BONIFACIO BROS v MORA

Same; Meaning of loss in insurance.The word "loss" in insurance law embraces

injury or damage. A loss may be total or partial Bonifacio Bros., Inc. vs. Mora, 20
SCRA 261, No. L-20853 May 29, 1967
F ACTS:

Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged it to

H.S. Reyes, Inc., with the condition that they would be the beneficiary of its
insurance

June 23, 1959: The sedan was insured with State Bonding & Insurance Co.,
Inc

During the period of effectivity, the sedan met an accident and it

was appraised by Bayne Adjustment Co. and repaired itd with Bonifacio Bros.
and the parts were supplied by Ayala Auto Parts Co. This was all done without
the knowledge of H.S. Reyes. Enrique was billed P2,102.73 through Bayne.
The insurance company drew a check deducting P100 for franchise and
entrusted it to Bayne payable to Enrique or H.S. Reyes.

Still unpaid, the sedan was delivered to Enrique without the Knowledge of
H.S. Reyess

Bonifacio Bros and Ayala Auto filed in the MTC on the theory that the
insurance proceeds should be paid directly to them

CFI affirmed MTC: H.S. Reyes, Inc. as having a better right

ISSUE: W/N there is privity between Bonifacio Bro and Ayala Auto against the
insurance company
HELD: NO. Judgment affirmed

GR: contracts take effect only between the parties thereto

EX: some specific instances provided by law where the contract contains
some stipulation in favor of a third person - stipulation pour autrui

provision in favor of a third person not a party to the contract

third person is allowed to avail himself of a benefit granted to him

by the terms of the contract, provided that the contracting parties have
clearly and deliberately conferred a favor upon such person

stipulation pour autrui must be clearly expressed - none here

"loss payable" clause of the insurance policy stipulates that "Loss, if

any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes,
Inc. which they intended to benefit.

stipulation merely establishes the procedure that the insured has to

follow in order to be entitled to indemnity for repair

a policy of insurance is a distinct and independent contract between

the insured and insurer, and third persons have no right either in a court of
equity, or in a court of law, to the proceeds of it, unless there be some
contract of trust, expressed or implied between the insured and third person

"loss" in insurance law embraces injury or damage

The injury or damage sustained by the insured in consequence of

the happening of one or more of the accidents or misfortune against which
the insurer, in consideration of the premium, has undertaken to indemnify the
insured

VDA BACTACALAN v MEDINA

FACTS: Pass-midnight in September 1952, Juan Bataclan rode a bus owned by
Mariano Medina from Cavite to Pasay. While on its way, the driver of the bus was
driving fast and when he applied the brakes it cause the bus to be overturned.
The driver, the conductor, and some passengers were able to free themselves
from the bus except Bataclan and 3 others. The passengers called the help of the
villagers and as it was dark, the villagers brought torch with them. The driver and
the conductor failed to warn the would-be helpers of the fact that gasoline has
spilled from the overturned bus so a huge fire ensued which engulfed the bus
thereby killing the 4 passengers trapped inside. It was also found later in trial
that the tires of the bus were old.
ISSUE: Whether or not the proximate cause of the death of Bataclan et al was
their burning by reason of the torches which ignited the gasoline.
HELD: No. The proximate cause was the overturning of the bus which was caused
by the negligence of the driver because he was speeding and also he was
already advised by Medina to change the tires yet he did not. Such negligence
resulted to the overturning of the bus. The torches carried by the would-be
helpers are not to be blamed. It is just but natural for the villagers to respond to
the call for help from the passengers and since it is a rural area which did not
have flashlights, torches are the natural source of lighting. Further, the smell of
gas could have been all over the place yet the driver and the conductor failed to
provide warning about said fact to the villagers.
WHAT IS PROXIMATE CAUSE?
Proximate cause is that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred.
And more comprehensively, the proximate legal cause is that acting first and
producing the injury, either immediately or by setting other events in motion, all
constituting a natural and continuous chain of events, each having a close causal
connection with its immediate predecessor, the final event in the chain
immediately effecting the injury as a natural and probable result of the cause
which first acted, under such circumstances that the person responsible for the
first event should, as an ordinary prudent and intelligent person, have
reasonable ground to expect at the moment of his act or default that an injury to
some person might probably result therefrom.
Sec. 84. Unless otherwise provided by the policy, an insurer is liable for
a loss of which a peril insured against was the proximate cause,
although a peril not contemplated by the contract may have been a
remote cause of the loss; but he is not liable for a loss which the peril
insured against was only a remote cause.

Allied Banking Corp. V. Lim Sio Wan

FACTS:
Lim Sio Wan (deposited 1st money market) > Allied Bank > (pre-terminated and
withdrawn) Santos > (through forged indorsement of Lim Sio Wan deposited in
FCC account) Metrobank > (release in exchange of undertaking of
reimbursement) FCC > (through Santos, as officer of Producers bank, deposited
money market) Producers Bank

FCC PRODUCERS WITHDRAWN

SIO WAN ALLIED WITDRAWN BY IMPOSTER (SANTOS) DEPOSITED TO
FCC (METROBANK)
ALLIED NEGLIGENT 60% FORGED CHECK
METROBANK NEGLIGENT GUARANTY
September 21, 1983: FCC had deposited a money market placement for P
2M with Producers Bank
Santos was the money market trader assigned to handle FCCs
account

Such deposit is evidenced by Official Receipt and a Letter

When the placement matured, FCC demanded the payment of the

proceeds of the placement

November 14, 1983: Lim Sio Wan deposited with Allied Banking
Corporation (Allied) a money market placement of P 1,152,597.35 for a term
of 31 days

December 5, 1983: a person claiming to be Lim Sio Wan called up Cristina

So, an officer of Allied, and instructed the latter to pre-terminate Lim Sio
Wans money market placement, to issue a managers check representing the
proceeds of the placement, and to give the check to Deborah Dee Santos who
would pick up the check. Lim Sio Wan described the appearance of Santos

Santos arrived at the bank and signed the application form for a
managers check to be issued

The bank issued Managers Check representing the proceeds

of Lim Sio Wans money market placement in the name of Lim Sio Wan, as
payee, cross-checked "For Payees Account Only" and given to Santos

Allied managers check was deposited in the account of Filipinas Cement

Corporation (FCC) at Metropolitan Bank and Trust Co. (Metrobank), with the
forged signature of Lim Sio Wan as indorser

Metrobank stamped a guaranty on the check, which reads: "All prior

endorsements and/or lack of endorsement guaranteed."

Upon the presentment of the check, Allied funded the check even
without checking the authenticity of Lim Sio Wans purported indorsement.
amount on the face of the check was credited to the account

of FCC

December 9, 1983: Lim Sio Wan deposited with Allied a second money
market placement to mature on January 9, 1984

December 14, 1983: upon the maturity date of the first money market
placement, Lim Sio Wan went to Allied to withdraw it. She was then informed
that the placement had been pre-terminated upon her instructions which she
denied

Lim Sio Wan filed with the RTC against Allied to recover the proceeds of
her first money market placement

Allied filed a third party complaint against Metrobank and Santos

Metrobank filed a fourth party complainagainst FCC

FCC for its part filed a fifth party complaint against Producers Bank.

Summonses were duly served upon all the parties except for
Santos, who was no longer connected with Producers Bank

May 15, 1984: Allied informed Metrobank that the signature on the check
was forged

Metrobank withheld the amount represented by the check from FCC.

Metrobank agreed to release the amount to FCC after the FCC

executed an undertaking, promising to indemnify Metrobank in case it was
made to reimburse the amount

Lim Sio Wan thereafter filed an amended complaint to include

Metrobank as a party-defendant, along with Allied.

RTC : Allied Bank to pay Lim Sio Wan plus damages and atty. fees

Allied Banks cross-claim against Metrobank is DISMISSED.

Metrobanks third-party complaint as against Filipinas Cement

Corporation is DISMISSED

Filipinas Cement Corporations fourth-party complaint against

Producers Bank is DISMISSED

CA: Modified. Allied Banking Corporation to pay 60% and Metropolitan

Bank and Trust Company 40%

ISSUE: W/N Allied should be solely liable to Lim Sio Wan.

HELD: YES. CA affirmed. Modified Porudcers Bank to reimburse Allied and

Metrobank.

Articles 1953 and 1980 of the Civil Code

Art. 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.

bank deposit is in the nature of a simple loan or mutuum

money market is a market dealing in standardized short-term

credit instruments (involving large amounts) where lenders and borrowers do
not deal directly with each other but through a middle man or dealer in open
market. In a money market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer.

Lim Sio Wan, as creditor of the bank for her money market
placement, is entitled to payment upon her request, or upon maturity of the
placement, or until the bank is released from its obligation as debtor

GR: collecting bank which indorses a check bearing a forged indorsement

and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be held liable
therefor

EX: when the issuance of the check itself was attended with negligence.

Allied negligent in issuing the managers check and in transmitting it to

Santos without even a written authorization

Allied did not even ask for the certificate evidencing the money
market placement or call up Lim Sio Wan at her residence or office to confirm
her instructions.

Allieds negligence must be considered as the proximate cause of

the resulting loss.

When Metrobank indorsed the check without verifying the authenticity of

Lim Sio Wans indorsement and when it accepted the check despite the fact
that it was cross-checked payable to payees account only

contributed to the easier release of Lim Sio Wans money and

perpetuation of the fraud

Given the relative participation of Allied and Metrobank to the instant

case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio
of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.

FCC, having no participation in the negotiation of the check and in the

forgery of Lim Sio Wans indorsement, can raise the real defense of forgery as
against both banks

Producers Bank was unjustly enriched at the expense of Lim Sio Wan

Producers Bank should reimburse Allied and Metrobank for the

amounts ordered to pay Lim Sio Wan

Sec. 86. Where a peril is especially excepted in a contract of insurance,

a loss, which would not have occurred but for such peril, is thereby
excepted although the immediate cause of the loss was a peril which
was not excepted.
Sec. 87. An insurer is not liable for a loss caused by the willful act or
through the connivance of the insure; but he is not exonerated by the
negligence of the insured, or of the insurance agents or others.
FGU Insurance Corporation V. CA (2005)
FACTS:

Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co

To, was engaged in the shipping business operating two common carriers
M/T ANCO tugboat
D/B Lucio barge - no engine of its own, it could not maneuver by
itself and had to be towed by a tugboat for it to move from one place to
another.
September 23 1979: San Miguel Corporation (SMC) shipped from Mandaue
City, Cebu, on board the D/B Lucio, for towage by M/T ANCO:
25,000 cases Pale Pilsen and 350 cases Cerveza Negra consignee SMCs Beer Marketing Division (BMD)-Estancia Beer Sales Office,
Estancia, Iloilo
15,000 cases Pale Pilsen and 200 cases Cerveza Negra consignee SMCs BMD-San Jose Beer Sales Office, San Jose, Antique
September 30, 1979: D/B Lucio was towed by the M/T ANCO arrived
and M/T ANCO left the barge immediately
The clouds were dark and the waves were big so SMCs District
Sales Supervisor, Fernando Macabuag, requested ANCOs representative to
transfer the barge to a safer place but it refused so around the midnight, the
barge sunk along with 29,210 cases of Pale Pilsen and 500 cases of Cerveza
Negra totalling to P1,346,197
When SMC claimed against ANCO it stated that they agreed that it would
not be liable for any losses or damages resulting to the cargoes by reason of
fortuitous event and it was agreed to be insured with FGU for 20,000 cases
or P858,500
ANCO filed against FGU

FGU alleged that ANCO and SMC failed to exercise ordinary

diligence or the diligence of a good father of the family in the care and
supervision of the cargoes

RTC: ANCO liable to SMC and FGU liable for 53% of the lost cargoes

CA affirmed
ISSUE: W/N FGU should be exempted from liability to ANCO for the lost cargoes
because of a fortuitous event and negligence of ANCO

HELD: YES. Affirmed with modification. Third-party complainant is dismissed.

Art. 1733. Common carriers, from the nature of their business and for
reasons of public policy are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in
Articles 1734, 1735, and 1745 Nos. 5, 6, and 7 . . .

Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following
causes only:

(1)

Flood, storm, earthquake, lightning, or other natural disaster or calamity;

. . .

Art. 1739. In order that the common carrier may be exempted from
responsibility, the natural disaster must have been the proximate and only
cause of the loss. However, the common carrier must exercise due diligence
to prevent or minimize loss before, during and after the occurrence of flood,
storm, or other natural disaster in order that the common carrier may be
exempted from liability for the loss, destruction, or deterioration of the goods
...
Caso fortuito or force majeure
extraordinary events not foreseeable or avoidable, events that
could not be foreseen, or which though foreseen, were inevitable
not enough that the event should not have been foreseen or
anticipated, as is commonly believed but it must be one impossible to foresee
or to avoid - not in this case
other vessels in the port of San Jose, Antique, managed to
transfer to another place
To be exempted from responsibility, the natural disaster should have been
the proximate and only cause of the loss. There must have been no
contributory negligence on the part of the common carrier.
there was blatant negligence on the part of M/T ANCOs
crewmembers, first in leaving the engine-less barge D/B Lucio at the mercy of
the storm without the assistance of the tugboat, and again in failing to heed
the request of SMCs representatives to have the barge transferred to a safer
place
When evidence show that the insureds negligence or recklessness is so
gross as to be sufficient to constitute a willful act, the insurer must be
exonerated.

ANCOs employees is of such gross character that it amounts to a wrongful

act which must exonerate FGU from liability under the insurance contract
both the D/B Lucio and the M/T ANCO were blatantly negligent

Sec. 85. An insurer is liable where the thing insured is rescued from a
peril insured against that would otherwise have caused a loss, if, in the
course of such rescue, the thing is exposed to a peril not insured
against, which permanently deprives the insured of its possession, in
whole or in part; or where a loss is caused by efforts to rescue the thing
insured from a peril insured against.
Sec. 86. Where a peril is especially excepted in a contract of insurance,
a loss, which would not have occurred but for such peril, is thereby
excepted although the immediate cause of the loss was a peril which
was not excepted.

Paris-Manila Perfume Co. V. Phoenix Assurance Co.

Lessons Applicable: Loss, the immediate cause of which was the peril insured
against, if the proximate cause thereof was NOT excepted in the contract
(Insurance)
Facts:
May 22, 1924: A fire insurance policy was issued by Phoenix Assurance
Company, Limited to Messrs. Paris-Manila Perfumery Co. (Peter Johnson,
Prop.) for P13,000

also insured with other insurance companies for P1,200 and P5,000
respectively

July 4, 1924: The Perfumery was burned unknown of the cause totalling a
loss of P38.025.56

Phoenix refused to pay nor to appoint an arbitrator stating that the policy
did not cover any loss or damage occasioned by explosion and stating that
the claim was fraudulent

RTC: ordered Phoenix to pay P13,000

Phoenix appealed

The insurance policy contains:

Unless otherwise expressly stated in the policy the insurance does not cover
(h) Loss or damage occasioned by the explosion; but loss or damage by
explosion of gas for illuminating or domestic purposes in a building in which gas
is not generated and which does not form a part of any gas works, will be
deemed to be loss by fire within the meaning of this policy.
ISSUE: W/N Phoenix should be liable for the loss because there was no explosion
which is an exemption from the policy

HELD: YES.

If it be a fact that the fire resulted from an explosion that fact, if proven,
would be a complete defense, the burden of the proof of that fact is upon the
defendant, and upon that point, there is a failure of proof

lower court found as a fact that there was no fraud in the insurance, and
that the value of the property destroyed by the fire was more than the
amount of the insurance.
Title 10
NOTICE OF LOSS
Sec. 88. In case of loss upon an insurance against fire, an insurer is
exonerated, if notice thereof be not given to him by an insured, or
some person entitled to the benefit of the insurance, without
unnecessary delay.
Sec. 89. When a preliminary proof of loss is required by a policy, the
insured is not bound to give such proof as would be necessary in a
court of justice; but it is sufficient for him to give the best evidence
which he has in his power at the time.
Sec. 90. All defects in a notice of loss, or in preliminary proof thereof,
which the insured might remedy, and which the insurer omits to
specify to him, without unnecessary delay, as grounds of objection,
are waived.
Sec. 91. Delay in the presentation to an insurer of notice or proof of
loss is waived if caused by any act of him, or if he omits to take
objection promptly and specifically upon that ground.
Sec. 92. If the policy requires, by way of preliminary proof of loss, the
certificate or testimony of a person other than the insured, it is
sufficient for the insured to use reasonable diligence to procure it,
and in case of the refusal of such person to give it, then to furnish
reasonable evidence to the insurer that such refusal was not induced
by any just grounds of disbelief in the facts necessary to be certified
or testified.

SPS. ANG (Paulo & Sally) v. Fulton Fire Insurance Co.PAULO ANG and
SALLY C. ANG, plaintiffs-appellees,
The present action was instituted by the spouses Paulo Ang and Sally C. Ang
against the Fulton Fire Insurance Company and the Paramount Surety and
Insurance Company, Inc. to recover from them the face value of a fire insurance
policy issued in plaintiffs' favor covering a store owned and operated by them in
Laoag, Ilocos Norte. From a judgment of the court ordering the defendant Fulton
Fire Insurance Co. to pay the plaintiffs the sum of P10,000.00, with interest, and
an additional sum of P2,000.00 as attorney's fees, and costs, the defendants
have appealed directly to this Court.
On September 9, 1953, defendant Fulton Fire Insurance Company issued a policy
No. F-4730340, in favor of P. & S Department Store (Sally C. Ang) over stocks of
general merchandise, consisting principally of dry goods, contained in a building
occupied by the plaintiffs at Laoag, Ilocos Norte. The premium is P500.00
annually. The insurance was issued for one year, but the same was renewed for

another year on September 31, 1954. On December 17, 1954, the store
containing the goods insured was destroyed by fire. On December 30, following,
plaintiffs executed the first claim form. The claim together with all the necessary
papers relating thereto, were forwarded to he Manila Adjustment Company, the
defendants' adjusters and received by the latter on Jane 8, 1955. On January 12,
1955, the Manila Adjustment Company accepted receipt of the claim and
requested the submission of the books of accounts of the insured for the year
1953-1954 and a clearance from the Philippine Constabulary and the police. On
April 6, 1956, the Fulton Fire Insurance Company wrote the plaintiffs that their
claim was denied. This denial of the claim was received by the plaintiffs on April
19, 1956. On January 13, 1955, plaintiff Paulo Ang and ten others were charged
for arson in Criminal Case No. 1429 in the Justice of the Peace Court of Laoag,
Ilocos Norte. The case was remanded for trial to the Court of First Instance of
Ilocos Norte and there docketed as Criminal Case No. 2017. The said court in a
decision dated December 9, 1957, acquitted plaintiff Paulo Ang of the crime of
arson.
The present action was instituted on May 5, 1958. The action was originally
instituted against both the Fulton Fire Insurance Company and the Paramount
Surety and Insurance Company, Inc., but on June 16, 1958, upon motion of the
Paramount Surety, the latter was dropped from the complaint.
On May 26, 1958, the defendant Fulton Fire Insurance Company filed an answer
to the complaint, admitting the existence of the contract of insurance, its
renewal and the loss by fire of the department store and the merchandise
contained therein, but denying that the loss by the fire was accidental, alleging
that it was occasioned by the willful act of the plaintiff Paulo Ang himself. It
claims that under paragraph 13 of the policy, if the loss or damage is occasioned
by the willful act of the insured, or if the claim is made and rejected but no action
is commenced within 12 months after such rejection, all benefits under the policy
would be forfeited, and that since the claim of the plaintiffs was denied and
plaintiffs received notice of denial on April 18, 1956, and they brought the action
only on May 5, 1958,
On February 12, 1959, plaintiffs filed a reply to the above answer of the Fulton
Fire Insurance, alleging that on May 11, 1956, plaintiffs had instituted Civil Case
No. 2949 in the Court of First Instance of Manila, to assert the claim; that this
case was dismissed without prejudice on September 3, 1957 and that deducting
the period within which said action was pending, the present action was still
within the 12 month period from April 12, 1956. The court below held that the
bringing of the action in the Court of First Instance of Manila on May 11, 1956,
tolled the running of the 12 month period within which the action must be filed.
Said the court on this point:
True, indeed, plaintiffs committed a procedural mistake in first suing the agent
instead of its principal, the herein defendant, as correctly pointed out by counsel
for the defendant, for 'Un agente residente de una compania de seguros
extranjera que comercia en las Islas Filipinos no es responsable como mandante
ni como mandatario, en virtud de contratas de seguro expendidos a nombre de
la compania', (Macias & Co. vs. Warner, Barnes & Co., 43 Phil. 161). But the
mistake being merely procedural, and the defendant not having been misled by
the error, 'There is nothing sacred about process or pleadings, their forms or

contents. Their sole purpose is to facilitate the application of justice to the rival
claims of contending parties. They were created not to hinder and delay, but to
facilitate and promote the administration of justice (Alonso vs. Villamor, 16 Phil
578.)
The complaint, Exh. 'C', was dismissed by the Court without prejudice (Exh. 'H-1')
on September 3, 1957, and motion for reconsideration dated September 21,
1957. The instant complaint was filed on May 8, 1958. The Rules of Court (See
132 thereof) is applicable in the computation of time. Now, as correctly pointed
out by the plaintiffs' counsel, by simple mathematical computation, the present
action was filed leas thin nine (9) months after the notice of rejection received by
plaintiffs on April 19, 1956, because the filing of the original complaint stopped
the running of the period." (Decision, pp. 42-43, R.O.A.)
In view of the reasons thus above quoted, the court rendered decision in favor of
the plaintiffs.
On the appeal before this Court, defendant-appellant argues that the court below
erred in holding that the filing of the previous suit tolled or suspended the
running of the prescriptive period.
The clause subject of the issue is paragraph 13 of the policy, which reads as
follows:
13. If the claim be in any respect fraudulent, or if any false declaration is made
or used in support thereof, or if any fraudulent means or devices are used by the
Insured or any one acting on his behalf to obtain any benefit under this Policy, or,
if the loss or damage be occasioned by the willful act or with connivance of the
Insured, or, if the claim be made and rejected and an action or suit be not
commenced within twelve months after such rejection or (in case of arbitration
place in pursuance of the 18th condition of this Policy) within twelve months
after the arbitrator or arbitrators or umpire shall have made their award, all
benefits under this Policy shall be forfeited. (Emphasis supplied). (Decision. p. 10,
R.O.A.).
The appellant cites in support of its contention the cases of E. Macias & Co. vs.
Warner, Barnes & Co., Ltd., 43 Phil 155; E. Macias & Co. vs. China Fire Insurance
Co., 46 Phil. 345 and Castillo etc. vs. Metropolitan Insurance Co., 47 O.G.
(September, 1951).
In answer to appellant's contention, counsel for appellees contend that the
action of the plaintiffs against the defendant had not yet prescribed at the time
of the bringing of the action, because the period of prescription was interrupted
by the filing of the first action against the Paramount Surety & Insurance Co., in
accordance with Article 1155 of the Civil Code. Counsel further argues that the
basis of prescription of an action is the abandonment by a person of his right of
action or claim, so that any act of said person tending to show his intention not
to abandon his right of action or claim, as the filing of the previous action in the
case at bar, interrupts the period of prescription. Furthermore, counsel argues,
the dismissal of the previous action is without prejudice, which means that
plaintiffs have the right to file another complaint against the principal.
The basic error committed by the trial court is its view that the filing of the action
against the agent of the defendant company was "merely a procedural mistake

of no significance or consequence, which may be overlooked." The condition

contained in the insurance policy that claims must be presented within one year
after rejection is not merely a procedural requirement. The condition is an
important matter, essential to a prompt settlement of claims against insurance
companies, as it demands that insurance suits be brought by the insured while
the evidence as to the origin and cause of destruction have not yet disappeared.
It is in the nature of a condition precedent to the liability of the insurer, or in
other terms, a resolutory cause, the purpose of which is to terminate all liabilities
in case the action is not filed by the insured within the period stipulated.
The bringing of the action against the Paramount Surety & Insurance Company,
the agent of the defendant Company cannot have any legal effect except that of
notifying the agent of the claim. Beyond such notification, the filing of the action
can serve no other purpose. There is no law giving any effect to such action upon
the principal. Besides, there is no condition in the policy that the action must be
filed against the agent, and this Court can not by interpretation, extend the clear
scope of the agreement beyond what is agreed upon by the parties.
The case of E. Macias & Co. vs. China Fire Insurance Co. has settled the issue
presented by the appellees in the case at bar definitely against their claim. In
that case, We declared that the contractual station in an insurance policy
prevails over the statutory limitation, as well as over the exceptions to the
statutory limitations that the contract necessarily supersedes the statute (of
limitations) and the limitation is in all phases governed by the former. (E. Macias
& Co. vs. China Fire Insurance & Co., 46 Phil. pp. 345-353). As stated in said case
and in accordance with the decision of the Supreme Court of the United States in
Riddlesbarger vs. Hartford Fire Insurance Co. (7 Wall., 386), the rights of the
parties flow from the contract of insurance, hence they are not bound by the
statute of limitations nor by exemptions thereto. In the words of our own law,
their contract is the law between the parties, and their agreement that an action
on a claim denied by the insurer must be brought within one year from the
denial, governs, not the rules on the prescription of actions.
The judgment appealed from is hereby set aside and the case dismissed, with
costs against the plaintiffs-appellees.
TRAVELLERS INSURANCE SURETY v CA
The petition herein seeks the review and reversal of the decision [1] of
respondent Court of Appeals [2] affirming in toto the judgment[3] of the Regional
Trial Court[4] in an action for damages[5] filed by private respondent Vicente
Mendoza, Jr. as heir of his mother who was killed in a vehicular accident.
Before the trial court, the complainant lumped the erring taxicab driver, the
owner of the taxicab, and the alleged insurer of the vehicle whicfssh featured in
the vehicular accident into one complaint. The erring taxicab was allegedly
covered by a third-party liability insurance policy issued by petitioner Travellers
Insurance & Surety Corporation.
The evidence presented before the trial court established the following facts:

At about 5:30 oclock in the morning of July 20, 1980, a 78-year old woman by the
name of Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman
Cathedral. While walking along Tayuman corner Gregorio Perfecto Streets, she
was bumped by a taxi that was running fast. Several persons witnessed the
accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio
Tabalno. After the bumping, the old woman was seen sprawled on the
pavement. Right away, the good Samaritan that he was, Marvilla ran towards the
old woman and held her on his lap to inquire from her what had happened, but
obviously she was already in shock and could not talk. At this moment, a private
jeep stopped. With the driver of that vehicle, the two helped board the old woman
on the jeep and brought her to the Mary Johnston Hospital in Tondo.
x x x Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street
from Pritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It
was on his return trip from Rizal Avenue when Lopez saw the plaintiff and his
brother who were crying near the scene of the accident. Upon learning that the
two were the sons of the old woman, Lopez told them what had happened. The
Mendoza brothers were then able to trace their mother at the Mary Johnston
Hospital where they were advised by the attending physician that they should
bring the patient to the National Orthopedic Hospital because of her fractured
bones.Instead, the victim was brought to the U.S.T. Hospital where she expired at
9:00 oclock that same morning. Death was caused by traumatic shock as a result
of the severe injuries she sustained x x x x.
x x x The evidence shows that at the moment the victim was bumped by the
vehicle, the latter was running fast, so much so that because of the strong impact
the old woman was thrown away and she fell on the pavement. x x x In truth, in
that related criminal case against defendant Dumlao x x x the trial court found as
a fact that therein accused was driving the subject taxicab in a careless, reckless
and imprudent manner and at a speed greater than what was reasonable and
proper without taking the necessary precaution to avoid accident to persons x x x
considering the condition of the traffic at the place at the time aforementioned x
x x. Moreover, the driver fled from the scene of the accident and
without rendering assistance to the victim. x x x
x x x Three (3) witnesses who were at the scene at the time identified the taxi
involved, though not necessarily the driver thereof.Marvilla saw a lone taxi
speeding away just after the bumping which, when it passed by him, said witness
noticed to be a Lady Love Taxi with Plate No. 438, painted maroon, with baggage
bar attached on the baggage compartment and with an antenae[sic] attached at
the right rear side. The same descriptions were revealed by Ernesto Lopez, who
further described the taxi to have x x x reflectorized decorations on the edges of
the glass at the back. x x x A third witness in the person of Eulogio Tabalno x x x
made similar descriptions although, because of the fast speed of the taxi, he was
only able to detect the last digit of the plate number which is 8. x x x [T]he police
proceeded to the garage of Lady Love Taxi and then and there they took
possession of such a taxi and later impounded it in the impounding area of the
agency concerned. x x x [T]he eyewitnesses x x x were unanimous in pointing to
that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein.

x x x During the investigation, defendant Armando Abellon, the registered owner

of Lady Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact that
the vehicle was driven last July 20, 1980 by one Rodrigo Dumlao x x x x x x It was
on the basis of this affidavit of the registered owner that caused the police to
apprehend Rodrigo Dumlao, and consequently to have him prosecuted and
eventually convicted of the offense x x x. x x x [S]aid Dumlao absconded in that
criminal case, specially at the time of the promulgation of the judgment therein so
much so that he is now a fugitive from justice. [6]
Private respondent filed a complaint for damages against Armando Abellon
as the owner of the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady
Love taxicab that bumped private respondents mother. Subsequently, private
respondent amended his complaint to include petitioner as the compulsory
insurer of the said taxicab under Certificate of Cover No. 1447785-3.
After trial, the trial court rendered judgment in favor of private respondent,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more
particularly the Heirs of the late Feliza Vineza de Mendoza, and against
defendants Rodrigo Dumlao, Armando Abellon and Travellers Insurance and
Surety Corporation, by ordering the latter to pay, jointly and severally, the
former the following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with interest
thereon at the rate of 12% per annum from October 17, 1980, when the
complaint was filed, until the said amount is fully paid;
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorneys fees and other litigation expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.
SO ORDERED.[7]
Petitioner appealed from the aforecited decision to the respondent Court of
Appeals. The decision of the trial court was affirmed by respondent appellate
court. Petitioners Motion for Reconsideration[8] of September 22, 1987 was
denied in a Resolution[9] dated February 9, 1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as
compulsory insurer of the Lady Love Taxi and that, assuming arguendo that it

had indeed covered said taxicab for third-party liability insurance, as required by
Section 384 of P.D. No. 612, otherwise known as the Insurance Code.
We find the petition to be meritorious.
I
When private respondent filed his amended complaint to implead petitioner
as party defendant and therein alleged that petitioner was the third-party liability
insurer of the Lady Love taxicab that fatally hit private respondents mother,
private respondent did not attach a copy of the insurance contract to the
amended complaint. Private respondent does not deny this omission.
It is significant to point out at this juncture that the right of a third person to
sue the insurer depends on whether the contract of insurance is intended to
benefit third persons also or only the insured.
[A] policy x x x whereby the insurer agreed to indemnify the insured against all
sums x x x which the Insured shall become legally liable to pay in respect of: a.
death of or bodily injury to any person x x x is one for indemnity against liability;
from the fact then that the insured is liable to the third person, such third person
is entitled to sue the insurer.
The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third
persons also or on the insured. And the test applied has been this: Where the
contract provides for indemnity against liability to third persons, then third
persons to whom the insured is liable can sue the insurer. Where the contract is
for indemnity against actual loss or payment, then third persons cannot proceed
against the insurer, the contract being solely to reimburse the insured for liability
actually discharged by him thru payment to third persons, said third persons
recourse being thus limited to the insured alone. [10]
Since private respondent failed to attach a copy of the insurance contract to
his complaint, the trial court could not have been able to apprise itself of the real
nature and pecuniary limits of petitioners liability. More importantly, the trial
court could not have possibly ascertained the right of private respondent as third
person to sue petitioner as insurer of the Lady Love taxicab because the trial
court never saw nor read the insurance contract and learned of its terms and
conditions.
Petitioner, understandably, did not volunteer to present any insurance
contract covering the Lady Love taxicab that fatally hit private respondents
mother, considering that petitioner precisely presented the defense of lack of
insurance coverage before the trial court. Neither did the trial court issue
a subpoena duces tecum to have the insurance contract produced before it
under pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly
found petitioner liable jointly and severally with the owner and the driver of the
Lady Love taxicab, for damages accruing to private respondent.
Apparently, the trial court did not distinguish between the private
respondents cause of action against the owner and the driver of the Lady Love
taxicab and his cause of action against petitioner. The former is based on torts
andquasi-delicts while the latter is based on contract. Confusing these two
sources of obligations as they arise from the same act of the taxicab fatally
hitting private respondents mother, and in the face of overwhelming evidence of
the reckless imprudence of the driver of the Lady Love taxicab, the trial court
brushed aside its ignorance of the terms and conditions of the insurance contract
and forthwith found all three - the driver of the taxicab, the owner of the taxicab,
and the alleged insurer of the taxicab - jointly and severally liable for actual,
moral and exemplary damages as well as attorneys fees and litigation
expenses. This is clearly a misapplication of the law by the trial court, and
respondent appellate court grievously erred in not having reversed the trial court
on this ground.
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however,
the direct liability of the insurer under indemnity contracts against third-party
liability does not mean that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault. The liability of the insurer is based
on contract; that of the insured is based on tort. [11]
Applying this principle underlying solidary obligation and insurance contracts, we
ruled in one case that:
In solidary obligation, the creditor may enforce the entire obligation against one
of the solidary debtors. On the other hand, insurance is defined as a contract
whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.
In the case at bar, the trial court held petitioner together with respondents
Sio Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a
total amount of P29,103.00, with the qualification that petitioners liability is only
up toP20,000.00. In the context of a solidary obligation, petitioner may be
compelled by respondent Vallejos to pay the entire obligation of P29,103.00,
notwithstanding the qualification made by the trial court. But, how can petitioner
be obliged to pay the entire obligation when the amount stated in its insurance
policy with respondent Sio Choy for indemnity against third-party liability is
only P20,000.00? Moreover, the qualification made in the decision of the trial
court to the effect that petitioner is sentenced to pay up to P20,000.00 only
when the obligation to pay P29,103.00 is made solidary is an evident breach of
the concept of a solidary obligation.[12]
The above principles take on more significance in the light of the counterallegation of petitioner that, assumingarguendo that it is the insurer of the Lady
Love taxicab in question, its liability is limited to only P50,000.00, this being its

standard amount of coverage in vehicle insurance policies. It bears repeating

that no copy of the insurance contract was ever proffered before the trial court
by the private respondent, notwithstanding knowledge of the fact that the latters
complaint against petitioner is one under a written contract. Thus, the trial court
proceeded to hold petitioner liable for an award of damages exceeding its limited
liability of P50,000.00. This only shows beyond doubt that the trial court was
under the erroneous presumption that petitioner could be found liable absent
proof of the contract and based merely on the proof of reckless imprudence on
the part of the driver of the Lady Love taxicab that fatally hit private respondents
mother.
II
Petitioner did not tire in arguing before the trial court and the respondent
appellate court that, assuming arguendothat it had issued the insurance contract
over the Lady Love taxicab, private respondents cause of action against
petitioner did not successfully accrue because he failed to file with petitioner a
written notice of claim within six (6) months from the date of the accident as
required by Section 384 of the Insurance Code.s
At the time of the vehicular incident which resulted in the death of private
respondents mother, during which time the Insurance Code had not yet been
amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
Any person having any claim upon the policy issued pursuant to this chapter
shall, without any unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the amount of his loss, and/or
the nature, extent and duration of the injuries sustained as certified by a duly
licensed physician. F384Action or suit for recovery of damage due to loss or
injury must be brought in proper cases, with the Commission or the Courts within
one year from date of accident, otherwise the claimants right of action shall
prescribe [emphasis and underscoring supplied].
In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De
Guzman,[13] we ruled that the one year prescription period to bring suit in court
against the insurer should be counted from the time that the insurer rejects the
written claim filed therewith by the insured, the beneficiary or the third person
interested under the insurance policy.We explained:
It is very obvious that petitioner company is trying to use Section 384 of the
Insurance Code as a cloak to hide itself from its liabilities. The facts of these
cases evidently reflect the deliberate efforts of petitioner company to prevent
the filing of a formal action against it. Bearing in mind that if it succeeds in doing
so until one year lapses from the date of the accident it could set up the defense
of prescription, petitioner company made private respondents believe that their
claims would be settled in order that the latter will not find it necessary to
immediately bring suit. In violation of its duties to adopt and implement
reasonable standards for the prompt investigation of claims and to effectuate
prompt, fair and equitable settlement of claims, and with manifest bad faith,
petitioner company devised means and ways of stalling the settlement

proceedings. x x x [N]o steps were taken to process the claim and no rejection of
said claim was ever made even if private respondent had already complied with
all the requirements.x x x
This Court has made the observation that some insurance companies have been
inventing excuses to avoid their just obligations and it is only the State that can
give the protection which the insuring public needs from possible abuses of the
insurers.[14]
It is significant to note that the aforecited Section 384 was amended by B.P.
Blg. 874 to categorically provide that action or suit for recovery of damage due
to loss or injury must be brought in proper cases, with the Commissioner or the
Courts within one year from denial of the claim, otherwise the claimants right of
action shall prescribe [emphasis ours]. [15]
We have certainly ruled with consistency that the prescriptive period to bring
suit in court under an insurance policy, begins to run from the date of the
insurers rejection of the claim filed by the insured, the beneficiary or any person
claiming under an insurance contract. This ruling is premised upon the
compliance by the persons suing under an insurance contract, with the
indispensable requirement of having filed the written claim mandated by
Section 384 of the Insurance Code before and after its amendment. Absent such
written claim filed by the person suing under an insurance contract, no cause of
action accrues under such insurance contract, considering that it is the rejection
of that claim that triggers the running of the one-year prescriptive period to bring
suit in court, and there can be no opportunity for the insurer to even reject a
claim if none has been filed in the first place, as in the instant case.
The one-year period should instead be counted from the date of rejection by the
insurer as this is the time when the cause of action accrues. x x x
In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:
The plaintiffs cause of action did not accrue until his claim was finally rejected by
the insurance company. This is because, before such final rejection, there was no
real necessity for bringing suit.
The philosophy of the above pronouncement was pointed out in the case of
ACCFA vs. Alpha Insurance and Surety Co., viz.:
Since a cause of action requires, as essential elements, not only a legal right of
the plaintiff and a correlative obligation of the defendant but also an act or
omission of the defendant in violation of said legal right, the cause of action does
not accrue until the party obligated refuses, expressly or impliedly, to comply
with its duty.[16]
When petitioner asseverates, thus, that no written claim was filed by private
respondent and rejected by petitioner, and private respondent does not dispute
such asseveration through a denial in his pleadings, we are constrained to rule
that respondent appellate court committed reversible error in finding petitioner

liable under an insurance contract the existence of which had not at all been
proven in court. Even if there were such a contract, private respondents cause of
action can not prevail because he failed to file the written claim mandated by
Section 384 of the Insurance Code. He is deemed, under this legal provision, to
have waived his rights as against petitioner-insurer.
WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial
Court in Civil Case No. 135486 are REVERSED and SET ASIDE insofar as Travellers
Insurance & Surety Corporation was found jointly and severally liable to pay
actual, moral and exemplary damages, death indemnity, attorneys fees and
litigation expenses in Civil Case No. 135486. The complaint against Travellers
Insurance & Surety Corporation in said case is hereby ordered dismissed.
No pronouncement as to costs.
SO ORDERED.