Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-16138 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant, vs. FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant-appellee. x---------------------------------------------------------x G.R. No. L-16139 April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant, vs. ASSOCIATED INSURANCE & SURETY CO., INC., defendant-appellee. x---------------------------------------------------------x G.R. No. L-16140 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant, vs. UNITED INSURANCE CO., INC., defendant-appellee. x---------------------------------------------------------x G.R. No. L-16141 April 29, 1961.

DIOSDADO C. TY. plaintiff-appellant, vs. PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee. x---------------------------------------------------------x G.R. No. L-16142 April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant, vs. RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee. x---------------------------------------------------------x G.R. No. L-16143 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant, vs. FAR EASTERN SURETY & INSURANCE CO., INC., defendant-appellee. x---------------------------------------------------------x G.R. No. L-16144 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant, vs. CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee. x---------------------------------------------------------x G.R. No. L-16145 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant, vs. CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee. V. B. Gesunundo for plaintiff-appellant. M. Perez Cardenas for defendant-appellee. LABRADOR, J.: Appeal from a judgment of the Court of First Instance of Manila, Hon. Gregorio S. Narvasa, presiding, dismissing the actions filed in the above-entitled cases. The facts found by the trial court, which are not disputed in this appeal, are as follows: At different times within a period of two months prior to December 24, 1953, the plaintiff herein Diosdado C. Ty, employed as operator mechanic foreman in the Broadway Cotton Factory, in Grace Park, Caloocan, Rizal, at a monthly salary of P185.00, insured himself in 18 local insurance companies, among which being the eight above named defendants, which issued to him personal accident policies, upon payment of the premium of P8.12 for each policy. Plaintiff's beneficiary was his employer, Broadway Cotton Factory, which paid the insurance premiums. On December 24, 1953, a fire broke out which totally destroyed the Broadway Cotton Factory. Fighting his way out of the factory, plaintiff was injured on the left hand by a heavy object. He was brought to the Manila Central University hospital, and after receiving first aid there, he went to the National Orthopedic Hospital for treatment of his injuries which were as follows: 1. Fracture, simple, proximal phalanx index finger, left; 2. Fracture, compound, comminuted, proximal phalanx, middle finger, left and 2nd phalanx, simple; 3. Fracture, compound, comminute phalanx, 4th finger, left; 4. Fracture, simple, middle phalanx, middle finger, left; 5. Lacerated wound, sutured, volar aspect, small finger, left; 6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent medical treatment in the Orthopedic Hospital from December 26, 1953 to February 8, 1954. The above-described physical injuries have caused temporary total disability of plaintiff's left hand. Plaintiff filed the corresponding notice of accident and notice of claim with all of the abovenamed defendants to recover indemnity under Part II of the policy, which is similarly worded in all of the policies, and which reads pertinently as follows: INDEMNITY FOR TOTAL OR PARTIAL DISABILITY

If the Insured sustains any Bodily Injury which is effected solely through violent, external, visible and accidental means, and which shall not prove fatal but shall result, independently of all other causes and within sixty (60) days from the occurrence thereof, in Total or Partial Disability of the Insured, the Company shall pay, subject to the exceptions as provided for hereinafter, the amount set opposite such injury: PARTIAL DISABILITY LOSS OF: xxx xxx xxx

Either hand ............................................................................ P650.00 xxx xxx xxx

... The loss of a hand shall mean the loss by amputation through the bones of the wrist.... Defendants rejected plaintiff's claim for indemnity for the reason that there being no severance of amputation of the left hand, the disability suffered by him was not covered by his policy. Hence, plaintiff sued the defendants in the Municipal Court of this City, and from the decision of said Court dismissing his complaints, plaintiff appealed to this Court. (Decision of the Court of First Instance of Manila, pp. 223-226, Records). In view of its finding, the court absolved the defendants from the complaints. Hence this appeal. The main contention of appellant in these cases is that in order that he may recover on the insurance policies issued him for the loss of his left hand, it is not necessary that there should be an amputation thereof, but that it is sufficient if the injuries prevent him from performing his work or labor necessary in the pursuance of his occupation or business. Authorities are cited to the effect that "total disability" in relation to one's occupation means that the condition of the insurance is such that common prudence requires him to desist from transacting his business or renders him incapable of working. (46 C.J.S., 970). It is also argued that obscure words or stipulations should be interpreted against the person who caused the obscurity, and the ones which caused the obscurity in the cases at bar are the defendant insurance companies. While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we can not go beyond the clear and express conditions of the insurance policies, all of which define partial disability as loss of either hand by amputation through the bones of the wrist." There was no such amputation in the case at bar. All that was found by the trial court, which is not disputed on appeal, was that the physical injuries "caused temporary total disability of plaintiff's left hand." Note that the disability of plaintiff's hand was merely temporary, having been caused by fracture of the index, the middle and the fourth fingers of the left hand. We might add that the agreement contained in the insurance policies is the law between the parties. As the terms of the policies are clear, express and specific that only amputation of the left hand should be considered as a loss thereof, an interpretation that would include the mere fracture or other temporary disability not covered by the policies would certainly be unwarranted. WHEREFORE, the decision appealed from is hereby affirmed, with costs against the plaintiffappellant. Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes and Dizon, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-21574 June 30, 1966

SIMON DE LA CRUZ, plaintiff and appellee, vs. THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant. Achacoso, Nera and Ocampo for defendant and appellant. Agustin M. Gramata for plaintiff and appellee. BARRERA, J.: This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision of the Court of First Instance of Pangasinan (in Civ Case No. U-265), ordering it to indemnify therein plaintiff Simon de la Cruz for the death of the latter's son, to pay the burial expenses, and attorney's fees. Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the holder of an accident insurance policy (No. ITO-BFE-170) underwritten by the Capital Insurance & Surety Co., Inc., for the period beginning November 13, 1956 to November 12, 1957. On January 1, 1957, in connection with the celebration of the New Year, the Itogon-Suyoc Mines, Inc. sponsored a boxing contest for general entertainment wherein the insured Eduardo de la Cruz, a nonprofessional boxer participated. In the course of his bout with another person, likewise a nonprofessional, of the same height, weight, and size, Eduardo slipped and was hit by his opponent on the left part of the back of the head, causing Eduardo to fall, with his head hitting the rope of the ring. He was brought to the Baguio General Hospital the following day. The cause of death was reported as hemorrhage, intracranial, left. Simon de la Cruz, the father of the insured and who was named beneficiary under the policy, thereupon filed a claim with the insurance company for payment of the indemnity under the insurance policy. As the claim was denied, De la Cruz instituted the action in the Court of First Instance of Pangasinan for specific performance. Defendant insurer set up the defense that the death of the insured, caused by his participation in a boxing contest, was not accidental and, therefore, not covered by insurance. After due hearing the court rendered the decision in favor of the plaintiff which is the subject of the present appeal. It is not disputed that during the ring fight with another non-professional boxer, Eduardo slipped, which was unintentional. At this opportunity, his opponent landed on Eduardo's head a blow, which sent the latter to the ropes. That must have caused the cranial injury that led to his death. Eduardo was insured "against death or disability caused by accidental means". Appellant insurer now contends that while the death of the insured was due to head injury, said injury was sustained because of his voluntary participation in the contest. It is claimed that the participation in the boxing contest was the "means" that produced the injury which, in turn, caused the death of the insured. And, since his inclusion in the boxing card was voluntary on the part of the insured, he cannot be considered to have met his death by "accidental means".
1wph1.t

The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or expectation an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected.1

Appellant however, would like to make a distinction between "accident or accidental" and "accidental means", which is the term used in the insurance policy involved here. It is argued that to be considered within the protection of the policy, what is required to be accidental is the means that caused or brought the death and not the death itself. It may be mentioned in this connection, that the tendency of court decisions in the United States in recent years is to eliminate the fine distinction between the terms "accidental" and "accidental means" and to consider them as legally synonymous.2 But, even if we take appellant's theory, the death of the insured in the case at bar would still be entitled to indemnification under the policy. The generally accepted rule is that, death or injury does not result from accident or accidental means within the terms of an accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death or injury.3 There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death.4 In other words, where the death or injury is not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of policies insuring against death or injury from accident. In the present case, while the participation of the insured in the boxing contest is voluntary, the injury was sustained when he slid, giving occasion to the infliction by his opponent of the blow that threw him to the ropes of the ring. Without this unfortunate incident, that is, the unintentional slipping of the deceased, perhaps he could not have received that blow in the head and would not have died. The fact that boxing is attended with some risks of external injuries does not make any injuries received in the course of the game not accidental. In boxing as in other equally physically rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever does, the injury or death can only be accidental or produced by some unforeseen happening or event as what occurred in this case. Furthermore, the policy involved herein specifically excluded from its coverage (e) Death or disablement consequent upon the Insured engaging in football, hunting, pigsticking, steeplechasing, polo-playing, racing of any kind, mountaineering, or motorcycling. Death or disablement resulting from engagement in boxing contests was not declared outside of the protection of the insurance contract. Failure of the defendant insurance company to include death resulting from a boxing match or other sports among the prohibitive risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.5 Wherefore, in view of the foregoing considerations, the decision appealed from is hereby affirmed, with costs against appellant. so ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur. Footnotes
1 2

29A Am. Jur. pp. 308-309, and cases cited therein. Traveler's Protective Association v. Stephens, 185 Ark. 660, 49 S.W. (2d) 364; Equitable Life Assur. v. Hemenover, 100 Colo. 231, 67 P. (2d) 80, 110 ALR 1270; see cases cited in 29A Am. Jur. sec. 1166. 3 Landress v. Phoenix Mut. Life Ins. Co., 291 U.S. 291, 78 L. ed. 934, 54 S. Ct. 461, 90 ALR 1382; Davis v. Jefferson Standard Life Ins. Co., 73 F (2d) 330, 96 ALR 599, and others. 4 Evans v. Metropolitan Life Ins. Co., 26 Wash. (2d) 594, 174 P. (2d) 961. 5 Brams v. New York Life Ins. 299 Pa. 11 148 Atl. 855; Jolley v. Jefferson Standard Life Ins. Co., 95 Wash, 683, 294 Pac. 585.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4611 December 17, 1955

QUA CHEE GAN, plaintiff-appellee, vs. LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent, WARNER, BARNES AND CO., LTD., defendant-appellant. Delgado, Flores & Macapagal for appellant. Andres Aguilar, Zacarias Gutierrez Lora, Gregorio Sabater and Perkins, Ponce Enrile & Contreras for appellee.

REYES, J. B. L., J.: Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the Court of First Instance of said province, seeking to recover the proceeds of certain fire insurance policies totalling P370,000, issued by the Law Union & Rock Insurance Co., Ltd., upon certain bodegas and merchandise of the insured that were burned on June 21, 1940. The records of the original case were destroyed during the liberation of the region, and were reconstituted in 1946. After a trial that lasted several years, the Court of First Instance rendered a decision in favor of the plaintiff, the dispositive part whereof reads as follows: Wherefore, judgment is rendered for the plaintiff and against the defendant condemning the latter to pay the former (a) Under the first cause of action, the sum of P146,394.48; (b) Under the second cause of action, the sum of P150,000; (c) Under the third cause of action, the sum of P5,000; (d) Under the fourth cause of action, the sum of P15,000; and (e) Under the fifth cause of action, the sum of P40,000; all of which shall bear interest at the rate of 8% per annum in accordance with Section 91 (b) of the Insurance Act from September 26, 1940, until each is paid, with costs against the defendant. The complaint in intervention of the Philippine National Bank is dismissed without costs. (Record on Appeal, 166-167.) From the decision, the defendant Insurance Company appealed directly to this Court. The record shows that before the last war, plaintiff-appellee owned four warehouses or bodegas (designated as Bodegas Nos. 1 to 4) in the municipality of Tabaco, Albay, used for the storage of stocks of copra and of hemp, baled and loose, in which the appellee dealth extensively. They had been, with their contents, insured with the defendant Company since 1937, and the lose made payable to the Philippine National Bank as mortgage of the hemp and crops, to the extent of its interest. On June, 1940, the insurance stood as follows:

Policy No. 2637164 (Exhibit "LL")

Property Insured Bodega No. 1 (Building) Bodega No. 2 (Building)

Amount P15,000.00 10,000.00 25,000.00 10,000.00 5,000.00 150,000.00 150,000.00 5,000.00

2637165 (Exhibit "JJ")

Bodega No. 3 (Building) Bodega No. 4 (Building) Hemp Press moved by steam engine

2637345 (Exhibit "X") 2637346 (Exhibit "Y") 2637067 (Exhibit "GG") Total

Merchandise contents (copra and empty sacks of Bodega No. 1) Merchandise contents (hemp) of Bodega No. 3 Merchandise contents (loose hemp) of Bodega No. 4

P370,000.00

Fire of undetermined origin that broke out in the early morning of July 21, 1940, and lasted almost one week, gutted and completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored theren. Plaintiff-appellee informed the insurer by telegram on the same date; and on the next day, the fire adjusters engaged by appellant insurance company arrived and proceeded to examine and photograph the premises, pored over the books of the insured and conducted an extensive investigation. The plaintiff having submitted the corresponding fire claims, totalling P398,562.81 (but reduced to the full amount of the insurance, P370,000), the Insurance Company resisted payment, claiming violation of warranties and conditions, filing of fraudulent claims, and that the fire had been deliberately caused by the insured or by other persons in connivance with him. With counsel for the insurance company acting as private prosecutor, Que Chee Gan, with his brother, Qua Chee Pao, and some employees of his, were indicted and tried in 1940 for the crime of arson, it being claimed that they had set fire to the destroyed warehouses to collect the insurance. They were, however, acquitted by the trial court in a final decision dated July 9, 1941 (Exhibit WW). Thereafter, the civil suit to collect the insurance money proceeded to its trial and termination in the Court below, with the result noted at the start of this opinion. The Philippine National Bank's complaint in intervention was dismissed because the appellee had managed to pay his indebtedness to the Bank during the pendecy of the suit, and despite the fire losses. In its first assignment of error, the insurance company alleges that the trial Court should have held that the policies were avoided for breach of warranty, specifically the one appearing on a rider pasted (with other similar riders) on the face of the policies (Exhibits X, Y, JJ and LL). These riders were attached for the first time in 1939, and the pertinent portions read as follows: Memo. of Warranty. The undernoted Appliances for the extinction of fire being kept on the premises insured hereby, and it being declared and understood that there is an ample and constant water supply with sufficient pressure available at all seasons for the same, it is hereby warranted that the said appliances shall be maintained in efficient working order during the currency of this policy, by reason whereof a discount of 2 1/2 per cent is allowed on the premium chargeable under this policy. Hydrants in the compound, not less in number than one for each 150 feet of external wall measurement of building, protected, with not less than 100 feet of hose piping and nozzles for every two hydrants kept under cover in convenient places, the hydrants being supplied

with water pressure by a pumping engine, or from some other source, capable of discharging at the rate of not less than 200 gallons of water per minute into the upper story of the highest building protected, and a trained brigade of not less than 20 men to work the same.' It is argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet, the appellee should have eleven (11) fire hydrants in the compound, and that he actually had only two (2), with a further pair nearby, belonging to the municipality of Tabaco. We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) to claim violation of the so-called fire hydrants warranty, for the reason that knowing fully all that the number of hydrants demanded therein never existed from the very beginning, the appellant neverthless issued the policies in question subject to such warranty, and received the corresponding premiums. It would be perilously close to conniving at fraud upon the insured to allow appellant to claims now as void ab initio the policies that it had issued to the plaintiff without warning of their fatal defect, of which it was informed, and after it had misled the defendant into believing that the policies were effective. The insurance company was aware, even before the policies were issued, that in the premises insured there were only two fire hydrants installed by Qua Chee Gan and two others nearby, owned by the municipality of TAbaco, contrary to the requirements of the warranty in question. Such fact appears from positive testimony for the insured that appellant's agents inspected the premises; and the simple denials of appellant's representative (Jamiczon) can not overcome that proof. That such inspection was made is moreover rendered probable by its being a prerequisite for the fixing of the discount on the premium to which the insured was entitled, since the discount depended on the number of hydrants, and the fire fighting equipment available (See "Scale of Allowances" to which the policies were expressly made subject). The law, supported by a long line of cases, is expressed by American Jurisprudence (Vol. 29, pp. 611-612) to be as follows: It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the facts, and the insurer is stopped thereafter from asserting the breach of such conditions. The law is charitable enough to assume, in the absence of any showing to the contrary, that an insurance company intends to executed a valid contract in return for the premium received; and when the policy contains a condition which renders it voidable at its inception, and this result is known to the insurer, it will be presumed to have intended to waive the conditions and to execute a binding contract, rather than to have deceived the insured into thinking he is insured when in fact he is not, and to have taken his money without consideration. (29 Am. Jur., Insurance, section 807, at pp. 611-612.) The reason for the rule is not difficult to find. The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's money for a policy of insurance which it then knows to be void and of no effect, though it knows as it must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and fair dealing, and so closely related to positive fraud, as to the abhorent to fairminded men. It would be to allow the company to treat the policy as valid long enough to get the preium on it, and leave it at liberty to repudiate it the next moment. This cannot be deemed to be the real intention of the parties. To hold that a literal construction of the policy expressed the true intention of the company would be to indict it, for fraudulent purposes and designs which we cannot believe it to be guilty of (Wilson vs. Commercial Union Assurance Co., 96 Atl. 540, 543-544). The inequitableness of the conduct observed by the insurance company in this case is heightened by the fact that after the insured had incurred the expense of installing the two hydrants, the company collected the premiums and issued him a policy so worded that it gave the insured a discount much smaller than that he was normaly entitledto. According to the "Scale of Allowances," a policy subject to a warranty of the existence of one fire hydrant for every 150 feet of external wall

entitled the insured to a discount of 7 1/2 per cent of the premium; while the existence of "hydrants, in compund" (regardless of number) reduced the allowance on the premium to a mere 2 1/2 per cent. This schedule was logical, since a greater number of hydrants and fire fighting appliances reduced the risk of loss. But the appellant company, in the particular case now before us, so worded the policies that while exacting the greater number of fire hydrants and appliances, it kept the premium discount at the minimum of 2 1/2 per cent, thereby giving the insurance company a double benefit. No reason is shown why appellant's premises, that had been insured with appellant for several years past, suddenly should be regarded in 1939 as so hazardous as to be accorded a treatment beyond the limits of appellant's own scale of allowances. Such abnormal treatment of the insured strongly points at an abuse of the insurance company's selection of the words and terms of the contract, over which it had absolute control. These considerations lead us to regard the parol evidence rule, invoked by the appellant as not applicable to the present case. It is not a question here whether or not the parties may vary a written contract by oral evidence; but whether testimony is receivable so that a party may be, by reason of inequitable conduct shown, estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured. Receipt of Premiums or Assessments afte Cause for Forfeiture Other than Nonpayment. It is a well settled rule of law that an insurer which with knowledge of facts entitling it to treat a policy as no longer in force, receives and accepts a preium on the policy, estopped to take advantage of the forfeiture. It cannot treat the policy as void for the purpose of defense to an action to recover for a loss thereafter occurring and at the same time treat it as valid for the purpose of earning and collecting further premiums." (29 Am. Jur., 653, p. 657.) It would be unconscionable to permit a company to issue a policy under circumstances which it knew rendered the policy void and then to accept and retain premiums under such a void policy. Neither law nor good morals would justify such conduct and the doctrine of equitable estoppel is peculiarly applicable to the situation. (McGuire vs. Home Life Ins. Co. 94 Pa. Super Ct. 457.) Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly interpreted aganst the prty that caused them, 1the "memo of warranty" invoked by appellant bars the latter from questioning the existence of the appliances called for in the insured premises, since its initial expression, "the undernoted appliances for the extinction of fire being kept on the premises insured hereby, . . . it is hereby warranted . . .", admists of interpretation as an admission of the existence of such appliances which appellant cannot now contradict, should the parol evidence rule apply. The alleged violation of the warranty of 100 feet of fire hose for every two hydrants, must be equally rejected, since the appellant's argument thereon is based on the assumption that the insured was bound to maintain no less than eleven hydrants (one per 150 feet of wall), which requirement appellant is estopped from enforcing. The supposed breach of the wter pressure condition is made to rest on the testimony of witness Serra, that the water supply could fill a 5-gallon can in 3 seconds; appellant thereupon inferring that the maximum quantity obtainable from the hydrants was 100 gallons a minute, when the warranty called for 200 gallons a minute. The transcript shows, however, that Serra repeatedly refused and professed inability to estimate the rate of discharge of the water, and only gave the "5-gallon per 3-second" rate because the insistence of appellant's counsel forced the witness to hazard a guess. Obviously, the testimony is worthless and insufficient to establish the violation claimed, specially since the burden of its proof lay on appellant. As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same was organized, and drilled, from time to give, altho not maintained as a permanently separate unit, which the warranty did not require. Anyway, it would be unreasonable to expect the insured to maintain for his compound alone a fire fighting force that many municipalities in the Islands do not even possess. There is no merit in appellant's claim that subordinate membership of the business manager (Co Cuan) in the fire brigade, while its direction was entrusted to a minor employee unders the testimony

improbable. A business manager is not necessarily adept at fire fighting, the qualities required being different for both activities. Under the second assignment of error, appellant insurance company avers, that the insured violated the "Hemp Warranty" provisions of Policy No. 2637165 (Exhibit JJ), against the storage of gasoline, since appellee admitted that there were 36 cans (latas) of gasoline in the building designed as "Bodega No. 2" that was a separate structure not affected by the fire. It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in the so-called "hemp warranty." The cause relied upon by the insurer speaks of "oils (animal and/or vegetable and/or mineral and/or their liquid products having a flash point below 300o Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary parlance, "Oils" mean "lubricants" and not gasoline or kerosene. And how many insured, it may well be wondered, are in a position to understand or determine "flash point below 003o Fahrenheit. Here, again, by reason of the exclusive control of the insurance company over the terms and phraseology of the contract, the ambiguity must be held strictly against the insurer and liberraly in favor of the insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29 Am. Jur. 180). Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by experts who know and can anticipate the hearing and possible complications of every contingency. So long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who purchase insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.) An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very purpose for which the policy was procured (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264). We see no reason why the prohibition of keeping gasoline in the premises could not be expressed clearly and unmistakably, in the language and terms that the general public can readily understand, without resort to obscure esoteric expression (now derisively termed "gobbledygook"). We reiterate the rule stated in Bachrach vs. British American Assurance Co. (17 Phil. 555, 561): If the company intended to rely upon a condition of that character, it ought to have been plainly expressed in the policy. This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentrations of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared "agreements" that the weaker party may not change one whit, his participation in the "agreement" being reduced to the alternative to take it or leave it" labelled since Raymond Baloilles" contracts by adherence" (con tracts d'adhesion), in contrast to these entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime examples) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwarry (New Civil Coee, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942). Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia alguna oscuridad, habra de ser tenido en cuenta que al seguro es, practicamente un contrato de los llamados de adhesion y por consiguiente en caso de duda sobre la significacion de las clausulas generales de una poliza redactada por las compafijas sin la intervencion alguna de sus clientes se ha de adoptar de acuerdo con el articulo 1268 del Codigo Civil, la interpretacion mas favorable al asegurado, ya que la obscuridad es imputable a la empresa aseguradora, que debia haberse explicado mas claramante. (Dec. Trib. Sup. of Spain 13 Dec. 1934)

The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, but equally so for the insurer; in fact, it is mere so for the latter, since its dominant bargaining position carries with it stricter responsibility. Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was only incidental to his business, being no more than a customary 2 day's supply for the five or six motor vehicles used for transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is well settled that the keeping of inflammable oils on the premises though prohibited by the policy does not void it if such keeping is incidental to the business." Bachrach vs. British American Ass. Co., 17 Phil. 555, 560); and "according to the weight of authority, even though there are printed prohibitions against keeping certain articles on the insured premises the policy will not be avoided by a violation of these prohibitions, if the prohibited articles are necessary or in customary use in carrying on the trade or business conducted on the premises." (45 C. J. S., p. 311; also 4 Couch on Insurance, section 966b). It should also be noted that the "Hemp Warranty" forbade storage only "in the building to which this insurance applies and/or in any building communicating therewith", and it is undisputed that no gasoline was stored in the burned bodegas, and that "Bodega No. 2" which was not burned and where the gasoline was found, stood isolated from the other insured bodegas. The charge that the insured failed or refused to submit to the examiners of the insurer the books, vouchers, etc. demanded by them was found unsubstantiated by the trial Court, and no reason has been shown to alter this finding. The insured gave the insurance examiner all the date he asked for (Exhibits AA, BB, CCC and Z), and the examiner even kept and photographed some of the examined books in his possession. What does appear to have been rejected by the insured was the demand that he should submit "a list of all books, vouchers, receipts and other records" (Age 4, Exhibit 9-c); but the refusal of the insured in this instance was well justified, since the demand for a list of all the vouchers (which were not in use by the insured) and receipts was positively unreasonable, considering that such listing was superfluous because the insurer was not denied access to the records, that the volume of Qua Chee Gan's business ran into millions, and that the demand was made just after the fire when everything was in turmoil. That the representatives of the insurance company were able to secure all the date they needed is proved by the fact that the adjuster Alexander Stewart was able to prepare his own balance sheet (Exhibit L of the criminal case) that did not differ from that submitted by the insured (Exhibit J) except for the valuation of the merchandise, as expressly found by the Court in the criminal case for arson. (Decision, Exhibit WW). How valuations may differ honestly, without fraud being involved, was strikingly illustrated in the decision of the arson case (Exhibit WW) acquiting Qua Choc Gan, appellee in the present proceedings. The decision states (Exhibit WW, p. 11): Alexander D. Stewart declaro que ha examinado los libros de Qua Choc Gan en Tabaco asi como su existencia de copra y abaca en las bodega al tiempo del incendio durante el periodo comprendido desde el 1.o de enero al 21 de junio de 1940 y ha encontrado que Qua Choc Gan ha sufrico una perdida de P1,750.76 en su negocio en Tabaco. Segun Steward al llegar a este conclusion el ha tenidoen cuenta el balance de comprobacion Exhibit 'J' que le ha entregado el mismo acusado Que Choc Gan en relacion con sus libros y lo ha encontrado correcto a excepcion de los precios de abaca y copra que alli aparecen que no estan de acuerdo con los precios en el mercado. Esta comprobacion aparece en el balance mercado exhibit J que fue preparado por el mismo testigo. In view of the discrepancy in the valuations between the insured and the adjuster Stewart for the insurer, the Court referred the controversy to a government auditor, Apolonio Ramos; but the latter reached a different result from the other two. Not only that, but Ramos reported two different valuations that could be reached according to the methods employed (Exhibit WW, p. 35): La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos buenos para promovar el comercio y la finanza, pero en el caso presente ha resultado un tanto cumplicada y acomodaticia, como lo prueba el resultado del examen hecho por los contadores Stewart y Ramos, pues el juzgado no alcanza a ver como habiendo examinado las mismas partidas y los mismos libros dichos contadores hayan de llegara dos

conclusiones que difieron sustancialmente entre si. En otras palabras, no solamente la comprobacion hecha por Stewart difiere de la comprobacion hecha por Ramos sino que, segun este ultimo, su comprobacion ha dado lugar a dos resultados diferentes dependiendo del metodo que se emplea. Clearly then, the charge of fraudulent overvaluation cannot be seriously entertained. The insurer attempted to bolster its case with alleged photographs of certain pages of the insurance book (destroyed by the war) of insured Qua Chee Gan (Exhibits 26-A and 26-B) and allegedly showing abnormal purchases of hemp and copra from June 11 to June 20, 1940. The Court below remained unconvinced of the authenticity of those photographs, and rejected them, because they were not mentioned not introduced in the criminal case; and considering the evident importance of said exhibits in establishing the motive of the insured in committing the arson charged, and the absence of adequate explanation for their omission in the criminal case, we cannot say that their rejection in the civil case constituted reversible error. The next two defenses pleaded by the insurer, that the insured connived at the loss and that the fraudulently inflated the quantity of the insured stock in the burnt bodegas, are closely related to each other. Both defenses are predicted on the assumption that the insured was in financial difficulties and set the fire to defraud the insurance company, presumably in order to pay off the Philippine National Bank, to which most of the insured hemp and copra was pledged. Both defenses are fatally undermined by the established fact that, notwithstanding the insurer's refusal to pay the value of the policies the extensive resources of the insured (Exhibit WW) enabled him to pay off the National Bank in a short time; and if he was able to do so, no motive appears for attempt to defraud the insurer. While the acquittal of the insured in the arson case is not res judicata on the present civil action, the insurer's evidence, to judge from the decision in the criminal case, is practically identical in both cases and must lead to the same result, since the proof to establish the defense of connivance at the fire in order to defraud the insurer "cannot be materially less convincing than that required in order to convict the insured of the crime of arson"(Bachrach vs. British American Assurance Co., 17 Phil. 536). As to the defense that the burned bodegas could not possibly have contained the quantities of copra and hemp stated in the fire claims, the insurer's case rests almost exclusively on the estimates, inferences and conclusionsAs to the defense that the burned bodegas could not possibly have contained the quantities of copra and hemp stated in the fire claims, the insurer's case rests almost exclusively on the estimates, inferences and conclusions of its adjuster investigator, Alexander D. Stewart, who examined the premises during and after the fire. His testimony, however, was based on inferences from the photographs and traces found after the fire, and must yield to the contradictory testimony of engineer Andres Bolinas, and specially of the then Chief of the Loan Department of the National Bank's Legaspi branch, Porfirio Barrios, and of Bank Appraiser Loreto Samson, who actually saw the contents of the bodegas shortly before the fire, while inspecting them for the mortgagee Bank. The lower Court was satisfied of the veracity and accuracy of these witnesses, and the appellant insurer has failed to substantiate its charges aganst their character. In fact, the insurer's repeated accusations that these witnesses were later "suspended for fraudulent transactions" without giving any details, is a plain attempt to create prejudice against them, without the least support in fact. Stewart himself, in testifying that it is impossible to determine from the remains the quantity of hemp burned (t. s. n., pp. 1468, 1470), rebutted appellant's attacks on the refusal of the Court below to accept its inferences from the remains shown in the photographs of the burned premises. It appears, likewise, that the adjuster's calculations of the maximum contents of the destroyed warehouses rested on the assumption that all the copra and hemp were in sacks, and on the result of his experiments to determine the space occupied by definite amounts of sacked copra. The error in the estimates thus arrived at proceeds from the fact that a large amount of the insured's stock were in loose form, occupying less space than when kept in sacks; and from Stewart's obvious failure to give due allowance for the compression of the material at the bottom of the piles (t. s. n., pp. 1964, 1967) due to the weight of the overlying stock, as shown by engineer Bolinas. It is probable that the errors were due to inexperience (Stewart himself admitted that this was the first copra fire he had investigated); but it is clear that such errors render valueles Stewart's computations. These were in

fact twice passed upon and twice rejected by different judges (in the criminal and civil cases) and their concordant opinion is practically conclusive. The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by the Court below, since the opinions stated therein were based on ex parte investigations made at the back of the insured; and the appellant did not present at the trial the original testimony and documents from which the conclusions in the report were drawn.lawphi1.net Appellant insurance company also contends that the claims filed by the insured contained false and fraudulent statements that avoided the insurance policy. But the trial Court found that the discrepancies were a result of the insured's erroneous interpretation of the provisions of the insurance policies and claim forms, caused by his imperfect knowledge of English, and that the misstatements were innocently made and without intent to defraud. Our review of the lengthy record fails to disclose reasons for rejecting these conclusions of the Court below. For example, the occurrence of previous fires in the premises insured in 1939, altho omitted in the claims, Exhibits EE and FF, were nevertheless revealed by the insured in his claims Exhibits Q (filed simultaneously with them), KK and WW. Considering that all these claims were submitted to the smae agent, and that this same agent had paid the loss caused by the 1939 fire, we find no error in the trial Court's acceptance of the insured's explanation that the omission in Exhibits EE and FF was due to inadvertance, for the insured could hardly expect under such circumstances, that the 1939 would pass unnoticed by the insurance agents. Similarly, the 20 per cent overclaim on 70 per cent of the hemo stock, was explained by the insured as caused by his belief that he was entitled to include in the claim his expected profit on the 70 per cent of the hemp, because the same was already contracted for and sold to other parties before the fire occurred. Compared with other cases of overvaluation recorded in our judicial annals, the 20 per cent excess in the case of the insured is not by itself sufficient to establish fraudulent intent. Thus, in Yu Cua vs. South British Ins. Co., 41 Phil. 134, the claim was fourteen (14) times (1,400 per cent) bigger than the actual loss; in Go Lu vs. Yorkshire Insurance Co., 43 Phil., 633, eight (8) times (800 per cent); in Tuason vs. North China Ins. Co., 47 Phil. 14, six (6) times (600 per cent); in Tan It vs. Sun Insurance, 51 Phil. 212, the claim totalled P31,860.85 while the goods insured were inventoried at O13,113. Certainly, the insured's overclaim of 20 per cent in the case at bar, duly explained by him to the Court a quo, appears puny by comparison, and can not be regarded as "more than misstatement, more than inadvertence of mistake, more than a mere error in opinion, more than a slight exaggeration" (Tan It vs. Sun Insurance Office, ante) that would entitle the insurer to avoid the policy. It is well to note that the overchange of 20 per cent was claimed only on a part (70 per cent) of the hemp stock; had the insured acted with fraudulent intent, nothing prevented him from increasing the value of all of his copra, hemp and buildings in the same proportion. This also applies to the alleged fraudulent claim for burned empty sacks, that was likewise explained to our satisfaction and that of the trial Court. The rule is that to avoid a policy, the false swearing must be wilful and with intent to defraud (29 Am. Jur., pp. 849-851) which was not the cause. Of course, the lack of fraudulent intent would not authorize the collection of the expected profit under the terms of the polices, and the trial Court correctly deducte the same from its award. We find no reversible error in the judgment appealed from, wherefore the smae is hereby affirmed. Costs against the appellant. So ordered. Paras, C. J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, and Concepcion, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-34382 July 20, 1983 THE HOME INSURANCE COMPANY, petitioner, vs. EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents. G.R. No. L-34383 July 20, 1983 THE HOME INSURANCE COMPANY, petitioner, vs. N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents. No. L-34382. Zapa Law Office for petitioner. Bito, Misa & Lozada Law Office for respondents. No. L-34383. Zapa Law Office for petitioner. Ross, Salcedo, Del Rosario, Bito & Misa Law office for respondents.

GUTIERREZ, JR., J.: Questioned in these consolidated petitions for review on certiorari are the decisions of the Court of First Instance of Manila, Branch XVII, dismissing the complaints in Civil Case No. 71923 and in Civil Case No. 71694, on the ground that plaintiff therein, now appellant, had failed to prove its capacity to sue. There is no dispute over the facts of these cases for recovery of maritime damages. In L-34382, the facts are found in the decision of the respondent court which stated: On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development Corporation, shipped on board the SS "Eastern Jupiter' from Osaka, Japan, 2,361 coils of "Black Hot Rolled Copper Wire Rods." The said VESSEL is owned and operated by defendant Eastern Shipping Lines (CARRIER). The shipment was covered by Bill of Lading No. O-MA-9, with arrival notice to Phelps Dodge Copper Products Corporation of the Philippines (CONSIGNEE) at Manila. The shipment was insured with plaintiff against all risks in the amount of P1,580,105.06 under its Insurance Policy No. AS-73633. xxx xxx xxx

The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad order. What the CONSIGNEE ultimately received at its warehouse was the same number of 2,361 coils with 73 coils loose and partly cut, and 28 coils entangled, partly cut, and which had to be considered as scrap. Upon weighing at CONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos as against its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15 kilos, according to Exhibit "A", or 1,209,56 lbs., according to the claims presented by the consignee against the plaintiff (Exhibit "D-1"), the CARRIER (Exhibit "J-1"), and the TRANSPORTATION COMPANY (Exhibit "K- l"). For the loss/damage suffered by the cargo, plaintiff paid the consignee under its insurance policy the amount of P3,260.44, by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE. Plaintiff made demands for payment against the CARRIER and the TRANSPORTATION COMPANY for reimbursement of the aforesaid amount but each refused to pay the same. ... The facts of L-34383 are found in the decision of the lower court as follows: On or about December 22, 1966, the Hansa Transport Kontor shipped from Bremen, Germany, 30 packages of Service Parts of Farm Equipment and Implements on board the VESSEL, SS "NEDER RIJN" owned by the defendant, N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the defendant Columbian Philippines, Inc. (CARRIER). The shipment was covered by Bill of Lading No. 22 for transportation to, and delivery at, Manila, in favor of the consignee, international Harvester Macleod, Inc. (CONSIGNEE). The shipment was insured with plaintiff company under its Cargo Policy No. AS-73735 "with average terms" for P98,567.79. xxx xxx xxx The packages discharged from the VESSEL numbered 29, of which seven packages were found to be in bad order. What the CONSIGNEE ultimately received at its warehouse was the same number of 29 packages with 9 packages in bad order. Out of these 9 packages, 1 package was accepted by the CONSIGNEE in good order due to the negligible damages sustained. Upon inspection at the consignee's warehouse, the contents of 3 out of the 8 cases were also found to be complete and intact, leaving 5 cases in bad order. The contents of these 5 packages showed several items missing in the total amount of $131.14; while the contents of the undelivered 1 package were valued at $394.66, or a total of $525.80 or P2,426.98. For the short-delivery of 1 package and the missing items in 5 other packages, plaintiff paid the CONSIGNEE under its Insurance Cargo Policy the amount of P2,426.98, by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE. Demands were made on defendants CARRIER and CONSIGNEE for reimbursement thereof but they failed and refused to pay the same. In both cases, the petitioner-appellant made the following averment regarding its capacity to sue: The plaintiff is a foreign insurance company duly authorized to do business in the Philippines through its agent, Mr. VICTOR H. BELLO, of legal age and with office address at Oledan Building, Ayala Avenue, Makati, Rizal. In L-34382, the respondent-appellee Eastern Shipping Lines, Inc., filed its answer and alleged that it: Denies the allegations of Paragraph I which refer to plaintiff's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof.

Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its answer admitting the allegations of the complaint, regarding the capacity of plaintiff-appellant. The pertinent paragraph of this answer reads as follows: Angel Jose Admits the jurisdictional averments in paragraphs 1, 2, and 3 of the heading Parties. In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian Philippines, Inc. and Guacods, Inc., filed their answers. They denied the petitioner-appellant's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof. As earlier stated, the respondent court dismissed the complaints in the two cases on the same ground, that the plaintiff failed to prove its capacity to sue. The court reasoned as follows: In the opinion of the Court, if plaintiff had the capacity to sue, the Court should hold that a) defendant Eastern Shipping Lines should pay plaintiff the sum of P1,630.22 with interest at the legal rate from January 5, 1968, the date of the institution of the Complaint, until fully paid; b) defendant Angel Jose Transportation, Inc. should pay plaintiff the sum of P1,630.22 also with interest at the legal rate from January 5, 1968 until fully paid; c) the counterclaim of defendant Angel Jose transportation, Inc. should be ordered dismissed; and d) each defendant to pay one-half of the costs. The Court is of the opinion that Section 68 of the Corporation Law reflects a policy designed to protect the public interest. Hence, although defendants have not raised the question of plaintiff's compliance with that provision of law, the Court has resolved to take the matter into account. A suing foreign corporation, like plaintiff, has to plead affirmatively and prove either that the transaction upon which it bases its complaint is an isolated one, or that it is licensed to transact business in this country, failing which, it will be deemed that it has no valid cause of action (Atlantic Mutual Ins. Co. vs. Cebu Stevedoring Co., Inc., 17 SCRA 1037). In view of the number of cases filed by plaintiff before this Court, of which judicial cognizance can be taken, and under the ruling in Far East International Import and Export Corporation vs. Hankai Koayo Co., 6 SCRA 725, it has to be held that plaintiff is doing business in the Philippines. Consequently, it must have a license under Section 68 of the Corporation Law before it can be allowed to sue. The situation of plaintiff under said Section 68 has been described as follows in Civil Case No. 71923 of this Court, entitled 'Home Insurance Co. vs. N. V. Nedlloyd Lijnen, of which judicial cognizance can also be taken: Exhibit "R",presented by plaintiff is a certified copy of a license, dated July 1, 1967, issued by the Office of the Insurance Commissioner authorizing plaintiff to transact insurance business in this country. By virtue of Section 176 of the Insurance Law, it has to be presumed that a license to transact business under Section 68 of the Corporation Law had previously been issued to plaintiff. No copy thereof, however, was submitted for a reason unknown. The date of that license must not have been much anterior to July 1, 1967. The preponderance of the evidence would therefore call for the finding that the insurance contract involved in this case, which was executed at Makati, Rizal, on February 8, 1967, was contracted before plaintiff was licensed to transact business in the Philippines. This Court views Section 68 of the Corporation Law as reflective of a basic public policy. Hence, it is of the opinion that, in the eyes of Philippine law, the insurance contract involved in this case must be held void under the provisions of Article 1409 (1) of the Civil Code,

and could not be validated by subsequent procurement of the license. That view of the Court finds support in the following citation: According to many authorities, a constitutional or statutory prohibition against a foreign corporation doing business in the state, unless such corporation has complied with conditions prescribed, is effective to make the contracts of such corporation void, or at least unenforceable, and prevents the maintenance by the corporation of any action on such contracts. Although the usual construction is to the contrary, and to the effect that only the remedy for enforcement is affected thereby, a statute prohibiting a noncomplying corporation from suing in the state courts on any contract has been held by some courts to render the contract void and unenforceable by the corporation, even after its has complied with the statute." (36 Am. Jur. 2d 299-300). xxx xxx xxx The said Civil Case No. 71923 was dismissed by this Court. As the insurance contract involved herein was executed on January 20, 1967, the instant case should also be dismissed. We resolved to consolidate the two cases when we gave due course to the petition. The petitioner raised the following assignments of errors: First Assignment of Error THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN ISSUE THE LEGAL EXISTENCE OR CAPACITY OF PLAINTIFF-APPELLANT. Second Assignment of Error THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE FINDING THAT PLAINTIFF-APPELLANT HAS NO CAPACITY TO SUE. On the basis of factual and equitable considerations, there is no question that the private respondents should pay the obligations found by the trial court as owing to the petitioner. Only the question of validity of the contracts in relation to lack of capacity to sue stands in the way of the petitioner being given the affirmative relief it seeks. Whether or not the petitioner was engaged in single acts or solitary transactions and not engaged in business is likewise not in issue. The petitioner was engaged in business without a license. The private respondents' obligation to pay under the terms of the contracts has been proved. When the complaints in these two cases were filed, the petitioner had already secured the necessary license to conduct its insurance business in the Philippines. It could already filed suits. Petitioner was, therefore, telling the truth when it averred in its complaints that it was a foreign insurance company duly authorized to do business in the Philippines through its agent Mr. Victor H. Bello. However, when the insurance contracts which formed the basis of these cases were executed, the petitioner had not yet secured the necessary licenses and authority. The lower court, therefore, declared that pursuant to the basic public policy reflected in the Corporation Law, the insurance contracts executed before a license was secured must be held null and void. The court ruled that the contracts could not be validated by the subsequent procurement of the license.

The applicable provisions of the old Corporation Law, Act 1459, as amended are: Sec. 68. No foreign corporation or corporations formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands until after it shall have obtained a license for that purpose from the chief of the Mercantile Register of the Bureau of Commerce and Industry, (Now Securities and Exchange Commission. See RA 5455) upon order of the Secretary of Finance (Now Monetary Board) in case of banks, savings, and loan banks, trust corporations, and banking institutions of all kinds, and upon order of the Secretary of Commerce and Communications (Now Secretary of Trade. See 5455, section 4 for other requirements) in case of all other foreign corporations. ... xxx xxx xxx Sec. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. Any officer, director, or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shag be punished by imprisonment for not less than six months nor more than two years or by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such imprisonment and fine, in the discretion of the court. As early as 1924, this Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser & Co. (46 Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. The Marshall Wells Co. decision referred to a litigation over an isolated act for the unpaid balance on a bill of goods but the philosophy behind the law applies to the factual circumstances of these cases. The Court stated: xxx xxx xxx Defendant isolates a portion of one sentence of section 69 of the Corporation Law and asks the court to give it a literal meaning Counsel would have the law read thus: "No foreign corporation shall be permitted to maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in section 68 of the law." Plaintiff, on the contrary, desires for the court to consider the particular point under discussion with reference to all the law, and thereafter to give the law a common sense interpretation. The object of the statute was to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object of the statute was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. The implication of the law is that it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The effect of the statute preventing foreign corporations from doing business and from bringing actions in the local courts, except on compliance with elaborate requirements, must not be unduly extended or improperly applied. It should not be construed to extend beyond the plain meaning of its terms, considered in connection with its object, and in connection with the spirit of the entire law. (State vs. American Book Co. [1904], 69 Kan, 1; American De Forest Wireless Telegraph Co. vs. Superior Court of City & Country of

San Francisco and Hebbard [1908], 153 Cal., 533; 5 Thompson on Corporations, 2d ed., chap. 184.) Confronted with the option of giving to the Corporation Law a harsh interpretation, which would disastrously embarrass trade, or of giving to the law a reasonable interpretation, which would markedly help in the development of trade; confronted with the option of barring from the courts foreign litigants with good causes of action or of assuming jurisdiction of their cases; confronted with the option of construing the law to mean that any corporation in the United States, which might want to sell to a person in the Philippines must send some representative to the Islands before the sale, and go through the complicated formulae provided by the Corporation Law with regard to the obtaining of the license, before the sale was made, in order to avoid being swindled by Philippine citizens, or of construing the law to mean that no foreign corporation doing business in the Philippines can maintain any suit until it shall possess the necessary license;-confronted with these options, can anyone doubt what our decision will be? The law simply means that no foreign corporation shall be permitted "to transact business in the Philippine Islands," as this phrase is known in corporation law, unless it shall have the license required by law, and, until it complies with the law, shall not be permitted to maintain any suit in the local courts. A contrary holding would bring the law to the verge of unconstitutionality, a result which should be and can be easily avoided. (Sioux Remedy Co. vs. Cope and Cope, supra;Perkins, Philippine Business Law, p. 264.) To repeat, the objective of the law was to subject the foreign corporation to the jurisdiction of our courts. The Corporation Law must be given a reasonable, not an unduly harsh, interpretation which does not hamper the development of trade relations and which fosters friendly commercial intercourse among countries. The objectives enunciated in the 1924 decision are even more relevant today when we view commercial relations in terms of a world economy, when the tendency is to re-examine the political boundaries separating one nation from another insofar as they define business requirements or restrict marketing conditions. We distinguish between the denial of a right to take remedial action and the penal sanction for nonregistration. Insofar as transacting business without a license is concerned, Section 69 of the Corporation Law imposed a penal sanction-imprisonment for not less than six months nor more than two years or payment of a fine not less than P200.00 nor more than P1,000.00 or both in the discretion of the court. There is a penalty for transacting business without registration. And insofar as litigation is concerned, the foreign corporation or its assignee may not maintain any suit for the recovery of any debt, claim, or demand whatever. The Corporation Law is silent on whether or not the contract executed by a foreign corporation with no capacity to sue is null and void ab initio. We are not unaware of the conflicting schools of thought both here and abroad which are divided on whether such contracts are void or merely voidable. Professor Sulpicio Guevarra in his book Corporation Law (Philippine Jurisprudence Series, U.P. Law Center, pp. 233-234) cites an Illinois decision which holds the contracts void and a Michigan statute and decision declaring them merely voidable: xxx xxx xxx Where a contract which is entered into by a foreign corporation without complying with the local requirements of doing business is rendered void either by the express terms of a statute or by statutory construction, a subsequent compliance with the

statute by the corporation will not enable it to maintain an action on the contract. (Perkins Mfg. Co. v. Clinton Const. Co., 295 P. 1 [1930]. See also Diamond Glue Co. v. U.S. Glue Co., supra see note 18.) But where the statute merely prohibits the maintenance of a suit on such contract (without expressly declaring the contract "void"), it was held that a failure to comply with the statute rendered the contract voidable and not void, and compliance at any time before suit was sufficient. (Perkins Mfg. Co. v. Clinton Const. Co., supra.) Notwithstanding the above decision, the Illinois statute provides, among other things that a foreign corporation that fails to comply with the conditions of doing business in that state cannot maintain a suit or action, etc. The court said: 'The contract upon which this suit was brought, having been entered into in this state when appellant was not permitted to transact business in this state, is in violation of the plain provisions of the statute, and is therefore null and void, and no action can be maintained thereon at any time, even if the corporation shall, at some time after the making of the contract, qualify itself to transact business in this state by a compliance with our laws in reference to foreign corporations that desire to engage in business here. (United Lead Co. v. J.M. Ready Elevator Mfg. Co., 222 Ill. 199, 73 N.N. 567 [1906].) A Michigan statute provides: "No foreign corporation subject to the provisions of this Act, shall maintain any action in this state upon any contract made by it in this state after the taking effect of this Act, until it shall have fully complied with the requirement of this Act, and procured a certificate to that effect from the Secretary of State," It was held that the above statute does not render contracts of a foreign corporation that fails to comply with the statute void, but they may be enforced only after compliance therewith. (Hastings Industrial Co. v. Moral, 143 Mich. 679,107 N.E. 706 [1906]; Kuennan v. U.S. Fidelity & G. Co., Mich. 122; 123 N.W. 799 [1909]; Despres, Bridges & Noel v. Zierleyn, 163 Mich. 399, 128 N.W. 769 [1910]). It has also been held that where the law provided that a corporation which has not complied with the statutory requirements "shall not maintain an action until such compliance". "At the commencement of this action the plaintiff had not filed the certified copy with the country clerk of Madera County, but it did file with the officer several months before the defendant filed his amended answer, setting up this defense, as that at the time this defense was pleaded by the defendant the plaintiff had complied with the statute. The defense pleaded by the defendant was therefore unavailable to him to prevent the plaintiff from thereafter maintaining the action. Section 299 does not declare that the plaintiff shall not commence an action in any county unless it has filed a certified copy in the office of the county clerk, but merely declares that it shall not maintain an action until it has filled it. To maintain an action is not the same as to commence an action, but implies that the action has already been commenced." (See also Kendrick & Roberts Inc. v. Warren Bros. Co., 110 Md. 47, 72 A. 461 [1909]). In another case, the court said: "The very fact that the prohibition against maintaining an action in the courts of the state was inserted in the statute ought to be conclusive proof that the legislature did not intend or understand that contracts made without compliance with the law were void. The statute does not fix any time within which foreign corporations shall comply with the Act. If such contracts were void, no suits could be prosecuted on them in any court. ... The primary purpose of our statute is to compel a foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the courts of this state. The statute was not intended to exclude foreign corporations from the state. It does not, in terms, render invalid contracts made in this state by non-complying corporations. The better reason, the wiser and fairer policy, and the greater weight lie with those decisions which hold that where, as here, there is a prohibition with a penalty, with no express or implied declarations respecting the validity of enforceability of contracts made by qualified foreign corporations, the contracts ... are enforceable ... upon compliance with the law." (Peter & Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].)

Our jurisprudence leans towards the later view. Apart from the objectives earlier cited from Marshall Wells Co. v. Henry W. Elser & Co (supra), it has long been the rule that a foreign corporation actually doing business in the Philippines without license to do so may be sued in our courts. The defendant American corporation in General Corporation of the Philippines v. Union Insurance Society of Canton Ltd et al. (87 Phil. 313) entered into insurance contracts without the necessary license or authority. When summons was served on the agent, the defendant had not yet been registered and authorized to do business. The registration and authority came a little less than two months later. This Court ruled: Counsel for appellant contends that at the time of the service of summons, the appellant had not yet been authorized to do business. But, as already stated, section 14, Rule 7 of the Rules of Court makes no distinction as to corporations with or without authority to do business in the Philippines. The test is whether a foreign corporation was actually doing business here. Otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the corresponding license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts. It would indeed be anomalous and quite prejudicial, even disastrous, to the citizens in this jurisdiction who in all good faith and in the regular course of business accept and pay for shipments of goods from America, relying for their protection on duly executed foreign marine insurance policies made payable in Manila and duly endorsed and delivered to them, that when they go to court to enforce said policies, the insurer who all along has been engaging in this business of issuing similar marine policies, serenely pleads immunity to local jurisdiction because of its refusal or neglect to obtain the corresponding license to do business here thereby compelling the consignees or purchasers of the goods insured to go to America and sue in its courts for redress. There is no question that the contracts are enforceable. The requirement of registration affects only the remedy. Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines has corrected the ambiguity caused by the wording of Section 69 of the old Corporation Law. Section 133 of the present Corporation Code provides: SEC. 133. Doing business without a license.-No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shag be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency in the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. The old Section 69 has been reworded in terms of non-access to courts and administrative agencies in order to maintain or intervene in any action or proceeding. The prohibition against doing business without first securing a license is now given penal sanction which is also applicable to other violations of the Corporation Code under the general provisions of Section 144 of the Code. It is, therefore, not necessary to declare the contract nun and void even as against the erring foreign corporation. The penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. Our ruling that the lack of capacity at the time of the execution of the contracts was cured by the subsequent registration is also strengthened by the procedural aspects of these cases.

The petitioner averred in its complaints that it is a foreign insurance company, that it is authorized to do business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan Building at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules of Court. The petitioner sufficiently alleged its capacity to sue. The private respondents countered either with an admission of the plaintiff's jurisdictional averments or with a general denial based on lack of knowledge or information sufficient to form a belief as to the truth of the averments. We find the general denials inadequate to attack the foreign corporations lack of capacity to sue in the light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal existence of any party or the capacity of any party to sue or be sued in a representative capacity shall do so by specific denial, which shag include such supporting particulars as are particularly within the pleader's knowledge. At the very least, the private respondents should have stated particulars in their answers upon which a specific denial of the petitioner's capacity to sue could have been based or which could have supported its denial for lack of knowledge. And yet, even if the plaintiff's lack of capacity to sue was not properly raised as an issue by the answers, the petitioner introduced documentary evidence that it had the authority to engage in the insurance business at the time it filed the complaints. WHEREFORE, the petitions are hereby granted. The decisions of the respondent court are reversed and set aside. In L-34382, respondent Eastern Shipping Lines is ordered to pay the petitioner the sum of P1,630.22 with interest at the legal rate from January 5, 1968 until fully paid and respondent Angel Jose Transportation Inc. is ordered to pay the petitioner the sum of P1,630.22 also with interest at the legal rate from January 5, 1968 until fully paid. Each respondent shall pay one-half of the costs. The counterclaim of Angel Jose Transportation Inc. is dismissed. In L-34383, respondent N. V. Nedlloyd Lijnen, or its agent Columbian Phil. Inc. is ordered to pay the petitioner the sum of P2,426.98 with interest at the legal rate from February 1, 1968 until fully paid, the sum of P500.00 attorney's fees, and costs, The complaint against Guacods, Inc. is dismissed. SO ORDERED. Teehankee (Chairman), Plana, Escolin and Relova, JJ., concur. Melencio-Herrera and Vasquez, JJ., are on leave.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-12150 May 26, 1960

BENJAMIN CO, petitioner-appellee, vs. REPUBLIC OF THE PHILIPPINES, oppositor-appellant. Ernesto P. Parel, Daniel Z. Velasco and Herculano C. Beronilla for appellee. Assistant Solicitor General Antonio A. Torres and Solicitor Pacifico P. de Castro for appellant. BAUTISTA ANGELO, J.: This is a petition for naturalization which, after hearing was granted, the court ordering that after the lapse of two years from the date the decision becomes final and all the requisites provided for in Republic Act No. 503 have been complied with, a certificate of naturalization be issued to petitioner. Petitioner was born on March 13, 1931 in Bangued, Abra. He is the son of Go Cham and Yu Suan, both Chinese. He owes his allegiance to the Nacionalist Government of China. He is married to Leonor Go, the marriage having been celebrated in the Catholic church of Bangued, Abra. He speaks and writes English as well as the Ilocano and Tagalog dialects. He graduated from the Abra Valley College, and finished his primary studies in the "Colegio" in Bangued, Abra, both schools being recognized by the government. He has a child two months old. He has never been accused of any crime involving moral turpitude. He is not opposed to organized government, nor is he a member of any subversive organization. He does not believe in, nor practice, polygamy. Since his birth, he has never gone abroad. He mingles with the Filipinos. He prefers a democratic form of government and stated that if his petition is granted he would serve the government either in the military or civil department. He is a merchant dealing in the buy and sell of tobacco. He also is part owner of a store known as "Go Tian Store" in Bangued, Abra. In his tobacco business, he has a working capital of P10,000.00 which he claims to have been accumulated thru savings. He contributes to civic and charitable organizations like the Jaycees, Rotary, Red Cross and to town fiestas. He likes the customs of the Filipinos because he has resided in the Philippines for a long time. During the year 1956, he claims to have earned P1,000.00 in his tobacco business. He expects to make P2,000.00 more from the same business without however specifying to what years said income would correspond. With respect to the store of which he claims to be a part owner, he stated that his father gave him a sum of less than P3,000.00 representing one-fourth of the sales. Aside from being a co-owner of said store, he receives a monthly salary of P120.00 as a salesman therein. He took a course in radio mechanics and completed the same in 1955. He has no vice of any kind. He claims that he has never been deliquent in the payment of taxes. But he admitted that he did not file his income tax return when he allegedly received an amount of not less than P3,000 from his father which he claims to have invested in his tobacco business. On cross-examination, when the fiscal asked him if he believed in the principle underlying the Philippine constitution, he answered that "he believes in the laws of the Philippines." However, he did not state what principles of the Constitution he knew, although when asked what laws of the Philippines he believes in, he answered "democracy". Asked why he did not file his income tax return, he stated that his father had already filed his income tax return. He merely promised, that he would file his. He presented his alien certificate of registration, but did not present the alien certificates of registration of his wife and child.

The government is now appealing the decision of the trial court on the ground that it erred in finding that petitioner has all the qualifications for naturalization and none of the disqualifications mentioned in the law. The government contends that from the evidence itself introduced by petitioner it would appear that he failed to comply with some of the requirements prescribed by law in order to qualify him to become a Filipino citizen. Thus, it is claimed, he has not stated that he believes in the principles underlying the constitution and that it was only on cross-examination, when the fiscal asked him whether he believed in the principles underlying the constitution, that he answered that "He believes in the laws of the Philippines", and that when he was asked what those laws he believes in, he gave an answer which conveys the meaning that he believes in democracy or in a democratic form of government. It is contended that such belief is not sufficient to comply with the requirement of the law that one must believe in the principles underlying our constitution. There is merit in this claim. Indeed, the scope of the word law in ordinary legal parlance does not necessarily include the constitution which is the fundamental law of the land, nor does it cover all the principles underlying our constitution. Thus, our constitution expressly declares as one of its fundamental policies that the Philippines renounces war as an instrument of national policy, that the defense of the State is the prime duty of the government, that the duty and right of the parents to rear their children for civic efficiency shall receive the support of the State, and that the promotion of social justice shall be its main concern. In so stating that he believes merely in our laws, he did not necessarily refer to those principles embodied in our constitution which are referred to in the law. Our law also requires that petitioner must have conducted himself in a proper and irreproachable manner during the entire period of his residence in the Philippines in his relation with the constituted government as well as with the community in which he is living. It is contended that petitioner has also failed to comply with this legal requirement for he failed to register his wife and child with the Bureau of Immigration as required by the Alien Registration Act. He has, therefore, failed to conduct himself in a proper and irreproachable manner in his relation with our government. It furthermore appears that he failed to file his income tax return despite the fact that he has a fixed salary of P1,440.00 a year and made a profit of P1,000.00 in his tobacco business, and received an amount less than P3,000 from his father as one-fourth of the proceeds of the sale of the store, the total of which is more than what is required by law for one to file an income tax return, a fact which indicates that he has not also conducted himself properly in his relation with our government. His reasoning that he made that earning during the year in which this case was being heard is not convincing. Considering that "naturalization laws should be rigidly enforced and strictly construed in favor of the government and against the applicant" (Co Quing Reyes vs. Republic, 104 Phil., 889), we are constrained to hold that the trial court erred in granting the petition for naturalization. Wherefore, the decision appealed from is reversed, without pronouncement as to costs. Paras, Bengzon, C.J., Labrador, Concepcion, Barrera, and Gutierrez David, JJ., concur.