FIRST DIVISION

[G.R. No. 191849. September 23, 2015.]

FREDERICK F. FELIPE, petitioner, vs. MGM MOTOR TRADING CORPORATION, doing business under the name and style NISSAN GALLERY-ORTIGAS, and
AYALA GENERAL INSURANCE CORPORATION, respondents.

RESOLUTION
PEREZ, J p:
This Petition for Review on Certiorari assails the 14 January 2010 Decision 1 of the Court of Appeals and its 16 March 2010 Resolution 2 in CA-G.R. CV No. 89665 affirming the
22 February 2005 Order 3 of the Regional Trial Court (RTC) of Quezon City, Branch 80 which dismissed the case for specific performance and damages on demurrer to evidence.
In his Complaint for Specific Performance and Damages against respondents MGM Motors, Inc. (MGM Motors) and Ayala General Insurance Corporation (Ayala Insurance),
petitioner Frederick Felipe claimed that he purchased on installment basis a Nissan Terrano Wagon through MGM Motors' authorized representative Jane Sarmiento (Sarmiento).
Petitioner allegedly gave a P200,000.00 downpayment and P5,000.00 reservation fee to Sarmiento. He further issued seven (7) Allied Bank checks, each bearing the amount of
P24,165.00 payable to MGM Motors. On 14 May 1997, MGM Motors delivered the subject vehicle to petitioner. He then insured the vehicle with Ayala Insurance under Policy No.
PC970000440001-00-000 and paid a premium of P40,220.67. On 15 November 1997, the subject vehicle, while parked along Adriatico Street in Manila, was reportedly lost. He tried to
claim from Ayala Insurance but the latter refused to pay its liability causing damages to petitioner. On the other hand, MGM Motors refused to produce, despite repeated demands, the
document of sale by installment covering the vehicle. Petitioner allegedly paid additional P200,000.00 on 7 May 1998 as partial payment for the vehicle. The refusal of MGM Motors to
produce the document and its renouncement of the existence of the installment sale; and the subsequent unlawful insistence on a cash transaction agreement, had caused damages to
petitioner. 4 CAIHTE
In its Answer, MGM Motors denied receiving the down payment of P200,000.00 and P5,000.00 reservation fee paid through Sarmiento. The following is its version of the
controversy:
MGM Motors offered Petitioner a discount of P220,000.00 if the latter would pay in cash. MGM Motors averred that the vehicle was delivered to petitioner on 14 May 1997 but
the latter failed to pay in cash, thus MGM Motors did not give the registration papers to petitioner. MGM Motors sent two letters to petitioner demanding the payment for the said vehicle
but the latter refused or failed to pay. MGM Motors stated that petitioner was able to fraudulently register the vehicle with the Land Transportation Office in his name and insure the same
with Ayala Insurance. During a negotiation, the parties agreed that petitioner's obligation amounted to P1,020,000.00. In an effort to settle petitioner's obligation, his mother Purificacion
issued a postdated check for P1,020,000.00 as full payment for the subject vehicle but, upon maturity, the check bounced. Consequently, MGM Motors filed a case for violation of Batas
Pambansa Bilang 22 (BP 22)against petitioner's mother. In order to settle the civil aspect of the BP 22 case, petitioner paid P200,000.00 to MGM Motors. MGM Motors counterclaimed for
damages. 5
Ayala Insurance, for its part, contended that petitioner had no valid cause of action against it. Ayala Insurance asserted that petitioner had no insurable interest because he is not
the owner of the vehicle that he had insured with it. Ayala Insurance also counterclaimed for damages. 6
Trial proceeded with petitioner and his father Alberto Felipe (Alberto) testifying on the behalf of the former. Petitioner's testimony was however stricken off the record because he
failed to return, despite numerous opportunities, to the witness stand for cross-examination. Only two pieces of evidence were admitted by the trial court: (1) the Official Receipt dated 7
May 1998 issued by MGM Motors wherein it acknowledged receipt of P200,000.00 from petitioner; and (2) the testimony of his father Alberto that he was present when petitioner paid
P200,000.00 to MGM Motors.
MGM Motors and Ayala Insurance filed their respective Motions to Dismiss on demurrer to evidence.
On 22 February 2005, the RTC dismissed the case. The trial court reasoned that the evidence admitted by the trial court do not prove the material allegations of petitioner's
complaint, as well as the alleged liability of Ayala Insurance.
Petitioner filed a motion for reconsideration from said Order but it was denied by the trial court on 23 May 2005. 7
Meanwhile, the trial, with respect to MGM Motor's counterclaim, subsisted.
On 6 June 2007, the trial court awarded P25,000.00 in attorney's fees to MGM Motors. 8 HEITAD
 Petitioner elevated the matter to the Court of Appeals. On 14 January 2010, the appellate court gave weight to the factual findings of the trial court and found no reason to
reverse its ruling. 9 Petitioner filed a motion for reconsideration but it was likewise denied by the Court of Appeals.
In the instant petition for review on certiorari, petitioner raises a lone argument, to wit:
THE COURT OF APPEALS HAS DISPOSED OF PETITIONER'S (PLAINTIFF-APPELLANT THEREIN) APPEAL IN A WAY NOT IN ACCORD WITH LAW OR WITH
THE APPLICABLE DECISIONS OF THIS HONORABLE TRIBUNAL, THUS COMMITTING ERRORS THAT WARRANT REVERSAL BY THIS HONORABLE
TRIBUNAL. THIS HAPPENED WHEN:
THE COURT OF APPEALS AFFIRMED THE RULING OF THE TRIAL COURT THAT FAILED/REFUSED TO GRANT PETITIONER THE RELIEFS
PRAYED FOR IN THE COMPLAINT DESPITE THE FACT THAT WITH THE EVIDENCE THAT HE ADDUCED HE HAS CLEARLY, CONVINCINGLY
AND PREPONDERANTLY PROVEN HIS CAUSES OF ACTION AGAINST THE RESPONDENTS (DEFENDANTS). THIS IS TRUE EVEN IF A
CONSIDERABLE PORTION OF HIS EVIDENCE WAS DENIED ADMISSION BY THE TRIAL COURT. 10
Petitioner insists that the two pieces of evidence admitted by the trial court are sufficient to substantiate the material allegations of the complaint. Petitioner stresses that Alberto's
testimony established that the purchase of the subject vehicle was on installment basis from MGM Motors; that Petitioner paid additional P200,000.00; and that MGM Motors failed and
refused to deliver the promised documents of sale on installment despite payments having been made. The fact of sale on installment, according to petitioner, was further proved by the
receipt issued by MGM Motors. Petitioner highlights the fact that the vehicle was actually delivered to him, thus ownership was transferred to him upon delivery thereof. Proceeding from
the same line of argument, petitioner states that with respect to Ayala Insurance, he is already the owner of the subject vehicle when the insurance on it was taken and when the subject
vehicle was lost. Assuming arguendo that title to the subject vehicle remained with MGM Motors, petitioner adds that his insurable interest on the vehicle consisted of the substantial
amount that he had paid on the purchase price of the vehicle.
MGM Motors cites the Municipal Trial Court's (MTC) finding in the criminal complaint for BP 22 against petitioner's mother that the agreement for the purchase of the subject
vehicle was on cash basis and not installment. MGM Motors echoes the trial court's ruling that petitioner failed to substantiate the material allegations in his complaint.
On its part, Ayala Insurance puts up the argument that the only evidence submitted by petitioner against it was the receipt of the P200,000.00 that he paid to MGM Motors. The
evidence does not constitute proof of the insurable interest. Moreover, Ayala Insurance asserts that petitioner also failed to establish the following proof: (1) premium payment; (2) that the
insurable interest existed at the time of the loss; (3) deed of sale; (4) proximate cause of the loss is one of the perils insured against; (5) existence of the original insurance policy. Ayala
Insurance maintains that Petitioner failed to establish his case by preponderance of evidence.
The basic issue is whether the trial court correctly granted the demurrer to evidence and subsequently dismissed the complaint.
We agree.
A demurrer to evidence is a motion to dismiss on the ground of insufficiency of evidence and is presented after the plaintiff rests his case. It is an objection by one of the parties
in an action, to the effect that the evidence which his adversary produced is insufficient in point of law, whether true or not, to make out a case or sustain the issue. 11
Rule 33, Section 1 of the 1997 Rules of Civil Procedure provides:
Section 1. Demurrer to evidence. — After the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal on the ground that upon
the facts and the law the plaintiff has shown no right to relief. If his motion is denied, he shall have the right to present evidence. If the motion is granted but on appeal
the order of dismissal is reversed he shall be deemed to have waived the right to present evidence.
The essential question to be resolved in a demurrer to evidence is whether the plaintiff has been able to show that he is entitled to his claim, and it is incumbent upon the trial
court judge to make such a determination. 12
A review of the dismissal of the complaint naturally entails a calibration of the evidence to determine whether the material allegations of the complaint were sufficiently backed by
evidence. We have repeatedly stressed that the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only questions of law, not of fact.
A question of law exists when there is doubt or controversy as to what the law is on a certain state of facts. There is a question of fact when doubt arises as to the truth or falsity
of the statement of facts. The resolution of a question of fact necessarily involves a calibration of the evidence, the credibility of the witnesses, the existence and the relevance of
surrounding circumstances, and the probability of specific situations. It is for this reason that this Court defers to the factual findings of a trial judge, who has had the distinct advantage of
directly observing the witnesses on the stand and determining from their demeanor whether they were speaking or distorting the truth. 13
The questions on whether the sale was on cash or installment basis and whether petitioner had insurable interest on the subject car are evidently questions of fact which are
beyond the purview of the instant petition.
In any event, a perusal of the records show that the trial court correctly dismissed petitioner's complaint on demurrer to evidence.
Well-established is the rule that the burden of proof lies on the party who makes the allegations. 14 There is no dispute that the only pieces of evidence admitted in court are the
testimony of Alberto and the receipt showing MGM Motors receiving P200,000.00 from petitioner as partial payment of the subject car. The allegation that the purchase of the vehicle was
 on an installment basis was not supported by any evidence. The receipt of a partial payment does not suffice to prove that the purchase was made on an installment basis. Petitioner did
not present any document to prove said allegation while MGM Motors produced a sales invoice wherein it was stated that the mode of payment is "COD" or cash on delivery.
In the same vein, petitioner failed to substantiate his allegation against Ayala Insurance. Petitioner has the burden of proof to show that a loss occurred and said loss was
covered by his insurance policy. Considering that the trial court only admitted two pieces of evidence in petitioner's favor and none of those tend to prove loss of the subject car and
coverage thereof under the insurance policy, petitioner is not entitled to the reliefs he had prayed for. ETHIDa
BASED ON THE FOREGOING, the Petition is DENIED. The 14 January 2010 Decision of the Court of Appeals and its 16 March 2010 Resolution in CA-G.R. CV No. 89665 are
AFFIRMED.
SO ORDERED.
||| (Felipe v. MGM Motor Trading Corp., G.R. No. 191849 (Resolution), [September 23, 2015])

SECOND DIVISION

[G.R. No. 128833. April 20, 1998.]

RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO, petitioner, vs. COURT OF APPEALS AND GOYU & SONS, INC., respondent.

[G.R. No. 128834. April 20, 1998.]

RIZAL COMMERCIAL BANKING CORPORATION petitioner, vs. COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP,
SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY GO, respondents.

[G.R. No. 128866. April 20, 1998.]

MALAYAN INSURANCE INC., petitioner vs. GOYU & SONS, INC. respondent.

Siguion-Reyna Montecillo & Ongsiako for petitioner RCBC.

Rodolfo P. Del Prado for private respondent Goyu & Sons, Inc.

Manuel Melotendoc for private respondent Jong Song Hiap, Sps. Go Teng Kok and Betty Chiu.

SYNOPSIS

When GOYU & Sons, Inc. (GOYU) obtained a credit facility from Rizal Commercial Banking Corporation (RCBC) it executed a mortgage contract in favor of the bank wherein it was
expressly stipulated that GOYU will insure all the subject properties with an insurance company approved by the bank and to endorse and deliver the policies to the bank. GOYU, through
Alchester Insurance, Agency, Inc., took insurance policies from Malayan Insurance Company, Inc. (MICO), sister company of RCBC, and endorsed them in favor of RCBC. Copies of the
endorsements were sent and received by GOYU, RCBC and MICO. GOYU continued to enjoy the benefits of the credit facilities extended to it by the bank. When GOYU's factory buildings
were gutted by fire, GOYU and RCBC filed separate claims with MICO but were both denied because the policies were either attached or claimed by other creditors. GOYU then filed a
complaint for specific performance and damages disowning the endorsements or lack of authority of Alchester to prepare and issue said endorsements in favor of RCBC. The trial court
rendered judgment ordering, among others, MICO to pay fire loss claim of GOYU while ordering MICO and RCBC to pay damages. GOYU was ordered to pay its loan obligations with RCBC
with interests. On appeal, the Court of Appeals sustained the findings of the trial court with respect to MICO and RCBC's liabilities. Hence, this recourse. HcSaAD
 The Supreme Court held that a mortgagor and a mortgagee have separate and distinct insurable interests in the mortgaged property and may insure the same for his own sole
benefit; that GOYU is estopped from assailing the validity of the endorsements in favor of RCBC after it had voluntarily and purposely took the insurance policies from a sister company of
RCBC and failed to seasonably repudiate the authority of the persons who prepared the endorsements; that to permit GOYU to capitalize on its non-confirmation of the endorsements is to
countenance grave contravention of public policy, fair dealing, good faith and justice; that generally, the proceeds of an insurance shall exclusively apply to the interest of the person in whose
name or for whose benefit it is made except when otherwise intended by the parties; and that insurance policies transferred by way of endorsement to a mortgagee can no longer be attached
by other creditors.

SYLLABUS

1. COMMERCIAL LAW; INSURANCE; MORTGAGOR AND MORTGAGEE, WITH SEPARATE AND DISTINCT INSURABLE INTEREST. — It is settled that a mortgagor and a
mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no
question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance policies naming itself
as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity. CDcaSA

2. REMEDIAL LAW; ACTIONS; ESTOPPEL; MORTGAGOR ESTOPPED FROM ASSAILING ENDORSEMENT OF INSURANCE POLICIES WHERE THE SAME WAS PROCURED
PURSUANT TO A MORTGAGE CONTRACT AND OBTAINED FROM A SISTER COMPANY OF MORTGAGEE; CASE AT BAR. — It is to be noted that nine endorsement documents were
prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or
payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the
insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were
mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYU's intention of obtaining
insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not have endorsed the policies to RCBC had it not been so directed by
GOYU. On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement
documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the circumstances of the case. GOYU failed to
seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the credit
facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for GOYU to disown the endorsements for any imagined or contrived lack of authority of
Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU is at the very
least estopped from assailing their operative effects. To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of
RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and
justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of the
insurance policies if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel.

3. ID.; ID.; ID.; BASIS AND PURPOSE. — The basis and purpose of the doctrine was explained in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to wit: The
doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is
designed to aid the law in the administration of justice where without its aid injustice might result. It has been applied by this Court whereever and whenever special circumstances of a case so
demand. cADTSH

4. COMMERCIAL LAW; OBLIGATIONS AND CONTRACTS; INTENTION OF PARTIES WILL PREVAIL OVER INSURANCE PROVISION THAT PROCEEDS SHALL EXCLUSIVELY
APPLY TO INTEREST OF PERSON IN WHOSE NAME OR BENEFIT IT IS MADE; CASE AT BAR. — GOYU cannot seek relief under Section 53 of the Insurance Code which provides that
the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case
presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party
for whose benefit the insurance policies were taken out. This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by Alchester, GOYU,
despite the absence of its written conformity thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC
accordingly continued to extend the benefits of its credit facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary
of the various insurance policies obtained by GOYU. The intention of the parties will have to be given full force and effect in this particular case. The insurance proceeds may, therefore, be
exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the policies were clearly intended. Moreover, the law's evident
intention to protect the interests of the mortgagee upon the mortgaged property is expressed in Article 2127 of the Civil Code.

5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONCURRENCE OF CREDIT; INSURANCE POLICIES ENDORSED TO MORTGAGEE CAN NO LONGER BE ATTACHED BY
MORTGAGOR'S OTHER CREDITORS. — The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being exclusively payable to RCBC by reason of the
endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an endorsement by GOYU itself, these 8 policies can not be attached by GOYU's other creditors up
to the extent of the GOYU's outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied exclusively
to the proper interest of the person for whose benefit it was made. In this case, to the extent of GOYU's obligation with RCBC, the interest of GOYU in the subject policies had been transferred
to RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other creditors of GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which
may nonetheless forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be validly attached,
garnished, and levied upon by GOYU's other creditors. To the extent of GOYU's outstanding obligation with RCBC, all the rest of the other insurance policies above-listed which were endorsed
to RCBC, are, therefore, to be released from attachment, garnishment, and levy by the other creditors of GOYU. Respondent Sebastian must, however, yield to the preferential right of RCBC
over the MICO insurance policies. It is basic and fundamental that the first mortgagee has superior rights over junior mortgagees or attaching creditors.

6. REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; FACT THAT PROMISSORY NOTES BEAR DATES POSTERIOR TO FIRE DOES NOT NECESSARILY MEAN THAT THE
DOCUMENTS ARE SPURIOUS. — The fact that the promissory notes bear dates posterior to the fire does not necessarily mean that the documents are spurious, for it is presumed that the
ordinary course of business had been followed (Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 222 SCRA 486 [1993]). The obligor and not the holder of the negotiable
instrument has the burden of proof of showing that he no longer owes the obligee any amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]). Even casting aside the
presumption of regularity of private transactions, receipt of the loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; LOAN; PAYMENT OF INTEREST OR COST OF MONEY, VERY ESSENTIAL AND FUNDAMENTAL ELEMENT OF BANKING
SYSTEM. — The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and penalties. What may justify a court in not allowing the
creditor to charge surcharges and penalties despite express stipulation therefor in a valid agreement, may not equally justify non-payment of interest. The charging of interest for loans forms a
very essential and fundamental element of the banking business, which may truly be considered to be at the very core of its existence or being. It is inconceivable for a bank to grant loans for
which it will not charge any interest at all. We fail to find justification for the Court of Appeals' outright deletion of the payment of interest as agreed upon in the respective promissory notes.
This constitutes gross error. cEDaTS

8. ID.; DAMAGES; SURCHARGES AND PENALTIES STIPULATED IN CASE OF DEFAULT PARTAKE THE NATURE OF LIQUIDATED DAMAGES. — Surcharges and penalties
agreed to be paid by the debtor in case of default partake of the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil Code.

9. ID.; ID.; ID.; MAY BE REDUCED IF INIQUITOUS AND UNCONSCIONABLE; CASE AT BAR. — In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case. It should be stressed that the Court will not make any sweeping ruling that surcharges and penalties imposed by
banks for non-payment of the loans extended by them are generally iniquitous and unconscionable. What may be iniquitous and unconscionable in one case, may be totally just and equitable
in another. This provision of law will have to be applied to the established facts of any given case. Given the circumstances under which GOYU found itself after the occurrence of the fire, the
Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates to 2% and
3%, respectively. Furthermore, in the light of GOYU's offer to pay the amount of P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"), which RCBC refused, we find it more in keeping
with justice and equity for RCBC not to charge additional interest, surcharges, and penalties from that time onward. DIEACH

10. COMMERCIAL LAW; INSURANCE; ASSIGNEE ENTITLED TO CLAIM INSURANCE PROCEEDS. — By virtue of the mortgage contracts as well as the endorsements of the
insurance policies, RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the
said insurance policies.

11. ID.; ID.; INSURER NOT LIABLE FOR DAMAGES FOR DELAYING AND WITHHOLDING PAYMENT OF INSURANCE PROCEEDS WHERE SAME WAS BEING CLAIMED BY
VARIOUS CREDITORS. — For an insurance company to be held liable for unreasonably delaying and withholding payment of insurance proceeds, the delay must be wanton, oppressive, or
malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403 [1990]). It is generally agreed, however, that an insurer may in good faith and honesty entertain a difference of opinion as to
its liability. Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a claim should not be inflicted unless the evidence and circumstances show that such refusal was willful
and without reasonable cause as the facts appear to a reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga.
331, 28 SE 853, 65 Am St Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not show that MICO wantonly and in bad faith delayed the
release of the proceeds. The problem in the determination of who is the actual beneficiary of the insurance policies, aggravated by the claim of various creditors who wanted to partake of the
insurance proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and as now borne out by the outcome herein, justified MICO in withholding payment to GOYU.

DECISION

MELO, J p:
 The issues relevant to the herein three consolidated petitions revolve around the fire loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance
Company, Inc. (MICO) in connection with the mortgage contracts entered into by and between Rizal Commercial Banking Corporation (RCBC) and GOYU. cdtai

The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of P74,040,518.58, plus 37% interest per annum commencing July 27, 1992. RCBC was ordered to
pay actual and compensatory damages in the amount of P5,000,000.00. MICO and RCBC were held solidarity liable to pay GOYU P1,500,000.00 as exemplary damages and P1,500,000.00
for attorney's fees. GOYU's obligation to RCBC was fixed at P68,785,069.04 as of April 1992, without any interest, surcharges, and penalties. RCBC and MICO appealed separately but, in
view of the common facts and issues involved, their individual petitions were consolidated.

The undisputed facts may be summarized as follows:

GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun
Bing and Eli D. Lao, recommended GOYU's application for approval by RCBC's executive committee. A credit facility in the amount of P30 million was initially granted. Upon GOYU's
application and Uy's and Lao's recommendation, RCBC's executive committee increased GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million.

As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel mortgages in favor of RCBC, which were registered with the Registry of
Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance company approved by RCBC,
and subsequently, to endorse and deliver the insurance policies to RCBC.

GOYU obtained in its name a total of ten insurance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan
insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of GOYU (Exhibits "1-Malayan" to "9-Malayan").

On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnity on account of the loss insured against.
MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds
were also claimed by other creditors of GOYU alleging better rights to the proceeds than the insured. GOYU filed a complaint for specific performance and damages which was docketed at the
Regional Trial Court of the National Capital Judicial Region (Manila, Branch 3) as Civil Case No. 93-65442, now subject of the present G.R. No. 128833 and 128866.

RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that AGCO
denied GOYU's claims.

In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional Trial Court of Manila (Branch 3), confirmed that GOYU's other creditors, namely, Urban Bank,
Alfredo Sebastian, and Philippine Trust Company obtained their respective writs of attachments from various courts, covering an aggregate amount of P14,938,080.23, and ordered that the
proceeds of the ten insurance policies be deposited with the said court minus the aforementioned P14,938,080.23. Accordingly, on January 7, 1994, MICO deposited the amount of
P50,505,594.60 with Branch 3 of the Manila RTC.

In the meantime, another notice of garnishment was handed down by another Manila RTC sala (Branch 28) for the amount of P8,696,838.75 (Exhibit "22-Malayan").

After trial, Branch 3 of the Manila RTC rendered judgment in a favor of GOYU, disposing:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, Malayan Insurance Company, Inc. and Rizal Commercial
Banking Corporation, ordering the latter as follows:

1. For defendant Malayan Insurance Co., Inc.:

a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the amount of P50,000,000.00 which is deposited with this Court;

b. To pay the plaintiff damages by way of interest for the duration of the delay since July 27, 1992 (ninety days after defendant insurer's receipt of the required
proof of loss and notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the following amounts:
 1) P50,000,000.00 — from July 27, 1992 up to the time said amount was deposited with this Court on January 7, 1994;

2) P24,040,518.58 — from July 17, 1992 up to the time when the writs of attachments were received by defendant Malayan;

2. For defendant Rizal Commercial Banking Corporation:

a. To pay the plaintiff actual and compensatory damages in the amount of P2,000,000.00;

3. For both defendants Malayan and RCBC:

a. To pay the plaintiff, jointly and severally, the following amounts:

1) P1,000,000.00 as exemplary damages;

2) P1,000,000.00 as, and for, attorneys fees;

3) Costs of suit

and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan obligations with defendant RCBC in the amount of P68,785,069.04, as of April
27, 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B &
14-C.

FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to release immediately to the plaintiff the amount of P50,000,000.00
deposited with the Court by defendant Malayan, together with all the interests earned thereon.

(Record, pp. 478-479.)

From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial court's
findings of liability on their part. The Court of Appeals partly granted GOYU's appeal, but sustained the findings of the trial court with respect to MICO and RCBC's liabilities, thusly:

WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as follows:

1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:

a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less than the amount of P50,505,549.60 (per O.R. No. 3649285) plus
deposited in court and damages by way of interest commencing July 27, 1992 until the time Goyu receives the said amount at the rate of
thirty-seven (37%) percent per annum which is twice the ceiling prescribed by the Monetary Board.

2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:

a) To pay the plaintiff actual and compensatory damages in the amount of P5,000,000.00.

3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO:

a) To pay the plaintiff jointly and severally the following amounts:

1. P1,500,000.00 as exemplary damages;

 2. P1,500,000.00 as and for attorney's fees.

4. And on RCBC's Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan obligation with RCBC in the amount of P68,785.069.04 as of April 27,
1992 without any interest, surcharges and penalties.

The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to immediately release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per
O.R. No. 3649285) deposited with it by Malayan Insurance Co., Inc., together with all the interests thereon.

(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking review and consequent reversal of the above dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376, which case, by virtue of the Court of Appeals' resolution dated August 7, 1996, was
consolidated with C.A. G.R. No. CV-46162 (subject of herein G.R. No. 128833). At issue in said petition is RCBC's right to intervene in the action between Alfredo C. Sebastian (the
creditor) and GOYU (the debtor), where the subject insurance policies were attached in favor of Sebastian.
After a careful review of the material facts as found by the two courts below in relation to the pertinent and applicable laws, we find merit in the submissions of RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to several related issues which are now submitted in the petitions before us. This Court, however, discerns one
primary and central issue, and this is, whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss.
cdtai
As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU, the latter executed several mortgage contracts in favor of RCBC. It was expressly
stipulated in these mortgage contracts that GOYU shall insure the mortgaged property with any of the insurance companies acceptable to RCBC. GOYU indeed insured the mortgaged
property with MICO, an insurance company acceptable to RCBC. Based on their stipulations in the mortgage contracts, GOYU was supposed to endorse these insurance policies in favor
of and deliver them, to RCBC. Alchester Insurance Agency, Inc., MICO's underwriter from whom GOYU obtained the subject insurance policies, preferred the nine endorsements (see
Exh. "1-Malayan"; to "9-Malayan"; also Exh." 51-RCBC" to "59-RCBC"), copies of which were delivered to GOYU, RCBC, and MICO. However, because these endorsements do not bear
the signature of any officer of GOYU, the trial court, as well as the Court of Appeals, concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same
property for his own sole benefit. There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that GOYU
obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to
better serve the interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing
any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured
itself. It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company.
Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been for
GOYU, Alchester would not have known of GOYU's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verify,
Alchester would not have endorsed the policies to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. The basis and purpose of the doctrine was explained
in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to wit:

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own
act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed aid the law in the administration of justice where without its aid injustice might result. It has been applied by this Court
wherever and whenever special circumstances of a case so demand.

(P. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement
documents for GOYU's nine insurance policies in favor of RCBC. The original copies of each of these nine endorsement documents were sent to GOYU and the others were sent to
RCBC and MICO, while fourth copies were retained for Alchester's file (tsn, February 23, pp. 7-8). GOYU has not denied having received from Alchester the originals of these
endorsements.
 RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified
under the circumstances of the case. GOYU failed to seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for GOYU to disown the
endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said
endorsements by virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their operative effects. To permit GOYU to capitalize on its non-confirmation of
these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage
contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances
obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose
name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it
having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus the
following:
1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and GOYU in consideration of and for securing GOYU's
credit facilities from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered against any
loss by an insurance company acceptable to RCBC.

2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance
company to RCBC.
3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not
assail, until of late, the validity of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance
policies to be taken by GOYU to cover the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by Alchester, GOYU, despite the absence written conformity
thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its
credit facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by
GOYU. The intention of the parties will have to be given full force and effect in this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under
the factual circumstances of the case, is truly the person or entity for whose benefit the policies were clearly intended.
Moreover, the law's evident intention to protect the interests of the mortgagee upon the mortgaged property is expressed in Article 2127 of the Civil Code which states:

ART. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of
a third person.
Significantly, the Court notes that out of the 10 insurance policies subject of this case, only 8 of them appear to have been subject of the endorsements prepared and delivered by
Alchester for and upon instructions of GOYU as shown below:
INSURANCE POLICY PARTICULARS ENDORSEMENTS

a. Policy Number F-114-07795 None

Issue Date March 18, 1992
Expiry Date April 5, 1993
Amount P9,646,224.92
b. Policy Number ACIA/F-174-07660 Exhibit "1-Malayan"
Issue Date January 18, 1992
Expiry Date February 9, 1993
 Amount P4,307,217.54
c. Policy Number ACIA/F-114-07661 Exhibit "2-Malayan"
Issue Date January 18, 1992
Expiry Date February 15, 1993
Amount P6,603,586.43
d. Policy Number ACIA/F-114-07662 Exhibit "3-Malayan"
Issue Date January 18, 1992
Expiry Date (not legible)
Amount P6,603,586.43
e. Policy Number ACIA/F-114-07663 Exhibit "4-Malayan"
Issue Date January 18, 1992
Expiry Date February 9, 1993
Amount P9,457,972.76
f. Policy Number ACIA/F-114-07623 Exhibit "7-Malayan"
Issue Date January 13, 1992
Expiry Date January 13, 1993
Amount P24,750,000.00
g. Policy Number ACIA/F-174-07223 Expiry "6-Malayan"
Issue Date May 29, 1991
Expiry Date June 27, 1992
Amount P6,000,000.00
h. Policy Number CI/F-128-03341 None
Issue Date May 3, 1991
Expiry Date May 3, 1992
Amount P10,000,000.00
i. Policy Number F-114-07402 Exhibit "8-Malayan"
Issue Date September 16, 1991
Expirty Date October 19, 1992
Amount P32,252,125.20
j. Policy Number F-114-07525 Exhibit "9-Malayan"
Issue Date November 20, 1991
Expiry Date December 5, 1992
Amount P6,603,586.43

(pp. 456-457, Record; Folder of Exhibits for MICO.)

 Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted by MICO's witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record
shows no endorsement for Policy Number CI/F-128-03341 [(h) above]. Also, one of the endorsement documents, Exhibit "5-Malayan", refers to a certain insurance policy number
ACIA-F-07066, which is not among the insurance policies involved in the complaint. cdtai
The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by Alchester to
RCBC, which we already ruled to have the force and effect of an endorsement by GOYU itself, these 8 policies can not be attached by GOYU's other creditors up to the extent of the
GOYU's outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied exclusively to the proper
interest of the person for whose benefit it was made. In this case, to the extent of GOYU's obligation with RCBC, the interest of GOYU in the subject policies had been transferred to
RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other creditors of GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which
may nonetheless forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be validly
attached, garnished, and levied upon by GOYU's other creditors. To the extent of GOYU's outstanding obligation with RCBC, all the rest of the other insurance policies above-listed which
were endorsed to RCBC, are, therefore, to be released from attachment, garnishment, and levy by the other creditors of GOYU.
This brings us to the next relevant issue to he resolved, which is, the extent of GOYU's outstanding obligation with RCBC which the proceeds of the 8 insurance policies will
discharge and liquidate, or put differently, the actual amount of GOYU's liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial court finding that GOYU's total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning
the trial court's exclusion of Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91) on the
ground that their execution is highly questionable for not only are these dated after the fire, but also because the signatures of either GOYU or any its representative are conspicuously
absent. Accordingly, the Court of Appeals speculated thusly:

. . . Hence, this Court is inclined to conclude that said promissory notes were pre-signed by plaintiff in blank terms, as averred by plaintiff, in contemplation of the
speedy grant of future loans, for the same practice of procedure has always been adopted in its previous dealings with the bank.

(Rollo, pp. 181-182.)

The fact that the promissory notes bear dates posterior to the fire does not necessarily mean that the documents are spurious, for it is presumed that the ordinary course of
business had been followed (Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 222 SCRA 486 [1993]). The obligor and not the holder of the negotiable instrument has the
burden of proof of showing that the no longer owes the obligee any amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).
Even casting aside the presumption of regularity of private transactions, receipt of the loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as
indicated in the testimony of Go Song Hiap when he answered the queries of the trial court:

ATTY. NATIVIDAD

Q But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the amounts stated therein?

A Yes, sir, I received the amount.

COURT

He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?

WITNESS:

Yes, Your Honor, I received all the amounts.

COURT

Indicated in the Promissory Notes?

WITNESS
 A. The promissory Notes they did not give to me but the amount I asked which is correct, Your Honor.

COURT

Q: You mean to say the amounts indicted in Exhibits 1 to 29-RCBC is correct?

A: Yes, Your Honor.

(tsn, Jan. 14, 1994, p. 26.)

Furthermore, aside from its judicial admission of having received all the proceeds of the 29 promissory notes as hereinabove quoted GOYU also offered and admitted to RCBC
that its obligation be fixed at P116,301,992.60 as shown in its letter dated March 9, 1993, which pertinently reads:

We wish to inform you, therefore that we are ready and willing to pay the current past due account of this company in the amount of P116,301,992.60 as of 21
January 1993, specified in pars. 15, p. 10, and 18, p. 13 of your affidavits of Third Party Claims in the Urban case at Makati, Metro Manila and in the Zamboanga case at
Zamboanga city, respectively, less the total of P8,851,519.71 paid from the Seaboard and Equitable insurance companies and other legitimate deductions. We accept and
confirm this amount of P116,301,992.60 as stated as true and correct.

(Exhibit BB.)
The Court of Appeals erred in placing much significance on the fact that the excluded promissory notes are dated after the fire. It failed to consider that said notes had for their
origin transactions consummated prior to the fire. Thus, careful attention must be paid to the fact that Promissory Notes No. 420-92 and 421-92 are mere renewals of Promissory Notes
No. 908-91 and 952-91, loans already availed of by GOYU.
The two courts below erred in failing to see that the promissory notes which they ruled should be excluded for bearing dates which are after that of the fire, are mere renewals of
previous ones. The proceeds of the loan represented by these promissory notes were admittedly received by GOYU. There is ample factual and legal basis for giving GOYU's judicial
admission of liability in the amount of P116,301,992.60 full force and effect.
It should, however, be quickly added that whatever amount RCBC may have recovered from the other insurers of the mortgaged property will, nonetheless, have to be applied as
payment against GOYU's obligation. But, contrary to the lower courts' findings, payments effected by GOYU prior to January 21, 1993 should no longer be deducted. Such payments had
obviously been duly considered by GOYU, in its aforequoted letter dated March 9, 1993, wherein it admitted that its past due account totaled P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of January 21, 1993, to wit:

Total Obligation as admitted by GOYU

as of January 21, 1993: P116,301,992.60

Broken down as follows:

Principal 1 Interest

Regular 80,535,946.32
FDU 27,548,025.17
–––––––––––– ––––––––––––
Total: 108,083,971.49 8,218,021.11 2

LESS:
 1) Proceeds from
Seaboard Eastern
Insurance Company: 6,095,145.81
2) Proceeds from
Equitable Insurance
Company: 2,756,373.00
3) Payment from
foreign department
negotiation: 203,584.89
–––––––––
9,055,104.70 3
===========
NET AMOUNT as of January 21, 1993: P107,246,887.90

The need for the payment of interest due upon the principal amount of the obligation, which is the cost of money to RCBC, the primary end and the ultimate reason for RCBC's
existence and being, was duly recognized by the trial court when it ruled favorably on RCBC's counterclaim, ordering GOYU "to pay its loan obligation with RCBC in the amount of
P68,785,069.04, as of April 27, 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B,
14-C" (Record, p. 479). Inexplicably, the Court of Appeals, without even laying down the factual or legal justification for its ruling, modified the trial court's ruling and ordered GOYU "to pay
the principal amount of P68,785,069.04 without any interest, surcharges and penalties" (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with much uncertainty deleted the payment of additional interest penalties, and charges, in this manner:

Regarding defendant RCBC's commitment not to charge additional interest, penalties and surcharges, the same does not require that it be embodied in a
document or some form of writing to be binding and enforceable. The principle is well known that generally a verbal agreement or contract is no less binding and elective
than a written one. And the existence of such a verbal agreement has been amply established by the evidence in this case. In any event, regardless of the existence of
such verbal agreement, it would still be unjust and inequitable for defendant RCBC to charge the plaintiff with surcharges and penalties considering the latter's pitiful
situation. (Emphasis supplied.)

(Record, p. 476)
The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and penalties. What may justify a court in not allowing the
creditor to charge surcharges and penalties despite express stipulation therefor in a valid agreement, may not equally justify non-payment of interest. The charging of interest for loans
forms a very essential and fundamental element of the banking business, which may truly be considered to be at the very core of its existence or being. It is inconceivable for a bank to
grant loans for which it will not charge any interest at all. We fail to find justification for the Court of Appeals' outright deletion of the payment of interest as agreed in upon the respective
promissory notes. This constitutes gross error.
For the computation of the interest due to be paid to RCBC, the following rules of thumb laid down by this Court in Eastern Shipping Lines, Inc. vs, Court of Appeals (234 SCRA
78 [1994]), shall apply, to wit:

I. When an obligation, regardless of its source, i.e., law., contracts, quasi-contracts, delicts or quasi-delicts is breached the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as the accrual thereof, is imposed, as
follows:
 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial extrajudicial demand under the subject to the provisions of Article
1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date of the judgment of the court is made (at time which the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.

(pp. 95-97.)

There being written stipulations as to the rate of interest owing on each specific promissory note as summarized and tabulated by the trial Court in its decision (pp. 470 and 471,
Record) such agreed interest rates must be followed. This is very clear from paragraph II, sub-paragraph 1 quoted above. cdtai

On the issue of payment of surcharges and penalties, we partly agree that GOYU's pitiful situation must be taken into account. We do not agree, however, that payment of any
amount as surcharges and penalties should altogether be, deleted. Even assuming that RCBC, through its responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may have
relayed its assurance for assistance to GOYU immediately after the occurrence of the fire, we cannot accept the lower courts' finding that RCBC had thereby ipso facto effectively waived
collection of any additional interests, surcharges, and penalties from GOYU. Assurances of assistance am one thing, but waiver of additional interests, surcharges, and penalties is
another.

Surcharges and Penalties agreed to be paid by the debtor in case of default partake of the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil
Code. Article 2227 thereof provides:

ART. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be equitably reduced if they are iniquitous and unconscionable.

In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. It should be stressed that the Court
will not make any sweeping ruling that surcharges and penalties imposed by banks for non-payment of the loans extended by them are generally iniquitous and unconscionable. What
may be iniquitous and unconscionable in one case, may be totally just and equitable in another. This provision of law will have to be applied to the established facts of any given case.
Given the circumstances under which GOYU found itself after the occurrence of the fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the penalty charges
of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates to 2% and 3%, respectively. Furthermore, in the light of GOYUs offer to pay the amount of
P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"), which RCBC refused, we find it more in keeping with justice and equity for RCBC not to charge additional interest,
surcharges, and penalties from that time onward.

Given the factual milieu spread hereover, rule that it was error to hold MICO liable in damages for denying or withholding the proceeds of the insurance claim to GOYU.

Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance policies, RCBC has the right to claim the insurance proceeds, in substitution of the
property lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said insurance policies.

Secondly, for an insurance company to be held liable for unreasonably delaying and withholding payment of insurance proceeds, the delay must be wanton, oppressive, or
malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403 [1990]). It is generally agreed, however, that an insurer may in good faith and honesty entertain a difference of opinion as
to its liability. Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a claim should not he inflicted unless the evidence and circumstances show that such refusal was
willful and without reasonable cause as the facts appear to a reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Inc. Co. vs. Clay,
101 Ga. 331, 28 SE 853, 65 Am St Rep 307, Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not show that MICO wantonly and in bad faith
delayed the release of the proceeds. The problem in the determination of who is the actual beneficiary of the insurance policies, aggravated by the claim of various creditors who wanted
 to partake of the insurance proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and as now home out by the outcome herein, justified MICO in withholding
payment to GOYU.

In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid
creditor, one for specific performance and the other for foreclosure. In doing so, said the appellate court, the second action is deemed barred, RCBC having split a single cause of action
(Rollo, pp. 195-199). The Court of Appeals was too accommodating in giving due consideration to this argument of GOYU, for the foreclosure suit is still pending appeal before the same
Court of Appeals in CA G.R CV No. 46247, the case having been elevated by RCBC.

In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of Appeals pre-empted the resolution of said foreclosure case which is not before it. This is
plain reversible error if not grave abuse of discretion.

As held in Peña vs. Court of Appeals (245 SCRA 691[1995]):

It should have been enough, nonetheless, for the appellate court to merely set aside the questioned orders of the trial court for having been issued by the latter
with grave abuse of discretion. In likewise enjoining permanently herein petitioner "from entering in mid interfering with the use or occupation and enjoyment of petitioner's
(now private respondent) residential house and compound," the appellate court in effect, precipitately resolved with finality the case for injunction that was yet to be heard
on the merits by the lower court. Elevated to the appellate court, it might be stressed, were mere incidents of the principal case still pending with the trial court. In
Municipality of Biñan, Laguna vs. Court of Appeals, 219 SCRA 69, we ruled that the Court of Appeals would have "no jurisdiction in a certiorari proceeding involving an
incident in a case to rule on the merits of the main case itself which was not on appeal before it."

(pp. 701-702.)

Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga Regional Trial Court since it has been determined that RCBC has the right to the insurance
proceeds, the subject matter of intervention is rendered moot and academic. Respondent Sebastian must, however, yield to the preferential right of RCBC over the MICO insurance
policies. It is basic and fundamental that the first mortgagee has superior rights over junior mortgagees or attaching creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA, 274
[1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil 271 [1928]).

WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No 46164 are hereby REVERSED and
SET ASIDE, and a new one entered.

1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442 before Branch 3 of the Manila Regional Trial Court for lack of merit

2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking Corporation the proceeds of the insurance policies in the amount of
P51,862,390.94 (per report of adjuster Toplis & Harding (Far East), Inc., Exhibits "2" and "2-1"), less the amount of P50,505,594.60 (per O.R. No. 3649285);

3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the interests earned to Rizal Commercial Banking Corporation;

4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking Corporation in the principal amount of P107,246,887.90, with interest at
the respective rates stipulated in each promissory note from January 21, 1993 until finality of this judgment, and surcharges at 2% and penalties at 3% from January 21,
1993 to March 9, 1993, minus payments made by Malayan Insurance Company, Inc. and the proceeds of the amount deposited with the trial court and its earned interest.
The total amount due RCBC at the time of the finality of this judgment shall earn interest at the legal rate of 12% in lieu of all other stipulated interests and charges until
fully paid.

The petition of Rizal Commercial Banking Corporation against the respondent Court in CA-CYR CV 48376 is DISMISSED for being moot and academic in view of the results herein
arrived at. Respondent Sebastian's right as attaching creditor must yield to the preferential rights of Rizal Commercial Banking Corporation over the Malayan insurance policies at first
mortgage.

SO ORDERED. cdtai
||| (RCBC v. Court of Appeals, G.R. Nos. 128833, 128834 & 128866, [April 20, 1998], 352 PHIL 101-129)
 FIRST DIVISION

[G.R. No. 147839. June 8, 2006.]

GAISANO CAGAYAN, INC., petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent.

DECISION

AUSTRIA-MARTINEZ, J p:

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

The factual background of the case is as follows:

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

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

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

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. TADaCH

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 reconsideration 12 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 1265 16 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. cATDIH

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)
 xxx xxx xxx

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

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

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

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

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

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under
Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for 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. HcSETI

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. . . .
 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.
||| (Gaisano Cagayan, Inc. v. Insurance Company of North America, G.R. No. 147839, [June 8, 2006], 523 PHIL 677-694)

THIRD DIVISION

[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 p:
This is a petition 1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution 2 dated January 8, 2008 of the Court of Appeals (CA), in
CA-G.R. CV No. 85948, dismissing petitioners' appeal for lack of jurisdiction.
The case stems from a petition 3 filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or
inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loreto's illegitimate family; (2) Eva de Guzman
Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to receive any proceeds from his insurance policies from Insular Life Assurance
Company, Ltd. (Insular) 4 and Great Pacific Life Assurance Corporation (Grepalife); 5 (3) the illegitimate children of Loreto — Odessa, Karl Brian, and Trisha Angelie—were entitled only to
one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and those to be released to Karl Brian and Trisha Angelie were inofficious and should be reduced;
and (4) petitioners could not be deprived of their legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the insurance proceeds had already been released in favor of
Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon the appointment of their legal guardian. Petitioners also prayed for
the total amount of P320,000.00 as actual litigation expenses and attorney's fees. DAaEIc
In answer, 6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their
claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds
among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries; and that it released Odessa's share as she was of age, but withheld the release of the shares of
minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular alleged that the complaint or petition failed to state a cause of action insofar as it sought to
declare as void the designation of Eva as beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy No. A001693029; and
insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of Loreto's estate had been filed nor had the respective
shares of the heirs been determined. Insular further claimed that it was bound to honor the insurance policies designating the children of Loreto with Eva as beneficiaries pursuant to
Section 53 of the Insurance Code.
In its own answer 7 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. EHaASD
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 752 8 and 772 9 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[:] ECcTaH

"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 . . . ."
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

Insular 12 and Grepalife 13 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.
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 TADcCS
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. . . . (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 —
SEC. 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: SEIcHa
xxx xxx xxx
 (g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of another. 16 A complaint states a cause of action when it contains the three (3) elements of a cause of
action — (1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the act or omission of the defendant in violation of the legal right. If any of these elements
is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action. 17
When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the complaint. The court must resolve the issue on the
strength of such allegations, assuming them to be true. The test of sufficiency of a cause of action rests on whether, hypothetically admitting the facts alleged in the complaint to be true,
the court can render a valid judgment upon the same, in accordance with the prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the allegations if:

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

2. such allegations are legally impossible;

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

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

5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings related to the case. 18
In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries in the
insurance policies issued by Insular and Grepalife. The basis of petitioners' claim is that Eva, being a concubine of Loreto and a suspect in his murder, is disqualified from being
designated as beneficiary of the insurance policies, and that Eva's children with Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the policies. They also
argued that pursuant to Section 12 of the Insurance Code, 19 Eva's share in the proceeds should be forfeited in their favor, the former having brought about the death of Loreto. Thus,
they prayed that the share of Eva and portions of the shares of Loreto's illegitimate children should be awarded to them, being the legitimate heirs of Loreto entitled to their respective
legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil Code which expressly provides that insurance
contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states —
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.
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 CTDHSE
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.
||| (Heirs of Maramag v. Maramag, G.R. No. 181132, [June 5, 2009], 606 PHIL 782-795)
 THIRD DIVISION

[G.R. No. 183526. August 25, 2009.]

VIOLETA R. LALICAN, petitioner, vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE PRESIDENT VICENTE R. AVILON,
respondent.

DECISION

CHICO-NAZARIO, ** J p:
Challenged in this Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court are the Decision 2 dated 30 August 2007 and the Orders dated 10 April 2008 3 and 3
July 2008 4 of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No. 2177. In its assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner
Violeta R. Lalican (Violeta) against respondent Insular Life Assurance Company Limited (Insular Life); while in its questioned Orders dated 10 April 2008 and 3 July 2008, respectively, the
RTC declared the finality of the aforesaid Decision and denied petitioner's Notice of Appeal.
The factual and procedural antecedents of the case, as culled from the records, are as follows:
Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).
During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April 1997, Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan City,
issued in favor of Eulogio Policy No. 9011992, 5 which contained a 20-Year Endowment Variable Income Package Flexi Plan worth P500,000.00, 6 with two riders valued at P500,000.00
each. 7 Thus, the value of the policy amounted to P1,500,000.00. Violeta was named as the primary beneficiary.
Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis in the amount of P8,062.00, payable every 24 April, 24 July, 24 October and 24
January of each year, until the end of the 20-year period of the policy. According to the Policy Contract, there was a grace period of 31 days for the payment of each premium subsequent
to the first. If any premium was not paid on or before the due date, the policy would be in default, and if the premium remained unpaid until the end of the grace period, the policy would
automatically lapse and become void. 8
Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay the premium due on 24 January 1998, even after the lapse of the grace period
of 31 days. Policy No. 9011992, therefore, lapsed and became void. EScAHT
Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26 May 1998, an Application for Reinstatement 9 of Policy No. 9011992, together with
the amount of P8,062.00 to pay for the premium due on 24 January 1998. In a letter 10 dated 17 July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be
fully processed because, although he already deposited P8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue interest thereon amounting to P322.48. Thus,
Insular Life instructed Eulogio to pay the amount of interest and to file another application for reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums that
subsequently became due on 24 April 1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluan's house and submitted a second Application for Reinstatement 11 of Policy No. 9011992, including the amount of P17,500.00,
representing payments for the overdue interest on the premium for 24 January 1998, and the premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan was away on
a business errand, her husband received Eulogio's second Application for Reinstatement and issued a receipt for the amount Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest secondary to electrocution.
Without knowing of Eulogio's death, Malaluan forwarded to the Insular Life Regional Office in the City of San Fernando, on 18 September 1998, Eulogio's second Application for
Reinstatement of Policy No. 9011992 and P17,500.00 deposit. However, Insular Life no longer acted upon Eulogio's second Application for Reinstatement, as the former was informed on
21 September 1998 that Eulogio had already passed away.
On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds of Policy No. 9011992.
In a letter 12 dated 14 January 1999, Insular Life informed Violeta that her claim could not be granted since, at the time of Eulogio's death, Policy No. 9011992 had already
lapsed, and Eulogio failed to reinstate the same. According to the Application for Reinstatement, the policy would only be considered reinstated upon approval of the application by Insular
Life during the applicant's "lifetime and good health", and whatever amount the applicant paid in connection thereto was considered to be a deposit only until approval of said application.
Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP Check No. 0000309734, for the amount of P25,417.00, drawn in Violeta's favor, representing the full refund of
the payments made by Eulogio on Policy No. 9011992.
 On 12 February 1998, Violeta requested a reconsideration of the disallowance of her claim. In a letter 13 dated 10 March 1999, Insular Life stated that it could not find any
reason to reconsider its decision rejecting Violeta's claim. Insular Life again tendered to Violeta the above-mentioned check in the amount of P25,417.00.
Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the Cabanatuan District Office of Insular Life. Violeta's counsel subsequently sent a letter 14
dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy No. 9011992. On 11 August 1999, Insular Life responded to the said demand letter by agreeing to
conduct a re-evaluation of Violeta's claim. IASTDE
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on 11 October 1999, a Complaint for Death Claim Benefit, 15 which was docketed as
Civil Case No. 2177. Violeta alleged that Insular Life engaged in unfair claim settlement practice and deliberately failed to act with reasonable promptness on her insurance claim. Violeta
prayed that Insular Life be ordered to pay her death claim benefits on Policy No. 9011992, in the amount of P1,500,000.00, plus interests, attorney's fees, and cost of suit.
Insular Life filed with the RTC an Answer with Counterclaim, 16 asserting that Violeta's Complaint had no legal or factual bases. Insular Life maintained that Policy No. 9011992,
on which Violeta sought to recover, was rendered void by the non-payment of the 24 January 1998 premium and non-compliance with the requirements for the reinstatement of the same.
By way of counterclaim, Insular Life prayed that Violeta be ordered to pay attorney's fees and expenses of litigation incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the reinstatement of Policy No. 9011992 had been complied with and the defenses put up
by Insular Life were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the same reinstated:

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

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

xxx xxx xxx

The New Lexicon Webster's Dictionary defines ambiguity as the "quality of having more than one meaning" and "an idea, statement or expression capable of being
understood in more than one sense". In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme Court stated that[:]

"Any ambiguity in a contract, whose terms are susceptible of different interpretations as a result thereby, must be read and construed against the party who
drafted it on the assumption that it could have been avoided by the exercise of a little care."

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

Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple and clear layman's language, rendering it free from any ambiguity that would
require a legal interpretation or construction. Thus, the court believes that [Eulogio] was well aware that when he filed the said application for reinstatement, his lapsed
policy was not automatically reinstated and that its approval was subject to certain conditions. Nowhere in the policy or in the application for reinstatement was it
ever mentioned that the payment of premiums would have the effect of an automatic and immediate renewal of the lapsed policy. Instead, what was clearly
stated in the application for reinstatement is that pending approval thereof, the premiums paid would be treated as a "deposit only and shall not bind the
company until this application is finally approved during my/our" lifetime and good health[.]" HSATIC
 Again, the court finds nothing in the aforesaid provisions that would even suggest an ambiguity either in the words used or in the manner they were written. [Violeta] did
not present any proof that [Eulogio] was not conversant with the English language. Hence, his having personally signed the application for reinstatement[,] which
consisted only of one page, could only mean that he has read its contents and that he understood them. . . .

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

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

WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to establish by preponderance of evidence her cause of action against the
defendant, let this case be, as it is hereby DISMISSED. 20 cIDHSC
On 14 September 2007, Violeta filed a Motion for Reconsideration 21 of the afore-mentioned RTC Decision. Insular Life opposed 22 the said motion, averring that the arguments
raised therein were merely a rehash of the issues already considered and addressed by the RTC. In an Order 23 dated 8 November 2007, the RTC denied Violeta's Motion for
Reconsideration, finding no cogent and compelling reason to disturb its earlier findings. Per the Registry Return Receipt on record, the 8 November 2007 Order of the RTC was received
by Violeta on 3 December 2007.
In the interim, on 22 November 2007, Violeta filed with the RTC a Reply 24 to the Motion for Reconsideration, wherein she reiterated the prayer in her Motion for Reconsideration
for the setting aside of the Decision dated 30 August 2007. Despite already receiving on 3 December 2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion for
Reconsideration, Violeta still filed with the RTC, on 26 February 2008, a Reply Extended Discussion elaborating on the arguments she had previously made in her Motion for
Reconsideration and Reply.
On 10 April 2008, the RTC issued an Order, 25 declaring that the Decision dated 30 August 2007 in Civil Case No. 2177 had already attained finality in view of Violeta's failure to
file the appropriate notice of appeal within the reglementary period. Thus, any further discussions on the issues raised by Violeta in her Reply and Reply Extended Discussion would be
moot and academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion, 26 praying that the Order dated 10 April 2008 be set aside and that she be allowed to file an appeal
with the Court of Appeals.
In an Order 27 dated 3 July 2008, the RTC denied Violeta's Notice of Appeal with Motion given that the Decision dated 30 August 2007 had long since attained finality.
Violeta directly elevated her case to this Court via the instant Petition for Review on Certiorari, raising the following issues for consideration:

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

2. Whether or not the Regional Trial Court in its original jurisdiction has decided the case on a question of law not in accord with law and applicable decisions of the
Supreme Court?
Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead of a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the
computation of the reglementary period for appealing the said judgment. Violeta claims that her former counsel suffered from poor health, which rapidly deteriorated from the first week of
July 2008 until the latter's death just shortly after the filing of the instant Petition on 8 August 2008. In light of these circumstances, Violeta entreats this Court to admit and give due course
to her appeal even if the same was filed out of time. IDTcHa
Violeta further posits that the Court should address the question of law arising in this case involving the interpretation of the second sentence of Section 19 of the Insurance
Code, which provides:

Section. 19. . . . [I]nterest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.
On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life when he reinstated Policy No. 9011992 just before he passed away on 17 September
1998. The RTC should have construed the provisions of the Policy Contract and Application for Reinstatement in favor of the insured Eulogio and against the insurer Insular Life, and
considered the special circumstances of the case, to rule that Eulogio had complied with the requisites for the reinstatement of Policy No. 9011992 prior to his death, and that Violeta is
entitled to claim the proceeds of said policy as the primary beneficiary thereof.
The Petition lacks merit.
At the outset, the Court notes that the elevation of the case to us via the instant Petition for Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court, 28
provides that no appeal may be taken from an order disallowing or dismissing an appeal. In such a case, the aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of
Court. 29
Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long become final and executory. Violeta filed a Motion for Reconsideration thereof, but the
RTC denied the same in an Order dated 8 November 2007. The records of the case reveal that Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus,
Violeta had 15 days 30 from said date of receipt, or until 18 December 2007, to file a Notice of Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five months after
receipt of the RTC Order dated 8 November 2007 denying her Motion for Reconsideration.
Violeta's claim that her former counsel's failure to file the proper remedy within the reglementary period was an honest mistake, attributable to the latter's deteriorating health, is
unpersuasive.
Violeta merely made a general averment of her former counsel's poor health, lacking relevant details and supporting evidence. By Violeta's own admission, her former counsel's
health rapidly deteriorated only by the first week of July 2008. The events pertinent to Violeta's Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order dated
8 November 2007, denying Violeta's Motion for Reconsideration of the Decision dated 30 August 2007, was received on 3 December 2007; and Violeta's Notice of Appeal was filed on 20
May 2008. There is utter lack of proof to show that Violeta's former counsel was already suffering from ill health during these times; or that the illness of Violeta's former counsel would
have affected his judgment and competence as a lawyer. aCTHEA
Moreover, the failure of her former counsel to file a Notice of Appeal within the reglementary period binds Violeta, which failure the latter cannot now disown on the basis of her
bare allegation and self-serving pronouncement that the former was ill. A client is bound by his counsel's mistakes and negligence. 31
The Court, therefore, finds no reversible error on the part of the RTC in denying Violeta's Notice of Appeal for being filed beyond the reglementary period. Without an appeal
having been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177 already became final and executory.
A judgment becomes "final and executory" by operation of law. Finality becomes a fact when the reglementary period to appeal lapses and no appeal is perfected within such
period. As a consequence, no court (not even this Court) can exercise appellate jurisdiction to review a case or modify a decision that has become final. 32 When a final judgment is
executory, it becomes immutable and unalterable. It may no longer be modified in any respect either by the court, which rendered it or even by this Court. The doctrine is founded on
considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite point in time. 33

The only recognized exceptions to the doctrine of immutability and unalterability are the correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice
to any party, and void judgments. 34 The instant case does not fall under any of these exceptions.
Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve the substantive issues raised, the Petition must still fail.
Violeta makes it appear that her present Petition involves a question of law, particularly, whether Eulogio had an existing insurable interest in his own life until the day of his
death.
An insurable interest is one of the most basic and essential requirements in an insurance contract. In general, an insurable interest is that interest which a person is deemed to
have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the
subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. 35 The existence of an insurable
interest gives a person the legal right to insure the subject matter of the policy of insurance. 36 Section 10 of the Insurance Code indeed provides that every person has an insurable
interest in his own life. 37 Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs. 38 aATHES
Upon more extensive study of the Petition, it becomes evident that the matter of insurable interest is entirely irrelevant in the case at bar. It is actually beyond question that while
Eulogio was still alive, he had an insurable interest in his own life, which he did insure under Policy No. 9011992. The real point of contention herein is whether Eulogio was able to
reinstate the lapsed insurance policy on his life before his death on 17 September 1998.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August 2007 Decision that Policy No. 9011992 lapsed because of Eulogio's
non-payment of the premiums which became due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had lapsed and become void earlier, on 24 February 1998, upon the expiration
of the 31-day grace period for payment of the premium, which fell due on 24 January 1998, without any payment having been made.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio's filing of his first Application for Reinstatement with Insular Life, through Malaluan, on 26 May
1998, constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life did not act on Eulogio's first Application for Reinstatement, since the amount Eulogio
simultaneously deposited was sufficient to cover only the P8,062.00 overdue premium for 24 January 1998, but not the P322.48 overdue interests thereon. On 17 September 1998,
Eulogio submitted a second Application for Reinstatement to Insular Life, again through Malaluan, depositing at the same time P17,500.00, to cover payment for the overdue interest on
the premium for 24 January 1998, and the premiums that had also become due on 24 April 1998 and 24 July 1998. On the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. 39 Both the Policy Contract and the Application for Reinstatement
provide for specific conditions for the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified the following conditions for reinstatement should the policy lapse:

10.REINSTATEMENT

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

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

I/We further agree that any payment made or to be made in connection with this application shall be considered as deposit only and shall not bind the
Company until this application is finally approved by the Company during my/our lifetime and good health. If this application is disapproved, I/We also agree to
accept the refund of all payments made in connection herewith, without interest, and to surrender the receipts for such payment. 41 (Emphases ours.)
In the instant case, Eulogio's death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to
file his Application for Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and approved by Insular Life during Eulogio's lifetime and good health.
Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life Insurance Company, 42 citing McGuire v. The Manufacturer's Life Insurance Co.: 43

"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does not give the insured absolute right to such
reinstatement by the mere filing of an application. The insurer has the right to deny the reinstatement if it is not satisfied as to the insurability of the insured and if the
latter does not pay all overdue premium and all other indebtedness to the insurer. After the death of the insured the insurance Company cannot be compelled to
entertain an application for reinstatement of the policy because the conditions precedent to reinstatement can no longer be determined and satisfied." (Emphases
ours.)
It does not matter that when he died, Eulogio's Application for Reinstatement and deposits for the overdue premiums and interests were already with Malaluan. Insular Life,
through the Policy Contract, expressly limits the power or authority of its insurance agents, thus:
 Our agents have no authority to make or modify this contract, to extend the time limit for payment of premiums, to waive any lapsation, forfeiture or any of our rights or
requirements, such powers being limited to our president, vice-president or persons authorized by the Board of Trustees and only in writing. 44 (Emphasis ours.)
Malaluan did not have the authority to approve Eulogio's Application for Reinstatement. Malaluan still had to turn over to Insular Life Eulogio's Application for Reinstatement and
accompanying deposits, for processing and approval by the latter.
The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application for Reinstatement were written in clear and simple language,
which could not admit of any meaning or interpretation other than those that they so obviously embody. A construction in favor of the insured is not called for, as there is no ambiguity in
the said provisions in the first place. The words thereof are clear, unequivocal, and simple enough so as to preclude any mistake in the appreciation of the same.
Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his Policy Contract and/or Application for
Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured
and strictly as against the insurer company, yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms, which the parties
themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. 45 cISAHT
Eulogio's death, just hours after filing his Application for Reinstatement and depositing his payment for overdue premiums and interests with Malaluan, does not constitute a
special circumstance that can persuade this Court to already consider Policy No. 9011992 reinstated. Said circumstance cannot override the clear and express provisions of the Policy
Contract and Application for Reinstatement, and operate to remove the prerogative of Insular Life thereunder to approve or disapprove the Application for Reinstatement. Even though the
Court commiserates with Violeta, as the tragic and fateful turn of events leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with the payment of proceeds
on a lapsed insurance policy. Justice and fairness must equally apply to all parties to a case. Courts are not permitted to make contracts for the parties. The function and duty of the courts
consist simply in enforcing and carrying out the contracts actually made. 46
Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with the Policy Contract and Application for Reinstatement before Eulogio's death.
Violeta, therefore, cannot claim any death benefits from Insular Life on the basis of Policy No. 9011992; but she is entitled to receive the full refund of the payments made by Eulogio
thereon.
WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated
10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying petitioner Violeta R. Lalican's Notice of Appeal, on the ground that the Decision dated
30 August 2007 subject thereof, was already final and executory. No costs. SHTaID
SO ORDERED.
||| (Lalican v. Insular Life Assurance Co. Ltd., G.R. No. 183526, [August 25, 2009], 613 PHIL 518-539)

THIRD DIVISION

[G.R. No. 168115. June 8, 2007.]

VICENTE ONG LIM SING, JR., petitioner, vs. FEB LEASING & FINANCE CORPORATION, respondent.

DECISION

NACHURA, J p:

This is a petition for review on certiorari assailing the Decision 1 dated March 15, 2005 and the Resolution 2 dated May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No.
77498.

The facts are as follows:

On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease 3 of equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente
Ong Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement 4 with FEB to guarantee the prompt and faithful performance of the terms and conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and Acceptance Certificates 5 over the equipment and motor vehicles formed part of the agreement. Under the contract, JVL was obliged to pay
FEB an aggregate gross monthly rental of One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos (P170,494.00).

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears, including penalty charges and insurance premiums, amounted to Three Million Four
Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding payment of the said amount. However,
JVL failed to pay. 6

On December 6, 2000, FEB filed a Complaint 7 with the Regional Trial Court of Manila, docketed as Civil Case No. 00-99451, for sum of money, damages, and replevin against JVL,
Lim, and John Doe. IcTEaC

In the Amended Answer, 8 JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality a sale of equipment on installment basis, with FEB acting as the
financier. JVL and Lim claimed that this intention was apparent from the fact that they were made to believe that when full payment was effected, a Deed of Sale will be executed by FEB as
vendor in favor of JVL and Lim as vendees. 9 FEB purportedly assured them that documenting the transaction as a lease agreement is just an industry practice and that the proper
documentation would be effected as soon as full payment for every item was made. They also contended that the lease agreement is a contract of adhesion and should, therefore, be
construed against the party who prepared it, i.e., FEB.

In upholding JVL and Lim's stance, the trial court stressed the contradictory terms it found in the lease agreement. The pertinent portions of the Decision dated November 22, 2002
read:

A profound scrutiny of the provisions of the contract which is a contract of adhesion at once exposed the use of several contradictory terms. To name a few, in
Section 9 of the said contract — disclaiming warranty, it is stated that the lessor is not the manufacturer nor the latter's agent and therefore does not guarantee any
feature or aspect of the object of the contract as to its merchantability. Merchantability is a term applied in a contract of sale of goods where conditions and warranties are
made to apply. Article 1547 of the Civil Code provides that unless a contrary intention appears an implied warranty on the part of the seller that he has the right to sell and
to pass ownership of the object is furnished by law together with an implied warranty that the thing shall be free from hidden faults or defects or any charge or
encumbrance not known to the buyer.

In an adhesion contract which is drafted and printed in advance and parties are not given a real arms' length opportunity to transact, the Courts treat this kind of
contract strictly against their architects for the reason that the party entering into this kind of contract has no choice but to accept the terms and conditions found therein
even if he is not in accord therewith and for that matter may not have understood all the terms and stipulations prescribed thereat. Contracts of this character are prepared
unilaterally by the stronger party with the best legal talents at its disposal. It is upon that thought that the Courts are called upon to analyze closely said contracts so that
the weaker party could be fully protected.

Another instance is when the alleged lessee was required to insure the thing against loss, damage or destruction.

In property insurance against loss or other accidental causes, the assured must have an insurable interest, 32 Corpus Juris 1059.

xxx xxx xxx

It has also been held that the test of insurable interest in property is whether the assured has a right, title or interest therein that he will be benefited by its
preservation and continued existence or suffer a direct pecuniary loss from its destruction or injury by the peril insured against. If the defendants were to be regarded as
only a lessee, logically the lessor who asserts ownership will be the one directly benefited or injured and therefore the lessee is not supposed to be the assured as he has
no insurable interest. DaESIC

There is also an observation from the records that the actual value of each object of the contract would be the result after computing the monthly rentals by
multiplying the said rentals by the number of months specified when the rentals ought to be paid.

Still another observation is the existence in the records of a Deed of Absolute Sale by and between the same parties, plaintiff and defendants which was an
exhibit of the defendant where the plaintiff sold to the same defendants one unit 1995 Mitsubishi L-200 STRADA DC PICK UP and in said Deed, The Court noticed that
the same terms as in the alleged lease were used in respect to warranty, as well as liability in case of loss and other conditions. This action of the plaintiff unequivocally
 exhibited their real intention to execute the corresponding Deed after the defendants have paid in full and as heretofore discussed and for the sake of emphasis the
obscurity in the written contract cannot favor the party who caused the obscurity.

Based on substantive Rules on Interpretation, if the terms are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to the evident intention of the parties, their contemporaneous and subsequent acts shall be principally
considered. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties,
the contract shall be null and void. 10

Thus, the court concluded with the following disposition:

In this case, which is held by this Court as a sale on installment there is no chattel mortgage on the thing sold, but it appears amongst the Complaint's prayer,
that the plaintiff elected to exact fulfillment of the obligation.

For the vehicles returned, the plaintiff can only recover the unpaid balance of the price because of the previous payments made by the defendants for the
reasonable use of the units, specially so, as it appears, these returned vehicles were sold at auction and that the plaintiff can apply the proceeds to the balance. However,
with respect to the unreturned units and machineries still in the possession of the defendants, it is this Court's view and so hold that the defendants are liable therefore
and accordingly are ordered jointly and severally to pay the price thereof to the plaintiff together with attorney's fee and the costs of suit in the sum of Php25,000.00.

SO ORDERED. 11

On December 27, 2002, FEB filed its Notice of Appeal. 12 Accordingly, on January 17, 2003, the court issued an Order 13 elevating the entire records of the case to the CA. FEB
averred that the trial court erred:

A. When it ruled that the agreement between the Parties-Litigants is one of sale of personal properties on installment and not of lease;

B. When it ruled that the applicable law on the case is Article 1484 (of the Civil Code) and not R.A. No. 8556;

C. When it ruled that the Plaintiff-Appellant can no longer recover the unpaid balance of the price because of the previous payments made by the defendants for
the reasonable use of the units;

D. When it failed to make a ruling or judgment on the Joint and Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-Appellant. 14

On March 15, 2005, the CA issued its Decision 15 declaring the transaction between the parties as a financial lease agreement under Republic Act (R.A.) No. 8556. 16 The fallo of
the assailed Decision reads:

WHEREFORE, the instant appeal is GRANTED and the assailed Decision dated 22 November 2002 rendered by the Regional Trial Court of Manila, Branch 49
in Civil Case No. 00-99451 is REVERSED and SET ASIDE, and a new judgment is hereby ENTERED ordering appellees JVL Food Products and Vicente Ong Lim, Jr. to
solidarily pay appellant FEB Leasing and Finance Corporation the amount of Three Million Four Hundred Fourteen Thousand Four Hundred Sixty Eight Pesos and
75/100 (Php3,414,468.75), with interest at the rate of twelve percent (12%) per annum starting from the date of judicial demand on 06 December 2000, until full payment
thereof. Costs against appellees. ETDSAc

SO ORDERED. 17

Lim filed the instant Petition for Review on Certiorari under Rule 45 contending that:

I
 THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER THAT THE UNDATED COMPLAINT WAS FILED BY SATURNINO J.
GALANG, JR., WITHOUT ANY AUTHORITY FROM RESPONDENT'S BOARD OF DIRECTORS AND/OR SECRETARY'S CERTIFICATE.

II

THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO STRICTLY APPLY SECTION 7, RULE 18 OF THE 1997 RULES OF CIVIL
PROCEDURE AND NOW ITEM 1, A(8) OF A.M. NO. 03-1-09 SC (JUNE 8, 2004).

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING THE APPEAL FOR FAILURE OF THE RESPONDENT TO FILE ON TIME ITS
APPELLANT'S BRIEF AND TO SEPARATELY RULE ON THE PETITIONER'S MOTION TO DISMISS.

IV

THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT THE CONTRACT BETWEEN THE PARTIES IS ONE OF A FINANCIAL LEASE AND
NOT OF A CONTRACT OF SALE.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PAYMENTS PAID BY THE PETITIONER TO THE RESPONDENT ARE "RENTALS"
AND NOT INSTALLMENTS PAID FOR THE PURCHASE PRICE OF THE SUBJECT MOTOR VEHICLES, HEAVY MACHINES AND EQUIPMENT.

VI

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PREVIOUS CONTRACT OF SALE INVOLVING THE PICK-UP VEHICLE IS OF NO
CONSEQUENCE.

VII

THE HONORABLE COURT OF APPEALS FAILED TO TAKE INTO CONSIDERATION THAT THE CONTRACT OF LEASE, A CONTRACT OF ADHESION,
CONCEALED THE TRUE INTENTION OF THE PARTIES, WHICH IS A CONTRACT OF SALE.

VIII

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PETITIONER IS A LESSEE WITH INSURABLE INTEREST OVER THE SUBJECT
PERSONAL PROPERTIES.

IX

THE HONORABLE COURT OF APPEALS ERRED IN CONSTRUING THE INTENTIONS OF THE COURT A QUO IN ITS USAGE OF THE TERM
MERCHANTABILITY. 18

We affirm the ruling of the appellate court.

 First, Lim can no longer question Galang's authority as FEB's authorized representative in filing the suit against Lim. Galang was the representative of FEB in the proceedings before
the trial court up to the appellate court. Petitioner never placed in issue the validity of Galang's representation before the trial and appellate courts. Issues raised for the first time on appeal are
barred by estoppel. Arguments not raised in the original proceedings cannot be considered on review; otherwise, it would violate basic principles of fair play. 19

Second, there is no legal basis for Lim to question the authority of the CA to go beyond the matters agreed upon during the pre-trial conference, or in not dismissing the appeal for
failure of FEB to file its brief on time, or in not ruling separately on the petitioner's motion to dismiss.

Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful of the duty to reconcile both the need to speedily put an end to litigation and the
parties' right to due process. In numerous cases, this Court has allowed liberal construction of the rules when to do so would serve the demands of substantial justice and equity. 20 In Aguam
v. Court of Appeals, the Court explained: THaDAE

The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power conferred on the court, not a duty. The "discretion must be a sound one, to be
exercised in accordance with the tenets of justice and fair play, having in mind the circumstances obtaining in each case." Technicalities, however, must be avoided. The
law abhors technicalities that impede the cause of justice. The court's primary duty is to render or dispense justice. "A litigation is not a game of technicalities." "Lawsuits
unlike duels are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy,
deserves scant consideration from courts." Litigations must be decided on their merits and not on technicality. Every party litigant must be afforded the amplest
opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is
frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical
sense; rules of procedure are used only to help secure, not override substantial justice. It is a far better and more prudent course of action for the court to excuse a
technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave
injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice. 21

Third, while we affirm that the subject lease agreement is a contract of adhesion, such a contract is not void per se. It is as binding as any ordinary contract. A party who enters into
an adhesion contract is free to reject the stipulations entirely. 22 If the terms thereof are accepted without objection, then the contract serves as the law between the parties.

In Section 23 of the lease contract, it was expressly stated that:

SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE

23.1. The LESSOR and the LESSEE agree this instrument constitute the entire agreement between them, and that no representations have been made other than as set
forth herein. This Agreement shall not be amended or altered in any manner, unless such amendment be made in writing and signed by the parties hereto.
Petitioner's claim that the real intention of the parties was a contract of sale of personal property on installment basis is more likely a mere afterthought in order to defeat the rights of the
respondent.

The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556. Section 3
(d) thereof defines "financial leasing" as:

[A] mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment,
motor vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed
amount of money sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an
obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property with the right to expense the lease rentals paid to
the lessor and bears the cost of repairs, maintenance, insurance and preservation thereof, but with no obligation or option on his part to purchase the leased property
from the owner-lessor at the end of the lease contract. aTADCE

FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly periodic payment of P170,494.00. The periodic payment by petitioner is sufficient to
amortize at least 70% of the purchase price or acquisition cost of the said movables in accordance with the Lease Schedules with Delivery and Acceptance Certificates. "The basic purpose of
a financial leasing transaction is to enable the prospective buyer of equipment, who is unable to pay for such equipment in cash in one lump sum, to lease such equipment in the meantime for
his use, at a fixed rental sufficient to amortize at least 70% of the acquisition cost (including the expenses and a margin of profit for the financial lessor) with the expectation that at the end of
the lease period the buyer/financial lessee will be able to pay any remaining balance of the purchase price." 23
 The allegation of petitioner that the rent for the use of each movable constitutes the value of the vehicle or equipment leased is of no moment. The law on financial lease does not
prohibit such a circumstance and this alone does not make the transaction between the parties a sale of personal property on installment. In fact, the value of the lease, usually constituting the
value or amount of the property involved, is a benefit allowed by law to the lessor for the use of the property by the lessee for the duration of the lease. It is recognized that the value of these
movables depreciates through wear and tear upon use by the lessee. In Beltran v. PAIC Finance Corporation, 24 we stated that:

Generally speaking, a financing company is not a buyer or seller of goods; it is not a trading company. Neither is it an ordinary leasing company; it does not make its profit
by buying equipment and repeatedly leasing out such equipment to different users thereof. But a financial lease must be preceded by a purchase and sale contract
covering the equipment which becomes the subject matter of the financial lease. The financial lessor takes the role of the buyer of the equipment leased. And so the
formal or documentary tie between the seller and the real buyer of the equipment, i.e., the financial lessee, is apparently severed. In economic reality, however, that
relationship remains. The sale of the equipment by the supplier thereof to the financial lessor and the latter's legal ownership thereof are intended to secure the
repayment over time of the purchase price of the equipment, plus financing charges, through the payment of lease rentals; that legal title is the upfront security held by the
financial lessor, a security probably superior in some instances to a chattel mortgagee's lien. 25

Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL entered into the lease contract with full knowledge of its terms and conditions. The contract
was in force for more than four years. Since its inception on March 9, 1995, JVL and Lim never questioned its provisions. They only attacked the validity of the contract after they were judicially
made to answer for their default in the payment of the agreed rentals.

It is settled that the parties are free to agree to such stipulations, clauses, terms, and conditions as they may want to include in a contract. As long as such agreements are not
contrary to law, morals, good customs, public policy, or public order, they shall have the force of law between the parties. 26 Contracting parties may stipulate on terms and conditions as they
may see fit and these have the force of law between them. 27 HcTIDC

The stipulation in Section 14 28 of the lease contract, that the equipment shall be insured at the cost and expense of the lessee against loss, damage, or destruction from fire, theft,
accident, or other insurable risk for the full term of the lease, is a binding and valid stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and motor vehicles leased.
Section 17 of the Insurance Code provides that the measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. It cannot be
denied that JVL will be directly damnified in case of loss, damage, or destruction of any of the properties leased.

Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not warrant the merchantability of the equipment is a valid stipulation. Section 9.1 of the lease
contract is stated as:

9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT NOR THE AGENT OF
THE MANUFACTURER OR SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER
THEREOF AND THAT THERE ARE NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR
OTHERWISE, MADE BY OR ON BEHALF OF THE LESSOR AS TO ANY FEATURE OR ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS TO ITS
FITNESS, SUITABILITY, CAPACITY, CONDITION OR MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT WILL MEET THE REQUIREMENTS OF ANY
LAW, RULE, SPECIFICATIONS OR CONTRACT WHICH PROVIDE FOR SPECIFIC MACHINERY OR APPARATUS OR SPECIAL METHODS. 29 DHIETc

In the financial lease agreement, FEB did not assume responsibility as to the quality, merchantability, or capacity of the equipment. This stipulation provides that, "in case of defect of
any kind that will be found by the lessee in any of the equipment, recourse should be made to the manufacturer." The financial lessor, being a financing company, i.e., an extender of credit
rather than an ordinary equipment rental company, does not extend a warranty of the fitness of the equipment for any particular use. Thus, the financial lessee was precisely in a position to
enforce such warranty directly against the supplier of the equipment and not against the financial lessor. We find nothing contra legem or contrary to public policy in such a contractual
arrangement. 30

Fifth, petitioner further proffers the view that the real intention of the parties was to enter into a contract of sale on installment in the same manner that a previous transaction between
the parties over a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially covered by an agreement denominated as a lease and eventually became the subject of a Deed of Absolute Sale.

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

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

SO ORDERED.
||| (Ong Lim Sing, Jr. v. FEB Leasing & Finance Corp., G.R. No. 168115, [June 8, 2007], 551 PHIL 768-786)