G.R. No.
L-38613 February 25, 1982
PACIFIC TIMBER EXPORT CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY,
INC., respondents.
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of
'appropriately 32 pieces of log's during loading of the 'SS Woodlock'. The said letter (Exhibit
F) reads as follows:
DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals reversing the decision
of the Court of First Instance of Manila in favor of petitioner and against private respondent
which ordered the latter to pay the sum of Pll,042.04 with interest at the rate of 12% interest
from receipt of notice of loss on April 15, 1963 up to the complete payment, the sum of
P3,000.00 as attorney's fees and the costs 1 thereby dismissing petitioner s complaint with
costs. 2
The findings of the of fact of the Court of Appeals, which are generally binding upon this
Court, Except as shall be indicated in the discussion of the opinion of this Court the
substantial correctness of still particular finding having been disputed, thereby raising a
question of law reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the defendant
for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong
logs to be shipped from the Diapitan. Bay, Quezon Province to Okinawa and
Tokyo, Japan. The defendant issued on said date Cover Note No. 1010,
insuring the said cargo of the plaintiff "Subject to the Terms and Conditions of
the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form
as filed with and approved by the Office of the Insurance Commissioner
(Exhibit A).
The regular marine cargo policies were issued by the defendant in favor of
the plaintiff on April 2, 1963. The two marine policies bore the numbers 53
HO 1032 and 53 HO 1033 (Exhibits B and C, respectively). Policy No. 53 H0
1033 (Exhibit B) was for 542 pieces of logs equivalent to 499,950 board feet.
Policy No. 53 H0 1033 was for 853 pieces of logs equivalent to 695,548
board feet (Exhibit C). The total cargo insured under the two marine policies
accordingly consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the
issuance of the two marine policies Nos. 53 HO 1032 and 53 HO 1033, some
of the logs intended to be exported were lost during loading operations in the
Diapitan Bay. The logs were to be loaded on the 'SS Woodlock' which
docked about 500 meters from the shoreline of the Diapitan Bay. The logs
were taken from the log pond of the plaintiff and from which they were towed
in rafts to the vessel. At about 10:00 o'clock a. m. on March 29, 1963, while
the logs were alongside the vessel, bad weather developed resulting in 75
pieces of logs which were rafted together co break loose from each other. 45
pieces of logs were salvaged, but 30 pieces were verified to have been lost
or washed away as a result of the accident.
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of
1,250,000 bd. ft. Philippine Lauan and Apitong Logs. We would like to inform
you that we have received advance preliminary report from our Office in
Diapitan, Quezon that we have lost approximately 32 pieces of logs during
loading of the SS Woodlock.
We will send you an accurate report all the details including values as soon
as same will be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of the
defendant only on April 15, 1963, as shown by the stamp impression
appearing on the left bottom corner of said letter. The plaintiff subsequently
submitted a 'Claim Statement demanding payment of the loss under Policies
Nos. 53 HO 1032 and 53 HO 1033, in the total amount of P19,286.79 (Exhibit
G).
On July 17, 1963, the defendant requested the First Philippine Adjustment
Corporation to inspect the loss and assess the damage. The adjustment
company submitted its 'Report on August 23, 1963 (Exhibit H). In said report,
 the adjuster found that 'the loss of 30 pieces of logs is not covered by
Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies covered the
actual number of logs loaded on board the 'SS Woodlock' However, the loss
of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note
1010 insured for $70,000.00.
On September 14, 1963, the adjustment company submitted a computation
of the defendant's probable liability on the loss sustained by the shipment, in
the total amount of Pl1,042.04 (Exhibit 4).
On January 13, 1964, the defendant wrote the plaintiff denying the latter's
claim, on the ground they defendant's investigation revealed that the entire
shipment of logs covered by the two marines policies No. 53 110 1032 and
713 HO 1033 were received in good order at their point of destination. It was
further stated that the said loss may be considered as covered under Cover
Note No. 1010 because the said Note had become 'null and void by virtue of
the issuance of Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit J-1). The
denial of the claim by the defendant was brought by the plaintiff to the
attention of the Insurance Commissioner by means of a letter dated March
21, 1964 (Exhibit K). In a reply letter dated March 30, 1964, Insurance
Commissioner Francisco Y. Mandanas observed that 'it is only fair and
equitable to indemnify the insured under Cover Note No. 1010', and advised
early settlement of the said marine loss and salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance Commissioner that,
on advice of their attorneys, the claim of the plaintiff is being denied on the
ground that the cover note is null and void for lack of valuable consideration
(Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER
NOTE WAS NULL AND VOID FOR LACK OF VALUABLE
CONSIDERATION BECAUSE THE COURT DISREGARDED THE PROVEN
FACTS THAT PREMIUMS FOR THE COMPREHENSIVE INSURANCE
COVERAGE THAT INCLUDED THE COVER NOTE WAS PAID BY
PETITIONER AND THAT INCLUDED THE COVER NOTE WAS PAID BY
PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED
BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE
RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE COVER
NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF LOSS
BECAUSE THE COURT DISREGARDED THE PROVEN FACT THAT
PRIVATE RESPONDENT DID NOT PROMPTLY AND SPECIFICALLY
OBJECT TO THE CLAIM ON THE GROUND OF DELAY IN GIVING
NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON THAT
GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE ACT. 5
1. Petitioner contends that the Cover Note was issued with a consideration when, by express
stipulation, the cover note is made subject to the terms and conditions of the marine policies,
and the payment of premiums is one of the terms of the policies. From this undisputed fact,
We uphold petitioner's submission that the Cover Note was not without consideration for
which the respondent court held the Cover Note as null and void, and denied recovery
therefrom. The fact that no separate premium was paid on the Cover Note before the loss
insured against occurred, does not militate against the validity of petitioner's contention, for
no such premium could have been paid, since by the nature of the Cover Note, it did not
contain, as all Cover Notes do not contain particulars of the shipment that would serve as
basis for the computation of the premiums. As a logical consequence, no separate premiums
are intended or required to be paid on a Cover Note. This is a fact admitted by an official of
respondent company, Juan Jose Camacho, in charge of issuing cover notes of the
respondent company (p. 33, tsn, September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the
statement issued by private respondent after the issuance of the two regular marine
insurance policies, thereby leaving no account unpaid by petitioner due on the insurance
coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a
separate policy instead of integrating it to the regular policies subsequently issued, the
purpose and function of the Cover Note would be set at naught or rendered meaningless, for
it is in a real sense a contract, not a mere application for insurance which is a mere offer. 6
It may be true that the marine insurance policies issued were for logs no longer including
those which had been lost during loading operations. This had to be so because the risk
insured against is not for loss during operations anymore, but for loss during transit, the logs
having already been safely placed aboard. This would make no difference, however, insofar
as the liability on the cover note is concerned, for the number or volume of logs lost can be
determined independently as in fact it had been so ascertained at the instance of private
respondent itself when it sent its own adjuster to investigate and assess the loss, after the
issuance of the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as well as its computation of
respondent's liability on the insurance coverage. This coverage could not have been no other
than what was stipulated in the Cover Note, for no loss or damage had to be assessed on the
coverage arising from the marine insurance policies. For obvious reasons, it was not
necessary to ask petitioner to pay premium on the Cover Note, for the loss insured against
having already occurred, the more practical procedure is simply to deduct the premium from
the amount due the petitioner on the Cover Note. The non-payment of premium on the Cover G.R. No. L-19189             November 27, 1922
Note is, therefore, no cause for the petitioner to lose what is due it as if there had been
payment of premium, for non-payment by it was not chargeable against its fault. Had all the FROILAN LOPEZ, plaintiff-appellant,
logs been lost during the loading operations, but after the issuance of the Cover Note, liability vs.
on the note would have already arisen even before payment of premium. This is how the SALVADOR V. DEL ROSARIO and BENITA QUIOGUE DE V. DEL ROSARIO, defendants-
cover note as a "binder" should legally operate otherwise, it would serve no practical purpose appellants.
in the realm of commerce, and is supported by the doctrine that where a policy is delivered
without requiring payment of the premium, the presumption is that a credit was intended and Araneta and Zaragoza for plaintiff-appellant.
policy is valid. 7 Jose Espiritu and Gibbs, McDonough and Johnson for defendants-appellants.

2. The defense of delay as raised by private respondent in resisting the claim cannot be
sustained. The law requires this ground of delay to be promptly and specifically asserted
when a claim on the insurance agreement is made. The undisputed facts show that In this
case, instead of invoking the ground of delay in objecting to petitioner's claim of recovery on
the cover note, it took steps clearly indicative that this particular ground for objection to the MALCOLM, J.:
claim was never in its mind. The nature of this specific ground for resisting a claim places the
insurer on duty to inquire when the loss took place, so that it could determine whether delay Both parties to this action appeal from the judgment of Judge Simplicio del Rosario of the
would be a valid ground upon which to object to a claim against it. Court of First Instance of Manila awarding the plaintiff the sum of 88,495.21 with legal interest
from May 13, 1921, without special finding as to costs.
As already stated earlier, private respondent's reaction upon receipt of the notice of loss,
which was on April 15, 1963, was to set in motion from July 1963 what would be necessary to The many points pressed by contending counsel can be best disposed of by, first, making a
determine the cause and extent of the loss, with a view to the payment thereof on the statement of the facts; next, considering plaintiff's appeal; next, considering defendant's
insurance agreement. Thus it sent its adjuster to investigate and assess the loss in July, appeal; and, lastly, rendering judgment.
1963. The adjuster submitted his report on August 23, 1963 and its computation of
respondent's liability on September 14, 1963. From April 1963 to July, 1963, enough time was STATEMENT OF THE FACTS
available for private respondent to determine if petitioner was guilty of delay in
communicating the loss to respondent company. In the proceedings that took place later in
On and prior to June 6, 1920, Benita Quiogue de V. del Rosario, whom we will hereafter call
the Office of the Insurance Commissioner, private respondent should then have raised this
Mrs. Del Rosario, was the owner of a bonded warehouse situated in the City of Manila. She
ground of delay to avoid liability. It did not do so. It must be because it did not find any delay,
was engaged in the business of a warehouse keeper, and stored copra and other
as this Court fails to find a real and substantial sign thereof. But even on the assumption that
merchandise in the said building. Among the persons who had copra deposited in the Del
there was delay, this Court is satisfied and convinced that as expressly provided by law,
Rosario warehouse was Froilan Lopez, the holder of fourteen warehouse receipts in his own
waiver can successfully be raised against private respondent. Thus Section 84 of the
name, and the name of Elias T. Zamora. (Exhibits C, D, and R.)
Insurance Act provides:
The warehouse receipts, or negotiable warrants, or quedans (as they are variously termed) of
Section 84.—Delay in the presentation to an insurer of notice or proof of loss
Lopez named a declared value of P107,990.40 (Exhibits L-1 to L-13). The warehouse
is waived if caused by any act of his or if he omits to take objection promptly
receipts provided: (1) For insurance at the rate of 1 per cent per month on the declared value;
and specifically upon that ground.
(2) the company reserves to itself the right to raise and/or lower the rates of storage and/or of
insurance on giving one calendar month's notice in writing; (3) this warrant carries no
From what has been said, We find duly substantiated petitioner's assignments of error. insurance unless so noted on the face hereof, cost of which is in addition to storage; (4) the
time for which storage and/or insurance is charged is thirty (30) days; (5) payment for storage
ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First and/or insurance, etc., shall be made in advance, and/or within five (5) days after
Instance is reinstated in toto with the affirmance of this Court. No special pronouncement as presentation of bill. It is admitted that insurance was paid by Lopez to May 18, 1920, but not
to costs. thereafter.

SO ORDERED.
Mrs. Del Rosario secured insurance on the warehouse and its contents with the National
Insurance Co., Inc., the Commercial Union Insurance Company, the Alliance Insurance
Company, the South British Insurance Co., Ltd., and the British Traders Insurance Co., Ltd.,
in the amount of P404,800. All the policies were in the name of Sra. Benita Quiogue de V. del
Rosario, with the exception of one of the National Insurance Company, Inc., for P40,000, in
favor of the Compañia Coprera de Tayabas. (Exhibits N, O, P, R-1 to R-4.)
The warehouse of Mrs. Del Rosario and its contents were destroyed by fire on June 6, 1920.
The warehouse was a total loss, while of the copra stored therein, only an amount equal to
P49,985 was salvaged.
Following an unsuccessful attempt by Henry Hunter Bayne, Fire Loss Adjuster, to effect a
settlement between the insurance companies and Mrs. Del Rosario, the latter, on August 24,
1920, authorized Attorney F. C. Fisher to negotiate with the various insurance companies.
(Exhibit A.) As a result, an agreement between Mrs. Del Rosario and the insurance
companies to submit the matter to administration was executed in September, 1920. (Exhibit
B.) Mrs. Del Rosario laid claim before the arbitrators, Messrs. Muir and Campbell, to
P419,683.95, and the proceeds of the salvage sale. The arbitrators in their report allowed
Mrs. Del Rosario P363,610, which, with the addition of the money received from the salvaged
copra amounting to P49,985, and interest, made a total of P414,258, collected by her from
the companies. (Exhibits E, F, G, H, and Q.)
Mrs. Del Rosario seems to have satisfied all of the persons who had copra stored in her
warehouse, including the stockholders in the Compañia Coprera de Tayabas (whose stock
she took over), with the exception of Froilan Lopez, the plaintiff. Ineffectual attempts by Mrs.
Del Rosario to effect a compromise with Lopez first for P71,994, later raised to P72,724, and
finally reduced to P17,000, were made. (Exhibits Y, 1, 3, 4, 6, 7, 8, 12.) But Lopez stubbornly
contended, or, at least, his attorney contended for him, that he should receive not a centavo
less than P88,595.43. (Exhibits 4, 5.)
PLAINTIFF'S APPEAL
Plaintiff, by means of his assignment of error, lays claim to P88,595.43 in lieu of P88,495.21
allowed by the trial court. The slight difference of P100.22 is asked for so that plaintiff can
participate in the interest money which accrued on the amount received for the salvaged
copra. (Exhibits EE and FF.) Defendant makes no specific denial of this claim. We think the
additional sum should accrue to the plaintiff.
Plaintiff's second and third assignment of error present the point that the defendant has
fraudulently — and even criminally — refrained from paying the plaintiff, and that the plaintiff
should recover interest at the rate of 12 per cent per annum. We fail to grasp plaintiff's point
of view. The defendant has not sought to elude her moral and legal obligations. The
controversy is merely one which unfortunately all too often arises between litigious persons.
Plaintiff has exactly the rights of any litigant, equally situated, and no more.
It has been the constant practice of the court to make article 1108 of the Civil Code the basis
for the calculation of interest. Damages in the form of interest at the rate of 12 per cent, as
claimed by the plaintiff, are too remote and speculative to be allowed. The deprivation of an
opportunity for making money which might have proved beneficial or might have been ruinous
is of too uncertain character to be weighed in the even balances of the law. (Civil Code, art.
1108; Gonzales Quiros vs. Palanca Tan-Guinlay [1906], 5 Phil., 675; Tin Fian vs. Tan [1909],
14 Phil., 126; Sun Life Insurance Co. of Canada vs. Rueda Hermanos & Co. and Delgado
[1918], 37 Phil., 844; Scævola, Codigo Civil, vol. 19, p. 576; 8 R. C. L., 463; 17 C. J., 864.)
DEFENDANT'S APPEAL
Counsel for defendant have adroitly and ingeniously attempted to avoid all liability. However,
we remain unimpressed by many of these arguments.lawph!l.net
Much time has been spent by counsel for both parties in discussing the question, of whether
the defendant acted as the agent of the plaintiff, in taking out insurance on the contents of
the bodega, or whether the defendant acted as a reinsurer of the copra. Giving a natural
expression to the terms of the warehouse receipts, the first hypothesis is the correct one. The
agency can be deduced from the warehouse receipts, the insurance policies, and the
circumstances surrounding the transaction.
After all, however, this is not so vitally important, for it might well be — although we do not
have to decide — that under any aspect of the case, the defendant would be liable. The law
is that a policy effected by bailee and covering by its terms his own property and property
held in trust; inures, in the event of a loss, equally and proportionately to the benefit of all the
owners of the property insured. Even if one secured insurance covering his own goods and
goods stored with him, and even if the owner of the stored goods did not request or know of
the insurance, and did not ratify it before the payment of the loss, yet it has been held by a
reputable court that the warehouseman is liable to the owner of such stored goods for his
share. (Snow vs. Carr [1878], 61 Ala., 363; 32 Am. Rep., 3; Broussard vs. South Texas Rice
Co., [1910], 103 Tex., 535; Ann. Cas., 1913-A, 142, and note; Home Insurance Co. of New
York vs. Baltimore Warehouse Co. [1876], 93 U. S., 527.)
Moreover, it has not escaped our notice that in two documents, one the agreement for
arbitration, and the other the statement of claim of Mrs. Del Rosario, against the insurance
companies, she acknowledged her responsibility to the owners of the stored merchandise,
against risk of loss by fire. (Exhibits B and C-3.) The award of the arbitrators covered not
alone Mrs. Del Rosario's warehouse but the products stored in the warehouse by Lopez and
others.
Plaintiff's rights to the insurance money have not been forfeited by failure to pay the
insurance provided for in the warehouse receipts. A preponderance of the proof does not
demonstrate that the plaintiff ever ordered the cancellation of his insurance with the
defendant. Nor is it shown that the plaintiff ever refused to pay the insurance when the bills
were presented to him, and that notice of an intention to cancel the insurance was ever given
the plaintiff.
The record of the proceedings before the board of arbitrators, and its report and findings,
were properly taken into consideration by the trial court as a basis for the determination of the
amount due from the defendant to the plaintiff. In a case of contributing policies, adjustments
of loss made by an expert or by a board of arbitrators may be submitted to the court not as
evidence of the facts stated therein, or as obligatory, but for the purpose of assisting the court
in calculating the amount of liability. (Home Insurance Co. vs. Baltimore Warehouse
Co., supra.)
Counsel for the defendant have dwelt at length on the phraseology of the policies of the
National Insurance Company, Inc. Special emphasis has been laid upon one policy (Exhibit
9) in the name of the Compañia Coprera de Tayabas. In this connection it may be said that
three members of the court, including the writer of this opinion, have been favorable
impressed by this argument, and would have preferred at least to eliminate the policy for
which premiums were paid, not by Mrs. Del Rosario on behalf of Lopez and others, but by
Compañia Coprera de Tayabas. A majority of the court, however, believe that all the assets
should be marshalled and that the plaintiff should receive the benefit accruing from the gross
amount realized from all the policies. Consequently, no deduction for this claim can be made.
The remaining contention of the defendant that the plaintiff cannot claim the benefits of the
agency without sharing in the expenses, is well taken. Although the plaintiff did not expressly
authorize the agreement to submit the matter to arbitration, yet on his own theory of the case,
Mrs. Del Rosario was acting as his agent in securing insurance, while he benefits from the
amicable adjustment of the insurance claims. As no intimation is made that the expenses
were exorbitant, we necessarily accept the statement of the same appearing in Exhibits Q
and 8.
Of the insurance money, totalling P414,258, P382,558 was for copra and the remainder for
buildings, corn, etc. The expenses for collecting the P414,258 totalled P33,600.
382,558/414,258 of 33,600 equals P31,028.85, the proportionate part of the expenses with
reference to the copra. Of the expenses amounting, as we have said, to P31,028.85, plaintiff
would be liable for his proportionate share or 88,595.43/382,558.00 of P31,028.85 or
P7,185.875.
The parties finally agree that the plaintiff at the time of the fire was indebted to the defendant
for storage and insurance in the sum of P315.90.
JUDGMENT
In resume, the result is to sustain plaintiff's first assignment of error and to overrule his
second and third assignments of error, to overrule defendant's assignment of error 1, 2, 3,
and 4 in toto and to accede to defendant's assignments of error, 5, 6, and 7 in part. If our
mathematics are correct, and the amounts can be figured in several different ways, plaintiff is
entitled to P88,595.43 minus P7,185.88, his share of the expenses, minus P315.90, due for
insurance and storage, or approximately a net amount of P81,093.65, with legal interest. This
sum the defendant must disgorge.
Wherefore, judgment is modified and the plaintiff shall have and recover from the defendants
the sum of P81,093.65, with interest at 6 per cent per annum from May 13, 1921, until paid.
Without special finding as to costs in either instance, it is so ordered.
G.R. No. 181132               June 5, 2009
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA
PANGILINAN MARAMAG, Petitioners,
vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN
DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE
ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, Respondents.
DECISION
NACHURA, J.:
This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and
set aside the Resolution2 dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV
No. 85948, dismissing petitioners’ appeal for lack of jurisdiction.
The case stems from a petition 3 filed against respondents with the Regional Trial Court,
Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or
inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary
injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto
Maramag (Loreto), while respondents were Loreto’s illegitimate family; (2) Eva de Guzman
Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she
is disqualified to receive any proceeds from his insurance policies from Insular Life Assurance
Company, Ltd. (Insular)4 and Great Pacific Life Assurance Corporation (Grepalife); 5 (3) the
illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—were entitled only to
one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and
those to be released to Karl Brian and Trisha Angelie were inofficious and should be reduced;
and (4) petitioners could not be deprived of their legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among
others, that part of the insurance proceeds had already been released in favor of Odessa,
while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie,
both minors, upon the appointment of their legal guardian. Petitioners also prayed for the total
amount of ₱320,000.00 as actual litigation expenses and attorney’s fees.
In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and
Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their
claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva
was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds
among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries;
and that it released Odessa’s share as she was of age, but withheld the release of the shares
of minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular
alleged that the complaint or petition failed to state a cause of action insofar as it sought to
declare as void the designation of Eva as beneficiary, because Loreto revoked her
designation as such in Policy No. A001544070 and it disqualified her in Policy No.
A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl
Brian, and Trisha Angelie, considering that no settlement of Loreto’s estate had been filed nor
had the respective shares of the heirs been determined. Insular further claimed that it was
bound to honor the insurance policies designating the children of Loreto with Eva as
beneficiaries pursuant to Section 53 of the Insurance Code.
In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not
designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian,
and Trisha Angelie were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on December 10, 1936 and, thus,
not more than 65 years old when he signed it in September 2001; that the case was
premature, there being no claim filed by the legitimate family of Loreto; and that the law on
succession does not apply where the designation of insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to
petitioners, summons by publication was resorted to. Still, the illegitimate family of Loreto
failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them in
default in its Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised
in their respective answers be resolved first. The trial court ordered petitioners to comment
within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely
legal – whether the complaint itself was proper or not – and that the designation of a
beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of
Articles 7528 and 7729 of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively
to the designated beneficiaries in the policies, not to the estate or to the heirs of the insured.
Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that
Loreto was legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which
reads –
WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life
and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha Maramag.
The action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular
Life and Grepalife.
SO ORDERED.10
In so ruling, the trial court ratiocinated thus –
Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic)
special laws. Matters not expressly provided for in such special laws shall be regulated by
this Code. The principal law on insurance is the Insurance Code, as amended. Only in case
of deficiency in the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun
Life Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom the insurance
proceeds shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds
shall be applied exclusively to the proper interest of the person in whose name or for whose
benefit it is made, unless otherwise specified in the policy. Since the defendants are the ones
named as the primary beneficiary (sic) in the insurances (sic) taken by the deceased Loreto
C. Maramag and there is no showing that herein plaintiffs were also included as beneficiary
(sic) therein the insurance proceeds shall exclusively be paid to them. This is because the
beneficiary has a vested right to the indemnity, unless the insured reserves the right to
change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary
succession in order to defeat the right of herein defendants to collect the insurance indemnity.
The beneficiary in a contract of insurance is not the donee spoken in the law of donation. The
rules on testamentary succession cannot apply here, for the insurance indemnity does not
partake of a donation. As such, the insurance indemnity cannot be considered as an advance
of the inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the
case of Southern Luzon Employees’ Association v. Juanita Golpeo, et al., the Honorable
Supreme Court made the following pronouncements[:]
"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs
exclusively to the defendant as his individual and separate property, we agree that the
proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of
the person whose life was insured, and that such proceeds are the separate and individual
property of the beneficiary and not of the heirs of the person whose life was insured, is the
doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of
Section 428 of the Code of Commerce x x x."
In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no
sufficient cause of action against defendants Odessa, Karl Brian and Trisha Angelie
Maramag for the reduction and/or declaration of inofficiousness of donation as primary
beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One of the named
beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine
Eva Verna De Guzman. Any person who is forbidden from receiving any donation under
Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot
make any donation to him, according to said article (Art. 2012, Civil Code). If a concubine is
made the beneficiary, it is believed that the insurance contract will still remain valid, but the
indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited
under Art. 2012 is the naming of the improper beneficiary. In such case, the action for the
declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the
donor and donee may be proved by preponderance of evidence in the same action
(Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the
designation of defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in the
insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil Code,
the insurance indemnity that should be paid to her must go to the legal heirs of the deceased
which this court may properly take cognizance as the action for the declaration for the nullity
of a void donation falls within the general jurisdiction of this Court. 11
Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the
main, that the petition failed to state a cause of action. Insular further averred that the
proceeds were divided among the three children as the remaining named beneficiaries.
Grepalife, for its part, also alleged that the premiums paid had already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that whether the
complaint may be dismissed for failure to state a cause of action must be determined solely
on the basis of the allegations in the complaint, such that the defenses of Insular and
Grepalife would be better threshed out during trial.1avvphi1
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by
defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the
Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case
against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE,
and the case against them is hereby ordered DISMISSED.
SO ORDERED.14
In granting the motions for reconsideration of Insular and Grepalife, the trial court considered
the allegations of Insular that Loreto revoked the designation of Eva in one policy and that
Insular disqualified her as a beneficiary in the other policy such that the entire proceeds
would be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the
Insurance Code. It ruled that it is only in cases where there are no beneficiaries designated,
or when the only designated beneficiary is disqualified, that the proceeds should be paid to
the estate of the insured. As to the claim that the proceeds to be paid to Loreto’s illegitimate
children should be reduced based on the rules on legitime, the trial court held that the
distribution of the insurance proceeds is governed primarily by the Insurance Code, and the
provisions of the Civil Code are irrelevant and inapplicable. With respect to the Grepalife
policy, the trial court noted that Eva was never designated as a beneficiary, but only Odessa,
Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the illegitimate
children. It further held that the matter of Loreto’s misrepresentation was premature; the
appropriate action may be filed only upon denial of the claim of the named beneficiaries for
the insurance proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for
lack of jurisdiction, holding that the decision of the trial court dismissing the complaint for
failure to state a cause of action involved a pure question of law. The appellate court also
noted that petitioners did not file within the reglementary period a motion for reconsideration
of the trial court’s Resolution, dated September 21, 2004, dismissing the complaint as against
Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained
finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure to state a cause of
action, may the Court consider matters which were not alleged in the Complaint,
particularly the defenses put up by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss for failure to state a
cause of action, did not the Regional Trial Court engage in the examination and
determination of what were the facts and their probative value, or the truth thereof,
when it premised the dismissal on allegations of the defendants in their answer –
which had not been proven?
c. x x x (A)re the members of the legitimate family entitled to the proceeds of the
insurance for the concubine?15
In essence, petitioners posit that their petition before the trial court should not have been
dismissed for failure to state a cause of action because the finding that Eva was either
disqualified as a beneficiary by the insurance companies or that her designation was revoked
by Loreto, hypothetically admitted as true, was raised only in the answers and motions for
reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to
prosper on that ground, only the allegations in the complaint should be considered. They
further contend that, even assuming Insular disqualified Eva as a beneficiary, her share
should not have been distributed to her children with Loreto but, instead, awarded to them,
being the legitimate heirs of the insured deceased, in accordance with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial court’s finding that the petition failed
to state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court, which
reads –
SECTION 1. Grounds. – Within the time for but before filing the answer to the complaint or
pleading asserting a claim, a motion to dismiss may be made on any of the following grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of another. 16 A
complaint states a cause of action when it contains the three (3) elements of a cause of
action—(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and
(3) the act or omission of the defendant in violation of the legal right. If any of these elements
is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to
state a cause of action.17
When a motion to dismiss is premised on this ground, the ruling thereon should be based
only on the facts alleged in the complaint. The court must resolve the issue on the strength of
such allegations, assuming them to be true. The test of sufficiency of a cause of action rests
on whether, hypothetically admitting the facts alleged in the complaint to be true, the court
can render a valid judgment upon the same, in accordance with the prayer in the complaint.
This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is no hypothetical
admission of the veracity of the allegations if:
1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the
parties or in the course of the hearings related to the case. 18
In this case, it is clear from the petition filed before the trial court that, although petitioners are
the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies
issued by Insular and Grepalife. The basis of petitioners’ claim is that Eva, being a concubine
of Loreto and a suspect in his murder, is disqualified from being designated as beneficiary of
the insurance policies, and that Eva’s children with Loreto, being illegitimate children, are
entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to
Section 12 of the Insurance Code,19 Eva’s share in the proceeds should be forfeited in their
favor, the former having brought about the death of Loreto. Thus, they prayed that the share
of Eva and portions of the shares of Loreto’s illegitimate children should be awarded to them,
being the legitimate heirs of Loreto entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favorable
judgment in light of Article 2011 of the Civil Code which expressly provides that insurance
contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the
Insurance Code states—
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of
the person in whose name or for whose benefit it is made unless otherwise specified in the
policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds
are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon
the maturation of the policy. 20 The exception to this rule is a situation where the insurance
contract was intended to benefit third persons who are not parties to the same in the form of
favorable stipulations or indemnity. In such a case, third parties may directly sue and claim
from the insurer.21
Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus,
are not entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have
no legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva
as a beneficiary in one policy and her disqualification as such in another are of no moment
considering that the designation of the illegitimate children as beneficiaries in Loreto’s
insurance policies remains valid. Because no legal proscription exists in naming as
beneficiaries the children of illicit relationships by the insured, 22 the shares of Eva in the
insurance proceeds, whether forfeited by the court in view of the prohibition on donations
under Article 739 of the Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not
designated any beneficiary,23 or when the designated beneficiary is disqualified by law to
receive the proceeds,24 that the insurance policy proceeds shall redound to the benefit of the
estate of the insured.
In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In
the same light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed,
the appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to
state a cause of action is a question of law and not of fact, there being no findings of fact in
the first place.25
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners. 1. INSURANCE; TIME TO FORMULATE AND PRESENT CLAIM. — Plaintiff was given such
time as it deemed necessary to formulate and present its claim of loss. That claim was
SO ORDERED. investigated by the adjusters for several months, and under the contract of insurance, the
insured had three months after rejection in which to bring suit. The issues were virtually
joined on the presentation of the claims and their rejection by the companies in writing, and
[G.R. No. 36701. March 28, 1934.]
three months thereafter is not an unreasonably short time to draft and file in court an
appropriate complaint on a contract of fire insurance.
TEAL MOTOR COMPANY, INC., Plaintiff-Appellant, v. ORIENT INSURANCE COMPANY,
INC., Defendant-Appellant.

[G.R. No. 36702. March 28, 1934.] DECISION

TEAL MOTOR COMPANY, INC., Plaintiff-Appellant, v. ROYAL INSURANCE COMPANY,

LTD., Defendant-Appellant. HULL, J.:

[G.R. No. 36703. March 28, 1934.]

These seven cases relate to insurance policies covering the goods, wares and merchandise
TEAL MOTOR COMPANY, INC., Plaintiff-Appellant, v. THE EMPLOYERS’ LIABILITY contained in the building in the Port Area in the City of Manila which was damaged by a fire of
ASSURANCE CORPORATION, LTD., Defendant-Appellant. unknown origin the afternoon of Sunday, January 6, 1929. At the request of the insured, the
companies gave additional time for the filing of the claims of loss. These claims were
[G.R. No. 36704. March 28, 1934.] definitely rejected in writing by the insurance companies through their agents on April 15,
1929.
TEAL MOTOR COMPANY, INC., Plaintiff-Appellant, v. CALEDONIAN INSURANCE
COMPANY, Defendant-Appellee. Among the special defenses of the insurance companies is one based upon a clause in the
policies which, with the exception of those of the Atlas Assurance Company, Ltd., among
[G.R. No. 36705. March 28, 1934.] other things provides:jgc:chanrobles.com.ph

TEAL MOTOR COMPANY, INC., Plaintiff-Appellant, v. ATLAS ASSURANCE COMPANY, ". . . if the claim be made and rejected, and action or suit be not commenced within three
LTD., Defendant-Appellee. months after such rejection, . . . all benefit under this Policy shall be forfeited."cralaw
virtua1aw library
[G.R. No. 36706. March 28, 1934.]
While these cases were under advisement here, we noticed that the provision relating to the
TEAL MOTOR COMPANY, INC., Plaintiff-Appellant, v. THE CONTINENTAL INSURANCE Atlas policy reads:jgc:chanrobles.com.ph
CO., Defendant-Appellee.
". . . if the claim be made and rejected and arbitration proceedings be not commenced in
[G.R. No. 36707. March 28, 1934.] pursuance of the 18th Condition of this Policy within three months after such rejection; all
benefit under this Policy shall be forfeited."cralaw virtua1aw library
TEAL MOTOR COMPANY, INC., Plaintiff-Appellant, v. THE AMERICAN INSURANCE
COMPANY OF NEWARK, NEW JERSEY, Defendant-Appellee. No such arbitration proceedings were instituted within the three months’ period. Both in the
lower court and here attorneys for both sides, although they knew that all of the policies were
Guillermo B. Guevara for Appellant. not uniform, treated these two clauses as having the same practical effect. The majority
believe that we should take this case as made and submitted to us and not attempt to make
Gibbs & McDonough and Roman Ozaeta for Appellees. any differentiation on points on which we have not had the assistance of counsel. Nor are we
concerned over the fact that these clauses were in small print on the back of the policies as
SYLLABUS both the president of plaintiff corporation and the attorney for plaintiff testified that they were
fully conversant with the terms of the policies.
The seven suits were filed between the 3rd and the 15th day of August, 1929, or more than Justice Vickers voted to affirm the decisions of the lower court in these cases, with
three months after the rejection by the defendant companies of plaintiff’s claim. Suits were modification, but was absent at the time of the promulgation of the opinion and his name does
brought on the policies covering the building, the first week in June. From March until June at not appear signed thereto. — STREET, Acting C.J.
various times, Bachrach, the president of the Teal Motor Company, and Teal had informal
conversations principally with Elser, the general agent of a number of the insurance Separate Opinions
companies, looking to an extrajudicial settlement. Elser was receptive but stated that the
Royal Insurance Company, Ltd., represented here by Selkirk, having the largest policies,
would have to take the lead in any such negotiations. Selkirk took the position that as the IMPERIAL, J., concurring and dissenting:chanrob1es virtual 1aw library
claims had been rejected by the adjusters and that as the matter was in the hands of the
attorneys, conversations were of no moment and he would consider nothing but a formal I concur with the majority in the disposition of cases G. R. Nos. 36701, 36702, 36703, 36704,
statement. It is presumed that he meant by "formal statement" a definite, concrete proposition 36706 and 36707.
in writing.
I dissent as regards the case G. R. No. 36705. In my opinion judgment should be rendered in
On May 31, 1929, an article appeared in the daily press, whereupon Elser telephoned plaintiff this cause in favor of the appellant for the Atlas policies do not contain any limitation
that any negotiations they might have looking to an extrajudicial settlement were at an end concerning the commencement of action.
and that they might as well sue. Bachrach testifies that Elser asked him not to sue and places
such a request after the 1st of June. This is denied by Elser, and Elser is corroborated by the BUTTE, J., with whom concurs ABAD SANTOS, J., dissenting (Cases Nos. 36701-36704,
whole record. What negotiations there were for a settlement were at the request of plaintiff, 36706, 36707):chanrob1es virtual 1aw library
were of the most informal and inconsequential kind, and could not have had the objective of
lulling a shrewd and active business man, advised by competent attorneys, into a confident The insurance policies here involved contain in small print on the back thereof the following
belief of an extrajudicial settlement so that he would sleep upon his rights. paragraphs:jgc:chanrobles.com.ph

The trial court held that even at best only the negotiations for compromise that took place "13. If the claim be in any respect fraudulent, or if any false declaration be made or used in
some time after the 15th of April and terminated on the 31st of May could be considered and support thereof, or if any fraudulent means or devices are used by the Insured or anyone
also held that there was ample time from the 1st of June to the 15th of July for plaintiff to acting on his behalf to obtain any benefit under this Policy; or, if the loss or damage be
formulate and file in the Court of First Instance of Manila its complaints. occasioned by the willful act, or with the connivance of the Insured; or, if the Insured or
anyone acting on his behalf shall hinder or obstruct the Company in doing any of the acts
Plaintiff was given such time as it deemed necessary to formulate and present its claim of referred to in Condition 12; or, if the claim be made and rejected and an action or suit be not
loss. That claim was investigated by the adjusters for several months, and under the contract commenced within three months after such rejection, or (in case of an Arbitration taking place
of insurance, the insured had three months after rejection in which to bring suit. The issues in pursuance of the 18th Condition of this Policy) within three months after the Arbitrator or
were virtually joined on the presentation of the claims and their rejection by the companies in Arbitrators or Umpire shall have made their award, all benefit under this Policy shall be
writing, and three months thereafter is not an unreasonably short time to draft and file in court forfeited."cralaw virtua1aw library
an appropriate complaint on a contract of fire insurance.
"19. In no case whatever shall the Company be liable for any loss or damage after the
"A provision requiring presentation of claim within three months after fire, and the bringing of expiration of twelve months from the happening of the loss or damage unless the claim is the
action within three months after refusal of claim is valid." (Miller v. Northern Assur. Co., 1 subject of pending action or arbitration."cralaw virtua1aw library
Porto Rico Fed., 420. See also E. Macias & Co. v. China Fire Insurance & Co., 46 Phil., 345.)
The opinion of the majority takes no note of paragraph 19 above quoted but rests its
Concurring with the view of the trial court that these cases were not brought within time, it is judgment upon the forfeiture clause of paragraph 13. I think the forfeiture in the case is harsh,
unnecessary to discuss and pass upon the question whether or not there were overinsurance inequitable and unconscionable, having regard to all the circumstances. There is not a
and false claims of loss in these cases. scintilla of evidence in the record tending to show that the insurance companies have
suffered the slightest loss or damage by reason of the short delay in the filing of these suits.
The judgment appealed from is affirmed. No pronouncement as to costs. So ordered. On the other hand, the plaintiff is penalized by this technical forfeiture to the extent of more
than P300,000 including even the balance of the unearned premiums.
Street, Malcolm, Goddard, and Diaz, JJ., concur.
There is much conflict of evidence in the record as to whether or not the negotiations for a
compromise and settlement without litigation had the effect of lulling the plaintiff into inaction. period expired, and we said in our decision:jgc:chanrobles.com.ph
It seems clear that these negotiations were not definitely terminated until May 31, 1929. The
effect of our judgment in this case is to cut down the three months period — short as it is — ". . . It may be observed that the question as to the reasonableness of a three months
by half. contractual limitation is not raised in the present case."cralaw virtua1aw library

It is familiar law that the courts do not look with favor upon forfeiture in the nature of penalties. In the other cases cited by the majority, Miller v. Northern Assurance Co. (1 Porto Rico
In the present case the plaintiff is heavily penalized, not for failure to perform any promise, Federal Reports, 420), the suit was brought more than fifteen years after the fire occurred
obligation or duty but for mere delay in the exercise of a privilege, which the plaintiff derives and insurance became due.
from the law of the land, not from the defendants.
Whether this forfeiture should be enforced or not and, if enforced, upon what terms, rests in
In the case of the Treasurer of the Philippine Islands v. Rodis (40 Phil., 850), this court the sound discretion and sense of justice of the court, having regard to all the facts and
considered the forfeiture clause in a franchise to construct and operate a street railway in circumstances and the relative positions of the parties. I cannot find a single equitable
Cebu, by which the defendant was required to deposit with the Insular Treasurer the sum of circumstances that warrants the harsh penalty which has been inflicted on the plaintiff in
P10,000 as security for the performance of his obligations under the franchise. The street these cases.
railway not having been completed within the period prescribed by said franchise, suit was
brought to forfeit the deposit. This court reversed the judgment of forfeiture and ordered all VILLA-REAL, J., dissenting:chanrob1es virtual 1aw library
but P1,000 to be returned to the defendant. The court applied article 1154 of our Civil Code
which provides as follows:jgc:chanrobles.com.ph I fully concur in the above dissenting opinion of Justice Butte. I reiterate my opinion,
previously expressed, that this court has no jurisdiction to entertain the appeals in all these
"The judge shall equitably mitigate the penalty if the principal obligation should have been cases and their companions for the reason that new trial having been granted and had, the
partly or irregularly performed by the debtor." If this court may equitably mitigate a penalty original decision was ipso facto vacated, and a new one should have been rendered. The
arising from a breach of an express obligation, it may and should, a fortiori, equitably relieve a jurisdiction of this court over these cases being appellate and revisory, it can revise only a
party from a forfeiture which does not grow out of any breach of obligation express or implied valid decision and not one that has become null and void. The parties cannot by consent
having due regard to all the circumstances of the case and the usages of equity. (Cf. Article grant it a jurisdiction which by law it does not possess.
6, Civil Code.)
In the case of Del Rosario v. Villegas (49 Phil., 634), this court, construing section 147 of Act
In the present instance, I think some regard should be had to paragraph 19 of the policies No. 190, held:jgc:chanrobles.com.ph
above quoted and some effort should be made to give it effect and meaning in the present
case. The judgment of the majority annihilates all rights and benefits of the insured under the "Once a new trial is granted, the original judgment is set aside and the case is exactly in the
policy after three months from the "rejection of the claim." By paragraph 19, supra, the position it occupied before, and the parties stand as if the case had never been tried. If a new
insurance companies, inferentially at least, indicated their liability for a period of twelve trial is granted in general terms, it reopens all the issues in the cause and amendments to the
months from the happening of the loss; and such a construction of the contact might pleadings may be permitted. The court, however, can limit the issues to be discussed at the
reasonably have been relied upon by the insured. The complete termination of the new trial and the parties to intervene in it, as well as the evidence to be presented."cralaw
defendant’s liability by the alleged forfeiture on July 15, 1929, is irreconcilable with the virtua1aw library
implication of their continuing liability which did not terminate until January 6, 1930, one year
after the fire.." . . Courts are reluctant to declare and inforce a forfeiture if, by reasonable BUTTE, J., dissenting (Case No. 36705):chanrob1es virtual 1aw library
interpretation, it can be avoided. . . ." (6 R. C. L., 906.) To give effect to both paragraphs 13
and 19, the final rejection of the claim should be deemed to take place when all liability of the The insurance policies in this case, unlike the policies in cases G. R. Nos. 36701, 36702,
defendants terminated, i. e. "twelve months from the happening of the loss." ." . . As 36703, 36704, 36706 and 36707, contain no provision for the forfeiture of the policies if suit
forfeitures are not favored either in equity or in law, provisions for forfeitures are to receive, be not commenced within three months after rejection of the claim.
when the intent is doubtful, a strict construction against those for whose benefit they are
introduced. . . ." (Ibid., 906.) This fact was overlooked by the trial court and by attorneys of both appellants and appellees,
who stated that the policies in all said cases contained identical forfeiture clauses.
In the case of E. Macias & Co. v. China Fire Insurance & Co. (46 Phil., 345), cited in the
opinion of the court, the claim was rejected on April 7, 1919, and the suit was brought on In G.R. No. 36705 there is no basis for even a technical forfeiture. No forfeiture was claimed
September 30, 1922, more than one year and two months after the three months limitation on the ground that there had been no arbitration.

It is adding insult to injury to penalize the plaintiff with a technical forfeiture in this case on the
sole ground of an oversight (of which all concerned were alike guilty) in failing to give a more
thorough microscopic examination to the small print on the back of all the policies. It was a
natural mistake because it is a matter of common knowledge — and borne out by these
cases — that as a general rule the insurance policies used by affiliated companies are
identical in form. If the Atlas Company, its agents and attorneys, knew that their policies
contained no such forfeiture clause, they would be guilty of both suppressio veri and
suggestio falsi, if they still insisted on having a forfeiture in this case on a limitation clause
which does not exist.
Such a forfeiture would be doubly unconscionable.
G.R. No. 82036 May 22, 1997
TRAVELLERS INSURANCE & SURETY CORPORATION, Petitioner, v. HON. COURT OF
APPEALS and VICENTE MENDOZA, Respondents.
HERMOSISIMA, JR., J.:
1 not necessarily the driver thereof. Marvilla saw a lone taxi speeding away just after the
The petition herein seeks the review and reversal of the decision   of respondent Court of
Appeals 2 affirming in toto the judgment 3 of the Regional Trial Court 4 in an action for
damages 5 filed by private respondent Vicente Mendoza, Jr. as heir of his mother who was
killed in a vehicular accident.
Before the trial court, the complainant lumped the erring taxicab driver, the owner of the
taxicab, and the alleged insurer of the vehicle which featured in the vehicular accident into
one complaint. The erring taxicab was allegedly covered by a third-party liability insurance
policy issued by petitioner Travellers Insurance & Surety Corporation.
The evidence presented before the trial court established the following facts:
At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name of
Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral. While
walking along Tayuman corner Gregorio Perfecto Streets, she was bumped by a taxi that was
running fast. Several persons witnessed the accident, among whom were Rolando Marvilla,
Ernesto Lopez and Eulogio Tabalno. After the bumping, the old woman was seen sprawled
on the pavement. Right away, the good Samaritan that he was, Mavilla ran towards the old
woman and held her on his lap to inquire from her what had happened, but obviously she was
already in shock and could not talk. At this moment, a private jeep stopped. With the driver of
that vehicle, the two helped board the old woman on the jeep and brought her to the Mary
Johnston Hospital in Tondo.
. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil,
Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was on his return trip
from Rizal Avenue when Lopez saw the plaintiff and his brother who were crying near the
scene of the accident. Upon learning that the two were the sons of the old woman, Lopez told
them what had happened. The Mendoza brothers were then able to trace their mother at the
Mary Johnston Hospital where they were advised by the attending physician that they should
bring the patient to the National Orthopedic Hospital because of her fractured bones. Instead,
the victim was brought to the U.S.T. Hospital where she expired at 9:00 o'clock that same
morning. Death was caused by "traumatic shock" as a result of the severe injuries she
sustained . . .
. . . The evidence shows that at the moment the victim was bumped by the vehicle, the latter
was running fast, so much so that because of the strong impact the old woman was thrown
away and she fell on the pavement. . . . In truth, in that related criminal case against
defendant Dumlao . . . the trial court found as a fact that therein accused "was driving the
subject taxicab in a careless, reckless and imprudent manner and at a speed greater than
what was reasonable and proper without taking the necessary precaution to avoid accident to
persons . . . considering the condition of the traffic at the place at the time
aforementioned" . . . Moreover, the driver fled from the scene of the accident and without
rendering assistance to the victim. . . .
. . . Three (3) witnesses who were at the scene at the time identified the taxi involved, though
bumping which, when it passed by him, said witness noticed to be a Lady Love Taxi with
Plate No. 438, painted maroon, with baggage bar attached on the baggage compartment and
with an antenae [sic] attached at the right rear side. The same descriptions were revealed by
Ernesto Lopez, who further described the taxi to have . . . reflectorized decorations on the
edges of the glass at the back . . . A third witness in the person of Eulogio Tabalno . . . made
similar descriptions although, because of the fast speed of the taxi, he was only able to detect
the last digit of the plate number which is "8". . . . [T]he police proceeded to the garage of
Lady Love Taxi and then and there they took possession of such a taxi and later impounded it
in the impounding area of the agency concerned. . . . [T]he eyewitnesses . . . were
unanimous in pointing to that Lady Love Taxi with Plate No. 438, obviously the vehicle
involved herein.
. . . During the investigation, defendant Armando Abellon, the registered owner of Lady Love
Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the vehicle was driven
last July 20, 1980 by one Rodrigo Dumlao. . ." . . . It was on the basis of this affidavit of the
registered owner that caused the police to apprehend Rodrigo Dumlao, and consequently to
have him prosecuted and eventually convicted of the offense . . . . . . . [S]aid Dumlao
absconded in that criminal case, specially at the time of the promulgation of the judgment
therein so much so that he is now a fugitive from justice.  6
Private respondent filed a complaint for damages against Armando Abellon as the owner of
the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped
private respondent's mother. Subsequently, private respondent amended his complaint to
include petitioner as the compulsory insurer of the said taxicab under Certificate of Cover No.
1447785-3.
After trial, the trial court rendered judgment in favor of private respondent, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the
"Heirs of the late Feliza Vineza de Mendoza," and against defendants Rodrigo Dumlao,
Armando Abellon and Travellers Insurance and Surety Corporation, by ordering the latter to
pay, jointly and severally, the former the following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the
rate of 12% per annum from October 17, 1980, when the complaint was filed, until the said
amount is fully paid;
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorney's fees and other litigation expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.
SO ORDERED. 7
Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The
decision of the trial court was affirmed by respondent appellate court. Petitioner's Motion for
Reconsideration 8 of September 22, 1987 was denied in a Resolution 9 dated February 9,
1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of
the Lady Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for
third-party liability insurance, private respondent failed to file a written notice of claim with
petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance
Code.
We find the petition to be meritorious.
I against the owner and the driver of the Lady Love taxicab and his cause of action against
When private respondent filed his amended complaint to implead petitioner as party
defendant and therein alleged that petitioner was the third-party liability insurer of the Lady
Love taxicab that fatally hit private respondent's mother, private respondent did not attach a
copy of the insurance contract to the amended complaint. Private respondent does not deny
this omission.
It is significant to point out at this juncture that the right of a third person to sue the insurer
depends on whether the contract of insurance is intended to benefit third persons also or only
the insured.
[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . . which
the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any
person . . . is one for indemnity against liability; from the fact then that the insured is liable to
the third person, such third person is entitled to sue the insurer.
The right of the person injured to sue the insurer of the party at fault (insured), depends on
whether the contract of insurance is intended to benefit third persons also or on the insured
And the test applied has been this: Where the contract provides for indemnity against liability
to third persons, then third persons to whom the insured is liable can sue the insurer. Where
the contract is for indemnity against actual loss or payment, then third persons cannot
proceed against the insurer, the contract being solely to reimburse the insured for liability
actually discharged by him thru payment to third persons, said third persons' recourse being
thus limited to the insured alone. 10
Since private respondent failed to attach a copy of the insurance contract to his complaint,
the trial court could not have been able to apprise itself of the real nature and pecuniary limits
of petitioner's liability. More importantly, the trial court could not have possibly ascertained the
right of private respondent as third person to sue petitioner as insurer of the Lady Love
taxicab because the trial court never saw nor read the insurance contract and learned of its
terms and conditions.
Petitioner, understandably, did not volunteer to present any insurance contract covering the
Lady Love taxicab that fatally hit private respondent's mother, considering that petitioner
precisely presented the defense of lack of insurance coverage before the trial court. Neither
did the trial court issue a subpoena duces tecum to have the insurance contract produced
before it under pain of contempt.
We thus find hardly a basis in the records for the trial court to have validly found petitioner
liable jointly and severally with the owner and the driver of the Lady Love taxicab, for
damages accruing to private respondent.
Apparently, the trial court did not distinguish between the private respondent's cause of action
petitioner. The former is based on torts and quasi-delicts while the latter is based on contract.
Confusing these two sources of obligations as they arise from the same act of the taxicab
fatally hitting private respondent's mother, and in the face of overwhelming evidence of the
reckless imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its
ignorance of the terms and conditions of the insurance contract and forthwith found all three -
the driver of the taxicab, the owner of the taxicab, and the alleged insurer of the taxicab -
jointly and severally liable for actual, moral and exemplary damages as well as attorney's fees
and litigation expenses. This is clearly a misapplication of the law by the trial court, and
respondent appellate court grievously erred in not having reversed the trial court on this
ground.
While it is true that where the insurance contract provides for indemnity against liability to
third persons, such third persons can directly sue the insurer, however, the direct liability of
the insurer under indemnity contracts against third-party liability does not mean that the
insurer can be held solidarily liable with the insured and/or the other parties found at fault.
The liability of the insurer is based on contract; that of the insured is based on tort. 11
Applying this principle underlying solidary obligation and insurance contracts, we ruled in one
case that:
In solidary obligation, the creditor may enforce the entire obligation against one of the solidary
debtors. On the other hand, insurance is defined as "a contract whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown
or contingent event."
In the case at bar, the trial court held petitioner together with respondents Sio Choy and San
Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00,
with the qualification that petitioner's liability is only up to P20,000.00. In the context of a
solidary obligation, petitioner may be compelled by respondent Vallejos to pay the entire
obligation of P29,103.00, notwithstanding the qualification made by the trial court. But, how
can petitioner be obliged to pay the entire obligation when the amount stated in its insurance
policy with respondent Sio Choy for indemnity against third-party liability is only P20,000.00?
Moreover, the qualification made in the decision of the trial court to the effect that petitioner is
sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made
solidary is an evident breach of the concept of a solidary obligation. 12
The above principles take on more significance in the light of the counter-allegation of
petitioner that, assuming arguendo that it is the insurer of the Lady Love taxicab in question,
its liability is limited to only P50,000.00, this being its standard amount of coverage in vehicle
insurance policies. It bears repeating that no copy of the insurance contract was ever
proffered before the trial court by the private respondent, notwithstanding knowledge of the
fact that the latter's complaint against petitioner is one under a written contract. Thus, the trial
court proceeded to hold petitioner liable for an award of damages exceeding its limited liability
of P50,000.00. This only shows beyond doubt that the trial court was under the erroneous
presumption that petitioner could be found liable absent proof of the contract and based
merely on the proof of reckless imprudence on the part of the driver of the Lady Love taxicab
that fatally hit private respondent's mother.
II
Petitioner did not tire in arguing before the trial court and the respondent appellate court that,
assuming arguendo that it had issued the insurance contract over the Lady Love taxicab,
private respondent's cause of action against petitioner did not successfully accrue because
he failed to file with petitioner a written notice of claim within six (6) months from the date of
the accident as required by Section 384 of the Insurance Code.
At the time of the vehicular incident which resulted in the death of private respondent's
mother, during which time the Insurance Code had not yet been amended by Batas
Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
Any person having any claim upon the policy issued pursuant to this chapter shall, without
any unnecessary delay, present to the insurance company concerned a written notice of
claim setting forth the amount of his loss, and/or the nature, extent and duration of the injuries
sustained as certified by a duly licensed physician. Notice of claim must be filed within six
months from date of the accident, otherwise, the claim shall be deemed waived. Action or suit
for recovery of damage due to loss or injury must be brought in proper cases, with the
Commission or the Courts within one year from date of accident, otherwise the claimant's
right of action shall prescribe [emphasis supplied].
In the landmark case of Summit Guaranty and Insurance Co., Inc. v.  De Guzman, 13 we ruled
that the one year prescription period to bring suit in court against the insurer should be
counted from the time that the insurer rejects the written claim filed therewith by the insured,
the beneficiary or the third person interested under the insurance policy. We explained:
It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code
as a cloak to hide itself from its liabilities. The facts of these cases evidently reflect the
deliberate efforts of petitioner company to prevent the filing of a formal action against it.
Bearing in mind that if it succeeds in doing so until one year lapses from the date of the
accident it could set up the defense of prescription, petitioner company made private
respondents believe that their claims would be settled in order that the latter will not find it
necessary to immediately bring suit. In violation of its duties to adopt and implement
reasonable standards for the prompt investigation of claims and to effectuate prompt, fair and
equitable settlement of claims, and with manifest bad faith, petitioner company devised
means and ways of stalling the settlement proceeding . . . [N]o steps were taken to process
the claim and no rejection of said claim was ever made even if private respondent had
already complied with all the requirements. . . .
This Court has made the observation that some insurance companies have been inventing
excuses to avoid their just obligations and it is only the State that can give the protection
which the insuring public needs from possible abuses of the insurers. 14
It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to
categorically provide that "action or suit for recovery of damage due to loss or injury must be
brought in proper cases, with the Commissioner or the Courts within one year  from denial of
the claim, otherwise the claimant's right of action shall prescribe" [emphasis ours]. 15
We have certainly ruled with consistency that the prescriptive period to bring suit in court No pronouncement as to costs.
under an insurance policy, begins to run from the date of the insurer's rejection of the claim
filed by the insured, the beneficiary or any person claiming under an insurance contract. This SO ORDERED.
ruling is premised upon the compliance by the persons suing under an insurance contract,
with the indispensable requirement of having filed the written claim mandated by Section 384
of the insurance Code before and after its amendment. Absent such written claim filed by the
person suing under an insurance contract, no cause of action accrues under such insurance
contract, considering that it is the rejection of that claim that triggers the running of the one-
year prescriptive period to bring suit in court, and there can be no opportunity for the insurer
to even reject a claim if none has been filed in the first place, as in the instant case.

The one-year period should instead be counted from the date of rejection by the insurer as
this is the time when the cause of action accrues. . . .

In Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, this Court ruled:

The plaintiff's cause of action did not accrue until his claim was finally rejected by the
insurance company. This is because, before such final rejection, there was no real necessity
for bringing suit.

The philosophy of the above pronouncement was pointed out in the case of ACCFA
vs. Alpha Insurance and Surety Co., viz:

Since a cause of action requires, as essential elements, not only a legal right of the plaintiff
and a correlative obligation of the defendant but also an act or omission of the defendant in
violation of said legal right, the cause of action does not accrue until the party obligated
refuses, expressly or impliedly, to comply with its duty. 16

When petitioner asseverates, thus, that no written claim was filed by private respondent and
rejected by petitioner, and private respondent does not dispute such asseveration through a
denial in his pleadings, we are constrained to rule that respondent appellate court committed
reversible error in finding petitioner liable under an insurance contract the existence of which
had not at all been proven in court. Even if there were such a contract, private respondent's
cause of action can not prevail because he failed to file the written claim mandated by
Section 384 of the Insurance Code. He is deemed, under this legal provision, to have waived
his rights as against petitioner-insurer.

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil Case
No. 135486 are REVERSED and SET ASIDE insofar as Travelers Insurance & Surety
Corporation was found jointly and severally liable to pay actual, moral and exemplary
damages, death indemnity, attorney's fees and litigation expenses in Civil Case No. 135486.
The complaint against Travellers Insurance & Surety Corporation in said case is hereby
ordered dismissed.