INSURANCE CASES

G.R. No. 156956             October 9, 2006

REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as

Insurance Commissioner, petitioner,
vs.
DEL MONTE MOTORS, INC., respondent.

RTC approves the garnishment of the security deposit paid for by the Insurance Company.
ISSUE: May the deposit allowed to be garnished?
HELD: No. The right to lay claim on the fund is dependent on the solvency of the insurer
and is subject to all other obligations of the company arising from its insurance
contracts.
Moreover, since insolvency proceedings against CISCO have yet to be conducted, it
would be impossible to establish at this time which claimants are entitled to the security
deposit and in what pro-rated amounts. Only after all other claimants under subsisting
policies issued by CISCO have been heard can respondent's share be determined.

G.R. No. 167330               September 18, 2009

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION

CORONA, J.:

ISSUE: is an HMO an insurance company granting that it has all the requisites to be classified as
an insurance business?
Petitioner, however, submits that it is of critical importance to characterize the business
it is engaged in, that is, to determine whether it is an HMO or an insurance company, as
this distinction is indispensable in turn to the issue of whether or not it is liable for DST
on its health care agreements.
HELD: No.
Various courts in the United States, whose jurisprudence has a persuasive effect on our
decisions,21 have determined that HMOs are not in the insurance business. One test
that they have applied is whether the assumption of risk and indemnification of loss
(which are elements of an insurance business) are the principal object and purpose of
the organization or whether they are merely incidental to its business. If these are the
principal objectives, the business is that of insurance. But if they are merely incidental
and service is the principal purpose, then the business is not insurance.

G.R. No. 185565               November 26, 2014

LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR

INTERNATIONAL SHIPPING COMPANY, INCORPORATED, Petitioners,
vs.
MALAYAN INSURANCE COMPANY, INCORPORATED, Respondent.

DECISION

Loadstar International Shipping, Inc.(Loadstar Shipping) and Philippine Associated

Smelting and Refining Corporation (PASAR) entered into a Contract of Affreightment for
domestic bulk transport of the latter’s copper concentrates for a period of one year from
November 1, 1998 to October 31, 1999. The contract was extended up to the end of
October 2000
ISSUE: It is not disputed that the copper concentrates carried by M/V Bobcat from Poro
Point, La Union to Isabel, Leyte were indeed contaminated with seawater. The issue lies
on whether such contamination resulted to damage, and the costs thereof, if
any,incurred by the insured PASAR.
On this score, the Court agrees with Malayan that contrary to the trial court’s
disquisition, the petitioners cannot validly invoke the penalty clause under the Philex-
PASAR purchase agreement, where penalties are to be imposed by the buyer PASAR
against the seller Philex if some elements exceeding the agreed limitations are found on
the copper concentrates upon delivery. The petitioners are not privy tothe contract of
sale of the copper concentrates. The contract between PASAR and the petitioners is a
contract of carriage of goods and not a contract of sale. Therefore, the petitioners and
PASAR are bound by the laws on transportation of goods and their contract of
affreightment. Since the Contract of Affreightment17 between the petitioners and PASAR
is silent as regards the computation of damages, whereas the bill of lading presented
before the trial court is undecipherable, the New Civil Code and the Code ofCommerce
shall govern the contract between the parties
From the above-cited provisions, if the goods are delivered but arrived at the destination
in damaged condition, the remedies to be pursued by the consignee depend on the
extent of damage on the goods.
Malayan, as the insurer of PASAR, neither stated nor proved that the goods are
rendered useless or unfit for the purpose intended by PASAR due to contamination with
seawater. Hence, there is no basis for the goods’ rejection under Article 365 of the
Code of Commerce. Clearly, it is erroneous for Malayan to reimburse PASAR as though
the latter suffered from total loss of goods in the absence of proof that PASAR
sustained such kind of loss. Otherwise, there will be no difference inthe indemnification
of goods which were not delivered at all; or delivered but rendered useless, compared
against those which were delivered albeit, there is diminution in value.
 the petition is GRANTED. The Decision dated April 14, 2008 and Resolution dated
December 11, 2008 of the Court of Appeals in CA-G.R. CV No. 82758 are hereby
REVERSED and SET ASIDE

G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.
HONORABLE COURT OF APPEALS, respondents.

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING,

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with
the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a
twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year
old daughter Helen Go. Said respondent supplied the essential data which petitioner
Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote
the data on the application form which was signed by private respondent Ngo Hing. The
latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he
reatined the amount of P1,317.00 as his commission for being a duly authorized agebt
of Pacific Life. Upon the payment of the insurance premuim, the binding deposit receipt
(Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon
handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Then on April 30, 1957,
Mondragon received a letter from Pacific Life disapproving the insurance application
(Exhibit 3-M). The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old
Child Died.
ISSUE: Was there a contract of insurance?
HELD : No. It was merely an application that is still subject to approval.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely
conditional and does not insure outright.
As held by this Court, where an agreement is made between the applicant and the
agent, no liability shall attach until the principal approves the risk and a receipt is
given by the agent. 
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
insurance, like other contracts, must be assented to by both parties either in person
or by their agents ..

G.R. No. 156167             May 16, 2005

GULF RESORTS, INC., petitioner,

vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

DECISION

PUNO, J.:

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its
properties in said resort insured originally with the American Home Assurance Company
(AHAC-AIU). In the first four insurance policies issued by AHAC-AIU from 1984-85;
1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2", "3"
and "4" respectively), the risk of loss from earthquake shock was extended only to
plaintiff’s two swimming pools, thus, "earthquake shock endt." 
that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that
on July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s
properties covered by Policy No. 31944 issued by defendant, including the two
swimming pools in its Agoo Playa Resort were damaged
After the earthquake, petitioner advised respondent that it would be making a claim
under its Insurance Policy No. 31944 for damages on its properties. Respondent
instructed petitioner to file a formal claim, then assigned the investigation of the claim to
an independent claims adjuster, Bayne Adjusters and Surveyors, Inc.3 On July 30,
1990, respondent, through its adjuster, requested petitioner to submit various
documents in support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors,
Inc., through its Vice-President A.R. de Leon,4 rendered a preliminary report5 finding
extensive damage caused by the earthquake to the clubhouse and to the two swimming
pools. Mr. de Leon stated that "except for the swimming pools, all affected items have
no coverage for earthquake shocks

Petitioner contends:

First, that the policy’s earthquake shock endorsement clearly covers all of the
properties insured and not only the swimming pools. It used the words "any property
insured by this policy," and it should be interpreted as all inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock endorsement
is confirmed in the body of the insurance policy itself, which states that it is "[s]ubject to:
Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt., Extended
Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term
Policies."17

Third, that the qualification referring to the two swimming pools had already been
deleted in the earthquake shock endorsement.

Fourth, it is unbelievable for respondent to claim that it only made an inadvertent

omission when it deleted the said qualification.

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly
extended coverage against earthquake shock to petitioner’s insured properties other
than on the two swimming pools. Petitioner admitted that from 1984 to 1988, only the
two swimming pools were insured against earthquake shock. From 1988 until 1990, the
provisions in its policy were practically identical to its earlier policies, and there was no
increase in the premium paid. AHAC-AIU, in a letter19 by its representative Manuel C.
Quijano, categorically stated that its previous policy, from which respondent’s policy was
copied, covered only earthquake shock for the two swimming pools.

Second, petitioner’s payment of additional premium in the amount of P393.00 shows

that the policy only covered earthquake shock damage on the two swimming pools. The
amount was the same amount paid by petitioner for earthquake shock coverage on the
two swimming pools from 1990-1991. No additional premium was paid to warrant
coverage of the other properties in the resort.

Third, the deletion of the phrase pertaining to the limitation of the earthquake shock
endorsement to the two swimming pools in the policy schedule did not expand the
earthquake shock coverage to all of petitioner’s properties. As per its agreement with
petitioner, respondent copied its policy from the AHAC-AIU policy provided by
petitioner. 
RTC grants but CA reverses The above schedule clearly shows that plaintiff paid only a
premium of P393.00 against the peril of earthquake shock, the same premium it paid
against earthquake shock only on the two swimming pools in all the policies issued by
AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the Court must
consequently agree with the position of defendant that the endorsement rider (Exhibit
"7-C") means that only the two swimming pools were insured against earthquake shock.
Because it is the finding of the Court as stated in the immediately preceding paragraph
that defendant is liable only for the damage caused to the two (2) swimming pools and
that defendant has made known to plaintiff its willingness and readiness to settle said
liability, there is no basis for the grant of the other damages prayed for by plaintiff.
HELD: No merit.

First, in the designation of location of risk, only the two swimming pools were specified
as included, viz:

ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril of
earthquake shock only)20

Second, under the breakdown for premium payments,21 it was stated that:

PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx
3 393,000.00 0.100%-E/S 393.0022]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through
or in consequence, directly or indirectly of any of the following occurrences,
namely:--

(a) Earthquake, volcanic eruption or other convulsion of nature. 23

Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To
Include the Perils of Explosion, Aircraft, Vehicle and Smoke)," state

 Thus, an insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

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

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses

among a large group of persons bearing a similar risk; and

5. In consideration of the insurer's promise, the insured pays a

premium.26 (Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify

the insured against a specified peril.27 In fire, casualty, and marine insurance, the
premium payable becomes a debt as soon as the risk attaches.28 In the subject policy,
no premium payments were made with regard to earthquake shock coverage, except on
the two swimming pools. There is no mention of any premium payable for the other
resort properties with regard to earthquake shock. 

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot
rely on the general rule that insurance contracts are contracts of adhesion which should
be liberally construed in favor of the insured and strictly against the insurer company
which usually prepares it.31 A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the other party merely
affixes his signature or his "adhesion" thereto. Through the years, the courts have held
that in these type of contracts, the parties do not bargain on equal footing, the weaker
party's participation being reduced to the alternative to take it or leave it. Thus, these
contracts are viewed as traps for the weaker party whom the courts of justice must
protect.32 Consequently, any ambiguity therein is resolved against the insurer, or
construed liberally in favor of the insured.33

The case law will show that this Court will only rule out blind adherence to terms where
facts and circumstances will show that they are basically one-sided.34 Thus, we have
called on lower courts to remain careful in scrutinizing the factual circumstances behind
each case to determine the efficacy of the claims of contending parties.
In Development Bank of the Philippines v. National Merchandising Corporation, et
al.,35 the parties, who were acute businessmen of experience, were presumed to have
assented to the assailed documents with full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar.
Petitioner cannot claim it did not know the provisions of the policy. From the inception of
the policy, petitioner had required the respondent to copy verbatim the provisions and
terms of its latest insurance policy from AHAC-AIU
.R. No. 195872               March 12, 2014

FORTUNE MEDICARE, INC., Petitioner,

vs.
DAVID ROBERT U. AMORIN, Respondent.

David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc.

(Fortune Care), a corporation engaged in providing health maintenance services to its
members. The terms of Amorin's medical coverage were provided in a Corporate Health
Program Contract4 (Health Care Contract) which was executed on January 6, 2000 by
Fortune Care and the House of Representatives, where Amorin was a permanent
employee.
While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999,
Amorin underwent an emergency surgery, specifically appendectomy, at the St. Francis
Medical Center, causing him to incur professional and hospitalization expenses of
US$7,242.35 and US$1,777.79, respectively. He attempted to recover from Fortune
Care the full amount thereof upon his return to Manila, but the company merely
approved a reimbursement of ₱12,151.36, an amount that was based on the average
cost of appendectomy, net of medicare deduction, if the procedure were performed in
an accredited hospital in Metro Manila

ISSUE: B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total

hospitalization cost including the professional fee (based on the total approved charges)
to a member who receives emergency care in a non-accredited hospital. The above
coverage applies only to Emergency confinement within Philippine Territory. However, if
the emergency confinement occurs in a foreign territory, Fortune Care will be obligated
to reimburse or pay eighty (80%) percent of the approved standard charges which shall
cover the hospitalization costs and professional fees.

RTC dismisses Amorin and concludes that Philippine Standard rule should be used.
The clause providing for reimbursement in case of emergency operation in a foreign
territory equivalent to 80% of the approved standard charges which shall cover
hospitalization costs and professional fees, can only be reasonably construed in
connection with the preceding clause on professional fees to give meaning to a
somewhat vague clause.
CA Reverses.
In so ruling, the appellate court pointed out that, first, health care agreements such as
the subject Health Care Contract, being like insurance contracts, must be liberally
construed in favor of the subscriber. 
HELD: No merit. Amorin is right and Fortune Care is wrong to apply the Philipine Standard.
When the terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with
his obligation.
Being a contract of adhesion, the terms of an insurance contract are to be construed
strictly against the party which prepared the contract – the insurer. By reason of the
exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.  

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the
parties thereto contemplated the possibility of emergency care in a foreign country. As
the contract recognized Fortune Care’s liability for emergency treatments even in
foreign territories, it expressly limited its liability only insofar as the percentage of
hospitalization and professional fees that must be paid or reimbursed was concerned,
pegged at a mere 80% of the approved standard charges.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it
could be susceptible of different meanings. Plainly, the term "standard charges" could
be read as referring to the "hospitalization costs and professional fees" which were
specifically cited as compensable even when incurred in a foreign country. Contrary to
Fortune Care’s argument, from nowhere in the Health Care Contract could it be
reasonably deduced that these "standard charges" referred to the "Philippine standard",
or that cost which would have been incurred if the medical services were performed in
an accredited hospital situated in the Philippines. The RTC ruling that the use of the
"Philippine standard" could be inferred from the provisions of Section 3(A), which
covered emergency care in an accredited hospital, was misplaced. Evidently, the
parties to the Health Care Contract made a clear distinction between emergency care in
an accredited hospital, and that obtained from a non-accredited hospital.1âwphi1 The
limitation on payment based on "Philippine standard" for services of accredited
physicians was expressly made applicable only in the case of an emergency care in an
accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated
with and reasonably inferred from the other provisions of Section 3(B), considering that
Amorin’s case fell under the second case, i.e., emergency care in a non-accredited
hospital. Rather than a determination of Philippine or American standards, the first part
of the provision speaks of the full reimbursement of "the total hospitalization cost
including the professional fee (based on the total approved charges) to a member who
receives emergency care in a non-accredited hospital" within the Philippines. Thus, for
emergency care in non-accredited hospitals, this cited clause declared the standard in
the determination of the amount to be paid, without any reference to and regardless of
the amounts that would have been payable if the treatment was done by an affiliated
physician or in an affiliated hospital. For treatments in foreign territories, the only
qualification was only as to the percentage, or 80% of that payable for treatments
performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability
to costs that are applicable in the Philippines, the amount payable by Fortune Care
should not be limited to the cost of treatment in the Philippines, as to do so would result
in the clear disadvantage of its member.

G.R. No. L-109937 March 21, 1994

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, (ESTOPPEL)

vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented
by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE
POOL, respondents.

In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-
in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines
(DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was
advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP
Mortgage Redemption Insurance Pool (DBP MRI Pool).

On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent,
was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the
DBP MRI Pool was advised of the credit.

On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this
information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified
DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit
of 60 years at the time of application.

On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late
husband's MRI application. The DBP offered to refund the premium of P1,476.00 which
the deceased had paid, but Candida Dans refused to accept the same, demanding
payment of the face value of the MRI or an amount equivalent to the loan. She, likewise,
refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and
against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial
court found no privity of contract between it and the deceased. The trial court declared
DBP in estoppel for having led Dans into applying for MRI and actually collecting the
premium and the service fee, despite knowledge of his age ineligibility. The CA affirms
ISSUE: Is DBP in estoppel?
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool.
The pool, however, did not approve the application of Dans. There is also no showing
that it accepted the sum of P1,476.00, which DBP credited to its account with full
knowledge that it was payment for Dan's premium. There was, as a result, no perfected
contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that
does not exist.

The liability of DBP is another matter.

It was DBP, as a matter of policy and practice, that required Dans, the borrower, to
secure MRI coverage. Instead of allowing Dans to look for his own insurance carrier or
some other form of insurance policy, DBP compelled him to apply with the DBP MRI
Pool for MRI coverage. When Dan's loan was released on August 11, 1987, DBP
already deducted from the proceeds thereof the MRI premium. Four days latter, DBP
made Dans fill up and sign his application for MRI, as well as his health statement. The
DBP later submitted both the application form and health statement to the DBP MRI
Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10
percent of the premium collected by it from Dans.

In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the
second as an insurance agent.

As an insurance agent, DBP made Dans go through the motion of applying for said
insurance, thereby leading him and his family to believe that they had already fulfilled all
the requirements for the MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Dan's application was never going to be
approved. The maximum age for MRI acceptance is 60 years as clearly and specifically
provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in
1984 by all the insurance companies concerned (Exh. "1-Pool").

Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is
not personally liable to the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving such party sufficient notice of
his powers."

The DBP is not authorized to accept applications for MRI when its clients are more than
60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI
coverage because of his advanced age, DBP exceeded the scope of its authority when
it accepted Dan's application for MRI by collecting the insurance premium, and
deducting its agent's commission and service fee.

The liability of an agent who exceeds the scope of his authority depends upon whether
the third person is aware of the limits of the agent's powers. There is no showing that
Dans knew of the limitation on DBP's authority to solicit applications for MRI.
The assessment of moral damages is left to the discretion of the court according to the
circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that
DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its
claim and that DBP's non-disclosure of the limits of its authority amounted to a
deception to its client, an award of moral damages in the amount of P50,000.00 would
be reasonable.

The award of attorney's fees is also just and equitable under the circumstances (Civil
Code of the Philippines, Article 2208

G.R. No. 137172            April 4, 2001

UCPB GENERAL INSURANCE CO., INC., petitioner, (ESTOPPEL, 30-90 DAY

CREDIT TERM)
vs.
MASAGANA TELAMART, INC., respondent.

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5)
insurance policies (Exhibits "A" to "E", Record, pp. 158-175) on its properties
All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May
1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs properties located at
2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire.
 plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's Checks
in the total amount of P225,753.45 as renewal premium payments for which Official
Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by
defendant. On July 14, 1992, Masagana made its formal demand for indemnification for
the burned insured properties. 

On the same day, defendant returned the five (5) manager's checks stating in its letter
(Exhibit "R" / "8", Record, p. 192) that it was rejecting Masagana's claim on the following
grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another
term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal
earlier; and

c) The properties covered by the said policies were burned in a fire that took
place last June 13, 1992, or before tender of premium payment."
Both the Court of Appeals and the trial court found that sufficient proof exists
that Respondent, which had procured insurance coverage from Petitioner for a
number of years, had been granted a 60 to 90-day credit term for the renewal of
the policies. Such a practice had existed up to the time the claims were filed. 
Moreover, according to the Court of Appeals the following circumstances constitute
preponderant proof that no timely notice of non-renewal was made by Petitioner:
Respondent also asserts that the principle of estoppel applies to Petitioner.
Despite its awareness of Section 77 Petitioner persuaded and induced Respondent to
believe that payment of premium on the 60- to 90-day credit term was perfectly alright;
in fact it accepted payments within 60 to 90 days after the due dates.
By extending credit and habitually accepting payments 60 to 90 days from the effective
dates of the policies, it has implicitly agreed to modify the tenor of the insurance
policy and in effect waived the provision therein that it would pay only for the loss or
damage in case the same occurred after payment of the premium
ISSUE: if whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) must be
strictly applied (The General Rule) to Petitioner's advantage despite its practice of
granting a 60- to 90-day credit term for the payment of premiums (despite its being in
estoppel, whereby respondent ate hook line and sinker its representations).

HELD: Yes, Moreover, there is nothing in Section 77 which prohibits the parties in an
insurance contract to provide a credit term within which to pay the premiums. That
agreement is not against the law, morals, good customs, public order or public policy.
The agreement binds the parties. Article 1306 of the Civil Code provides:

ARTICLE 1306. The contracting parties may establish such stipulations clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.

Finally in the instant case, it would be unjust and inequitable if recovery on the policy
would not be permitted against Petitioner, which had consistently granted a 60- to 90-
day credit term for the payment of premiums despite its full awareness of Section 77.
Estoppel bars it from taking refuge under said Section, since Respondent relied in good
faith on such practice. Estoppel then is the fifth exception to Section 77.

Section 77 of the Insurance Code of 1978 provides:

SECTION 77. An insurer is entitled to payment of the premium as soon as the

thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary,
 (GENERAL RULE) no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid,

(1) except in the case of a life or an industrial life policy whenever the grace
period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SECTION 78. Any acknowledgment in a policy or contract of insurance of

the receipt of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein that it shall not
be binding until premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court
of Appeals, 5 wherein we ruled that Section 77 may not apply if the parties have agreed
to the payment in installments of the premium and partial payment has been
made at the time of loss. 
By the approval of the aforequoted findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth exception to Section 77, namely, (4) that the
insurer may grant credit extension for the payment of the premium.

(5) is the doctrine of Estoppel established here in Masagana

Section 77 states, general rule that no premium payment, no insurance, except for life and
industrial life in consideration for the grace period, Section 78 where an acknowledgment is
conclusive evidence of its acceptance, in Makati Tuscany Condo wherein both parties agreed to
an installment plan for the premiums and there has been partial payment and that the insurer
may grant credit extension for the payment of the premium and finally, estoppel in Masagana.
G.R. No. L-24833             September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner,(ESTOPPEL, PRIVATE JEEPNEY

DRIVER)
vs.
MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF
APPEALS, respondents.

Federico Songco of Floridablanca, Pampanga, a man of scant education being only a

first grader ..., owned a private jeepney with Plate No. 41-289 for the year 1960. On
September 15, 1960, as such private vehicle owner, he was induced by Fieldmen's
Insurance Company Pampanga agent Benjamin Sambat to apply for a Common
Carrier's Liability Insurance Policy covering his motor vehicle ... Upon paying an annual
premium of P16.50, defendant Fieldmen's Insurance Company, Inc. issued on
September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO- 4254 ...
the duration of which will be for one (1) year, effective September 15, 1960 to
September 15, 1961. On September 22, 1961, the defendant company, upon payment
of the corresponding premium, renewed the policy by extending the coverage from
October 15, 1961 to October 15, 1962. This time Federico Songco's private jeepney
carried Plate No. J-68136-Pampanga-1961. ... On October 29, 1961, during the
effectivity of the renewed policy, the insured vehicle while being driven by Rodolfo
Songco, a duly licensed driver and son of Federico (the vehicle owner) collided with a
car in the municipality of Calumpit, province of Bulacan, as a result of which mishap
Federico Songco (father) and Rodolfo Songco (son) died, Carlos Songco (another son),
the latter's wife, Angelita Songco, and a family friend by the name of Jose Manuel
sustained physical injuries of varying degree." 
Amor Songco, 42-year-old son of deceased Federico Songco, testifying as witness,
declared that when insurance agent Benjamin Sambat was inducing his father to insure
his vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is an
"owner" private vehicle and not for passengers,' to which agent Sambat replied:
'whether our vehicle was an "owner" type or for passengers it could be insured because
their company is not owned by the Government and the Government has nothing to do
with their company. So they could do what they please whenever they believe a vehicle
is insurable' ... In spite of the fact that the present case was filed and tried in the CFI of
Pampanga, the defendant company did not even care to rebut Amor Songco's
testimony by calling on the witness-stand agent Benjamin Sambat, its Pampanga Field
Representative.
 this is a case where the doctrine of estoppel undeniably calls for application. After
petitioner Fieldmen's Insurance Co., Inc. had led the insured Federico Songco to
believe that he could qualify under the common carrier liability insurance policy,
and to enter into contract of insurance paying the premiums due, it could not,
thereafter, in any litigation arising out of such representation, be permitted to
change its stand to the detriment of the heirs of the insured. As estoppel is
primarily based on the doctrine of good faith and the avoidance of harm that will
befall the innocent party due to its injurious reliance, the failure to apply it in this
case would result in a gross travesty of justice.

Malayan vs CA, TKC (AMBIGUITY)

assailed in this petition for review on certiorari is the decision of the Court of
Appeals in CA-G.R. No. 430231 which affirmed, with slight modification, the
decision of the Regional Trial Court of Cebu, Branch 15.

Private respondent TKC Marketing Corp. was the owner/consignee of some

3,189.171 metric tons of soya bean meal which was loaded on board the
ship MV Al Kaziemah on or about September 8, 1989 for carriage from the
port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured
against the risk of loss by petitioner Malayan Insurance Corporation for
which it issued two (2) Marine Cargo Policy Nos. M/LP 97800305 amounting
to P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45, both
dated September 1989.

While the vessel was docked in Durban, South Africa on September 11, 1989
enroute to Manila, the civil authorities arrested and detained it
because of a lawsuit on a question of ownership and possession.  

As a result, private respondent notified petitioner on October 4, 1989 of the

arrest of the vessel and made a formal claim for the amount of
US$916,886.66, representing the dollar equivalent on the policies, for non-
delivery of the cargo. Private respondent likewise sought the assistance of
petitioner on what to do with the cargo.

Petitioner replied that the arrest of the vessel by civil authority was not a
peril covered by the policies

ISSUE: Construction of the arrest of the civil authority, In ruling that the arrest of the
vessel was a risk covered under the subject insurance policies.
The resolution of this controversy hinges on the interpretation of the "Perils"
clause of the subject policies in relation to the excluded risks or warranty
specifically stated therein.

RTC ruled in favor of respondent, CA affirms.

The exception or limitation to the "Perils" clause and the "All other perils"
clause in the subject policies is specifically referred to as Clause 12 called
the "Free from Capture & Seizure Clause" or the F.C. & S. 

Should Clause 12 be deleted, the relevant current institute war clauses shall
be deemed to form part of this insurance." (Underscoring supplied)

However, the F. C. & S. Clause was deleted from the policies. Consequently,
the Institute War Clauses (Cargo) was deemed incorporated which, in
subsection 1.1 of Section 1, provides:

"1. This insurance covers:

1.1 The risks excluded from the standard form of English Marine Policy by
the clause warranted free of capture, seizure, arrest, restraint or
detainment, and the consequences thereof of hostilities or warlike
operations, whether there be a declaration of war or not; but this warranty
shall not exclude collision, contact with any fixed or floating object (other
than a mine or torpedo), stranding, heavy weather or fire unless caused
directly (and independently of the nature on voyage or service which the
vessel concerned or, in the case of a collision any other vessel involved
therein is performing) by a hostile act by or against a belligerent power; and
for the purpose of this warranty 'power' includes any authority maintaining
naval, military or air forces in association with a power. Further warranted
free from the consequences of civil war, revolution, rebellion, insurrection, or
civil strike arising therefrom, or piracy."

This Court cannot agree with petitioner's assertions, particularly when it

alleges that in the "Perils" Clause, it assumed the risk of arrest caused solely
by executive or political acts of the government of the seizing state and
thereby excludes "arrests" caused by ordinary legal processes, such as in the
instant case.

With the incorporation of subsection 1.1 of Section 1 of the Institute War

Clauses, however, this Court agrees with the Court of Appeals and the
private respondent that "arrest" caused by ordinary judicial process
is deemed included among the covered risks.

This interpretation becomes inevitable when subsection 1.1 of Section 1 of

the Institute War Clauses provided that "this insurance covers the risks
excluded from the Standard Form of English Marine Policy by the clause
'Warranted free of capture, seizure, arrest, etc. x x x'" or the F.C. & S.
Clause. Jurisprudentially, "arrests" caused by ordinary judicial process is also
a risk excluded from the Standard Form of English Marine Policy by the F.C.
& S. Clause.

Petitioner cannot adopt the argument that the "arrest" caused by ordinary
judicial process is not included in the covered risk simply because the F.C. &
S. Clause under the Institute War Clauses can only be operative in case of
hostilities or warlike operations on account of its heading "Institute War
Clauses." This Court agrees with the Court of Appeals when it held that "...
Although the F.C. & S. Clause may have originally been inserted in marine
policies to protect against risks of war, (see generally G. Gilmore & C. Black,
The Law of Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation
in recent years to include seizure or detention by civil authorities seems
consistent with the general purposes of the clause, 

Indemnity and liability insurance policies are construed in accordance with

the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. 18 A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be
construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with
its obligations.19chanro

G.R. No. L-16215             June 29, 1963

SIMEON DEL ROSARIO, plaintiff-appellee, (AMBIGUITY)

vs.
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.
On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued
Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito
Bolero, son of herein plaintiff-appellee, binding itself to pay the sum of P1,000.00 to
P3,000.00, as indemnity for the death of the insured.

A rider to the Policy contained the following:

IV. DROWNING

It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI
of the policy is hereby waived by the company, and to form a part of the provision
covered by the policy.

On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while
on board the motor launch "ISLAMA" together with 33 others, including his beneficiary
in the Policy, Remedios Jayme, were forced to jump off said launch on account of fire
which broke out on said vessel, resulting in the death of drowning, of the insured and
beneficiary in the waters of Jolo.

April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a
claim for payment with defendant company, and on September 13, 1957, defendant
company paid to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of
the policy. The receipt signed by plaintiff reads —

RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum
of PESOS — ONE THOUSAND (P1,000.00) Philippine Currency, being
settlement in full for all claims and demands against said Company as a result of
an accident which occurred on February 26, 1957, insured under out ACCIDENT
Policy No. 7136, causing the death of the Assured.

In view of the foregoing, this policy is hereby surrendered and CANCELLED.

LOSS COMPUTATION

Amount of Insurance                 P1,000.00

__________
vvvvv

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant
company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but
informing said company that said amount was not the correct one. Atty. Francisco
claimed —

The amount payable under the policy, I believe should be P1,500.00 under the
provision of Section 2, part 1 of the policy, based on the rule of pari materia as
 the death of the insured occurred under the circumstances similar to that
provided under the aforecited section.

Defendant company, upon receipt of the letter, referred the matter to the Insurance
Commissioner, who rendered an opinion that the liability of the company was only
P1,000.00,00A

RTC favors the theory of the petitioner, CA affirms. SC affirms: At any event, the policy
under consideration, covers death or disability by accidental means, and the appellant
insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the
insured.

In view of the conclusions reached, it would seem unnecessary to discuss the other
issues raised in the appeal.

The judgment appealed from is hereby affirmed

G.R. No. L-28866 March 17, 1972

FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor
children, RAFAEL J. LANDICHO and MA. LOURDES EUGENIA
LANDICHO,plaintiffs-appellees,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM

On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a civil engineer of the
Bureau of Public Works, stationed at Mamburao, Mindoro Occidental, optional
additional life insurance policy No. OG-136107 in the sum of P7,900

Before the issuance of said policy, the insured had filed an application, by filing and
signing a printed form of the GSIS on the basis of which the policy was issued.
Paragraph 7 of said application States:

7. I hereby declare that all the above statements and answers as well as
those I may make to the System's Medical Examiner in continuation of this
application, to be true and co direct to the best of my knowledge and
belief, and I hereby agree as follows: .

While still under the employment of the Bureau of Public Works, Mr. Landicho met his
death, on June 29, 1966, in an airplane crash in Mindoro. Thereupon, Mrs. Landicho, in
her own behalf and that of her co-plaintiffs and minor children, Rafael J. and Maria
Lourdes Eugenia, filed with the GSIS a claim for P15,800, as the double indemnity due
under policy No. OG-136107, because of the untimely death of the insured owing to
said accident. The GSIS denied the claim, upon the ground that the policy had never
been in force because, pursuant to subdivision (e) of the above-quoted paragraph 7
of the application, the policy "shall be ... effective on the first day of the month
next following the month the first premium is paid," and no premium had ever been
paid on said policy. Upon refusal of the GSIS to reconsider its stand, this action was
filed, September 22, 1967, in the Court of First Instance of Manila,

Although it may not be entirely farfetched, this view is not likely to be in accord with the
understanding of many, if not most, government employees who obtain an optional
additional life insurance policy.

As a consequence, the actual receipt by them of their full pay — without any deduction
for premiums on their optional additional life insurance policies — may not impart to
them the warning — which, otherwise, it would necessarily convey — that said policy is
not, as yet, in force, for they are liable to believe "that failure to deduct" — from the
salary of the insured — "the monthly premiums shall not" — in the language of
subdivision (d) — "make the policy lapse" and that "the premiums account shall be
considered as indebtedness," to be paid or deducted later, because, after all, the so
called "payment" of premiums is nothing but a "paper" or "accounting" process, whereby
funds are merely transferred, not physically, but constructively, from one office of the
government to another.

In other words, the language, of subdivisions (c), (d) and (e) is such as to create an
ambiguity that should be resolved against the party responsible therefor —
defendant GSIS, as the party who prepared and furnished the application form — and
in favor of the party misled thereby, the insured employee.

Indeed, our Civil Code provides:

The interpretation of obscure words or stipulations in a contract shall not

favor the party who caused the obscurity.2
G.R. No. 166245             April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

DECISION

VELASCO, JR., J.:

On December 10, 1980, respondent Philippine American Life Insurance Company

(Philamlife) entered into an agreement denominated as Creditor Group Life Policy No.
P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the
policy, the clients of Eternal who purchased burial lots from it on installment basis would
be insured by Philamlife. The amount of insurance coverage depended upon the
existing balance of the purchased burial lots. The policy was to be effective for a period
of one year, renewable on a yearly basis.

Eternal was required under the policy to submit to Philamlife a list of all new lot
purchasers, together with a copy of the application of each purchaser, and the amounts
of the respective unpaid balances of all insured lot purchasers. In relation to the instant
petition, Eternal complied by submitting a letter dated December 29, 1982,4 containing a
list of insurable balances of its lot buyers for October 1982. One of those included in
the list as "new business" was a certain John Chuang. His balance of payments
was PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance
claim for Chuang’s death. Attached to the claim were the following documents: (1)
Chuang’s Certificate of Death; (2) Identification Certificate stating that Chuang is a
naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending
Physician; and (5) Assured’s Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring Eternal to

submit the following documents relative to its insurance claim for Chuang’s death: (1)
Certificate of Claimant (with form attached); (2) Assured’s Certificate (with form
attached); (3) Application for Insurance accomplished and signed by the insured,
Chuang, while still living; and (4) Statement of Account showing the unpaid balance of
Chuang before his death.

Eternal transmitted the required documents through a letter dated November 14,
1984,7 which was received by Philamlife on November 15, 1984.

After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s
insurance claim. This prompted Eternal to demand from Philamlife the payment of the
claim for PhP 100,000 on April 25, 1986.8
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter
dated May 20, 1986,9 a portion of which reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529
with Eternal Gardens Memorial Park in October 1982 for the total maximum
insurable amount of P100,000.00 each. No application for Group Insurance was
submitted in our office prior to his death on August 2, 1984.

In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence
of Insurability provision, "a declaration of good health shall be required for all Lot
Purchasers as party of the application." We cite further the provision on Effective
Date of Coverage under the policy which states that "there shall be no insurance
if the application is not approved by the Company." Since no application had
been submitted by the Insured/Assured, prior to his death, for our approval but
was submitted instead on November 15, 1984, after his death, Mr. John Uy
Chuang was not covered under the Policy. 

RTC rules in favor of Eternal.

The RTC found that Eternal submitted Chuang’s application for insurance which he
accomplished before his death, as testified to by Eternal’s witness and evidenced by the
letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance
Application Forms & Cert."10 It further ruled that due to Philamlife’s inaction from the
submission of the requirements of the group insurance on December 29, 1982 to
Chuang’s death on August 2, 1984, as well as Philamlife’s acceptance of the premiums
during the same period, Philamlife was deemed to have approved Chuang’s application.
. Thus, the CA concluded, there being no application form, Chuang was not covered by
Philamlife’s insurance.

Hence, we have this petition with the following grounds:

The Honorable Court of Appeals has decided a question of substance, not

therefore determined by this Honorable Court, or has decided it in a way not in
accord with law or with the applicable jurisprudence, in holding that:

I. The application for insurance was not duly submitted to respondent

PhilamLife before the death of John Chuang;

II. There was no valid insurance coverage; and

In the instant case, the factual findings of the RTC were reversed by the CA; thus, this
Court may review them.

Eternal claims that the evidence that it presented before the trial court supports its
contention that it submitted a copy of the insurance application of Chuang before his
death. In Eternal’s letter dated December 29, 1982, a list of insurable interests of buyers
for October 1982 was attached, including Chuang in the list of new businesses. Eternal
added it was noted at the bottom of said letter that the corresponding "Phil-Am Life
Insurance Application Forms & Cert." were enclosed in the letter that was apparently
received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a
copy of the insurance application which was signed by Chuang himself and executed
before his death.

On the other hand, Philamlife claims that the evidence presented by Eternal is
insufficient, arguing that Eternal must present evidence showing that Philamlife received
a copy of Chuang’s insurance application.

The evidence on record supports Eternal’s position.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped
as received, states that the insurance forms for the attached list of burial lot buyers were
attached to the letter.

Such stamp of receipt has the effect of acknowledging receipt of the letter
together with the attachments. (IS THIS SECTION 78?) Such receipt is an admission
by Philamlife against its own interest.13 The burden of evidence has shifted to Philamlife,
which must prove that the letter did not contain Chuang’s insurance application.
However, Philamlife failed to do so; thus, Philamlife is deemed to have received
Chuang’s insurance application.

G.R. No. 198174               September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.

DECISION

PERALTA, J.:

On February 21, 2007, respondent entered into a contract of insurance, Motor Car
Policy No. MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo
DLX DSL. The contract of insurance obligates the petitioner to pay the respondent the
amount of Six Hundred Thirty Thousand Pesos (₱630,000.00) in case of loss or
damage to said vehicle during the period covered, which is from February 26, 2007 to
February 26, 2008.
 April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar
Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-
up. However, Lanuza no longer returned the motor vehicle to respondent and despite
diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent
promptly reported the incident to the police and concomitantly notified petitioner of the
said loss and demanded payment of the insurance proceeds in the total sum of
₱630,000.00

n a letter dated July 5, 2007, petitioner denied the insurance claim of respondent,
stating among others, thus:

Upon verification of the documents submitted, particularly the Police Report and your
Affidavit, which states that the culprit, who stole the Insure[d] unit, is employed with you.
We would like to invite you on the provision of the Policy under Exceptions to Section-
III, which we quote:

1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by "A
PERSON IN THE INSURED’S SERVICE."

In view [of] the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and
argued that the exception refers to damage of the motor vehicle and not to its loss.
However, petitioner’s denial of respondent’s insured claim remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against
petitioner before the Regional Trial Court (RTC) of Quezon City on September 10, 2007.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of
respondent in this wise:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff and against the defendant

CA affirms RTC
Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is
excluded under the insurance policy.

HELD: No. the Company shall not be liable to pay for:

Loss or Damage in respect of any claim or series of claims arising out of one event, the
first amount of each and every loss for each and every vehicle insured by this Policy,
such amount being equal to one percent (1.00%) of the Insured’s estimate of Fair
Market Value as shown in the Policy Schedule with a minimum deductible amount of
Php3,000.00;

Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns,

failures or breakages;

Damage to tires, unless the Schedule Vehicle is damaged at the same time;

Any malicious damage caused by the Insured, any member of his family or by a person
in the Insured’s service.6

In denying respondent’s claim, petitioner takes exception by arguing that the word
"damage," under paragraph 4 of "Exceptions to Section III," means loss due to injury or
harm to person, property or reputation, and should be construed to cover malicious
"loss" as in "theft."

Thus, it asserts that the loss of respondent’s vehicle as a result of it being stolen by the
latter’s driver is excluded from the policy.

We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft
perpetrated by the driver of the insured is not an exception to the coverage from the
insurance policy, since Section III thereof did not qualify as to who would commit the
theft. Thus:

Theft perpetrated by a driver of the insured is not an exception to the coverage

from the insurance policy subject of this case. This is evident from the very
provision of Section III – "Loss or Damage." The insurance company, subject to the
limits of liability, is obligated to indemnify the insured against theft. Said provision does
not qualify as to who would commit the theft. Thus, even if the same is committed by the
driver of the insured, there being no categorical declaration of exception, the same must
be covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be
interpreted as to carry out the purpose for which the parties entered into the contract
which is to insure against risks of loss or damage to the goods. Such interpretation
should result from the natural and reasonable meaning of language in the policy. Where
restrictive provisions are open to two interpretations, that which is most favorable to the
insured is adopted." The defendant would argue that if the person employed by the
insured would commit the theft and the insurer would be held liable, then this would
result to an absurd situation where the insurer would also be held liable if the insured
would commit the theft. This argument is certainly flawed. Of course, if the theft would
be committed by the insured himself, the same would be an exception to the coverage
since in that case there would be fraud on the part of the insured or breach of material
warranty under Section 69 of the Insurance Code

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in
common ordinary usage. The word "loss" refers to the act or fact of losing, or failure to
keep possession, while the word "damage" means deterioration or injury to
property.1âwphi1

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the
insurance policy under paragraph 4 of "Exceptions to Section III," since the same refers
only to "malicious damage," or more specifically, "injury" to the motor vehicle caused by
a person under the insured’s service. Paragraph 4 clearly does not contemplate "loss of
property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy
as one of the exceptions from coverage, is the damage that is the direct result from the
deliberate or willful act of the insured, members of his family, and any person in the
insured’s service, whose clear plan or purpose was to cause damage to the insured
vehicle for purposes of defrauding the insurer, 

When the terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with his
obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract, the insurer. By reason
of the exclusive control of the insurance company over the terms and phraseology of
the insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, 1äwphï1.ñët

G.R. No. L-2294             May 25, 1951 (PARTIES TO THE CONTRACT, ENEMY
CORPORATION, PIERCING THE CORPORATE VEIL)

FILIPINAS COMPAÑIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.

PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after
payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de
Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise
contained in a building located at No. 711 Roman Street, Binondo Manila. On February
27, 1942, or during the Japanese military occupation, the building and insured
merchandise were burned. In due time the respondent submitted to the petitioner its
claim under the policy. The salvage goods were sold at public auction and, after
deducting their value, the total loss suffered by the respondent was fixed at P92,650

Petitioner filed 1946, in the Court of First Instance of Manila for the purpose of
recovering from the respondent the sum of P92,650 above mentioned. The theory of the
petitioner is that the insured merchandise were burned up after the policy issued in
1941 in favor of the respondent corporation has ceased to be effective because of the
outbreak of the war between the United States and Germany on December 10, 1941,
and that the payment made by the petitioner to the respondent corporation during the
Japanese military occupation was under pressure.
The Court of Appeals overruled the contention of the petitioner that the respondent
corporation became an enemy when the United States declared war against Germany,
relying on English and American cases which held that a corporation is a citizen of the
country or state by and under the laws of which it was created or organized. It rejected
the theory that nationality of private corporation is determine by the character or
citizenship of its controlling stockholders.
ISSUE: Is the respondent an enemy corporation? If yes, then petitioner’s theory is correct,
the insurance contract ceased to have its effect.
There is no question that majority of the stockholders of the respondent corporation
were German subjects. This being so, we have to rule that said respondent became an
enemy corporation upon the outbreak of the war between the United States and
Germany.
The United States of America did not adopt the control test during the First World War.
Courts refused to recognized the concept whereby American-registered corporations
could be considered as enemies and thus subject to domestic legislation and
administrative measures regarding enemy property.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that
"anyone except a public enemy may be insured." It stands to reason that an insurance
policy ceases to be allowable as soon as an insured becomes a public enemy.
The respondent having become an enemy corporation on December 10, 1941, the
insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine
corporation) had ceased to be valid and enforcible, and since the insured goods were
burned after December 10, 1941, and during the war, the respondent was not entitled to
any indemnity under said policy from the petitioner. However, elementary rules of justice
(in the absence of specific provision in the Insurance Law) require that the premium
paid by the respondent for the period covered by its policy from December 11, 1941,
should be returned by the petitioner.

It results that the petitioner is entitled to recover what paid to the respondent under the
circumstances on this case. However, the petitioner will be entitled to recover only the
equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in
accordance with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent corporation is
ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the
amount of the premium, in Philippine currency, that should be returned by the petitioner
for the unexpired term of the policy in question, beginning December 11, 1941.

[G.R. No. 114427. February 6, 1995.] (INSURANCE ON MORTGAGED

PROPERTY)

ARMANDO GEAGONIA, Petitioner, v. COURT OF APPEALS and

COUNTRY BANKERS INSURANCE CORPORATION, Respondents.

DECISION

DAVIDE, JR., J.:
(DIFFERENT SUBJECT MATTER, HENCE, INSURED MAY COLLECT
REGARDLESS OF A PROVISION LIMITING COVERABILITY UPON THE
EXISTENCE OF ANOTHER POLICY WITH THE FULL KNOWLEDGE OF THE
INSURED)

For our review under Rule 45 of the Rules of Court is the decision 1 of the
Court of Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers
Insurance Corporation versus Armando Geagonia," reversing the decision of
the Insurance Commission in I.C. Case No. 3340 which awarded the claim
of petitioner Armando Geagonia against private respondent Country
Bankers Insurance Corporation.

The petitioner is the owner of Norman’s Mart located in the public market of
San Francisco, Agusan del Sur. On 22 December 1989, he obtained from the
private respondent fire insurance policy No. F-14622 2 for P100,000.00. The
period of the policy was from 22 December 1989 to 22 December 1990 and
covered the following: "Stock-in-trade consisting principally of dry goods
such as RTW’s for men and women wear and other usual to assured’s
business." chanroblesvirtuallawlibrary

The petitioner declared in the policy under the subheading entitled CO-
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for
P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks
amounting to P392,130.50, itemized as follows:chanrob1es virtual 1aw
library

Zenco Sales, Inc. P55,698.00

F. Legaspi Gen. Merchandise 86,432.50

Cebu Tesing Textiles 250,000.00 (on credit)

========

P392,130.50

The policy contained the following condition:jgc:chanrobles.com.ph

"3. The insured shall give notice to the Company of any insurance or
insurances already effected, or which may subsequently be effected,
covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured, and unless notice
be given and the particulars of such insurance or insurances be stated
therein or endorsed in this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided
however, that this condition shall not apply when the total insurance
or insurances in force at the time of the loss or damage is not more
than P200,000.00." chanroblesvirtuallawlibrary

On 27 May 1990, fire of accidental origin broke out at around 7:30

p.m. at the public market of San Francisco, Agusan del Sur. The
petitioner’s insured stocks-in-trade were completely destroyed prompting
him to file with the private respondent a claim under the policy. On 28
December 1990, the private respondent denied the claim because it found
that at the time of the loss the petitioner’s stocks-in-trade were likewise
covered by fire insurance policies No. GA-28146 and No. GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the Philippines First
Insurance Co., Inc. (hereinafter PFIC). 3 These policies indicate that the
insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a
mortgage clause reading:jgc:chanrobles.com.ph

"MORTGAGEE: Loss, if any, shall be payable to Messrs.

Cebu Tesing Textiles, Cebu City as their

interest may appear subject to the terms of

this policy. CO-INSURANCE DECLARED:chanrob1es virtual 1aw library

P100,000. — Phils. First CEB/F-24758" 4

The basis of the private respondent’s denial was the petitioner’s

alleged violation of Condition 3 of the policy.

The petitioner then filed a complaint 5 against the private respondent with
the Insurance Commission (Case No. 3340) for the recovery of P100,000.00
under fire insurance policy No. F-14622 and for attorney’s fees and costs of
litigation. He attached as Annex "M" 6 thereof his letter of 18 January 1991
which asked for the reconsideration of the denial. He admitted in the said
letter that at the time he obtained the private respondent’s fire insurance
policy he knew that the two policies issued by the PFIC were already in
existence; however, he had no knowledge of the provision in the private
respondent’s policy requiring him to inform it of the prior policies; this
requirement was not mentioned to him by the private respondent’s agent;
and had it been so mentioned, he would not have withheld such information.
He further asserted that the total of the amounts claimed under the three
policies was below the actual value of his stocks at the time of loss, which
was P1,000,000.00

In its answer, 7 the private respondent specifically denied the allegations in

the compl:laint and set up as its principal defense the violation of Condition
3 of the policy.

In its decision of 21 June 1993, 8 the Insurance Commission HELD FOR

PETITIONER and found that the petitioner did not violate Condition 3
as he had no knowledge of the existence of the two fire insurance
policies obtained from the PFIC; that it was Cebu Tesing Textiles
which procured the PFIC policies without informing him or securing
his consent; and that Cebu Tesing Textile, as his creditor, had insurable
interest on the stocks.

The Court of Appeals reversed the decision of the Insurance Commission

because it found that the petitioner knew of the existence of the two other
policies issued by the PFIC
In addition, the premiums on both policies were paid for by private
respondent, not by the Tesing Textiles which is alleged to have taken out the
other insurances without the knowledge of private Respondent. This is
shown by Premium Invoices nos. 46632 and 46630. (Annexes M and N). In
both invoices, Tesing Textiles is indicated to be only the mortgagee of the
goods insured but the party to which they were issued were the ‘DISCOUNT
MART (MR. ARMANDO GEAGONIA)
ISSUE: (a) whether the petitioner had prior knowledge of the two insurance
policies issued by the PFIC when he obtained the fire insurance policy from
the private respondent, thereby, for not disclosing such fact, violating
Condition 3 of the policy, and (b) if he had, whether he is precluded from
recovering therefrom.
HELD:
We agree with the Court of Appeals that the petitioner knew of the prior
policies issued by the PFIC. His letter of 18 January 1991 to the private
respondent conclusively proves this knowledge
Condition 3 of the private respondent’s Policy No. F-14622 is a condition
which is not proscribed by law. Its incorporation in the policy is allowed by
Section 75 of the Insurance Code 15 which provides that" [a] policy may
declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy."
Such a condition is a provision which invariably appears in fire insurance
policies and is intended to prevent an increase in the moral hazard. It is
commonly known as the additional or "other insurance" clause and has been
upheld as valid and as a warranty that no other insurance exists. Its
violation would thus avoid the policy. 16
However, in order to constitute a violation, the other insurance must
be upon the same subject matter, the same interest therein, and the
same risk.

As to a mortgaged property, the mortgagor and the mortgagee have each an

independent insurable interest therein and both interests may be covered by
one policy, or each may take out a separate policy covering his interest,
either at the same or at separate times. 18 The mortgagor’s insurable
interest covers the full value of the mortgaged property, even though the
mortgage debt is equivalent to the full value of the property. 19 The
mortgagee’s insurable interest is to the extent of the debt, since the
property is relied upon as security thereof, and in insuring he is not insuring
the property but his interest or lien thereon. His insurable interest is prima
facie the value mortgaged and extends only the amount of the debt, not
exceeding the value of the mortgaged property. 20 Thus, separate
insurances covering different insurable interests may be obtained by the
mortgagor and the mortgagee.
With these principles in mind, we are of the opinion that Condition 3 of the
subject policy is not totally free from ambiguity and must, perforce, be
meticulously analyzed. Such analysis leads us to conclude that (a) the
prohibition applies only to double insurance, and (b) the nullity of the policy
shall only be to the extent exceeding P200,000.00 of the total policies
obtained.
A double insurance exists where the same person is insured by several
insurers separately in respect of the same subject and interest. As earlier
stated, the insurable interests of a mortgagor and a mortgagee on the
mortgaged property are distinct and separate
(Definition
Insurable Interest in Life
Time When Insurable Interest in Life Must Exist
Designation of Beneficiary in Life Insurance) (IRREVOCABLE TO REVOCABLE)

G.R. No. L-54216 July 19, 1989

THE PHILIPPINE AMERICAN INSURANCE COMPANY, petitioner,

vs.
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of
First Instance of Rizal, and RODOLFO C. DIMAYUGA, respondents.

PARAS, J.:

On January 15, 1968, private respondent (DIMAYUGA) procured an ordinary life

insurance policy from the petitioner company and designated his wife and children
as irrevocable beneficiaries of said policy.

February 22, 1980 (22 years) private respondent filed a petition CFI Rizal to amend the
designation of the beneficiaries in his life policy from irrevocable to revocable. CFI
approves the amendment.

WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES

COULD BE CHANGED OR AMENDED WITHOUT THE CONSENT OF ALL THE
IRREVOCABLE BENEFICIARIES.

HELD: No. We are of the opinion that his Honor, the respondent Judge, was in error in
issuing the questioned Orders
It is only with the consent of all the beneficiaries that any change or amendment
in the policy concerning the irrevocable beneficiaries may be legally and validly
effected.
Both the law and the policy do not provide for any other exception, thus, abrogating the
contention of the private respondent that said designation can be amended if the Court
finds a just, reasonable ground to do so.
Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy
(the beneficiary-wife predeceased the insured) cannot be considered an effective
ratification to the change of the beneficiaries from irrevocable to revocable. Indubitable
is the fact that all the six (6) children named as beneficiaries were minors at the time,**
for which reason, they could not validly give their consent.

Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the
insurance contract, for otherwise, the vested rights of the irrevocable beneficiaries
would be rendered inconsequential.

We cannot help but conclude that the lower court acted in excess of its authority when it
issued the Order dated March 19, 1980 amending the designation of the beneficiaries
from "irrevocable" to "revocable" over the disapprobation of the petitioner insurance
company.

WHEREFORE, premises considered, the questioned Orders of the respondent Judge

are hereby nullified and set aside.

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.:

The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto
Maramag (Loreto), while respondents were Loreto’s illegitimate family; (2) Eva de
Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of
the latter, thus, she is disqualified to receive any proceeds from his insurance policies
from Insular Life Assurance Company, Ltd. (Insular) 4 and Great Pacific Life
Assurance Corporation (Grepalife);5 
(3) the illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—were
entitled only to one-half of the legitime of the legitimate children, thus, the proceeds
released to Odessa and those to be released to Karl Brian and Trisha Angelie were
inofficious and should be reduced; and (4) petitioners could not be deprived of their
legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others,
that part of the insurance proceeds had already been released in favor of Odessa, while the rest of
the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon the
appointment of their legal guardian. Petitioners also prayed for the total amount of ₱320,000.00 as
actual litigation expenses and attorney’s fees.

In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl
Brian, and Trisha Angelie as his legitimate children, and that they filed their claims for the insurance
proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of Loreto,
it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and
Trisha Angelie, as the remaining designated beneficiaries; and that it released Odessa’s share
as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie
pending submission of letters of guardianship. 

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds
are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon
the maturation of the policy.20 The exception to this rule is a situation where the insurance contract
was intended to benefit third persons who are not parties to the same in the form of favorable
stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer.21

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not
entitled to the proceeds thereof.

Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insurance
proceeds to petitioners.

The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are
of no moment considering that the designation of the illegitimate children as beneficiaries in
Loreto’s insurance policies remains valid.

Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by
the insured,22 the shares of Eva in the insurance proceeds, whether forfeited by the court in view of
the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for
reasons based on the insurance contracts, must be awarded to the said illegitimate children, the
designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has
not designated any beneficiary,23 or when the designated beneficiary is disqualified by law to
receive the proceeds,24 that the insurance policy proceeds shall redound to the benefit of the
estate of the insured.
Insurable Interest in Property
Time When Insurable Interest in Property Must Exist
Designation of Beneficiary in Property Insurance
Effect of Change of Insurable Interest
Void Stipulations

G.R. No. 85141 November 28, 1989

FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,

vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.

Balgos & Perez Law Offices for petitioner.

Lapuz Law office for private respondent.

REGALADO, J.:

Respondent bought an all risk insurance policy from insurer. Based on the SC, the insured
in an all risk insurance policy does not have the burden of proving the precise case of the
occurrence of the peril/risk, but

"This is an action brought by the consignee of the shipment of fishmeal loaded on board
the vessel SS Bougainville and unloaded at the Port of Manila on or about December
11, 1976 and seeks to recover from the defendant insurance company the amount of
P51,568.62 representing damages to said shipment which has been insured by the
defendant insurance company under Policy No. M-2678. The defendant brought a third
party complaint against third party defendants Compagnie Maritime Des Chargeurs
Reunis and/or E. Razon, Inc. seeking judgment against the third (sic) defendants in
case judgment is rendered against the third party plaintiff. 

 plaintiff insured said shipment with defendant insurance company under said cargo
Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric
tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila
against all risks under warehouse to warehouse terms

The fishmeal in 666 new gunny bags were unloaded from the ship on December 11,
1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant’s surveyor
ascertained and certified that in such discharge 105 bags were in bad order condition as
jointly surveyed by the ship’s agent and the arrastre contractor. The condition of the
bad order was reflected in the turn over survey report of Bad Order cargoes Nos.
120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits
4, 5 and 6-Razon. The cargo was also surveyed by the arrastre contractor before
delivery of the cargo to the consignee and the condition of the cargo on such delivery
was reflected in E. Razon’s Bad Order Certificate No. 14859, 14863 and 14869 covering
a total of 227 bags in bad order condition. Defendant’s surveyor has conducted a final
and detailed survey of the cargo in the warehouse for which he prepared a survey
report Exhibit F with the findings on the extent of shortage or loss on the bad order
bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on said
computation the plaintiff made a formal claim against the defendant Filipino Merchants
Insurance Company for P51,568.62 

On the first assignment of error, petitioner contends that an "all risks" marine policy
has a technical meaning in insurance in that before a claim can be compensable it is
essential that there must be "some fortuity," "casualty" or "accidental cause" to which
the alleged loss is attributable and the failure of herein private respondent, upon whom
lay the burden, to adduce evidence showing that the alleged loss to the cargo in
question was due to a fortuitous event precludes his right to recover from the insurance
policy. We find said contention untenable.

The "all risks clause" of the Institute Cargo Clauses read as follows: jgc:chanrobles.com.ph

"5. This insurance is against all risks of logs or damage to the subject-matter insured
but shall in no case be deemed to extend to cover loss, damage, or expense
proximately caused by delay or inherent vice or nature of the subject-matter insured.
Claims recoverable hereunder shall be payable irrespective of percentage."

The very nature of the term "all risks" must be given a broad and
comprehensive meaning as covering any loss other than a wilful and
fraudulent act of the insured.  

Generally, the burden of proof is upon the insured to show that a loss arose from a
covered peril, but under an "all risks" policy the burden is not on the insured to prove
the precise cause of loss or damage for which it seeks compensation. The insured under
an "all risks insurance policy" has the initial burden of proving that the cargo was in
good condition when the policy attached and that the cargo was damaged when
unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the
exception to the coverage. 10 As we held in Paris-Manila Perfumery Co. v. Phoenix
Assurance Co., Ltd. 11 the basic rule is that the insurance company has the burden of
proving that the loss is caused by the risks excepted and for want of such proof, the
company is liable. chanrobles virtual law

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the
policy. The agreement has the force of law between the parties. The terms of the policy constitute
the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense. 15

Anent the issue of insurable interest, we uphold the ruling of the respondent court that private
respondent, as consignee of the goods in transit under an invoice containing the terms under "C & F
Manila," has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in property as every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest
in property who derives a benefit from its existence or would suffer loss from its destruction whether
he has or has not any title in, or lien upon or possession of the property y.   Insurable interest in
16
property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy
arises. 
17

Herein private respondent, as vendee/consignee of the goods in transit has such existing interest
therein as may be the subject of a valid contract of insurance. His interest over the goods is
based on the perfected contract of sale.   The perfected contract of sale between him and the
18

shipper of the goods operates to vest in him an equitable title even before delivery or before be
performed the conditions of the sale. 

G.R. No. 147839             June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.)
Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC
and LSPI separately obtained from respondent fire insurance policies with book debt endorsements. 

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

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

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

he 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.

the CA reverses the RTC it 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.

ISSUES: 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

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.

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

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.3

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.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly,
petitioner's obligation is for the payment of money. As correctly stated by the CA, where the
obligation consists in the payment of money, the failure of the debtor to make the payment even by
reason of a fortuitous event shall not relieve him of his liability.

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

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

[G.R. No. 124520. August 18, 1997]

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., Petitioners, v. COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION, Respondents.

Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract
with private respondent CKS Development Corporation (hereinafter CKS), as lessor, on
5 October 1988.

One of the stipulations of the one (1) year lease contract states:

18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles,
goods and effects placed at any stall or store or space in the leased premises without
first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s)
the insurance thereof without the consent of the LESSOR then the policy is deemed
assigned and transferred to the LESSOR for its own benefit

Notwithstanding the above stipulation in the lease contract, the Cha spouses insured
against loss by fire their merchandise inside the leased premises for Five Hundred
Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United)
without the written consent of private respondents CKS.

On the day that the lease contract was to expire, fire broke out inside the leased
premises

United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses
and United. (CKS here wants to assert the provision in the contract that it would benefit
sans its consent)

n 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a

decision* ordering therein defendant United to pay CKS

 Court of Appeals in CA GR CV No. 39328 rendered a decision** dated 11 January

1996, affirming the trial court decision,

ISSUE:  whether or not the aforequoted paragraph 18 of the lease contract entered into
between CKS and the Cha spouses is valid insofar as it provides that any fire insurance
policy obtained by the lessee (Cha spouses) over their merchandise inside the leased
premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained
without the prior written of the latter.

Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their
merchandise.

This insurable interest over said merchandise remains with the insured, the
Cha spouses.
The automatic assignment of the policy to CKS under the provision of the lease
contract previously quoted is void for being contrary to law and/or public
policy.

The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha
and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to
pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable
interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that Cha
spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this
case.

.R. No. L-14300             January 19, 1920

SAN MIGUEL BREWERY, ETC., plaintiff-appellee,

vs.
LAW UNION AND ROCK INSURANCE CO., (LTD.) ET AL., defendants-appellees.
HENRY HARDING, defendant-appellant.

This action was begun on October 8, 1917, in the Court of First Instance of the city of Manila by the
plaintiff, the San Miguel Brewery, for the purpose of recovering upon two policies of insurance
underwritten respectively by Law Union and Rock Insurance Company (Ltd.), and the
"Filipinas" Compania de Seguros, for the sum of P7,500 each, insuring certain property which has
been destroyed by fire. 

he plaintiff, the San Miguel Brewery, is named as the party assured in the two policies referred to,
but it is alleged in the complaint that said company was in reality interested in the property which
was the subject of insurance in the character of a mortgage creditor only, and that the owner of said
property upon the date the policies were issued was one D. P. Dunn who was later succeeded as
owner by one Henry Harding. Accordingly said Harding was made a defendant, as a person
interested in the subject of the litigation.

The two insurance companies who are named as defendants do not dispute their liability to the San
Miguel Brewery, to the extent already stated, and the only question here under discussion is that of
the liability of the insurance companies to Harding. It is therefore necessary to take account of such
facts only as bear upon this aspect of the case.

insurance relates, mortgaged the same to the San Miguel Brewery to secure a debt of P10,000. In
the contract of mortgage Dunn agreed to keep the property insured at his expense to the full amount
of its value in companies to be selected by the Brewery Company and authorized the latter in case
of loss to receive the proceeds of the insurance and to retain such part as might be necessary to
cover the mortgage debt. At the same time, in order more conveniently to accomplish the end in
view, Dunn authorized and requested the Brewery Company to effect said insurance itself.
Accordingly on the same date Antonio Brias, general manager of the Brewery, made a verbal
application to the Law Union and Rock Insurance Company for insurance to the extent of P15,000
upon said property. In reply to a question of the company's agent as to whether the Brewery was the
owner of the property, he stated that the company was interested only as a mortgagee. No
information was asked as to who was the owner of the property, and no information upon this point
was given.

It seems that the insurance company to whom this application was directed did not want to carry
more than one-half the risk. It therefore issued its own policy for P7,500 and procured a policy in a
like amount to be issued by the "Filipinas" Compania de Seguros. Both policies were issued in the
name of the San Miguel Brewery as the assured, and contained no reference to any other interest in
the property. Both policies contain the usual clause requiring assignments to be approved and noted
on the policy. The premiums were paid by the Brewery and charged to Dunn. A year later the
policies were renewed, without change, the renewal premiums being paid by the Brewery,
supposedly for the account of the owner. In the month of March of the year 1917 Dunn sold the
insured property to the defendant Henry Harding, but not assignment of the insurance, or of the
insurance policies, was at any time made to him.

G.R. No. L-2294             May 25, 1951

FILIPINAS COMPAÑIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.

PARAS, C.J.:

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of
corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No.
29333 in the sum of P1000,000, covering merchandise contained in a building located at No. 711
Roman Street, Binondo Manila.

On February 27, 1942, or during the Japanese military occupation, the building and insured
merchandise were burned. In due time the respondent submitted to the petitioner its claim under the
policy. The salvage goods were sold at public auction and, after deducting their value, the total loss
suffered by the respondent was fixed at P92,650.

The petitioner refused to pay the claim on the ground that the policy in favor of the respondent-
GERMAN COMPANY had ceased to be in force on the date the United States declared war against
Germany, the respondent Corporation (though organized under and by virtue of the laws of the
Philippines) being controlled by the German subjects and the petitioner being a company under
American jurisdiction when said policy was issued on October 1, 1941.

The petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine
Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19,
1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the
purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of the
petitioner is that the insured merchandise were burned up after the policy issued in 1941 in
favor of the respondent corporation has ceased to be effective because of the outbreak of the
war between the United States and Germany on December 10, 1941, and that the payment
made by the petitioner to the respondent corporation during the Japanese military
occupation was under pressure.

After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to
costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila
was affirmed, with costs. The case is now before us on appeal by certiorari from the decision of the
Court of Appeals.

The Court of Appeals overruled the contention of the petitioner that the respondent corporation
became an enemy when the United States declared war against Germany, relying on English and
American cases which held that a corporation is a citizen of the country or state by and under
the laws of which it was created or organized. (SAYS THE CA, AND THEREFORE, CH
COMPANY IS A FILIPINO CITIZEN) It rejected the theory that nationality of private corporation
is determine by the character or citizenship of its controlling stockholders.

There is no question that majority of the stockholders of the respondent corporation were German
subjects.

This being so, we have to rule that said respondent became an enemy corporation upon the
outbreak of the war between the United States and Germany.

The English and American cases relied upon by the Court of Appeals have lost their force in view of
the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz
Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in
which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper
presented to the Second International Conference of the Legal Profession held at the Hague
(Netherlands) in August. 1948 the following enlightening passages appear:

Since World War I, the determination of enemy nationality of corporations has been
discussion in many countries, belligerent and neutral.

A corporation was subject to enemy legislation when it was controlled by enemies, namely
managed under the influence of individuals or corporations, themselves considered as
enemies.

It was the English courts which first the  Daimler  case applied this new concept of
"piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the
Mixed Arbitral established after the First World War.

The United States of America did not adopt the control test during the First World War.
Courts refused to recognized the concept whereby American-registered corporations could
be considered as enemies and thus subject to domestic legislation and administrative
measures regarding enemy property. (CONTROL TEST: that nationality of private
corporation is determine by the character or citizenship of its controlling
stockholders. THIS IS ANOTHER APPLICATION OF PIERCING THE CORPORATE
VEIL. WHEREAS PER CURRENT DOCTRINE IT IS APPLIED BY COURTS IF FOUND
THAT CORP OFFICERS CLOAK THEIR FRAUDULENT ACTIVITIES BEHIND THE
CORPORATE VEIL)
 World War II revived the problem again. It was known that German and other enemy
interests were cloaked by domestic corporation structure. It was not only by legal ownership
of shares that a material influence could be exercised on the management of the corporation
but also by long term loans and other factual situations. For that reason, legislation on
enemy property enacted in various countries during World War II adopted by statutory
provisions to the control test and determined, to various degrees, the incidents of control.
Court decisions were rendered on the basis of such newly enacted statutory provisions in
determining enemy character of domestic corporation.

The United States did not, in the amendments of the Trading with the Enemy Act during the
last war, include as did other legislations the applications of the control test and again, as in
World War I, courts refused to apply this concept whereby the enemy character of an
American or neutral-registered corporation is determined by the enemy nationality of the
controlling stockholders.

Measures of blocking foreign funds, the so called freezing regulations, and other
administrative practice in the treatment of foreign-owned property in the United States
allowed to large degree the determination of enemy interest in domestic corporations and
thus the application of the control test. Court decisions sanctioned such administrative
practice enacted under the First War Powers Act of 1941, and more recently, on December
8, 1947, the Supreme Court of the United States definitely approved of the control
theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation
allegedly controlled by German interest, the Court: "The property of all foreign interest was
placed within the reach of the vesting power (of the Alien Property Custodian) not to
appropriate friendly or neutral assets but to reach enemy interest which masqueraded
under those innocent fronts. . . . The power of seizure and vesting was extended to all
property of any foreign country or national so that no innocent appearing device could
become a Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the
appealed decision. However, we may add that, in Haw Pia vs. China Banking Corporation, * 45 Off
Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within the meaning of
the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not only because
it was incorporated under the laws of an enemy country but because it was controlled by enemies.

The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone
except a public enemy may be insured." It stands to reason that an insurance policy ceases to
be allowable as soon as an insured becomes a public enemy.

Effect of war, generally. — All intercourse between citizens of belligerent powers which is
inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes
all negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to
increase, its income or resources; all acts of voluntary submission to it; or receiving its
protection; also all acts concerning the transmission of money or goods; and all contracts
relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the
enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason
that the subjects of one country cannot be permitted to lend their assistance to protect by
insurance the commerce or property of belligerent, alien subjects, or to do anything
detrimental too their country's interest. The purpose of war is to cripple the power and
exhaust the resources of the enemy, and it is inconsistent that one country should destroy
its enemy's property and repay in insurance the value of what has been so destroyed, or that
it should in such manner increase the resources of the enemy, or render it aid, and the
 commencement of war determines, for like reasons, all trading intercourse with the enemy,
which prior thereto may have been lawful. All individuals therefore, who compose the
belligerent powers, exist, as to each other, in a state of utter exclusion, and are public
enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from year, or for some
other specified term it is plain that when the parties become alien enemies, the contractual
tie is broken and the contractual rights of the parties, so far as not vested. lost. (Vance, the
Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December 10, 1941, the insurance policy
issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be
valid and enforcible, and since the insured goods were burned after December 10, 1941, and during
the war, the respondent was not entitled to any indemnity under said policy from the petitioner.
However, elementary rules of justice (in the absence of specific provision in the Insurance Law)
require that the premium paid by the respondent for the period covered by its policy from December
11, 1941, should be returned by the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of
whether the policy in question became null and void upon the declaration of war between the United
States and Germany on December 10, 1941, and its judgment in favor of the respondent corporation
was predicated on its conclusion that the policy did not cease to be in force. The Court of Appeals
necessarily assumed that, even if the payment by the petitioner to the respondent was involuntary,
its action is not tenable in view of the ruling on the validity of the policy. As a matter of fact, the Court
of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of
its lawful right to claim for and received the payment of the insurance policy," and that the ruling of
the Bureau of Financing to the effect that "the appellee was entitled to payment from the appellant
was, well founded."

Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering the
petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military
Administration, as may be seen from the following: "In view of the findings and conclusion of this
office contained in its decision on Administrative Case dated February 9, 1943 copy of which was
sent to your office and the concurrence therein of the Financial Department of the Japanese Military
Administration, and following the instruction of said authority, you are hereby ordered to pay the
claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be
made by means of crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent under the
circumstances on this case. However, the petitioner will be entitled to recover only the equivalent, in
actual Philippines currency of P92,650 paid on April 19, 1943, in accordance with the rate fixed in
the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to
pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in
Philippine currency, that should be returned by the petitioner for the unexpired term of the policy in
question, beginning December 11, 1941. Without costs. So ordered.

Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo, JJ., concur.
 FIRST DIVISION

[G.R. No. 114427. February 6, 1995.]

ARMANDO GEAGONIA, Petitioner, v. COURT OF APPEALS and COUNTRY

BANKERS INSURANCE CORPORATION, Respondents.

DECISION

DAVIDE, JR., J.:

For our review under Rule 45 of the Rules of Court is the decision 1 of the Court of
Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation
versus Armando Geagonia," reversing the decision of the Insurance Commission in I.C.
Case No. 3340 which awarded the claim of petitioner Armando Geagonia against private
respondent Country Bankers Insurance Corporation.

The petitioner is the owner of Norman’s Mart located in the public market of San
Francisco, Agusan del Sur.

On 22 December 1989, he obtained from the private respondent fire insurance policy
No. F-14622 2 for P100,000.00. The period of the policy was from 22 December 1989
to 22 December 1990 and covered the following: "Stock-in-trade (INVENTORY AT
HAND) consisting principally of dry goods such as RTW’s for men and women wear and
other usual to assured’s business."  chanroblesvirtuallawlibrary

The petitioner declared in the policy under the subheading entitled CO-INSURANCE that
Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990,
the petitioner had in his inventory stocks amounting to P392,130.50, itemized as
follows:
chanrob1es virtual 1aw library

Zenco Sales, Inc. P55,698.00

F. Legaspi Gen. Merchandise 86,432.50

Cebu Tesing Textiles 250,000.00 (on credit)

========

P392,130.50

The policy contained the following condition: jgc:chanrobles.com.ph

"3. The insured shall give notice to the Company of any insurance or insurances already
effected, or which may subsequently be effected, covering any of the property or
properties consisting of stocks in trade, goods in process and/or inventories only hereby
insured, and unless notice be given and the particulars of such insurance or insurances
be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company before the occurrence of any loss or damage, all
benefits under this policy shall be deemed forfeited, provided however, that this
condition shall not apply when the total insurance or insurances in force at the time of
the loss or damage is not more than P200,000.00."  chanroblesvirtuallawlibrary

On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public
market of San Francisco, Agusan del Sur.

The petitioner’s insured stocks-in-trade were completely destroyed prompting him to

file with the private respondent a claim under the policy.

On 28 December 1990, the private respondent denied the claim because it

found that at the time of the loss the petitioner’s stocks-in-trade were likewise
covered by fire insurance policies No. GA-28146 and No. GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the Philippines First
Insurance Co., Inc. (hereinafter PFIC). 3

These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando
Geagonia, Prop.)" with a mortgage clause reading: jgc:chanrobles.com.ph

"MORTGAGEE: Loss, if any, shall be payable to Messrs.

Cebu Tesing Textiles, Cebu City as their

interest may appear subject to the terms of

this policy. CO-INSURANCE DECLARED: chanrob1es virtual 1aw library

P100,000. — Phils. First CEB/F-24758" 4

The basis of the private respondent’s denial was the petitioner’s alleged violation of
Condition 3 of the policy. (The insured shall give notice to the Company of any
insurance or insurances already effected,)

The petitioner then filed a complaint 5 against the private respondent with the
Insurance Commission (Case No. 3340) for the recovery of P100,000.00 under fire
insurance policy No. F-14622 and for attorney’s fees and costs of litigation. He attached
as Annex "M" 6 thereof his letter of 18 January 1991 which asked for the
reconsideration of the denial.

He admitted in the said letter that at the time he obtained the private respondent’s fire
insurance policy he knew that the two policies issued by the PFIC were already in
existence; however, he had no knowledge of the provision in the private
respondent’s policy requiring him to inform it of the prior policies; this
requirement was not mentioned to him by the private respondent’s agent; and
had it been so mentioned, he would not have withheld such information. He further
asserted that the total of the amounts claimed under the three policies was below the
actual value of his stocks at the time of loss, which was P1,000,000.00

In its answer, 7 the private respondent specifically denied the allegations in the
complaint and set up as its principal defense the violation of Condition 3 of the policy.

In its decision of 21 June 1993, 8 the Insurance Commission found that the petitioner
did not violate Condition 3 as he had no knowledge of the existence of the two fire
insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles which
procured the PFIC policies without informing him or securing his consent;

and that Cebu Tesing Textile, as his creditor-MORTGAGEE, had insurable interest on the
stocks. These findings were based on the petitioner’s testimony that he came to know
of the PFIC policies only when he filed his claim with the private respondent and that
Cebu Tesing Textile obtained them and paid for their premiums without informing him
thereof. The Insurance Commission then decreed: chanroblesvirtuallawlibrary

"WHEREFORE, judgment is hereby rendered ordering the respondent company to pay

complainant-GEAGONIA the sum of P100,000.00 with legal interest from the time the
complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney’s
fees. With costs. The compulsory counterclaim of respondent is hereby dismissed." cralaw virtua1aw library

In its decision the Court of Appeals reversed the decision of the Insurance Commission
because it found that the petitioner knew of the existence of the two other policies
issued by the PFIC. It said: jgc:chanrobles.com.ph

"It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the
insurance was taken in the name of private respondent [petitioner herein]. The policy
states that ‘DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)’ was assured
(INSURED) and that ‘TESING TEXTILES’ [was] only the mortgagee of the goods.

In addition, the premiums on both policies were paid for by private respondent-
GEAGONIA, not by the Tesing Textiles which is alleged to have taken out the other
insurances without the knowledge of private Respondent. This is shown by Premium
Invoices nos. 46632 and 46630. (Annexes M and N). In both invoices, Tesing Textiles is
indicated to be only the mortgagee of the goods insured but the party to which they
were issued were the ‘DISCOUNT MART (MR. ARMANDO GEAGONIA).’

It is clear that it was the private respondent [GEAGONIA] who took out the policies on
the same property subject of the insurance with petitioner-COUNTRY BANKERS. Hence,
in failing to disclose the existence of these insurances private respondent-GEAGONIA
violated Condition No. 3 of Fire Policy No. 14622. . . .

Indeed private respondent’s allegation of lack of knowledge of the previous insurances

is belied by his letter to petitioner [of 18 January 1991. The body of the letter reads as
follows:]
chanroblesvirtuallawlibrary

x          x           x

‘Please be informed that I have no knowledge of the provision requiring me to inform

your office about my prior insurance under FGA-28146 and F-CEB-24758. Your
representative did not mention about said requirement at the time he was convincing
me to insure with you. If he only did or even inquired if I had other existing policies
covering my establishment, I would have told him so. You will note that at the time he
talked to me until I decided to insure with your company the two policies
aforementioned were already in effect. Therefore I would have no reason to withhold
such information and I would have no reason to withhold such information and I would
have desisted to part with my hard earned peso to pay the insurance premiums [if] I
know I could not recover anything.

Sir, I am only an ordinary businessman interested in protecting my investments. The

actual value of my stocks damaged by the fire was estimated by the Police Department
to be P1,000,000.00 (Please see xerox copy of Police Report Annex "A"). My Income
Statement as of December 31, 1989 or five months before the fire, shows my
merchandise inventory was already some P595,455,75. . . . These will support my
claim that the amount under the three policies are much below the value of my stocks
lost.

x          x           x

The letter contradicts private respondent’s pretension that he did not know that there
were other insurances taken on the stock-in-trade and seriously puts in question his
credibility." 
chanroblesvirtuallawlibrary

(IS HE ESTOPPED? OR MAY THE LAW HERE BECOME THE EXCEPTION?)

His motion to reconsider the adverse decision having been denied, the petitioner filed
the instant petition. He contends therein that the Court of Appeals acted with grave
abuse of discretion amounting to lack of excess of jurisdiction: jgc:chanrobles.com.ph

"A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE

COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING
INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN
FINALITY BY THE COURTS;

B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT

PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND

C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE

PRIVATE RESPONDENT." cralaw virtua1aw library

The chief issues that crop up from the first and third grounds are (a) whether the
petitioner had prior knowledge of the two insurance policies issued by the PFIC when he
obtained the fire insurance policy from the private respondent, thereby, for not
disclosing such fact, violating Condition 3 of the policy, and (b) if he had, whether he is
precluded from recovering therefrom.

The second ground, which is based on the Court of Appeals’ reliance on the petitioner’s
letter of reconsideration of 18 January 1991, is without merit. The petitioner claims that
the said letter was not offered in evidence and thus should not have been considered in
deciding the case. However, as correctly pointed out by the Court of Appeals, a copy of
this letter was attached to the petitioner’s complaint in I.C. Case No. 3340 as Annex
"M" thereof and made an integral part of the complaint. 12 It has attained the status of
a judicial admission and since its due execution and authenticity was not denied by the
other party, the petitioner is bound by it even if it were not introduced as an
independent evidence. 13

As to the first issue, the Insurance Commission found that the petitioner had no
knowledge of the previous two policies. The Court of Appeals disagreed and found
otherwise in view of the explicit admission by the petitioner in his letter to the private
respondent of 18 January 1991, which was quoted in the challenged decision of the
Court of Appeals. These divergent findings of facts constitute an exception to the
general rule that in petitions for review under Rule 45, only questions of law are
involved and findings of fact by the Court of Appeals are conclusive and binding upon
this Court. 14

We agree with the Court of Appeals that the petitioner knew of the prior policies issued
by the PFIC.

His letter of 18 January 1991 to the private respondent conclusively proves this
knowledge. His testimony to the contrary before the Insurance Commissioner and
which the latter relied upon cannot prevail over a written admission made ante litem
motam. It was, indeed, incredible that he did not know about the prior policies since
these policies were not new or original. Policy No. GA-28144 was a renewal of Policy
No. F-24758, while Policy No. GA-28146 had been renewed twice, the previous policy
being F-24792. chanroblesvirtuallawlibrary

Condition 3 of the private respondent’s Policy No. F-14622 is a condition which is not
proscribed by law. Its incorporation in the policy is allowed by Section 75 of the
Insurance Code 15 which provides that" [a] policy may declare that a violation of
specified provisions thereof shall avoid it, otherwise the breach of an immaterial
provision does not avoid the policy."

Such a condition is a provision which invariably appears in fire insurance policies and is
intended to prevent an increase in the moral hazard. It is commonly known as the
additional or "other insurance" clause and has been upheld as valid and as a warranty
that no other insurance exists. Its violation would thus avoid the policy.

However, in order to constitute a violation, the other insurance must be upon

the same subject matter, the same interest therein, and the same risk.

As to a mortgaged property, the mortgagor and the mortgagee have each an

independent insurable interest therein and both interests may be covered by one policy,
or each may take out a separate policy covering his interest, either at the same or at
separate times.

The DEBTOR-mortgagor’s insurable interest covers the full value of the mortgaged
property, even though the mortgage debt is equivalent to the full value of the property.

The CREDITOR-mortgagee’s insurable interest is to the extent of the debt, since the
property is relied upon as security thereof, and in insuring he is not insuring the
property but his interest or lien thereon (YUNG PERA NA PINAUTANG NYA YUNG
SINESECURE NYA). His insurable interest is prima facie the value mortgaged and
extends only the amount of the debt, not exceeding the value of the mortgaged
property. Thus, separate insurances covering different insurable interests may be
obtained by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which
is the usual practice. The mortgagee may be made the beneficial payee in several ways.
He may become the assignee of the policy with the consent of the insurer; or the mere
pledgee without such consent; or the original policy may contain a mortgage clause; or
a rider making the policy payable to the mortgagee "as his interest may appear" may
be attached; or a "standard mortgage clause," containing a collateral independent
contract between the mortgagee and insurer, may be attached; or the policy, though by
its terms payable absolutely to the mortgagor, may have been procured by a mortgagor
under a contract duty to insure for the mortgagee’s benefit, in which case the
mortgagee acquires an equitable lien upon the proceeds. 21

In the policy obtained by the mortgagor with loss payable clause in favor of the
mortgagee as his interest may appear, the mortgagee is only a beneficiary under the
contract, and recognized as such by the insurer but not made a party to the
contract itself. (BENEFICIARY LANG, so pag ang example ay nagstore ng
flammable materials o kung anumang kasalanan, damay yung sanang
makukuha ng beneficiary na si mortgagee)) Hence, any act of the mortgagor
which defeats his right will also defeat the right of the mortgagee. 22 This kind of policy
covers only such interest as the mortgagee has at the issuing of the policy. 23

On the other hand, a mortgagee may also procure a policy as a contracting party in
accordance with the terms of an agreement by which the mortgagor is to pay the
premiums upon such insurance. 24 It has been noted, however, that although the
mortgagee is himself the insured, as where he applies for a policy, fully informs the
authorized agent of his interest, pays the premiums, and obtains a policy on the
assurance that it insures him, the policy is in fact in the form used to insure a
mortgagor with loss payable clause.25 cralaw:red

The fire insurance policies issued by the PFIC name the petitioner as the assured and
contain a mortgage clause which reads: chanroblesvirtuallawlibrary

"Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their
interest may appear subject to the terms of the policy." cralaw virtua1aw library

This is clearly a simple loss payable clause, not a standard mortgage clause.

It must, however, be underscored that unlike the "other insurance" clauses involved in
General Insurance and Surety Corp. v. Ng Hua 26 or in Pioneer Insurance & Surety
Corp. v. Yap, 27 which read: jgc:chanrobles.com.ph

"The insured shall give notice to the company of any insurance or insurances already
effected, or which may subsequently be effected covering any of the property hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated in or endorsed on this Policy by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this Policy shall be
forfeited." cralaw virtua1aw library

or in the 1930 case of Santa Ana v. Commercial Union Assurance Co. 28 which provided
"that any outstanding insurance upon the whole or a portion of the objects thereby
assured must be declared by the insured in writing and he must cause the company to
add or insert it in the policy, without which such policy shall be null and void, and the
insured will not be entitled to indemnity in case of loss,"

Condition 3 in the private respondent’s policy No. F-14622 does not absolutely declare
void any violation thereof. It expressly provides that the condition "shall not apply
when the total insurance or insurances in force at the time of the loss or
damage is not more than P200,000.00."  chanroblesvirtuallawlibrary

It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted

liberally in favor of the insured and strictly against the company, the reason being,
undoubtedly, to afford the greatest protection which the insured was endeavoring to
secure when he applied for insurance.

It is also a cardinal principle of law that forfeitures are not favored and that any
construction which would result in the forfeiture of the policy benefits for the person
claiming thereunder, will be avoided, if it is possible to construe the policy in a manner
which would permit recovery, as, for example, by finding a waiver for such forfeiture.

Stated differently, provisions, conditions or exceptions in policies which tend to work a

forfeiture of insurance policies should be construed most strictly against those for
whose benefits they are inserted, and most favorably toward those against whom they
are intended to operate.

The reason for this is that, except for riders which may later be inserted, the insured
sees the contract already in its final form and has had no voice in the selection or
arrangement of the words employed therein. On the other hand, the language of the
contract was carefully chosen and deliberated upon by experts and legal advisers who
had acted exclusively in the interest of the insurers and the technical language
employed therein is rarely understood by ordinary laymen. 31

With these principles in mind, we are of the opinion that Condition 3 of the subject
policy is not totally free from ambiguity and must, perforce, be meticulously
analyzed.

Such analysis leads us to conclude that (a) the prohibition applies only to double
insurance, and (b) the nullity of the policy shall only be to the extent exceeding
P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other
insurance "covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured," and the portion regarding the
insured’s declaration on the subheading CO-INSURANCE that the co-insurer is
Mercantile Insurance Co., Inc. in the sum of P50,000.00.
 A double insurance exists where the same person is insured by several insurers
separately in respect of the same subject and interest. As earlier stated, the
insurable interests of a mortgagor and a mortgagee on the mortgaged property are
distinct and separate. Since the two policies of the PFIC do not cover the same interest
as that covered by the policy of the private respondent, no double insurance exists.

The non-disclosure then of the former policies was not fatal to the petitioner’s right to
recover on the private respondent’s policy. chanroblesvirtuallawlibrary

Furthermore, by stating within Condition 3 itself that such condition shall not apply if
the total insurance in force at the time of loss does not exceed P200,000.00, the private
respondent was amenable to assume a co-insurer’s liability up to a loss not exceeding
P200,000.00.

What it had in mind was to discourage over-insurance. Indeed, the rationale behind the
incorporation of "other insurance" clause in fire policies is to prevent over-insurance
and thus avert the perpetration of fraud.

When a property owner obtains insurance policies from two or more insurers in a total
amount that exceeds the property’s value, the insured may have an inducement to
destroy the property for the purpose of collecting the insurance.

The public as well as the insurer is interested in preventing a situation in which a fire
would be profitable to the insured. 32

WHEREFORE, the instant petition is hereby GRANTED.

G.R. No. L-54216 July 19, 1989

THE PHILIPPINE AMERICAN INSURANCE COMPANY, petitioner,

vs.
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of First Instance of
Rizal, and RODOLFO C. DIMAYUGA, respondents.

Challenged before Us in this petition for review on certiorari are the Orders of the respondent Judge
dated March 19, 1980 and June 10, 1980 granting the prayer in the petition in Sp. Proc. No. 9210
and denying petitioner's Motion for Reconsideration, respectively.

The undisputed facts are as follows:

On January 15, 1968, private respondent-DIMAYUGA procured an ordinary life insurance policy
from the petitioner company and designated his wife and children as irrevocable beneficiaries
of said policy.
Under date February 22, 1980 private respondent filed a petition which was docketed as Civil Case
No. 9210 of the then Court of First Instance of Rizal to amend the designation of the beneficiaries in
his life policy from irrevocable to revocable.

Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing. Also on the same date,
petitioner filed its Comment and/or Opposition to Petition.

When the petition was called for hearing on March 19, 1980, the respondent Judge Gregorio G.
Pineda, presiding Judge of the then Court of First Instance of Rizal, Pasig Branch XXI, denied
petitioner's Urgent Motion, thus allowing the private respondent to adduce evidence, the
consequence of which was the issuance of the questioned Order granting the petition.

Petitioner promptly filed a Motion for Reconsideration but the same was denied in an Order June 10,
1980. Hence, this petition raising the following issues for resolution:

WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE

BENEFICIARIES COULD BE CHANGED OR AMENDED WITHOUT THE
CONSENT OF ALL THE IRREVOCABLE BENEFICIARIES.

II

WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE OF

WHOM IS ALREADY DECEASED WHILE THE OTHERS ARE ALL MINORS,
COULD VALIDLY GIVE CONSENT TO THE CHANGE OR AMENDMENT IN THE
DESIGNATION OF THE IRREVOCABLE BENEFICIARIES.

We are of the opinion that his Honor, the respondent Judge, was in error in issuing the questioned
Orders.

Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act
No. 2427 as amended, the policy having been procured in 1968.

Under the said law, the beneficiary designated in a life insurance contract cannot be changed
without the consent of the beneficiary because he has a vested interest in the policy (Gercio
v. Sun Life Ins. Co. of Canada, 48 Phil. 53; Go v. Redfern and the International Assurance Co., Ltd.,
72 Phil. 71).

In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy which
forms part of Policy Number 0794461 in the name of Rodolfo Cailles Dimayuga states that the
designation of the beneficiaries is irrevocable (Annex "A" of Petition in Sp. Proc. No. 9210, Annex
"C" of the Petition for Review on Certiorari), to wit:

It is hereby understood and agreed that, notwithstanding the provisions of this policy
to the contrary, inasmuch as the designation of the primary/contingent
beneficiary/beneficiaries in this Policy has been made without reserving the right to
change said beneficiary/ beneficiaries, such designation may not be surrendered to
the Company, released or assigned; and no right or privilege under the Policy may
be exercised, or agreement made with the Company to any change in or amendment
 to the Policy, without the consent of the said beneficiary/beneficiaries. (Petitioner's
Memorandum, p. 72, Rollo)

Be it noted that the foregoing is a fact which the private respondent did not bother to disprove.

Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law then
applicable, it is only with the consent of all the beneficiaries that any change or amendment in
the policy concerning the irrevocable beneficiaries may be legally and validly effected.

Both the law and the policy do not provide for any other exception, thus, abrogating the contention of
the private respondent that said designation can be amended if the Court finds a just, reasonable
ground to do so.

Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy (the beneficiary-
wife predeceased the insured) cannot be considered an effective ratification to the change of the
beneficiaries from irrevocable to revocable.

Indubitable is the fact that all the six (6) children named as beneficiaries were minors at the time,**
for which reason, they could not validly give their consent. Neither could they act through their father
insured since their interests are quite divergent from one another. In point is an excerpt from the
Notes and Cases on Insurance Law by Campos and Campos, 1960, reading-

The insured ... can do nothing to divest the beneficiary of his rights without his
consent. He cannot assign his policy, nor even take its cash surrender value without
the consent of the beneficiary. Neither can the insured's creditors seize the policy or
any right thereunder. The insured may not even add another beneficiary because by
doing so, he diminishes the amount which the beneficiary may recover and this he
cannot do without the beneficiary's consent.

Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the insurance
contract, for otherwise, the vested rights of the irrevocable beneficiaries would be rendered
inconsequential.

Of equal importance is the well-settled rule that the contract between the parties is the law binding
on both of them and for so many times, this court has consistently issued pronouncements
upholding the validity and effectivity of contracts. Where there is nothing in the contract which is
contrary to law, good morals, good customs, public policy or public order the validity of the contract
must be sustained. Likewise, contracts which are the private laws of the contracting parties should
be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no
room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter in
what form they may be, whenever the essential requisites for their validity are present (Phoenix
Assurance Co., Ltd. vs. United States Lines, 22 SCRA 675, Phil. American General Insurance Co.,
Inc. vs. Mutuc, 61 SCRA 22.)

In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA 385, this Court ruled
that:

... it is settled that the parties may establish such stipulations, clauses, terms, and
conditions as they may want to include; and as long as such agreements are not
contrary to law, good morals, good customs, public policy or public order, they shall
have the force of law between them.
Undeniably, the contract in the case at bar, contains the indispensable elements for its validity and
does not in any way violate the law, morals, customs, orders, etc. leaving no reason for Us to deny
sanction thereto.

Finally, the fact that the contract of insurance does not contain a contingency when the change in
the designation of beneficiaries could be validly effected means that it was never within the
contemplation of the parties. The lower court, in gratuitously providing for such contingency, made a
new contract for them, a proceeding which we cannot tolerate. Ergo, We cannot help but conclude
that the lower court acted in excess of its authority when it issued the Order dated March 19, 1980
amending the designation of the beneficiaries from "irrevocable" to "revocable" over the
disapprobation of the petitioner insurance company.

WHEREFORE, premises considered, the questioned Orders of the respondent Judge are hereby
nullified and set aside.

SO ORDERED.

Melencio-Herrera (Chairperson), Sarmiento and Regalado, JJ., concur.

Padilla, J., took no part.

. 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.:

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 (INSURANCE) 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. (PETITIONERS WANT THE LAWS
ON SUCCESSION TO BE APPLIED INSTEAD OF THE SPECIAL INSURANCE LAW)
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others,
that part of the insurance proceeds had already been released in favor of Odessa, while the rest of
the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon the
appointment of their legal guardian. Petitioners also prayed for the total amount of ₱320,000.00 as
actual litigation expenses and attorney’s fees.

In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl
Brian, and Trisha Angelie as his legitimate children, and that they filed their claims for the insurance
proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of
Loreto, it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian,
and Trisha Angelie, as the remaining designated beneficiaries; and that it released Odessa’s
share as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha
Angelie pending submission of letters of guardianship.

Insular alleged that the complaint or petition failed to state a cause of action insofar as it sought to
declare as void the designation of Eva as beneficiary, because Loreto revoked her designation as
such in Policy No. A001544070 and it disqualified her in Policy No. A001693029; and insofar as it
sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering
that no settlement of Loreto’s estate had been filed nor had the respective shares of the heirs been
determined.

Insular further claimed that it was bound to honor the insurance policies designating the children of
Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance Code. (“SEC. 53. The
insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless otherwise specified in the policy.)

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, (MOD-LACK OF CAUSE OF ACTION) the
ruling thereon should be based only on the facts alleged in the complaint.

The court must resolve the issue on the strength of such allegations, assuming them to be true. The
test of sufficiency of a cause of action rests on whether, hypothetically admitting the facts alleged in
the complaint to be true, the court can render a valid judgment upon the same, in accordance with
the prayer in the complaint. This is the general rule.

However, this rule is subject to well-recognized exceptions, such that there is no hypothetical
admission of the veracity of the allegations if:

1. the falsity of the allegations is subject to judicial notice;

2. such allegations are legally impossible;

3. the allegations refer to facts which are inadmissible in evidence;

4. by the record or document in the pleading, the allegations appear unfounded; or

5. there is evidence which has been presented to the court by stipulation of the parties or in
the course of the hearings related to the case.18

In this case, it is clear from the petition filed before the trial court that, although petitioners are the
legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies issued by
Insular and Grepalife.

The basis of petitioners’ claim is that Eva, being a concubine of Loreto and a suspect in his murder,
is disqualified from being designated as beneficiary of the insurance policies, and that Eva’s children
with Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the policies.

They also argued that pursuant to Section 12 of the Insurance Code,19 Eva’s share in the proceeds
should be forfeited in their favor, the former having brought about the death of Loreto. Thus, they
prayed that the share of Eva and portions of the shares of Loreto’s illegitimate children should be
awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in
light of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be
governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states—
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the
maturation of the policy.20 

The exception to this rule is a situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favorable stipulations or indemnity. In
such a case, third parties may directly sue and claim from the insurer.21

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not
entitled to the proceeds thereof.

Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insurance
proceeds to petitioners.

The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are
of no moment considering that the designation of the illegitimate children as beneficiaries in Loreto’s
insurance policies remains valid.

Because no legal proscription exists in naming as beneficiaries the children of illicit

relationships by the insured,22 the shares of Eva in the insurance proceeds, whether forfeited by
the court in view of the prohibition on donations under Article 739 of the Civil Code or by the insurers
themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate
children, the designated beneficiaries, to the exclusion of petitioners.

It is only in cases where the insured has not designated any beneficiary,23 or when the designated
beneficiary is disqualified by law to receive the proceeds,24 that the insurance policy proceeds
shall redound to the benefit of the estate of the insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same
light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the appellate court
had no jurisdiction to take cognizance of the appeal; the issue of failure to state a cause of action is
a question of law and not of fact, there being no findings of fact in the first place.25

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

G.R. No. 85141 November 28, 1989

FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,
vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.

Balgos & Perez Law Offices for petitioner.

Lapuz Law office for private respondent.

REGALADO, J.:

This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive
part of which reads:

WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant

Filipino Merchants Insurance Company to pay the plaintiff the sum of P51,568.62
with interest at legal rate from the date of filing of the complaint, and is modified with
respect to the third party complaint in that (1) third party defendant E. Razon, Inc. is
ordered to reimburse third party plaintiff the sum of P25,471.80 with legal interest
from the date of payment until the date of reimbursement, and (2) the third-party
complaint against third party defendant Compagnie Maritime Des Chargeurs Reunis
is dismissed. 1

The facts as found by the trial court and adopted by the Court of Appeals are as follows:

This is an action brought by the consignee of the shipment of fishmeal loaded on

board the vessel SS Bougainville and unloaded at the Port of Manila on or about
December 11, 1976 and seeks to recover from the defendant insurance company the
amount of P51,568.62 representing damages to said shipment which has been
insured by the defendant insurance company under Policy No. M-2678. The
defendant brought a third party complaint against third party defendants Compagnie
Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the
third (sic) defendants in case Judgment is rendered against the third party plaintiff. It
appears from the evidence presented that in December 1976, plaintiff insured said
shipment with defendant insurance company under said cargo Policy No. M-2678 for
the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in
new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks
under warehouse to warehouse terms. Actually, what was imported was 59.940
metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new
gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the
arrastre contractor E. Razon, Inc. and defendant's surveyor ascertained and certified
that in such discharge 105 bags were in bad order condition as jointly surveyed by
the ship's agent and the arrastre contractor. The condition of the bad order was
reflected in the turn over survey report of Bad Order cargoes Nos. 120320 to 120322,
as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and 6-
Razon. The cargo was also surveyed by the arrastre contractor before delivery of the
cargo to the consignee and the condition of the cargo on such delivery was reflected
in E. Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a total of
227 bags in bad order condition. Defendant's surveyor has conducted a final and
detailed survey of the cargo in the warehouse for which he prepared a survey report
Exhibit F with the findings on the extent of shortage or loss on the bad order bags
 totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on said computation
the plaintiff made a formal claim against the defendant Filipino Merchants Insurance
Company for P51,568.62 (Exhibit C) the computation of which claim is contained
therein. A formal claim statement was also presented by the plaintiff against the
vessel dated December 21, 1976, Exhibit B, but the defendant Filipino Merchants
Insurance Company refused to pay the claim. Consequently, the plaintiff brought an
action against said defendant as adverted to above and defendant presented a third
party complaint against the vessel and the arrastre contractor.  2

The court below, after trial on the merits, rendered judgment in favor of private respondent, the
decretal portion whereof reads:

WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the

plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co., ordering
the defendants to pay the plaintiff the following amount:

The sum of P51,568.62 with interest at legal rate from the date of the filing of the
complaint;

On the third party complaint, the third party defendant Compagnie Maritime Des
Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay to the
third party plaintiff jointly and severally reimbursement of the amounts paid by the
third party plaintiff with legal interest from the date of such payment until the date of
such reimbursement.

Without pronouncement as to costs. 3

On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the
complaint is concerned and modified the same with regard to the adjudication of the third-party
complaint. A motion for reconsideration of the aforesaid decision was denied, hence this petition with
the following assignment of errors:

1. The Court of Appeals erred in its interpretation and application of the "all risks"
clause of the marine insurance policy when it held the petitioner liable to the private
respondent for the partial loss of the cargo, notwithstanding the clear absence of
proof of some fortuitous event, casualty, or accidental cause to which the loss is
attributable, thereby contradicting the very precedents cited by it in its decision as
well as a prior decision of the same Division of the said court (then composed of
Justices Cacdac, Castro-Bartolome, and Pronove);

2. The Court of Appeals erred in not holding that the private respondent had no
insurable interest in the subject cargo, hence, the marine insurance policy taken out
by private respondent is null and void;

3. The Court of Appeals erred in not holding that the private respondent was guilty of
fraud in not disclosing the fact, it being bound out of utmost good faith to do so, that it
had no insurable interest in the subject cargo, which bars its recovery on the policy.  4

On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical
meaning in insurance in that before a claim can be compensable it is essential that there must be
"some fortuity, " "casualty" or "accidental cause" to which the alleged loss is attributable and the
failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that
the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover
from the insurance policy. We find said contention untenable.

The "all risks clause" of the Institute Cargo Clauses read as follows:

5. This insurance is against all risks of loss or damage to the subject-matter insured
but shall in no case be deemed to extend to cover loss, damage, or expense
proximately caused by delay or inherent vice or nature of the subject-matter insured.
Claims recoverable hereunder shall be payable irrespective of percentage.  5

An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses
by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance
contracts, have not acquired any technical meaning. They are construed by the courts in their
ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by
chance or fortuitously, without intention and design, and which is unexpected, unusual and
unforeseen. An accident is an event that takes place without one's foresight or expectation; an event
that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not
expected.  6

The very nature of the term "all risks" must be given a broad and comprehensive meaning as
covering any loss other than a willful and fraudulent act of the insured.   This is pursuant to the very
7

purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties
of logical explanation or some mystery surround the loss or damage to property.   An "all asks" policy
8

has been evolved to grant greater protection than that afforded by the "perils clause," in order to
assure that no loss can happen through the incidence of a cause neither insured against nor
creating liability in the ship; it is written against all losses, that is, attributable to external causes. 
9

The term "all risks" cannot be given a strained technical meaning, the language of the clause under
the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all
damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately
caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or
nature of the subject matter insured.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but
under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or
damage for which it seeks compensation. The insured under an "all risks insurance policy" has the
initial burden of proving that the cargo was in good condition when the policy attached and that the
cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer
to show the exception to the coverage.   As we held in Paris-Manila Perfumery Co. vs. Phoenix
10

Assurance Co., Ltd.   the basic rule is that the insurance company has the burden of proving that
11

the loss is caused by the risk excepted and for want of such proof, the company is liable.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting upon the
insured the burden of establishing that the loss was due to the peril falling within the policy's
coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly
excludes the loss from coverage.   A marine insurance policy providing that the insurance was to be
12

"against all risks" must be construed as creating a special insurance and extending to other risks
than are usually contemplated, and covers all losses except such as arise from the fraud of the
insured.   The burden of the insured, therefore, is to prove merely that the goods he transported
13

have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove
that the loss was due to excepted perils. To impose on the insured the burden of proving the precise
cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks"
insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils,
the insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due
consideration of the authorities and jurisprudence it discussed —

... it is believed that in the absence of any showing that the losses/damages were
caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject
matter insured, and there is no such showing, the lower court did not err in holding
that the loss was covered by the policy.

There is no evidence presented to show that the condition of the gunny bags in
which the fishmeal was packed was such that they could not hold their contents in
the course of the necessary transit, much less any evidence that the bags of cargo
had burst as the result of the weakness of the bags themselves. Had there been
such a showing that spillage would have been a certainty, there may have been good
reason to plead that there was no risk covered by the policy (See Berk vs. Style
[1956] cited in Marine Insurance Claims, Ibid, p. 125). Under an 'all risks' policy, it
was sufficient to show that there was damage occasioned by some accidental cause
of any kind, and there is no necessity to point to any particular cause. 14

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the
policy. The agreement has the force of law between the parties. The terms of the policy constitute
the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense. 15

Anent the issue of insurable interest, we uphold the ruling of the respondent court that private
respondent, as consignee of the goods in transit under an invoice containing the terms under "C & F
Manila," has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in property as every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest
in property who derives a benefit from its existence or would suffer loss from its destruction whether
he has or has not any title in, or lien upon or possession of the property y.   Insurable interest in
16

property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy
arises. 
17

Herein private respondent, as vendee/consignee of the goods in transit has such existing interest
therein as may be the subject of a valid contract of insurance. His interest over the goods is based
on the perfected contract of sale.   The perfected contract of sale between him and the shipper of
18

the goods operates to vest in him an equitable title even before delivery or before be performed the
conditions of the sale.   The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this
19

case, is immaterial in the determination of whether the vendee has an insurable interest or not in the
goods in transit. The perfected contract of sale even without delivery vests in the vendee an
equitable title, an existing interest over the goods sufficient to be the subject of insurance.

Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier,
whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a
delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The
Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the
nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the
goods and paid the insurance premium covering them.  20

C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum
the cost of the goods and freight to the named destination.   It simply means that the seller must pay
21

the costs and freight necessary to bring the goods to the named destination but the risk of loss or
damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in
the port of shipment. 22

Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners
answer. It was neither an issue agreed upon by the parties at the pre-trial conference nor was it
raised during the trial in the court below. It is a settled rule that an issue which has not been raised in
the court a quo cannot be raised for the first time on appeal as it would be offensive to the basic
rules of fair play, justice and due process.   This is but a permuted restatement of the long settled
23

rule that when a party deliberately adopts a certain theory, and the case is tried and decided upon
that theory in the court below, he will not be permitted to change his theory on appeal because, to
permit him to do so, would be unfair to the adverse party.  24

If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on
the issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under
the facts in this case and also to dispose of petitioner's third assignment of error which consequently
needs no further discussion.

WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of
Appeals is AFFIRMED in toto.

SO ORDERED.

Paras, Padilla and Sarmiento, JJ., concur.

Melencio-Herrera (Chairperson), J., is on leave.

G.R. No. 147839             June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of the
Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31,
1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the
causes of action for damages of Insurance Company of North America (respondent) against
Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied
petitioner's motion for reconsideration.

The factual background of the case is as follows:

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

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

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the
close of every calendar month all amount shown in their books of accounts as unpaid and
thus become receivable item from their customers and dealers. x x x4

xxxx

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

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

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

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

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

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

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

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until
fully paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.

With costs against the defendant-appellee.

SO ORDERED.10

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

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

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

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

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

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC

SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14

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

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

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

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

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

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

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

The Court disagrees with petitioner's stand.

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

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

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

The Court is not persuaded.

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

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

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

xxxx

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

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

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether
real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same
Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate
interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that
out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien
upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial
interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated
with reference to the property that he would be liable to loss should it be injured or destroyed by the
peril against which it is insured.29 Anyone has an insurable interest in property who derives a benefit
from its existence or would suffer loss from its destruction.30 Indeed, a vendor or seller retains an
insurable interest in the property sold so long as he has any interest therein, in other words, so long
as he would suffer by its destruction, as where he has a vendor's lien.31 In this case, the insurable
interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days
after the time of the loss covered by the policies.

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

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

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

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

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

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-
22"38 show that petitioner has an outstanding account with IMC in the amount of P2,119,205.00.
Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt
executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these
documents have been properly identified, presented and marked as exhibits in court. The
subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as
insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of
subrogation accrues simply upon payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil
Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. x x x

Petitioner failed to refute respondent's evidence.

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

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

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

No pronouncement as to costs.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., Petitioners, v. COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION, Respondents.

DECISION

PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set
aside a decision of respondent Court of Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease
contract with private respondent CKS Development Corporation (hereinafter CKS), as
lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles,
goods and effects placed at any stall or store or space in the leased premises without
first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s)
the insurance thereof without the consent of the LESSOR then the policy is deemed
assigned and transferred to the LESSOR for its own benefit; x x x 1 chanroblesvirtuallawlibrary

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured
against loss by fire their merchandise inside the leased premises for Five Hundred
Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United)
without the written consent of private respondents CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased
premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without its
consent), it wrote the insurer (United) a demand letter asking that the proceeds of the
insurance contract (between the Cha spouses and United) be paid directly to CKS,
based on its lease contract with Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha
spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a

decision* ordering therein defendant United to pay CKS the amount of P335,063.11 and
defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as
attorneys fees and costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a

decision** dated 11 January 1996, affirming the trial court decision, deleting however
the awards for exemplary damages and attorneys fees. A motion for reconsideration by
United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court of
Appeals:

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE

STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW,
MORALS AND PUBLIC POLICY

II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT
OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE
QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER

III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN

INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN
CONTRAVENTION OF THE INSURANCE LAW

IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN

INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING
WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF
THE RESPONDENT CORPORATION.2 chanroblesvirtuallawlibrary

The core issue to be resolved in this case is whether or not the aforequoted paragraph
18 of the lease contract entered into between CKS and the Cha spouses is valid insofar
as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over
their merchandise inside the leased premises is deemed assigned or transferred to the
lessor (CKS) if said policy is obtained without the prior written of the latter.

It is, of course, basic in the law on contracts that the stipulations contained in a
contract cannot be contrary to law, morals, good customs, public order or public
policy.3
chanroblesvirtuallawlibrary

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable

except for the benefit of some person having an insurable interest in the
property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses
over their merchandise is primarily a contract of indemnity. Insurable interest in the
property insured must exist at the time the insurance takes effect and at the time the
loss occurs.4 The basis of such requirement of insurable interest in property insured is
based on sound public policy: to prevent a person from taking out an insurance policy
on property upon which he has no insurable interest and collecting the proceeds of said
policy in case of loss of the property. In such a case, the contract of insurance is a mere
wager which is void under Section 25 of the Insurance Code, which provides:

SECTION 25. Every stipulation in a policy of Insurance for the payment of loss,

whether the person insured has or has not any interest in the property insured,
or that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods
and merchandise inside the leased premises under the provisions of Section 17 of the
Insurance Code which provide.

Section 17. The measure of an insurable interest in property is the extent to

which the insured might be damnified by loss of injury thereof."

Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their
merchandise. This insurable interest over said merchandise remains with the insured,
the Cha spouses. The automatic assignment of the policy to CKS under the provision of
the lease contract previously quoted is void for being contrary to law and/or public
policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses
Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be
compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has
no insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that Cha
spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET
ASIDE and a new decision is hereby entered, awarding the proceeds of the fire
insurance policy to petitioners Nilo Cha and Stella Uy-Cha.

SO ORDERED.

G.R. No. L-14300             January 19, 1920

SAN MIGUEL BREWERY, ETC., plaintiff-appellee,

vs.
LAW UNION AND ROCK INSURANCE CO., (LTD.) ET AL., defendants-appellees.
HENRY HARDING, defendant-appellant.

Crossfield and O'Brien for appellant Harding.

Lawrence and Ross for appellee Law Union etc. Ins. Co.
Sanz and Luzuriaga for appellee "Filipinas, Compañia de Seguros."
No appearance for the other appellee.

STREET, J.:

This action was begun on October 8, 1917, in the Court of First Instance of the city of Manila by the
plaintiff, the San Miguel Brewery, for the purpose of recovering upon two policies of insurance
underwritten respectively by Law Union and Rock Insurance Company (Ltd.), and the
"Filipinas" Compania de Seguros, for the sum of P7,500 each, insuring certain property which has
been destroyed by fire. The plaintiff, the San Miguel Brewery, is named as the party assured in the
two policies referred to, but it is alleged in the complaint that said company was in reality interested
in the property which was the subject of insurance in the character of a mortgage creditor only, and
that the owner of said property upon the date the policies were issued was one D. P. Dunn who was
later succeeded as owner by one Henry Harding. Accordingly said Harding was made a defendant,
as a person interested in the subject of the litigation.

The prayer of the complaint is that judgment be entered in favor of the plaintiff against the two
companies named for the sum of P15,000, with interest and costs, and further that upon satisfaction
of the balance of P4,505.30 due to the plaintiff upon the mortgage debt, and upon the cancellation of
the mortgage, the plaintiff be absolved from liability to the defendants or any of them. The peculiar
form of the latter part of the prayer is evidently due to the design of the plaintiff to lay a foundation for
Harding to recover the difference between the plaintiff's credit and the amount for which the property
was insured. Accordingly, as was to be expected, Harding answered, admitting the material
allegations of the complaint and claiming for himself the right to recover the difference between the
plaintiff's mortgage credit and the face value of the policies. The two insurance companies also
answered, admitting in effect their liability to the San Miguel Brewery to the extent of its mortgage
credit, but denying liability to Harding on the ground that under the contracts of insurance the liability
of the insurance companies was limited to the insurable interest of the plaintiff therein. Soon after the
action was begun the insurance companies effected a settlement with the San Miguel Brewery by
paying the full amount of the credit claimed by it, with the result that the litigation as between the
original plaintiff and the two insurance companies came to an end, leaving the action to be
prosecuted to final judgement by the defendant Harding with respect to the balance claimed to be
due to him upon the policies.

Upon hearing the evidence the trial judge came to the conclusion that Harding had no right of action
whatever against the companies and absolved them from liability without special finding as to costs.
From this decision the said Henry Harding has appealed.

The two insurance companies who are named as defendants do not dispute their liability to the San
Miguel Brewery, to the extent already stated, and the only question here under discussion is that of
the liability of the insurance companies to Harding. It is therefore necessary to take account of such
facts only as bear upon this aspect of the case.

In this connection it appears that on January 12, 1916, D. P. Dunn, then the owner of the property to
which the insurance relates, mortgaged the same to the San Miguel Brewery to secure a debt of
P10,000. In the contract of mortgage Dunn agreed to keep the property insured at his expense to the
full amount of its value in companies to be selected by the Brewery Company and authorized the
latter in case of loss to receive the proceeds of the insurance and to retain such part as might be
necessary to cover the mortgage debt. At the same time, in order more conveniently to accomplish
the end in view, Dunn authorized and requested the Brewery Company to effect said insurance
itself. Accordingly on the same date Antonio Brias, general manager of the Brewery, made a verbal
application to the Law Union and Rock Insurance Company for insurance to the extent of P15,000
upon said property. In reply to a question of the company's agent as to whether the Brewery was the
owner of the property, he stated that the company was interested only as a mortgagee. No
information was asked as to who was the owner of the property, and no information upon this point
was given.

It seems that the insurance company to whom this application was directed did not want to carry
more than one-half the risk. It therefore issued its own policy for P7,500 and procured a policy in a
like amount to be issued by the "Filipinas" Compania de Seguros. Both policies were issued in the
name of the San Miguel Brewery as the assured, and contained no reference to any other interest in
the property. Both policies contain the usual clause requiring assignments to be approved and noted
on the policy. The premiums were paid by the Brewery and charged to Dunn. A year later the
policies were renewed, without change, the renewal premiums being paid by the Brewery,
supposedly for the account of the owner. In the month of March of the year 1917 Dunn sold the
insured property to the defendant Henry Harding, but not assignment of the insurance, or of the
insurance policies, was at any time made to him.

We agree with the trial court that no cause of action in Henry Harding against the insurance
companies is show. He is not a party to the contracts of insurance and cannot directly maintain an
action thereon. (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) His claim is merely of an
equitable and subsidiary nature and must be made effective, if at all, through the San Miguel
Brewery in whose name the contracts are written. Now the Brewery, as mortgagee of the insured
property, undoubtedly had an insurable interest therein; but it could not, in any event, recover upon
these policies an amount in excess of its mortgage credit. In this connection it will be remembered
that Antonio Brias, upon making application for the insurance, informed the company with which the
insurance was placed that the Brewery was interested only as a mortgagee. It would, therefore, be
impossible for the Brewery mortgage on the insured property.

This conclusion is not only deducible from the principles governing the operation and effect of
insurance contracts in general but the point is clearly covered by the express provisions of sections
16 and 50 of the Insurance Act (Act No. 2427). In the first of the sections cited, it is declared that "the
measure of an insurable interest in property is the extent to which the insured might be damnified by
loss or injury thereof" (sec. 16); while in the other it is stated that "the insurance shall be applied
exclusively to the proper interest of the person in whose name it is made unless otherwise specified
in the policy" (sec. 50).

These provisions would have been fatal to any attempt at recovery even by D. P. Dunn, if the
ownership of the property had continued in him up to the time of the loss; and as regards Harding,
an additional insuperable obstacle is found in the fact that the ownership of the property had been
charged, prior to the loss, without any corresponding change having been effected in the policy of
insurance. In section 19 of the Insurance Act we find it stated that "a change of interest in any part of
a thing insured unaccompanied by a corresponding change of interest in the insurance, suspends
the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance
are vested in the same person." Again in section 55 it is declared that "the mere transfer of a thing
insured does not transfer the policy, but suspends it until the same person becomes the owner of
both the policy and the thing insured."

Undoubtedly these policies of insurance might have been so framed as to have been "payable to the
Sane Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever, during the
continuance of the risk, may become the owner of the interest insured." (Sec 54, Act No. 2427.)
Such a clause would have proved an intention to insure the entire interest in the property, not merely
the insurable interest of the San Miguel Brewery, and would have shown exactly to whom the
money, in case of loss, should be paid. But the policies are not so written.

It is easy to collect from the facts stated in the decision of the trial judge, no less than from the
testimony of Brias, the manager of the San Miguel Brewery, that, as the insurance was written up,
the obligation of the insurance companies was different from that contemplated by Dunn, at whose
request the insurance was written, and Brias. In the contract of mortgage Dunn had agreed, at his
own expense, to insure the mortgaged property for its full value and to indorse the policies in such
manner as to authorize the Brewery Company to receive the proceeds in case of loss and to retain
such part thereof as might be necessary to satisfy the remainder then due upon the mortgage debt.
Instead, however, of effecting the insurance himself Dunn authorized and requested the Brewery
Company to procure insurance on the property in the amount of P15,000 at Dunn's expense. The
Brewery Company undertook to carry this mandate into effect, and it of course became its duty to
procure insurance of the character contemplated, that is, to have the policies so written as to protect
not only the insurable interest of the Brewery, but also the owner. Brias seems to have supposed
that the policies as written had this effect, but in this he was mistaken. It was certainly a hardship on
the owner to be required to pay the premiums upon P15,000 of insurance when he was receiving no
benefit whatever except in protection to the extent of his indebtedness to the Brewery. The blame for
the situation thus created rests, however, with the Brewery rather than with the insurance
companies, and there is nothing in the record to indicate that the insurance companies were
requested to write insurance upon the insurable interest of the owner or intended to make
themselves liable to that extent.

If during the negotiations which resulted in the writing of this insurance, it had been agreed between
the contracting parties that the insurance should be so written as to protect not only the interest of
the mortgagee but also the residuary interest of the owner, and the policies had been, by
inadvertence, ignorance, or mistake written in the form in which they were issued, a court would
have the power to reform the contracts and give effect to them in the sense in which the parties
intended to be bound. But in order to justify this, it must be made clearly to appear that the minds of
the contracting parties did actually meet in agreement and that they labored under some mutual
error or mistake in respect to the expression of their purpose. Thus, in Bailey vs. American Central
Insurance Co. (13 Fed., 250), it appeared that a mortgage desiring to insure his own insurable
interest only, correctly stated his interest, and asked that the same be insured. The insurance
company agreed to accept the risk, but the policy was issued in the name of the owner, because of
the mistaken belief of the company's agent that the law required it to be so drawn. It was held that a
court of equity had the power, at the suit of the mortgage, to reform the instrument and give
judgment in his favor for the loss thereunder, although it had been exactly as it was. Said the court:
"If the applicant correctly states his interest and distinctly asks for an insurance thereon, and the
agent of the insurer agrees to comply with his request, and assumes to decide upon the form of the
policy to be written for that purpose, and by mistake of law adopts the wrong form, a court of equity
will reform the instrument so as to make it insurance upon the interest named." (See
also Fink vs. Queens Insurance Co., 24 Fed., 318; Esch vs. Home Insurance Co., 78 Iowa, 334; 16
Am. St. Rep., 443; Woodbury Savings etc., Co., vs. Charter Oak Insurance Co., 31 Conn., 517;
Balen vs. Hanover Fire Insurance Co., 67 Mich., 179.)

Similarly, in cases where the mortgage is by mistake described as owner, the court may grant
reformation and permit a recovery by the mortgage in his character as such. (Dalton vs. Milwaukee
etc. Insurance Co., 126 Iowa, 377; Spare vs. Home Mutual Insurance Co., 17 Fed., 568.)
In Thompson vs. Phoenix Insurance Co. (136 U.S., 287; 34 L. 3d., 408), it appeared that one
Kearney made application to an insurance company for insurance on certain property in his hands
as receiver and it was understood between him and the company's agent that, in case of loss, the
proceeds of the policy should accrue to him and his successors as receiver and to others whom it
might concern. However, the policy, as issued, was so worded as to be payable only to him as
receiver. In an action brought on the policy by a successor of Kearney, it was alleged that the
making of the contract in this form was due to inadvertence, accident, and mistake upon the part of
both Kearney and the company.

Said the court:

If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in
the policy, the plaintiff is entitled to have it reformed.

In another case the same court said:

We have before us a contract from which by mistake, material stipulations have been omitted,
whereby the true intent and meaning of the parties are not fully or accurately expressed. There was
a definite concluded agreement as to insurance, which, in point of time, preceded the preparation
and delivery of the policy, and this is demonstrated by legal and exact evidence, which removes all
doubt as to the sense and undertaking of the parties. In the agreement there has been a mutual
mistake, caused chiefly by that contracting party who now seeks to limit the insurance to an interest
in the property less than that agreed to be insured. The written agreement did not effect that which
the parties intended. That a court of equity can afford relief in such a case, is, we think, well settled
by the authorities. (Smell vs. Atlantic, etc., Ins. Co., 98 U.S., 85, 89; 25 L. ed., 52.)

But to justify the reformation of a contract, the proof must be of the most satisfactory character, and
it must clearly appear that the contract failed to express the real agreement between the parties.
(Philippine Sugar Estates Development Company vs. Government of the Philippine Islands, 62 L.
ed., 1177, reversing Government of Philippine Island vs. Philippine Sugar Estates Development Co.,
30 Phil. Rep., 27.)

In the case now before us the proof is entirely insufficient to authorize the application of the doctrine
state in the foregoing cases, for it is by means clear from the testimony of Brias — and none other
was offered — that the parties intended for the policy to cover the risk of the owner in addition to that
of the mortgagee. It results that the defendant Harding is not entitled to relief in any aspect of the
case.

The judgment is therefore affirmed, with costs against the appellant. So ordered.

Arellano, C.J., Johnson, Araullo, Malcolm and Avanceña, JJ., concur.