italics supplied) which Sec. also specifies the authority to which a decision of
the Insurance Commissioner rendered in the exercise of its regulatory function may be appealed.
• The adjudicatory authority of the Insurance Commissioner is generally described in Sec. 416 of IC, as amended,
which reads as follows: 'Sec. 416. The Commissioner shall have the power to adjudicate claims and complaints
involving any loss, damage or liability for which an insurer may be answerable under any kind of policy or contract
of insurance, or for which such insurer may be liable under a contract of suretyship, or for which a reinsurer may be
sued under any contract or reinsurance it may have entered into, or for which a mutual benefit association may be
held liable under the membership certificates it has issued to its members, where the amount of any such loss,
damage or liability, excluding interests, cost and attorney’s fees, being claimed or sued upon any kind of insurance,
bond, reinsurance contract, or membership certificate does not exceed in any single claim one hundred thousand
pesos. x x x x The authority to adjudicate granted to the Commissioner under this Sec. shall be concurrent with that
of the civil courts, but the filing of a complaint with the Commissioner shall preclude the civil courts from taking
cognizance of a suit involving the same subject matter.' (Italics supplied)
• Continuing, Sec. 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also specifies the authority to which appeal
may be taken from a final order or decision of the Commissioner given in the exercise of his adjudicatory or quasi-
judicial power: 'Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and
effect of a judgment. Any party may appeal from a final order, ruling or decision of the Commissioner by filing with
the Commissioner within thirty days from receipt of copy of such order, ruling or decision a notice of appeal to the
Intermediate Appellate Court (now the CA) in the manner provided for in the Rules of Court for appeals from
RTC to the Intermediate Appellate Court (now the CA)
• It may be noted that under Sec. 9 (3) of B.P. Big. 129, appeals from a final decision of the Insurance Commissioner
rendered inthe exercise of his adjudicatory authority now fall within the exclusive appellate jurisdiction of the CA.35
• Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a-vis the principles enunciating that a
civil case before the trial court involving recovery of payment of the insured's insurance claim plus damages, can
proceed simultaneously with an administrative case before the IC. 37 Expounding on the foregoing points, this Court
said - **The findings of the trial court will not necessarily foreclose the administrative case before the [IC], or [vice
versa]. True, the parties are the same, and both actions are predicated on the same set of facts, and will require
identical evidence. But the issues to be resolved, the quantum of evidence, the procedure to be followed[,] and the
reliefs to be adjudged by these two bodies are different.
• Petitioner's causes of action in Civil Case No. Q-95-23135 are predicated on the insurers' refusal to pay her fire
insurance claims despite notice, proofs of losses and other supporting documents. Thus, petitioner prays in her
complaint that the insurers be ordered to pay the full-insured value of the losses, as embodied in their respective
policies. Petitioner also sought payment of interests and damages in her favor caused by the alleged delay and refusal
of the insurers to pay her claims. The principal issue then that must be resolved by the trial court is whether or not
petitioner is entitled to the payment of her insurance claims and damages. The matter of whether or not there is
unreasonable delay or denial of the claims is merely an incident to be resolved by the trial court, necessary to
ascertain petitioner's right to claim damages, as prescribed by Sec. 244 of IC.
• On the other hand, the core, if not the sole bone of contention in Adm. Case No. RD-156, is the issue of whether
or not there was unreasonable delay or denial of the claims of petitioner, and if in the affirmative, whether or not
that would justify the suspension or revocation of the insurers' licenses.
• Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by a preponderance of evidence, or
simply put, such evidence that is of greater weight, or more convincing than that which is offered in opposition to
it. In Adm. Case No. RD-156, the degree of proof required of petitioner to establish her claim is substantial
evidence, which has been defined as that amount of relevant evidence that a reasonable mind might accept as
adequate to justify the conclusion.
• In addition, the procedure to be followed by the trial court is governed by the Rules of Court, while the [IC] has its
own set of rules and it is not bound by the rigidities of technical rules of procedure. These two bodies conduct
independent means of ascertaining the ultimate facts of their respective cases that will serve as basis for their
respective decisions.1âwphi1

•
If, for example, the trial court finds that there was no unreasonable delay or denial of her claims, it does not
automatically mean that there was in fact no such unreasonable delay or denial that would justify the revocation or
suspension of the licenses of the concerned insurance companies. It only means that petitioner failed to prove by
preponderance of evidence that she is entitled to damages. Such finding would not restrain the [IC], in the exercise
of its regulatory power, from making its own finding of unreasonable delay or denial as long as it is supported by
substantial evidence.
• While the possibility that these two bodies will come up with conflicting resolutions on the same issue is not far-
fetched, the finding or conclusion of one would not necessarily be binding on the other given the difference in the
issues involved, the quantum of evidence required and the procedure to be followed.
• Moreover, public interest and public policy demand the speedy and inexpensive disposition of administrative cases.
Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-23135.38
• As the aforecited cases are analogous in many aspects to the present case, both in respect to their factual backdrop
and in their jurisprudential teachings, the case law ruling in the Almendras and in the Go cases must apply with
implacable force to the present case. Consistency alone demands - because justice cannot be inconsistent - that the
final authoritative mandate in the cited cases must produce an end result not much different from the present case.
• All told, we find that the CA did not err in holding that the petitioners utterly failed to prove that the RTC
exhibited grave abuse of discretion, amounting to lack or excess of jurisdiction, which would justify the issuance of
the extraordinary writ of certiorari.39
WHEREFORE, CA AFFIRMED.

THE INSULAR ASSURANCE CO., LTD. v. THE HEIRS OF JOSE H. ALVAREZ
UNION BANK OF THE PHILIPPINES v. HEIRS OF JOSE H. ALVAREZ
LEONEN, J.: The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to concealment, but
not so in cases of rescission due to false representations. When an abundance of available documentary evidence can be
referenced to demonstrate a design to defraud, presenting a singular document with an erroneous entry does not qualify as
clear and convincing proof of fraudulent intent. Neither does belatedly invoking just one other document, which was not
even authored by the alleged miscreant.
• On June 18, 1997, Alvarez applied for and was granted a housing loan by UnionBank in the amount of
P648,000.00. This loan was secured by a promissory note, 10 a real estate mortgage over the lot,11 and a mortgage
redemption insurance taken on the life of Alvarez with UnionBank as beneficiary. Alvarez was among the
mortgagors included in the list of qualified debtors covered by the Group Mortgage Redemption Insurance that
UnionBank had with Insular Life.12
• Alvarez passed away on April 17, 1998.13 In May 1998, UnionBank filed with Insular Life a death claim under
Alvarez's name pursuant to the Group Mortgage Redemption Insurance. In line with Insular Life's standard
procedures, UnionBank was required to submit documents to support the claim. These included: (1) Alvarez's birth,
marriage, and death certificates; (2) the attending physician's statement; (3) the claimant's statement; and (4) Alvarez's
statement of account.14
• Insular Life denied the claim after determining that Alvarez was not eligible for coverage as he was supposedly more
than 60 years old at the time of his loan's approval. 15
• With the claim's denial, the monthly amortizations of the loan stood unpaid. UnionBank sent the Heirs of Alvarez a
demand letter,16 giving them 10 days to vacate the lot. Subsequently, on October 4, 1999, the lot was foreclosed and
sold at a public auction with UnionBank as the highest bidder. 17
• On February 14, 2001, the Heirs of Alvarez filed a Complaint 18 for Declaration of Nullity of Contract and Damages
against UnionBank, a certain Alfonso P. Miranda (Miranda), who supposedly benefitted from the loan, and the
insurer which was identified only as John Doe. 19 The Heirs of Alvarez denied knowledge of any loan obtained by
Alvarez.20
o The Heirs of Alvarez claimed that after Alvarez's death, they came upon a document captioned "Letter of
Undertaking," which appeared to have been sent by UnionBank to Miranda. In this document, UnionBank
bound itself to deliver to Miranda P466,000.00 of the approved P648,000.00 housing loan, provided that
Miranda would deliver to it TCT No. C-315023, "free from any liens and/or encumbrances." 21
• The Complaint was later amended and converted into one for specific performance 22 to include a demand against
Insular Life to fulfill its obligation as an insurer under the Group Mortgage Redemption Insurance. 23
o In its defense, UnionBank asserted that the Heirs of Alvarez could not feign ignorance over the existence of
the loan and mortgage considering the Special Power of Attorney24 executed by Adelina in favor of her late
husband, which authorized him to apply for a housing loan with UnionBank. 25
o For its part, Insular Life maintained that based on the documents submitted by UnionBank, Alvarez was no
longer eligible under the Group Mortgage Redemption Insurance since he was more than 60 years old
when his loan was approved.26
RTC: in favor of the Heirs of Alvarez.
• It found no indication that Alvarez had any fraudulent intent when he gave UnionBank information about his age
and date of birth. It explained that UnionBank initiated and negotiated the Group Mortgage Redemption Insurance
with Insular Life, and that "ordinary customers will not know about [insurance policies such as this] unless it is
brought to their knowledge by the bank." 28 It noted that if UnionBank's personnel were mindful of their duties and
if Alvarez appeared to be disqualified for the insurance, they should have immediately informed him of his
disqualification. It emphasized that in evaluating Alvarez's worthiness for the loan, UnionBank had been in
possession of materials sufficient to inform itself of Alvarez's personal circumstances. It added that if Insular Life had
any doubt on the information that UnionBank had provided, it should have inquired further instead of relying solely
on the information readily available to it and immediately refusing to pay. 29
CA affirmed RTC's ruling.

• It noted that the errors assigned by Insular Life and UnionBank to RTC boiled down to the issue of W/N Alvarez
was guilty of fraudulent misrepresentation as to warrant the rescission of the Group Mortgage Redemption Insurance
obtained by UnionBank on Alvarez's life. It explained that fraud is never presumed and fraudulent misrepresentation
as a defense of the insurer to avoid liability must be established by convincing evidence. Insular Life, in this case,
failed to establish this defense. It only relied on Alvarez's Health Statement Form where he wrote "1942" as his birth
year. However, this form alone was insufficient to prove that he fraudulently intended to misrepresent his age. It
noted that aside from the Health Statement Form, Alvarez had to fill out an application for insurance. This
application would have supported the conclusion that he consistently wrote "1942" in all the documents that he had
submitted to UnionBank. However, the records made no reference to this document. 34
• The CA added that assuming that fraudulent misrepresentation entitled Insular Life to rescind the contract, it should
have first complied with certain conditions before it could exercise its right to rescind. The conditions were: (1)
prior notice of cancellation to [the] insured; (2) notice must be based on the occurrence after effective date of the
policy of one or more grounds mentioned; (3) must be in writing, mailed or delivered to the insured at the address

shown in the policy; and (4) must state the grounds relied upon provided in Section 64 of the Insurance Code and
upon [the] request of [the] insured, to furnish facts on which cancellation is based. 35
• None of these conditions were fulfilled. Finally, the letter of denial dated April 8, 1999 was furnished only to
UnionBank.36
This Court consolidated Insular Life's and UnionBank's Petitions. 41

• In response to the CA' reasoning that intent to defraud must be established, Insular Life pinpoints concealment,
rather than fraudulent misrepresentation, as the key to the validity of its rescission. It asserts that Alvarez's
concealment of his age, whether intentional or unintentional, entitles it to rescind the insurance contract. 42 It claims
that proof of fraudulent intent is not necessary for the insurer to rescind the contract on account of concealment.43 It
adds that it did not rely solely on Alvarez's Health Statement Form but also on his representations during the
background check conducted by UnionBank where he said that he was only 55 years old at the time of application.
As an insurance contract is a contract uberrima fides, it claims that it has every right to rely on Alvarez's good faith in
its dealing with him.44
• UnionBank claims that the real estate mortgage is not affected by the status of the Group Mortgage Redemption
Insurance as they are two (2) different contracts. Thus, any concealment made by Alvarez should not result in the
invalidation of the foreclosure.45
ISSUES:
• W/N The Insular Life Assurance Co., Ltd. is obliged to pay Union Bank of the Philippines the balance of Jose H.
Alvarez's loan given the claim that he lied about his age at the time of the approval of his loan; and
• W/N petitioner Union Bank of the Philippines was correct in proceeding with the foreclosure following Insular Life
Assurance Co., Ltd.'s refusal to pay.
I.A
• Fraud is not to be presumed, for "otherwise, courts would be indulging in speculations and surmises." 46 Moreover, it
is not to be established lightly. Rather, "[i]t must be established by clear and convincing evidence . . . [; a] mere
preponderance of evidence is not even adequate to prove fraud." 47 These precepts hold true when allegations of
fraud are raised as grounds justifying the invalidation of contracts, as the fraud committed by a party tends to vitiate
the other party's consent.48
• Citing Section 27, however, Insular Life asserts that in cases of rescission due to concealment, i.e., when a party
"neglect[s] to communicate that which [he or she] knows and ought to communicate," 49 proof of fraudulent intent is
not necessary.50 Section 27: A concealment whether intentional or unintentional entitles the injured party to rescind
a contract of insurance. (Emphasis supplied) The statutory text is unequivocal. Insular Life correctly notes that proof
of fraudulent intent is unnecessary for the rescission of an insurance contract on account of concealment.
o This is neither because intent to defraud is intrinsically irrelevant in concealment, nor because concealment
has nothing to do with fraud. To the contrary, it is because in insurance contracts, concealing material
facts51 is inherently fraudulent: "if a material fact is actually known to the [insured], its concealment must of
itself necessarily be a fraud." 52 When one knows a material fact and conceals it, "it is difficult to see how the
inference of a fraudulent intent or intentional concealment can be avoided." 53 Thus, a concealment,
regardless of actual intent to defraud, "is equivalent to a false representation." 54
o This Court has long settled this equivalence. Argente v. West Coast Life Insurance,55 quoting heavily from
Joyce's The Law of Insurance, explained how concealment of material facts in insurance contracts is
tantamount to causal fraud,56 deceptively inducing an insurer into "accepting the risk, or accepting it at the
rate of premium agreed upon."57Argente explained: One ground for the rescission of a contract of insurance
under the Insurance Act is "a concealment," which in section 25 is defined as "A neglect to communicate
that which a party knows and ought to communicate." Appellant argues that the alleged concealment was
immaterial and insufficient to avoid the policy. We cannot agree. . . . If the policy was procured by
fraudulent representations, the contract of insurance apparently set forth therein was never legally existent. It
can fairly be assumed that had the true facts been disclosed by the assured, the insurance would never have
been granted.
o In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is found the following
▪ Concealment exists where the assured has knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it to the assured, but he
designedly and intentionally withholds the same.
▪ Another rule is that if the assured undertakes to state all the circumstances affecting the risk, a full
and fair statement of all is required.
▪ It is also held that the concealment must, in the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally withheld; so it is held under English law that if
no inquiries are made and no fraud or design to conceal enters into the concealment the contract is
not avoided. And it is determined that even though silence may constitute misrepresentation or
concealment it is not of itself necessarily so as it is a question of fact. Nor is there a concealment
justifying a forfeiture where the fact of insanity is not disclosed no questions being asked
concerning the same. . . .

▪ But it would seem that if a material fact is actually known to the assured, its concealment must of
itself necessarily be a fraud, and if the fact is one which the assured ought to know, or is presumed
to know, the presumption of knowledge ought to place the assured in the same position as in the
former case with relation to material facts; and if the jury in such cases find the fact material, and
one tending to increase the risk, it is difficult to see how the inference of a fraudulent intent or
intentional concealment can be avoided. And it is declared that if a material fact is concealed by
assured it is equivalent to a false representation that it does not exist and that the essentials are the
truth of the representations whether they were intended to mislead and did insurer accept them as
true and act upon them to his prejudice. So it is decided that under a stipulation voiding the policy
for concealment or misrepresentation of any material fact or if his interest is not truly stated or is
other than the sole and unconditional ownership the facts are unimportant that insured did not
intend to deceive or withhold information as to encumbrances even though no questions were
asked. And if insured while being examined for life insurance and knowing that she had heart
disease, falsely stated that she was in good health, and though she could not read the application, it
was explained to her and the questions asked through an interpreter, and the application like the
policy contained a provision that no liability should be incurred unless the policy was delivered
while the insured was in good health, the court properly directed a verdict for the insurer, though a
witness who was present at the examination testified that the insured was not asked whether she
had heart disease.
▪ The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the
insurer into accepting the risk, or accepting it at the rate of premium agreed upon; The insurer,
relying upon the belief that the assured will disclose every material fact within his actual or
presumed knowledge, is misled into a belief that the circumstance withheld does not exist, and he
is thereby induced to estimate the risk upon a false basis that it does not exist. The principal
question, therefore, must be, Was the assurer misled or deceived into entering a contract obligation
or in fixing the premium of insurance by a withholding of material information or facts within the
assured's knowledge or presumed knowledge?
▪ It therefore follows that the assurer in assuming a risk is entitled to know every material fact of
which the assured has exclusive or peculiar knowledge, as well as all material facts which directly
tend to increase the hazard or risk which are known by the assured, or which ought to be or are
presumed to be known by him. And a concealment of such facts vitiates the policy. "It does not
seem to be necessary . . . that the . . . suppression of the truth should have been willful." If it were
but an inadvertent omission, yet if it were material to the risk and such as the plaintiff should have
known to be so, it would render the policy void . But it is held that if untrue or false answers are
given in response to inquiries and they relate to material facts the policy is avoided without regard
to the knowledge or fraud of assured, although under the statute statements are representations
which must be fraudulent to avoid the policy. So under certain codes the important inquiries are
whether the concealment was willful and related to a matter material to the risk. 58 (Emphasis
supplied)
o Echoing Argente, Saturnino v. Philippine American Life Insurance Co.59 stated: In this jurisdiction, a
concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance,
concealment being defined as "negligence to communicate that which a party knows and ought to
communicate" (Sections 25 & 26, Act No. 2427). In the case of Argente vs. West Coast Life Insurance Co.,
51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of Insurance, 2nd ed. Vol. 3: The basis of
the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into
accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon the belief
that the assured will disclose every material fact within his actual or presumed knowledge, is misled into a
belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk upon a
false basis that it does not exist.60
o In Vda. de Canilang v. CA,61 this Court considered an alternative version of Section 27, i.e., prior to the
Insurance Code's amendment by Batas Pambansa Blg. 874, which omitted the qualifier "whether intentional
or unintentional." Vda. de Canilang clarified that even without this qualifier, Section 27 still covers
'"any concealment' without regard to whether such concealment is intentional or unintentional," 62 thus:
▪ The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang
believed that he was suffering from minor ailment like a common cold. Section 27 of the Insurance
Code of 1978 as it existed from 1974 up to 1985, that is, throughout the time range material for
present purposes, provided that: Sec. 27. A concealment entitles the injured party to rescind a
contract of insurance.
▪ The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided: Sec. 26. A
concealment, whether intentional or unintentional, entitles the injured party to rescind a contract
of insurance.
▪ Upon the other hand, in 1985, the Insurance Code of 1978 was amended by B.P. Blg. 874. This
subsequent statute modified Section 27 of the Insurance Code of 1978 so as to read as follows: Sec.

27. A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance.
▪ The unspoken theory of the Insurance Commissioner appears to have been that by deleting the
phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P.
Blg. 874) intended to limit the kinds of concealment which generate a right to rescind on the part
of the injured party to "intentional concealments." This argument is not persuasive. As a simple
matter of grammar, it may be noted that "intentional" and "unintentional" cancel each other out.
The net result therefore of the phrase "whether intentional or unintentional" is precisely to leave
unqualified the term "concealment." Thus, Section 27 of the Insurance Code of 1978 is properly
read as referring to "any concealment" without regard to whether such concealment is intentional
or unintentional. The phrase "whether intentional or unintentional" was in fact superfluous. The
deletion of the phrase "whether intentional or unintentional" could not have had the effect of
imposing an affirmative requirement that a concealment must be intentional if it is to entitle the
injured party to rescind a contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the
phrase "whether intentional or unintentional" merely underscored the fact that all throughout
(from 1914 to 1985), the statute did not require proof that concealment must be "intentional" in
order to authorize rescission by the injured party.63 (Emphasis supplied)
• Following Vda. de Canilang, this Court was categorical in Sunlife Assurance Co. of Canada v. CA:64 '"good faith' is
no defense in concealment."65
I.B
▪ It does not escape this Court's attention that there have been decisions that maintained that in cases of concealment,
"fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract."66 However, these decisions proceed from an inordinately segregated reading of Argente and have not been
heedful of plain statutory text. While focusing on the equivalence between concealment and false representation,
they fail to account for the manifest textual peculiarity whereby the negation of distinctions between intentional and
unintentional acts is found only in Section 27, the provision concerning rescission due to concealment, but not in
the counterpart provision concerning false representations. 67
▪ Ng Gan Zee v. Asian Crusader Life,68 decided in 1983, stated: Section 27 of the Insurance Law [Act 2427] provides:
Sec. 27. Such party to a contract of insurance must communicate to the other, in good faith, all facts within his
knowledge which are material to the contract, and which the other has not the means of ascertaining, and as to
which he makes no warranty. Thus, "concealment exists where the assured had knowledge of a fact material to the
risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assurer, but he
designedly and intentionally withholds the same." It has also been held "that the concealment must, in the absence of
inquiries, be not only material, but fraudulent, or the fact must have been intentionally withheld." Assuming that the
aforesaid answer given by the insured is false, as claimed by the appellant. Sec. 27 of the Insurance Law, above-
quoted, nevertheless requires that fraudulent intent on the part of the insured be established to entitle the insurer to
rescind the contract. And as correctly observed by the lower court, "misrepresentation as a defense of the insurer to
avoid liability is an 'affirmative' defense. The duty to establish such a defense by satisfactory and convincing evidence
rests upon the defendant. The evidence before the Court does not clearly and satisfactorily establish that
defense."69 (Emphasis supplied)
▪ NG GAN ZEE MAKES A FUNDAMENTAL ERROR IN INTERPRETATION.
o Ng Gan Zee's fourth footnote purports that the phrase quoted in the italicized paragraph was
from Argente.70 While the phrase indeed appears in Argente, it is not Argente itself which stated the quoted
phrase; rather, it was Joyce's The Law of Insurance.
o In any case, Ng Gan Zee limited itself to a brief quote from Joyce. It discarded much of the discussion
that Argente lifted from Joyce. Most notably, it discarded the portion where Joyce explained that
concealment is necessarily fraudulent when the matter that was concealed is "a material fact . . . actually
known to the [insured]."71 Thus, Ng Gan Zee omitted the discussion explaining and accounting for why
proof of actual fraudulent intent may be dispensed with in cases of concealment, i.e., that concealment of
material facts is fraudulent in and of itself. Contrast this with Saturnino which, though also quoting only
briefly from Argente and Joyce, did not cursorily focus on the equivalence between concealment and false
representations, but rather on the underlying reason for this equivalence. Ng Gan Zee focused on the result,
i.e., equivalence, without accounting for the cause.
▪ In like manner as Ng Gan Zee, Great Pacific Life v. CA72 stated: The second assigned error refers to an alleged
concealment that the petitioner interposed as its defense to annul the insurance contract. Petitioner contends that Dr.
Leuterio failed to disclose that he had hypertension, which might have caused his death. Concealment exists where
the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he
should communicate it to the assured, but he designedly and intentionally withholds the same. . . . . The fraudulent
intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation
as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance. 73 (Emphasis supplied)

▪ So too, Philamcare Health Systems, Inc. v. CA74 stated: The fraudulent intent on the part of the insured must be
established to warrant rescission of the insurance contract. 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. 75 (Emphasis supplied)
▪ GREAT PACIFIC LIFE AND PHILAMCARE PERPETUATE NG GAN ZEE'S UNFORTUNATE
ERROR.
o Of the two (2) paragraphs this Court quoted from Great Pacific Life, the first cites Argente.76 Much like Ng
Gan Zee, it quotes an isolated portion of Joyce but fails to account for that part of Joyce's discussion that
explains how fraud inheres in concealment. The last sentence in this first quoted paragraph merely
reproduces the first paragraph that Argente lifted from Joyce. The second quoted paragraph cites Ng Gan
Zee77 and confounds concealment with misrepresentation.
o The first sentence of the quoted paragraph from Philamcare cites Great Pacific Life and Ng Gan Zee.78 At
this juncture, a contagion of Ng Gan Zee's error can be observed.
o More than misreading Argente and Joyce, Ng Gan Zee, Great Pacific Life, and Philamcare contradict
Section 27's plain text. The statute's clear and unmistakable text must prevail. For purposes of rescission,
Section 27 of the Insurance Code unequivocally negates any distinction between intentional and
unintentional concealments. Pronouncements in jurisprudence cannot undermine this explicit legislative
intent.
I.C
▪ While Insular Life correctly reads Section 27 as making no distinction between intentional and unintentional
concealment, it erroneously pleads Section 27 as the proper statutory anchor of this case.
▪ The Insurance Code distinguishes representations from concealments. Chapter 1, Title 4 is on concealments. It spans
Sections 26 to 35 of the Insurance Code;79 it is where Section 27 is found. Chapter 1, Title 5 is on representations.
It spans Sections 36 to 48 of the Insurance Code.80
▪ Section 26 defines concealment as "[a] neglect to communicate that which a party knows and ought to
communicate." However, Alvarez did not withhold information on or neglect to state his age. He made an actual
declaration and assertion about it.
▪ WHAT THIS CASE INVOLVES, INSTEAD, IS AN ALLEGEDLY FALSE REPRESENTATION. Section
44 of the Insurance Code states, "A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations." If indeed Alvarez misdeclared his age such that his assertion fails to correspond with his
factual age, he made a false representation, not a concealment.
▪ At no point does Chapter 1, Title 5 of the Insurance Code replicate Section 27's language negating the distinction
between intentional and unintentional concealment. Section 45 is Chapter 1, Title 5's counterpart provision to
Section 27, and concerns rescission due to false representations. It reads: Section 45. If a representation is false in a
material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time
when the representation becomes false.
▪ Not being similarly qualified as rescission under Section 27, rescission under Section 45 remains subject to the basic
precept of fraud having to be proven by clear and convincing evidence. In this respect, Ng Gan Zee's and similar
cases' pronouncements on the need for proof of fraudulent intent in cases of misrepresentation are logically sound,
albeit the specific reference to Argente as ultimate authority is misplaced. Thus, while Great Pacific Life confounded
concealment with misrepresentation by its citation of Ng Gan Zee, it nevertheless acceptably stated that: The
fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon the insurer.81
▪ Conformably, subsequent fraud cases citing Great Pacific Life which do not exclusively concern concealment rightly
maintain that "[f]raudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract."82 To illustrate, Manila Bankers Life Insurance Corp. v. Aban 83 was correct in explaining: With the above
crucial finding of fact — that it was Sotero who obtained the insurance for herself — petitioner's case is severely
weakened, if not totally disproved. Allegations of fraud, which are predicated on respondent's alleged posing as
Sotero and forgery of her signature in the insurance application, are at once belied by the trial and appellate courts'
finding that Sotero herself took out the insurance for herself. "Fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract." In the absence of proof of such fraudulent intent, no right
to rescind arises.84
▪ Concealment applies only with respect to material facts. That is, those facts which by their nature would clearly,
unequivocally, and logically be known by the insured as necessary for the insurer to calculate the proper risks.
▪ The absence of the requirement of intention definitely increases the onus on the insured. Between the insured and
the insurer, it is true that the latter may have more resources to evaluate risks. Insurance companies are imbued with
public trust in the sense that they have the obligation to ensure that they will be able to provide succor to those that
enter into contracts with them by being both frugal and, at the same time, diligent in their assessment of the risk
which they take with every insurance contract. However, even with their tremendous resources, a material fact
concealed by the insured cannot simply be considered by the insurance company. The insurance company may have
huge resources, but the law does not require it to be omniscient.

▪ On the other hand, when the insured makes a representation, it is incumbent on them to assure themselves that a
representation on a material fact is not false; and if it is false, that it is not a fraudulent misrepresentation of a material
fact. This returns the burden to insurance companies, which, in general, have more resources than the insured to
check the veracity of the insured's beliefs as to a statement of fact. Consciousness in defraudation is imperative and it
is for the insurer to show this.
▪ There may be a mistaken impression, on the part of the insured, on the extent to which precision on one's age may
alter the calculation of risks with definitiveness. Deliberation attendant to an apparently inaccurate declaration is vital
to ascertaining fraud.
I.D
▪ Spouses Manalo v. Roldan-Confesor85 explained what qualifies as clear and convincing proof: Clear and convincing
proof is ". . . more than mere preponderance, but not to extent of such certainty as is required beyond reasonable
doubt as in criminal cases . . ."while substantial evidence ". . . consists of more than a mere scintilla of evidence but
may be somewhat less than a preponderance . . ." Consequently, in the hierarchy of evidentiary values, We find
proof beyond reasonable doubt at the highest level, followed by clear and convincing evidence, preponderance of
evidence, and substantial evidence, in that order.86
▪ The assailed CA May 21, 2013 Decision discussed the evidentiary deficiency in Insular Life's cause, i.e., how it relied
on nothing but a single piece of evidence to prove fraudulent intent:
o At bar, Insular Life basically relied on the Health Statement form personally accomplished by Jose Alvarez
wherein he wrote that his birth year was 1942. However, such form alone is not sufficient absent any other
indications that he purposely wrote 1942 as his birth year. It should be pointed out that, apart from a health
statement form, an application for insurance is required first and foremost to be answered and filled-up.
However, the records are deficient of this application which would eventually depict to Us Jose Alvarez's
fraudulent intent to misrepresent his age. For, if he continually written (sic) 1942 in all the documents he
submitted with UBP and Insular Life then there is really a clear precursor of his fraudulent intent.
Otherwise, a mere Health Statement form bearing a wrong birth year should not be relied at.
o As aptly pointed out by the court a quo: If the defendant Insular Life had any doubt about the information,
particularly the data which are material to the risk, such as the age of the insured, which defendant Union
Bank provided, it is not justified for the insurer to rely solely therefrom, but it is obligated under the
circumstances to make further inquiry. . . . 87
▪ THE CA' OBSERVATIONS ARE WELL-TAKEN. Consistent with the requirement of clear and convincing
evidence, it was Insular Life's burden to establish the merits of its own case. Relative strength as against respondents'
evidence does not suffice.
▪ A single piece of evidence hardly qualifies as clear and convincing. Its contents could just as easily have been an
isolated mistake.
▪ Alvarez must have accomplished and submitted many other documents when he applied for the housing loan and
executed supporting instruments like the promissory note, real estate mortgage, and Group Mortgage Redemption
Insurance. A design to defraud would have demanded his consistency. He needed to maintain appearances across all
documents. Otherwise, he would doom his own ruse.
▪ He needed to have been consistent, not only before Insular Life, but even before UnionBank. Even as it was only
Insular Life's approval that was at stake with the Group Mortgage Redemption Insurance, Alvarez must have realized
that as it was an accessory agreement to his housing loan with UnionBank. Insular Life was well in a position to
verify information, whether through simple cross referencing or through concerted queries with UnionBank.
▪ Despite these circumstances, the best that Insular Life could come up with before RTC and the CA was a single
document. The CA was straightforward, i.e., the most basic document that Alvarez accomplished in relation to
Insular Life must have been an insurance application form. Strangely, Insular Life failed to adduce even this
document—a piece of evidence that was not only commonsensical, but also one which has always been in its
possession and disposal.
▪ Even now, before this Court, Insular Life has been unable to address the importuning for it to account for Alvarez's
insurance application form. Given the basic presumption under our rules on evidence "[t]hat evidence willfully
suppressed would be adverse if produced," 88 this raises doubts, perhaps not entirely on Insular Life's good faith, but,
at the very least, on the certainty and confidence it has in its own evidence.
▪ Rather than demonstrate Alvarez's consistent fraudulent design, Insular Life comes before this Court pleading
nothing but just one other instance when Alvarez supposedly declared himself to have been 55 years old. It claims
that it did not rely solely on Alvarez's Health Statement Form but also on his Background Checking Report. 89
▪ Reliance on this report is problematic. It was not prepared by Alvarez himself. Rather, it was accomplished by a
UnionBank employee following the conduct of credit investigation. Insular Life notes a statement by UnionBank's
Josefina Barte that all information in the Background Checking Report was supplied by Alvarez. 90 But this is a self-
serving statement, wholly reliant on the assumption of that employee's flawless performance of her duty to record
findings. Precisely, it is a claim that needed to be vetted. It had to be tested under the crucible of a court trial, that is,
through the rigors of presentation and authentication of evidence, cross-examination, and personal perusal by a
judge. Yet, Insular Life would now have this Court sustain its appreciation, solely on the strength of its own
representations.

▪ An erroneous statement's dual occurrence in the Health Statement Form and the Background Checking Report
concededly reduces the likelihood of honest mistakes or overlooked inaccuracies. However, in the context of so
many other documents being available to ascertain the error, a mere dual occurrence does not definitively establish a
fraudulent scheme. This is especially so when the errors could not be directly and exclusively attributed to a single
author.
▪ Pleading just one (1) additional document still fails to establish the consistent fraudulent design that was Insular Life's
burden to prove by clear and convincing evidence. Insular Life had all the opportunity to demonstrate Alvarez's
pattern of consistently indicating erroneous entries for his age. All it needed to do was to inventory the documents
submitted by Alvarez and note the statements he made concerning his age. This was not a cumbersome task, yet it
failed at it. Its failure to discharge its burden of proving must thwart its plea for relief from this Court.
II
▪ Having settled Insular Life's continuing liability under the Group Mortgage Redemption Insurance, this Court
proceeds to the matter of the propriety of UnionBank's foreclosure.
▪ UnionBank insists that the real estate mortgage is a contract separate and distinct from the Group Mortgage
Redemption Insurance; thus, it should not be affected by the validity or invalidity of Insular Life's rescission. 91 It also
cites Great Pacific Life, which it claims involves a similar set of facts as this case, and underscores how this Court in
that case did not nullify the foreclosure despite a finding that the rescission was improper, but instead considered the
foreclosure as a supervening event.92
▪ Great Pacific Life similarly involved an insurer's rescission of a mortgage redemption insurance on account of a
supposed concealment. This Court sustained the lower courts' conclusions holding the rescission invalid and
maintaining the insurer's liability to pay the mortgage. However, this Court considered the foreclosure, which in the
interim had been completed, as a supervening event. Ruling on the basis of equity, this Court concluded that the
insurance proceeds, which should have been paid to the mortgagee, were now due to the heirs of the insured:
However, we noted that the CA' decision was promulgated on May 17, 1993. In private respondent's
memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding
loan. Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of
another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already
foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow,
herein private respondent Medarda Leuterio.93
▪ Maglaque v. Planters Development Bank94 sustained a mortgagor's right to foreclose in the event of a mortgagee's
death: [T]he rule is that a secured creditor holding a real estate mortgage has three (3) options in case of death of the
debtor. These are: (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely
on the mortgage exclusively, foreclosing the same at anytime before it is barred by prescription, without right to file
a claim for any deficiency.
▪ This is in keeping with Rule 86, Section 7 of the Rules of Court, which states: Section 7. Mortgage debt due from
estate. — A creditor holding a claim against the deceased secured by mortgage or other collateral security, may
abandon the security and prosecute his claim in the manner provided in this rule, and share in the general
distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by action in
court, making the executor or administrator a party defendant, and if there is a judgment for a deficiency, after the
sale of the mortgaged premises, or the property pledged, in the foreclosure or other proceeding to realize upon the
security, he may claim his deficiency judgment in the manner provided in the preceding section; or he may rely
upon his mortgage or other security alone, and foreclose the same at any time within the period of the statute of
limitations, and in that event he shall not be admitted as a creditor, and shall receive no share in the distribution of
the other assets of the estate; but nothing herein contained shall prohibit the executor or administrator from
redeeming the property mortgaged or pledged, by paying the debt for which it is held as security, under the
direction of the court, if the court shall adjudge it to be for the best interest of the estate that such redemption shall
be made.
▪ While the mortgagee's right to proceed with foreclosure is settled, this Court finds the debacle at the heart of this
case to have been borne in large, if not equal measure, by UnionBank's oversight. UnionBank contributed to setting
in motion a course of events that culminated in the unjust foreclosure of Alvarez's mortgaged lot. As such a
contributor, its profiting from the wrongful foreclosure cannot be condoned.
▪ RTC explained how UnionBank was remiss: If at the time of the application, Jose H. Alvarez appears disqualified,
and the personnel of the bank is mindful of his duties, then the personnel of the bank will immediately tell the late
Jose H. Alvarez [that] he is not qualified. As it would appear in this case, there is nothing to show nor indicate that
the late Jose H. Alvarez exhibited any fraudulent intent when the bank was given certain data such as his age and
date of birth. The bank is already in its possession sufficient materials to inform itself regarding the true and actual
age, civil status and other personal circumstances of Jose Alvarez to merit approval of the loan applied for. It was the
same informative materials from which the defendant Union Bank lifted the data it provided the defendant Insular
Life for the consummation of the insurance contract, without which, the bank would not have favorably approved
the loan.96
▪ These observations are well-taken.

▪ Great Pacific Life, in considering the insurable interest involved in a mortgage redemption insurance, discussed: To
resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of
contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption
insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it
has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation . In a similar vein, ample
protection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will
be extinguished by the application of the insurance proceeds to the mortgage indebtedness. 97 (Emphasis supplied)
▪ RTC was correct in emphasizing that Alvarez entered into the Group Mortgage Redemption Insurance entirely
upon UnionBank's prodding. Bank clients are generally unaware of insurance policies such as a mortgage
redemption insurance unless brought to their knowledge by a bank. The processing of a mortgage redemption
insurance was within UnionBank's regular course of business. It knew the import of truthfully and carefully
accomplished applications. To facilitate the principal contract of the loan and its accessory obligations such as the real
estate mortgage and the mortgage redemption insurance, UnionBank completed credit appraisals and background
checks. Thus, RTC was correct in noting that UnionBank had been in possession of materials sufficient to inform
itself of Alvarez's personal circumstances.98
▪ UnionBank was the indispensable nexus between Alvarez and Insular Life. Not only was it well in a position to
address any erroneous information transmitted to Insular Life, it was also in its best interest to do so. After all,
payments by the insurer relieve it of the otherwise burdensome ordeal of foreclosing a mortgage.
▪ This is not to say that UnionBank was the consummate guardian of the veracity and accuracy of Alvarez's
representations. It is merely to say that given the circumstances, considering Insular Life's protestation over
supposedly false declarations, UnionBank was in a position to facilitate the inquiry on W/N a fraudulent design had
been effected. However, rather than actively engaging in an effort to verify, it appears that UnionBank stood idly by,
hardly bothering to ascertain if other pieces of evidence in its custody would attest to or belie a fraudulent scheme.
▪ UnionBank approved Alvarez's loan and real estate mortgage, and endorsed the mortgage redemption insurance to
Insular Life. Fully aware of considerations that could have disqualified Alvarez, it nevertheless acted as though
nothing was irregular. It itself acted as if, and therefore represented that, Alvarez was qualified. Yet, when
confronted with Insular Life's challenge, it readily abandoned the stance that it had earlier maintained and capitulated
to Insular Life's assertion of fraud.
▪ UnionBank's headlong succumbing casts doubt on its own confidence in the information in its possession. This, in
turn, raises questions on the soundness of the credit investigation and background checks it had conducted prior to
approving Alvarez' loan.
▪ In Poole-Blunden v. Union Bank of the Philippines,99 this Court emphasized that the high degree of diligence
required of banks "equally holds true in their dealing with mortgaged real properties, and subsequently acquired
through foreclosure."100 It specifically drew attention to this requisite high degree of diligence in relation to "[c]redit
investigations [which] are standard practice for banks before approving loans." 101
▪ The foreclosure here may well be a completed intervening occurrence, but Great Pacific Life's leaning to an
irremediable supervening event cannot avail. What is involved here is not the mortgagor's medical history, as
in Great Pacific Life, which the mortgagee bank was otherwise incapable of perfectly ascertaining. Rather, it is
merely the mortgagor's age. This information was easily available from and verifiable on several documents.
UnionBank's passivity and indifference, even when it was in a prime position to enable a more conscientious
consideration, were not just a cause of Insular Life's rescission bereft of clear and convincing proof of a design to
defraud, but also, ultimately, of the unjust seizure of Alvarez's property. By this complicity, UnionBank cannot be
allowed to profit. Its foreclosure must be annulled.
▪ WHEREFORE, CA AFFIRMED.
o Union Bank of the Philippines and The Insular Life Assurance Co., Ltd. are ordered to comply with the
insurance undertaking under Mortgage Redemption Insurance Policy No. G-098496 by applying its
proceeds as payment of the outstanding loan obligation of deceased Jose H. Alvarez with respondent Union
Bank of the Philippines;
o The extrajudicial foreclosure of the real estate mortgage over Jose H. Alvarez's TCT No. C-315023 is
declared null and without legal force and effect;
o Union Bank of the Philippines is ordered to reconvey the title and ownership over the lot covered by TCT
No. C-315023 to the Estate of the deceased Jose H. Alvarez for the benefit of his heirs and successors-in-
interest; and
o Union Bank of the Philippines and The Insular Life Assurance Co., Ltd. are ordered to jointly and severally
pay respondents the Heirs of Jose H. Alvarez attorney's fees and the costs of suit.

H.H. HOLLERO CONSTRUCTION, INC. vs. GSIS and POOL OF MACHINERY INSURERS, Respondents.
• On April 26, 1988, the GSIS and petitioner entered into a Project Agreement (Agreement) whereby the latter
undertook the development of a GSIS housing project known as Modesta Village Sec. B (Project). 5 Petitioner
obligated itself to insurethe Project, including all the improvements, upon the execution of the Agreement under a
Contractors’ All Risks (CAR) Insurance with the GSIS General Insurance Department for an amount equal to its
cost or sound value, which shall not be subject to any automatic annual reduction. 6
• Pursuant to its undertaking, petitioner secured CAR Policy No. 88/0857 in the amount of ₱1,000,000.00 for land
development, which was later increased to ₱10,000,000.00,8 effective from May 2, 1988 to May 2, 1989.9 Petitioner
likewise secured CAR Policy No. 88/08610 in the amount of ₱1,000,000.00 for the construction of twenty (20)
housing units, which amount was later increased to ₱17,750,000.0011 to cover the construction of another 355 new
units, effective from May 2, 1988 toJune 1, 1989.12 In turn, the GSIS reinsured CAR Policy No. 88/085 with
respondent Pool of Machinery Insurers (Pool). 13
o Under both policies, it was provided that: (a) there must be prior notice of claim for loss, damage or liability
within fourteen (14) days from the occurrence of the loss or damage; 14 (b) all benefits thereunder shall be
forfeited if no action is instituted within twelve(12) months after the rejection of the claim for loss, damage
or liability;15 and (c) if the sum insured is found to be less than the amount required to be insured, the
amount recoverable shall be reduced tosuch proportion before taking into account the deductibles stated in
the schedule (average clause provision).16
• During the construction, three (3) typhoons hit the country, namely, Typhoon Biring from June 1 to June 4, 1988,
Typhoon Huaning on July 29, 1988, and Typhoon Saling on October 11, 1989, which caused considerable damage
to the Project.17 Accordingly, petitioner filed several claims for indemnity with the GSIS on June 30, 1988,18 August
25, 1988,19 and October 18, 1989,20 respectively.
• In a letter21 dated April 26, 1990, the GSIS rejected petitioner’s indemnity claims for the damages wrought by
Typhoons Biring and Huaning, finding that no amount is recoverable pursuant to the average clause provision under
the policies.22 In a letter23 dated June 21, 1990, the GSIS similarly rejected petitioner’s indemnity claim for damages
wrought by Typhoon Saling on a "no loss" basis, itappearing from its records that the policies were not renewed
before the onset of the said typhoon.24
o In a letter25 dated April 18, 1991, petitioner impugned the rejection of its claims for damages/loss on
accountof Typhoon Saling, and reiterated its demand for the settlement of its claims.
• On September 27, 1991, petitioner filed a Complaint26 for Sum of Money and Damages before the RTC, docketed
as Civil Case No. 91-10144,27 which was opposed by the GSIS through a Motion to Dismiss 28 dated October 25,
1991 on the ground that the causes of action stated therein are barred by the twelve-month limitation provided
under the policies, i.e., the complaint was filed more than one(1) year from the rejection of the indemnity claims.
The RTC, in an Order29 dated May 13, 1993, denied the said motion; hence, the GSIS filed its answer30 with
counterclaims for litigation expenses, attorney’s fees, and exemplary damages. Subsequently, the GSIS filed a Third
Party Complaint31 for indemnification against Pool, the reinsurer.
CA RULING: set aside and reversed the RTC Judgment, thereby dismissing the complaint. It ruled that the complaint filed
on September 27, 1991 was barred by prescription, having been commenced beyond the twelve-month limitation provided
under the policies, reckoned from the final rejection of the indemnity claims on April 26, 1990 and June 21, 1990.
ISSUE: W/N the CA committed reversible error in dismissing the complaint onthe ground of prescription.
THE COURT’S RULING

• 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. 39
• Sec. 1040 of the General Conditions of the subject CAR Policies commonly read: 10. If a claim is in any respect
fraudulent, or if any false declaration is made or used in support thereof, or if any fraudulent means or devices are
used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is made and
rejected and no action or suit is commenced within twelve months after such rejectionor, in case of arbitration
taking place as provided herein, within twelve months after the Arbitrator or Arbitrators or Umpire have made their
award, all benefit under this Policy shall be forfeited. (Emphases supplied)
• IN THIS RELATION, CASE LAW ILLUMINES THAT THE PRESCRIPTIVE PERIOD FOR THE
INSURED’S ACTION FOR INDEMNITY SHOULD BERECKONED FROM THE " FINAL
REJECTION" OF THE CLAIM. 41
• The Court does not agree WHEN petitioner insists that the GSIS’s letters dated April 26, 1990 and June 21, 1990
did not amount to a "final rejection" ofits claims, arguing that they were mere tentative resolutions pending further
action on petitioner’s part or submission of proof in refutation of the reasons for rejection. 42 Hence, its causes of
action for indemnity did not accrue on those dates.
o A perusal of the letter43 dated April 26, 1990 shows that the GSIS denied petitioner’s indemnity claims
wrought by Typhoons Biring and Huaning, it appearing that no amount was recoverable under the policies.
While the GSIS gave petitioner the opportunity to dispute its findings, neither of the parties pursued any

further action on the matter; this logically shows that they deemed the said letter as a rejection of the claims.
Lest it cause any confusion, the statement in that letter pertaining to any queries petitioner may have on the
denial should be construed, at best, as a form of notice to the former that it had the opportunity to seek
reconsideration of the GSIS’s rejection. Surely, petitioner cannot construe the said letter to be a mere
"tentative resolution." In fact, despite its disavowals, petitioner admitted in its pleadings 44 that the GSIS
indeed denied its claim through the aforementioned letter, buttarried in commencing the necessary action
in court.
o The same conclusion obtains for the letter 45 dated June 21, 1990 denying petitioner’s indemnity claim
caused by Typhoon Saling on a "no loss" basis due to the non-renewal of the policies therefor before the
onset of the said typhoon. The fact that petitioner filed a letter 46 of reconsideration therefrom dated April
18, 1991, considering too the inaction of the GSIS on the same similarly shows that the June 21, 1990 letter
was also a final rejection of petitioner’s indemnity claim.
• As correctly observed by the CA, "final rejection" simply means denial by the insurer of the claims of the insured
and not the rejection or denial by the insurer of the insured’s motion or request for reconsideration. 47 The rejection
referred to should be construed as the rejection in the first instance, 48 as in the two instances above-discussed.
• Comparable to the foregoing is the Court’s action in the case of Sun Insurance Office, Ltd. v. CA 49 wherein it
debunked "[t]he contention of the respondents [therein] that the one-year prescriptive period does not start to run
until the petition for reconsideration had been resolved by the insurer," holding that such view "runs counter to the
declared purpose for requiring that an action or suit be filed in the Insurance Commission or in a court of competent
jurisdiction from the denial of the claim." 50 In this regard, the Court rationalized that "uphold[ing]respondents'
contention would contradict and defeat the very principle which this Court had laid down. Moreover, it can easily
be used by insured persons as a scheme or device to waste time until any evidence which may be considered against
them is destroyed."51 Expounding on the matter, the Court had this to say: The crucial issue in this case is: When
does the cause of action accrue?
• In support of private respondent’s view, two rulings of this Court have been cited, namely,
o the case of Eagle Star Insurance Co.vs.Chia Yu ([supra note 41]), where the Court held: The right of the
insured to the payment of his loss accrues from the happening of the loss. However, the cause of action in
an insurance contract does not accrue until the insured’s claim is finally rejected by the insurer. This is
because before such final rejection there is no real necessity for bringing suit.
o and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding that: Since
"cause of action" requires as essential elements not only a legal right of the plaintiff and a correlated
obligation of the defendant in violation of the said legal right, the cause of action does not accrue until the
party obligated (surety) refuses, expressly or impliedly, to comply with its duty (in this case to pay the
amount of the bond)."
• Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured' s cause of action
or his right to file a claim either in the Insurance Commission or in a court of competent jurisdiction [as in this case]
commences from the time of the denial of his claim by the Insurer, either expressly or impliedly. 1âwphi1
• But as pointed out by the petitioner insurance company, the rejection referred to should be construed as the
rejection, in the first instance, for if what is being referred to is a reiterated rejection conveyed in a resolution of a
yetition for reconsideration, such should have been expressly stipulated. 52
• In light of the foregoing, it is thus clear that petitioner's causes of action for indemnity respectively accrued from its
receipt of the letters dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in the first
instance. Consequently, given that it allowed more than twelve (12) months to lapse before filing the necessary
complaint before the R TC on September 27, 1991, its causes of action had already prescribed.
WHEREFORE, CA AFFIRMED.

GSIS vs. PRUDENTIAL GUARANTEE AND ASSURANCE, INC., DEVELOPMENT BANK OF THE
PHILIPPINES and LAND BANK OF THE PHILIPPINES,
GSIS, vs. PRUDENTIAL GUARANTEE AND ASSURANCE, INC.
PERLAS-BERNABE, J.:
• Sometime in March 1999, the National Electrification Administration (NEA) entered into a Memorandum of
Agreement11 (MOA) with GSIS insuring all real and personal properties mortgaged to it by electrical cooperatives
under an Industrial All Risks Policy (IAR policy). 12 The total sum insured under the IAR policy was
₱16,731,141,166.80, out of which, 95% or ₱15,894,584,108.40 was reinsured by GSIS with PGAI for a period of
one year or from March 5, 1999 to March 5, 2000.13 As reflected in Reinsurance Request Note No. 99-
15014 (reinsurance cover) and the Reinsurance Binder 15 dated April 21, 1999 (reinsurance binder), GSIS agreed to
pay PGAI reinsurance premiums in the amount of ₱32,885,894.52 per quarter or a total of
₱131,543,578.08.16 While GSIS remitted to PGAI the reinsurance premiums for the first three quarters, it, however,
failed to pay the fourth and last reinsurance premium due on December 5, 1999 despite demands. This prompted
PGAI to file, on November 15, 2001, a Complaint 17 for sum of money (complaint) against GSIS before the RTC,
docketed as Civil Case No. 01-1634.
• In its complaint, PGAI alleged, among others, that: (a) after it had issued the IAR policy, it further reinsured the
risks covered under the said reinsurance with reputable reinsurers worldwide such as Lloyds of London, Copenhagen
Re, Cigna Singapore, CCR, Generali, and Arig;18 (b) the first three reinsurance premiums were paid to PGAI by
GSIS and, in the same vein, NEA paid the first three reinsurance premiums due to GSIS;19 (c) GSIS failed to pay
PGAI the fourth and last reinsurance premium due on December 5, 1999; 20 (d) the IAR policy remained in full
force and effect for the entire insurable period and, in fact, the losses/damages on various risks reinsured by PGAI
were paid and accordingly settled by it;21 (e) PGAI is under continuous pressure from its reinsurers in the
international market to settle the matter;22 and (f) GSIS acknowledged its obligation to pay the last reinsurance
premium as it, in turn, demanded from NEA the fourth and last reinsurance premium. 23
o In its Answer,24 GSIS admitted, among others, that: (a) its request for reinsurance cover was accepted by
PGAI in a reinsurance binder;25 (b) it remitted to PGAI the first three reinsurance premiums which were
paid by NEA;26 and (c) it failed to remit the fourth and last reinsurance premium to PGAI. 27 It, however,
denied, inter alia, that: (a) it had acknowledged its obligation to pay the last quarter’s reinsurance premium
to PGAI;28 and (b) the IAR policy remained in full force and effect for the entire insurable period of March
5, 1999 to March 5, 2000.29 GSIS also proffered the following affirmative defenses: (a) the complaint states
no cause of action against GSIS because the non-payment of the last reinsurance premium only renders the
reinsurance contract ineffective, and does not give PGAI a right of action to collect; 30 (b) pursuant to the
regulations issued by the Commission on Audit, GSIS is prohibited from advancing payments to PGAI
occasioned by the failure of the principal insured, NEA, to pay the insurance premium;31 and (c) PGAI’s
cause of action lies against NEA since GSIS merely acted as a conduit. 32 By way of counterclaim, GSIS
prayed that PGAI be ordered to pay exemplary damages, including litigation expenses, and costs of suit. 33
• On December 18, 2001, PGAI filed a Motion for Judgment on the Pleadings 34 averring that GSIS essentially
admitted the material allegations of the complaint, such as: (a) the existence of the MOA between NEA and GSIS;
(b) the existence of the reinsurance binder between GSIS and PGAI; (c) the remittance by GSIS to PGAI of the first
three quarterly reinsurance premiums; and (d) the failure/refusal of GSIS to remit the fourth and last reinsurance
premium.35 Hence, PGAI prayed that the RTC render a judgment on the pleadings pursuant to Sec. 1, Rule 34 of
the Rules of Court (Rules). GSIS opposed36 the foregoing motion by reiterating the allegations and defenses in its
Answer.
• On January 11, 2002, the RTC issued an Order 37 (January 11, 2002 Order) granting PGAI’s Motion for Judgment on
the Pleadings. It observed that the admissions of GSIS that it paid the first three quarterly reinsurance premiums to
PGAI affirmed the validity of the contract of reinsurance between them. As such, GSIS cannot now renege on its
obligation to remit the last and remaining quarterly reinsurance premium.38 It further pointed out that while it is true
that the payment of the premium is a requisite for the validity of an insurance contract as provided under Sec. 77 of
Presidential Decree No. (PD) 612,39 otherwise known as "IC," it was held in Makati Tuscany Condominium Corp.
v. CA40 (Makati Tuscany) that insurance policies are valid even if the premiums were paid in installments, as in this
case.41 Thus, in view of the foregoing, the RTC ordered GSIS to pay PGAI the last quarter reinsurance premium in
the sum of ₱32,885,894.52, including interests amounting to ₱6,519,515.91 as of July 31, 2000 until full payment,
attorney’s fees, and costs of suit.42 Dissatisfied, GSIS filed a notice of appeal. 43
• Meanwhile, PGAI filed a Motion for Execution Pending Appeal44 based on the following reasons: (a) GSIS’ appeal
was patently dilatory since it already acknowledged the validity of PGAI’s claim;45 (b) GSIS posted no valid defense
as its Answer raised no genuine issues;46 and (c) PGAI would suffer serious and irreparable injury as it may be
blacklisted as a consequence of the non-payment of premiums due.47 PGAI also manifested its willingness to post a
sufficient surety bond to answer for any resulting damage to GSIS. 48 The latter opposed49 the motion asserting that
there lies no sufficient ground or urgency to justify execution pending appeal. It also claimed that all its funds and
properties are exempted from execution citing Sec. 39 of Republic Act No. (RA) 8291, 50 otherwise known as "The
GSIS Act of 1997."51
RTC: granted thru Feb 14, 2002 PGAI’s Motion for Execution Pending Appeal, conditioned on the posting of a bond. It
further held that only the GSIS Social Insurance Fund is exempt from execution. Accordingly, PGAI duly posted a surety

bond which the RTC approved through an Order 53 dated February 19, 2002, resulting to the issuance of a writ of
execution54 and notices of garnishment55 (February 19, 2002 issuances), all of even date, against GSIS.
The CA Proceedings Antecedent to G.R. No. 165585

• Aggrieved by the RTC’s February 14, 2002 Order, as well as the February 19, 2002 issuances, GSIS – without first
filing a motion for reconsideration (from the said order of execution) or a sufficient supersedeas bond 56 – filed on
February 26, 2002 a petition for certiorari57 before the CAagainst the RTC and PGAI. It also impleaded in the said
petition LBP and DBP as nominal parties so as to render them subject to the writs and processes of the CA. 58
• In its petition, GSIS argued that: (a) none of the grounds proffered by PGAI justifies the issuance of a writ of
execution pending appeal;59 and (b) all funds and assets of GSIS are exempt from execution and levy in accordance
with RA 8291.60
CA DID:
• On April 4, 2002, the CA issued a temporary restraining order (TRO) 61 enjoining the garnishment of GSIS’ funds
with LBP and DBP. Nevertheless, since the TRO’s effectivity lapsed, GSIS’ funds with the LBP were eventually
garnished.62
• On May 26, 2004, the CA rendered a Decision63 dismissing GSIS’ petition, upholding, among others, the validity of
the execution pending appeal pursuant to the RTC’s February 14, 2002 Order as well as the February 19, 2002
issuances. It found that the impending blacklisting of PGAI constitutes a good reason for allowing the execution
pending appeal (also known as "discretionary execution") considering that the imposition of international sanctions
on any single local insurance company puts in grave and immediate jeopardy not only the viability of that company
but also the integrity of the entire local insurance system including that of the state insurance agency. It pointed out
that the insurance business thrives on credibility which is maintained by honoring financial commitments.
• On the claimed exemption of GSIS funds from execution, the CA held that such exemption only covers funds
under the Social Insurance Fund which remains liable for the payment of benefits like retirement, disability and
death compensation and not those covered under the General Insurance Fund, as in this case, which are meant for
investment in the business of insurance and reinsurance.64
THE CA PROCEEDINGS ANTECEDENT TO G.R. NO. 176982

GSIS
• Separately, GSIS also assailed the RTC’s January 11, 2002 Order which granted PGAI’s Motion for Judgment on
the Pleadings through an appeal68 filed on October 7, 2002, docketed as CA G.R. CV No. 73965.
• GSIS averred that the RTC gravely erred in: (a) rendering judgment on the pleadings since it specifically denied the
material allegations in PGAI’s complaint; (b) ordering execution pending appeal since there are no justifiable reasons
for the same; and (c) effecting execution against funds and assets of GSIS given that RA 8291 exempts the same from
levy, execution and garnishment.69
PGAI
• For its part, PGAI maintained that: (a) the judgment on the pleadings was in order given that GSIS never disputed
the facts as alleged in its complaint; (b) the discretionary execution was proper in view of the dilatory methods
employed by GSIS in order to evade the payment of a valid obligation; and (c) the general insurance fund of GSIS,
which was attached and garnished by the RTC, is not exempt from execution. 70
CA
• In a Decision71 dated October 30, 2006, the CA sustained the RTC’s January 11, 2002 Order but deleted the awards
of interest and attorney’s fees for lack of factual and legal basis. 72
• The CA ruled that judgment on the pleadings was proper since GSIS did not specifically deny the genuineness, due
execution, and perfection of its reinsurance contract with PGAI. 73 In fact, PGAI even settled reinsurance claims
during the covering period rendering the reinsurance contract not only perfected but partially executed as well. 74
• Passing on the issue of the exemption from execution of GSIS funds, the CA, citing Rubia v. GSIS 75 (Rubia), held
that the exemption provided for by RA 8291 is not absolute since it only pertains to the social security benefits of its
members; thus, funds used by the GSIS for business investments and commercial ventures, as in this case, may be
attached and garnished.76
ISSUES:
• in G.R. No. 165585, whether the CA erred in (1) upholding the RTC’s February 14, 2002 Order authorizing
execution pending appeal, and (2) ruling that only the Social Insurance Fund and not the General Fund of the GSIS
is exempt from garnishment;
• in G.R. No. 176982, whether the CA erred in sustaining the RTC’s January 11, 2002 Order rendering judgment
on the pleadings.
The Court’s Ruling = The petitions are partly meritorious.

Good reasons to allow execution pending appeal and the nature of the exemption under Sec. 39 of RA 8291.
• The execution of a judgment pending appeal is an exception to the general rule that only a final judgment may be
executed.80 In order to grant the same pursuant to Sec. 2,81 Rule 39 of the Rules, the following requisites must

concur: (a) there must be a motion by the prevailing party with notice to the adverse party; (b) there must be a good
reason for execution pending appeal; and (c) the good reason must be stated in a special order. 82
• Good reasons call for the attendance of compelling circumstances warranting immediate execution for fear that
favorable judgment may yield to an empty victory. In this regard, the Rules do not categorically and strictly define
what constitutes "good reason," and hence, its presence or absence must be determined in view of the peculiar
circumstances of each case. As a guide, jurisprudence dictates that the "good reason" yardstick imports a superior
circumstance that will outweigh injury or damage to the adverse party. 83 Corollarily, the requirement of "good
reason" does not necessarily entail unassailable and flawless basis but at the very least, an invocation thereof must be
premised on solid footing.84
• In the case at bar, the RTC, as affirmed by the CA, granted PGAI’s motion for execution pending appeal on the
ground that the impending sanctions against it by foreign underwriters/reinsurers constitute good reasons therefor. It
must, however, be observed that PGAI has not proffered any evidence to substantiate its claim, as it merely
presented bare allegations thereon. It is hornbook doctrine that mere allegations do not constitute proof. As held in
Real v. Belo,85 "it is basic in the rule of evidence that bare allegations, unsubstantiated by evidence, are not
equivalent to proof. In short, mere allegations are not evidence." 86 Hence, without any sufficient basis to support the
existence of its alleged "good reasons," it cannot be said that the second requisite to allow an execution pending
appeal exists. To reiterate, the requirement of "good reasons" must be premised on solid footing so as to ensure that
the "superior circumstance" which would impel immediate execution is not merely contrived or based on
speculation. This, however, PGAI failed to demonstrate in the present case. In fine, the Court therefore holds that
the CA’s affirmance of the RTC’s February 14, 2002 Order authorizing execution pending appeal, as well as the
February 19, 2002 issuances related thereto, was improper.
• Nevertheless, while an execution pending appeal should not lie in view of the above-discussed reasons, it must be
noted that the funds and assets of GSIS may – after the resolution of the appeal and barring any provisional
injunction thereto – be subject to execution, attachment, garnishment or levy since the exemption under Sec. 39 of
RA 829187 does not operate to deny private entities from properly enforcing their contractual claims against
GSIS.88 This has been established in the case of Rubia wherein the Court held as follows: The declared policy of the
State in Sec. 39 of the GSIS Charter granting GSIS an exemption from tax, lien, attachment, levy, execution, and
other legal processes should be read together with the grant of power to the GSIS to invest its "excess funds" under
Sec. 36 of the same Act. Under Sec. 36, the GSIS is granted the ancillary power to invest in business and other
ventures for the benefit of the employees, by using its excess funds for investment purposes. In the exercise of such
function and power, the GSIS is allowed to assume a character similar to a private corporation. Thus, it may sue and
be sued, as also explicitly granted by its charter. Needless to say, where proper, under Sec. 36, the GSIS may be held
liable for the contracts it has entered into in the course of its business investments. For GSIS cannot claim a special
immunity from liability in regard to its business ventures under said Sec. Nor can it deny contracting parties, in our
view, the right of redress and the enforcement of a claim, particularly as it arises from a purely contractual
relationship of a private character between an individual and the GSIS. 89 (Emphases supplied and citations omitted)
• Thus, the petition in G.R. No. 165585 is partly granted.
B. Propriety of judgment on the pleadings.

• Judgment on the pleadings is appropriate when an answer fails to tender an issue, or otherwise admits the material
allegations of the adverse party’s pleading. The rule is stated in Sec. 1, Rule 34: Where an answer fails to tender an
issue, or otherwise admits the material allegations of the adverse party’s pleading, the court may, on motion of that
party, direct judgment on such pleading. x x x.
• In this relation, jurisprudence dictates that an answer fails to tender an issue if it does not comply with the
requirements of a specific denial as set out in Sec.s 8 90 and 10,91 Rule 8 of the Rules, resulting in the admission of
the material allegations of the adverse party’s pleadings. 92 As such, it is a form of judgment that is exclusively based
on the submitted pleadings without the introduction of evidence as the factual issues remain uncontroverted. 93
• In this case, records disclose that in its Answer, GSIS admitted the material allegations of PGAI’s complaint
warranting the grant of the relief prayed for. In particular, GSIS admitted that: (a) it made a request for reinsurance
cover which PGAI accepted in a reinsurance binder effective for one year; 94 (b) it remitted only the first three
reinsurance premium payments to PGAI;95 (c) it failed to pay PGAI the fourth and final reinsurance premium
installment;96 and (d) it received demand letters from PGAI.97 It also did not refute the allegation of PGAI that it
settled reinsurance claims during the reinsured period. On the basis of these admissions, the Court finds that the CA
did not err in affirming the propriety of a judgment on the pleadings.
• GSIS’ affirmative defense that the non-payment of the last reinsurance premium merely rendered the contract
ineffective pursuant to Sec. 7798 of PD 612 no longer involves any factual issue, but stands solely as a mere question
of law in the light of the foregoing admissions hence allowing for a judgment on the pleadings. Besides, in the case
of Makati Tuscany, the Court already ruled that the non-payment of subsequent installment premiums would not
prevent the insurance contract from taking effect; that the parties intended to make the insurance contract valid and
binding is evinced from the fact that the insured paid – and the insurer received – several reinsurance premiums due
thereon, although the former refused to pay the remaining balance, viz:
• We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show
that petitioner and private respondent intended subject insurance policies to be binding and effective

notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was
renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurer’s intention to honor the policies it issued to petitioner.
Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not
prepaid in full.
• We therefore sustain the CA. We quote with approval the well-reasoned findings and conclusion of the appellate
court contained in its Resolution denying the motion to reconsider its Decision —
o While the import of Sec. 77 is that prepayment of premiums is strictly required as a condition to the validity
of the contract, We are not prepared to rule that the request to make installment payments duly approved
by the insurer, would prevent the entire contract of insurance from going into effect despite payment and
acceptance of the initial premium or first installment . Sec. 78 of IC in effect allows waiver by the insurer of
the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium
as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is
actually unpaid. Sec. 77 merely precludes the parties from stipulating that the policy is valid even if
premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy (De Leon, IC, at p. 175).
So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least,
both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.
o [I]n the case before Us, petitioner paid the initial installment and thereafter made staggered payments
resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two
(2) installments although it refused to pay the balance.
o It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance
contracts valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the
balance of the premium after the expiration of the whole term of the third policy (No. AH-CPP-9210651)
in March 1985. Moreover, as correctly observed by the appellate court, where the risk is entire and the
contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed
to the risk insured for any period, however brief or momentary.99 (Emphases supplied and citation omitted)
• Thus, owing to the identical complexion of Makati Tuscany with the present case, the Court upholds PGAI’s right
to be paid by GSIS the amount of the fourth and last reinsurance premium pursuant to the reinsurance contract
between them. All told, the petition in G.R. No. 176982 is denied.
WHEREFORE, CA decision MODIFIED only insofar as it upheld the validity of Prudential Guarantee and Assurance,
Inc.’s execution pending appeal. Order dated February 14, 2002 of RTC of Makati, Branch 149 as well as all other issuances
related thereto are set aside.

EQUITABLE INSURANCE CORPORATION v. TRANSMODAL INTERNATIONAL, INC
• Sytengco Enterprises Corporation (Sytengco) hired respondent Transmodal International, Inc. ( Transmodal) to clear
from the customs authorities and withdraw, transport, and deliver to its warehouse, cargoes consisting of 200 cartons of
gum Arabic with a total weight of 5,000 kilograms valued at US21,750.00.
• The said cargoes arrived in Manila on August 14, 2004 and were brought to Ocean Links Container Terminal Center,
Inc. pending their release by the Bureau of Customs (BOC) and on September 2, 2004, respondent Transmodal
withdrew the same cargoes and delivered them to Sytengco's warehouse. It was noted in the delivery receipt that all the
containers were wet.
• In a preliminary survey conducted by Elite Adjusters and Surveyors, Inc. (Elite Surveyors), it was found that 187 cartons
had water marks and the contents of the 13 wet cartons were partly hardened. On October 13, 2004, a re-inspection was
conducted and it was found that the contents of the randomly opened 20 cartons were about 40% to 60% hardened,
while 8 cartons had marks of previous wetting. In its final report dated October 27, 2004, Elite Surveyor fixed the
computed loss payable at P728,712.00 after adjustment of 50% loss allowance.
• Thus, on November 2, 2004, Sytengco demanded from respondent Transmodal the payment of P1,457,424.00 as
compensation for total loss of shipment. On that same date, petitioner Equitable Insurance, as insurer of the cargoes per
Marine Open Policy No. MN-MRN-HO-000549 paid Sytengco's claim for P728,712.00. On October 4, 2004,
Sytengco then signed a subrogation receipt and loss receipt in favor of petitioner Equitable Insurance. As such, petitioner
Equitable Insurance demanded from respondent Transmodal reimbursement of the payment given to Sytengco.
• Thereafter, petitioner Equitable Insurance filed a complaint for damages invoking its right as subrogee after paying
Sytengco's insurance claim and averred that respondent Transmodal's fault and gross negligence were the causes of the
damages sustained by Sytengco's shipment. Petitioner Equitable Insurance prayed for the payment of P728,712.00 actual
damages with 6% interest from the date of the filing of the complaint until full payment, plus attorney's fees and cost of
suit.
• Respondent Transmodal denied knowledge of an insurance policy and claimed that petitioner Equitable Insurance has
no cause of action against it because the damages to the cargoes were not due to its fault or gross negligence. According
to the same respondent, the cargoes arrived at Sytengco's warehouse around 11:30 in the morning of September 1, 2004,
however, Sytengco did not immediately receive the said cargoes and as a result, the cargoes got wet due to the rain that
occurred on the night of September 1, 2004. Respondent Transmodal also questioned the timeliness of Sytengco's formal
claim for payment which was allegedly made more than 14 days from the time the cargoes were placed at its disposal in
contravention of the stipulations in the delivery receipts.
• CORRECT DECISION = RTC = found in favor of petitioner Equitable Insurance
▪ in favor of the plaintiff and against the defendant, ordering the latter to pay the following: (1) Actual damages in
the amount of Php728,712.00 plus 6% interest from judicial demand until full payment; (2) Attorney's fees in
the amount equivalent to 10% of the amount claimed; (3) Costs of suit.
▪ According to the RTC, petitioner Equitable Insurance was able to prove by substantial evidence its right to
institute an action as subrogee of Sytengco. It also ruled that petitioner Equitable Insurance's non-presentation of
the insurance policy and non-compliance with Sec. 7, Rule 8 of the Rules of Court on actionable document
were raised for the first time in respondent Transmodal's memorandum and also noted that petitioner Equitable
Insurance had, in fact, submitted a copy of the insurance contract.
CA WRONG WHEN IT RULED THAT:

• Equitable Insurance Corp.'s complaint is DISMISSED for failure to prove cause of action
• there was no proof of insurance of the cargoes at the time of the loss and that the subrogation was improper.
According to the CA, the insurance contract was neither attached in the complaint nor offered in evidence for the
perusal and appreciation of the RTC, and what was presented was just the marine risk note.
assignment of errors:chanRoblesvirtualLawlibrary
• CA ERRED IN NOT DECLARING THAT THE CASE OF MALAYAN INSURANCE CO., INC. V. REGIS
BROKERAGE CORP. (G.R. NO. 172156, NOVEMBER 23, 2007) IS NOT APPLICABLE IN THE
INSTANT CASE;
• CA ERRED IN NOT DECLARING THAT THE FACTS SURROUNDING THE CASE OF MALAYAN
INSURANCE CO., INC. V. REGIS BROKERAGE CORP. (G.R. NO. 172156, NOVEMBER 23, 2007) IS
DIFFERENT FROM THE FACTS ATTENDING THE INSTANT CASE;
• CA ERRED IN NOT APPLYING THE CASE OF TISON V. CA
• CA ERRED IN NOT APPLYING THE CASE OF COMPAÑA MARITIMA V. INSURANCE COMPANY
OF NORTH AMERICA,
• CA ERRED IN NOT APPLYING THE CASE OF DELSAN TRANSPORT LINES, INC. V. CA, 273 SCRA
262;
• CA ERRED IN NOT APPLYING THE STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE.6
PETITIONER’S CONTENTION:
• Equitable Insurance said that the CA erred in not applying certain jurisprudence on this case which it deemed
applicable. It also argues that the present case is not a suit between the insured Sytengco and the insurer but one

between the consignee Sytengco and the respondent common carrier since petitioner Equitable Insurance merely
stepped into the shoes of the said insured who has a direct cause of action against respondent Transmodal on account
of the damage sustained by the subject cargo, thus, the carrier cannot set up as defense any defect in the insurance
policy because it cannot avoid its liability to the consignee under the contract of carriage which binds it to pay any
loss or damage that may be caused to the cargo involved therein.
• In its Comment7, Transmodal avers that the CA did not err in not applying certain jurisprudence in the latter's
decision. Respondent Transmodal further refutes all the assigned errors that petitioner Equitable Insurance
enumerated in its petition.
HELD
• In ruling that petitioner's subrogation right is improper, the CA stated that it found no proof of insurance of the
cargoes at the time of their loss. It also found that what was presented in court was the marine risk note and not the
insurance contract or policy, thus: A perusal of the complaint and the other documentary evidence submitted by
Equitable Insurance such as the preliminary and final report clearly shows that the claims for damages and
subrogation were based on Policy No. MN-MRN-HO-0005479. However, said insurance contract was neither
attached in the complaint nor offered in evidence for the perusal and appreciation of the court a quo. Instead,
Equitable Insurance presented the marine risk note. For clarity, We quote the pertinent portions of the marine risk
note, viz.:chanRoblesvirtualLawlibrary
Line & Subline
MARINE CARGO
RISK NOTE
Policy No.:
MN-MRN-HO-0005479
Issue date Sep. 08, 2004
Invoice No. 59298 V
Assured: SYTENGCO ENTERPRISES CORPORATION

Address: 10RESTHAVEN ST.
SAN FRANCISCO DEL MONTE SUBDIVISION,
QUEZON CITY, METRO MANILA
We have this day noted the undermentioned risk in your favor and hereby guarantee that this document has
all the force and effect of the terms and conditions of EQUITABLE INSURANCE CORPORATION
Marine Policy No. MN-MOP-HO-0000099.
L/C AMOUNT: USD 21,750.00 MARK-UP: 20%

SUM INSURED: PHP 1,457,424.00 EXCHANGE RATE: 55.8400
CARGO: 200 CTNS. GUM ARABIC POWDER KB-120
Supplier: JUMBO TRADING CO., LTD.

Vessel: ASIAN ZEPHYR VOYAGE No.: 062N
BL#:MNL04086310
ETD: 09-AUG-04 ETA: 13-AUG-04
From: THAILAND To: Manila, Philippines9
• As such, according to the CA, the case of Eastern Shipping Lines, Inc. v. Prudential Guarantee and Assurance,
Inc.10 is applicable, wherein this Court held that a marine risk note is not an insurance policy. The CA also found
applicable this Court's ruling in Malayan Insurance Co., Inc. v. Regis Brokerage Corp. ,11 stating that a marine policy
is constitutive of the insurer-insured relationship, thus, such document should have been attached to the complaint
as mandated by Sec. 7,12 Rule 8 of the Rules of Court.
• Petitioner, however, insists that the CA erred in applying the case of Malayan because the plaintiff therein did not
present the marine insurance policy whereas in the present case, petitioner has presented not only the marine risk
note but also Marine Open Policy No. MN-MOP-HO-000009913 which were all admitted in evidence.
• INDEED, A PERUSAL OF THE RECORDS WOULD SHOW THAT PETITIONER IS CORRECT IN
ITS CLAIM THAT THE MARINE INSURANCE POLICY WAS OFFERED AS EVIDENCE. In fact, in the
questioned decision of the CA, the latter, mentioned such policy, thus: Contrary to the ruling of the RTC, the
marine policy was not at all presented. As borne by the records, only the marine risk note and EQUITABLE
INSURANCE CORPORATION Marine Policy No. MN-MOP-HO-0000099 were offered in evidence. These
pieces of evidence are immaterial to Equitable Insurance's cause of action. We have earlier pointed out that a marine
risk note is insufficient to prove the insurer's claim. Although the marine risk note provided that it "has all the force
and effect of the terms and conditions of EQUITABLE INSURANCE CORPORATION Marine Policy No.
MN-MOP-HO-0000099," there is nothing in the records showing that the said policy is related to Policy No. MN-
MRN-HO-005479 which was the basis of Equitable Insurance's complaint. It did not escape our attention that the

second page of the marine risk note explicitly stated that it was "attached to and forming part of the Policy No.
MN-MRN-005479." Thus, without the presentation of Policy No. MN-MRN-005479, We cannot simply assume
that the terms and conditions, including the period of coverage, of such policy are similar to Marine Policy No.
MN-MOP-HO-0000099.14
• As such, respondent had the opportunity to examine the said documents or to object to its presentation as pieces of
evidence. The records also show that respondent was able to cross-examine petitioner's witness regarding the said
documents. Thus, it was well established that petitioner has the right to step into the shoes of the insured who has a
direct cause of action against herein respondent on account of the damages sustained by the cargoes. "Subrogation is
the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or
securities."15 The right of subrogation springs from Article 2207: If the plaintiffs property has been insured, and he
has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrong-
doer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover
the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or
injury.
• The records further show that petitioner was able to accomplish its obligation under the insurance policy as it has
paid the assured of its insurance claim in the amount of P728,712,00 as evidenced by, among others, the
Subrogation Receipt,16 Loss Receipt,17 Check Voucher,18 and Equitable PCI Bank Check No. 0000013925.19 The
payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies which
the insured may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by the
insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the
insurance claim.20
• This Court's ruling in Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corporation21 is highly instructive,
thus: As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may recover
the insured value of the lost/damaged cargo in the exercise of its subrogatory right. In Malayan Insurance Co., Inc.
v. Regis Brokerage Corp., the Court stated that the presentation of the contract constitutive of the insurance
relationship between the consignee and insurer is critical because it is the legal basis of the latter's right to
subrogation.
o In Home Insurance Corporation v. CA, the Court also held that the insurance contract was necessary to
prove that it covered the hauling portion of the shipment and was not limited to the transport of the cargo
while at sea. The shipment in that case passed through six stages with different parties involved in each stage
until it reached the consignee. The insurance contract, which was not presented in evidence, was necessary
to determine the scope of the insurer's liability, if any, since no evidence was adduced indicating at what
stage in the handling process the damage to the cargo was sustained.
o An analogous disposition was arrived at in the Wallem case cited by ATI wherein the Court held that the
insurance contract must be presented in evidence in order to determine the extent of its coverage. It was
further ruled therein that the liability of the carrier from whom reimbursement was demanded was not
established with certainty because the alleged shortage incurred by the cargoes was not definitively
determined.
o Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by declaring
that a marine insurance policy is dispensable evidence in reimbursement claims instituted by the insurer.
o In Delsan Transport Lines, Inc. v. CA, the Court ruled that the right of subrogation accrues simply upon
payment by the insurance company of the insurance claim. Hence, presentation in evidence of the marine
insurance policy is not indispensable before the insurer may recover from the common carrier the insured
value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, was held
sufficient to establish not only the relationship between the insurer and consignee, but also the amount paid
to settle the insurance claim. The presentation of the insurance contract was deemed not fatal to the
insurer's cause of action because the loss of the cargo undoubtedly occurred while on board the petitioner's
vessel.
o The same rationale was the basis of the judgment in International Container Terminal Services, Inc. v. FGU
Insurance Corporation, wherein the arrastre operator was found liable for the lost shipment despite the
failure of the insurance company to offer in evidence the insurance contract or policy. As in Delsan, it was
certain that the loss of the cargo occurred while in the petitioner's custody. 22
• In view thereof, the RTC did not err in its ruling, thus:chanRoblesvirtualLawlibrary
o Defendant in its memorandum, raised the issue that plaintiff failed to attach in its complaint a copy of the
Marine Open Insurance Policy, thus, it failed to establish its cause of action as subrogee of the consignee
quoting the case of Malayan Insurance Co., Inc. v. Regis Brokerage Corp .
o The above-mentioned case is not applicable in the instant case. In Malayan Insurance Co. v. Regis
Brokerage, Malayan did not submit the copy of the insurance contract or policy. In the instant case, plaintiff
submitted the copy of the insurance contract. In fact, the non-presentation of the insurance contract is not
fatal to its cause of action.

o In the more recent case of Asian Terminals, Inc. v. Malayan Insurance Co., Inc., it was held: Similarly, in
this case, the presentation of the insurance contract or policy was not necessary. Although petitioner
objected to the admission of the Subrogation Receipt in its Comment to respondent's formal offer of
evidence on the ground that respondent failed to present the insurance contract or policy, a perusal of
petitioner's Answer and Pre-trial Brief shows that petitioner never questioned respondent's right to
subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was no issue
regarding the validity of the insurance contract or policy, or any provision thereof, respondent had no
reason to present the insurance contract or policy as evidence during the trial.
o Perusal of the records likewise show that the defendant failed to raise the issue of non-compliance with Sec.
7, Rule 8 of the 1997 Rules of Procedure and the non-presentation of insurance policy during the pre-trial.
In the same case, it was held: WE DO NOT AGREe THAT Petitioner claims that respondent's non-
presentation of the insurance contract or policy between the respondent and the consignee is fatal to its
cause of action. First of all, this was never raised as an issue before the RTC. In fact, it is not among the
issues agreed upon by the parties to be resolved during the pre-trial. As we have said, the determination of
issues during the pre-trial conference bars the consideration of other questions, whether during trial or on
appeal. Thus, [t]he parties must disclose during pre-trial all issues they intend to raise during the trial, except
those involving privileged or impeaching matters. x x x The basis of the rule is simple. Petitioners are
bound by the delimitation of the issues during the pre-trial because they themselves agreed to the same.
o Plaintiff was able to prove by substantial evidence their right to institute this action as subrogee of the
insured. The defendant did not present any evidence or witness to bolster their defense and to contradict
plaintiffs allegation.23
• To reiterate, in this case, petitioner was able to present as evidence the marine open policy that vested upon it, its
rights as a subrogee. Subrogation is designed to promote and to accomplish justice and is the mode which equity
adopts to compel the ultimate payment of a debt by one who injustice, equity and good conscience ought to pay. 24
WHEREFORE, CA REVERSED and SET ASIDE. RTC is AFFIRMED and REINSTATED.

ORIENTAL ASSURANCE CORPORATION vs. MANUEL ONG, doing business under the business name of
WESTERN PACIFIC TRANSPORT SERVICES AND/OR ASIAN TERMINALS, INC.,,
LEONEN, J.: The consignee's claim letter that was received by the arrastre operator two (2) days after complete delivery of
the cargo constitutes substantial compliance with the time limitation for filing claims under the Gate Pass and the
Management Contract. However, the arrastre operator's liability for damage to the cargo is limited to ₱5,000.00 per package
in accordance with the Management Contract.
• JEA Steel Industries, Inc. (JEA Steel) imported from South Korea 72 aluminum-zinc-alloy-coated steel sheets in
coils. These steel sheets were transported to Manila on board the vessel M/V Dooyang Glory as evidenced by Bill of
Lading No. HDMUBSOML-214s01 l.4
• Upon arrival of the vessel at the Manila South Harbor on June 10, 2002, the 72 coils were discharged and stored in
Pier 9 under the custody of the arrastre contractor, Asian Terminals, Inc. (Asian Terminals).5
• From the storage compound of Asian.Tem1inals, the coils were loaded on the trucks of Manuel Ong (Ong) and
delivered to JEA Steel's plant in Barangay Lapidario, Trece Martirez, Cavite on June 14, 2002 6 and June 17,
2002.7 Eleven of these coils ''were found to be in damaged condition, dented or their normal round shape
deformed."8
• JEA Steel filed a claim with Oriental for the value of the 11 damaged coils, pursuant to Marine Insurance Policy No.
OAC/M-12292.9
• Oriental paid JEA Steel the sum of ₱521,530.16 and subsequently demanded indemnity from Ong and Asian
Terminals (respondents), but they10 refused to pay.
• On May 19, 2003, Oriental filed a Complaint 11 before RTC of Manila for sum of money against respondents.12
o Ong countered that the 1l coils were already damaged when they were loaded on board his trucks and
transported to the consignee.13
o For its part, Asian Terminals claimed that it exercised due diligence in handling the cargo, that the cargo
was released to the consignee's representative in the same condition as when received from the vessel, and
that the damages were sustained while in the custody of the vessel or the customs broker. 14 Asian Terminals
further argued that Oriental's claim was barred for the latter's failure to file a notice of claim within the 15-
day period provided in the Gate Pass and in Article VII, Sec. 7.01 of the Contract for Cargo Handling
Services (Management Contract) between the Philippine Ports Authority and Asian Terminals. 15 The Gate
Pass was signed by the consignee's representative to acknowledge the delivery and receipt of the
shipment.16The dorsal side of this Gate Pass stated:
▪ Issuance of this Gate Pass constitutes delivery to and receipt by the consignee of the goods as
described above in good order and condition unless an accompanying B.O. certificate duly signed
and noted on the fact (sic) of this Gate Pass appears.
▪ This Gate Pass is subject to all terms and conditions defined in the Management Contract between
the Philippine Ports Authority and Asian Terminals, Inc. and amendment and alterations thereof
particularly but not limited to the Article VI thereof, limiting the contractor's liability to ₱5,000 per
package unless the transportation is otherwise specified or manifested or communicated in writing
together with the invoice value and supported by a certified packing list to the contractor by the
interested party or parties before the discharge of the goods and corresponding arrastre charges have
been paid providing exception or restriction from liability among others, unless a formal claim with
the required annexes shall have been filed with the contractor within fifteen (15) days from date of
issuance by the contractor's certificate of loss, damage, injury or certificate of non-delivery.17
o Asian Terminals added that its liability, if any, should not exceed ₱5,000.00, pursuant to said Sec. 7.01.18
RTC DISMMIED the complaint.

o It found no preponderance of evidence to establish that respondents were the ones responsible for the damage to the 11
coils.20
The CA dismissed Oriental's appeal on the ground that its claim had already prescribed. = WHICH IS WRONG
o The CA found that 11 of the coils were already damaged before they were loaded in Ong's trucks.23 Hence, the legal
presumption of negligence applies against Asian Terminals unless it is able to prove that it exercised extraordinary
diligence in the handling of the cargo.24
o The CA held that as an arrastre operator, Asian Terminals was bound to observe the same degree of care required of
common carriers.25 The CA further ruled that while Asian Terminals failed to rebut the presumption of negligence
against it, it cannot be held liable to pay the value of the damaged coils because Oriental's claim was filed beyond the 15-
day prescriptive period stated in the Gate Pass. According to the CA, it can resolve the issue of prescription despite not
being assigned as an error on appeal as it was already raised, although not tackled, in the lower court.
The issues for this Court' s resolution are:

• First, W/N the CA gravely erred in passing upon the issue of prescription even though it was not an assigned error
in the appeal;
• Second, W/N the claim against Asian Terminals, Inc. is barred by prescription; and
• Finally, W/N the CA gravely erred in ruling that Manuel Ong is not liable for the damage of the cargo. 34

1-THIS COURT AGREES WITH ASIAN TERMINALS. THE CA PROPERLY PASSED UPON THE ISSUE OF
PRESCRIPTION.
• Rule 51, Sec. Questions that may be decided. No error which does not affect the jurisdiction over the subject
matter or the validity of the judgment appealed from or the proceedings therein will be considered unless stated in
the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief,
save as the court may pass upon plain errors and clerical errors.
• An assignment of en-or is' generally required for appellate review.37 Sec. 8 provides that only errors which have been
stated in the assignment of en-ors and properly argued in the brief will be considered by the appellate court. The
exceptions to this rule are errors affecting jurisdiction over the subject matter as well as plain and clerical errors.38
o However, in a number of cases,39 this Co mi recognized the appellate courts' ample authority to consider
errors that were not assigned. This is in accord with the liberal spirit of the Rules of Court with a view to
securing a "just, speedy and inexpensive disposition" of every case.40 In Mendoza v. Bautista:41 [A]n
appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in
the appeal in these instances: (d) matters not specifically assigned as errors on appeal but raised in the trial
court and are matters of record having some bearing on the issue submitted which the parties failed to raise
or which the lower court ignored; (e) matters not assigned as errors on appeal but closely related to an error
assigned; EXCEPTIONS (D) AND (E) APPLY IN THIS CASE.
• The issue of W/N Oriental's claim has prescribed was raised in RTC and evidence was presented by Asian
Terminals.43 However, this matter was no longer discussed by RTC in its decision in view of its finding that
Oriental failed to clearly establish that respondents were responsible for the damaged coils. 44
• Moreover, it was Oriental that appealed to the CA. It is comprehensible that respondents failed to discuss the issue
since the arguments in their briefs were limited to refuting the matters raised by petitioner. Oriental assigned the
following as errors in its appeal to the CA: The trial court erred when it declared that [respondents] are not liable for
the loss and damage of the goods. . . . The trial court erred in dismissing [Oriental's] complaint and in refusing to
grant the reliefs prayed for[.]45
• The issue of prescription is closely related to, and determinant of, the propriety of the lower court's ruling, absolving
respondents from liability for the damaged goods and dismissing Oriental's complaint. Thus, this Court finds no error
on the part of the CA in passing upon this issue.
II.A
• Going to the substantive issue, Oriental contends that it was not aware of the provisions 46 of the Gate Pass or the
Management Contract, neither of which it was a party to. 47 Consequently, it cannot be bound by the stipulation
limiting the liability of Asian Terminals.48 Asian Terminals counters that "[t]he provisions of the Management
Contract and the Gate Pass are binding on Oriental as insurer-subrogee and successor-in-interest of the consignee."49
• This Court finds for Asian Terminals. This issue on W/N petitioner, who was not a party to the Gate Pass or
Management Contract, is bound by the 15-day prescriptive period fixed in them to file a claim against the arrastre
operator is not new. This has long been settled by this Court.
• In GSIS v. Manila Railroad Company, 50 this Court held that the provisions of a gate pass or of an arrastre
management contract are binding on an insurer-subrogee even if the latter is not a party to it, viz: The question
whether plaintiff is bound by the stipulation in the Management Contract, Exhibit 1, requiring the filing of a claim
within 15 days from discharge of the goods, as a condition precedent to the accrual of a cause of action against the
defendants, has already been settled in Northern Motors, Inc. vs. Prince Line et al, 107 Phil., 253, Mendoza vs. Phil.
Air Lines, Inc., (9 Phil., 836), and Freixas & Co. vs. Pacific Mail Steamship Co. (42 Phil., 199), adversely to
plaintiff's pretense. We have repeatedly held that, by availing himself of the services of the arrastre operator and
taking delivery therefrom in pursuance of a permit and a pass issued by the latter, which were "subject to all the
terms and conditions" of said management contract, including, inter alia, the requirement thereof that "a claim is
filed with the Company within 15 days from the date of arrival of the goods", the consignee - and, hence, the
insurer, or plaintiff herein, as successor to the rights of the consignee - became bound by the provisions of said
contract. The second assignment of error is, therefore, untenable. 51
• This doctrine was reiterated in the later case of Summa Insurance Corporation v. CA:52 In the performance of its
job, an arrastre operator is bound by the management contract it had executed with the Bureau of Customs.
However, a management contract, which is a sort of a stipulation pour autrui within the meaning of Article 1311 of
the Civil Code, is also binding on a consignee because it is incorporated in the gate pass and delivery receipt which
must be presented by the consignee before delivery can be effected to it. The insurer, as successor-in-interest of the
consignee, is likewise bound by the management contract. Indeed, upon taking delivery of the cargo, a consignee
(and necessarily its successor-in-interest) tacitly accepts the provisions of the management contract, including those
which are intended to limit the liability of one of the contracting parties, the arrastre operator. 53 (Citations omitted)
• The fact that Oriental is not a party to the Gate Pass and the Management Contract does not mean that it cannot be
bound by their provisions. Oriental is subrogated to the rights of the consignee simply upon its payment of the
insurance claim.
• Article 2207 of the Civil Code provides: Article 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. If the amount paid by the insurance company does not fully cover the injury
or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
(Emphasis added)
o This Court explained the principle of subrogation in insurance contracts: A1iicle 2207 of the Civil Code is
founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged
through the fault or negligence of a party other than the assured, then the insurer, upon payment to the
assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the
insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment
to the former of all remedies which the latter may have against the third party whose negligence or
wrongful act caused the loss, The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance
claim by the insurer[.]54
o As subrogee, petitioner merely stepped into the shoes of the consignee and may only exercise those rights
that the consignee may have against the wrongdoer who caused the damage.55 "It can recover only the
amount that is recoverable by the assured." 56 And since the right of action of the consignee is subject to a
precedent condition stipulated in the Gate Pass, which includes by reference the terms of the Management
Contract, necessarily a suit by the insurer is subject to the same precedent condition.57
• Petitioner's assertion that the 15-day prescriptive period could not be enforced upon it to defeat its claim since the
Gate Pass was pro forma and it was not given notice of the Management Contract 58 is untenable.
• As stated earlier, the dorsal side of the Gate Pass signed by the consignee' s representative upon receipt of the cargo
expressly refers to the Management Contract between the Philippine Ports Authority and Asian Terminals. Hence, the
consignee and its subrogee, petitioner insurance company, are deemed to have notice of this Management Contract. 59
II.B
• Petitioner asserts that under the Gate Pass, the 15-day period was to be reckoned from the "date of issuance by the
contractor's certificate of loss, damage, injury or certificate of non-delivery." Since Asian Terminals did not issue any
certificate of damage, then the 15-day period did not begin to run.60
• In both its Comment on the Petition and Memorandum, respondent Asian Terminals no longer raised as an issue
the matter regarding its responsibility for the 11 damaged coils. However, respondent Asian Terminals maintains its
refusal of liability for such loss, solely on the basis of petitioner's alleged failure to file a formal claim within 15 days
from the date of last delivery of the steel sheet coils to the consignee's warehouse, in accordance with the
Management Contract.
• With regard to the reckoning of the 15-day prescriptive period, Asian Terminals posits that "the fifteen-day limit
should be counted from the date consignee obtains knowledge of the loss, damage or misdelivery of the
shipment."61 The contractor's issuance of a certificate of loss, damage, or non-delivery is not an indispensable
condition for the period to run.62 Asian Terminals adds that the consignee is presumed to have learned of the
damage on June 17, 2002, the date of complete delivery of the shipment to the consignee's plant, since there was no
showing that the consignee learned of the damage later than this date.63 Thus, counting 15 days, Oriental had until
July 2, 2002 to file its claim.64 Asian Terminals received Oriental's claim only on July 4, 2002; hence, the claim was
barred by prescription.65
II.C
• Again, the dorsal side of the Gate Pass states: Issuance of this Gate Pass constitutes delivery to and receipt by the
consignee of the goods as described above in good order and condition unless an accompanying B.O. certificate duly
issued and noted on the fact (sic) of this Gate Pass appears. This Gate Pass is subject to all terms and conditions
defined in the Management Contract between the Philippine Ports Authority and Asian Terminals, Inc. and
amendment and alterations thereof particularly but not limited to the A1iicle VI thereof, limiting the contractor's
liability to ₱5,000 per package unless the transportation is otherwise specified or manifested or communicated in
writing together with the invoice value and supported by a certified packing list to the contractor by the interested
party or parties before the discharge of the goods and corresponding arrastre charges have been paid providing
exception or restriction from liability among others, unless a formal claim with the required annexesshall have been
filed with the contractor within fifteen (15) days .from date of issuance by the contractors certificate of loss, damage,
injury or liability or certificate of non-delivery.66 (Emphasis supplied)
• Sec. 7.01 of the Contract for Cargo Handling Services67 dated March 17, 1992 between Philippine Ports Authority
and then Marina Port Services, Inc., now Asian Terminals, provides: Sec. 7.01 Responsibility and Liability for Losses
and Damages; Exceptions. - The CONTRACTOR shall, at its own expense, handle all merchandise in all work
undertaken by it hereunder, diligently and in a skillful, workman-like and efficient manner. The CONTRACTOR
shall be solely responsible as an independent contractor, and hereby agrees to accept liability and to pay to the
shipping company, consignees, consignors or other interested party or parties for the loss, damage or non-delivery of
cargoes in its custody and control to the extent of the actual invoice value of each package which in no case shall be
more than FIVE THOUSAND PESOS (₱5,000.00) each, unless the value of the cargo shipment is otherwise
specified or manifested or communicated in writing together with the declared Bill of Lading value and supported
by a certified packing list to the CONTRACTOR by the interested party or parties before the discharge or loading
unto vessel of the goods. This amount of Five Thousand Pesos ( ₱5,000.00) per package may be reviewed and
adjusted by the AUTHORITY from time to time. THE CONTRACTOR shall not be responsible for the
condition or the contents of any package received, nor for the weight nor for any loss, injury or damage to the said
cargo before or while the goods are being received or remains in the piers, sheds, warehouses or facility, if the loss,
injury or damage is caused by force majeure or -other causes beyond the CONTRACTOR's control or capacity to
prevent or remedy; PROVIDED, that a formal claim together with the necessary copies of Bill of Lading, Invoice,
Certified Packing List and Computation arrived at covering the loss, injury or damage or non-delivery of such
goods shall have been filed with the CONTRACTOR within fifteen (15) days from day of issuance by the
CONTRACTOR of a certificate of no11- delivery; PROVIDED, however, that if said CONTRACTOR fails to
issue such certification within fifteen (15) days from receipt of a written request by the shipper/consignee or his duly
authorized representative or any interested party, said certification shall be deemed to have been issued, and
thereafter, the fifteen (15) day period within which to file the claim commences; PROVIDED, finally, that the
request for certification of loss shall be made within thirty (30) days from the date of delivery of the package to the
consignee.68 (Emphasis supplied)
• The issuance of a certificate is not an indispensable condition for the 15-day limit to run. The Management Contract
expressly states that upon the contractor's failure to issue a certification within 15 days from receipt of a consignee or
his duly authorized representative or any interested party's written request, this certification "shall be deemed to have
been issued, and thereafter, the fifteen (15) day period within which to file the claim commences." Further, neither
petitioner alleges nor the facts of this case show that a request for a certificate of loss or damage was made by the
consignee. Hence, the arrastre operator could not be expected to issue one.
• Based on the Management Contract, the consignee has a period of 30 days from the date of delivery of the package
to the consignee within which to request a certificate of loss from the arrastre operator. From the date of the request
for a certificate of loss, the arrastre operator has a period of 15 days within which to issue a certificate of non-
delivery or loss, either actually or constructively. Moreover, from the date of issuance of a certificate of non-delivery
or loss, the consignee has 15 days within which to file a formal claim covering the loss, injury, damage, or non-
delivery of such goods with all accompanying documentation against the arrastre operator.
• This Court has ruled that the purpose of the time limitation for filing claims is "to apprise the arrastre operator of the
existence of a claim and enable it to check on the validity of the claimant's demand while the facts are still fresh for
recollection of the persons who took part in the undertaking and the pertinent papers are still available."69 Despite
the changes introduced in the Management Contract on filing claims, the purpose is still the same.
• This Court, in a number of cases,70 has liberally construed the requirement for filing a formal claim and allowed
claims filed even beyond the 15-day prescriptive period after finding that the request for bad order survey or the
provisional claim filed by the consignee had sufficiently served the purpose of a formal claim.
• In New Zealand Insurance Co., ltd. v. Navarro, 71 5,974 bags of soybean meal were discharged from the carrying
vessel and received by the arrastre operator on June 28, 1974. The arrastre operator completed its delivery of the
shipment to the consignee on July 9, 1974. On that same day, a bad order examination of the goods delivered was
requested by the consignee and was conducted by the arrastre operator's own inspector, in the presence of
representatives of both the Bureau of Customs and the consignee. The inspector's ensuing bad order examination
dated July 9, 1974 certified that 173 out of the 5,974 bags of soybean meal shipped to Manila were damaged in
transitu and an additional 111 bags were damaged after discharge from the vessel and receipt of the arrastre operator.
On August 9, 1974, the consignee filed a formal claim with the arrastre operator. New Zealand Insurance Co., Ltd.,
the insurer of the goods, indemnified the consignee and subsequently filed a complaint against the arrastre operator.
o The trial court dismissed the complaint on the ground that the claim was filed with the arrastre operator
beyond 15 days from the issuance of the bad order examination report, which the trial court considered as
the certificate of loss, damage, and injury referred to in the management contract.
o This Court ruled that the request for1 and the result of, the bad order examination, filed and done on the
last day of delivery of the cargo to the consignee served the purpose of a formal claim. The arrastre operator
had become aware of and had verified the facts giving rise to its liability. Thus, the arrastre operator suffered
no prejudice by the lack of literal compliance with the 15-day limitation.
o New Zealand held:
▪ We took special note of the above pronouncement six (6) years later in Fireman's Fund Insurance
Co. v. Manila Port Service Co., et al . ..
▪ However, the trial court has overlooked the significance of the request for, and the result of, the
bad order examination, which were filed and done within fifteen days from the haulage of the
goods from the vessel. Said request and result, in effect, served the purpose of a claim, which is –
'to afford the carrier or depositary reasonable opportunity and facilities to check the validity of the
claims while facts are still fresh in the minds of the persons who took part , in the transaction and
documents are still available. '(Consunji vs. Manila Port Service, L-15551, 29 November 1960)
▪ Indeed, the examination undertake[n] by the defendant's own inspector not only gave the
defendant an opportunity to check the goods but is itself a verification of its own liability ...
▪ In other words, what the Court considered as the crucial factor in declaring the defendant arrastre
operator liable for the loss occasioned, in the Fireman's Fund case, was the fact that defendant, by
virtue of the consignee's request for a bad order examination, had been able formally to verify the
existence and extent of its liability within fifteen (15) days from the date of discharge of the
shipment from the carrying vessel - i.e., within the same period stipulated under the Management

Contract for the consignee to file a formal claim. That a formal claim had been filed by the
consignee beyond the stipulated period of fifteen (15) days neither relieved defendant of liability
nor excused payment thereof, the purpose of a formal claim, as contemplated in Consunji, having
already been fully served and satisfied by the consignee's timely request for, and the eventual result
of, the bad order examination of the nylon merchandise shipped.
▪ Relating the doctrine of Fireman's Fund to the case at bar, ... as early as 9 July 1974 (the date of last
delivery to the consignee's warehouse), respondent Razon had been able to verify and ascertain for
itself not only the existence of its liability to the consignee but, more significantly, the exact
amount thereof- i.e., ₱5,746.61, representing the value of 111 bags of soybean meal. We note
further that such verification and ascertainment of liability on the part of respondent Razon, had
been accomplished "within thirty (30) days from the date of delivery of last package to the
consignee, broker or importer" as well as "within fifteen (15) days from the date of issuance by the
Contractor [respondent Razon] of a certificate of loss, damage or injury or certificate of non-
delivery" - the periods prescribed under Article VI, Sec. 1 of the Management Contract here
involved, within which a request for certificate of loss and a formal claim, respectively, must be
filed by the consignee or his agent.72 (Emphasis supplied, citations omitted)
• The same doctrine was adopted in Insurance Co. of North America v. Asian Terminals, Inc. 73 This Court ruled that
the Request for Bad Order Survey and the ensuing examination report satisfied the purpose of a formal claim, as
respondent was made aware of and was able to verify that five (5) skids were damaged or in bad order while in its
custody before the last withdrawal of the shipment. Hence, even if the formal claim was filed beyond the 15-day
period stipulated in the Contract, respondent was not prejudiced by it, since it already knew of the number of skids
damaged in its possession per the examination report on the request for bad order survey.
• THUS, IN THE FOREGOING CASES, " SUBSTANTIAL COMPLIANCE WITH THE 15-DAY TIME
LIMITATION IS ALLOWED PROVIDED THAT THE CONSIGNEE HAS MADE A PROVISIONAL
CLAIM THRU A REQUEST FOR BAD ORDER SURVEY OR EXAMINATION REPORT." 74
II.D
• However, this case presents a new situation in that unlike the previous cases, the facts do not show that a provisional
claim or a request for bad order survey was made by the consignee. Instead, what was only established is that the
consignee's claim letter dated July 2, 2002 was received by respondent on July 4, 2002, or 17 days from last delivery of
the coils to the consignee.
• Even so, this Court adopts a reasonable interpretation of the stipulations in the Management Contract and hold that
petitioner's complaint is not time-barred.
▪ First, under the express terms of the Management Contract, the consignee had thirty (30) days from receipt of
the cargo to request for a certificate of loss from the arrastre operator. Upon receipt of such request, the arrastre
operator would have 15 days to issue a certificate of loss, either actually or constructively. From the date of
issuance of the certificate of loss or where no certificate was issued, from the expiration of the 15-day period,
the consignee has 15 days within which to file a formal claim with the arrastre operator.
• In other words, the consignee had 45 to 60 days from the date of last delivery of the goods within
which to submit a formal claim to the arrastre operator.
• The consignee's claim letter was received by respondent on July 4, 2002, 75 or 17 days from the last
delivery of the goods, still within the prescribed 30-day period to request a certificate of loss, damage,
or injury from the arrastre operator.
• This Court finds that whether the consignee files a claim letter or requests for a certificate of loss or bad
order examination, the effect would be the same, in that either would afford the arrastre contractor
knowledge that the shipment has been damaged and an opportunity to examine the nature and extent
of the injury. Under the Management Contract, the 30-day period is considered reasonable for the
contractor to make an investigation of a claim.
• Hence, the consignee's claim letter is regarded as substantial compliance with the condition precedent
set forth in the Management Contract to hold the arrastre operator liable.
• In New Zealand Insurance Co., Ltd. v. Navarro, 76 this Court stressed that an arrastre operator, like
respondent, is a public utility, discharging functions which are heavily invested with public interest.
o Provisions limiting the liability of a public utility operator through the imposition of multiple
prescriptive periods for the filing of claims by members of the general public who must deal
with the public utility operator, must be carefully scrutinized and reasonably construed so as to
protect the legitimate interest of the public which the utility must serve. 77
▪ Second, evidence shows that upon Asian Terminals' request, Ultraphil Marine and Cargo Survey
Corporation78 conducted two (2) surveys.79
• These were: 1. On June 17, 2002 at Pier 9, South Harbor,80 where it was observed that 11 of the coils
were damaged before the shipment was loaded on Ong's truck; 81 and 2. On June 27, 2002, at the
warehouse of the consignee in Trece Martires, Cavite, where the same quantity of damaged coils was
observed.82
• The surveyor prepared and submitted to Asian Terminals a Final Report dated June 29, 2002.83

• Although its representative was not present during the inspections, 84 the fact that Asian Terminals
requested for the cargo survey shows that it had knowledge of the damage of the shipment while in its
possession and that the survey was sought specifically to ascertain the nature and extent of the damage.
Thus, respondent cannot escape liability for the damaged coils, simply by its own act of not sending a
representative, after it had contracted for the survey of the shipment.
II.E
o As to the extent of Asian Terminals' liability, Sec. 7.01 of the Management Contract provides that its liability is limited
to the actual invoice value of each package which should not be more than P5,000.00 each. The exception to this
limitation on liability is: [U]nless the value of the cargo shipment is otherwise specified or manifested or communicated
in writing together with the declared Bill of Lading value and supported by a certified packing list to the
CONTRACTOR by the interested party or parties before the discharge or loading unto vessel of the goods. 85
o In this case, the records do not show that the value of the shipment was specified or manifested to Asian Terminals
before discharge from the vessel. There was no evidence proving the amount of arrastre fees paid by the consignee to
Asian Terminals so as to put the latter on notice of the value of the cargo or that the invoice, packing list, and other
shipping documents were presented to the Bureau of Customs and to Asian Terminals for the proper assessment of the
arrastre charges and other fees. The Cargo Gate Passes86 issued by Asian Terminals do not indicate the value of the cargo.
o Accordingly, Asian Terminals' liability should be limited to the maximum recoverable value of ₱5,000.00 per package or
coil, the customary freight unit. Hence, the total recoverable amount is ₱55,000.00 for the 11 damaged coils. This
amount shall earn a legal interest at the rate of 6% per annum from the date of finality of this judgment until its full
satisfaction pursuant to Nacar v. Gallery Frames.87
III
o Both the CA and RTC found that the 11 coils were already damaged before the coils were loaded on Ong's truck.
Hence, Ong could not be responsible for the damaged shipment.
o However, petitioner asserts that Ong should be held solidarily liable with Asian Terminals for acting in bad faith when it
did not apprise the consignee or Asian Terminals about the damaged coils. This Court finds this contention untenable.
o This issue was never raised by petitioner in the lower courts. In fact, Ong and Asian Te1minals "(Were] sued in the
alternative because [petitioner was] uncertain against whom it [was] entitled for relief.'' 88 The rule is well-settled that no
question will be considered by the appellate court which has not been raised in the lower court. 89
o [A] party cannot change his theory of the case or his cause of action on appeal. Points of la,w, theories, issues and
arguments not brought to the attention of the lower court will not be considered by the reviewing court. The defenses
not pleaded in the answer cannot, on appeal, change fundamentally the nature of the issue in the case. To do so would
be unfair to the adverse party, who had no opportunity to present evidence in connection with the new theory; this
would offend the basic rules of due process and fair play.90
o Furthermore, there was no proof of Ong's bad faith. Mere allegation cannot take the place of evidence. Besides, Ong's
assertion that the loading of the cargo on the trucks was undertaken by Asian Terminals and the unloading of the same
cargo was undertaken by the consignee at its warehouse91 remains unrebutted. In fact, Asian Terminals caused the
inspection of the shipment before they were loaded on Ong's trucks on June 17, 2002. 92 Moreover, at the consignee's
warehouse, the inspection was done in the presence of the consignee's authorized representative. 93 Thus, Ong is not
obliged to inform the consignee or Asian Terminals about the damaged coils as they would have presumably known
about them.
WHEREFORE, CA decision SET ASIDE. Respondent Asian Terminals, Inc. is ORDERED to pay petitioner Oriental
Assurance Corporation the amount of ₱55,000.00, with interest at the legal rate of 6% per annum from the date of finality of
this judgment until fully paid.

WHITE GOLD MARINE SERVICES, INC. vs. PIONEER INSURANCE AND SURETY CORPORATION AND
THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD.
• This petition for review assails the Decision1 dated July 30, 2002 of the CA in CA-G.R. SP No. 60144, affirming
the Decision2 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.
• 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 latter’s
unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual violated Sections 1864 and 1875 of the Insurance Code, while Pioneer violated Sections
299,6 3007 and 3018 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 CA affirmed the decision of the Insurance Commissioner. In its decision, the appellate court distinguished
between P & I Clubs vis-à-vis conventional insurance. The appellate court also held that Pioneer merely acted as a
collection agent of Steamship Mutual.
ISSUES BEFORE US ARE

• 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. CA10 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 Mutual’s 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 9916 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 18720 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
authority23 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 Pioneer’s certificate of authority and removal of its directors and officers.
Regrettably, we are not the forum for these issues.
WHEREFORE, CA REVERSED. 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 petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and removal of
its directors and officers, is DENIED. Costs against respondents.

MA. LOURDES S. FLORENDO PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE
ABCEDE, Respondents.
ABAD, J.: This case is about an insured’s alleged concealment in his pension plan application of his true state of health and
its effect on the life insurance portion of that plan in case of death.
• On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam
Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The plan had a pre-need price of
₱997,050.00, payable in 10 years, and had a maturity value of ₱2,890,000.00 after 20 years.1 Manuel signed the
application and left to Perla the task of supplying the information needed in the application.2 Respondent Ma.
Celeste Abcede, Perla’s daughter, signed the application as sales counselor. 3
• Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to
Florendo.4 This was covered by a Group Master Policy that Philippine American Life Insurance Company (Philam
Life) issued to Philam Plans.5 Under the master policy, Philam Life was to automatically provide life insurance
coverage, including accidental death, to all who signed up for Philam Plans’ comprehensive pension plan. 6 If the plan
holder died before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance,
equivalent to the pre-need price. Further, the life insurance was to take care of any unpaid premium until the
pension plan matured, entitling the beneficiary to the maturity value of the pension plan. 7
• On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584 8 to Manuel, with petitioner Ma.
Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums. 9
• Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a
claim with Philam Plans for the payment of the benefits under her husband’s plan. 10 Because Manuel died before his
pension plan matured and his wife was to get only the benefits of his life insurance, Philam Plans forwarded her
claim to Philam Life.11
• On May 3, 1999 Philam Plans wrote Lourdes a letter, 12 declining her claim. Philam Life found that Manuel was on
maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and
was taking insulin. Lourdes renewed her demand for payment under the plan 13 but Philam Plans rejected
it,14 prompting her to file the present action against the pension plan company before RTC (RTC) of Quezon
City.15
RTC: rendered judgment,16 ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her
husband’s pension plan, namely: ₱997,050.00, the proceeds of his term insurance, and ₱2,890,000.00 lump sum pension
benefit upon maturity of his plan; ₱100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that
Manuel was not guilty of concealing the state of his health from his pension plan application.
(CA) reversed the RTC decision: holding that insurance policies are traditionally contracts uberrimae fidae or contracts of
utmost good faith. As such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which he was
aware or material facts that he knew or ought to know. 18
Issues Presented
1. W/N the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did not answer questions in
his pension plan application regarding the ailments he suffered from;
2. W/N the CA erred in holding that Manuel was bound by the failure of respondents Perla and Ma. Celeste to declare the
condition of Manuel’s health in the pension plan application; and
3. W/N the CA erred in finding that Philam Plans’ approval of Manuel’s pension plan application and acceptance of his
premium payments precluded it from denying Lourdes’ claim.
Rulings of the Court
1
• One. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan application relating to his medical
history, Philam Plans should have returned it to him for completion. Since Philam Plans chose to approve the
application just as it was, it cannot cry concealment on Manuel’s part. Further, Lourdes adds that Philam Plans never
queried Manuel directly regarding the state of his health. Consequently, it could not blame him for not mentioning
it.19
• But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of
Manuel’s health. She forgets that since Philam Plans waived medical examination for Manuel, it had to rely largely
on his stating the truth regarding his health in his application. For, after all, he knew more than anyone that he had
been under treatment for heart condition and diabetes for more than five years preceding his submission of that
application. But he kept those crucial facts from Philam Plans.
• Besides, when Manuel signed the pension plan application, he adopted as his own the written representations and
declarations embodied in it. It is clear from these representations that he concealed his chronic heart ailment and
diabetes from Philam Plans. The pertinent portion of his representations and declarations read as follows:
I hereby represent and declare to the best of my knowledge that:
xxxx
(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung,
kidney or stomach disorder or any other physical impairment in the last five years.
(d) I am in good health and physical condition.

If your answer to any of the statements above reveal otherwise, please give details in the space provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.20 (Emphasis supplied)
• Since Manuel signed the application without filling in the details regarding his continuing treatments for heart
condition and diabetes, the assumption is that he has never been treated for the said illnesses in the last five years
preceding his application. This is implicit from the phrase "If your answer to any of the statements above
(specifically, the statement: I have never been treated for heart condition or diabetes) reveal otherwise, please give
details in the space provided for." But this is untrue since he had been on "Coumadin," a treatment for venous
thrombosis,21 and insulin, a drug used in the treatment of diabetes mellitus, at that time. 22
• Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a
pacemaker implanted on his chest in the 70s or about 20 years before he signed up for the pension plan. 23 But by its
tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it implies that someone else
may provide the information that Philam Plans needed. Manuel cannot sign the application and disown the
responsibility for having it filled up. If he furnished Perla the needed information and delegated to her the filling up
of the application, then she acted on his instruction, not on Philam Plans’ instruction.
• Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker
implant in the early 70s since this did not fall within the five-year timeframe that the disclosure contemplated. 24 But
a pacemaker is an electronic device implanted into the body and connected to the wall of the heart, designed to
provide regular, mild, electric shock that stimulates the contraction of the heart muscles and restores normalcy to the
heartbeat.25 That Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an admission
that he remained under treatment for irregular heartbeat within five years preceding that application.
• Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he submitted
his pension plan application. These clearly fell within the five-year period. More, even if Perla’s knowledge of
Manuel’s pacemaker may be applied to Philam Plans under the theory of imputed knowledge, 26 it is not claimed that
Perla was aware of his two other afflictions that needed medical treatments. Pursuant to Section 2727 of the Insurance
Code, Manuel’s concealment entitles Philam Plans to rescind its contract of insurance with him.
2
• Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the
required details did not make her his agent and bind him to her concealment of his true state of health. Since there is
no evidence of collusion between them, Perla’s fault must be considered solely her own and cannot prejudice
Manuel.28
• But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated
in it or had someone do it under his direction. Thus:
APPLICATION FOR PENSION PLAN
(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in
accordance with the General Provisions set forth in this application and hereby certify that the date and
other information stated herein are written by me or under my direction. x x x. 29 (Emphasis supplied)
Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains
since he certified that he authorized her action. Philam Plans had every right to act on the faith of that
certification.
Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health
would not hinder the approval of his application and that what is written on his application made no
difference to the insurance company. But, indubitably, Manuel was made aware when he signed the
pension plan application that, in granting the same, Philam Plans and Philam Life were acting on the truth
of the representations contained in that application. Thus:
DECLARATIONS AND REPRESENTATIONS
xxxx
I agree that the insurance coverage of this application is based on the truth of the foregoing representations
and is subject to the provisions of the Group Life Insurance Policy issued by THE PHILIPPINE
AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC. 30 (Emphasis supplied)
• As the Court said in New Life Enterprises v. CA: 31 It may be true that x x x insured persons may accept policies
without reading them, and that this is not negligence per se. But, this is not without any exception. It is and was
incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him
considering that he has been a businessman since 1965 and the contract concerns indemnity in case of loss in his
money-making trade of which important consideration he could not have been unaware as it was precisely the
reason for his procuring the same.32
• The same may be said of Manuel, a civil engineer and manager of a construction company. 33 He could be expected
to know that one must read every document, especially if it creates rights and obligations affecting him, before
signing the same. Manuel is not unschooled that the Court must come to his succor. It could reasonably be expected
that he would not trifle with something that would provide additional financial security to him and to his wife in his
twilight years.
3
• Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes points out that any
defect or insufficiency in the information provided by his pension plan application should be deemed waived after
the same has been approved, the policy has been issued, and the premiums have been collected. 34 THE COURT
CANNOT AGREE. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability
period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any
claim for insurance under this Agreement, except for the reason that installment has not been paid (lapsed),
or that you are not insurable at the time you bought this pension program by reason of age. If this
Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on the
date of approval of your request for reinstatement. 35 1âwphi1
• The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the
ground of concealment or misrepresentation regarding the health of the insured after a year of its issuance.
• Since Manuel died on the eleventh month following the issuance of his plan, 36 the one year incontestability period
has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes’ entitlement to the benefits
of her husband’s pension plan.
WHEREFORE, the Court AFFIRMS in its entirety the decision of the CA in CA-G.R. CV 87085 dated December 18,
2007.

UCPB GENERAL INSURANCE CO., INC. vs. MASAGANA TELAMART, INC.
PARDO, J.:
• On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various property described
therein against fire, for the period from May 22, 1991 to May 22, 1992.
• In March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of their terms on
May 22, 1992. Petitioner advised respondent's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew
the policies.
• On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at the address
stated in the policies.
• On June 13, 1992, fire razed respondent's property covered by three of the insurance policies petitioner issued.
• On July 13, 1992, respondent presented to petitioner's cashier at its head office five (5) manager's checks in the total
amount of P225,753.95, representing premium for the renewal of the policies from May 22, 1992 to May 22, 1993.
No notice of loss was filed by respondent under the policies prior to July 14, 1992.
• On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured property razed
by fire. On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager's checks that it
tendered, and at the same time rejected respondent's claim for the reasons (a) that the policies had expired and were
not renewed, and (b) that the fire occurred on June 13, 1992, before respondent's tender of premium payment.
• On July 21, 1992, respondent filed with RTC, Branch 58, Makati City, a civil complaint against petitioner for
recovery of P18,645,000.00, representing the face value of the policies covering respondent's insured property razed
by fire, and for attorney's fees. 2
• On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an answer to the complaint. It
alleged that the complaint "fails to state a cause of action"; that petitioner was not liable to respondent for insurance
proceeds under the policies because at the time of the loss of respondent's property due to fire, the policies had long
expired and were not renewed. 3
RTC:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, as
follows:
• Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of P225,753.95 (refused by the
defendant) as full payment of the corresponding premiums for the replacement-renewal policies for Exhibits A, B,
C, D and E;
• (2) Declaring plaintiff to have fully complied with its obligation to pay the premium thereby rendering the
replacement-renewal policy of Exhibits A, B, C, D and E effective and binding for the duration May 22, 1992 until
May 22, 1993; and, ordering defendant to deliver forthwith to plaintiff the said replacement-renewal policies
• (3) Declaring Exhibits A & B, in force from August 22, 1991 up to August 23, 1992 and August 9, 1991 to August
9, 1992, respectively; and
• (4) Ordering the defendant to pay plaintiff the sums of: (a) P18,645,000.00 representing the latter's claim for
indemnity under Exhibits A, B & C and/or its replacement-renewal policies; (b) 25% of the total amount due as and
for attorney's fees; (c) P25,000.00 as necessary litigation expenses; and, (d) the costs of suit.
• All other claims and counterclaims asserted by the parties are denied and/or dismissed, including plaintiff's claim for
interests.
CA promulgated its decision 6 affirming that of RTC with the modification that item No. 3 of the dispositive portion was
deleted, and the award of attorney' s fees was reduced to 10% of the total amount due. 7
• The CA held that following previous practise, respondent was allowed a sixty (60) to ninety (90) day credit term for
the renewal of its policies, and that the acceptance of the late premium payment suggested an understanding that
payment could be made later.
.
Respondent COMMENT: CA correctly ruled that no timely notice of non-renewal was sent. The notice of non-renewal
sent to broker Zuellig which claimed that it verbally notified the insurance agency but not respondent itself did not suffice.
Respondent submits further that the CA did not err in finding that there existed a sixty (60) to ninety (90) days credit
agreement between UCPB and Masagana, and that, finally, the Supreme Court could not review factual findings of the
lower court affirmed by the CA.
We give due course to the appeal.

• The basic issue raised is whether the fire insurance policies issued by petitioner to the respondent covering the
period May 22, 1991 to May 22, 1992, had expired on the latter date or had been extended or renewed by an
implied credit arrangement though actual payment of premium was tendered on a later date after the occurrence of
the risk (fire) insured against.
• The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued originally or on
renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is
void. 11 The parties may not agree expressly or impliedly on the extension of creditor time to pay the premium and
consider the policy binding before actual payment.

• The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, 12 cited by the CA, is not applicable. In that case,
payment of the premium was in fact actually made on December 24, 1981, and the fire occurred on January 18,
1982. Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a month after
the fire occurred on June 13, 1992. The assured did not even give the insurer a notice of loss within a reasonable
time after occurrence of the fire.
WHEREFORE, CA WAS REVERSED and SET ASIDE. In lieu thereof the Court renders judgment dismissing
respondent's complaint and petitioner's counterclaims thereto filed with RTC
Nêt

SUN INSURANCE OFFICE, LTD. vs. CA and NERISSA LIM
• The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of P200,000.00. Two
months later, he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on
the policy but her claim was rejected. The petitioner agreed that there was no suicide. It argued, however that there
was no accident either.
• Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at about 10
o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim was in a happy mood (but not
drunk) and was playing with his handgun, from which he had previously removed the magazine. As she watched
television, he stood in front of her and pointed the gun at her. She pushed it aside and said it might he loaded. He
assured her it was not and then pointed it to his temple. The next moment there was an explosion and Lim slumped
to the floor. He was dead before he fell. 1
• The widow sued the petitioner in RTC of Zamboanga City and was sustained. 2 The petitioner was sentenced to
pay her P200,000.00, representing the face value of the policy, with interest at the legal rate; P10,000.00 as moral
damages; P5,000.00 as exemplary damages; P5,000.00 as actual and compensatory damages; and P5,000.00 as
attorney's fees, plus the costs of the suit. This decision was affirmed on appeal, and the motion for reconsideration
was denied. 3 The petitioner then came to this Court to fault the CA for approving the payment of the claim and
the award of damages.
• The term "accident" has been defined as follows:
o The words "accident" and "accidental" have never acquired any technical signification in law, and when
used in an insurance contract are to be construed and considered according to the ordinary understanding
and common usage and speech of people generally. In-substance, the courts are practically agreed that the
words "accident" and "accidental" mean that which happens by chance or fortuitously, without intention
or design, and which is unexpected, unusual, and unforeseen. The definition that has usually been adopted
by the courts is that an accident is an event that takes place without one's foresight or expectation — an
event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not
expected. 4
o An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it
happens. It has also been defined as an injury which happens by reason of some violence or casualty to the
injured without his design, consent, or voluntary co-operation. 5
• In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was indeed an
accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that "there is no accident when
a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs
which produces or brings about their injury or death." There was such a happening. This was the firing of the gun,
which was the additional unexpected and independent and unforeseen occurrence that led to the insured person's
death.
• The petitioner also cites one of the four exceptions provided for in the insurance contract and contends that the
private petitioner's claim is barred by such provision. It is there stated:
Exceptions —
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit suicide or willfully exposing himself to needless peril
except in an attempt to save human life.
• To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured
willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy.
• It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they
both signify a disregard for one's life. The only difference is in degree, as suicide imports a positive act of ending
such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. To illustrate, a
person who walks a tightrope one thousand meters above the ground and without any safety device may not actually
be intending to commit suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully
exposing himself to needless peril" within the meaning of the exception in question.
• The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully exposed himself
to needless peril and so came under the exception. The theory is that a gun is per se dangerous and should therefore
be handled cautiously in every case.
• That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from the
gun and believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted
that Lim did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is
that he thought it was not unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed
harmless.
• The contrary view is expressed by the petitioner thus: Accident insurance policies were never intended to reward
the insured for his tendency to show off or for his miscalculations. They were intended to provide for contingencies.

Hence, when I miscalculate and jump from the Quezon Bridge into the Pasig River in the belief that I can
overcome the current, I have wilfully exposed myself to peril and must accept the consequences of my act. If I
drown I cannot go to the insurance company to ask them to compensate me for my failure to swim as well as I
thought I could. The insured in the case at bar deliberately put the gun to his head and pulled the trigger. He
wilfully exposed himself to peril.
• The Court certainly agrees that a drowned man cannot go to the insurance company to ask for compensation. That
might frighten the insurance people to death. We also agree that under the circumstances narrated, his beneficiary
would not be able to collect on the insurance policy for it is clear that when he braved the currents below,
he deliberately exposed himself to a known peril.
• The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner's
hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below were dangerous. By
contrast, Lim did not know that the gun he put to his head was loaded.
• Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow
from recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy that
relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have
contributed to his own accident. Indeed, most accidents are caused by negligence. There are only four exceptions
expressly made in the contract to relieve the insurer from liability, and none of these exceptions is applicable in the
case at bar. **
• It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There
is no reason to deviate from this rule, especially in view of the circumstances of this case as above analyzed.
II
• On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue raised in this
case is, as the petitioner correctly observed, one of first impression. It is evident that the petitioner was acting in
good faith then it resisted the private respondent's claim on the ground that the death of the insured was covered by
the exception. The issue was indeed debatable and was clearly not raised only for the purpose of evading a legitimate
obligation. We hold therefore that the award of moral and exemplary damages and of attorney's fees is unjust and so
must be disapproved.
o In order that a person may be made liable to the payment of moral damages, the law requires that his act be
wrongful. The adverse result of an action does not per se make the act wrongful and subject the act or to
the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate;
such right is so precious that moral damages may not be charged on those who may exercise it erroneously.
For these the law taxes costs. 7
o The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing the
action wrongful because in most cases one party will lose; we would be imposing an unjust condition or
limitation on the right to litigate. We hold that the award of moral damages in the case at bar is not justified
by the facts had circumstances as well as the law.
o If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not the fact of
winning alone that entitles him to recover such damages of the exceptional circumstances enumerated in
Art. 2208. Otherwise, every time a defendant wins, automatically the plaintiff must pay attorney's fees
thereby putting a premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the CA is AFFIRMED in so far as it holds the petitioner liable to the private
respondent in the sum of P200,000.00 representing the face value of the insurance contract, with interest at the legal rate from
the date of the filing of the complaint until the full amount is paid, but MODIFIED with the deletion of all awards for
damages, including attorney's fees, except the costs of the suit.

TIO KHE CHIO, vs. CA and EASTERN ASSURANCE AND SURETY CORPORATION, respondents.
FERNAN, C.J.:
The issue in this petition for certiorari and prohibition is the legal rate of interest to be imposed in actions for damages arising
from unpaid insurance claims. Petitioner Tio Khe Chio claims that it should be twelve (12%) per cent pursuant to Articles
243 and 244 of the Insurance Code while private respondent Eastern Assurance and Surety Corporation (EASCO) claims
that it should be six (6%) per cent under Article 2209 of the Civil Code.
• On December 18, 1978, petitioner Tio Khe Chio imported 1,000 bags of fishmeal valued at $36,000.30 from Agro
Impex, U.S.A. Dallas, Texas, U.S.A. The goods were insured with respondent EASCO and shipped on board the
M/V Peskov, a vessel owned by Far Eastern Shipping Company.
• When the goods reached Manila on January 28, 1979, they were found to have been damaged by sea water which
rendered the fishmeal useless. Petitioner filed a claim with EASCO and Far Eastern Shipping. Both refused to pay.
Whereupon, petitioner sued them before the then CFI of Cebu, Branch II for damages. EASCO, as the insurer, filed
a counterclaim against the petitioner for the recovery of P18,387.86 representing the unpaid insurance premiums.
• On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to pay petitioner
solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums with interest at the legal rate
from the filing of the complaint, the sum of P15,000.00 as attorney's fees and the costs. The judgment became final as
to EASCO but the shipping company appealed to the CA and was absolved from liability by the said court in AC-
G.R. No. 00161, entitled "Tio Khe Chio vs. Eastern Assurance and Surety Corporation."
• The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff enforcing the writ
reportedly fixed the legal rate of interest at 12%. EASCO moved to quash the writ alleging that the legal interest to
be computed should be 6% per annum in accordance with Article 2209 of the Civil Code and not 12% as insisted
upon by petitioner's counsel. In its order of July 30, 1986, the trial court denied EASCO's motion. EASCO then filed
a petition for certiorari and prohibition before the CA.
• On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of which states:
WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the interest at 12% on the
principal amount of P87,598.82 from the date of filing of the complaint until the full payment of the amount, and the
interest that the private respondent is entitled to collect from the petitioner is hereby reduced to 6% per annum. No
pronouncement as to costs.
• In disputing the aforesaid decision of the CA, petitioner maintains that not only is it unjust and unfair but it is also
contrary to the correct interpretation of the fixing of interest rates under Sections 243 and 244 of the Insurance Code.
And since petitioner's claims is based on an insurance contract, then it is the Insurance Code which must govern and
not the Civil Code.
W/N the legal rate of interest of 12% pursuant to Secs. 243 and 244 of the Insurance Code APPLIES in the case at bar
NO. The legal rate of interest in the case at bar is 6% per annum as correctly held by the Appellate Court.
Section 243 of the Insurance Code provides: The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if
such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or
damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.
Section 244 of the aforementioned Code also provides: In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance
company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured
person by reason of such undeniable denial or withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two
hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That
the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of
unreasonable delay in payment.
In the case at bar, the CA made no finding that there was an unjustified refusal or withholding of payment on petitioner's claim.
In fact, respondent court had this to say on EASCO's refusal to settle the claim of petitioner:
EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground which, while not sufficient
to free it from liability under its policy, nevertheless is sufficient to negate any assertion that in refusing to
pay, it acted unjustifiably. The case posed some genuine issues of interpretation of the terms of the policy as
to which persons may honestly differ. This is the reason the trial court did not say EASCO' s refusal was
unjustified.

Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant case. They apply only when the court
finds an UNREASONABLE DELAY OR REFUSAL in the payment of the claims. Neither does Circular No. 416 of the
Central Bank which took effect on July 29, 1974 pursuant to Presidential Decree No. 116 (Usury Law) which raised the legal
rate of interest from 6% to 12% apply to the case at bar as by the petitioner. The adjusted rate mentioned in the circular refers
only to loans or forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages
arising from injury to persons and loss of property which does not involve a loan.
In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, the Court declared that the legal
rate of interest is 6% per annum, and not 12%, where a judgment award is based on an action for damages for personal injury,
not use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. CA, G.R. No. 52478, October
30, 1986, that the rates under the Usury Law (amended by P.D. 116) are applicable only to interest by way of compensation
for the use or forbearance of money; interest by way of damages is governed by Article 2209 of the Civil Code.
Clearly, the applicable law is Article 2209 of the Civil Code which reads: If the obligation consists in the payment of a sum of
money and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six per cent per annum.
And in the light of the fact that the contending parties did not allege the rate of interest stipulated in the insurance contract,
the legal interest was properly pegged by the Appellate Court at 6%.

GULF RESORTS, INC.,vs. PHILIPPINE CHARTER INSURANCE CORPORATION
For review are the warring interpretations of petitioner and respondent on the scope of the insurance company’s liability for
earthquake damage to petitioner’s properties. Petitioner avers that, pursuant to its earthquake shock endorsement rider,
Insurance Policy No. 31944 covers all damages to the properties within its resort caused by earthquake. Respondent
contends that the rider limits its liability for loss to the two swimming pools of petitioner.
The facts as established by the court a quo, and affirmed by the appellate court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured
originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance policies issued by
AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2",
"3" and "4" respectively), the risk of loss from earthquake shock was extended only to plaintiff’s two swimming
pools, thus, "earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming pools only
(Exhs. "C-1"; ‘D-1", "E" and "F-1"). "Item 5" in those policies referred to the two (2) swimming pools only (Exhs.
"1-B", "2-B", "3-B" and "F-2"); that subsequently AHAC(AIU) issued in plaintiff’s favor Policy No. 206-4182383-0
covering the period March 14, 1988 to March 14, 1989 (Exhs. "G" also "G-1") and in said policy the earthquake
endorsement clause as indicated in Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was deleted and the entry under
Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC (AIU) for the period
of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. "H") which carried the entry under
"Endorsement/Warranties at Time of Issue", which read "Endorsement to Include Earthquake Shock (Exh. "6-B-
1") in the amount of P10,700.00 and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof, computed as
follows:
Item - P7,691,000.00 - on the Clubhouse only
@ .392%;
- 1,500,000.00 - on the furniture, etc. contained in the building above-
mentioned@ .490%;
- 393,000.00 - on the two swimming pools, only (against the peril of
earthquake shock only) @ 0.100%
- 116,600.00 other buildings include as follows:
a) Tilter House - P19,800.00 - 0.551%
b) Power House - P41,000.00 - 0.551%
c) House Shed - P55,000.00 - 0.540%
P100,000.00 - for furniture, fixtures, lines air-con and operating
equipment
that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 206-4568061-9
(Exh. "H") provided that the policy wording and rates in said policy be copied in the policy to be issued by
defendant; that defendant issued Policy No. 31944 to plaintiff covering the period of March 14, 1990 to March 14,
1991 for P10,700,600.00 for a total premium of P45,159.92 (Exh. "I"); that in the computation of the premium,
defendant’s Policy No. 31944 (Exh. "I"), which is the policy in question, contained on the right-hand upper portion
of page 7 thereof, the following:
Rate-Various
Premium – P37,420.60 F/L
– 2,061.52 – Typhoon
– 1,030.76 – EC
– 393.00 – ES
Doc. Stamps 3,068.10
F.S.T. 776.89
Prem. Tax 409.05
TOTAL 45,159.92;
that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against earthquake shock
(ES); that in all the six insurance policies (Exhs. "C", "D", "E", "F", "G" and "H"), the premium against the peril of
earthquake shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02" and
"4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in Policy
No. 31944 issued by defendant, the shock endorsement provide(sic):
In consideration of the payment by the insured to the company of the sum included additional premium the
Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary,
that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned
by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-
C");
that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that on July 16, 1990 an
earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered by Policy No. 31944 issued
by defendant, including the two swimming pools in its Agoo Playa Resort were damaged.2
After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No. 31944 for
damages on its properties. Respondent instructed petitioner to file a formal claim, then assigned the investigation of the claim
to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc. 3 On July 30, 1990, respondent, through its adjuster,
requested petitioner to submit various documents in support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors,
Inc., through its Vice-President A.R. de Leon,4 rendered a preliminary report5 finding extensive damage caused by the
earthquake to the clubhouse and to the two swimming pools. Mr. de Leon stated that "except for the swimming pools, all
affected items have no coverage for earthquake shocks." 6 On August 11, 1990, petitioner filed its formal demand 7 for
settlement of the damage to all its properties in the Agoo Playa Resort. On August 23, 1990, respondent denied petitioner’s
claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the
resort.8 Petitioner and respondent failed to arrive at a settlement.9 Thus, on January 24, 1991, petitioner filed a
complaint10 with the regional trial court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with interest thereon, as
computed under par. 29 of the policy (Annex "B") until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff on account of
defendant’s refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorney’s fees and expenses of litigation;
5.) Costs.11
Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims.12
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of earthquake
shock, the same premium it paid against earthquake shock only on the two swimming pools in all the policies issued
by AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the Court must consequently agree with the
position of defendant that the endorsement rider (Exhibit "7-C") means that only the two swimming pools were
insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the language used in an
insurance contract or application is such as to create ambiguity the same should be resolved against the party
responsible therefor, i.e., the insurance company which prepared the contract. To the mind of [the] Court, the
language used in the policy in litigation is clear and unambiguous hence there is no need for interpretation or
construction but only application of the provisions therein.
From the above observations the Court finds that only the two (2) swimming pools had earthquake shock coverage
and were heavily damaged by the earthquake which struck on July 16, 1990. Defendant having admitted that the
damage to the swimming pools was appraised by defendant’s adjuster at P386,000.00, defendant must, by virtue of
the contract of insurance, pay plaintiff said amount.
Because it is the finding of the Court as stated in the immediately preceding paragraph that defendant is liable only
for the damage caused to the two (2) swimming pools and that defendant has made known to plaintiff its willingness
and readiness to settle said liability, there is no basis for the grant of the other damages prayed for by plaintiff. As to
the counterclaims of defendant, the Court does not agree that the action filed by plaintiff is baseless and highly
speculative since such action is a lawful exercise of the plaintiff’s right to come to Court in the honest belief that
their Complaint is meritorious. The prayer, therefore, of defendant for damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE HUNDRED
EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2) swimming pools, with
interest at 6% per annum from the date of the filing of the Complaint until defendant’s obligation to plaintiff is fully
paid.
No pronouncement as to costs.13

Petitioner’s Motion for Reconsideration was denied. Thus, petitioner filed an appeal with CA based on the following
assigned errors:14
• THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER
FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944,
CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF
SAID POLICY AND THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE
OF JULY 16, 1990.
• B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT’S RIGHT TO RECOVER
UNDER DEFENDANT-APPELLEE’S POLICY (NO. 31944; EXH "I") BY LIMITING ITSELF TO A
CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES
SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE
EARTHQUAKE OF JULY 16, 1990.
• C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO
THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON
PROCEEDS OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower court’s failure to award it attorney’s fees and damages
on its compulsory counterclaim.
After review, the appellate court affirmed the decision of the trial court and ruled, thus:
However, after carefully perusing the documentary evidence of both parties, We are not convinced that the last two
(2) insurance contracts (Exhs. "G" and "H"), which the plaintiff-appellant had with AHAC (AIU) and upon which
the subject insurance contract with Philippine Charter Insurance Corporation is said to have been based and copied
(Exh. "I"), covered an extended earthquake shock insurance on all the insured properties.
xxx
We also find that the Court a quo was correct in not granting the plaintiff-appellant’s prayer for the imposition of
interest – 24% on the insurance claim and 6% on loss of income allegedly amounting to P4,280,000.00. Since the
defendant-appellant has expressed its willingness to pay the damage caused on the two (2) swimming pools, as the
Court a quo and this Court correctly found it to be liable only, it then cannot be said that it was in default and
therefore liable for interest.
Coming to the defendant-appellant’s prayer for an attorney’s fees, long-standing is the rule that the award thereof is
subject to the sound discretion of the court. Thus, if such discretion is well-exercised, it will not be disturbed on
appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the award thereof an
exception rather than a rule, it is necessary for the court to make findings of facts and law that would bring the case
within the exception and justify the grant of such award (Country Bankers Insurance Corp. v. Lianga Bay and
Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002). Therefore, holding that the plaintiff-
appellant’s action is not baseless and highly speculative, We find that the Court a quo did not err in granting the
same.
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the Trial Court
hereby AFFIRMED in toto. No costs.15
Petitioner filed the present petition raising the following issues: 16

• WHETHER CA CORRECTLY HELD THAT UNDER RESPONDENT’S INSURANCE POLICY NO.
31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED
THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.
• B. WHETHER CA CORRECTLY DENIED PETITIONER’S PRAYER FOR DAMAGES WITH
INTEREST THEREON AT THE RATE CLAIMED, ATTORNEY’S FEES AND EXPENSES OF
LITIGATION.
Petitioner contends:
• First, that the policy’s earthquake shock endorsement clearly covers all of the properties insured and not only the
swimming pools. It used the words "any property insured by this policy," and it should be interpreted as all inclusive.
• Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in the body of the
insurance policy itself, which states that it is "[s]ubject to: Other Insurance Clause, Typhoon
Endorsement, Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty & Annual Payment Agreement
On Long Term Policies."17
• Third, that the qualification referring to the two swimming pools had already been deleted in the earthquake shock
endorsement.

• Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it deleted the said
qualification.
• Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of the insurance
policy, because the rider is the more deliberate expression of the agreement of the contracting parties.
• Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties enumerated at the
time of issue.
• Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner and against
respondent. It was respondent which caused the ambiguity when it made the policy in issue.
• Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be interpreted as a
caveat on the standard fire insurance policy, such as to remove the two swimming pools from the coverage for the
risk of fire. It should not be used to limit the respondent’s liability for earthquake shock to the two swimming pools
only.
• Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under the extended
coverage. The premium for the earthquake shock coverage was already included in the premium paid for the policy.
• Tenth, the parties’ contemporaneous and subsequent acts show that they intended to extend earthquake shock
coverage to all insured properties. When it secured an insurance policy from respondent, petitioner told respondent
that it wanted an exact replica of its latest insurance policy from American Home Assurance Company (AHAC-
AIU), which covered all the resort’s properties for earthquake shock damage and respondent agreed. After the July
16, 1990 earthquake, respondent assured petitioner that it was covered for earthquake shock. Respondent’s
insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise requested petitioner to submit the necessary
documents for its building claims and other repair costs. Thus, under the doctrine of equitable estoppel, it cannot
deny that the insurance policy it issued to petitioner covered all of the properties within the resort.
• Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the Revised Rules of
Court as its remedy, and there is no need for calibration of the evidence in order to establish the facts upon which
this petition is based.
On the other hand, respondent made the following counter arguments: 18

• First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage against
earthquake shock to petitioner’s insured properties other than on the two swimming pools. Petitioner admitted that
from 1984 to 1988, only the two swimming pools were insured against earthquake shock. From 1988 until 1990,
the provisions in its policy were practically identical to its earlier policies, and there was no increase in the premium
paid. AHAC-AIU, in a letter19 by its representative Manuel C. Quijano, categorically stated that its previous policy,
from which respondent’s policy was copied, covered only earthquake shock for the two swimming pools.
• Second, petitioner’s payment of additional premium in the amount of P393.00 shows that the policy only covered
earthquake shock damage on the two swimming pools. The amount was the same amount paid by petitioner for
earthquake shock coverage on the two swimming pools from 1990-1991. No additional premium was paid to
warrant coverage of the other properties in the resort.
• Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to the two
swimming pools in the policy schedule did not expand the earthquake shock coverage to all of petitioner’s
properties. As per its agreement with petitioner, respondent copied its policy from the AHAC-AIU policy provided
by petitioner. Although the first five policies contained the said qualification in their rider’s title, in the last two
policies, this qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such deletion
was a mere inadvertence. This inadvertence did not make the policy incomplete, nor did it broaden the scope of the
endorsement whose descriptive title was merely enumerated. Any ambiguity in the policy can be easily resolved by
looking at the other provisions, specially the enumeration of the items insured, where only the two swimming pools
were noted as covered for earthquake shock damage.
• Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase "Item 5
– P393,000.00 – on the two swimming pools only (against the peril of earthquake shock only)" meant that only the
swimming pools were insured for earthquake damage. The same phrase is used in toto in the policies from 1989 to
1990, the only difference being the designation of the two swimming pools as "Item 3."
• Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all the properties
covered. In all of its seven insurance policies, petitioner only paid P393.00 as premium for coverage of the
swimming pools against earthquake shock. No other premium was paid for earthquake shock coverage on the other
properties. In addition, the use of the qualifier "ANY" instead of "ALL" to describe the property covered was done
deliberately to enable the parties to specify the properties included for earthquake coverage.
• Sixth, petitioner did not inform respondent of its requirement that all of its properties must be included in the
earthquake shock coverage. Petitioner’s own evidence shows that it only required respondent to follow the exact
provisions of its previous policy from AHAC-AIU. Respondent complied with this requirement. Respondent’s only
deviation from the agreement was when it modified the provisions regarding the replacement cost endorsement.
With regard to the issue under litigation, the riders of the old policy and the policy in issue are identical.
• Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from maintaining that
only the two swimming pools were covered for earthquake shock. The adjuster’s letter notifying petitioner to

present certain documents for its building claims and repair costs was given to petitioner before the adjuster knew
the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase "Item 5 Only" after the descriptive
name or title of the Earthquake Shock Endorsement. However, the words of the policy reflect the parties’ clear
intention to limit earthquake shock coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not object to any
deficiency nor did it institute any action to reform the policy. The policy binds the petitioner.
• Eighth, there is no basis for petitioner to claim damages, attorney’s fees and litigation expenses. Since respondent was
willing and able to pay for the damage caused on the two swimming pools, it cannot be considered to be in default,
and therefore, it is not liable for interest.
WE HOLD THAT THE PETITION IS DEVOID OF MERIT.

In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.
First, in the designation of location of risk, only the two swimming pools were specified as included, viz:
ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril of earthquake shock only) 20
Second, under the breakdown for premium payments,21 it was stated that:
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx
3 393,000.00 0.100%-E/S 393.0022]
Third, Policy Condition No. 6 stated:
6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or
indirectly of any of the following occurrences, namely:--
23
(a) Earthquake, volcanic eruption or other convulsion of nature.
Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the Perils of Explosion,
Aircraft, Vehicle and Smoke)," stated, viz:
ANNUAL PAYMENT AGREEMENT ON

LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN
EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 ½ % OF THE
NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER
THE ABOVE NAMED x x x AND TO PAY THE PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . . . additional
premium the Company agrees, notwithstanding what is stated in the printed conditions of this Policy to the
contrary, that this insurance covers loss or damage (including loss or damage by fire) to any of the property insured
by this Policy occasioned by or through or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall apply (except in so far as they may be hereby expressly
varied) and that any reference therein to loss or damage by fire should be deemed to apply also to loss or damage
occasioned by or through or in consequence of Earthquake. 24
Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock coverage.
Thus, the policy extended earthquake shock coverage to all of the insured properties.
• It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each
other.25 All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain
stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily
determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of the parties
to extend earthquake shock coverage to the two swimming pools only.

• A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend
earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract
of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event. Thus, an insurance contract exists where the following
elements concur: 1. The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening
of the designated peril; 3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurer' s
promise, the insured pays a premium.26 (Emphasis ours)
• An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a
specified peril.27 In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk
attaches.28 In the subject policy, no premium payments were made with regard to earthquake shock coverage, except
on the two swimming pools. There is no mention of any premium payable for the other resort properties with
regard to earthquake shock. This is consistent with the history of petitioner’s previous insurance policies from
AHAC-AIU. As borne out by petitioner’s witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during the period from
March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is a provision here that
it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for the procurement of
this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of course subject to your
instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989, did you give written
instruction to Forte Insurance Agency advising it that the earthquake shock coverage must extend to all properties of
Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral instruction to that effect of
extending the coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important because in April 1987 there was an earthquake
tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in the [future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the provisions with respect to your
instructions that all properties must be covered again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit "G"?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more limitation
referring to the two swimming pools only, I was contented already that the previous limitation pertaining to the two
swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance Clause, Typhoon Endorsement,
Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long
Term Policies"29 to the insurance policy as proof of the intent of the parties to extend the coverage for earthquake shock.
However, this phrase is merely an enumeration of the descriptive titles of the riders, clauses, warranties or endorsements to
which the policy is subject, as required under Section 50, paragraph 2 of the Insurance Code.

We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two
swimming pools. The earthquake shock endorsement cannot stand alone. As explained by the testimony of Juan Baranda III,
underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III30
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been previously marked by counsel
for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic) these six (6) policies
issued by your company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively carries an earthquake
shock endorsement[?] My question to you is, on the basis on ( sic) the wordings indicated in Exhibits C to H
respectively what was the extent of the coverage [against] the peril of earthquake shock as provided for in each of
the six (6) policies?
xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as provided for in each of the six
(6) policies extend to the two (2) swimming pools only?
WITNESS:
Because it says here in the policies, in the enumeration "Earthquake Shock Endorsement, in the Clauses and
Warranties: Item 5 only (Earthquake Shock Endorsement)," sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand alone basis. For swimming pools we do
cover earthquake shock. For building we covered it for full earthquake coverage which includes earthquake
shock…
COURT:
As far as earthquake shock endorsement you do not have a specific coverage for other things other than
swimming pool? You are covering building? They are covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering building or another we can issue
earthquake shock solely but that the moment I see this, the thing that comes to my mind is either insuring a
swimming pool, foundations, they are normally affected by earthquake but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiff’s witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F inclusive [remained] its
coverage against earthquake shock to two (2) swimming pools only but that Exhibits G and H respectively entend
the coverage against earthquake shock to all the properties indicated in the respective schedules attached to said
policies, what can you say about that testimony of plaintiff’s witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I assure you
that this one covers the two swimming pools with respect to earthquake shock endorsement. Based on it, if
we are going to look at the premium there has been no change with respect to the rates. Everytime ( sic)
there is a renewal if the intention of the insurer was to include the earthquake shock, I think there is a
substantial increase in the premium. We are not only going to consider the two (2) swimming pools of the
other as stated in the policy. As I see, there is no increase in the amount of the premium. I must say that the
coverage was not broaden (sic) to include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of the coverage. If you are going to do some
computation based on the rates you will arrive at the same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:

Would you as a matter of practice [insure] swimming pools for fire insurance?
WITNESS:
No, we don’t, sir.
Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed to during
your direct-examination, the phrase "Item no. 5 only" meaning to (sic) the two (2) swimming pools was
deleted from the policies issued by AIU, is it not?
xxx
ATTY. ANDRES:
As an insurance executive will you not attach any significance to the deletion of the qualifying phrase for
the policies?
WITNESS:
My answer to that would be, the deletion of that particular phrase is inadvertent. Being a company
underwriter, we do not cover. . it was inadvertent because of the previous policies that we have issued with
no specific attachments, premium rates and so on. It was inadvertent, sir.
The Court also rejects petitioner’s contention that respondent’s contemporaneous and subsequent acts to the issuance of the
insurance policy falsely gave the petitioner assurance that the coverage of the earthquake shock endorsement included all its
properties in the resort. Respondent only insured the properties as intended by the petitioner. Petitioner’s own witness
testified to this agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell Atty. Omlas (sic) to
copy from Exhibit "H" for purposes of procuring the policy from Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same provisions as this American Home
Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit "H" of course?
A. Yes, sir, to Exhibit "H".
Q. So, all the provisions here will be the same except that of the premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be charging will be limited
to this one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and scope of coverage of
Exhibits "I" and "H" sometime in the third week of March, 1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the policy wordings as well as scope of
coverage of Exhibits "I" and "H" respectively?
A. No, sir, I did not discover any difference inasmuch ( sic) as I was assured already that the policy wordings and rates
were copied from the insurance policy I sent them but it was only when this case erupted that we discovered some
discrepancies.
Q. With respect to the items declared for insurance coverage did you notice any discrepancy at any time between
those indicated in Exhibit "I" and those indicated in Exhibit "H" respectively?
A. With regard to the wordings I did not notice any difference because it was exactly the same P393,000.00 on the
two (2) swimming pools only against the peril of earthquake shock which I understood before that this provision
will have to be placed here because this particular provision under the peril of earthquake shock only is requested
because this is an insurance policy and therefore cannot be insured against fire, so this has to be placed.
The verbal assurances allegedly given by respondent’s representative Atty. Umlas were not proved. Atty. Umlas categorically
denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondent’s independent claims adjuster, Bayne Adjusters and Surveyors,
Inc. But as testified to by the representative of Bayne Adjusters and Surveyors, Inc., respondent never meant to lead
petitioner to believe that the endorsement for earthquake shock covered properties other than the two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.)

pp. 22-26

Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage of the policy issued
by Philippine Charter Insurance Corporation?
A. I remember that when I returned to the office after the inspection, I got a photocopy of the insurance coverage
policy and it was indicated under Item 3 specifically that the coverage is only for earthquake shock. Then, I
remember I had a talk with Atty. Umlas (sic), and I relayed to him what I had found out in the policy and he
confirmed to me indeed only Item 3 which were the two swimming pools have coverage for earthquake shock.
xxx
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for the swimming pools
all affected items have no coverage for earthquake shock?
xxx
A. I based my statement on my findings, because upon my examination of the policy I found out that under Item 3
it was specific on the wordings that on the two swimming pools only, then enclosed in parenthesis (against the
peril[s] of earthquake shock only), and secondly, when I examined the summary of premium payment only Item 3
which refers to the swimming pools have a computation for premium payment for earthquake shock and all the
other items have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule that
insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against
the insurer company which usually prepares it. 31 A contract of adhesion is one wherein a party, usually a corporation,
prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. Through
the years, the courts have held that in these type of contracts, the parties do not bargain on equal footing, the weaker party's
participation being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker
party whom the courts of justice must protect. 32 Consequently, any ambiguity therein is resolved against the insurer, or
construed liberally in favor of the insured. 33
The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will show
that they are basically one-sided.34 Thus, we have called on lower courts to remain careful in scrutinizing the factual
circumstances behind each case to determine the efficacy of the claims of contending parties. In Development Bank of the
Philippines v. National Merchandising Corporation, et al.,35 the parties, who were acute businessmen of experience, were
presumed to have assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know the
provisions of the policy. From the inception of the policy, petitioner had required the respondent to copy verbatim the
provisions and terms of its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct
participant in securing the insurance policy of petitioner, is reflective of petitioner’s knowledge, viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36
TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter Insurance Corporation
as long as it will follow the same or exact provisions of the previous insurance policy we had with American Home
Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the American Home
Insurance policy are to be incorporated in the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told him that the
policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in drafting its
Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in the replacement cost
endorsement, but the principal provisions of the policy remained essentially similar to AHAC-AIU’s policy. Consequently,
we cannot apply the "fine print" or "contract of adhesion" rule in this case as the parties’ intent to limit the coverage of the
policy to the two swimming pools only is not ambiguous. 37
IN VIEW WHEREOF, the judgment of the CA is affirmed.

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ETERNAL GARDENS MEMORIAL PARK CORPORATION, vs THE PHILIPPINE AMERICAN LIFE

RTC MAKATI: IN FAVOR OF ETERNAL {ULTIMATELY MODIFIED}

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 1

GROUNDS of the PETITION:

THE COURT’S RULING

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 2

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 3

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 4

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 5

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 6

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 7

HELD = THE COURT DENIES THE PETITION.

NON-PRESENTATION OF THE INSURANCE CONTRACT IS NOT FATAL TO FIRST LEPANTO’S CAUSE

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 8

ATI CANNOT INVOKE PRESCRIPTION

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 9

ATTORNEY'S FEES AND INTERESTS

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 10

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 11

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 12

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 13

PETITIONER FAILED TO REFUTE RESPONDENT'S EVIDENCE.

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 14

Ruling of the Court = The petition has no merit.

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 16

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 17

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 19

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 20

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 21

OUR RULING = WE DENY THE PETITION.

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 22

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 23

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 24

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 25

NATURE OF INTEREST IMPOSED BY THE CA

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 26

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 27

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 28

The Court’s Ruling

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 29

The Doctrine of Last Clear Chance Is Inapplicable in the Case at Bar

Respondents Pedrano and Condor were likewise Negligent

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 30

The Liability of Respondent PPSII as Insurer

MODEL MAKE TYPE OF COLOR BLT FILE NO.

PLATE SERIAL/CHASSIS MOTOR NO. AUTHORIZED UNLADEN

SEC. 1/11 *LIMITS OF LIABILITY PREMIUMS PAID

B. PASSENGER LIABILITY Per Person Per Accident

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 31

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 32

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 33

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 34

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 36

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 37

• CA ERRED IN HOLDING THAT IN CASES OF MARINE CARGO INSURANCE, THERE IS A

COMMERCIAL LAW REVIEW CASE DIGEST 2 – CARLOTA VILLAROMAN (4S) 38

WITH REGARD TO THE SECOND ASSIGNMENT OF ERROR

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