Cases in Insurance
00 as actual litigation
SIXTH MEETING
I. Insurable Interest
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 petition3 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.
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 Challenged in this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court are the
in whose name or for whose benefit it is made unless otherwise specified in the policy. Decision2 dated 30 August 2007 and the Orders dated 10 April 20083 and 3 July 20084 of the Regional
Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No. 2177. In its assailed Decision, the RTC
dismissed the claim for death benefits filed by petitioner Violeta R. Lalican (Violeta) against respondent
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either
Insular Life Assurance Company Limited (Insular Life); while in its questioned Orders dated 10 April
the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of
2008 and 3 July 2008, respectively, the RTC declared the finality of the aforesaid Decision and denied
the policy.20 The exception to this rule is a situation where the insurance contract was intended to
petitioner’s Notice of Appeal.
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
The factual and procedural antecedents of the case, as culled from the records, are as follows:
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 Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).
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
During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April 1997, Insular
illegitimate children as beneficiaries in Loreto’s insurance policies remains valid. Because no legal
Life, through Josephine Malaluan (Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy
proscription exists in naming as beneficiaries the children of illicit relationships by the insured,22 the
No. 9011992,5 which contained a 20-Year Endowment Variable Income Package Flexi Plan worth
shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on
₱500,000.00,6 with two riders valued at ₱500,000.00 each.7 Thus, the value of the policy amounted to
donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the
₱1,500,000.00. Violeta was named as the primary beneficiary.
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 Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis in the
policy proceeds shall redound to the benefit of the estate of the insured. amount of ₱8,062.00, payable every 24 April, 24 July, 24 October and 24 January of each year, until
the end of the 20-year period of the policy. According to the Policy Contract, there was a grace period
of 31 days for the payment of each premium subsequent to the first. If any premium was not paid on
In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same
or before the due date, the policy would be in default, and if the premium remained unpaid until the
light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the appellate court
end of the grace period, the policy would automatically lapse and become void.8
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
Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay the
premium due on 24 January 1998, even after the lapse of the grace period of 31 days. Policy No.
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.
9011992, therefore, lapsed and became void.

SO ORDERED.
Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26 May 1998,
an Application for Reinstatement9 of Policy No. 9011992, together with the amount of ₱8,062.00 to pay
G.R. No. 183526 August 25, 2009 for the premium due on 24 January 1998. In a letter10 dated 17 July 1998, Insular Life notified Eulogio
that his Application for Reinstatement could not be fully processed because, although he already
deposited ₱8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue interest
VIOLETA R. LALICAN, Petitioner, thereon amounting to ₱322.48. Thus, Insular Life instructed Eulogio to pay the amount of interest and
vs. to file another application for reinstatement. Eulogio was likewise advised by Malaluan to pay the
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE PRESIDENT premiums that subsequently became due on 24 April 1998 and 24 July 1998, plus interest.
VICENTE R. AVILON, Respondent.

On 17 September 1998, Eulogio went to Malaluan’s house and submitted a second Application for
DECISION Reinstatement11 of Policy No. 9011992, including the amount of ₱17,500.00, representing payments for
the overdue interest on the premium for 24 January 1998, and the premiums which became due on 24
CHICO-NAZARIO, J.: April 1998 and 24 July 1998. As Malaluan was away on a business errand, her husband received
Eulogio’s second Application for Reinstatement and issued a receipt for the amount Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest secondary
to electrocution.
Without knowing of Eulogio’s death, Malaluan forwarded to the Insular Life Regional Office in the City
of San Fernando, on 18 September 1998, Eulogio’s second Application for Reinstatement of Policy No.
9011992 and ₱17,500.00 deposit. However, Insular Life no longer acted upon Eulogio’s second
Application for Reinstatement, as the former was informed on 21 September 1998 that Eulogio had
already passed away.
Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the reinstatement
of Policy No. 9011992 had been complied with and the defenses put up by Insular Life were purely
invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the same
reinstated:

On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds of Policy
[The] arguments [of Insular Life] are not without basis. When the premiums for April 24 and July 24,
No. 9011992.
1998 were not paid by [Eulogio] even after the lapse of the 31-day grace period, his insurance policy
necessarily lapsed. This is clear from the terms and conditions of the contract between [Insular Life]
In a letter12 dated 14 January 1999, Insular Life informed Violeta that her claim could not be granted and [Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 x x x.17
since, at the time of Eulogio’s death, Policy No. 9011992 had already lapsed, and Eulogio failed to
reinstate the same. According to the Application for Reinstatement, the policy would only be considered
The RTC, taking into account the clear provisions of the Policy Contract between Eulogio and Insular
reinstated upon approval of the application by Insular Life during the applicant’s "lifetime and good
Life and the Application for Reinstatement Eulogio subsequently signed and submitted to Insular Life,
health," and whatever amount the applicant paid in connection thereto was considered to be a deposit
held that Eulogio was not able to fully comply with the requirements for the reinstatement of Policy No.
only until approval of said application. Enclosed with the 14 January 1999 letter of Insular Life to Violeta
9011992:
was DBP Check No. 0000309734, for the amount of ₱25,417.00, drawn in Violeta’s favor, representing
the full refund of the payments made by Eulogio on Policy No. 9011992.
The well-settled rule is that a contract has the force of law between the parties. In the instant case, the
terms of the insurance contract between [Eulogio] and [Insular Life] were spelled out in the policy
On 12 February 1998, Violeta requested a reconsideration of the disallowance of her claim. In a
provisions of Insurance Policy No. 9011992. There is likewise no dispute that said insurance contract is
letter13 dated 10 March 1999, Insular Life stated that it could not find any reason to reconsider its
by nature a contract of adhesion[,] which is defined as "one in which one of the contracting parties
decision rejecting Violeta’s claim. Insular Life again tendered to Violeta the above-mentioned check in
imposes a ready-made form of contract which the other party may accept or reject but cannot modify."
the amount of ₱25,417.00.
(Polotan, Sr. vs. CA, 296 SCRA 247).

Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the Cabanatuan
District Office of Insular Life. Violeta’s counsel subsequently sent a letter14 dated 8 July 1999 to Insular
Life, demanding payment of the full proceeds of Policy No. 9011992. On 11 August 1999, Insular Life
responded to the said demand letter by agreeing to conduct a re-evaluation of Violeta’s claim.
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on 11
October 1999, a Complaint for Death Claim Benefit,15 which was docketed as Civil Case No. 2177.
Violeta alleged that Insular Life engaged in unfair claim settlement practice and deliberately failed to
act with reasonable promptness on her insurance claim. Violeta prayed that Insular Life be ordered to
pay her death claim benefits on Policy No. 9011992, in the amount of ₱1,500,000.00, plus interests,
attorney’s fees, and cost of suit.
Insular Life filed with the RTC an Answer with Counterclaim,16 asserting that Violeta’s Complaint had no
legal or factual bases. Insular Life maintained that Policy No. 9011992, on which Violeta sought to
recover, was rendered void by the non-payment of the 24 January 1998 premium and non-compliance
with the requirements for the reinstatement of the same. By way of counterclaim, Insular Life prayed
that Violeta be ordered to pay attorney’s fees and expenses of litigation incurred by the former.
xxxx
The New Lexicon Webster’s Dictionary defines ambiguity as the "quality of having more than one
meaning" and "an idea, statement or expression capable of being understood in more than one sense."
In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme Court stated that[:]
"Any ambiguity in a contract, whose terms are susceptible of different interpretations as a result
thereby, must be read and construed against the party who drafted it on the assumption that it could
have been avoided by the exercise of a little care."
In the instant case, the dispute arises from the afore-quoted provisions written on the face of the second
application for reinstatement. Examining the said provisions, the court finds the same clearly written in
terms that are simple enough to admit of only one interpretation. They are clearly not ambiguous,
equivocal or uncertain that would need further construction. The same are written on the very face of
the application just above the space where [Eulogio] signed his name. It is inconceivable that he signed
it without reading and understanding its import.1avvphi1
Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple and clear
layman’s language, rendering it free from any ambiguity that would require a legal interpretation or
construction. Thus, the court believes that [Eulogio] was well aware that when he filed the said
application for reinstatement, his lapsed policy was not automatically reinstated and that its approval
was subject to certain conditions. Nowhere in the policy or in the application for reinstatement was it
ever mentioned that the payment of premiums would have the effect of an automatic and immediate
renewal of the lapsed policy. Instead, what was clearly stated in the application for reinstatement is
that pending approval thereof, the premiums paid would be treated as a "deposit only and shall not
bind the company until this application is finally approved during my/our" lifetime and good health[.]"
Again, the court finds nothing in the aforesaid provisions that would even suggest an ambiguity either
in the words used or in the manner they were written. [Violeta] did not present any proof that [Eulogio]
was not conversant with the English language. Hence, his having personally signed the application for
reinstatement[,] which consisted only of one page, could only mean that he has read its contents and
that he understood them. x x x
Therefore, consistent with the above Supreme Court ruling and finding no ambiguity both in the policy
provisions of Policy No. 9011992 and in the application for reinstatement subject of this case, the court
finds no merit in [Violeta’s] contention that the policy provision stating that [the lapsed policy of Eulogio]
should be reinstated during his lifetime is ambiguous and should be construed in his favor. It is true
that [Eulogio] submitted his application for reinstatement, together with his premium and interest
payments, to [Insular Life] through its agent Josephine Malaluan in the morning of September 17, 1998.
Unfortunately, he died in the afternoon of that same day. It was only on the following day, September
18, 1998 that Ms. Malaluan brought the said document to [the regional office of Insular Life] in San
Fernando, Pampanga for approval. As correctly pointed out by [Insular Life] there was no more
application to approve because the applicant was already dead and no insurance company would issue
an insurance policy to a dead person.18 (Emphases ours.)
The RTC, in the end, explained that:
While the court truly empathizes with the [Violeta] for the loss of her husband, it cannot express the
same by interpreting the insurance agreement in her favor where there is no need for such
interpretation. It is conceded that [Eulogio’s] payment of overdue premiums and interest was received
by [Insular Life] through its agent Ms. Malaluan. It is also true that [the] application for reinstatement
was filed by [Eulogio] a day before his death. However, there is nothing that would justify a conclusion
that such receipt amounted to an automatic reinstatement of the policy that has already lapsed. The
evidence suggests clearly that no such automatic renewal was contemplated in the contract between
[Eulogio] and [Insular Life]. Neither was it shown that Ms. Malaluan was the officer authorized to
approve the application for reinstatement and that her receipt of the documents submitted by [Eulogio]
amounted to its approval.19 (Emphasis ours.)
The fallo of the RTC Decision thus reads:
WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to establish by
preponderance of evidence her cause of action against the defendant, let this case be, as it is hereby
DISMISSED.20
On 14 September 2007, Violeta filed a Motion for Reconsideration21 of the afore-mentioned RTC
Decision. Insular Life opposed22 the said motion, averring that the arguments raised therein were
merely a rehash of the issues already considered and addressed by the RTC. In an Order23 dated 8
November 2007, the RTC denied Violeta’s Motion for Reconsideration, finding no cogent and compelling
reason to disturb its earlier findings. Per the Registry Return Receipt on record, the 8 November 2007
Order of the RTC was received by Violeta on 3 December 2007.
In the interim, on 22 November 2007, Violeta filed with the RTC a Reply 24 to the Motion for
Reconsideration, wherein she reiterated the prayer in her Motion for Reconsideration for the setting
aside of the Decision dated 30 August 2007. Despite already receiving on 3 December 2007, a copy of
the RTC Order dated 8 November 2007, which denied her Motion for Reconsideration, Violeta still filed
with the RTC, on 26 February 2008, a Reply Extended Discussion elaborating on the arguments she had
previously made in her Motion for Reconsideration and Reply.
On 10 April 2008, the RTC issued an Order,25 declaring that the Decision dated 30 August 2007 in Civil
Case No. 2177 had already attained finality in view of Violeta’s failure to file the appropriate notice of
appeal within the reglementary period. Thus, any further discussions on the issues raised by Violeta in
her Reply and Reply Extended Discussion would be moot and academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion,26 praying that the Order
dated 10 April 2008 be set aside and that she be allowed to file an appeal with the Court of Appeals.
In an Order27 dated 3 July 2008, the RTC denied Violeta’s Notice of Appeal with Motion given that the
Decision dated 30 August 2007 had long since attained finality.
Violeta directly elevated her case to this Court via the instant Petition for Review on Certiorari, raising
the following issues for consideration:
1. Whether or not the Decision of the court a quo dated August 30, 2007, can still be reviewed
despite having allegedly attained finality and despite the fact that the mode of appeal that has
been availed of by Violeta is erroneous?
2. Whether or not the Regional Trial Court in its original jurisdiction has decided the case on a
question of law not in accord with law and applicable decisions of the Supreme Court?
Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead of a Notice
of Appeal of the RTC Decision dated 30 August 2007; and in the computation of the reglementary period
for appealing the said judgment. Violeta claims that her former counsel suffered from poor health, which
rapidly deteriorated from the first week of July 2008 until the latter’s death just shortly after the filing
of the instant Petition on 8 August 2008. In light of these circumstances, Violeta entreats this Court to
admit and give due course to her appeal even if the same was filed out of time.
Violeta further posits that the Court should address the question of law arising in this case involving the
interpretation of the second sentence of Section 19 of the Insurance Code, which provides:
Section. 19. x x x [I]nterest in the life or health of a person insured must exist when the insurance
takes effect, but need not exist thereafter or when the loss occurs.
Moreover, the failure of her former counsel to file a Notice of Appeal within the reglementary period
binds Violeta, which failure the latter cannot now disown on the basis of her bare allegation and self-
serving pronouncement that the former was ill. A client is bound by his counsel’s mistakes and
negligence.31
The Court, therefore, finds no reversible error on the part of the RTC in denying Violeta’s Notice of
Appeal for being filed beyond the reglementary period. Without an appeal having been timely filed, the
RTC Decision dated 30 August 2007 in Civil Case No. 2177 already became final and executory.

A judgment becomes "final and executory" by operation of law. Finality becomes a fact when the
On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life when he
reglementary period to appeal lapses and no appeal is perfected within such period. As a consequence,
reinstated Policy No. 9011992 just before he passed away on 17 September 1998. The RTC should have
no court (not even this Court) can exercise appellate jurisdiction to review a case or modify a decision
construed the provisions of the Policy Contract and Application for Reinstatement in favor of the insured
that has become final.32 When a final judgment is executory, it becomes immutable and unalterable. It
Eulogio and against the insurer Insular Life, and considered the special circumstances of the case, to
may no longer be modified in any respect either by the court, which rendered it or even by this Court.
rule that Eulogio had complied with the requisites for the reinstatement of Policy No. 9011992 prior to
The doctrine is founded on considerations of public policy and sound practice that, at the risk of
his death, and that Violeta is entitled to claim the proceeds of said policy as the primary beneficiary
occasional errors, judgments must become final at some definite point in time.33
thereof.

The only recognized exceptions to the doctrine of immutability and unalterability are the correction of
The Petition lacks merit.
clerical errors, the so-called nunc pro tunc entries, which cause no prejudice to any party, and void
judgments.34 The instant case does not fall under any of these exceptions.
At the outset, the Court notes that the elevation of the case to us via the instant Petition for Review on
Certiorari is not justified. Rule 41, Section 1 of the Rules of Court,28 provides that no appeal may be
Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve the
taken from an order disallowing or dismissing an appeal. In such a case, the aggrieved party may file
substantive issues raised, the Petition must still fail.
a Petition for Certiorari under Rule 65 of the Rules of Court.29

Violeta makes it appear that her present Petition involves a question of law, particularly, whether Eulogio
Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long become final
had an existing insurable interest in his own life until the day of his death.
and executory. Violeta filed a Motion for Reconsideration thereof, but the RTC denied the same in an
Order dated 8 November 2007. The records of the case reveal that Violeta received a copy of the 8
November 2007 Order on 3 December 2007. Thus, Violeta had 15 days30 from said date of receipt, or An insurable interest is one of the most basic and essential requirements in an insurance contract. In
until 18 December 2007, to file a Notice of Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, general, an insurable interest is that interest which a person is deemed to have in the subject matter
more than five months after receipt of the RTC Order dated 8 November 2007 denying her Motion for insured, where he has a relation or connection with or concern in it, such that the person will derive
Reconsideration. pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer
pecuniary loss or damage from its destruction, termination, or injury by the happening of the event
insured against.35 The existence of an insurable interest gives a person the legal right to insure the
Violeta’s claim that her former counsel’s failure to file the proper remedy within the reglementary period
subject matter of the policy of insurance.36 Section 10 of the Insurance Code indeed provides that every
was an honest mistake, attributable to the latter’s deteriorating health, is unpersuasive.
person has an insurable interest in his own life.37 Section 19 of the same code also states that an
interest in the life or health of a person insured must exist when the insurance takes effect, but need
Violeta merely made a general averment of her former counsel’s poor health, lacking relevant details not exist thereafter or when the loss occurs.38
and supporting evidence. By Violeta’s own admission, her former counsel’s health rapidly deteriorated
only by the first week of July 2008. The events pertinent to Violeta’s Notice of Appeal took place months
Upon more extensive study of the Petition, it becomes evident that the matter of insurable interest is
before July 2008, i.e., a copy of the RTC Order dated 8 November 2007, denying Violeta’s Motion for
entirely irrelevant in the case at bar. It is actually beyond question that while Eulogio was still alive, he
Reconsideration of the Decision dated 30 August 2007, was received on 3 December 2007; and Violeta’s
had an insurable interest in his own life, which he did insure under Policy No. 9011992. The real point
Notice of Appeal was filed on 20 May 2008. There is utter lack of proof to show that Violeta’s former
of contention herein is whether Eulogio was able to reinstate the lapsed insurance policy on his life
counsel was already suffering from ill health during these times; or that the illness of Violeta’s former
before his death on 17 September 1998.
counsel would have affected his judgment and competence as a lawyer.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August 2007
Decision that Policy No. 9011992 lapsed because of Eulogio’s non-payment of the premiums which
became due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had lapsed and become void earlier,
on 24 February 1998, upon the expiration of the 31-day grace period for payment of the premium,
which fell due on 24 January 1998, without any payment having been made.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio’s filing of his first
Application for Reinstatement with Insular Life, through Malaluan, on 26 May 1998, constitutes an
admission that Policy No. 9011992 had lapsed by then. Insular Life did not act on Eulogio’s first
Application for Reinstatement, since the amount Eulogio simultaneously deposited was sufficient to
cover only the ₱8,062.00 overdue premium for 24 January 1998, but not the ₱322.48 overdue interests
thereon. On 17 September 1998, Eulogio submitted a second Application for Reinstatement to Insular
Life, again through Malaluan, depositing at the same time ₱17,500.00, to cover payment for the overdue
interest on the premium for 24 January 1998, and the premiums that had also become due on 24 April
1998 and 24 July 1998. On the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-paying status after it has been permitted
to lapse.39 Both the Policy Contract and the Application for Reinstatement provide for specific conditions
for the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified the following conditions for reinstatement
should the policy lapse:
10. REINSTATEMENT
You may reinstate this policy at any time within three years after it lapsed if the following conditions
are met: (1) the policy has not been surrendered for its cash value or the period of extension as a term
insurance has not expired; (2) evidence of insurability satisfactory to [Insular Life] is furnished; (3)
overdue premiums are paid with compound interest at a rate not exceeding that which would have been
applicable to said premium and indebtedness in the policy years prior to reinstatement; and (4)
indebtedness which existed at the time of lapsation is paid or renewed.40
Additional conditions for reinstatement of a lapsed policy were stated in the Application for
Reinstatement which Eulogio signed and submitted, to wit:
I/We agree that said Policy shall not be considered reinstated until this application is approved by the
Company during my/our lifetime and good health and until all other Company requirements for the
reinstatement of said Policy are fully satisfied.
I/We further agree that any payment made or to be made in connection with this application shall be
considered as deposit only and shall not bind the Company until this application is finally approved by
the Company during my/our lifetime and good health. If this application is disapproved, I/We also agree
to accept the refund of all payments made in connection herewith, without interest, and to surrender
the receipts for such payment.41 (Emphases ours.)
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.
Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life Insurance
Company,42 citing McGuire v. The Manufacturer's Life Insurance Co.43:
"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written
application does not give the insured absolute right to such reinstatement by the mere filing of an
application. The insurer has the right to deny the reinstatement if it is not satisfied as to the insurability
of the insured and if the latter does not pay all overdue premium and all other indebtedness to the
insurer. After the death of the insured the insurance Company cannot be compelled to entertain an
application for reinstatement of the policy because the conditions precedent to reinstatement can no
longer be determined and satisfied." (Emphases ours.)
It does not matter that when he died, Eulogio’s Application for Reinstatement and deposits for the
overdue premiums and interests were already with Malaluan. Insular Life, through the Policy Contract,
expressly limits the power or authority of its insurance agents, thus:
Our agents have no authority to make or modify this contract, to extend the time limit for payment of
premiums, to waive any lapsation, forfeiture or any of our rights or requirements, such powers being
limited to our president, vice-president or persons authorized by the Board of Trustees and only in
writing.44 (Emphasis ours.)
Malaluan did not have the authority to approve Eulogio’s Application for Reinstatement. Malaluan still
had to turn over to Insular Life Eulogio’s Application for Reinstatement and accompanying deposits, for
processing and approval by the latter.
The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and
Application for Reinstatement were written in clear and simple language, which could not admit of any
meaning or interpretation other than those that they so obviously embody. A construction in favor of
the insured is not called for, as there is no ambiguity in the said provisions in the first place. The words
thereof are clear, unequivocal, and simple enough so as to preclude any mistake in the appreciation of
the same.
Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and
meaning of the provisions of his Policy Contract and/or Application for Reinstatement, both of which he
voluntarily signed. While it is a cardinal principle of insurance law that a policy or contract of insurance
is to be construed liberally in favor of the insured and strictly as against the insurer company, yet, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for
contracts of insurance, like other contracts, are to be construed according to the sense and meaning of reconsideration.
the terms, which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense.45
The factual background of the case is as follows:

Eulogio’s death, just hours after filing his Application for Reinstatement and depositing his payment for
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.
overdue premiums and interests with Malaluan, does not constitute a special circumstance that can
(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and
persuade this Court to already consider Policy No. 9011992 reinstated. Said circumstance cannot
LSPI separately obtained from respondent fire insurance policies with book debt endorsements. The
override the clear and express provisions of the Policy Contract and Application for Reinstatement, and
insurance policies provide for coverage on "book debts in connection with ready-made clothing materials
operate to remove the prerogative of Insular Life thereunder to approve or disapprove the Application
which have been sold or delivered to various customers and dealers of the Insured anywhere in the
for Reinstatement. Even though the Court commiserates with Violeta, as the tragic and fateful turn of
Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book of
events leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with the
Account of the Insured 45 days after the time of the loss covered under this Policy."3 The policies also
payment of proceeds on a lapsed insurance policy. Justice and fairness must equally apply to all parties
provide for the following conditions:
to a case. Courts are not permitted to make contracts for the parties. The function and duty of the
courts consist simply in enforcing and carrying out the contracts actually made.46
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
Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with the Policy
period in excess of six (6) months from the date of the covering invoice or actual delivery of
Contract and Application for Reinstatement before Eulogio’s death. Violeta, therefore, cannot claim any
the merchandise whichever shall first occur.
death benefits from Insular Life on the basis of Policy No. 9011992; but she is entitled to receive the
full refund of the payments made by Eulogio thereon.
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
WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under
become receivable item from their customers and dealers. x x x 4
Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of
the RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying petitioner Violeta R. Lalican’s Notice
of Appeal, on the ground that the Decision dated 30 August 2007 subject thereof, was already final and xxxx
executory. No costs.
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano
SO ORDERED. 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.
G.R. No. 147839 June 8, 2006

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC
GAISANO CAGAYAN, INC. Petitioner, and LSPI filed with respondent their claims under their respective fire insurance policies with book debt
vs. endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery
INSURANCE COMPANY OF NORTH AMERICA, Respondent. 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
DECISION rights against petitioner; that respondent made several demands for payment upon petitioner but these
went unheeded.5
AUSTRIA-MARTINEZ, J.:
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
Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of the majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of
Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of contract committed by it since the loss was due to fire which it could not prevent or foresee; that IMC
the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of and LSPI never communicated to it that they insured their properties; that it never consented to paying
action for damages of Insurance Company of North America (respondent) against Gaisano Cagayan, the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the
merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It held that the
fire was purely accidental; that the cause of the fire was not attributable to the negligence of the
petitioner; that it has not been established that petitioner is the debtor of IMC and LSPI; that since the
sales invoices state that "it is further agreed that merely for purpose of securing the payment of
purchase price, the above-described merchandise remains the property of the vendor until the purchase
price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting
aside the decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new
one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until
fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity
and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since
the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to
the general rule that if the thing is lost by a fortuitous event, the risk is borne by the owner of the thing
at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC and LSPI
is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation
to pay is not extinguished, even if the fire is considered a fortuitous event; that by subrogation, the
insurer has the right to go against petitioner; that, being a fire insurance with book debt endorsements,
what was insured was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April
11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE
OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE
INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER
ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to
be over credit since an insurance "on credit" belies not only the nature of fire insurance but the express
terms of the policies; that it was not credit that was insured since respondent paid on the occasion of
the loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation;
that, even if the insurance is deemed as one over credit, there was no loss as the accounts were not
yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt
and such demands came from respondent only after it had already paid IMC and LSPI under the fire
insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and
LSPI assumed the risk of loss when they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as
no valid insurance could be maintained thereon by IMC and LSPI since all risk had transferred to
petitioner upon delivery of the goods; that petitioner was not privy to the insurance contract or the
payment between respondent and its insured nor was its consent or approval ever secured; that this
lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its
interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing materials was
transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as
creditors who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable
for loss of the ready-made clothing materials since it failed to overcome the presumption of liability
under Article 126516 of the Civil Code; that the fire was caused through petitioner's negligence in failing
to provide stringent measures of caution, care and maintenance on its property because electric wires
do not usually short circuit unless there are defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith in
refusing to pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees,
litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from
the CA is limited to reviewing questions of law which involves no examination of the probative value of
the evidence presented by the litigants or any of them.18 The Supreme Court is not a trier of facts; it is
not its function to analyze or weigh evidence all over again.19 Accordingly, findings of fact of the
appellate court are generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved
by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when
the findings of facts are conflicting; (6) when in making its findings the CA went beyond the issues of
the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when
the findings are contrary to the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact
are premised on the supposed absence of evidence and contradicted by the evidence on record; and
(11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to
the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA
erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC
and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered
to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is no room
for construction.22 In this case, the questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold or delivered to various customers
and dealers of the Insured anywhere in the Philippines."23 ; and defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered
under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to
read into it any alleged intention of the parties, the terms are to be understood literally just as they
appear on the face of the contract.25 Thus, what were insured against were the accounts of IMC and
LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or
destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods
by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise remains the property of the vendor
until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein
is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are
at the buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance
of the contract and the ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from
the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss
is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's
interest is not determined by concept of title, but whether insured has substantial economic interest in
the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real
or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated
peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an
insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded
on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the
expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien
upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest
is requisite to the existence of such an interest, it is sufficient that the insured is so situated with
reference to the property that he would be liable to loss should it be injured or destroyed by the peril
against which it is insured.29 Anyone has an insurable interest in property who derives a benefit from
its existence or would suffer loss from its destruction.30 Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest therein, in other words, so long as he would
suffer by its destruction, as where he has a vendor's lien.31 In this case, the insurable interest of IMC
and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of
the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of
the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil
Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was
petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right which
petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's
consists in the payment of money, the failure of the debtor to make the payment even by reason of a case for recovery of the amount of P535,613.00.
fortuitous event shall not relieve him of his liability.33 The rationale for this is that the rule that an
obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and
when the obligation consists in the delivery of a determinate thing and there is no stipulation holding
Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.34
the MODIFICATION that the order to pay the amount of P535,613.00 to respondent is DELETED for
lack of factual basis.
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction
of anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense
No pronouncement as to costs.
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 SO ORDERED.
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
G.R. No. L-44059 October 28, 1977
fortuitous loss of any specific property of the debtor.37

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case.
vs.
What is relevant here is whether it has been established that petitioner has outstanding accounts with
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.
IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show
that petitioner has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is
the check voucher evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed by IMC
in favor of respondent upon receipt of the insurance proceeds. All these documents have been properly
identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.41 Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary
weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI.
It only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed
petitioner's building on February 25, 1991.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life
insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy
No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same amount
Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He to her as
his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing
branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the
coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the
refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest
thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely
living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that
she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co.,
Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-
trial order was entered reading as follows: ñé+.£ªwph!1
During the pre-trial conference, the parties manifested to the court. that there is no
possibility of amicable settlement. Hence, the Court proceeded to have the parties
submit their evidence for the purpose of the pre-trial and make admissions for the
purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala
Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was
married to Pascuala Ebrado with whom she has six — (legitimate) namely; Hernando,
Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the
lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy
No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with
the rider for accidental death benefit as evidenced by Exhibits A for plaintiffs and
Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during
the lifetime of Buenaventura Ebrado, he was living with his common-wife, Carponia
Ebrado, with whom she had 2 children although he was not legally separated from his
legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the
death Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5) that
complainant Carponia Ebrado filed claim with the Insular Life Assurance Co. which
was contested by Pascuala Ebrado who also filed claim for the proceeds of said policy
6) that in view ofthe adverse claims the insurance company filed this action against
the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due
from the Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the
beneficiary designated by the insured in the policy is Carponia Ebrado and the insured
made reservation to change the beneficiary but although the insured made the option
to change the beneficiary, same was never changed up to the time of his death and
the wife did not have any opportunity to write the company that there was reservation
to change the designation of the parties agreed that a decision be rendered based on
and stipulation of facts as to who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their simultaneous
memoranda from the receipt of this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado
disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the
payment of the insurance proceeds to the estate of the deceased insured. The trial court
held: ñé+.£ªwph!1
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal
conviction for adultery or concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also necessary that a finding of such
guilt or commission of those acts be made in a separate independent action brought
for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance
of evidence in the same proceeding (the action brought to declare the nullity of the
donation).
It is, however, essential that such adultery or concubinage exists at the time
defendant Carponia T. Ebrado was made beneficiary in the policy in question for the
disqualification and incapacity to exist and that it is only necessary that such fact be
established by preponderance of evidence in the trial. Since it is agreed in their
stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without being legally married and that the
marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid
and still existing at the time the insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is disqualified from becoming the
beneficiary of the policy in question and as such she is not entitled to the proceeds of
the insurance upon the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the
Appellate Court certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance
Code (PD No. 612, as amended) does not contain any specific provision grossly resolutory of the prime
question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shag be applied
exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly seized
upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision
refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in
character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and
descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance.
Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law. Article
2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not
expressly provided for in such special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life insurance is governed by the general
rules of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who
is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife
insurance policy by the person who cannot make a donation to him. 4 Common-law spouses are,
definitely, barred from receiving donations from each other. Article 739 of the new Civil Code
provides: ñé+.£ªwph!1
The following donations shall be void:
 1. Those made between persons who were guilty of adultery or concubinage at the
time of donation;
Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of
his office.
In the case referred to in No. 1, the action for declaration of nullity may be brought
by the spouse of the donor or donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action.
2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the insured pays out of liberality, the beneficiary will
receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of
the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012
cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the
life insurance policy of the person who cannot make the donation. 5 Under American law, a policy of life
insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as
a will and determine the effect of a clause designating the beneficiary by rules under which wins are
interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between
common law spouses in record to Property relations since such hip ultimately encroaches upon the
nuptial and filial rights of the legitimate family There is every reason to hold that the bar in donations
between legitimate spouses and those between illegitimate ones should be enforced in life insurance
policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife
insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as manage
remains the threshold of family laws, reason and morality dictate that the impediments imposed upon
married couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is
circumscribed by these legal disabilities, with more reason should an illicit relationship be restricted by
these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,
said: ñé+.£ªwph!1
If the policy of the law is, in the language of the opinion of the then Justice J.B.L.
Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other
consort and his descendants because of and undue and improper pressure and
influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no
se enganen desponjandose el uno al otro por amor que han de consuno' (According
to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore
invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem);
then there is very reason to apply the same prohibitive policy to persons living
together as husband and wife without the benefit of nuptials. For it is not to be
doubted that assent to such irregular connection for thirty years bespeaks greater
influence of one party over the other, so that the danger that the law seeks to avoid
is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib.
32 ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest
the condition 6f those who incurred guilt should turn out to be better.' So long as
marriage remains the cornerstone of our family law, reason and morality alike
demand that the disabilities attached to marriage should likewise attach to
concubinage.
It is hardly necessary to add that even in the absence of the above pronouncement,
any other conclusion cannot stand the test of scrutiny. It would be to indict the frame
of the Civil Code for a failure to apply a laudable rule to a situation which in its
essentials cannot be distinguished. Moreover, if it is at all to be differentiated the
policy of the law which embodies a deeply rooted notion of what is just and what is
right would be nullified if such irregular relationship instead of being visited with
disabilities would be attended with benefits. Certainly a legal norm should not be
susceptible to such a reproach. If there is every any occasion where the principle of
statutory construction that what is within the spirit of the law is as much a part of it
as what is written, this is it. Otherwise the basic purpose discernible in such codal
provision would not be attained. Whatever omission may be apparent in an
interpretation purely literal of the language used must be remedied by an adherence
to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons who
were guilty of adultery or concubinage at the time of the donation," Article 739 itself
provides: ñé+.£ªwph!1
In the case referred to in No. 1, the action for declaration of nullity may be brought
by the spouse of the donor or donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition
precedent. In fact, it cannot even be from the aforequoted provision that a prosecution is needed. On
the contrary, the law plainly states that the guilt of the party may be proved "in the same acting for
declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of
the consort for the offense indicated. The quantum of proof in criminal cases is not demanded.
In the caw before Us, the requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children;
that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado,
with whom he has two children. These stipulations are nothing less than judicial admissions which, as
a consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these
admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole
purpose of proving the illicit liaison between the insured and the beneficiary. In fact, in that pretrial,
the parties even agreed "that a decision be rendered based on this agreement and stipulation of facts
as to who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is
hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance
policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the
deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
G.R. No. 168115 June 8, 2007
VICENTE ONG LIM SING, JR., petitioner,
vs.
FEB LEASING & FINANCE CORPORATION, respondent.
DECISION
NACHURA, J.:
This is a petition for review on certiorari assailing the Decision1 dated March 15, 2005 and the
Resolution2 dated May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 77498.
The facts are as follows:
On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease3 of equipment and
motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong Lim Sing, Jr. (Lim)
executed an Individual Guaranty Agreement4 with FEB to guarantee the prompt and faithful
performance of the terms and conditions of the aforesaid lease agreement. Corresponding Lease
Schedules with Delivery and Acceptance Certificates5 over the equipment and motor vehicles formed
part of the agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross monthly
rental of One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos (₱170,494.00).
JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears,
including penalty charges and insurance premiums, amounted to Three Million Four Hundred Fourteen
Thousand Four Hundred Sixty-Eight and 75/100 Pesos (₱3,414,468.75). On August 23, 2000, FEB sent
a letter to JVL demanding payment of the said amount. However, JVL failed to pay.6
On December 6, 2000, FEB filed a Complaint7 with the Regional Trial Court of Manila, docketed as Civil
Case No. 00-99451, for sum of money, damages, and replevin against JVL, Lim, and John Doe.
In the Amended Answer,8 JVL and Lim admitted the existence of the lease agreement but asserted that
it is in reality a sale of equipment on installment basis, with FEB acting as the financier. JVL and Lim
claimed that this intention was apparent from the fact that they were made to believe that when full
payment was effected, a Deed of Sale will be executed by FEB as vendor in favor of JVL and Lim as
vendees.9 FEB purportedly assured them that documenting the transaction as a lease agreement is just
an industry practice and that the proper documentation would be effected as soon as full payment for
every item was made. They also contended that the lease agreement is a contract of adhesion and
should, therefore, be construed against the party who prepared it, i.e., FEB.
In upholding JVL and Lim’s stance, the trial court stressed the contradictory terms it found in the lease
agreement. The pertinent portions of the Decision dated November 22, 2002 read:
A profound scrutiny of the provisions of the contract which is a contract of adhesion at once exposed
the use of several contradictory terms. To name a few, in Section 9 of the said contract – disclaiming
warranty, it is stated that the lessor is not the manufacturer nor the latter’s agent and therefore does
not guarantee any feature or aspect of the object of the contract as to its merchantability.
Merchantability is a term applied in a contract of sale of goods where conditions and warranties are
made to apply. Article 1547 of the Civil Code provides that unless a contrary intention appears an
implied warranty on the part of the seller that he has the right to sell and to pass ownership of the
object is furnished by law together with an implied warranty that the thing shall be free from hidden
faults or defects or any charge or encumbrance not known to the buyer.
In an adhesion contract which is drafted and printed in advance and parties are not given a real arms’
length opportunity to transact, the Courts treat this kind of contract strictly against their architects for
the reason that the party entering into this kind of contract has no choice but to accept the terms and
conditions found therein even if he is not in accord therewith and for that matter may not have
understood all the terms and stipulations prescribed thereat. Contracts of this character are prepared
unilaterally by the stronger party with the best legal talents at its disposal. It is upon that thought that
the Courts are called upon to analyze closely said contracts so that the weaker party could be fully
protected.
Another instance is when the alleged lessee was required to insure the thing against loss, damage or
destruction.
In property insurance against loss or other accidental causes, the assured must have an insurable
interest, 32 Corpus Juris 1059.
xxxx
It has also been held that the test of insurable interest in property is whether the assured has a right,
title or interest therein that he will be benefited by its preservation and continued existence or suffer a
direct pecuniary loss from its destruction or injury by the peril insured against. If the defendants were
to be regarded as only a lessee, logically the lessor who asserts ownership will be the one directly
benefited or injured and therefore the lessee is not supposed to be the assured as he has no insurable
interest.
There is also an observation from the records that the actual value of each object of the contract would
be the result after computing the monthly rentals by multiplying the said rentals by the number of
months specified when the rentals ought to be paid.
Still another observation is the existence in the records of a Deed of Absolute Sale by and between the
same parties, plaintiff and defendants which was an exhibit of the defendant where the plaintiff sold to
the same defendants one unit 1995 Mitsubishi L-200 STRADA DC PICK UP and in said Deed, The Court
noticed that the same terms as in the alleged lease were used in respect to warranty, as well as liability
in case of loss and other conditions. This action of the plaintiff unequivocally exhibited their real intention
to execute the corresponding Deed after the defendants have paid in full and as heretofore discussed
and for the sake of emphasis the obscurity in the written contract cannot favor the party who caused
the obscurity.
Based on substantive Rules on Interpretation, if the terms are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control. If the words
appear to be contrary to the evident intention of the parties, their contemporaneous and subsequent
acts shall be principally considered. If the doubts are cast upon the principal object of the contract in
such a way that it cannot be known what may have been the intention or will of the parties, the contract
shall be null and void.10
Thus, the court concluded with the following disposition:
In this case, which is held by this Court as a sale on installment there is no chattel mortgage on the
thing sold, but it appears amongst the Complaint’s prayer, that the plaintiff elected to exact fulfillment
of the obligation.
For the vehicles returned, the plaintiff can only recover the unpaid balance of the price because of the
previous payments made by the defendants for the reasonable use of the units, specially so, as it
appears, these returned vehicles were sold at auction and that the plaintiff can apply the proceeds to
the balance. However, with respect to the unreturned units and machineries still in the possession of
the defendants, it is this Court’s view and so hold that the defendants are liable therefore and
accordingly are ordered jointly and severally to pay the price thereof to the plaintiff together with
attorney’s fee and the costs of suit in the sum of Php25,000.00.
SO ORDERED.11
On December 27, 2002, FEB filed its Notice of Appeal.12 Accordingly, on January 17, 2003, the court
issued an Order13 elevating the entire records of the case to the CA. FEB averred that the trial court
erred:
A. When it ruled that the agreement between the Parties-Litigants is one of sale of personal properties
on installment and not of lease;
B. When it ruled that the applicable law on the case is Article 1484 (of the Civil Code) and not R.A. No.
8556;
C. When it ruled that the Plaintiff-Appellant can no longer recover the unpaid balance of the price
because of the previous payments made by the defendants for the reasonable use of the units;
D. When it failed to make a ruling or judgment on the Joint and Solidary Liability of Vicente Ong Lim,
Jr. to the Plaintiff-Appellant.14
On March 15, 2005, the CA issued its Decision15 declaring the transaction between the parties as a
financial lease agreement under Republic Act (R.A.) No. 8556.16 The fallo of the assailed Decision reads:
WHEREFORE, the instant appeal is GRANTED and the assailed Decision dated 22 November 2002
rendered by the Regional Trial Court of Manila, Branch 49 in Civil Case No. 00-99451
is REVERSED and SET ASIDE, and a new judgment is hereby ENTERED ordering appellees JVL Food
Products and Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing and Finance Corporation the
amount of Three Million Four Hundred Fourteen Thousand Four Hundred Sixty Eight Pesos and
75/100 (Php3,414,468.75), with interest at the rate of twelve percent (12%) per annum starting
from the date of judicial demand on 06 December 2000, until full payment thereof. Costs against
appellees.
SO ORDERED.17
Lim filed the instant Petition for Review on Certiorari under Rule 45
contending that:
I
The Honorable Court of Appeals erred when it failed to consider that the undated complaint was filed
by Saturnino J. Galang, Jr., without any authority from respondent’s Board of Directors and/or
Secretary’s Certificate.
II
The Honorable Court of Appeals erred when it failed to strictly apply Section 7, Rule 18 of the 1997
Rules of Civil Procedure and now Item 1, A(8) of A.M. No. 03-1-09 SC (June 8, 2004).
III
The Honorable Court of Appeals erred in not dismissing the appeal for failure of the respondent to file
on time its appellant’s brief and to separately rule on the petitioner’s motion to dismiss.
IV
The Honorable Court of Appeals erred in finding that the contract between the parties is one of a financial
lease and not of a contract of sale.
V
The Honorable Court of Appeals ERRED IN ruling that the payments paid by the petitioner to the
respondent are "rentals" and not installments paid for the purchase price of the subject motor vehicles,
heavy machines and equipment.
VI
The Honorable Court of Appeals erred in ruling that the previous contract of sale involving the pick-up
vehicle is of no consequence.
VII
The Honorable Court of Appeals failed to take into consideration that the contract of lease, a contract
of adhesion, concealed the true intention of the parties, which is a contract of sale.
VIII
The Honorable Court of Appeals erred in ruling that the petitioner is a lessee with insurable interest
over the subject personal properties.
IX
The Honorable Court of Appeals erred in construing the intentions of the Court a quo in its usage of the
term merchantability.18
We affirm the ruling of the appellate court.
First, Lim can no longer question Galang’s authority as FEB’s authorized representative in filing the suit
against Lim. Galang was the representative of FEB in the proceedings before the trial court up to the
appellate court. Petitioner never placed in issue the validity of Galang’s representation before the trial
and appellate courts. Issues raised for the first time on appeal are barred by estoppel. Arguments not
raised in the original proceedings cannot be considered on review; otherwise, it would violate basic
principles of fair play.19
Second, there is no legal basis for Lim to question the authority of the CA to go beyond the matters
agreed upon during the pre-trial conference, or in not dismissing the appeal for failure of FEB to file its
brief on time, or in not ruling separately on the petitioner’s motion to dismiss.
Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful
of the duty to reconcile both the need to speedily put an end to litigation and the parties’ right to due
process. In numerous cases, this Court has allowed liberal construction of the rules when to do so would
serve the demands of substantial justice and equity.20 In Aguam v. Court of Appeals , the Court
explained:
The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power conferred
on the court, not a duty. The "discretion must be a sound one, to be exercised in accordance with the
tenets of justice and fair play, having in mind the circumstances obtaining in each case." Technicalities,
however, must be avoided. The law abhors technicalities that impede the cause of justice. The court's
primary duty is to render or dispense justice. "A litigation is not a game of technicalities." "Lawsuits
unlike duels are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an
aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from
courts." Litigations must be decided on their merits and not on technicality. Every party litigant must
be afforded the amplest opportunity for the proper and just determination of his cause, free from the
unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned
upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of
procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to
help secure, not override substantial justice. It is a far better and more prudent course of action for the
court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the
ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties,
giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a
miscarriage of justice.21
Third, while we affirm that the subject lease agreement is a contract of adhesion, such a contract is not
void per se. It is as binding as any ordinary contract. A party who enters into an adhesion contract is
free to reject the stipulations entirely.22 If the terms thereof are accepted without objection, then the
contract serves as the law between the parties.
In Section 23 of the lease contract, it was expressly stated that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE
23.1. The LESSOR and the LESSEE agree this instrument constitute the entire agreement between
them, and that no representations have been made other than as set forth herein. This Agreement shall
not be amended or altered in any manner, unless such amendment be made in writing and signed by
the parties hereto.
Petitioner’s claim that the real intention of the parties was a contract of sale of personal property on
installment basis is more likely a mere afterthought in order to defeat the rights of the respondent.
The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance Certificates is,
in point of fact, a financial lease within the purview of R.A. No. 8556. Section 3(d) thereof defines
"financial leasing" as:
[A] mode of extending credit through a non-cancelable lease contract under which the lessor purchases
or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business
and office machines, and other movable or immovable property in consideration of the periodic payment
by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the purchase
price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory
period of not less than two (2) years during which the lessee has the right to hold and use the leased
property with the right to expense the lease rentals paid to the lessor and bears the cost of repairs,
maintenance, insurance and preservation thereof, but with no obligation or option on his part to
purchase the leased property from the owner-lessor at the end of the lease contract.
FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly periodic
payment of ₱170,494.00. The periodic payment by petitioner is sufficient to amortize at least 70% of
the purchase price or acquisition cost of the said movables in accordance with the Lease Schedules with
Delivery and Acceptance Certificates. "The basic purpose of a financial leasing transaction is to enable
the prospective buyer of equipment, who is unable to pay for such equipment in cash in one lump sum,
to lease such equipment in the meantime for his use, at a fixed rental sufficient to amortize at least
70% of the acquisition cost (including the expenses and a margin of profit for the financial lessor) with
the expectation that at the end of the lease period the buyer/financial lessee will be able to pay any
remaining balance of the purchase price."23
Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL entered into the
lease contract with full knowledge of its terms and conditions. The contract was in force for more than
four years. Since its inception on March 9, 1995, JVL and Lim never questioned its provisions. They only
attacked the validity of the contract after they were judicially made to answer for their default in the
payment of the agreed rentals.
It is settled that the parties are free to agree to such stipulations, clauses, terms, and conditions as
they may want to include in a contract. As long as such agreements are not contrary to law, morals,
good customs, public policy, or public order, they shall have the force of law between the
parties.26 Contracting parties may stipulate on terms and conditions as they may see fit and these have
the force of law between them.27
The stipulation in Section 1428 of the lease contract, that the equipment shall be insured at the cost and
expense of the lessee against loss, damage, or destruction from fire, theft, accident, or other insurable
risk for the full term of the lease, is a binding and valid stipulation. Petitioner, as a lessee, has an
insurable interest in the equipment and motor vehicles leased. Section 17 of the Insurance Code
provides that the measure of an insurable interest in property is the extent to which the insured might
be damnified by loss or injury thereof. It cannot be denied that JVL will be directly damnified in case of
loss, damage, or destruction of any of the properties leased.
Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not warrant the
merchantability of the equipment is a valid stipulation. Section 9.1 of the lease contract is stated as:

9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS NOT THE MANUFACTURER OR
The allegation of petitioner that the rent for the use of each movable constitutes the value of the vehicle
SUPPLIER OF THE EQUIPMENT NOR THE AGENT OF THE MANUFACTURER OR SUPPLIER THEREOF. THE
or equipment leased is of no moment. The law on financial lease does not prohibit such a circumstance
LESSEE HEREBY ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER
and this alone does not make the transaction between the parties a sale of personal property on
THEREOF AND THAT THERE ARE NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR
installment. In fact, the value of the lease, usually constituting the value or amount of the property
INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY OR ON BEHALF OF THE
involved, is a benefit allowed by law to the lessor for the use of the property by the lessee for the
LESSOR AS TO ANY FEATURE OR ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS TO ITS
duration of the lease. It is recognized that the value of these movables depreciates through wear and
FITNESS, SUITABILITY, CAPACITY, CONDITION OR MERCHANTABILITY, NOR AS TO WHETHER THE
tear upon use by the lessee. In Beltran v. PAIC Finance Corporation,24 we stated that:
EQUIPMENT WILL MEET THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS OR CONTRACT
WHICH PROVIDE FOR SPECIFIC MACHINERY OR APPARATUS OR SPECIAL METHODS.29
Generally speaking, a financing company is not a buyer or seller of goods; it is not a trading company.
Neither is it an ordinary leasing company; it does not make its profit by buying equipment and
In the financial lease agreement, FEB did not assume responsibility as to the quality, merchantability,
repeatedly leasing out such equipment to different users thereof. But a financial lease must be preceded
or capacity of the equipment. This stipulation provides that, in case of defect of any kind that will be
by a purchase and sale contract covering the equipment which becomes the subject matter of the
found by the lessee in any of the equipment, recourse should be made to the manufacturer. "The
financial lease. The financial lessor takes the role of the buyer of the equipment leased. And so the
financial lessor, being a financing company, i.e., an extender of credit rather than an ordinary equipment
formal or documentary tie between the seller and the real buyer of the equipment, i.e., the financial
rental company, does not extend a warranty of the fitness of the equipment for any particular use.
lessee, is apparently severed. In economic reality, however, that relationship remains. The sale of the
Thus, the financial lessee was precisely in a position to enforce such warranty directly against the
equipment by the supplier thereof to the financial lessor and the latter's legal ownership thereof are
supplier of the equipment and not against the financial lessor. We find nothing contra legem or contrary
intended to secure the repayment over time of the purchase price of the equipment, plus financing
to public policy in such a contractual arrangement."30
charges, through the payment of lease rentals; that legal title is the upfront security held by the financial
lessor, a security probably superior in some instances to a chattel mortgagee's lien.25
Fifth, petitioner further proffers the view that the real intention of the parties was to enter into a contract
of sale on installment in the same manner that a previous transaction between the parties over a 1995
Mitsubishi L-200 Strada DC-Pick-Up was initially covered by an agreement denominated as a lease and
eventually became the subject of a Deed of Absolute Sale.

We join the CA in rejecting this view because to allow the transaction involving the pick-up to be read
into the terms of the lease agreement would expand the coverage of the agreement, in violation of
Article 1372 of the New Civil Code. 31 The lease contract subject of the complaint speaks only of a lease.
Any agreement between the parties after the lease contract has ended is a different transaction
altogether and should not be included as part of the lease. Furthermore, it is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its stipulations shall control. No amount of extrinsic aid
is necessary in order to determine the parties' intent.32

WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of the CA in CA-G.R.
CV No. 77498 dated March 15, 2005 and Resolution dated May 23, 2005 are AFFIRMED. Costs against
petitioner.

SO ORDERED.