G.R. No.
18090 July 25, 19221 forfeited, because of the storage of gasoline in violation of their terms, and, eighth, in denying the defendants' motion for
GO LU, plaintiff-appelle,
vs.
YORKSHIRE INSURANCE COMPANY, defendant-appellant.
Fisher & DeWitt and William C. Brady for appellants.
Francisco, Lualhati & Del Rosario, A.M. Zarate, Eduardo Gutierrez Repide, and Felix Socias for appellee.
STATEMENT
The plaintiff was a merchant engaged in the purchase and sale of bolt goods in the city of Manila, with his place of
business in a bodega at 926-930 Calle Jaboneros, which he occupied in common with the Eastern Asia Commercial
Company. The building was constructed of stone with an upper framework of wood and an iron roof.
The defendants are fire insurance companies duly licensed to do business in the Philippine Islands.
On March 31, 1919, the Northern Assurance Company, for a premium of P250, issued its policy against loss from fire for
the period of one year to and in favor of the plaintiff for P10,000 on his stock of piece goods in the bodega, subject to
certain terms and provisions therein stated. On the same day and for a like premium, the Commercial Assurance
Company, Limited, issued its policy on the same property for the same period for P10,000. April 7, 1919, the Yorkshire
Insurance Company issued its policy on the same goods for another P10,000 for the same period. April 14, 1919, the
Scottish Union and National Insurance Company also issued its policy to him on the same goods for P10,000 for the
period of one year.
June 24, 1919, abut 4.40 a.m., while all of the policies were in force and effect, a fire occurred in that portion of the
building occupied by the Eastern Asia Commercial Company, resulting in a loss and damage to the plaintiff's goods, which
were insured. At the time of the fire, he claims that the was the owner of 66 cases of bolt goods in the bodega, and that
there was a total loss of 50 cases, and that the remaining 16 were seriously damage. After making proof of his claims and
the failure to agree with the insurance companies after some negotiations as to the amount of his loss, the plaintiff
commenced this action against the Yorkshire Insurance Company and the Scottish Union and National Insurance
Company, in which he seeks to recover from each of them the full amount of their respective policies.
For answer, the companies admit the issuance of the policies and they were in force and effect, but contend that not more
than 16 cases of plaintiff's goods were destroyed from which he received P6,888, the amount of their salvage value, and,
in substance, admit their liability for the difference between the actual value of the 16 cases and their salvage value. As a
further and separate defense, they allege that plaintiff submitted fraudulent proof of the amount of his loss, and that, for
such reason, he is not entitled to recover anything. They also contend that the plaintiff violated the express terms of the
policies in keeping his goods in the same building where hemp was stored.
As a result of the trial, the lower court rendered judgment against each defendant for P8,373.10, from which both appeal,
assigning eight different errors, the first four of which go to the weight of the evidence. Fifth, that the court should have
found that plaintiff made a fraudulent claim. Sixth, that the court erred in not finding that the policies were violated by
the storing of plaintiff's goods in the same building where hemp was stored. Seventh, that the policies should have been
a new trial.
JOHNS, J.:
The only question involved is one of fact over which there is a sharp conflict in the evidence, and upon which the lower
court found for the plaintiff. By agreement between the parties, the piece goods remaining after the fire were sold for
P6,888, which, after deducting the expenses, left a net sum of P6,507.60, which plaintiff received. Neither is there any
dispute about the issuance of the policies or any of their terms or provisions. All parties agree that, after the fire, 16 cases
piece goods were found in the building, all of which were more or less damaged, and which the defendants admit at the
time of the fire were of the value of P14,102.27. In his proof of claim, the plaintiff contended that when the fire occurred,
he had 66 cases of pieces goods in his place of business, which were of the value of P51,427.96, and that, after deducting
the salvage, his net loss was P44,539.96, and that the total amount of insurance which he should receive under the four
policies was P33,492.40. Hence, the only question involved is the amount and value of the goods which plaintiff had in
the building at the time of the fire.
For the purpose of proving the number of cases of goods in the building, the plaintiff offered and introduced in evidence
certain original books of entry which were kept in the Chinese language, together with a translation of the into Spanish,
from which it appears that in the month of March. 1919, he had 50 cases in stock, and that during the months a total of
137 cases of piece goods, during which time he sold 71 cases, and hence, it is claimed that at the time of the fire, he had
66 cases, of which 16 only were salvaged.
It appears that the trial court attached much importance to the original entries in plaintiff's books. It may be that he did
purchase 87 other cases in the months of April, May, and June, and that form and out of the total, he sold only 71 cases,
but the vital question here is the number of cases of piece goods that were in the bodega at the time of the fire. The books
offered in evidence might tend to prove that, during the months of April, May, and June, the plaintiff purchase 87 cases of
goods, and that he had 50 cases in stock in the month of March, from and out of which he sold 71 cases, but the entries
made in the books are not any evidence that the goods when purchased were delivered to, and placed in, this
particular bodega, or that when sold, they were taken from, and out of, that bodega.
It appears that the fire alarm was promptly turned in, and that the fire department reached the building within two or
three minutes after the alarm, and that it guarded and remained in possession of the premises for about three days, and
that at intervals during that period, it threw water on the remains of the building to prevent the fire from spreading. All
witnesses, both for the plaintiff and the defendant, agree that, after the fire, there were about 16 cases of piece goods
found, 3 of which were in a burned condition. If further appears that the cases were baled in boxes and contained goods
of different kinds and quality, and were more or less in the form of bolt goods. Although numerous persons were at and
around the fire, no witness was called or testified that there was any evidence remaining of the 50 cases of piece goods,
which the plaintiff claims were destroyed. The stubborn fact remains that 16 cases were found, 3 of which were a total
loss as to the value of the goods which they contained, but there is no evidence anywhere in the record that, after the fire,
anything was found or remained of the 50 cases, and consumed by the fire, and, for such reason, there was not any
physical evidence left of their destruction. In the very nature of things, there would be some evidence of the existence of
the other 50 cases. It appears that all of the cases were piled or thrown together in the same portion of the building. It
was a common, ordinary fire, which, at all times, the fire department had under control, and there was only a partial
destruction of the building. The walls were of stone, and remained standing. Portions of the floor were of cement, and the
ceiling and roof fell inside the walls and were largely consumed. Although plaintiff's goods were in the same building,
they were in a separately and distinct portion from that which was occupied by the Eastern Asia Commercial Company
where hemp was stored. The burden was upon the plaintiff to prove the amount of his loss by a preponderance of the
evidence. It is admitted that 16 cases were found in the building after the fire, 3 of which where seriously damaged, and
that, outside of the damage from smoke and water, the other 13 were intact. The record shows that all of the 66 cases
were together in one and the same portion of the building. There is no evidence which shows or tends to show why all of
the 50 cases in dispute were completely consumed by the fire, and no particle of any one of them was left remaining, and
why the other 16 cases were found in the building after the fire and were not totally destroyed, and, yet, it is admitted
that 16 cases were found in the building after the fire. It is common, ordinary, horse sense that, in a fire of that nature,
something would have been left or found after the fire, which would tend to show the loss and destruction of portions of
some of the other 50 cases, and destruction of portions of some of the other 50 cases, and that all evidence of the
existence of everyone of them would not be completely destroyed and consumed by the fire. In other words, it is not
reasonable that the identity of the 50 cases would be completely destroyed and wiped out of existence, and that the
identity of the other 16 should remain, 13 of which were intact. It stands to reason that, if the 50 cases were totally
destroyed, the other 16, cases would also have been destroyed, and that there would not have been any evidence left of
their identity. It is not reasonable that a fire of that nature and volume would destroy every identity and particle of 50
cases of bolt, piece goods, and leave 16 other cases in the same part of the building partially injured, only three of which
were a total loss as to their value.
Although it is true that, where there is a sharp conflict in the evidence, the decision of the trial court, which saw and
heard the witnesses testify, should have some weight, yet, after careful thought, as we construe the records, the plaintiff
has failed to prove his case by a preponderance of the evidence, except as to the 16 cases, the loss of which is admitted by
the defendants. The fire was seen by a large number of people, and if it be a fact that the plaintiff had 66 cases of piece
goods in the building at the time, it was his duty to have offered the evidence of some disinterested eyewitness as to the
identity of the pieces or particles remaining of the 50 cases, and of the physical facts, for the purpose of showing that the
50 cases were in the bodega at the time of the fire.
Although the original entries in plaintiff's books would be evidence which should have some weight as to the amount of
stock which he had in March, and which he purchased during the months of April, May, and June, and what he sold during
that time, such entries are of but little, if any, value as to the amount of goods which he had in the bodega at the time of
the fire. In any event, they are not sufficient to overcome the absence of any evidence of the physical facts existing after
the fire, and the rule of reason that the 50 cases of goods would not be consumed and completely wiped out of existence,
without leaving some evidence of their destruction, which could be found among the remains and debris in the building
after the fire.
The plaintiff did not offer any evidence of the remains or physical conditions of the 50 cases after the fire, or anything
which was found or left from the effects of the fire, tending to show that the 50 cases were destroyed and consumed by
the fire. His evidence was confined and limited to proof of the number of cases which from time to time were in
the bodega before the fire for the purpose of proving the number of cases which were in the building at the time of the
fire, and upon that point there is a material conflict in the evidence of his own witnesses, and their testimony is not clear
or convincing.
and convincing. He testified that he did not see more than 16 cases, and that there was no evidence of any loss,
destruction, or damage of any more than 16 cases.
On account of its importance, we have given this case careful thought and consideration. All the members of this court are
of the opinion that the plaintiff lost 16 cases only in the fire which are of the admitted value of P14,102.27, from which he
received P6,507.60 net, as salvage, leaving his actual loss at P7,594.67. Upon all those questions, this court is a unit.
Among other conditions of the policy, section 13 provides:
If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if
any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit
under this Policy; or, if the loss or damage be occasioned by the wilfull act, or with the connivance of the
Insured; or, if the Insured or anyone acting on his behalf shall hinder or obstruct the Company in doing any of
the acts referred to in Condition 12; or, if the claim be made and rejected and an action or suit be not
commenced within three months after such rejection, or (in case of an Arbitration taking place in pursuance of
the 18th Condition of this Policy) within three months after the Arbitrators or Umpire shall have made their
award, al benefit under this Policy shall be forfeited.
Under all of the surrounding facts and circumstances, it is the opinion of the writer that this section should not be
enforced, and that the plaintiff should have judgment for the amount of his actual loss. Be that as it may, the majority of
the court are of the opinion that the above analysis of the facts not only establishes the amount of plaintiff's actual loss,
but that it also is conclusive that plaintiff's claim was fraudulent, and that he knew it was fraudulent when he made it. His
proof of claim was for 66 cases of piece goods of the actual loss to be P7,594.67.
The validity of the clause above quoted is sustained by numerous uniform decisions, and is valid.
Here, the facts existing at and after the fire are conclusive evidence that there were only 16 cases of goods in
the bodega at the time of the fire, and the majority of this court are of the opinion that plaintiff's claim is not only
fraudulent, but that he knew it was fraudulent at the time it was made, and that, for such reason, he is not entitled to
recover anything.
The judgment of the lower court is reversed, and the complaint dismissed, with costs in favor of the appellants. So
ordered.

The defendants' evidence was largely confined to the physical conditions existing at the time of the fire, and on that
question all of their witnesses are clear and emphatic, that no evidence remained tending to show the existence and loss
of the 50 cases.

George B. Blake was foreman of the fire department, was there a few minutes after the alarm, and had charge of the fire.
He was called as a witness for the defense, and his evidence of what he was and the surrounding circumstances is clear
G.R. No. L-25845 December 17, 1926 III. The lower court erred in finding and concluding that the explosion referred to and excepted in defendant-
appellant's policy of insurance concerned only an explosion where no fire ensures.
PARIS-MANILA PERFUME CO., also known as PARIS-MANILA PERFUMERY CO., plaintiff-appellee,
vs. IV. The lower court erred in finding and concluding that the claim presented by plaintiff-appellee as
PHOENIX ASSURANCE CO., LTD., defendant-appellant. not necesariamente' fraudulent.

Ohnick and McFie for appellant. V. The lower court erred in overruling defendant-appellant's objection to the admission of Exhibit C in
J. W. Ferrier for appellee. evidence.

STATEMENT VI. The lower court erred in overruling defendant-appellant's objection to the admission of Exhibit D in
evidence.1awphil.net
Plaintiffs alleges that it is a domestic corporation engaged in the manufacture of perfumery and toilet articles. That the
defendant is a corporation organized under the laws of Great Britain, and engaged in the fire insurance business in the VII. The lower court erred in overruling defendant-appellant's objection to the admission of Exhibits E and F in
Philippine Islands. That on May 22, 1924, it issued to plaintiff its fire insurance policy No. 841163 in the sum of P13,000 evidence.
upon the property of the plaintiff at No. 1 Calle Cisneros, Cavite, insuring plaintiff's property against fire for that amount;
that with the knowledge of the defendant, the property was also insured in two other companies, one for P1,200, and the VIII. The lower court erred in overruling defendant-appellant's objection to the admission of Exhibit G in
other for P5,000; that on July 4, 1924, the property covered by the insurance was completely destroyed by fire for the evidence.
total loss to the plaintiff of P38.025.56; that under its policy with the defendant, it promptly presented its claim; that the
defendant wrongfully and unjustly refused to pay it; that on September 29, 1924, plaintiff requested the defendant to
IX. The lower court erred in overruling defendant-appellant's objection to the admission of Exhibits H and H-1
appoint an arbitrator under the provisions of section 17 of the policy, which was also denied; that at the time the policy
in evidence.
was issued, plaintiff had paid the full amount of the premium up to May 22, 1925, and it prays for judgment against the
defendant for P13,000, with legal interest from July 4, 1924, and costs.
X. The lower court erred in overruling defendant-appellant's objection to the admission of Exhibits J, K, L, N,
and O in evidence.
For answer the defendant makes a specific denial of paragraphs 1, 3, 4, and 5, and admits that the plaintiff as a
corporation, presented its claim against the defendant, and that the payment was refused, and admits that plaintiff
requested the defendant to specify the reason for its refusal, and that plaintiff has made a demand for arbitration, and XI. The lower court erred in finding and concluding that the weight and preponderance of all of the proofs
that defendant denied any liability and refused arbitration, and as a special defense alleges that the policy in question submitted upon the trial did not sustain the contention of defendant-appellant that the fire was occasioned by
was issued "to one Peter Johnson, as proprietor of Paris-Manila Perfumery Co.," and that the company was not the the willful act, or with the connivance, of the insured.
insured named in the policy, and that the insurance was of no legal force and effect with the company. As a second special
defense, it is alleged that "the policy of insurance did not cover any loss or damage occasioned by explosion," and that the XII. The lower court erred in finding and concluding that the fire was caused by a firecracker.
loss was occasioned by an explosion, and was not covered by the policy. As a third special defense, it is alleged that the
policy provides that, if the claim is fraudulent, and that any false declaration was made or used to obtain it, all benefits
XIII. The lower court erred in concluding that the plaintiff-appellee was entitled to judgment upon the facts
are thereby forfeited; that the claim of the plaintiff is fraudulent as to the quantity and value of the insured property at
found by the lower court.
the time of the fire. As a fourth special defense, it is alleged that the policy becomes forfeited if a loss is occasioned by the
willful act or connivance of the insured, and that the loss in question was caused by the willful act of Peter Johnson, and it
prays that plaintiff's complaint be dismissed, with costs. XIV. The lower court erred in rendering judgment in favor of plaintiff-appellee, and in refusing to render its
judgment dismissing the complaint of plaintiff-appellee and absolving defendant-appellant therefrom.

Upon such issues, the evidence was taken, and the lower court rendered judgment in favor of the plaintiff for P13,000,
with legal interest from November 7, 1924, the date of the filing of the complaint and costs. XV. The lower court erred in denying defendant-appellant's motion for a new trial.

On appeal the defendant assigns the following errors:

I. The lower court erred in finding and concluding that defendant-appellant issued a policy of insurance to and JOHNS, J.:
in the name of the plaintiff-appellee.
It is admitted that the policy in question was issued on May 22, 1924.
II. The lower court erred in finding and concluding that Peter Johnson was the sole proprietor, or else the
principal stockholder of Paris-Manila Perfume Co., plaintiff-appellee. Upon its face it recites:
 This policy of Insurance Witnesseth. That in consideration of Messrs. Paris-Manila Perfumery Co. (Peter
Johnson, Prop.), Cavite, P. I., hereinafter called the insured paying to the Phoenix Assurance Company, Limited,
hereinafter called the company, the sum of pesos two hundred ninety-two and 50/100, Philippine currency.
It also appears that the premium on the policy was paid to the defendant by a company check, which was signed by
Johnson, and that the policy in question was prepared by the defendant.
The real cause of the fire is more or less a matter of conjecture, upon which there is little, if any, evidence.
In appellant's brief, it is said:
proved by the insured to the satisfaction of the company that such loss or damage was not in any way
occasioned by or through or in consequence of any of the said occurrences.
It will be noted that section 5 excludes not only the damages which may immediately result from an earthquake, but also
any damage which may follow the earthquake, and that section 6 excludes only the damages which are the direct result of
the explosion itself, and that it does not except damages which occurred from the fire occuring after the explosion, even
though the explosion may have been the primary cause of the fire. But assuming, without deciding, that 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. There is no competent evidence as to whether the
explosion caused the fire or the fire caused the explosion.

The defendant has assigned numerous and different errors, but exclusive of the first and second, they are largely
The cause of the explosion was and is unknown and wholly a matter of conjecture. Neither peter Johnson nor
question of facts and objections to the admissibility of the evidence, and upon all of the material questions of fact, the
Francisco Banta (the only persons in the building at the time) claimed that either of them saw anything
lower court found for the plaintiff. That is to say, the lower court found as a fact that there was no fraud in the insurance,
explode. (Words in parenthesis inserted by me.)
and that the value of the property destroyed by the fire was more than the amount of the insurance. The defendant
having issued its policy which was in legal force and effect at the time of the fire, it is bound by its terms and conditions,
Both Johnson and Banta testified that they heard an explosion, and when they looked around, they saw fire and felt heat. and the property having been destroyed, the burden of proof was upon the defendant to show that it was exempt from
There is no evidence as to whether the fire was started before or after the explosion. Neither is there any competent liability under the terms and conditions of the policy, and upon that point, there is a failure of proof.
testimony as to the cause of the explosion.
The judgment of the lower court is affirmed, with costs. So ordered.
The factory where the fire occurred was filed with numerous kinds of essences and oils used in the manufacture of
perfumery and with a quantity of alcohol and manufactured perfumes, all of which were of a highly inflammable nature,
and the fire may have started from any one of a number of reasons. But in the final analysis, the fact remains that there
was a fire, and that the plaintiffs property was destroyed. It is true that it may be that the explosion was the primary
cause of the fire, but that is only a matter of conjecture, and upon that point, the burden of proof was upon the defendant.

Defendant relies upon section 6 of the policy, as follows:

6. Unless otherwise expressly stated in the policy the insurance does not cover

xxx xxx xxx

(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.

In answer to that, plaintiff relies upon section 5, which is as follows:

5. The insurance does not cover

xxx xxx xxx

(d) Loss or damage occasioned directly or indirectly, approximately or remotely by or through or in consequence of:

(1) Earthquake, hurricane, volcanic eruption or other convulsion of nature, and the company shall not be liable
for loss or damage arising during or within a reasonable time after any of the said occurrences, unless it be
G.R. No. L-35848 November 22, 1932 Corporation, so that at the time of the fire the plaintiff was not the only party interested therein, contrary to the
representations made in its claims of loss; and (4) that the plaintiff violated one of the conditions of the policies by
THE EAST FURNITURE INC., plaintiff-appellant, refusing to furnish the defendants with a physical inventory of the contents of its store at the time of the fire.
vs.
THE GLOBE & RUTGERS FIRE INSURANCE CO. OF NEW YORK, defendant-appellee. By agreement of the parties the three cases were tried jointly before Judge Concepcion, who after the trial found that the
claims presented by the plaintiff were notoriously fraudulent, and, accordingly, sustained defendant's second special
-------------------------------------------- defense and dismissed the complaint in each of the three cases, with costs against the plaintiff. As to the first special
defense, referring to the origin of the fire, the trial judge merely said that "altho much might be said against the manager
of the plaintiff corporation it is not necessary to make a detailed analysis of the proofs with respect to the fire, inasmuch
G.R. No. L-35849 November 22, 1932
as for the purposes of this decision a consideration of the second special defense is sufficient." The trial court overruled
the third and fourth special defenses. From that judgment the plaintiff appealed.
THE EAST FURNITURE INC., plaintiff-appellant,
vs.
The appellant contends that the trial court erred (1) in finding that the claims presented by the plaintiff to the insurance
COMMERCIAL UNION ASSURANCE COMPANY, LTD., defendant-appellee.
companies were fraudulent; (2) in giving weight to the testimony of Captain Lorenzo, deputy chief of the Manila Fire
Department, and Isidro Guevara, a furniture manufacturer, as to the value of the articles found in the premises after the
-------------------------------------------- fire; and (3) in dismissing plaintiff's complaints.

G.R. No. L-35850 November 22, 1932 The appellees sustain the finding of the trial court that appellant's claims of loss were "notoriously fraudulent", and
further urge before this court their first special defense, i. e., that the fire in question was of intentional origin.
THE EAST FURNITURE INC., plaintiff-appellant,
vs. 1. With reference to the origin of the fire, the evidence shows that it started at about 9.55 p. m. in the second floor of the
THE CONTINENTAL INSURANCE CO. OF NEW YORK, defendant-appellee. building which was occupied by the plaintiff as office and workshop. That floor was constructed of wood, with a
galvanized iron roof. Immediately after the fire was extinguished Captain Lorenzo, the deputy chief of the fire
Juan Ortega for appellant. department, investigated its origin and found in the second floor three cans containing gasoline and kapok saturated with
Gibbs & McDonough and Roman Ozaeta for appellees. gasoline. For this reason, in his official report of that fire (Exhibit 3), he stated the cause to be: "Suspected incendiary.
Intentional. Preventable."

OSTRAND, J.:
The three above entitled actions were instituted in the Court of First Instance of Manila on March 25, 1929, to recover the
full amount of three fire insurance police aggregating P20,000. The complaints in each of these cases alleged in substance
that the plaintiff is a duly registered partnership engaged in the sale of furniture; that the defendant is a company
engaged in the insurance business and duly constituted in accordance with the laws of the Philippine Islands; that the
plaintiff insured against fire the articles existing in its establishment situated at Nos. 626 and 628 Rizal Avenue, Manila;
that the insurance policies issued by the defendants, respectively, were: Globe & Rutgers, P5,000, in force from July 12,
1928, to July 12, 1929; Commercial Union, P5,000, in force during the same period; and The Continental, P10,000, in force
from August 16, 1928, to August 16, 1929; that on March 2, 1929, a fire broke out in plaintiff's establishment, as a result
of which the insured articles therein found were destroyed by the fire; that within the period marked in the policies the
plaintiff presented to the insurance companies an inventory of the insured furniture which was destroyed by the fire, the
value of which, before or at the time of the fire, amounted to P52,061.99; and that of the furniture destroyed by the fire
some was saved, of the value of P5,000, more or less.
The defendants in their respective answers interposed a general denial and as special defenses alleged in substance (1)
that the fire in question was of intentional origin; (2) that the claims of loss presented by the plaintiff were false and
fraudulent; (3) that the furniture in question had been mortgaged by the plaintiff to the Manila Finance and Discount
Filoteo Miranda, the proprietor and manager of the East Furniture Store, while testifying as a witness for the plaintiff,
made no attempt to deny the presence of three cans of gasoline and kapok saturated with gasoline. His only explanation
was that "inasmuch as on that occasion I had an automobile, I ordered them to buy gasoline, petroleum, and other
combustibles". When further asked to explain the presence of those cans of gasoline in the upper story on the night of the
fire, he replied: "How can I explain it, since, as I have said, I paid no attention to those cans? The laborers were the ones in
charge of that." With regard to the kapok saturated with gasoline, his only explanation was that "in my store mattresses
and pillows are sold, and it is possible that someone had taken kapok and saturated it with gasoline".
It also appears from the record that in connection with the fire in question the said Filoteo Miranda caused one Eugenio
Lim Pineda to be prosecuted for calumny, alleging that the latter had imputed to the former the commission of a crime,
namely, that Miranda had caused his store to be burned or ordered a certain person to set it on fire. Pineda was acquitted
by the Court of First Instance of Manila on the ground that it was proven that the imputation made by him against
Miranda was true.
The said Eugenio Lim Pineda testified at the trial of these cases that he had known Miranda for about fifteen years; that
about six months before the fire in question, Miranda intimated to him that he (Miranda) intended to burn the East
Furniture Store because it was on the verge of bankruptcy; that he communicated this information to attorney Eriberto
de Silva, who in turn communicated it to his friend Aurelio Periquet, an insurance agent, and the latter thereupon caused
one of the policies issued by Smith, Bell & Co. to be cancelled; that on the night of the fire he saw Garcia, the cashier
of the plaintiff enter the back door of the building in question, and that ten minutes later the building burned; that
witness called Garcia when he came out of the building and said to him: "You have set fire to the building."
Attorney Eriberto de Silva, testifying in these cases, corroborated the testimony of Pineda regarding the cancellation of
the Smith-Bell policy through his instrumentality, and further testified that sometime after the cancellation of said policy
he called on Miranda in connection with the latter's account with the Philippine Finance Corporation, on which occasion
Miranda asked him why the insurance he (Miranda) had procured from Periquet was cancelled, whereupon he replied:
"Look here, Miranda, why should we not cancel that policy when we heard from Mr. Lim Pineda that you people were
going to burn this establishment." That Miranda then replied: "That is confidential, please don't repeat to anybody." (Pp.
143-146, trans.)
It further appears from the record that at the time of the fire the plaintiff was heavily indebted to the Manila Finance &
Discount Corporation, to the Bank of the Philippine Islands, and to Attorney Alfonso E. Mendoza.
We are thus led to the conclusion that defendants' first special defense is well founded that the fire in question was of
intentional origin and was caused with the connivance of the plaintiff. Neither the interest of the justice nor public policy
would be promoted by an omission of the courts to expose and condemn incendiarism once the same is established by
competent evidence. It would tend to encourage rather than suppress that great public menace if the courts do not
expose the crime to public condemnation when the evidence in a case like the present shows that it has really been
committed.
2. We may also consider the damage caused by the fire in relation with defendant's second special defense that plaintiff's
claims of loss were false and fraudulent.
To each of the proofs of loss which the plaintiff presented to the respective insurance companies four days after the fire
was attached an inventory of the furniture claimed to have been in the building at the time of the fire. This inventory
contains 506 pieces of furniture and 3,700 board feet of lumber of the alleged total value of P52,061.99. This amount was
the total loss claimed to have been suffered by the plaintiff, although we note that in its complaints in these cases
amended it is conceded that some furniture of the value of about P5,000 was saved.
The same inventory above referred to was offered by the plaintiff and admitted in evidence, having been marked Exhibits
F-1, F-2, F-3, and F-4. To support the validity of this inventory Filoteo Miranda testified that he had taken the date
appearing therein from his books of account. Neither he nor any other witness testified as to the correctness of the prices
therein set forth, and it was not even shown whether they were costs prices or selling prices. But a comparison between
the prices listed in Exhibit F-1 (the inventory of all of plaintiff's stock, supposed, to have been taken on or as of December
31, 1928), and those listed in Exhibit F-3 (the list of furniture sold by the plaintiff from January 4, 1929, to the date of the
fire) tends to show that the value claimed against the insurance companies is much higher than the selling price. For
instance, Exhibit F-3 (2nd item) shows that during the period from January 4 to March 2, 1929, the plaintiff sold 8 settees
for P160 or at P20 each. These 8 settees must have been taken from the stock listed in Exhibit F-1, and an examination of
this document reveals that the settees therein listed are valued by the plaintiff at from P32.50 to P110 each.
The only book the plaintiff produced and offered in evidence to support Miranda's testimony as to the validity of the
inventory in question is Exhibit J. This appears to be a new book, only the first six pages of which contain entries, the first
page consisting of a testament of assets and liabilities as of December 31, 1928, and the second to the sixth pages
consisting of a list of furniture and its price, from which list the inventory in question appears to have been copied. The
remaining 194 pages of said book are entirely blank. This seems to us significant in view of Miranda's testimony that at
the end of the two preceding years, 1927 and 1926, he took a physical inventory similar to that found in Exhibit J, and in
view of his inability to account for the whereabouts of those alleged previous inventories. The appellees contend that
Exhibit J is not genuine but was evidently prepared by the plaintiff for the purpose of bolstering up its claim against the
insurance companies; and we believe such a conclusion is warranted by the facts and circumstances which appear in the
record.
Turning now to the evidence for the defense, we find from the uncontradicted testimony of Captain Lorenzo, who had
directed the task of extinguishing the fire, that it lasted only twelve minutes and caused no damage to the first floor of the
building were most of the insured furniture was located. Said witness also testified that he found but few pieces of
furniture in the second floor and that he believed none had been completely burned.
The record shows that from March 2, 1929, the date of the fire, to April 20, 1929, when the sheriff sold the furniture left
in the building at the instance of plaintiff's mortgages, the Manila Finance & Discount Corporation, the premises in
question were guarded by an Indian watchman whom the insurance companies placed thereto to prevent anybody from
taking away any part of its contents. It appears from the evidence for the defense that on April 4, 1929, at the request of
the insurance companies, a furniture manufacturer named Isidro Guevara, with the assistance of Julian Dacanay, an
employee of the adjusters, made an inventory of all the damaged and undamaged furniture found in the building after the
fire. That inventory, which was offered in evidence as Exhibit 5, contains 202 pieces of furniture, the cost price of which
according to Guevara's appraisal is the total sum of P4,184.60. It will be recalled that the plaintiff claimed that at the time
of the fire there were 506 pieces of furniture in the building of the total value of P52,061.99.
No contention is advanced on behalf of the appellant to the effect that Guevara's inventory is not a complete list of all the
damaged and undamaged furniture found in the building after the fire. The contention on its behalf in this regard is that
said inventory is not reliable (a) because Guevara was not a competent appraiser of furniture, and (b) because some of
the furniture found in the building at the time of the fire may have been completely consumed by the fire.
With regard to the competency of the witness Guevara to appraise the furniture in question, he testified, and the trial
court found, that he had been engaged in the manufacture of furniture in Manila for eighteen years. His testimony that
the cost price of all the furniture found in the building after the fire was P4,184.60 appears to be reasonable, as the same
furniture was subsequently sold by the sheriff at public auction and brought only, the sum of P2,650.
With reference to appellant's contention that Guevara's inventory is not reliable because some of the furniture found in
the building at the time of the fire may have been completely consumed by the fire, we think the question may be
narrowed down to this: Was it possible that the plaintiff had 506 pieces of furniture in the building at the time of the fire
when after the fire only 202 pieces were found in the premises? Considering the undisputed fact that most of the insured
furniture was located in the ground floor of the building, which was not damaged by the fire, and that the fire lasted only
twelve minutes and damaged only the second floor where comparatively few pieces of furniture were found at the time
of the fire; and considering the testimony of Captain Lorenzo and Isidro Guevara to the effect that, judging from the
condition of the remains of the fire, they believed not a single piece of furniture was completely consumed by the fire, we
do not hesitate to answer that question in the negative. During the twelve minutes the fire lasted, an enormous quantity
of water was being pumped in by the firemen to extinguish it. Judging, then, from the duration and intensity of the fire in
question, we cannot bring ourselves to believe it possible for some 304 pieces of wooden furniture to have been entirely
consumed without leaving any vestige.
Regardless of any difference of opinion as to the value of the insured furniture and the extent of the damage caused
thereto by the fire in question, the fact that the insured only had approximately 202 pieces of furniture in the building at
the time of the fire and sought to compel the insurance companies to pay for 506 pieces conclusively shows that its claim
was not honestly conceived. The trial court's conclusion that said claim is notoriously fraudulent, is correct.
Condition 12 of each of the insurance policies sued upon provides that "if the claim be in any respect fraudulent, or if any
false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or
anyone acting on his behalf to obtain any benefit under this policy; or, if the loss or damage be occasioned by the wilful
act, or with the connivance of the Insured, all benefit under this policy shall be forfeited." This case is governed by the
decisions of this court in Yu Cua vs. South British Insurance Co. (41 Phil., 134); Go Lu vs. Yorkshire Insurance Co. (43 Phil.,
633); Tuason vs. North China Insurance Co. (47 Phil., 14); Tan It vs. Sun Insurance Office (51 Phil., 212); Prats &
Co. vs. Phoenix Insurance Co. (52 Phil., 807); and Philippine National Bank and J. M. Po Pauco vs. Guardian Assurance Co.,
Ltd. (G. R. Nos. 28763, 28765, and 28766). 1
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
Street, J., concurs.
As to the second special defense of the insurance companies that the plaintiff's claim of loss was fraudulent, I confess that
I have more doubt with regard to the facts on this point. Again I think the foregoing opinion has not adequately stated the
evidence of both sides. The claim of P52,061.99 was undoubtedly unreasonably high. The policies aggregated P20,000. It
is a matter of common knowledge and borne out by many insurance cases which have been considered by this court, that
the insured expects insurance companies to beat down his claim; and the respective claims of the insurer and the insured
then become a matter of negotiation and adjustment. Under these circumstances, it is not surprising that the insured
puffs the amount of his loss. If the amount claimed exceeds the limit of the ordinary puffing, it may also be so
disproportionate to the fair value of the property lost as to give ground for an inference of an attempt to defraud. I think
the present case was very close to that line. But in view of the facts that one of the defendant's own witnesses estimated
the loss at P20,000, and that the plaintiff's inventory which appears to have been kept due in course of business shows a
value of P42,501.49 two months before the fire, I feel disposed to give the benefit of the doubt to the insured. Suspicion of
fraud is not enough for, I daresay, there never was a fire where some circumstance could not be found that could be
alleged as a ground for an inference of fraud.lawphil.net

Separate Opinions Avancea, Villa-Real and Abad Santos, JJ., concur.

MALCOLM, HULL, and VICKERS, JJ., concurring:

We agree on the ground that it has been established that the plaintiff's claims of loss were false and fraudulent. This was
the finding of the trial judge, and a clear preponderance of the evidence supports that conclusion. This result influenced
the trial judge to refrain from expressing any opinion regarding the other special defense of incendiarism, and in this
view we fully concur.

BUTTE, J., dissenting:

The conclusion that the claim presented by the plaintiff and appellant to the insurance companies was fraudulent
because it was excessive and the conclusion that the fire in question was of an intentional origin and caused with the
connivance of the plaintiff seem to be entirely warranted by the resume of the evidence made in the foregoing opinion. I
have made a careful examination of the entire record and I am convinced that said resume of the evidence gives very
scant and inadequate consideration to the case of the other side as actually presented in the record. Moreover, evidence
is relied upon which is clearly incompetent and improper; for example, the ex parte report of the Chief of the Fire
Department from which the following was quoted: "Suspected incendiary. Intentional. Preventable." The acquittal of Lim
Pineda in the criminal prosecution for slander is not competent evidence and indeed it was not admitted by the court
below. Furthermore, Lim Pineda's testimony that he saw Garcia enter the building ten minutes before the fire was
refuted by Garcia's testimony, corroborated by an impartial witness, that he was at the stadium at the time of the fire and
had no connection with it. This evidence is not mentioned nor are the facts mentioned which impeach the credibility of
the witness conclusively. The first extract of Attorney Silva's testimony quoted and relied upon was ordered stricken by
the court below and was clearly improper because no predicate had been laid for it. The second extract was so
meaningless that when he was asked what was to be kept "confidential" he testified that he did not know.

There is no direct evidence whatever that the plaintiff and appellant set his building on fire to collect the insurance. Nor
can I reconcile the suspicion that gasoline was put in the building in open cans to start the fire, with the finding that the
same gasoline was found unconsumed after the conflagration.
G.R. No. 44119 March 30, 1937
SHARRUF & CO., known also as SHARRUF & ESKENAZI, SALOMON SHARRUF and ELIAS ESKENAZI,plaintiffs-
appellees,
vs.
BALOISE FIRE INSURANCE CO., SUN INSURANCE OFFICE, LTD., and SPRINGFIELD INSURANCE CO., represented by
KUENZLE & STREIFF, INC., defendants-appellants.
Carlos A. Sobral for appellants.
Ramon Diokno for appellee.
VILLA-REAL, J.:
This is an appeal taken by the defendant companies Baloise Fire Insurance Co., Sun Insurance Office Ltd., and Springfield
Insurance Co., represented by Kuenzle & Streiff, Inc., from the judgment of the Court of First instance of Manila, the
dispositive part of which reads as follows:
Wherefore, judgment is rendered ordering the defendant insurance companies to pay to the plantiffs Salomon
Sharruf and Elias Eskenazi the total amount of P40,000 plus interest thereon at 8 per cent per annum from the
date of the filing of the complaint, with the costs of the trial. The defendants shall pay this judgment jointly in
proportion to the respective policies issued by them. The plaintiffs Salomon Sharruf and Elias Eskenazi shall
recover the judgment share and share alike, deducting from the portion of the plaintiff Elias Eskenazi the sum
of P3,000 which belongs and shall turned over to the intervenor E. Awad & Co., Inc. It is so ordered.
In support of their appeal the appellants assign the following alleged errors as committed by the court a quo in its
decision in question, to wit:
1. the lower court erred in holding, that Salomon Sharruf and Elias Eskenazi had personality to sue, either as a
partnership or individually, and therefore, an insurable interest.
2. The lower court erred in holding, that the fire that broke out in the premises at Nos. 299-301 Muelle de la
Industria of this city, occupied by the alleged plaintiffs, was not of incendiary origin.
3. The lower court erred in holding, that the "idea of using petroleum in the fire in question, surged after the
fire for the purpose of making it appear as a part of the evidence."
4. The lower court erred in holding, that the claim of loss filed by the alleged plaintiffs was not fraudulent, but
merely inaccurate, due to the peculiar circumstances of the case, such as the loss of invoices and sales-slips.
5. The lower court erred in sentencing the defendants to pay jointly to the alleged plaintiffs the sum of
P40,000, with interest thereon at the rate of 8 per cent year and costs.
6. The lower court erred in overruling defendants' motion for new trial and in failing to dismiss the case
altogether, with costs against the alleged plaintiffs.
The preponderance of the evidence shows the existence of the following facts:.
In the months of June and July 1933, the plaintiffs Salomon Sharruf and Elias Eskenazi were doing business under the
firm name of Sharruf & Co. As they had applied to the defendant companies for insurance of the merchandise they had in
stock, the latter sent their representative P. E. Schiess to examine and asses it. On July 25, 1933, the defendant insurance
companies issued insurance policies Exhibits D, E, and F in the total amount of P25,000 in the name of Sharruf & Co.
issued an additional policy (Exhibit G) in the sum of P15,000 in favor of said firm Sharruf & Co., raising the total amount
of the insurance on said merchandise to P40,000. On August 26, 1933, the plaintiffs executed a contract of partnership
between themselves (Exhibit A) wherein they substituted the name of Sharruf & Co. with the Sharruf & Eskenazi, stating
that Elias Eskenazi contributed to the partnership, as his capital, goods valued at P26,299.94 listed in an inventory
Exhibit B. It was likewise stated in said contract that Salomon Sharruf brought to said partnership, as his capital, goods
valued at P24,205.10, appearing in the inventories Exhibit C and C-1. The total value of the merchandise contributed by
both partners amounted to P50,505.04. Part of said merchandise, most of which were textiles, was sold for P8,000,
leaving goods worth P43,000. In all there were from 60 to 70 bolts of silk. All the goods, most of which were aluminum
kitchen utensils, various porcelain and glass wares, and other articles of stucco, were contained in about 39 or 40 cases.
The last time the plaintiffs were in the building was on September 19, 1933, at 4 o'clock in the afternoon. Up to the month
of September 1933, about 30 or 40 cases of merchandise belonging to the plaintiffs were in Robles' garage at No. 1012
Mabini Street.
At about 12.41 o'clock on the morning of September 22, 1933, the fire alarm bell rang in the different fire stations of the
city. The firemen of the San Nicolas Fire Station, headed by Captain Charles A. Baker, were the first to arrive at the scene
of the fire, followed by Captain Thomas F. McIntyre of the Santa Cruz Fire Station, who arrived at 12.44 o'clock. Having
found the door at No. 301, Muelle de la Industria Street, where the building was in flames, locked, the firemen pumped
water on the upper part of the building and later broke open the door through which they an entered the premises. They
then saw an inflamed liquid flowing towards the sidewalk, the flames thereon blazing more intensely every time water
fell on them. The liquid apparently came from under the staircase of said floor. They likewise noted that the entire space
occupied by the staircase was in flames except the adjoining room. After the fire had been extinguished, an earthen pot
(Exhibit 15) containing ashes and the residue of a certain substance, all of which smelled of petroleum, was found by
detective Manalo near the railing of the stairway of the second floor. At about 8.30 o'clock that same morning, detective
Irada found nother earthen pot (Exhibit 16), one-fourth full of water smelled of petroleum, under the staircase of the first
floor; straw and excelsior, that also smelled of petroleum, around said pot, a red rag (Exhibit 18) in front of the toilet, and
a towel which also smelled of petroleum can, Exhibit 21. On the following day, September 23, 1933, photographs were
taken of the condition of the different parts of the building and of the goods found therein. Said photographs are: Exhibit
1, showing the interior of the first floor partially burned, with the staircase, the doorway, the wooden partition wall and
pieces of wood scattered on the floor supposed to be from the door that was demolished; Exhibit 2, showing about 8 or 9
scorched cases, some closed and others open; Exhibit 3, showing the space or hall of the upper floor partially damaged by
the fire at the place occupied by the staircase, with chairs piled up and unburnt, pieces of wood and debris apparently
from the cement partition wall beside the staircase and the attic; Exhibit 4, showing the same space taken from another
angle, with the partition wall of cement and stone and some broken railings of the stairways; Exhibit 5, showing a room
with partially burnt partition wall, with a wardrobe and a table in the background, another table in the center, a
showcase near the wall with porcelain and iron articles on top thereof and fallen and burnt window shutters on the floor;
Exhibit 6, showing an open unburnt showcase containing necklaces with limitation stones and other jewelry; Exhibit 7,
showing piled up chairs and boxes and the burned and destroyed upper part of the partition wall and attic; Exhibit 8,
presenting a showcase with a burnt top, containing kitchen utensils, tableware, dinner pails and other articles; Exhibit 9,
presenting a half-open trunk with protruding ends of cloth, other pieces of cloth scattered on the floor, a step of the
staircase and a bench; Exhibit 10, showing the partially destroyed attic and wires wound around the beams; Exhibit 11,
presenting another view of the same attic from another angle. On the 27th of said month and year, the following
photographs were taken: Exhibit 12, presenting a close-up of the beams and electric wiring on September 25, 1933, was
of the opinion that the wires wound around the beam and a nail might have caused the fire, but he could not assure
whether any of the wires was burned due to an electrical discharge the passed through it, or whether or not the fire
started from the lighting system. In the burned building the plaintiffs kept petroleum used for cleaning the floor.
The first question to be decided in the present appeal, which is raised in the first assignment of alleged error, is whether
or not Salomon Sharruf and Elias Eskenazi had juridical personality to bring this action, either individually or collectively,
and whether or not they had insurable interest.
As already seen, Salomon Sharruf and Elias Eskenazi were doing business under the firm name of Sharruf & Co. in whose
name the insurance policies were issued, Elias Eskenazi having paid the corresponding premiums.
In the case of Lim Cuan Sy vs. Northern Assurance Co. (55 Phil., 248), this court said:
A policy insuring merchandise against fire is not invalidated by the fact that the name of the insured in the
policy is incorrectly written "Lim Cuan Sy" instead of "Lim Cuan Sy & Co.", the latter being the proper legal
designation of the firm, where it appears that the designation "Lim Cuan Sy" was commonly used as the name
of the firm in its business dealings and that the error in the designation of the insured in the policy was not due
to any fraudulent intent on the part of the latter and did not mislead the insurer as to the extent of the liability
assumed.
In the present case, while it is true that at the beginning the plaintiffs had been doing business in said name of "Sharruf &
Co.", insuring their business in said name, and upon executing the contract of partnership (exhibit A) on August 26, 1933,
they changed the title thereof to "Sharruf & Eskenazi," the membership of the partnership in question remained
unchanged, the same and only members of the former, Salomon Sharruf and Elias Eskenazi, being the ones composing the
latter, and it does not appear that in changing the title of the partnership they had the intention of defrauding the herein
defendant insurance companies. Therefore, under the above-cited doctrine the responsibility of said defendants to the
plaintiffs by virtue of the respective insurance policies has not been altered. If this is true, the plaintiffs have juridical
personality to bring this action.
The second question to be decided is that raised in the second assignment of alleged error, which consists in whether or
not the fire which broke out in the building at Nos. 299-301 Muelle de la Industria, occupied by the plaintiffs, is of
incentiary origin.
In maintaining the affirmative, the appellants call attention to the earthen pots Exhibits 15 and 16, the first found by
detective Manalo beside the railing of the stairways of the upper floor and the second found by detective Irada on the
first floor, both containing liquid, ashes and other residues which smelled of petroleum; a red rag (Exhibit 18) found by
detective Irada in front of the toilet; the partially burnt box (Exhibit 20); and the old can (Exhibit 21) containing garbage.
The fact that the liquid found by the detectives in the earthen jars smelled of petroleum, does not constitute conclusive
evidence that they had been used as containers for petroleum to burn the house. Said smell could have very well come
the strips of China wood of which boxes from abroad are made, the resin of which smells of petroleum, or from the rags
found therein which might have been used to clean the floor by saturating them with petroleum. There being petroleum
for cleaning the floor in the building, it is not strange that when the house caught fire the petroleum also caught fire, the
flames floating on the water coming out from under the door from the pumps. There is neither direct nor strong
circumstantial evidence that the plaintiffs personally or through their agents placed petroleum in the building in order to
burn it, because it was locked on the outside and nobody was staying therein. As it cannot be assumed that the petroleum
might have burned by itself, it is probable that the fire might have originated from the electric wiring, although electrical
engineer Mora stated that he could not assure whether any of the wires was burned due to an electric discharge passing
through it, or whether or not the fire was caused by the lighting system.
Upon consideration of all the evidence and circumstances surrounding the fire, this court finds no evidence sufficient to
warrant a finding that the plaintiffs are responsible for the fire.
With respect to the question whether or not the claim of loss filed by the plaintiffs is fraudulent, it is alleged by them that
the total value of the textiles contained in cases deposited inside the building when the partnership Sharruf & Eskenazi
was formed was P12,000; that of the fancy jewelry with imitation stones from P15,000 to P17,000, and that of the kitchen
utensils and tableware made of aluminum, bronze and glass P10,676 (Exhibits B, C, and C-1). If, as said plaintiffs claim,
they had already sold articles, mostly textiles, valued at P8,000, a small quantity of cloth must have been left at the time
the fire occured. In their claim, however, the textiles allegedly consumed by fire and damaged by water are assessed by
them at P12,000. The claim of P12,000 is certainly not attributable to a mere mistake in estimate and counting because if
they had textiles worth only P12,000 before the fire and they sold goods, mostly textiles, worth P8,000, surely textiles in
the same amount of P12,000 could not have been burned and damaged after the fire. Of the kitchen utensils and
tableware made of aluminum, bronze and glass, of which, according to the evidence for the plaintiffs, they had a stock
valued at P10,676 (Exhibit B), there were found after the fire articles worth only P1,248.80 (Exhibit K). Therefore,
utensils valued at P9,427.20 were lacking. A considerable amount of kitchen utensils made of noninflammable and fire-
proof material could not, by the very nature of things have been totally consumed by the fire. At most, said articles would
have been damaged, as the rest, and would have left traces of their existence. The same may be said of the fancy jewels
with imitation stones, and others of which the fancy jewels with imitation stones, and others of which the plaintiffs claim
to have had a stock worth from P15,000 to P17,000 at the time of the fire, of which only a few valued at P3,471.16, were
left after the fire (Exhibit K). According to said plaintiffs, all the articles, for the alleged loss of which indemnity is sought,
were contained in about 40 showcases and wardrobes. According to the testimony of the fire station chiefs, corrobarated
by the photographs of record, the flames caused more damage in the upper part of the rooms than in the lower part
thereof; since, of the ten or eleven cases found inside the building after the fire, only a few were partially burned and
others scorched judging from their appearance, the goods were damaged more by water than by fire. According to the
inventory made by White & Page, adjusters of the insurance companies, in the presence of the plaintiffs themselves and
according to data supplied by the latter, the total value thereof, aside, from the articles not included in the inventories
Exhibits B, C, and C-1, assessed at P744.50, amounts to only P8,077.35. If the plaintiffs' claim that at time of the fire there
were about 40 cases inside the burnt building were true, a ten or eleven of them were found after the fire, traces of the
thirty or twenty-nine cases allegedly burnt would be found, since experience has shown that during the burning of a
building all the cases deposited therein are not so reduced to ashes that the least vestige thereof cannot be found. In the
case of Go Lu vs. Yorkshire Insurance Co. (43 Phil., 633), this court laid down the following doctrine:
This court will legally presume that in an ordinary fire fifty bales or boxes of bolt goods of cloth cannot be
wholly consumed or totally destroyed, and that in the very nature of things some trace or evidence will be left
remaining of their loss or destruction.
The plaintiffs, upon whom devolve the legal obligation to prove the existence, at the time of the fire, of the articles and
merchandise for the destruction of which they claim indemnity from the defendant companies, have not complied with
their duty because they have failed to prove by a preponderance of evidence that when the fire took place there where in
the burnt building articles and merchandise in the total amount of the insurance policies or that the textiles and other
damaged and undamaged goods found in the building after the fire were worth P40,000. On the contrary, their own
witness, Robles, testified that up to the month of September, 1933, there were about 39 or 40 cases belonging to the
plaintiffs in his garage on Mabini Street, indicating thereby that the cases of merchandise examined by the agent of the
insurance companies on July 25 and August 15, 1933, and for which the insurance policies were issued, were taken from
the burned building where they were found. So great is the difference between the amount of articles insured, which the
plaintiffs claim to have been in the building before the fire, and the amount thereof shown by the vestige of the fire to
have been therein, that the most liberal human judgment can not attribute such difference to a mere innocent error in
estimate or counting but to a deliberate intent to demand of the insurance companies payment of an indemnity for goods
not existing at the time of the fire, thereby constituting the so-called "fraudulent claim" which, by express agreement
between the insurers and the insured, is a ground for exemption of the insurers from civil liability.
Therefore, as the herein plaintiffs-appellees have acted in bad faith in presenting a fraudulent claim, they are not entitled
to the indemnity claimed by them by virtue of the insurance policies issued by the defendant-appellant companies in
their favor.
For the foregoing considerations, this court is of the opinion and so holds: (1) that when the partners of a general
partnership doing business under the firm name of "Sharruf & Co." obtain insurance policies issued to said firm and the
latter is afterwards changed to "Sharruf & Eskenazi", which are the names of the same and only partners of said firm
"Sharruf & Co.", continuing the same business, the new firm acquires the rights of the former under the same policies; (2)
that when the evidence relative to the cause of a fire and the author thereof is so vague and doubtful, the insured cannot
be attributed incendiary intervention therein for the mere fact that he had the keys to the unoccupied building in his
possession; (3) that a person who presents a claim for damages caused by fire to articles and goods not existing at the
time of the fire does so fradulently and his claim is fraudulent, and (4) that when immediately after a fire that broke out
inside a completely locked building, lasting scarcely 27 minutes, only about ten or eleven partly burned and scorched
cases, some containing textiles and wrapping paper and others, statutes of saints, have been found without any trace of
the destruction of other cases by said fire, it can neither logically nor reasonably be inferred that 40 of said cases were
inside the building when the fire broke out.
Wherefore, the appealed judgment is reversed, and the defendant companies are absolved from the complaint which is
dismissed, with costs to the appellees. So ordered.
G.R. No. L-19851 June 29, 1965
YU BAN CHUAN, plaintiff-appellant,
vs.
FIELDMEN'S INSURANCE CO., INC., ET AL., defendants-appellants.
Campos, Mendoza and Hernandez for plaintiff-appellant.
Caballo, Bendijo and Fajardo and De Santos, Herrera and Delfino for defendants-appellants.
REYES, J.B.L., J.:
Direct appeal by both the plaintiff and the defendants from a decision of the Court of First Instance of Manila, in its Civil
Case No. 46166, sentencing the defendants Fieldmen's Insurance Co., Inc. and Paramount Surety and Insurance Co., Inc. to
pay the plaintiff, Yu Ban Chuan, the sum of P200,000 and P140,000, respectively, with interest at the legal rate and costs.
The following facts are uncontroverted: Sometime in the later part of March, 1959, plaintiff Yu Ban Chuan began his
business enterprise under the name of "CMC Trading," which was engaged in the wholesale dealing in general
merchandise and school supplies, and was first situated at 612 Nueva Street, Manila; that, while at this place, the plaintiff
insured against fire the stock merchandise contained therein with defendant Fieldmen's Insurance Co., for which the
latter issued, on 14 December 1959, an " open" policy limiting the insurer's liability to the amount of P200,000 for a
period of one (1) year; that plaintiff again insured against fire the same stock of merchandise covered by Fieldmen's
policy with defendant Paramount Surety & Insurance Co., being also issued, on 7 January 1960, an "open" policy limiting
liability thereunder to P140,000 for a one-year period; that on 14 January 1960, Fieldmen's agreed to transfer the
coverage of its insurance policy to plaintiff's store at 680 Muelle de Binondo, Manila, to which plaintiff transferred his
business establishment on the 15th or 16th of January 1960; that on 21 January 1960 Paramount also agreed to have the
coverage of its insurance policy transferred to the same new premises and acknowledged the existence of its co-
insurance with Fieldmen's; that on 23 January 1960 Fieldmen's also acknowledged its co-insurance with Paramount; and
that on 31 January 1960, while both insurance policies were in full force and effect, plaintiff's business establishment at
680 Muelle de Binondo, Manila, was totally destroyed by fire.
The next day after the occurrence of the fire, plaintiff verbally notified the respective agents of the defendants-insurers of
such incident; and on the same day, 1 February 1960, plaintiff and H. H. Bayne Adjustment Co. and Manila Adjustment
Co., adjusters of defendants Fieldmen's and Paramount, respectively, executed "non-waiver" agreements for the purpose
of determining the circumstances of the fire and the value or amount of loss and damage to the merchandise insured
under said policies. Pursuant to such agreements, H. H. Bayne Adjustment Co. sent a letter dated 2 February 1960 to
plaintiff, and Manila Adjustment Co. sent its letter dated 6 February 1960, requiring the plaintiff to submit certain papers
and documents. On 8 February 1960, plaintiff gave a written notice of the occurrence of the fire to the defendants, and, in
answer to the letters of the adjusters, plaintiff submitted, on 24 February 1960, his separate formal fire claims, together
with some of the supporting papers required therein. Because of plaintiff's non-compliance or failure to submit the
required documents and the adjusters' demand in subsequent letters that the insured submit additional papers, the
adjusters and plaintiff engaged in an exchange of communications, until finally the defendants rejected plaintiff's claims,
and denied liability under their respective policies, evidently upon their respective adjusters' recommendations.
The plaintiff commenced suit in the Court of First Instance of Manila (Civ. Case No. 46166), and the defendants answered
the complaint with identical special defenses; to wit: (1) insured's failure to prove the loss claimed; (2) false and
fraudulent claim; and (3) arson or causes not independent of the will of the insured; and counterclaims for the annulment
of the policies. After trial, the court below upheld the claim of the plaintiff, but refused to award damages or interest at
more than the legal rate. Both parties appealed.
In proving the value of his loss, the plaintiff relied upon a merchandise inventory as of 31 December 1959, which he had
allegedly submitted on 15 January 1960 to the Bureau of Internal Revenue. The inventory reflected the total value of
stocks of the CMC Trading at 680 Muelle de Binondo, Manila, at P328,202.67. The plaintiff claims purchases for the month
of January 1960 in the amount of P34,505.08 and sales in the amount of P12,000, thus the resulting balance of the stocks
allegedly burned was estimated by the plaintiff to be P350,707.75.
The fact of the filing of the inventory as of 15 January 1960 should be considered as true, since there is no evidence to the
contrary. The lack of an initial of the receiving clerk in the rubber stamp indicating the receipt of the document by the BIR
office on 15 January 1960, or that the receiving stamps were within the access of just anybody who visits the said office
because the stamps just lie around on the employees' desks, while showing the lack of a better administrative system, do
not necessarily show the falsity of the inventory as of the date stamped therein, and as certified by the chief of the
administrative division.
The court a quo, however, committed error in accepting as true the actual existence at the burned premises of the stocks
mentioned in the inventory. Six (6) of the many copies of the invoices submitted by the plaintiff to the adjusters uncover
a clear case of fraud and misrepresentation which avoid the insurers' liability as per condition No. 13 of Fieldmen's policy
No. 15 HO 7756 and Paramount policy No. 3164. These five invoices alone inflate the supposed stocks by P248,370.00.
The purchase invoice from Western Pacific Industrial Development Co. (Exh. "J-15") for powder puffs, ballpen filler,
rubber band and ballpen plastic body totalling P76,525.00 was denounced as fake by the former manager, Pablo S. Sison,
and he denied that the signature appearing thereon is his. His testimony that this company does not deal in the above-
named merchandise is corroborated by the letterhead of the company's stationery and the invoice itself that it is an
"operator of forest concessions." On sight, the exhibit excites incredulity what should a logging company be doing with
rubber bands or powder puffs?
The invoice from Victoria Commercial Corporation (Exh, "J-18") for P33,800.00 is, likewise, dubious. On its face, it shows
that the address of the company is "303 Trade & Commerce Building, J. Luna, Manila, Philippines," but a check by adjuster
Mario Santos was negative, showing that no company by that name was registered by the Securities and Exchange
Commission (Exh. "18-Paramount"). The superintendent of the building testified that there had never been a tenant by
that name.
Again, the MJC Trading Enterprise's invoice for P37,176.00 (Exh. "J-20", Exhibit folder, fol. 97) indicates the company's
address to be "308 T & C Building, J. Luna, Manila", but there is no such room in the building mentioned nor any such
company registered with the Securities and Exchange Commission (Exh. "18-Paramount").
Another fictitious invoice is that supposedly issued by Cosmopolitan Commercial Enterprises for P37,800.00 (Exh. "J-19")
for sales of "mechanical pencil plastic body," fountain pens, and tape measures. This establishment is a single
proprietorship belonging to Trinidad M. Lim; it is not engaged in the kind of merchandise purportedly sold, as per the
invoice, nor issue this kind of invoice, nor the signature as that of Mrs. Lim appearing thereon genuine, according to the
husband of the owner, Benjamin Chua Meer, who manages the enterprise. The fact that Mrs. Lim did not testify does not
make the invoice any less false; at least Meer should know and recognize his wife's signature.
There are two (2) invoices supposedly issued by Nelina Trading (Exhs. "N-2" & "N-3") on 2 October 1959 and 17 October
1959, respectively, for purchases aggregating P63,069.00. A check at the company's supposed address failed to show the
existence of the company, and the records of the Bureau of Commerce (Exh. 20-a Paramount) show that it went out of
business on 13 April 1959.
The plaintiff, Yu Ban Chuan, adopted a uniform, too uniform, in fact, to be believed, explanation for all the invoices: that
he did not buy the merchandise at the companies' addresses but bought from the agents who brought the goods to him;
that the originals of the invoices were burned and that he requested for true copies from the agents whom he met
casually in the streets after the fire and these agents delivered the exhibits to him; but he did not remember, or know the
names of these agents, nor did he know their whereabouts. In other words, he wants the court to believe also that these
agents performed a vanishing act after each one of them had turned in the copy of each invoice to the plaintiff.
It will be noted that the plaintiff transferred to his new business address at 680 Muelle de Binondo, Manila, on 15 or 16
January 1960, but he offered no satisfactory explanation on the purported dates of the following exhibits:
An invoice (Exh. "L-29") from Standard Manufacturing Company for P6,750.00 is dated 10 September 1959,
but the address of the purchaser, CMC Trading, is shown as already at 680 Muelle de Binondo;
Another invoice from the same company, (Exh. "I-40") is dated 14 December 1959, but the CMC Trading
appears as at its new location;
The same is true with still five (5) more invoice, (Exhs. D, I-31, I-41, I-28, &, I-27) from the same company, all
bearing dates before the transfer of the CMC Trading to 680 Muelle de Binondo.
The plaintiff adheres to the inventory as the immaculate basis for the actual worth of stocks that were burned, on the
ground that it was made from actual count, and in compliance with law. But this inventory is not binding on the
defendants, since it was prepared without their intervention. It is well to note that plaintiff had every reason to show that
the value of his stock of goods exceeded the amount of insurance that he carried. And the inventory, having been made
prior to the fire, was no proof of the existence of these goods at the store when the fire occurred. True, there were
merchandise that were actually destroyed by fire (Exhibits 2, 2-a, 2-b, 3, 3-a, 4, 4-a, 4-b Paramount). But when fraud is
conceived, what is true is subtly hidden by the schemer beneath proper and legal appearances, including the preparation
of the inventory.
Shielding himself under Section 82 of the Insurance Act, the plaintiff asserts that in submitting his proof of loss he was
"not bound to give such proof as would be necessary in a court of justice". The assertion is correct, but does not give him
any justification for submitting false proofs. Their falsity is the best evidence of the fraudulent character and the
unmeritoriousness of plaintiff's claim.
The filing of collection suits for unpaid purchases against Yu Ban Chuan, however valid these may be, do not legitimize
his fraudulent claim against the insurers in the present case, nor show that the goods allegedly delivered were at the
store when the fire occurred. It is markworthy that in some instances (Exhs. L-6, L-8, L-10) the debts are only attested by
certifications from the creditors.
The plaintiff, Yu Ban Chuan, is a Chinese who came to this country in 1948. His combined income from 1956 through
1958 amounted to only P10,000. Yet in 1959 he appeared as running a, business of his own worth almost half a million
pesos. The source of the investment, accordingly to him, were unsecured loans in the fantastic sum of P224,000.00. From
these circumstances, and the facts herein before stated, it is plain that no credence can be given to plaintiff's claims.
For the foregoing reasons, the appealed judgment is hereby reversed, and the appellee's action dismissed, with costs
against the plaintiff-appellant Yu Ban Chuan.
IN VIEW OF THE CONCLUSIONS REACHED, the plaintiff's appeal against the non-award of damages to him must be
necessarily dismissed.
G.R. No. L-25920 January 30, 1970
CCC INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS (Fourth Division) and CARLOS F. ROBES, respondents.
Kalaw and Felipe for petitioner.
Adalia B. Francisco for respondents.
REYES, J.B.L., J.:
Petition for review of the decision of the Court of Appeals, affirming that of the Court of First Instance of Rizal (Quezon
City) allowing insurance indemnification of plaintiff for his damaged car and the payment of attorney's fees.
The following facts are not in dispute:
On 1 March 1961, Carlos F. Robes took an insurance, with the CCC Insurance Corporation, on his Dodge Kingsway car
against loss or damage through accident for an amount not exceeding P8,000.00 (Policy No. M1156). On 25 June 1961,
and during the effectivity of the policy, the insured vehicle, while being driven by the owner's driver, became involved in
a vehicular collision along Rizal Avenue Extension, Potrero, Malabon, Rizal. The car was damaged, and the repair was
estimated to cost P5,300.00.
As the insurance company refused either to pay for the repair or to cause the restoration of the car to its original
condition, Robes instituted Civil Case No. Q-6063 in the Court of First Instance of Rizal for recovery not only of the
amount necessary for the repair of the insured car but also of actual and moral damages, attorneys' fees and costs.
Resisting plaintiff's claim, the insurance company disclaimed liability for payment, alleging that there had been violation
of the insurance contract because the one driving the car at the time of the incident was not an "authorized driver."
After due hearing, judgment was rendered for the plaintiff, and defendant insurer was ordered to pay unto the former the
cost of repair of the car in the sum of P5,031.28; the sum of P150.00, for the hauling and impounding of the car at the
repair shop; P2,000.00 as actual damages; and P1,000.00 as attorneys' fees, plus costs.
The insurance company went to the Court of Appeals, raising inter alia the questions of the qualification of plaintiff's
driver to operate the insured vehicle and the correctness of the trial court's award to plaintiff of the amount of P5,013.28
as cost of repairs, and of actual damages and attorneys' fees. In its decision of 31 January 1966, the Court of Appeals
affirmed the ruling of the lower court except the award of actual damages in the sum of P2,000.00, which was eliminated
on the ground that it was too speculative. Not content, the insurance company filed the present petition for review of the
aforesaid decision of the Court of Appeals on two grounds: (1) that the proceedings observed in the trial court were
irregular and invalid; and (2) that the damage to the insured car was not covered by the insurance policy because at the
time of the accident it was being driven by one who was not an authorized driver.
The second issue constitutes the main contention of herein appellant, and will be considered first. It is vigorously urged
by the insurer that the one driving the insured vehicle at the time of the accident was not an authorized driver thereof
within the purview of the following provision of the insurance policy:
AUTHORIZED DRIVER:
Any of the following: (a) The insured;
(b) Any person driving on the Insured's order or with his permission, provided that the person
driving ispermitted in accordance with licensing laws or regulations to drive the motor
vehicle covered by this Policy, or has been so permitted and is not disqualified by order of a court of
law or by reason of any enactment or regulation from driving such Motor Vehicle. (Emphasis ours)
It has been found as a fact by the Court of Appeals that Domingo Reyes, the, driver who was at the wheel of the insured
car at the time of the accident, does not know how to read and write; that he was able to secure a driver's license, without
passing any examination therefor, by paying P25.00 to a certain woman; and that the Cavite agency of the Motor Vehicles
Office has certified not having issued Reyes' purported driver's license No. 271703 DP.
In holding that the damage sustained by the car comes within the coverage of the insurance policy, the Court of Appeals
argued that since Reyes' purported driver's license (Exhibit "A") bears all the earmarks of a duly issued license, then it is
a public document, and petitioner insurance company then has the burden of disproving its genuineness, which the latter
has failed to do. In this respect the Court of Appeals ruled:
... . The fact that the Cavite Agency of the Motor Vehicles Office states that Driver's License No.
271703 DP was not issued by that office, does not remove the possibility that said office may have
been mistaken or that said license was issued by another agency. Indeed Exhibit 13 shows that a
certain Gloria Presa made the notation thereon "no license issued" and which notation was the basis
of the 1st Indorsement, Exhibit 12, signed by the MVO Cavite City Agency's officer-in-charge. Neither
Gloria Presa nor the officer-in-charge Marciano A. Monzon was placed on the witness stand to be
examined in order to determine whether said license is indeed void. As it is, as heretofore pointed
out, the fact remains that Domingo Reyes is in possession of a driver's license issued by the Motor
Vehicles Office which on its face appears to have been regularly issued.
In effect, the Court of Appeals found that the driver's license No. 271703 DP was genuine, that is, one really issued by the
Motor Vehicles Office or its authorized deputy; and this finding of fact is now conclusive and may not be questioned in
this appeal.
Nevertheless, the appellant insurer insists that, under the established facts of this case, Reyes, being admittedly one who
cannot read and write, who has never passed any examination for drivers, and has not applied for a license from the duly
constituted government agency entrusted with the duty of licensing drivers, cannot be considered an authorized driver.
The fatal flaw in appellant's argument is that it studiously ignores the provisions of law existing at the time of the mishap.
Under Section 24 of the Revised Motor Vehicles Law, Act 3992 of the Philippine Legislature, as amended by Republic Acts
Nos. 587, 1204 and 2863,1
An examination or demonstration to show any applicant's ability to operate motor vehicles may also
be required in the discretion of the Chief, Motor Vehicles Office or his deputies. (Emphasis supplied)
and reinforcing such discretion, Section 26 of the Act prescribes further:
SEC. 26. Issuance of chauffeur's license; professional badge: If, after examination, or without the same,
the Chief, Motor Vehicles Office or his deputies, believe the applicant to possess the necessary
qualifications and knowledge, they shall issue to such applicant a license to operate as chauffeur ...
(Emphasis supplied)
It is thus clear that the issuance of a driving license without previous examination does not necessarily imply that the
license issued is invalid. As the law stood in 1961, when the claim arose, the examinations could be dispensed with in the
discretion of the Motor Vehicles Office official officials. Whether discretion was abused in issuing the license without
examination is not a proper subject of inquiry in these proceedings, though, as a matter of legislative policy, the
discretion should be eliminated. There is no proof that the owner of the automobile knew that the circumstance
surrounding such issuance showed that it was irregular.
The issuance of the license is proof that the Motor Vehicles Office official considered Reyes, the driver of the insured-
appellee, qualified to operate motor vehicles, and the insured was entitled to rely upon such license. In this connection, it
should be observed that the chauffeur, Reyes, had been driving since 1957, 2 and without mishap, for all the record shows.
Considering that, as pointed out by the Court of Appeals, the weight of authority is in favor of a liberal interpretation of
the insurance policy for the benefit of the party insured, and strictly against the insurer, We find no reason to diverge
from the conclusion reached by the Court of Appeals that no breach was committed of the above-quoted provision of the
policy.
The next issue assigned is anchored on the fact that the decision of the trial court was based on evidence presented to
and received by the clerk of court who acted as commissioner, although allegedly, there was no written court order
constituting him as such commissioner, no written request for his commission was made by the parties; he did not take
an oath prior to entering into the discharge of his commission; no written report of his findings was ever submitted to the
court; and no notice thereof was sent to the parties, contrary to the specific provisions of Rule 33 of the Rules of Court.
Actually there is nothing basically wrong with the practice of delegating to a commissioner, usually the clerk of court,
who is a duly sworn court officer, the reception of both parties and for him to submit a report thereon to the court. In
fact, this procedure is expressly sanctioned by Revised Rule 33 of the Rules of Court.3 Petitioner's objection in this case,
however, is directed not against its referral to the clerk of court but against the alleged non-observance of the prescribed
steps in connection with such delegation.
We find no cause sufficient to invalidate the proceedings had in the trial court. We note that this issue was brought up by
the appellant insurance company or the first time only in its motion for reconsideration filed in the Court of Appeals. It
was not raised in the trial court, where the defect could still be remedied. This circumstance precludes ventilation of the
issue of validity of the hearing at this stage; for, if such irregularity is to vitiate the proceeding, the question should have
been seasonably raised, i.e., either before the parties proceeded with the hearing or before the court handed down its
ruling.4 It is a procedural point that can be waived by consent of the parties, express or implied. 5
For the same reason, appellant cannot insist now on the annulment of the proceeding on the basis of alleged lack of
written consent of the parties to the commission, or of an order appointing the clerk as commissioner, or of notice of the
submission of his report to the court. Furthermore, appellant has presented no proof that the clerk of court committed
any mistake or abuse in the performance of the task entrusted to him, or that the trial court was not able to properly
appreciate the evidence in the case because it was received by another person. If indeed there were errors at all, they
would be non-prejudicial and could not justify the holding of a new trial, as urged by herein petitioner. 6
WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against appellant CCC Insurance Corporation.
G.R. No. L-38613 February 25, 1982
PACIFIC TIMBER EXPORT CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY, INC., respondents.
DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals reversing the decision of the Court of First Instance
of Manila in favor of petitioner and against private respondent which ordered the latter to pay the sum of Pll,042.04 with
interest at the rate of 12% interest from receipt of notice of loss on April 15, 1963 up to the complete payment, the sum
of P3,000.00 as attorney's fees and the costs 1 thereby dismissing petitioner s complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are generally binding upon this Court, Except as shall be
indicated in the discussion of the opinion of this Court the substantial correctness of still particular finding having been
disputed, thereby raising a question of law reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the defendant for its exportation of
1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan. Bay,
Quezon Province to Okinawa and Tokyo, Japan. The defendant issued on said date Cover Note No.
1010, insuring the said cargo of the plaintiff "Subject to the Terms and Conditions of the
WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved by
the Office of the Insurance Commissioner (Exhibit A).
The regular marine cargo policies were issued by the defendant in favor of the plaintiff on April 2,
1963. The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033 (Exhibits B and C,
respectively). Policy No. 53 H0 1033 (Exhibit B) was for 542 pieces of logs equivalent to 499,950
board feet. Policy No. 53 H0 1033 was for 853 pieces of logs equivalent to 695,548 board feet
(Exhibit C). The total cargo insured under the two marine policies accordingly consisted of 1,395
logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the two marine
policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost
during loading operations in the Diapitan Bay. The logs were to be loaded on the 'SS Woodlock'
which docked about 500 meters from the shoreline of the Diapitan Bay. The logs were taken from
the log pond of the plaintiff and from which they were towed in rafts to the vessel. At about 10:00
o'clock a. m. on March 29, 1963, while the logs were alongside the vessel, bad weather developed
 resulting in 75 pieces of logs which were rafted together co break loose from each other. 45 pieces
of logs were salvaged, but 30 pieces were verified to have been lost or washed away as a result of
the accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of 'appropriately 32 pieces of log's
during loading of the 'SS Woodlock'. The said letter (Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd. ft. Philippine
Lauan and Apitong Logs. We would like to inform you that we have received advance preliminary
report from our Office in Diapitan, Quezon that we have lost approximately 32 pieces of logs during
loading of the SS Woodlock.
We will send you an accurate report all the details including values as soon as same will be reported
to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of the defendant only on April 15,
1963, as shown by the stamp impression appearing on the left bottom corner of said letter. The
plaintiff subsequently submitted a 'Claim Statement demanding payment of the loss under Policies
Nos. 53 HO 1032 and 53 HO 1033, in the total amount of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First Philippine Adjustment Corporation to inspect
the loss and assess the damage. The adjustment company submitted its 'Report on August 23, 1963
(Exhibit H). In said report, the adjuster found that 'the loss of 30 pieces of logs is not covered by
Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies covered the actual number of logs
loaded on board the 'SS Woodlock' However, the loss of 30 pieces of logs is within the 1,250,000 bd.
ft. covered by Cover Note 1010 insured for $70,000.00.
On September 14, 1963, the adjustment company submitted a computation of the defendant's
probable liability on the loss sustained by the shipment, in the total amount of Pl1,042.04 (Exhibit
4).
On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on the ground they
defendant's investigation revealed that the entire shipment of logs covered by the two marines
policies No. 53 110 1032 and 713 HO 1033 were received in good order at their point of destination.
It was further stated that the said loss may be considered as covered under Cover Note No. 1010
because the said Note had become 'null and void by virtue of the issuance of Marine Policy Nos. 53
HO 1032 and 1033'(Exhibit J-1). The denial of the claim by the defendant was brought by the
plaintiff to the attention of the Insurance Commissioner by means of a letter dated March 21, 1964
(Exhibit K). In a reply letter dated March 30, 1964, Insurance Commissioner Francisco Y. Mandanas
observed that 'it is only fair and equitable to indemnify the insured under Cover Note No. 1010', and
advised early settlement of the said marine loss and salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance Commissioner that, on advice of their
attorneys, the claim of the plaintiff is being denied on the ground that the cover note is null and void
for lack of valuable consideration (Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS NULL AND VOID FOR
LACK OF VALUABLE CONSIDERATION BECAUSE THE COURT DISREGARDED THE PROVEN FACTS
THAT PREMIUMS FOR THE COMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE
COVER NOTE WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER NOTE WAS PAID BY
PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT
ON ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT WAS RELEASED
FROM LIABILITY UNDER THE COVER NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF
LOSS BECAUSE THE COURT DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID
NOT PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND OF DELAY IN
GIVING NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON THAT GROUND ARE WAIVED
UNDER SECTION 84 OF THE INSURANCE ACT. 5
1. Petitioner contends that the Cover Note was issued with a consideration when, by express stipulation, the cover note is
made subject to the terms and conditions of the marine policies, and the payment of premiums is one of the terms of the
policies. From this undisputed fact, We uphold petitioner's submission that the Cover Note was not without
consideration for which the respondent court held the Cover Note as null and void, and denied recovery therefrom. The
fact that no separate premium was paid on the Cover Note before the loss insured against occurred, does not militate
against the validity of petitioner's contention, for no such premium could have been paid, since by the nature of the Cover
Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a
Cover Note. This is a fact admitted by an official of respondent company, Juan Jose Camacho, in charge of issuing cover
notes of the respondent company (p. 33, tsn, September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement issued by private ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is reinstated in toto with
respondent after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by the affirmance of this Court. No special pronouncement as to costs.
petitioner due on the insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as
a separate policy instead of integrating it to the regular policies subsequently issued, the purpose and function of the SO ORDERED.
Cover Note would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application for
insurance which is a mere offer. 6

It may be true that the marine insurance policies issued were for logs no longer including those which had been lost
during loading operations. This had to be so because the risk insured against is not for loss during operations anymore,
but for loss during transit, the logs having already been safely placed aboard. This would make no difference, however,
insofar as the liability on the cover note is concerned, for the number or volume of logs lost can be determined
independently as in fact it had been so ascertained at the instance of private respondent itself when it sent its own
adjuster to investigate and assess the loss, after the issuance of the marine insurance policies.

G.R. No. L-67835 October 12, 1987

The adjuster went as far as submitting his report to respondent, as well as its computation of respondent's liability on the
insurance coverage. This coverage could not have been no other than what was stipulated in the Cover Note, for no loss
or damage had to be assessed on the coverage arising from the marine insurance policies. For obvious reasons, it was not MALAYAN INSURANCE CO., INC. (MICO), petitioner,
necessary to ask petitioner to pay premium on the Cover Note, for the loss insured against having already occurred, the vs.
more practical procedure is simply to deduct the premium from the amount due the petitioner on the Cover Note. The GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and CORONACION
non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose what is due it as if there had PINCA, respondents.
been payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during
the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even
before payment of premium. This is how the cover note as a "binder" should legally operate otherwise, it would serve no
practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without CRUZ, J.:
requiring payment of the premium, the presumption is that a credit was intended and policy is valid. 7

2. The defense of delay as raised by private respondent in resisting the claim cannot be sustained. The law requires this
ground of delay to be promptly and specifically asserted when a claim on the insurance agreement is made. The
undisputed facts show that instead of invoking the ground of delay in objecting to petitioner's claim of recovery on the
cover note, it took steps clearly indicative that this particular ground for objection to the claim was never in its mind. The
nature of this specific ground for resisting a claim places the insurer on duty to inquire when the loss took place, so that it
could determine whether delay would be a valid ground upon which to object to a claim against it.
As already stated earlier, private respondent's reaction upon receipt of the notice of loss, which was on April 15, 1963,
was to set in motion from July 1963 what would be necessary to determine the cause and extent of the loss, with a view
to the payment thereof on the insurance agreement. Thus it sent its adjuster to investigate and assess the loss in July,
1963. The adjuster submitted his report on August 23, 1963 and its computation of respondent's liability on September
14, 1963. From April 1963 to July, 1963, enough time was available for private respondent to determine if petitioner was
guilty of delay in communicating the loss to respondent company. In the proceedings that took place later in the Office of
the Insurance Commissioner, private respondent should then have raised this ground of delay to avoid liability. It did not
do so. It must be because it did not find any delay, as this Court fails to find a real and substantial sign thereof. But even
on the assumption that there was delay, this Court is satisfied and convinced that as expressly provided by law, waiver
can successfully be raised against private respondent. Thus Section 84 of the Insurance Act provides:
When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope for the suddenly
somber future. The vanished abode becomes a charred and painful memory. Where once stood a home, there is now, in
the sighing wisps of smoke, only a gray desolation. The dying embers leave ashes in the heart.
For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is an aleatory
contract. By such insurance, the insured in effect wagers that his house will be burned, with the insurer assuring him
against the loss, for a fee. If the house does burn, the insured, while losing his house, wins the wagers. The prize is the
recompense to be given by the insurer to make good the loss the insured has sustained.
It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to recover for such
loss. Sometimes it is his fault that he cannot collect, as where there is a defect imputable to him in the insurance contract.
Conversely, the reason may be an unjust refusal of the insurer to acknowledge a just obligation, as has happened many
times.
In the instant case the private respondent has been sustained by the Insurance Commission in her claim for
compensation for her burned property. The petitioner is now before us to dispute the decision, 1 on the ground that
there was no valid insurance contract at the time of the loss.

Section 84.Delay in the presentation to an insurer of notice or proof of loss is waived if caused by The chronology of the relevant antecedent facts is as follows:
any act of his or if he omits to take objection promptly and specifically upon that ground.

From what has been said, We find duly substantiated petitioner's assignments of error.
On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion Pinca, Fire
Insurance Policy No. F-001-17212 on her property for the amount of P14,000.00 effective July 22, 1981, until July 22,
1982. 2
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding
notice to Pinca. 3
On December 24, 1981, payment of the premium for Pinca was received by DomingoAdora, agent of MICO. 4 Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the
On January 15, 1982, Adora remitted this payment to MICO,together with other payments. 5
On January 18, 1982, Pinca's property was completely burned. 6
On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled
earlier. But Adora refused to accept it. 7
In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the Insurance
Commission. It is because she was ultimately sustained by the public respondent that the petitioner has come to us for
relief.
From the procedural viewpoint alone, the petition must be rejected. It is stillborn.
The records show that notice of the decision of the public respondent dated April 5, 1982, was received by MICO on April
10, 1982. 8 On April 25, 1982, it filed a motion for reconsideration, which was denied on June 4, 1982. 9 Notice of this
denial was received by MICO on June 13, 1982, as evidenced by Annex "1" duly authenticated by the Insurance
Commission. 10 The instant petition was filed with this Court on July 2, 1982. 11
The position of the petition is that the petition is governed by Section 416 0f the Insurance Code giving it thirty days
wthin which to appeal by certiorari to this Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For their
part, the public and private respondents insist that the applicable law is B.P. 129, which they say governs not only courts
of justice but also quasi-judicial bodies like the Insurance Commission. The period for appeal under this law is also fifteen
days, as under Rule 45.
The pivotal date is the date the notice of the denial of the motion for reconsideration was received by MICO.
MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order of June 14, 1982,
with a signed rubber-stamped notation on the upper left-hand corner that it was received on June 18, 1982, by its legal
department. It does not indicate from whom. At the bottom, significantly, there is another signature under which are the
ciphers "6-13-82," for which no explanation has been given.
Against this document, the private respodent points in her Annex "1," 13 the authenticated copy of the same Order with a
rubber-stamped notation at the bottom thereof indicating that it was received for the Malayan Insurance Co., Inc. by J.
Gotladera on "6-13-82." The signature may or may not habe been written by the same person who signed at the bottom
of the petitioner's Annex "B."
Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-13-82" appear on
both annexes but also because it is the date authenticated by the administrative division of the Insurance Commission.
Annex "B" is at worst self-serving; at best, it might only indicate that it was received on June 18, 1982, by the legal
department of MICO, after it had been received earlier by some other of its personnel on June 13, 1982. Whatever the
reason for the delay in transmitting it to the legal department need not detain us here.
Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance
reglementary period began to run again after June 13, 1981, date of its receipt of notice of the denial of the said motion
for reconsideration. As the herein petition was filed on July 2, 1981, or nineteen days later, there is no question that it
is tardy by four days.
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would end on June 28,
1982, or also four days from July 2, when the petition was filed.
If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the fifteenth day after
MICO received notice of the decision, only one more day would have remained for it to appeal, to wit, June 14, 1982. That
would make the petition eighteen days late by July 2.
Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies, the petition would
still be tardy. The law provides for a fixed period of ten days from notice of the denial of a seasonable motion for
reconsideration within which to appeal from the decision. Accordingly, that ten-day period, counted from June 13, 1982,
would have ended on June 23, 1982, making the petition filed on July 2, 1982, nine days late.
Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.
On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the policy had been
cancelled before the occurence of the loss are not acceptable. Its contention that the claim was allowed without proof of
loss is also untenable.
The petitioner relies heavily on Section 77 of the Insurance Code providing that:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril
insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been
paid, except in the case of a life or an industrial life policy whenever the grace period provision
applies.
The above provision is not applicable because payment of the premium was in fact eventually made in this case. Notably,
the premium invoice issued to Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment
Received" of the amoung of P930.60 on "12-24-81" by Domingo Adora. 14 This is important because it suggests an
understanding between MICO and the insured that such payment could be made later, as agent Adora had assured Pinca.
In any event, it is not denied that this payment was actually made by Pinca to Adora, who remitted the same to MICO.
The payment was made on December 24, 1981, and the fire occured on January 18, 1982. One wonders: suppose the
payment had been made and accepted in, say, August 1981, would the commencement date of the policy have been
changed to the date of the payment, or would the payment have retroacted to July 22, 1981? If MICO accepted the
payment in December 1981 and the insured property had not been burned, would that policy not have expired just the (a) non-payment of premium;
same on July 22, 1982, pursuant to its original terms, and not on December 24, 1982?
(b) conviction of a crime arising out of acts increasing the hazard insured against;
It would seem from MICO's own theory, that the policy would have become effective only upon payment, if accepted and
so would have been valid only from December 24, 1981m but only up to July 22, 1981, according to the original terms. In (c) discovery of fraud or material misrepresentation;
others words, the policy would have run for only eight months although the premium paid was for one whole year.

(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against;
It is not disputed that the preium was actually paid by Pinca to Adora on December 24, 1981, who received it on behalf of
MICO, to which it was remitted on January 15, 1982. What is questioned is the validity of Pinca's payment and of Adora's
(e) physical changes in the property insured which result in the property becoming uninsurable;or
authority to receive it.

(f) a determination by the Commissioner that the continuation of the policy would violate or would
MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to receive the premium
place the insurer in violation of this Code.
payment on its behalf. It is clearly provided in Section 306 of the Insurance Code that:

As for the method of cancellation, Section 65 provides as follows:

SEC. 306. xxx xxx xxx

SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or
Any insurance company which delivers to an insurance agant or insurance broker a policy or
delivered to the named insured at the address shown in the policy, and shall state (a) which of the
contract of insurance shall be demmed to have authorized such agent or broker to receive on its
grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named
behalf payment of any premium which is due on such policy or contract of insurance at the time of
insured, the insurer will furnish the facts on which the cancellation is based.
its issuance or delivery or which becomes due thereon.

A valid cancellation must, therefore, require concurrence of the following conditions:

And it is a well-known principle under the law of agency that:

(1) There must be prior notice of cancellation to the insured; 17

Payment to an agent having authority to receive or collect payment is equivalent to payment to the
principal himself; such payment is complete when the money delivered is into the agent's hands and
is a discharge of the indebtedness owing to the principal. 15 (2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds
mentioned;18
There is the petitioner's argument, however, that Adora was not authorized to accept the premium payment because six
months had elapsed since the issuance by the policy itself. It is argued that this prohibition was binding upon Pinca, who (3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the
made the payment to Adora at her own riskl as she was bound to first check his authority to receive it. 16 policy; 19

MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was prohibited by the
policy, it at the same time insists that the policy never came into force because the premium had not been paid. One
surely, cannot have his cake and eat it too.
We do not share MICO's view that there was no existing insurance at the time of the loss sustained by Pinca because her
policy never became effective for non-payment of premium. Payment was in fact made, rendering the policy operative as
of June 22, 1981, and removing it from the provisions of Article 77, Thereafter, the policy could be cancelled on any of the
supervening grounds enumerated in Article 64 (except "nonpayment of premium") provided the cancellation was made
in accordance therewith and with Article 65.
Section 64 reads as follows:
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the
insured, the insurer will furnish the facts on which the cancellation is based. 20
MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this
assertion, it presented one of its employees, who testified that "the original of the endorsement and credit memo"
presumably meaning the alleged cancellation "were sent the assured by mail through our mailing section" 21However,
there is no proof that the notice, assuming it complied with the other requisites mentioned above, was actually mailed to
and received by Pinca. All MICO's offers to show that the cancellation was communicated to the insured is its employee's
testimony that the said cancellation was sent "by mail through our mailing section." without more. The petitioner then
says that its "stand is enervated (sic) by the legal presumption of regularity and due performance of duty." 22 (not
realizing perhaps that "enervated" means "debilitated" not "strengthened").

On the other hand, there is the flat denial of Pinca, who says she never received the claimed cancellation and who, of
SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior
course, did not have to prove such denial Considering the strict language of Section 64 that no insurance policy shall be
notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the
cancelled except upon prior notice, it behooved MICO's to make sure that the cancellation was actually sent to and
occurrence, after the effective date of the policy, of one or more of the following:
received by the insured. The presumption cited is unavailing against the positive duty enjoined by Section 64 upon MICO fails to specify to the former all the defects thereof and without unnecessary delay, all objections to notice and proof of
and the flat denial made by the private respondent that she had received notice of the claimed cancellation. loss are deemed waived under Section 90 of the Insurance Code.

It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original
policy on December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one
year later, and so taken advantage of the extended period. The Court finds that if she did pay on that date, it was because
she honestly believed that the policy issued on June 7, 1981, was still in effect and she was willing to make her payment
retroact to July 22, 1981, its stipulated commencement date. After all, agent Adora was very accomodating and had
earlier told her "to call him up any time" she was ready with her payment on the policy earlier issued. She was obviously
only reciprocating in kind when she paid her premium for the period beginning July 22, 1981, and not December 24,
1981.
The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss should be
considered sufficient. Notably,MICO submitted no evidence to the contrary nor did it even question the extent of the loss
in its answer before the Insurance Commission. It is also worth observing that Pinca's property was not the only building
bumed in the fire that razed the commercial district of Lao-ang, Samar, on January 18, 1982. 27
There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of the loss
imperative or indespensable, as MICO suggests. Section 325, which it cites, simply speaks of the licensing and duties of
adjusters.

MICO's suggests that Pinca knew the policy had already been cancelled and that when she paid the premium on
December 24, 1981, her purpose was "to renew it." As this could not be done by the agent alone under the terms of the
original policy, the renewal thereof did not legally bind MICO. which had not ratified it. To support this argument, MICO's
cites the following exchange:
Q: Now, Madam Witness, on December 25th you made the alleged payment.
Now, my question is that, did it not come to your mind that after the lapse of
six (6) months, your policy was cancelled?
A: I have thought of that but the agent told me to call him up at anytime.
Q: So if you thought that your policy was already intended to revive cancelled
policy?
A: Misleading, Your Honor.
We see in this cases an obvious design to evade or at least delay the discharge of a just obligation through efforts
bordering on bad faith if not plain duplicity, We note that the motion for reconsideration was filed on the fifteenth day
from notice of the decision of the Insurance Commission and that there was a feeble attempt to show that the notice of
denial of the said motion was not received on June 13, 1982, to further hinder the proceedings and justify the filing of the
petition with this Court fourteen days after June 18, 1982. We also look askance at the alleged cancellation, of which the
insured and MICO's agent himself had no knowledge, and the curious fact that although Pinca's payment was remitted to
MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, after it presumably
had learned of the occurrence of the loss insured against on January 18, 1982. These circumstances make the motives of
the petitioner highly suspect, to say the least, and cast serious doubts upon its candor and bona fides.
WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981, and its Order of
June 4, 1981, are AFFIRMED in full, with costs against the petitioner. This decision is immediately executory.
SO ORDERED.

Hearing Officer: The testimony of witness is that, she thought of that.

Q: I will revise the question. Now, Mrs. Witness, you stated that you thought
the policy was cancelled. Now, when you made the payment of December 24,
1981, your intention was to revive the policy if it was already cancelled?

A: Yes, to renew it. 23

A close study of the above transcript will show that Pinca meant to renew the policy if it had really been already cancelled
but not if it was stffl effective. It was all conditional. As it has not been shown that there was a valid cancellation of the
policy, there was consequently no need to renew it but to pay the premium thereon. Payment was thus legally made on
the original transaction and it could be, and was, validly received on behalf of the insurer by its agent Adora. Adora.
incidentally, had not been informed of the cancellation either and saw no reason not to accept the said payment.

The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire insurance policy is
conclusive in case of total loss in the absence of fraud, 24 which is not shown here. Loss and its amount may be
determined on the basis of such proof as may be offered by the insured, which need not be of such persuasiveness as is
required in judicial proceedings. 25 If, as in this case, the insured files notice and preliminary proof of loss and the insurer

G.R. No. L-41014 November 28, 1988
PACIFIC BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents.
Flores, Ocampo, Dizon and Domingo Law Office for petitioner.
Cabochan and Reyes Law Office for respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision of respondent Court of Appeals * in CA-G.R. No. 41735-R, entitled
"Pacific Banking Corporation vs. Oriental Assurance Corporation", which set aside the decision of the Court of First
Instance (CFI) of Manila, ** which had in turn granted the complaint for a sum of money in Civil Case No. 56889.
As gathered from the records, the undisputed facts of this case are as follows:
On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the Paramount Shirt
Manufacturing Co. (hereinafter referred to as the insured, for brevity), by which private respondent Oriental Assurance
Corporation bound itself to indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by fire to its
property consisting of stocks, materials and supplies usual to a shirt factory, including furniture, fixtures, machinery and
equipment while contained in the ground, second and third floors of the building situated at number 256 Jaboneros St.,
San Nicolas, Manila, for a period of one year commencing from that date to October 21, 1964.
The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner in the amount of not
less than Eight Hundred Thousand Pesos (P800,000.00) and the goods described in the policy were held in trust by the
insured for the petitioner under thrust receipts (Record on Appeal, p. 4).
Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured, with the knowledge and
consent of private respondent to the effect that "loss if any under this policy is payable to the Pacific Banking
Corporation".
On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the subject premises
destroying the goods contained in its ground and second floors (Record on Appeal, p.5)
On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for indemnity due to the
loss of property by fire under the endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17).
On January 28, 1964, private respondent informed counsel for the petitioner that it was not yet ready to accede to the
latter's demand as the former is awaiting the final report of the insurance adjuster, H.H. Bayne Adjustment Company
(Brief for Plaintiff-Appellee, pp. 17-18).
On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the insured under the policy had
not filed any claim with it, nor submitted proof of loss which is a clear violation of Policy Condition No.11, and for which
reason, determination of the liability of private respondent could not be had (Supra, pp. 19-20).
On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance adjuster to verify from the records
of the Bureau of Customs the entries of merchandise taken into the customs bonded warehouse razed by fire as a reliable
proof of loss (Supra, pp. 21-22). For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff
therein) on April 28, 1 964, filed in the court a quo an action for a sum of money against the private respondent, Oriental
Assurance Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing Co. (Record
on Appeal, pp. 1-36).
On May 25, 1964, private respondent raised the following defenses in its answer to wit: (a) lack of formal claim by
insured over the loss and (b) premature filing of the suit as neither plaintiff nor insured had submitted any proof of loss
on the basis of which defendant would determine its liability and the amount thereof, either to the private respondent or
its ad . adjuster H.H. Bayne Adjustment Co., both in violation of Policy Condition No.11 (Record on Appeal, pp. 37-38).
At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated December 22, 1965 of the
insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc., revealing undeclared co-insurances
with the following: P30,000.00 with Wellington Insurance; P25,000. 00 with Empire Surety and P250,000.00 with Asian
Surety; undertaken by insured Paramount on the same property covered by its policy with private respondent whereas
the only co-insurances declared in the subject policy are those of P30,000.00 with Malayan P50,000.00 with South
Sea and P25.000.00 with Victory (Brief for the Defendant pp. 13-14).
It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in the form of non-declaration
of co-insurances which was not pleaded in the answer was also not pleaded in the Motion to Dismiss.
At any rate, on June 30, 1967, the trial court denied private respondent's motion on the ground that the defense of lack of
proof of loss or defects therein was raised for the first time after the commencement of the suit and that it must be
deemed to have waived the requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61).
On September 9, 1967, the case was considered submitted for decision from which order private respondent filed a
motion for reconsideration to set the case or further reception of private respondent's additional evidence, "in order to
prove that 'insured has committed a violation of condition No. 3 of the policy in relation to the other Insurance Clause.' "
(Record on Appeal, pp. 61-69).
On September 30,1967, the case was set for the continuation of the hearing for the reception merely of the testimony of
Alejandro Tan Gatue, Manager of the Adjustment Co., over the vehement opposition of the petitioner (Record on Appeal,
p. 129).
On April 18, 1 968, the trial court rendered a decision adjudging private respondent liable to the petitioner under the said
contract of insurance, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff P61,000.00,
with interest at the rate of 8% per annum from January 4, 1964, to April 28, 1964, and 12% from
April 29, 1964, until the amount is fully paid, P6,100.00, as attorney's fees, and the costs.
SO ORDERED. (Record on Appeal, pp. 140-141)
On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated on April 23, 1975, Rollo,
pp. 21-33).
Petitioner filed a motion for reconsideration of the said decision of the respondent Court of Appeals, but this was denied
on July 3,1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition with the following assigned errors;
I RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN DISMISSING THE
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING FRAUD
FROM THE BARE FACT THAT THE INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES
OTHER THAN THOSE STATED IN THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY
PRESUMPTIONS AND ADMITTED FACT AND CIRCUMSTANCES WHICH NEGATE THE
CORRECTNESS OF SAID CONCLUSION.
(a) The respondent Court did not consider the legal presumption against the
existence of fraud, which should be established with such quantum of proof as
is required for any crime.
(b) The record of the case is bereft of proof of such fraud.
(c) The private respondent insurer did not even plead or in anywise raise fraud
as a defense in its answer or motion to dismiss and, therefore, it should have
been considered waived.
(d) The total amount of insurance procured by the insured from the different
companies amounted to hardly onehalf () of the value of the goods insured.
II
RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON THE
PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT THEREON SHOULD BE
CONSIDERED AFFIRMED.
III
THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN HOLDING THAT
THE ACTION WAS PREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE
INSURANCE LAW HAS NOT BEEN FILED, NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF
PETITIONER-APPELLANT'S LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE OF THE LEGAL
REQUIREMENTS AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY
WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER-APPELLANT FOR ITS
FAILURE TO CALL THE ATTENTION OF THE LAYER TO SUCH ALLEGED DEFECTS AND FOR
ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING.
IV
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT INTERPRETING
THE PROVISIONS OF THE POLICY LIBERALLY IN FAVOR OF THE HEREIN PETITIONER-
APPELLANT, WHO IS NOT THE INSURED BUT ONLY THE ASSIGNEE/MORTGAGEE OF THE
PROPERTY INSURED.
V
CASE AND IN NOT AFFIRMING THE APPEALED DECISION OF THE TRIAL COURT. (Brief for
Petitioners, pp. 1-3)
The crux of the controversy centers on two points: (a) unrevealed co-insurances which violated policy conditions No. 3
and (b) failure of the insured to file the required proof of loss prior to court action. Policy Condition No. 3 explicitly
provides:
3. The Insured shall give notice to the Company of any insurance already effected, or which may
subsequently be effected, covering any of the property hereby insured, and unless such notice be
given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by
or on behalf of the Company before the occurrence of any loss or damage, all benefit under this
policy shall be forfeited. (Record on Appeal, p. 12)
It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals,
by reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clear misrepresentation and
a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the
insurer known that there were many co-insurances, it could have hesitated or plainly desisted from entering into such
contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable. In fact, concrete
evidence of fraud or false declaration by the insured was furnished by the petitioner itself when the facts alleged in the
policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are materially different from the actual
number of co-insurances taken over the subject property. Consequently, "the whole foundation of the contract fails, the
risk does not attach and the policy never becomes a contract between the parties. Representations of facts are the
foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such
representations is not shown to vary or add to the contract, or to terminate a contract which has once been made, but to
show that no contract has ever existed (Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or
inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and
which cannot be validated either by time or by ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA
[1986]).
As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon
the same property, the total absence of such notice nullifies the policy (Sta. Ana v. Commercial Union Assurance Co., 55
Phil. 333 [1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. &
Surety Corp., v. Yap, 61 SCRA 432 [1974]).
The argument that notice of co-insurances may be made orally is preposterous and negates policy condition No. 20 which
requires every notice and other communications to the insurer to be written or printed.
Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance clause" supposedly to have
been violated, cannot certainly defeat the right of the petitioner to recover the insurance as mortgagee/assignee.
Particularly referring to the mortgage clause of the policy, petitioner argues that considering the purpose for which the
endorsement or assignment was made, that is, to protect the mortgagee/assignee against any untoward act or omission
of the insured, it would be absurd to hold that petitioner is barred from recovering the insurance on account of the
alleged violation committed by the insured (Rollo, Brief for the petitioner, pp, 33-35).
It is obvious that petitioner has missed all together the import of subject mortgage clause which specifically provides:
Mortgage Clause
Loss, if any, under this policy, shall be payable to the PACIFIC BANKING CORPORATION Manila
mortgagee/trustor as its interest may appear, it being hereby understood and agreed that this
insurance as to the interest of the mortgagee/trustor only herein, shall not be invalidated by any act
or neglectexcept fraud or misrepresentation, or arsonof the mortgagor or owner/trustee of the
property insured; provided, that in case the mortgagor or owner/ trustee neglects or refuses to pay
any premium, the mortgagee/ trustor shall, on demand pay the same. (Rollo, p. 26)
The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the mortgagee, cannot
be invalidated; namely: fraud, or misrepresentation or arson. As correctly found by the Court of Appeals, concealment of
the aforecited
co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27).
Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy
has by its fraud and/or misrepresentation, forfeited said right, with more reason petitioner which is merely claiming as
indorsee of said insured, cannot be entitled to such proceeds.
Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's answer or motion to
dismiss, should be deemed to have been waived.
It will be noted that the fact of fraud was tried by express or at least implied consent of the parties. Petitioner did not only
object to the introduction of evidence but on the contrary, presented the very evidence that proved its existence.
Be that as it may, it is established that the Supreme Court has ample authority to give beyond the pleadings where in the
interest of justice and the promotion of public policy, there is a need to make its own finding to support its conclusion.
Otherwise stated, the Court can consider a fact which surfaced only after trial proper (Maharlika Publishing Corp. v.
Tagle, 142 SCRA 561 [1986]).
Generally, the cause of action on the policy accrues when the loss occurs, But when the policy provides that no action
shall be brought unless the claim is first presented extrajudicially in the manner provided in the policy, the cause of
action will accrue from the time the insurer finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu, 55 Phil
701 [1955]).
In the case at bar, policy condition No. 11 specifically provides that the insured shall on the happening of any loss or
damage give notice to the company and shall within fifteen (15) days after such loss or damage deliver to the private
respondent (a) a claim in writing giving particular account as to the articles or goods destroyed and the amount of the
loss or damage and (b) particulars of all other insurances, if any. Likewise, insured was required "at his own expense to
produce, procure and give to the company all such further particulars, plans, specifications, books, vouchers, invoices,
duplicates or copies thereof, documents, proofs and information with respect to the claim". (Record on Appeal, pp. 18-
20).
The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote letters to private
respondent to serve as a notice of loss, thereafter, the former did not furnish the latter whatever pertinent documents
were necessary to prove and estimate its loss. Instead, petitioner shifted upon private respondent the burden of fishing
out the necessary information to ascertain the particular account of the articles destroyed by fire as well as the amount of
loss. It is noteworthy that private respondent and its adjuster notified petitioner that insured had not yet filed a written
claim nor submitted the supporting documents in compliance with the requirements set forth in the policy. Despite the
notice, the latter remained unheedful. Since the required claim by insured, together with the preliminary submittal of
relevant documents had not been complied with, it follows that private respondent could not be deemed to have finally
rejected petitioner's claim and therefore the latter's cause of action had not yet arisen. Compliance with condition No. 11
is a requirement sine qua non to the right to maintain an action as prior thereto no violation of petitioner's right can be
attributable to private respondent. This is so, as before such final rejection, there was no real necessity for bringing suit.
Petitioner should have endeavored to file the formal claim and procure all the documents, papers, inventory needed by
private respondent or its adjuster to ascertain the amount of loss and after compliance await the final rejection of its
claim. Indeed, the law does not encourage unnecessary litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p.
701, supra).<re||an1w>
Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was warranted under the circumstances.
While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor
of the insured and strictly as against the insurer company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra;
Taurus Taxi Co., Inc. v. The Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v. CA, 145 SCRA 533
[1986]), yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the
terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union
Manufacturing Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982]; Gonzales v. CA, 124
SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385 [1986]).
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have
a right to impose such reasonable conditions at the time of the making of the contract as they may deem wise and
necessary. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the
insurer's liability, and in order to recover, the insured must show himself within those terms. The compliance of the
insured with the terms of the policy is a condition precedent to the light of recovery (Stokes v. Malayan Insurance Co., Inc.,
127 SCRA 766 [1984]).

It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the contract, and such
violation or want of performance has not been waived by the insurer, the insured cannot recover, much less the herein
petitioner. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to
enforce and carry out the contracts actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union
Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p. 276 supra).
G.R. No. 94052 August 9, 1991

Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals when supported by substantial
evidence, are not reviewable on appeal by certiorari, deserves reiteration. Said findings of the appellate court are final ORIENTAL ASSURANCE CORPORATION, petitioner,
and cannot be disturbed by the Supreme Court except in certain cases Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, vs.
117 SCRA 480 [1982] Director of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v. COURT OF APPEALS AND PANAMA SAW MILL CO., INC., respondents.
Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]).
Alejandro P. Ruiz, Jr. for petitioner.
PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision appealed from is AFFIRMED. No Federico R. Reyes for private respondent.
costs.

SO ORDERED.

MELENCIO-HERRERA, J:

An action to recover on a marine insurance policy, issued by petitioner in favor of private respondent, arising from the
loss of a shipment of apitong logs from Palawan to Manila.

The facts relevant to the present review disclose that sometime in January 1986, private respondent Panama Sawmill Co.,
Inc. (Panama) bought, in Palawan, 1,208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired
Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it against loss for P1-M with petitioner
Oriental Assurance Corporation (Oriental Assurance). There is a claim by Panama, however, that the insurance coverage
should have been for P3-M were it not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted the
amount of P6,000.00 for the payment of the premium for a P3-M policy.

Oriental Assurance issued Marine Insurance Policy No. OACM 86/002, which stipulated, among others:

Name of Insured:
Panama Sawmill, Inc.
Karuhatan, Valenzuela
Metro Manila

Vessel:
MT. 'Seminole' Barge PCT 7,000-1,000 cubic meter apitong Logs Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against Ever Insurance
Barge Transpac 1,000-1,000 cubic meter apitong Logs Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the Regional Trial Court, Kalookan,
Voyage or Period of Insurance: Branch 123, docketed as Civil Case No. C-12601.

From Palawan-ETD January 16, 1986 After trial on the merit, the RTC1 rendered its Decision, with the following dispositive portion:
To: Manila
WHEREFORE, upon all the foregoing premises, judgment is hereby rendered:
Subject matter Insured:
1. Ordering the defendant Oriental Assurance Corporation to pay plaintiff Panama Saw Mill Inc. the amount of
2,000 cubic meters apitong Logs P415,000.00 as insurance indemnity with interest at the rate of 12% per annum computed from the date of the
Agreed Value filing of the complaint;

Amount Insured Hereunder: 2. Ordering Panama Saw Mill to pay defendant Ever Insurance Agency or Antonio Sy Lee Yong, owner thereof,
(Ever being a single proprietorship) for the amount of P20,000.00 as attorney's fee and another amount of
Pesos: One Million Only (P1,000,000.00) P20,000.00 as moral damages.
Philippine Currency
3. Dismissing the complaint against defendant Benito Sy Lee Yong.
Premium P2,500.00 rate 0.250%
SO ORDERED.
Doc. stamps 187.60 Invoice No. 157862
On appeal by both parties, respondent Appellate Court 2 affirmed the lower Court judgment in all respects except for the
l % P/tax 25.00 rate of interest, which was reduce from twelve (12%) to six (6%) per annum.

TOTAL P2,712.50 Both Courts shared the view that the insurance contract should be liberally construed in order to avoid a denial of
substantial justice; and that the logs loaded in the two barges should be treated separately such that the loss sustained by
the shipment in one of them may be considered as "constructive total loss" and correspondingly compensable.
CLAUSES, ENDORSEMENTS, SPECIAL CONDITIONS and WARRANTIES

In this Petition for Review on Certiorari, Oriental Assurance challenges the aforesaid dispositions. In its Comment,
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:
Panama, in turn, maintains that the constructive total loss should be based on a policy value of P3-M and not P1-M, and
prays that the award to Ever Insurance Agency or Antonio Sy Lee Yong of damages and attorney's fees be set aside.
Civil Code Article 1250 Waiver clause
The question for determination is whether or not Oriental Assurance can be held liable under its marine insurance policy
Typhoon warranty clause based on the theory of a divisible contract of insurance and, consequently, a constructive total loss.

Omnibus clause. Our considered opinion is that no liability attaches.

The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces of logs with a volume of 1,000 cubicmeters;
and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic meters.
On 28 January 1986, the two barges were towed by one tug-boat, the MT 'Seminole' But, as fate would have it, during the
voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of
the 598 pieces loaded thereon.
Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its contracted liability was for
"TOTAL LOSS ONLY." The rejection was upon the recommendation of the Tan Gatue Adjustment Company.
The terms of the contract constitute the measure of the insurer liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer (Perla Compania de Seguros, Inc. v. Court of Appeals, G.R.
No. 78860, May 28, 1990, 185 SCRA 741). Whether a contract is entire or severable is a question of intention to be
determined by the language employed by the parties. The policy in question shows that the subject matter insured was
the entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges did
not make the contract several and divisible as to the items insured. The logs on the two barges were not separately
valued or separately insured. Only one premium was paid for the entire shipment, making for only one cause or
consideration. The insurance contract must, therefore, be considered indivisible.
More importantly, the insurer's liability was for "total loss only." A total loss may be either actual or constructive (Sec.
129, Insurance Code). An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the
thing insured. (Section 130, Insurance Code).
A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of the Insurance
Code. This provision reads:
SECTION 139. A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a
total loss thereof, when the cause of the loss is a peril injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from
the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
xxx xxx xxx
(Emphasis supplied)
Respondent Appellate Court treated the loss as a constructive total loss, and for the purpose of computing the more than
three-fourths value of the logs actually lost, considered the cargo in one barge as separate from the logs in the other.
Thus, it concluded that the loss of 497 pieces of logs from barge TPAC-1000, mathematically speaking, is more than
three-fourths () of the 598 pieces of logs loaded in that barge and may, therefore, be considered as constructive total
loss.
The basis thus used is, in our opinion, reversible error.1wphi1 The requirements for the application of Section 139 of
the Insurance Code, quoted above, have not been met. The logs involved, although placed in two barges, were not
separately valued by the policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the
total number of logs loaded on the same barge can not be made the basis for determining constructive total loss. The logs
having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is
the totality of the shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of
the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the
shipment can not be said to have sustained a constructive total loss under Section 139(a) of the Insurance Code.
In the absence of either actual or constructive total loss, there can be no recovery by the insured Panama against the
insurer, Oriental Assurance.
By reason of the conclusions arrived at, Panama's asseverations in its Comment need no longer be passed upon, besides
the fact that no review, in proper form, has been sought by it.
WHEREFORE, the judgment under review is hereby SET ASIDE and petitioner, Oriental Assurance Corporation, is hereby
ABSOLVED from liability under its marine insurance policy No. OAC-M-86/002. No costs.
SO ORDERED.
G.R. No. 138737 July 12, 2001
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS and USIPHIL INCORPORATED, respondents.
KAPUNAN, J.:
Through this petition for review on certiorari Finman General Assurance Corporation (petitioner) seeks to reverse and
set aside the Decision, dated January 14, 1999, of the Court of Appeals (CA) in CA-G.R. CV No. 46721 directing petitioner
to pay the insurance claim of Usiphil Incorporated (private respondent). The appellate courts Resolution, dated May 13,
1999, which denied petitioners motion for reconsideration, is likewise sought to be reversed and set aside.
The antecedent facts, as culled from the decision of the trial court and the CA, are as follows:
On September 15, 1981, private respondent obtained a fire insurance policy from petitioner (then doing business under
the name Summa Insurance Corporation) covering certain properties, e.g., office, furniture, fixtures, shop machinery and
other trade equipment. Under Policy No. F3100 issued to private respondent, petitioner undertook to indemnify private
respondent for any damage to or loss of said properties arising from fire.
Sometime in 1982, private respondent filed with petitioner an insurance claim amounting to P987,126.11 for the loss of
the insured properties due to fire. Acting thereon, petitioner appointed Adjuster H.H. Bayne to undertake the valuation
and adjustment of the loss. H.H. Bayne then required private respondent to file a formal claim and submit proof of loss. In
compliance therewith, private respondent submitted its Sworn Statement of Loss and Formal Claim, dated July 22, 1982,
signed by Reynaldo Cayetano, private respondents Manager. Respondent likewise submitted Proof of Loss signed by its
Accounting Manager Pedro Palallos and countersigned by H.H. Baynes Adjuster F.C. Medina.
Palallos personally followed-up private respondents claim with petitioners President Joaquin Ortega. During their
meeting, Ortega instructed their Finance Manager, Rosauro Maghirang, to reconcile the records. Thereafter, Maghirang
and Palallos signed a Statement/Agreement, dated February 28, 1985, which indicated that the amount due respondent
was P842,683.40.
Despite repeated demands by private respondent, petitioner refused to pay the insurance claim. Thus, private
respondent was constrained to file a complaint against petitioner for the unpaid insurance claim. In its Answer,
petitioner maintained that the claim of private respondent could not be allowed because it failed to comply with Policy
Condition No. 13 regarding the submission of certain documents to prove the loss.
Trial ensued. On July 6, 1994, the trial court rendered judgment in favor of private respondent. The dispositive portion of
the decision reads:
WHEREFORE, in view of the above observations and findings, judgment is hereby rendered in favor of the
plaintiff and against the defendant, ordering the latter:
1. To pay the plaintiff the sum of P842,683.40 and to pay 24% interest per annum from February 28,
1985 until fully paid (par. 29 of Exh. K);
2. To pay the plaintiff the sum equivalent to 10% of the principal obligation as and for attorneys
fees, plus P1,500.00 per court appearance of counsel;
3. To pay the plaintiff the amount of P30,000.00 as exemplary damages in addition to the actual and
compensatory damages awarded;
4. Dismissing the claim of P30,000.00 for actual damages under par. 4 of the prayer, since the actual
damages has been awarded under par. 1 of the decisions dispositive portion;
5. Dismissing the claim of interest under par. 2 of the prayer, there being no agreement to such
effect;
6. Dismissing the counter-claim for lack of merit;
7. Ordering the defendant to pay the cost of suit.
SO ORDERED.1
On appeal, the CA substantially affirmed the decision of the trial court. The dispositive portion of the CA decision reads:
WHEREFORE, the appealed decision is hereby AFFIRMED with the modification that defendant-appellant is
ordered to pay plaintiff-appellee the sum of P842,683.40 and to pay 24% interest per annum from 03 May
1985 until fully paid. In all other respects, the appealed decision is AFFIRMED IN TOTO.
SO ORDERED.2
Petitioner now comes to this Court assailing the decision of the appellate court. Petitioner alleges that:
Respondent Court of Appeals erred in finding that there is evidence sufficient to justify the Decision of the
lower court;
Respondent Court of Appeals erred in failing to consider the fact that Private Respondent committed a
violation of the Insurance Policy which justifies the denial of the claim by Petitioner;
Respondent Court of Appeals further erred in finding that Petitioner is liable to pay the respondent, Usiphil,
Inc., an interest of 24% per annum in addition to the principal amount of P842,683.40. 3
Essentially, petitioner argues that the disallowance of private respondents claim is justified by its failure to submit the
required documents in accordance with Policy Condition No. 13. Said requirements were allegedly communicated to
private respondent in the two letters of H.H. Bayne to private respondent. The first letter stated:
To be able to expedite adjustment of this case, please submit to us without delay the following documents
and/or particulars:
For FFF, Machineries/Equipment Claims
1. Your formal claim (which may be accomplished in the enclosed form) accompanied by a detailed inventory
of the documents submitted.
2. Certification from the appropriate government office indicating the date of the occurrence of the fire, the
property involved, its location and possible point of origin.
3. Proof of premium payment.
4. Three color photographs of the debris properly captioned/identified/dated and initiated by the claimant at
the back.
4.1 Close-up (not more than 2 meters away) of the most severely damaged.
4.2 Close-up (not more than 2 meters away) of the least damaged.
4.3. Original view of the debris (may be from farther than 2 meters away); splice two or more frames if
necessary.
Though our adjusters will also take photographs in the manner prescribed above, please do not rely on his
photographs in the preservations of your evidence of loss thru pictures.
5. Copies of purchase invoices.
6. In the absence of No. 5, suppliers certificates of sales and delivery.
7. Appraisal report, if any.
 8. Where initial estimated loss is exceeding P20,000.00, submit estimate by at least 2 contractors/suppliers.
9. Others (to be specified)
1. Repairs cost of the affected items including quotation or invoices in support thereof;
2. Complete lists of furniture, fixtures & fittings including date and cost of acquisition, and;
3. Statement of salvage on burned items.
Your preferential attention to this request will be fully appreciated. 4
While the other letter stated:
Please submit to us without delay the following documents and/or particulars.
For Stock Claim
1. Your formal claim (which may be accomplished in the enclosed), accompanied by a detailed inventory of the
documents submitted.
2. Certification from the appropriate government office showing that the Insureds property was involved in
the fire as a consequence of which the claim is being filed.
3. Proof of premium payment.
4. Three colored photographs of the debris, property captioned/identified/dated and initiated by the claimant
at the back; in a floor plan, indicate the point from where the picture was taken and by an arrow where the
camera was facing.
4.1. Close-up (not more than 2 meters away) of the most severely damaged.
4.2. Close-up (not more than 2 meters away) of the least damaged.
4.3. Overall view of the debris (may be from farther than 2 meters away); splice two or more frames if
necessary.
Our adjuster will also take photographs.
5. Books of accounts bill, invoices and other vouchers, or certified copies thereof if originals be lost. This
requirement includes, but is not limited to, purchase and sales invoices, delivery
6. Certified copies of income tax returns for the last three years and the accompanying financial statements.
7. Latest inventory of merchandise filed with a financial institution, the Bureau of Internal Revenue or any
government entity prior to the loss.
8. A detailed inventory of the articles damaged or destroyed, showing the cost price of each, extent of loss, if
any, if the risk sustained partial or water damaged.
9. Certificates of registration.
10. Bank Statements.
11. For losses where the estimated value of stocks claimed which are burned out of sight and/or which may no
longer be subject to actual physical count exceeds P50,000.00, a CPAs detailed computations in support of
such estimated value.
12. In the absence of purchase invoices/delivery receipts (state reason for absence), submit suppliers
certificate of sales and delivery.
13. Others (to be specified).
Statement of salvage of the affected stocks in trade.
Your compliance with this request will enable us to expedite adjustment of the loss in caption.5
According to petitioner, in complete disregard of the foregoing requirements, private respondent never submitted any of
the documents mentioned therein. Further, petitioner assails the award in favor of private respondent of an interest rate
of 24% per annum. Since there was allegedly no express finding that petitioner unreasonably denied or withheld the
payment of the subject insurance claim, then the award of 24% per annum is not proper. Petitioner opines that the
judgment should only bear the legal interest rate of 12% per annum for the delay in the payment of the claim.
The petition is bereft of merit.
Well-settled is the rule that factual findings and conclusions of the trial court and the CA are entitled to great weight and
respect, and will not be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain
facts or circumstances which would substantially affect the disposition of the case. 6 There is no cogent reason to deviate
from this salutary rule in the present case.
Both the trial court and the CA concur in holding that private respondent had substantially complied with Policy
Condition No. 13 which reads:
13. The insured shall give immediate written notice to the Company of any loss, protect the property from
further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible
order, furnish a complete inventory of the destroyed, damaged, and undamaged property, showing in detail
quantities, costs, actual cash value and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE
LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED SHALL RENDER TO
THE COMPANY A PROOF OF LOSS, signed and sworn to by the insured, stating the knowledge and belief of the
insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the
 property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon,
all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title,
use, occupation, location, possession or exposures of said property since the issuing of this policy by whom
and for what purpose any buildings herein described and the several parts thereof were occupied at the time
of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and
schedules in all policies, and if required verified plans and specifications of any building, fixtures, or machinery
destroyed or damaged. The insured, as often as may be reasonably required, shall exhibit to any person
designated by the company all that remains of any property herein described, and submit to examination
under oath by any person named by the Company, and subscribe the same; and, as often as may be reasonably
required, shall produce for examination all books of account, bills, invoices, and other vouchers or certified
copies thereof if originals be lost, at such reasonable time and place as may be designated by the Company or
its representative and shall permit extracts and copies thereof to be made.
No claim under this policy shall be payable unless the terms of this condition have been complied with. 7
A perusal of the records shows that private respondent, after the occurrence of the fire, immediately notified petitioner
thereof. Thereafter, private respondent submitted the following documents: (1) Sworn Statement of Loss and Formal
Claim (Exhibit C) and; (2) Proof of Loss (Exhibit D). The submission of these documents, to the Courts mind, constitutes
substantial compliance with the above provision. Indeed, as regards the submission of documents to prove loss,
substantial, not strict as urged by petitioner, compliance with the requirements will always be deemed sufficient.8
In any case, petitioner itself acknowledged its liability when through its Finance Manager, Rosauro Maghirang, it signed
the document indicating that the amount due private respondent is P842,683.40 (Exhibit E). As correctly held by the
appellate court:
Under the aforequoted provision of the insurance policy, the insured was required to submit to the insurer
written notice of the loss; and a complete inventory of the properties damaged within 60 days after the fire, as
well as a signed and sworn statement of Proof of Loss. It is admitted by all parties that plaintiff-appellee
notified the insurer Summa Corporation of the fire which occurred on 27 May 1982. It is likewise admitted by
all parties that plaintiff-appellee submitted the following documents in support of its claim: (1) Sworn
Statement of Loss (Exhibit C); (2) formal claim dated 22 July 1982; (3) unnotarized sworn statement of proof
of loss (Exhibit D). There was, therefore, sufficient compliance with the requirements in Section 13 of the
policy. But, even assuming that plaintiff-appellee indeed failed to submit certain required documents as proof
of loss per Section 13, such violation was waived by the insurer Summa when it signed the document marked
Exhibit E, a breakdown of the amount due to plaintiff-appellee as of February 1985 on the insurance claim. By
such act, defendant-appellant acknowledged its liability under the insurance policy.
Antecedent to the execution of Exhibit E, there was a conference between Pallalos, representing plaintiff-
appellee and Ortega representing Summa Insurance. There is no evidence that in that meeting, Summa
Insurance questioned plaintiff-appellees submission of the required documents. What happened was that
Ortega summoned Maghirang so that he could settle with Pallalos regarding the amount due to plaintiff-
appellee from insurance claim. The result is a reconciliation of claim in Exhibit E which shows that as of
February 1985, the net due sum is P842,683.49.
Defendant-appellant alleges that Maghirang was without authority to sign Exhibit E, and therefore without
authority to bind defendant-appellant corporation. We do not agree. The evidence indicate that at a meeting
between plaintiff-appellees corporate president Pedro Pallalos and his counterpart in defendant-appellant
corporation, Joaquin Ortega, the latter summoned Rosauro Maghirang to reconcile the claims of plaintiff-
appellee. One who clothes another with apparent authority as his agent and holds him to the public as such,
cannot later be allowed to deny the authority of such person to act as his agent when such third person
entered into the contract in good faith and in an honest belief that he is such agent. Witness for defendant-
appellant Luis Manapats testimony that Maghirang was without authority to bind the defendant-appellant
cannot be given credence because, as he himself testified, he was not yet part of the Summa Corporation at the
time the negotiations in question were going on.9
Anent the payment of 24% interest per annum computed from May 3, 1985 until fully paid, suffice it to say that the same
is authorized by Sections 243 and 244 of the Insurance Code:
Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life
insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by
arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of
the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure
to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the
proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.
Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty
of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim
of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist of attorneys fees and other expenses incurred by the
insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the
ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following
the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may
be, until the claim is fully satisfied: Provided, That the failure to pay any such claim within the time prescribed
in said sections shall be considered prima facie evidence of reasonable delay in payment.
Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by the failure
of the insurer to pay the claim within the time fixed in both Sections 243 and 244. 10 Further, Section 29 of the policy itself
provides for the payment of such interest:
29. Settlement of claim clause. The amount of any loss or damage for which the company may be liable, under
this policy shall be paid within thirty days after proof of loss is received by the company and ascertainment of
the loss or damage is made either in an agreement between the insured and the company or by arbitration; but
if such ascertainment is not had or made within sixty days after such receipt by the company of the proof of
loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the
loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of
the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the grounds (sic) that the claim is fraudulent.11
The policy itself obliges petitioner to pay the insurance claim within thirty days after proof of loss and ascertainment of
the loss made in an agreement between private respondent and petitioner. In this case, as found by the CA, petitioner and
private respondent signed the agreement (Exhibit E) indicating that the amount due private respondent was
P842,683.40 on April 2, 1985. Petitioner thus had until May 2, 1985 to pay private respondents insurance.12 For its
failure to do so, the CA and the trial court rightfully directed petitioner to pay, inter alia, 24% interest per annum in
accordance with the above quoted provisions.1wphi1.nt
WHEREFORE, the instant petition is hereby DENIED for lack of merit. The Decision, dated January 14, 1999, of the Court
of Appeals in CA-G.R. CV No. 46721 and its Resolution, dated May 13, 1999, are AFFIRMED IN TOTO.
SO ORDERED.
G.R. No. 136914 January 25, 2002
COUNTRY BANKERS INSURANCE CORPORATION, petitioner,
vs.
LIANGA BAY AND COMMUNITY MULTI-PURPOSE COOPERATIVE, INC., respondent.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated December 29, 1998 in CA-
G.R. CV Case No. 36902 affirming in toto the Decision3 dated December 26, 1991 of the Regional Trial Court of Lianga,
Surigao del Sur, Branch 28, in Civil Case No. L-518 which ordered petitioner Country Bankers Insurance Corporation to
fully pay the insurance claim of respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc., under Fire
Insurance Policy No. F-1397, for loss sustained as a result of the fire that occurred on July 1, 1989 in the amount of Two
Hundred Thousand Pesos (200,000.00), with interest at twelve percent (12%) per annum from the date of filing of the
complaint until fully paid, as well as Fifty Thousand Pesos (50,000.00) as actual damages, Fifty Thousand Pesos
(50,000.00) as exemplary damages, Five Thousand Pesos (5,000.00) as litigation expenses, Ten Thousand Pesos
(10,000.00) as attorneys fees, and the costs of suit.
The facts are undisputed:
The petitioner is a domestic corporation principally engaged in the insurance business wherein it undertakes, for a
consideration, to indemnify another against loss, damage or liability from an unknown or contingent event including fire
while the respondent is a duly registered cooperative judicially declared insolvent and represented by the elected
assignee, Cornelio Jamero.
It appears that sometime in 1989, the petitioner and the respondent entered into a contract of fire insurance. Under Fire
Insurance Policy No. F-1397, the petitioner insured the respondents stocks-in-trade against fire loss, damage or liability
during the period starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred
Thousand Pesos (200,000.00).
On July 1, 1989, at or about 12:40 a.m., the respondents building located at Barangay Diatagon, Lianga, Surigao del Sur
was gutted by fire and reduced to ashes, resulting in the total loss of the respondents stocks-in-trade, pieces of furnitures
and fixtures, equipments and records.
Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Insurance Policy No. F-1397,
submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989; (b) the Sworn Statement of
Jose Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo.
The petitioner, however, denied the insurance claim on the ground that, based on the submitted documents, the building
was set on fire by two (2) NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their
comrades in the forest, and that such loss was an excepted risk under paragraph No. 6 of the policy conditions of Fire
Insurance Policy No. F-1397, which provides:
This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or
indirectly, of any of the following occurrences, namely:
xxx xxx xxx
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.
Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise)
which are occasioned by or through or in consequence, directly or indirectly, of any of said occurrences shall
be deemed to be loss or damage which is not covered by this insurance, except to the extent that the Insured
shall prove that such loss or damage happened independently of the existence of such abnormal conditions.
Finding the denial of its claim unacceptable, the respondent then instituted in the trial court the complaint for recovery of
"loss, damage or liability" against petitioner. The petitioner answered the complaint and reiterated the ground it earlier
cited to deny the insurance claim, that is, that the loss was due to NPA rebels, an excepted risk under the fire insurance
policy.
In due time, the trial court rendered its Decision dated December 26, 1991 in favor of the respondent, declaring that:
Based on its findings, it is therefore the considered opinion of this Court, as it so holds, that the defenses raised
by defendant-Country Bankers has utterly crumbled on account of its inherent weakness, incredibility and
unreliability, and after applying those helpful tools like common sense, logic and the Courts honest appraisal
of the real and actual situation obtaining in this area, such defenses remains (sic) unimpressive and
unconvincing, and therefore, the defendant-Country Bankers has to be irreversibly adjudged liable, as it should
be, to plaintiff-Insolvent Cooperative, represented in this action by its Assignee, Cornelio Jamero, and thus,
ordering said defendant-Country Bankers to pay the plaintiff-Insolvent Cooperative, as follows:
1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fire
under its Fire Insurance Policy No. F-1397 in its full face value of 200,000.00 with interest of 12%
per annum from date of filing of the complaint until the same is fully paid;
2. To pay as and in the concept of actual or compensatory damages in the total sum of 50,000.00;
3. To pay as and in the concept of exemplary damages in the total sum of 50,000.00;
4. To pay in the concept of litigation expenses the sum of 5,000.00;
 5. To pay by way of reimbursement the attorneys fees in the sum of 10,000.00; and
6. To pay the costs of the suit.
For being unsubstantiated with credible and positive evidence, the "counterclaim" is dismissed.
IT IS SO ORDERED.
Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the appellate court affirmed the
challenged decision of the trial court in its entirety. Petitioner now comes before us via the instant petition anchored on
three (3) assigned errors,4 to wit:
1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE CREDENCE TO THE SPOT
REPORT OF PFC. ARTURO JUARBAL (EXH. 3) AND THE SWORN STATEMENT OF JOSE LOMOCSO (EXH. 4)
THAT THE RESPONDENTS STOCK-IN-TRADE WAS BURNED BY THE NPA REBELS, HENCE AN EXCEPTED
RISK UNDER THE FIRE INSURANCE POLICY.
2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE FOR 12% INTEREST
PER ANNUM ON THE FACE VALUE OF THE POLICY FROM THE FILING OF THE COMPLAINT UNTIL FULLY
PAID.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER LIABLE FOR ACTUAL
AND EXEMPLARY DAMAGES, LITIGATION EXPENSES, ATTORNEYS FEES AND COST OF SUIT.
A party is bound by his own affirmative allegations. This is a well-known postulate echoed in Section 1 of Rule 131 of the
Revised Rules of Court. Each party must prove his own affirmative allegations by the amount of evidence required by law
which in civil cases, as in this case, is preponderance of evidence, to obtain a favorable judgment. 5
In the instant case, the petitioner does not dispute that the respondents stocks-in-trade were insured against fire loss,
damage or liability under Fire Insurance Policy No. F- 1397 and that the respondent lost its stocks-in-trade in a fire that
occurred on July 1, 1989, within the duration of said fire insurance. The petitioner, however, posits the view that the
cause of the loss was an excepted risk under the terms of the fire insurance policy.
Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk
constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an
insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the
loss comes within the purview of the exception or limitation set up. If a proof is made of a loss apparently within a
contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted
or for which it is not liable, or from a cause which limits its liability. 6 Stated else wise, since the petitioner in this case is
defending on the ground of non-coverage and relying upon an exemption or exception clause in the fire insurance policy,
it has the burden of proving the facts upon which such excepted risk is based, by a preponderance of evidence. 7 But
petitioner failed to do so.
The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on the Spot Report of
Pfc. Arturo V. Juarbal dated July 1, 1989, more particularly the following statement therein:
xxx investigation revealed by Jose Lomocso that those armed men wanted to get can goods and rice for their
consumption in the forest PD investigation further disclosed that the perpetrator are member (sic) of the NPA
PD end x x x
A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are
derived from his perception.8 Consequently, a witness may not testify as to what he merely learned from others either
because he was told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of
the truth of what he has learned. Such is the hearsay rule which applies not only to oral testimony or statements but also
to written evidence as well.9
The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch
as such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to
cross-examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court
declarant or actor upon whose reliability on which the worth of the out-of-court statement depends.10
Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay,
inasmuch as they did not take the witness stand and could not therefore be cross-examined.
There are exceptions to the hearsay rule, among which are entries in official records. 11 To be admissible in evidence,
however, three (3) requisites must concur, to wit:
(a) that the entry was made by a public officer, or by another person specially enjoined by law to do so;
(b) that it was made by the public officer in the performance of his duties, or by such other person in the
performance of a duty specially enjoined by law; and
(c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must have
been acquired by him personally or through official information. 12
The third requisite was not met in this case since no investigation, independent of the statements gathered from Jose
Lomocso, was conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed out, citing the testimony of Pfc.
Arturo Juarbal,13 the latters Spot Report "was based on the personal knowledge of the caretaker Jose Lomocso who
witnessed every single incident surrounding the facts and circumstances of the case." This argument undeniably weakens
the petitioners defense, for the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose Lomocso to the effect
that NPA rebels allegedly set fire to the respondents building is inadmissible in evidence, for the purpose of proving the
truth of the statements contained in the said report, for being hearsay.
The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. Arturo V. Juarbal since he
himself took the witness stand and was available for cross-examination. The portions of his Spot Report which were of
his personal knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest of the said report
relative to the statement of Jose Lomocso may be considered as independently relevant statements gathered in the
course of Juarbals investigation and may be admitted as such but not necessarily to prove the truth thereof. 14
The petitioners evidence to prove its defense is sadly wanting and thus, gives rise to its liability to the respondent under
Fire Insurance Policy No. F-1397. Nonetheless, we do not sustain the trial courts imposition of twelve percent (12%)
interest on the insurance claim as well as the monetary award for actual and exemplary damages, litigation expenses and
attorneys fees for lack of legal and valid basis.
Concerning the application of the proper interest rates, the following guidelines were set in Eastern Shipping Lines, Inc. v. Concerning the award of exemplary damages for Fifty Thousand Pesos (50,000.00), we likewise find no legal and valid
Court of Appeals and Mercantile Insurance Co., Inc.:15 basis for granting the same. Article 2229 of the New Civil Code provides that exemplary damages may be imposed by way
of example or correction for the public good. Exemplary damages are imposed not to enrich one party or impoverish
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts, is another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. They are
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of designed to permit the courts to mould behavior that has socially deleterious consequences, and its imposition is
the Civil Code govern in determining the measure of recoverable damages. required by public policy to suppress the wanton acts of an offender. However, it cannot be recovered as a matter of
right. It is based entirely on the discretion of the court. We find no cogent and valid reason to award the same in the case
at bar.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
With respect to the award of litigation expenses and attorneys fees, Article 2208 of the New Civil Code 17enumerates the
instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
granted. Attorneys fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant.
forbearance of money, the interest due should be that which may have been stipulated in writing.
They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
right to litigate.18 The award of attorneys fees is the exception rather than the general rule. As such, it is necessary for the
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
court to make findings of facts and law that would bring the case within the exception and justify the grant of such award.
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169
We find none in this case to warrant the award by the trial court of litigation expenses and attorneys fees in the amounts
of the Civil Code.
of Five Thousand Pesos (5,000.00) and Ten Thousand Pesos (10,000.00), respectively, and therefore, the same must
also be deleted.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on the adjudged principal amount of Two
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
Hundred Thousand Pesos (200,000.00) shall be six percent (6%) per annum computed from the date of filing of the
until the demand can be established with reasonable certainty. Accordingly, where the demand is
Complaint in the trial court. The awards in the amounts of Fifty Thousand Pesos (50,000.00) as actual damages, Fifty
established with reasonable certainty, the interest shall begin to run from the time the claim is made
Thousand Pesos (50,000.00) as exemplary damages, Five Thousand Pesos (5,000.00) as litigation expenses, and Ten
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
Thousand Pesos (10,000.00) as attorneys fees are hereby DELETED. Costs against the petitioner.
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, SO ORDERED.
be on the amount finally adjudged.

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

In the said case of Eastern Shipping, the Court further observed that a "forbearance" in the context of the usury law is a
"contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or
debtor to repay a loan or debt then due and payable."

Considering the foregoing, the insurance claim in this case is evidently not a forbearance of money, goods or credit, and
thus the interest rate should be as it is hereby fixed at six percent (6%) computed from the date of filing of the complaint.

We find no justification for the award of actual damages of Fifty Thousand Pesos (50,000.00). Well-entrenched is the
doctrine that actual, compensatory and consequential damages must be proved, and cannot be presumed. 16That part of
the dispositive portion of the Decision of the trial court ordering the petitioner to pay actual damages of Fifty Thousand
Pesos (50,000.00) has no basis at all. The justification, if any, for such an award of actual damages does not appear in
the body of the decision of the trial court. Neither is there any testimonial and documentary evidence on the alleged
actual damages of Fifty Thousand Pesos (50,000.00) to warrant such an award. Thus, the same must be deleted.
G.R. No. 137775. March 31, 2005 On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio, for
towage by M/T ANCO, the following cargoes:
FGU INSURANCE CORPORATION, Petitioners,
vs. Bill of Lading No. Shipment Destination
THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE OF ANG GUI, represented by LUCIO, JULIAN,
and JAIME, all surnamed ANG, and CO TO, Respondents. 1 25,000 cases Pale Pilsen Estancia, Iloilo

G.R. No. 140704. March 31, 2005 350 cases Cerveza Negra Estancia, Iloilo

ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and CO TO,Petitioners, 2 15,000 cases Pale Pilsen San Jose, Antique
vs.
THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU INSURANCE CORP., Respondents.
200 cases Cerveza Negra San Jose, Antique

DECISION
The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer Marketing Division (BMD)-Estancia Beer
Sales Office, Estancia, Iloilo, while the consignee for the cargoes covered by Bill of Lading No. 2 was SMCs BMD-San Jose
CHICO-NAZARIO, J.: Beer Sales Office, San Jose, Antique.

Before Us are two separate Petitions for review assailing the Decision1 of the Court of Appeals in CA-G.R. CV No. 49624
entitled, "San Miguel Corporation, Plaintiff-Appellee versus Estate of Ang Gui, represented by Lucio, Julian and Jaime, all
surnamed Ang, and Co To, Defendants-Appellants, ThirdParty Plaintiffs versus FGU Insurance Corporation, Third-Party
Defendant-Appellant," which affirmed in toto the decision2 of the Regional Trial Court of Cebu City, Branch 22. The
dispositive portion of the Court of Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an interest of 6% per annum to be reckoned from
the filing of this case on October 2, 1990;
2) Ordering defendants to pay plaintiff the sum of P25,000.00 for attorneys fees and an additional sum of P10,000.00 as
litigation expenses;
3) With cost against defendants.
For the Third-Party Complaint:
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose, Antique. The vessels arrived at
San Jose, Antique, at about one oclock in the afternoon of 30 September 1979. The tugboat M/T ANCO left the barge
immediately after reaching San Jose, Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979, the clouds over the area
were dark and the waves were already big. The arrastre workers unloading the cargoes of SMC on board the D/B Lucio
began to complain about their difficulty in unloading the cargoes. SMCs District Sales Supervisor, Fernando Macabuag,
requested ANCOs representative to transfer the barge to a safer place because the vessel might not be able to withstand
the big waves.
ANCOs representative did not heed the request because he was confident that the barge could withstand the waves. This,
notwithstanding the fact that at that time, only the M/T ANCO was left at the wharf of San Jose, Antique, as all other
vessels already left the wharf to seek shelter. With the waves growing bigger and bigger, only Ten Thousand Seven
Hundred Ninety (10,790) cases of beer were discharged into the custody of the arrastre operator.
At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio abandoned the vessel because the
barges rope attached to the wharf was cut off by the big waves. At around midnight, the barge run aground and was
broken and the cargoes of beer in the barge were swept away.

1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants the amount of
P632,700.00.3 As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two Hundred Ten (29,210) cases of Pale
Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The value per case of Pale Pilsen was Forty-Five Pesos and
Twenty Centavos (P45.20). The value of a case of Cerveza Negra was Forty-Seven Pesos and Ten Centavos (P47.10),
The Facts
hence, SMCs claim against ANCO amounted to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-
Seven Pesos (P1,346,197.00).
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the
shipping business. It owned the M/T ANCO tugboat and the D/B Lucio barge which were operated as common carriers.
As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and Damages against ANCO for
Since the D/B Lucio had no engine of its own, it could not maneuver by itself and had to be towed by a tugboat for it to
the amount of One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00) plus
move from one place to another.
interest, litigation expenses and Twenty-Five Percent (25%) of the total claim as attorneys fees.
Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January 1993, SMC filed a second amended
complaint which was admitted by the Court impleading the surviving partner, Co To and the Estate of Ang Gui
represented by Lucio, Julian and Jaime, all surnamed Ang. The substituted defendants adopted the original answer with
counterclaim of ANCO "since the substantial allegations of the original complaint and the amended complaint are
practically the same."
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the complaint were indeed loaded on
the vessel belonging to ANCO. It claimed however that it had an agreement with SMC that ANCO would not be liable for
any losses or damages resulting to the cargoes by reason of fortuitous event. Since the cases of beer Pale Pilsen and
Cerveza Negra were lost by reason of a storm, a fortuitous event which battered and sunk the vessel in which they were
loaded, they should not be held liable. ANCO further asserted that there was an agreement between them and SMC to
insure the cargoes in order to recover indemnity in case of loss. Pursuant to that agreement, the cargoes to the extent of
Twenty Thousand (20,000) cases was insured with FGU Insurance Corporation (FGU) for the total amount of Eight
Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per Marine Insurance Policy No. 29591.
trial court thus held the Estate of Ang Gui and Co To liable to SMC for the amount of the lost shipment. With respect to the
Third-Party complaint, the court a quo found FGU liable to bear Fifty-Three Percent (53%) of the amount of the lost
cargoes. According to the trial court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and was broken and the beer
cargoes on the said barge were swept away. It is the sense of this Court that the risk insured against was the cause of the
loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the amount of the policy was only
for P858,500.00, defendants as assured, therefore, were considered co-insurers of third-party defendant FGU Insurance
Corporation to the extent of 975,405.00 value of the cargo. Consequently, inasmuch as there was partial loss of only
P1,346,197.00, the assured shall bear 53% of the loss4 [Emphasis ours]

Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging that before the vessel of
The appellate court affirmed in toto the decision of the lower court and denied the motion for reconsideration and the
ANCO left for San Jose, Antique with the cargoes owned by SMC, the cargoes, to the extent of Twenty Thousand (20,000)
supplemental motion for reconsideration.
cases, were insured with FGU for a total amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos
(P858,500.00) under Marine Insurance Policy No. 29591. ANCO further alleged that on or about 02 October 1979, by
reason of very strong winds and heavy waves brought about by a passing typhoon, the vessel run aground near the Hence, the petitions.
vicinity of San Jose, Antique, as a result of which, the vessel was totally wrecked and its cargoes owned by SMC were lost
and/or destroyed. According to ANCO, the loss of said cargoes occurred as a result of risks insured against in the The Issues
insurance policy and during the existence and lifetime of said insurance policy. ANCO went on to assert that in the remote
possibility that the court will order ANCO to pay SMCs claim, the third-party defendant corporation should be held liable
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into two: 1) Whether or not
to indemnify or reimburse ANCO whatever amounts, or damages, it may be required to pay to SMC.
respondent Court of Appeals committed grave abuse of discretion in holding FGU liable under the insurance contract
considering the circumstances surrounding the loss of the cargoes; and 2) Whether or not the Court of Appeals
In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence of the Insurance Policy committed an error of law in holding that the doctrine of res judicata applies in the instant case.
under Marine Cover Note No. 29591 but maintained that the alleged loss of the cargoes covered by the said insurance
policy cannot be attributed directly or indirectly to any of the risks insured against in the said insurance policy.
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the appellate court based on the following
According to FGU, it is only liable under the policy to Third-party Plaintiff ANCO and/or Plaintiff SMC in case of any of the
assignments of error: 1) The Court of Appeals committed grave abuse of discretion in affirming the findings of the lower
following:
court that the negligence of the crewmembers of the D/B Lucio was the proximate cause of the loss of the cargoes; and 2)
The respondent court acted with grave abuse of discretion when it ruled that the appeal was without merit despite the
a) total loss of the entire shipment; fact that said court had accepted the decision in Civil Case No. R-19341, as affirmed by the Court of Appeals and the
Supreme Court, as res judicata.
b) loss of any case as a result of the sinking of the vessel; or
Ruling of the Court
c) loss as a result of the vessel being on fire.
First, we shall endeavor to dispose of the common issue raised by both petitioners in their respective petitions for
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to exercise ordinary diligence or review, that is, whether or not the doctrine of res judicata applies in the instant case.
the diligence of a good father of the family in the care and supervision of the cargoes insured to prevent its loss and/or
destruction. It is ANCOs contention that the decision in Civil Case No. R-19341,5 which was decided in its favor, constitutes res
judicata with respect to the issues raised in the case at bar.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked for actual, moral, and
exemplary damages and attorneys fees. The contention is without merit. There can be no res judicata as between Civil Case No. R-19341 and the case at bar. In
order for res judicata to be made applicable in a case, the following essential requisites must be present: 1) the former
The trial court found that while the cargoes were indeed lost due to fortuitous event, there was failure on ANCOs part, judgment must be final; 2) the former judgment must have been rendered by a court having jurisdiction over the subject
through their representatives, to observe the degree of diligence required that would exonerate them from liability. The
matter and the parties; 3) the former judgment must be a judgment or order on the merits; and 4) there must be between
the first and second action identity of parties, identity of subject matter, and identity of causes of action.6
There is no question that the first three elements of res judicata as enumerated above are indeed satisfied by the decision
in Civil Case No. R-19341. However, the doctrine is still inapplicable due to the absence of the last essential requisite of
identity of parties, subject matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in the instant case, SMC is the
plaintiff and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang and Co To as defendants, with
the latter merely impleading FGU as third-party defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into by ANCO, the owner of the vessel,
with FGU covering the vessel D/B Lucio, while in the instant case, the subject matter of litigation is the loss of the cargoes
of SMC, as shipper, loaded in the D/B Lucio and the resulting failure of ANCO to deliver to SMCs consignees the lost
cargo. Otherwise stated, the controversy in the first case involved the rights and liabilities of the shipowner vis--vis that
of the insurer, while the present case involves the rights and liabilities of the shipper vis--vis that of the shipowner.
Specifically, Civil Case No. R-19341 was an action for Specific Performance and Damages based on FGU Marine Hull
Insurance Policy No. VMF-MH-13519 covering the vessel D/B Lucio, while the instant case is an action for Breach of
Contract of Carriage and Damages filed by SMC against ANCO based on Bill of Lading No. 1 and No. 2, with defendant
ANCO seeking reimbursement from FGU under Insurance Policy No. MA-58486, should the former be held liable to pay
SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is different from that in Civil Case No.
R-19341. In the latter, ANCO was suing FGU for the insurance contract over the vessel while in the former, the third-party
complaint arose from the insurance contract covering the cargoes on board the D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue already passed upon by a court of
competent jurisdiction in a former judgment, in another action between the same parties based on a different claim or
cause of action. The judgment in the prior action operates as estoppel only as to those matters in issue or points
controverted, upon the determination of which the finding or judgment was rendered. 7 If a particular point or question is
in issue in the second action, and the judgment will depend on the determination of that particular point or question, a
former judgment between the same parties or their privies will be final and conclusive in the second if that same point or
question was in issue and adjudicated in the first suit.8
Since the case at bar arose from the same incident as that involved in Civil Case No. R-19341, only findings with respect
to matters passed upon by the court in the former judgment are conclusive in the disposition of the instant case. A careful
perusal of the decision in Civil Case No. R-19341 will reveal that the pivotal issues resolved by the lower court, as
affirmed by both the Court of Appeals and the Supreme Court, can be summarized into three legal conclusions: 1) that the
D/B Lucio before and during the voyage was seaworthy; 2) that there was proper notice of loss made by ANCO within the
reglementary period; and 3) that the vessel D/B Lucio was a constructive total loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent therein was any discussion
regarding the liability of ANCO for the loss of the cargoes. Neither did the lower court pass upon the issue of the alleged
negligence of the crewmembers of the D/B Lucio being the cause of the loss of the cargoes owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the Court of Appeals that there is res
judicata.
Anent ANCOs first assignment of error, i.e., the appellate court committed error in concluding that the negligence of
ANCOs representatives was the proximate cause of the loss, said issue is a question of fact assailing the lower courts
appreciation of evidence on the negligence or lack thereof of the crewmembers of the D/B Lucio. As a rule, findings of fact
of lower courts, particularly when affirmed by the appellate court, are deemed final and conclusive. The Supreme Court
cannot review such findings on appeal, especially when they are borne out by the records or are based on substantial
evidence.9 As held in the case of Donato v. Court of Appeals,10 in this jurisdiction, it is a fundamental and settled rule that
findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and
cogent reasons because the trial court is in a better position to examine real evidence, as well as to observe the demeanor
of the witnesses while testifying in the case.11
It is not the function of this Court to analyze or weigh evidence all over again, unless there is a showing that the findings
of the lower court are totally devoid of support or are glaringly erroneous as to constitute palpable error or grave abuse
of discretion.12
A careful study of the records shows no cogent reason to fault the findings of the lower court, as sustained by the
appellate court, that ANCOs representatives failed to exercise the extraordinary degree of diligence required by the law
to exculpate them from liability for the loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine Thousand Two Hundred
Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio had no engine of its own and
could not maneuver by itself. Yet, the patron of ANCOs tugboat M/T ANCO left it to fend for itself notwithstanding the
fact that as the two vessels arrived at the port of San Jose, Antique, signs of the impending storm were already manifest.
As stated by the lower court, witness Mr. Anastacio Manilag testified that the captain or patron of the tugboat M/T ANCO
left the barge D/B Lucio immediately after it reached San Jose, Antique, despite the fact that there were already big waves
and the area was already dark. This is corroborated by defendants own witness, Mr. Fernando Macabueg. 13
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe extraordinary diligence in the
vigilance over the cargo of the plaintiff, the patron or captain of M/T ANCO, representing the defendant could have placed
D/B Lucio in a very safe location before they left knowing or sensing at that time the coming of a typhoon. The presence
of big waves and dark clouds could have warned the patron or captain of M/T ANCO to insure the safety of D/B Lucio
including its cargo. D/B Lucio being a barge, without its engine, as the patron or captain of M/T ANCO knew, could not
possibly maneuver by itself. Had the patron or captain of M/T ANCO, the representative of the defendants observed
extraordinary diligence in placing the D/B Lucio in a safe place, the loss to the cargo of the plaintiff could not have
occurred. In short, therefore, defendants through their representatives, failed to observe the degree of diligence required
of them under the provision of Art. 1733 of the Civil Code of the Philippines. 14
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention of respondents SMC and FGU
that "the crewmembers of D/B Lucio should have left port at the onset of the typhoon is like advising the fish to jump
from the frying pan into the fire and an advice that borders on madness." 15
The argument does not persuade. The records show that the D/B Lucio was the only vessel left at San Jose, Antique,
during the time in question. The other vessels were transferred and temporarily moved to Malandong, 5 kilometers from
wharf where the barge remained.16 Clearly, the transferred vessels were definitely safer in Malandong than at the port of
San Jose, Antique, at that particular time, a fact which petitioners failed to dispute
ANCOs arguments boil down to the claim that the loss of the cargoes was caused by the typhoon Sisang, a fortuitous
event (caso fortuito), and there was no fault or negligence on their part. In fact, ANCO claims that their crewmembers
exercised due diligence to prevent or minimize the loss of the cargoes but their efforts proved no match to the forces
unleashed by the typhoon which, in petitioners own words was, by any yardstick, a natural calamity, a fortuitous event,
an act of God, the consequences of which petitioners could not be held liable for. 17
The Civil Code provides:
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 . . . (Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from liability) 18 by definition,
are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which though foreseen, were
inevitable. It is therefore 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. 19
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it unavoidable. In fact, the
other vessels in the port of San Jose, Antique, managed to transfer to another place, a circumstance which prompted
SMCs District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio had
no engine and could not maneuver by itself. Even if ANCOs representatives wanted to transfer it, they no longer had any
means to do so as the tugboat M/T ANCO had already departed, leaving the barge to its own devices. The captain of the
tugboat should have had the foresight not to leave the barge alone considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO could not escape
liability to respondent SMC. The records clearly show the failure of petitioners representatives to exercise the
extraordinary degree of diligence mandated by law. To be exempted from responsibility, the natural disaster should have
been the proximate and only cause of the loss.20 There must have been no contributory negligence on the part of the
common carrier. As held in the case of Limpangco Sons v. Yangco Steamship Co.:21
. . . To be exempt from liability because of an act of God, the tug must be free from any previous negligence or misconduct
by which that loss or damage may have been occasioned. For, although the immediate or proximate cause of the loss in
any given instance may have been what is termed an act of God, yet, if the tug unnecessarily exposed the two to such
accident by any culpable act or omission of its own, it is not excused.22
Therefore, as correctly pointed out by the appellate court, 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, as
was done by the other vessels in the port; thus, making said blatant negligence the proximate cause of the loss of the
cargoes.
We now come to the issue of whether or not FGU can be held liable under the insurance policy to reimburse ANCO for the
loss of the cargoes despite the findings of the respondent court that such loss was occasioned by the blatant negligence of
the latters employees.
One of the purposes for taking out insurance is to protect the insured against the consequences of his own negligence and
that of his agents. Thus, it is a basic rule in insurance that the carelessness and negligence of the insured or his agents
constitute no defense on the part of the insurer.23 This rule however presupposes that the loss has occurred due to causes
which could not have been prevented by the insured, despite the exercise of due diligence.
The question now is whether there is a certain degree of negligence on the part of the insured or his agents that will
deprive him the right to recover under the insurance contract. We say there is. However, to what extent such negligence
must go in order to exonerate the insurer from liability must be evaluated in light of the circumstances surrounding each
case. 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.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,24 the United States Supreme Court held that:
The ordinary negligence of the insured and his agents has long been held as a part of the risk which the insurer takes
upon himself, and the existence of which, where it is the proximate cause of the loss, does not absolve the insurer from
liability. But willful exposure, gross negligence, negligence amounting to misconduct, etc., have often been held to release the
insurer from such liability.25 [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the owners of an insured vessel
attempted to put her across the bar at Hatteras Inlet. She struck on the bar and was wrecked. The master knew that the
depth of water on the bar was such as to make the attempted passage dangerous. Judge Clifford held that, under the
circumstances, the loss was not within the protection of the policy, saying:
Authorities to prove that persons insured cannot recover for a loss occasioned by their own wrongful acts are hardly
necessary, as the proposition involves an elementary principle of universal application. Losses may be recovered by the
insured, though remotely occasioned by the negligence or misconduct of the master or crew, if proximately caused by the
perils insured against, because such mistakes and negligence are incident to navigation and constitute a part of the perils
which those who engage in such adventures are obliged to incur; but it was never supposed that the insured could recover
indemnity for a loss occasioned by his own wrongful act or by that of any agent for whose conduct he was
responsible.26 [Emphasis ours]
From the above-mentioned decision, the United States Supreme Court has made a distinction between ordinary
negligence and gross negligence or negligence amounting to misconduct and its effect on the insureds right to recover
under the insurance contract. According to the Court, while mistake and negligence of the master or crew are incident to
navigation and constitute a part of the perils that the insurer is obliged to incur, such negligence or recklessness must not
be of such gross character as to amount to misconduct or wrongful acts; otherwise, such negligence shall release the
insurer from liability under the insurance contract.
In the case at bar, both the trial court and the appellate court had concluded from the evidence that the crewmembers of
both the D/B Lucio and the M/T ANCO were blatantly negligent. To wit:
There was blatant negligence on the part of the employees of defendants-appellants when the patron (operator) of the
tug boat immediately left the barge at the San Jose, Antique wharf despite the looming bad weather. Negligence was
likewise exhibited by the defendants-appellants representative who did not heed Macabuags request that the barge be
moved to a more secure place. The prudent thing to do, as was done by the other sea vessels at San Jose, Antique during
the time in question, was to transfer the vessel to a safer wharf. The negligence of the defendants-appellants is proved by
the fact that on 01 October 1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio.27 [Emphasis ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by the lower court, as
sustained by the Court of Appeals, that ANCOs representatives had failed to exercise extraordinary diligence required of
common carriers in the shipment of SMCs cargoes. Such blatant negligence being the proximate cause of the loss of the
cargoes amounting to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes that the blatant negligence of
ANCOs employees is of such gross character that it amounts to a wrongful act which must exonerate FGU from liability
under the insurance contract.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February 1999 is hereby AFFIRMED
with MODIFICATION dismissing the third-party complaint.
SO ORDERED.
G.R. No. 136888 June 29, 2005
PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner,
vs.
CHEMOIL LIGHTERAGE CORPORATION, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari which assails the Decision of the Court of Appeals1 in CA-G.R. CV No.
56209, dated 18 December 1998. The Decision reversed and set aside the decision of the Regional Trial Court
(RTC),2 Branch 16, City of Manila, which ordered herein respondent to pay the petitioners claim in the amount of
5,000,000.00 with legal interest from the date of the filing of the complaint.
THE FACTS
Petitioner Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of non-life
insurance. Respondent Chemoil Lighterage Corporation is also a domestic corporation engaged in the transport of goods.
On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan, South Korea, shipped 62.06 metric tons of the
liquid chemical DIOCTYL PHTHALATE (DOP) on board MT "TACHIBANA" which was valued at US$90,201.57 under Bill of
Lading No. ULS/MNL-13 and another 436.70 metric tons of DOP valued at US$634,724.89 under Bill of Lading No.
ULS/MNL-24 to the Philippines. The consignee was Plastic Group Phils., Inc. (PGP) in Manila.
PGP insured the cargo with herein petitioner Philippine Charter Insurance Corporation against all risks. The insurance
was under Marine Policies No. MRN-307215 dated 06 February 1991 for 31,757,969.19 and No. MRN-307226 for
4,514,881.00. Marine Endorsement No. 27867 dated 11 May 1991 was attached and formed part of MRN-30721,
amending the latters insured value to 24,667,422.03, and reduced the premium accordingly.
The ocean tanker MT "TACHIBANA" unloaded the cargo to Tanker Barge LB-1011 of respondent Chemoil Lighterage
Corporation, which shall transport the same to Del Pan Bridge in Pasig River. Tanker Barge LB-1011 would unload the
cargo to tanker trucks, also owned by the respondent, and haul it by land to PGPs storage tanks in Calamba, Laguna.
Upon inspection by PGP, the samples taken from the shipment showed discoloration from yellowish to amber,
demonstrating that it was damaged, as DOP is colorless and water clear. PGP then sent a letter to the petitioner dated 18
February 19918 where it formally made an insurance claim for the loss it sustained due to the contamination.
The petitioner requested an independent insurance adjuster, the GIT Insurance Adjusters, Inc. (GIT), to conduct a
Quantity and Condition Survey of the shipment. On 22 February 1991, GIT issued a Report, 9 part of which states:
As unloading progressed, it was observed on February 14, 1991 that DOP samples taken were discolored from yellowish
to amber. Inspection of cargo tanks showed manhole covers of ballast tanks ceilings loosely secured. Furthermore, it was
noted that the rubber gaskets of the manhole covers of the ballast tanks re-acted to the chemical causing shrinkage thus,
loosening the covers and cargo ingress to the rusty ballast tanks10
On 13 May 1991, the petitioner paid PGP the amount of 5,000,000.00 11 as full and final payment for the loss. PGP issued ASSIGNMENT OF ERRORS
a Subrogation Receipt to the petitioner.
The petitioner assigns as errors the following:
Meanwhile, on 03 April 1991, PGP paid the respondent the amount of 301,909.50 as full payment for the latters
services, as evidenced by Official Receipt No. 1274.12 I

On 15 July 1991, an action for damages was instituted by the petitioner-insurer against respondent-carrier before the THE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE OF CLAIM WAS NOT FILED WITHIN THE
RTC, Branch 16, City of Manila, docketed as Civil Case No. 91-57923.13 The petitioner prayed for actual damages in the REQUIRED PERIOD.
amount of 5,000,000.00, attorneys fees in the amount of no less than 1,000,000.00, and costs of suit.

II
An Answer with Compulsory Counterclaim14 was filed by the respondent on 05 September 1991. The respondent
admitted it undertook to transport the consignees shipment from MT "TACHIBANA" to the Del Pan Bridge, Pasig River,
THE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT DAMAGE TO THE CARGO WAS DUE TO THE FAULT
where it was transferred to its tanker trucks for hauling to PGPs storage tanks in Calamba, Laguna. The respondent
OR NEGLIGENCE OF RESPONDENT CHEMOIL.
alleged that before the DOP was loaded into its barge (LB-1011), the surveyor/representative of PGP, Adjustment
Standard Corporation, inspected it and found the same clean, dry, and fit for loading. The entire loading and unloading of
the shipment were also done under the control and supervision of PGPs surveyor/representative. It was also mentioned III
by the respondent that the contract between it and PGP expressly stipulated that it shall be free from any and all claims
arising from contamination, loss of cargo or part thereof; that the consignee accepted the cargo without any protest or THE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL COURTS DECISION AND IN DISMISSING THE
notice; and that the cargo shall be insured by its owner sans recourse against all risks. As subrogee, the petitioner was COMPLAINT.24
bound by this stipulation. As carrier, no fault and negligence can be attributed against respondent as it exercised
extraordinary diligence in handling the cargo.15
ISSUES

After due hearing, the trial court rendered a Decision on 06 January 1997, the dispositive portion of which reads:
Synthesized, the issues that must be addressed by this Court are:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff ordering defendant to pay
I
plaintiffs claim of P5,000,000.00 with legal interest from the date of the filing of the complaint. The counterclaims are
DISMISSED.16
WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE REQUIRED PERIOD. If the answer is in the
affirmative,
Aggrieved by the trial courts decision, the respondent sought relief with the Court of Appeals where it alleged in the
main that PGP failed to file any notice, claim or protest within the period required by Article 366 of the Code of
Commerce, which is a condition precedent to the accrual of a right of action against the carrier.17 A telephone call which II
was supposedly made by a certain Alfred Chan, an employee of PGP, to one of the Vice Presidents of the respondent,
informing the latter of the discoloration, is not the notice required by Article 366 of the Code of Commerce. 18 WHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF THE RESPONDENT.

On 18 December 1998, the Court of Appeals promulgated its Decision reversing the trial court, the dispositive portion of THE COURTS RULINGS
which reads:
Article 366 of the Code of Commerce has profound application in the case at bar. This provision of law imparts:
WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and a new one is entered dismissing the
complaint.19
Art. 366. Within twenty-four hours following the receipt of the merchandise a claim may be made against the carrier on
account of damage or average found upon opening the packages, provided that the indications of the damage or average
A petition for review on certiorari20 was filed by the petitioner with this Court, praying that the decision of the trial court giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim shall only be
be affirmed. admitted at the time of the receipt of the packages.

After the respondent filed its Comment21 and the petitioner filed its Reply22 thereto, this Court issued a Resolution23on 18 After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall
August 1999, giving due course to the petition. be admitted against the carrier with regard to the condition in which the goods transported were delivered.
As to the first issue, the petitioner contends that the notice of contamination was given by Alfredo Chan, an employee of A: What do you mean by that?
PGP, to Ms. Encarnacion Abastillas, Vice President for Administration and Operations of the respondent, at the time of the
delivery of the cargo, and therefore, within the required period. 25 This was done by telephone. Q: Personal knowledge [that] you yourself heard or saw them [notify] the driver?

The respondent, however, claims that the supposed notice given by PGP over the telephone was denied by Ms. Abastillas. A: No, sir.28
Between the testimonies of Alfredo Chan and Encarnacion Abastillas, the latters testimony is purportedly more credible
because it would be quite unbelievable and contrary to business practice for Alfredo Chan to merely make a verbal notice
From the preceding testimony, it is quite palpable that the witness Alfredo Chan had no personal knowledge that the
of claim that involves millions of pesos.26
drivers of the respondent were informed of the contamination.

On this point, the Court of Appeals declared:

The requirement that a notice of claim should be filed within the period stated by Article 366 of the Code of Commerce is
not an empty or worthless proviso. In a case, we held:
. . . We are inclined to sustain the view that a telephone call made to defendant-company could constitute substantial
compliance with the requirement of notice considering that the notice was given to a responsible official, the Vice-
The object sought to be attained by the requirement of the submission of claims in pursuance of this article is to compel
President, who promptly replied that she will look into the matter. However, it must be pointed out that compliance with
the consignee of goods entrusted to a carrier to make prompt demand for settlement of alleged damages suffered by the
the period for filing notice is an essential part of the requirement, i.e.. immediately if the damage is apparent, or
goods while in transport, so that the carrier will be enabled to verify all such claims at the time of delivery or within
otherwise within twenty-four hours from receipt of the goods, the clear import being that prompt examination of the
twenty-four hours thereafter, and if necessary fix responsibility and secure evidence as to the nature and extent of the
goods must be made to ascertain damage if this is not immediately apparent. We have examined the evidence, and We
alleged damages to the goods while the matter is still fresh in the minds of the parties. 29
are unable to find any proof of compliance with the required period, which is fatal to the accrual of the right of action
against the carrier.27
In another case, we ruled, thus:
The petitioner is of the view that there was an incongruity in the findings of facts of the trial court and the Court of
Appeals, the former allegedly holding that the period to file the notice had been complied with, while the latter held More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss of or injury
otherwise. to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce the
carriers liability. Such requirement is not an empty formalism. The fundamental reason or purpose of such a stipulation
is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been damaged and that it
We do not agree. On the matter concerning the giving of the notice of claim as required by Article 366 of the Code of
is charged with liability therefore, and to give it an opportunity to examine the nature and extent of the injury. This
Commerce, the finding of fact of the Court of Appeals does not actually contradict the finding of fact of the trial court.
protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily
Both courts held that, indeed, a telephone call was made by Alfredo Chan to Encarnacion Abastillas, informing the latter
investigated so as to safeguard itself from false and fraudulent claims. 30
of the contamination. However, nothing in the trial courts decision stated that the notice of claim was relayed or filed
with the respondent-carrier immediately or within a period of twenty-four hours from the time the goods were received.
The Court of Appeals made the same finding. Having examined the entire records of the case, we cannot find a shred of The filing of a claim with the carrier within the time limitation therefore actually constitutes a condition precedent to the
evidence that will precisely and ultimately point to the conclusion that the notice of claim was timely relayed or filed. accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and
prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the
former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of
The allegation of the petitioner that not only the Vice President of the respondent was informed, but also its drivers, as
action.31
testified by Alfredo Chan, during the time that the delivery was actually being made, cannot be given great weight as no
driver was presented to the witness stand to prove this. Part of the testimony of Alfredo Chan is revealing:
The second paragraph of Article 366 of the Code of Commerce is also edifying. It is not only when the period to make a
claim has elapsed that no claim whatsoever shall be admitted, as no claim may similarly be admitted after the
Q:
transportation charges have been paid.

Mr. Witness, were you in your plant site at the time these various cargoes were delivered?
In this case, there is no question that the transportation charges have been paid, as admitted by the petitioner, and the
corresponding official receipt32 duly issued. But the petitioner is of the view that the payment for services does not
A: No, sir. invalidate its claim. It contends that under the second paragraph of Article 366 of the Code of Commerce, it is clear that if
notice or protest has been made prior to payment of services, claim against the bad order condition of the cargo is
allowed.

Q: So, do you have a first hand knowledge that your plant representative informed the driver of the alleged
contamination?
We do not believe so. As discussed at length above, there is no evidence to confirm that the notice of claim was filed
within the period provided for under Article 366 of the Code of Commerce. Petitioners contention proceeds from a false
presupposition that the notice of claim was timely filed.
Considering that we have resolved the first issue in the negative, it is therefore unnecessary to make a resolution on the
second issue.
WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals dated 18 December 1998, which reversed
and set aside the decision of the trial court, is hereby AFFIRMED in toto. No pronouncement as to costs.
Before this Court are three consolidated Rule 45 petitions all involving the issue of whether the real and hypothecary
doctrine may be invoked by the shipowner in relation to the loss of cargoes occasioned by the sinking of M/V P. Aboitiz on
31 October 1980. The petitions filed by Aboitiz Shipping Corporation (Aboitiz) commonly seek the computation of its
liability in accordance with the Courts pronouncement in Aboitiz Shipping Corporation v. General Accident Fire and Life
Assurance Corporation, Ltd.1 (hereafter referred to as "the 1993 GAFLAC case").
The three petitions stemmed from some of the several suits filed against Aboitiz before different regional trial courts by
shippers or their successors-in-interest for the recovery of the monetary value of the cargoes lost, or by the insurers for
the reimbursement of whatever they paid. The trial courts awarded to various claimants the amounts of 639,862.02,
646,926.30, and 87,633.81 in G.R. Nos. 121833, 130752 and 137801, respectively.

SO ORDERED.
ANTECEDENTS

G.R. No. 121833

Respondent Malayan Insurance Company, Inc. (Malayan) filed five separate actions against several defendants for the
collection of the amounts of the cargoes allegedly paid by Malayan under various marine cargo policies 2 issued to the
G.R. No. 121833 October 17, 2008
insurance claimants. The five civil cases, namely, Civil Cases No. 138761, No. 139083, No. 138762, No. R-81-526 and No.
138879, were consolidated and heard before the Regional Trial Court (RTC) of Manila, Branch 54.
ABOITIZ SHIPPING CORPORATION, petitioners,
vs.
The defendants in Civil Case No. 138761 and in Civil Case No. 139083 were Malayan International Shipping Corporation,
COURT OF APPEALS, MALAYAN INSURANCE COMPANY, INC., COMPAGNIE MARITIME DES CHARGEURS REUNIS,
a foreign corporation based in Malaysia, its local ship agent, Litonjua Merchant Shipping Agency (Litonjua), and Aboitiz.
and F.E. ZUELLIG (M), INC., respondents.
The defendants in Civil Case No. 138762 were Compagnie Maritime des Chargeurs Reunis (CMCR), its local ship agent,
F.E. Zuellig (M), Inc. (Zuellig), and Aboitiz. Malayan also filed Civil Case No. R-81-526 only against CMCR and Zuellig. Thus,
x-----------------------------------------x defendants CMCR and Zuellig filed a third-party complaint against Aboitiz. In the fifth complaint docketed as Civil Case
No. 138879, only Aboitiz was impleaded as defendant.
G.R. No. 130752 October 17, 2008
The shipments were supported by their respective bills of lading and insured separately by Malayan against the risk of
ABOITIZ SHIPPING CORPORATION, petitioners, loss or damage. In the five consolidated cases, Malayan sought the recovery of amounts totaling 639,862.02.
vs.
COURT OF APPEALS, THE HON. JUDGE REMEGIO E. ZARI, in his capacity as Presiding Judge of the RTC, Branch 20; Aboitiz raised the defenses of lack of jurisdiction, lack of cause of action and prescription. It also claimed that M/V P.
ASIA TRADERS INSURANCE CORPORATION, and ALLIED GUARANTEE INSURANCE CORPORATION, respondents. Aboitiz was seaworthy, that it exercised extraordinary diligence and that the loss was caused by a fortuitous event.

x-----------------------------------------x After trial on the merits, the RTC of Manila rendered a Decision dated 27 November 1989, adjudging Aboitiz liable on the
money claims. The decretal portion reads:
G.R. No. 137801 October 17, 2008
WHEREFORE, judgment is hereby rendered as follows:
ABOITIZ SHIPPING CORPORATION, petitioners,
vs. 1. In Civil Case No. 138072 (R-81-526-CV), the defendants are adjudged liable and ordered to pay to the plaintiffs jointly
EQUITABLE INSURANCE CORPORATION, respondents. and severally the amount of 128,896.79; the third-party defendant Aboitiz is adjudged liable to reimburse and ordered
to pay the defendants or whosoever of them paid the plaintiff up to the said amount;
DECISION
2. In Civil Case No. 138761, Aboitiz is adjudged liable and ordered to pay plaintiff the amount of One Hundred Sixty
TINGA, J.: Three-Thousand Seven Hundred Thirteen Pesos and Thirty-Eight Centavos (163,713.38).
3. In Civil Case No. 138762, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the sum of Seventy Three
Thousand Five Hundred Sixty-Nine Pesos and Ninety-Four Centavos (73,569.94); and Sixty-Four Thousand Seven
Hundred Four Pesos and Seventy-Seven Centavos (64,704.77);
4. In Civil Case No. 139083, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the amount of One Hundred
Fifty-Six Thousand Two Hundred Eighty-Seven Pesos and Sixty-Four Centavos (156,287.64);
In Civil Case No. 138879, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the amount of Fifty-Two
Thousand Six Hundred Eighty-Nine Pesos and Fifty Centavos (52,689.50).
All the aforesaid award shall bear interest at the legal rate from the filing of the respective complaints. Considering that
there is no clear showing that the cases fall under Article 2208, Nos. 4 and 5, of the Civil Code, and in consonance with the
basic rule that there be no penalty (in terms of attorneys fees) imposed on the right to litigate, no damages by way of
attorneys fees are awarded; however, costs of the party/parties to whom judgment awards are made shall be made by
the party ordered to pay the said judgment awards.
SO ORDERED.3
Aboitiz, CMCR and Zuellig appealed the RTC decision to the Court of Appeals. The appeal was docketed as CA-G.R. SP No.
35975-CV. During the pendency of the appeal, the Court promulgated the decision in the 1993 GAFLAC case.
On 31 March 1995, the Court of Appeals (Ninth Division) affirmed the RTC decision. It disregarded Aboitizs argument
that the sinking of the vessel was caused by a force majeure, in view of this Courts finding in a related case, Aboitiz
Shipping Corporation v. Court of Appeals, et al. (the 1990 GAFLAC case).4 In said case, this Court affirmed the Court of
Appeals finding that the sinking of M/V P. Aboitiz was caused by the negligence of its officers and crew. It is one of the
numerous collection suits against Aboitiz, which eventually reached this Court in connection with the sinking of M/V P.
Aboitiz.
As to the computation of Aboitizs liability, the Court of Appeals again based its ruling on the 1990 GAFLAC case that
Aboitizs liability should be based on the declared value of the shipment in consonance with the exceptional rule under
Section 4(5)5 of the Carriage of Goods by Sea Act.
Aboitiz moved for reconsideration6 to no avail. Hence, it filed this petition for review on certiorari docketed as G.R. No.
121833.7 The instant petition is based on the following grounds:
THE COURT OF APPEALS SHOULD HAVE LIMITED THE RECOVERABLE AMOUNT FROM ASC TO THAT AMOUNT
STIPULATED IN THE BILL OF LADING.
IN THE ALTERNATIVE, THE COURT OF APPEALS SHOULD HAVE FOUND THAT THE TOTAL LIABILITY OF ASC IS
LIMITED TO THE VALUE OF THE VESSEL OR THE INSURANCE PROCEEDS THEREOF.8
On 4 December 1995, the Court issued a Resolution9 denying the petition. Aboitiz moved for reconsideration, arguing
that the limited liability doctrine enunciated in the 1993 GAFLAC case should be applied in the computation of its liability.
In the Resolution10 dated 6 March 1996, the Court granted the motion and ordered the reinstatement of the petition and
the filing of a comment.
G.R. No. 130752
Respondents Asia Traders Insurance Corporation (Asia Traders) and Allied Guarantee Insurance Corporation (Allied)
filed separate actions for damages against Aboitiz to recover by way of subrogation the value of the cargoes insured by
them and lost in the sinking of the vessel M/V P. Aboitiz. The two actions were consolidated and heard before the RTC of
Manila, Branch 20.
Aboitiz reiterated the defense of force majeure. The trial court rendered a decision11 on 25 April 1990 ordering Aboitiz to
pay damages in the amount of 646,926.30. Aboitiz sought reconsideration, arguing that the trial court should have
considered the findings of the Board of Marine Inquiry that the sinking of the M/V P. Aboitiz was caused by a typhoon and
should have applied the real and hypothecary doctrine in limiting the monetary award in favor of the claimants. The trial
court denied Aboitizs motion for reconsideration.
Aboitiz elevated the case to the Court of Appeals. While the appeal was pending, this Court promulgated the decision in
the 1993 GAFLAC case. The Court of Appeals subsequently rendered a decision on 30 May 1994, affirming the RTC
decision.12
Aboitiz appealed the Court of Appeals decision to this Court. 13 In a Resolution dated 20 September 1995,14 the Court
denied the petition for raising factual issues and for failure to show that the Court of Appeals committed any reversible
error. Aboitizs motion for reconsideration was also denied in a Resolution dated 22 November 1995.15
The 22 November 1995 Resolution became final and executory. On 26 February 1996, Asia Traders and Allied filed a
motion for execution before the RTC of Manila, Branch 20. Aboitiz opposed the motion. On 16 August 1996, the trial court
granted the motion and issued a writ of execution.
Alleging that it had no other speedy, just or adequate remedy to prevent the execution of the judgment, Aboitiz filed with
the Court of Appeals a petition for certiorari and prohibition with an urgent prayer for preliminary injunction and/or
temporary restraining order docketed as CA-G.R. SP No. 41696.16 The petition was mainly anchored on this Courts ruling
in the 1993 GAFLAC case.
On 8 August 1997, the Court of Appeals (Special Seventeenth Division) rendered the assailed decision dismissing the
petition.17 Based on the trial courts finding that Aboitiz was actually negligent in ensuring the seaworthiness of M/V P.
Aboitiz, the appellate court held that the real and hypothecary doctrine enunciated in the 1993 GAFLAC case may not be
applied in the case.
In view of the denial of its motion for reconsideration,18 Aboitiz filed before this Court the instant petition for review on
certiorari docketed as G.R. No. 130752.19 The petition attributes the following errors to the Court of Appeals:
THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THE LOWER COURT HAD MADE AN EXPRESS
FINDING OF THE ACTUAL NEGLIGENCE OF ABOITIZ IN THE SINKING OF THE M/V P. ABOITIZ THEREBY DEPRIVING
ABOITIZ OF THE BENEFIT OF THE DOCTRINE OF THE REAL AND HYPOTHECARY NATURE OF MARITIME LAW.20
THE COURT OF APPEALS ERRED IN NOT GIVING WEIGHT TO THE GAFLAC CASE DECIDED BY THE HONORABLE COURT
WHICH SUPPORTS THE APPLICABILITY OF THE REAL AND HYPOTHECARY NATURE OF MARITIME LAW IN THE
PRESENT CASE.21
G.R. No. 137801
On 27 February 1981, Equitable Insurance Corporation (Equitable) filed an action for damages against Aboitiz to recover
by way of subrogation the value of the cargoes insured by Equitable that were lost in the sinking of M/V P. Aboitiz.22 The
complaint, which was docketed as Civil Case No. 138395, was later amended to implead Seatrain Pacific Services S.A. and
Citadel Lines, Inc. as party defendants.23 The complaint against the latter defendants was subsequently dismissed upon
motion in view of the amicable settlement reached by the parties.
On 7 September 1989, the RTC of Manila, Branch 7, rendered judgment24 ordering Aboitiz to pay Equitable the amount of
87,633.81, plus legal interest and attorneys fees.25 It found that Aboitiz was guilty of contributory negligence and,
therefore, liable for the loss.
In its appeal, docketed as CA-G.R. CV No. 43458, Aboitiz invoked the doctrine of limited liability and claimed that the
typhoon was the proximate cause of the loss. On 27 November 1998, the Court of Appeals rendered a decision, affirming
the RTC decision.26
The Court of Appeals (Fifteenth Division) ruled that the loss of the cargoes and the sinking of the vessel were due to its
unseaworthiness and the failure of the crew to exercise extraordinary diligence. Said findings were anchored on the
1990 GAFLAC case and on this Courts resolution dated November 13, 1989 in G.R. No. 88159, dismissing Aboitizs
petition and affirming the findings of the appellate court on the vessels unseaworthiness and the crews negligence.
Its motion for reconsideration27 having been denied,28 Aboitiz filed before this Court a petition for review on certiorari,
docketed as G.R. No. 137801,29 raising this sole issue, to wit:
WHETHER OR NOT THE DOCTRINE OF REAL AND HYPOTHECARY NATURE OF MARITIME LAW (ALSO KNOWN AS THE
"LIMITED LIABILITY RULE") APPLIES.30
ISSUES
The principal issue common to all three petitions is whether Aboitiz can avail limited liability on the basis of the real and
hypothecary doctrine of maritime law. Corollary to this issue is the determination of actual negligence on the part of
Aboitiz.
These consolidated petitions similarly posit that Aboitizs liability to respondents should be limited to the value of the
insurance proceeds of the lost vessel plus pending freightage and not correspond to the full insurable value of the cargoes
paid by respondents, based on the Courts ruling in the 1993 GAFLAC case.
Respondents in G.R. No. 121833 counter that the limited liability rule should not be applied because there was a finding
of negligence in the care of the goods on the part of Aboitiz based on this Courts Resolution dated 4 December 1995 in
G.R. No. 121833, which affirmed the trial courts finding of negligence on the part of the vessels captain. Likewise,
respondent in G.R. No. 137801 relies on the finding of the trial court, as affirmed by the appellate court, that Aboitiz was
guilty of negligence.
Respondents in G.R No. 130752 argue that this Court had already affirmed in toto the appellate courts finding that the
vessel was not seaworthy and that Aboitiz failed to exercise extraordinary diligence in the handling of the cargoes. This
being the law of the case, Aboitiz should not be entitled to the limited liability rule as far as this petition is concerned,
respondents contend.
RULING of the COURT
These consolidated petitions are just among the many others elevated to this Court involving Aboitizs liability to
shippers and insurers as a result of the sinking of its vessel, M/V P. Aboitiz, on 31 October 1980 in the South China Sea.
One of those petitions is the 1993 GAFLAC case, docketed as G.R. No. 100446. 31
The 1993 GAFLAC case was an offshoot of an earlier final and executory judgment in the 1990 GAFLAC case, where the
General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), as judgment obligee therein, sought the execution
of the monetary award against Aboitiz. The trial court granted GAFLACs prayer for execution of the full judgment award.
The appellate court dismissed Aboitizs petition to nullify the order of execution, prompting Aboitiz to file a petition with
this Court.
In the 1993 GAFLAC case, Aboitiz argued that the real and hypothecary doctrine warranted the immediate stay of
execution of judgment to prevent the impairment of the other creditors shares. Invoking the rule on the law of the case,
private respondent therein countered that the 1990 GAFLAC case had already settled the extent of Aboitizs liability.
Following the doctrine of limited liability, however, the Court declared in the 1993 GAFLAC case that claims against
Aboitiz arising from the sinking of M/V P. Aboitiz should be limited only to the extent of the value of the vessel. Thus, the
Court held that the execution of judgments in cases already resolved with finality must be stayed pending the resolution
of all the other similar claims arising from the sinking of M/V P. Aboitiz. Considering that the claims against Aboitiz had
reached more than 100, the Court found it necessary to collate all these claims before their payment from the insurance
proceeds of the vessel and its pending freightage. As a result, the Court exhorted the trial courts before whom similar
cases remained pending to proceed with trial and adjudicate these claims so that the pro-rated share of each claim could
be determined after all the cases shall have been decided.32
In the 1993 GAFLAC case, the Court applied the limited liability rule in favor of Aboitiz based on the trial courts finding
therein that Aboitiz was not negligent. The Court explained, thus:
x x x In the few instances when the matter was considered by this Court, we have been consistent in this jurisdiction in
holding that the only time the Limited Liability Rule does not apply is when there is an actual finding of negligence on the
part of the vessel owner or agent x x x. The pivotal question, thus, is whether there is finding of such negligence on the
part of the owner in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No. 144425 as well as the entirety of the records
in the instant case will show that there has been no actual finding of negligence on the part of petitioner. x x x
The same is true of the decision of this Court in G.R. No. 89757 affirming the decision of the Court of Appeals in CA-G.R.
CV No. 10609 since both decisions did not make any new and additional finding of fact. Both merely affirmed the factual
findings of the trial court, adding that the cause of the sinking of the vessel was because of unseaworthiness due to the
failure of the crew and the master to exercise extraordinary diligence. Indeed, there appears to have been no evidence
presented sufficient to form a conclusion that petitioner shipowner itself was negligent, and no tribunal, including this
Court, will add or subtract to such evidence to justify a conclusion to the contrary. 33 (Citations entitled) (Emphasis
supplied)
The ruling in the 1993 GAFLAC case cited the real and hypothecary doctrine in maritime law that the shipowner or
agents liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction.
"No vessel, no liability" expresses in a nutshell the limited liability rule. 34
In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under Book III of the Code of
Commerce, thus:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the
conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipment and the freight it may have earned during the voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund for the
results of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel
belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to
the value of the vessel with all its appurtenances and freightage served during the voyage.
These articles precisely intend to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances
and freightage earned in the voyage, provided that the owner or agent abandons the vessel. 35When the vessel is totally
lost in which case there is no vessel to abandon, abandonment is not required. Because of such total loss the liability of
the shipowner or agent for damages is extinguished.36 However, despite the total loss of the vessel, its insurance answers
for the damages for which a shipowner or agent may be held liable. 37
Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the
abandonment of the vessel, as where the loss or injury was due to the fault of the shipowner and the captain. The
international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowners liability,
does not apply to cases where the injury or average was occasioned by the shipowners own fault. 38Likewise, the
shipowner may be held liable for injuries to passengers notwithstanding the exclusively real and hypothecary nature of
maritime law if fault can be attributed to the shipowner.39
As can be gleaned from the foregoing disquisition in the 1993 GAFLAC case, the Court applied the doctrine of limited
liability in view of the absence of an express finding that Aboitizs negligence was the direct cause of the sinking of the
vessel. The circumstances in the 1993 GAFLAC case, however, are not obtaining in the instant petitions.
A perusal of the decisions of the courts below in all three petitions reveals that there is a categorical finding of negligence
on the part of Aboitiz. For instance, in G.R. No. 121833, the RTC therein expressly stated that the captain of M/V P.
Aboitiz was negligent in failing to take a course of action that would prevent the vessel from sailing into the typhoon. In
G.R. No. 130752, the RTC concluded that Aboitiz failed to show that it had exercised the required extraordinary diligence
in steering the vessel before, during and after the storm. In G.R. No. 137801, the RTC categorically stated that the sinking
of M/V P. Aboitiz was attributable to the negligence or fault of Aboitiz. In all instances, the Court of Appeals affirmed the
factual findings of the trial courts.
The finding of actual fault on the part of Aboitiz is central to the issue of its liability to the respondents. Aboitizs
contention, that with the sinking of M/V P. Aboitiz, its liability to the cargo shippers and shippers should be limited only
to the insurance proceeds of the vessel absent any finding of fault on the part of Aboitiz, is not supported by the record.
Thus, Aboitiz is not entitled to the limited liability rule and is, therefore, liable for the value of the lost cargoes as so duly
alleged and proven during trial.
Events have supervened during the pendency of the instant petitions. On two other occasions, the Court ruled on
separate petitions involving monetary claims against Aboitiz as a result of the 1980 sinking
of the vessel M/V P. Aboitiz. One of them is the consolidated petitions of Monarch Ins. Co., Inc v. Court of Appeals,40 Allied
Guarantee Insurance Company v. Court of Appeals41 and Equitable Insurance Corporation v. Court of Appeals42 (hereafter
collectively referred to as Monarch Insurance) promulgated on 08 June 2000. This time, the petitioners consisted of
claimants against Aboitiz because either the execution of the judgment awarding full indemnification of their claims was
stayed or set aside or the lower courts awarded damages only to the extent of the claimants proportionate share in the
insurance proceeds of the vessel.
In Monarch Insurance, the Court deemed it fit to settle once and for all this factual issue by declaring that the sinking
of M/V P. Aboitiz was caused by the concurrence of the unseaworthiness of the vessel and the negligence of both Aboitiz
and the vessels crew and master and not because of force majeure. Notwithstanding this finding, the Court did not
reverse but reiterated instead the pronouncement in GAFLAC to the effect that the claimants be treated as "creditors in an
insolvent corporation whose assets are not enough to satisfy the totality of claims against it." 43 The Court explained that
the peculiar circumstances warranted that procedural rules of evidence be set aside to prevent frustrating the just claims
of shippers/insurers. Thus, the Court in Monarch Insurance ordered Aboitiz to institute the necessary limitation and
distribution action before the proper RTC and to deposit with the said court the insurance proceeds of and the freightage
earned by the ill-fated ship.
However, on 02 May 2006, the Court rendered a decision in Aboitiz Shipping Corporation v. New India Assurance
Company, Ltd.44 (New India), reiterating the well-settled principle that the exception to the limited liability doctrine
applies when the damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner and the
captain. Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot be
applied.45 In New India, the Court clarified that the earlier pronouncement in Monarch Insurance was not an
abandonment of the doctrine of limited liability and that the circumstances therein still made the doctrine applicable. 46
In New India, the Court declared that Aboitiz failed to discharge its burden of showing that it exercised extraordinary
diligence in the transport of the goods it had on board in order to invoke the limited liability doctrine. Thus, the Court
rejected Aboitizs argument that the award of damages to respondent therein should be limited to its pro rata share in
the insurance proceeds from the sinking of M/V P. Aboitiz.
The instant petitions provide another occasion for the Court to reiterate the well-settled doctrine of the real and
hypothecary nature of maritime law. As a general rule, a ship owners liability is merely co-extensive with his interest in
the vessel, except where actual fault is attributable to the shipowner. Thus, as an exception to the limited
liability doctrine, a shipowner or ship agent may be held liable for damages when the sinking of the vessel is attributable
to the actual fault or negligence of the shipowner or its failure to ensure the seaworthiness of the vessel. The instant
petitions cannot be spared from the application of the exception to the doctrine of limited liability in view of the
unanimous findings of the courts below that both Aboitiz and the crew failed to ensure the seaworthiness of the M/V P.
Aboitiz.
WHEREFORE, the petitions in G.R. Nos. 121833, 130752 and 137801 are DENIED. The decisions of the Court of Appeals
in CA-G.R. SP No. 35975-CV, CA-G.R. SP No. 41696 and CA-G.R. CV No. 43458 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
G.R. No. 175773 June 17, 2013
MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION (MMPSEU), Petitioner,
vs.
MITSUBISHI MOTORS PHILIPPINES CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
The Collective Bargaining Agreement (CBA) of the parties in this case provides that the company shoulder the
hospitalization expenses of the dependents of covered employees subject to certain limitations and restrictions.
Accordingly, covered employees pay part of the hospitalization insurance premium through monthly salary deduction
while the company, upon hospitalization of the covered employees' dependents, shall pay the hospitalization expenses
incurred for the same. The conflict arose when a portion of the hospitalization expenses of the covered employees'
dependents were paid/shouldered by the dependent's own health insurance. While the company refused to pay the
portion of the hospital expenses already shouldered by the dependents' own health insurance, the union insists that the
covered employees are entitled to the whole and undiminished amount of said hospital expenses.
By this Petition for Review on Certiorari,1 petitioner Mitsubishi Motors Philippines Salaried Employees Union (MMPSEU)
assails the March 31, 2006 Decision2 and December 5, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No.
75630, which reversed and set aside the Voluntary Arbitrators December 3, 2002 Decision 4 and declared respondent
Mitsubishi Motors Philippines Corporation (MMPC) to be under no legal obligation to pay its covered employees
dependents hospitalization expenses which were already shouldered by other health insurance companies.
Factual Antecedents
The parties CBA5 covering the period August 1, 1996 to July 31, 1999 provides for the hospitalization insurance benefits
for the covered dependents, thus:
SECTION 4. DEPENDENTS GROUP HOSPITALIZATION INSURANCE The COMPANY shall obtain group hospitalization
insurance coverage or assume under a self-insurance basis hospitalization for the dependents of regular employees up to
a maximum amount of forty thousand pesos (40,000.00) per confinement subject to the following:
a. The room and board must not exceed three hundred pesos (300.00) per day up to a maximum of thirty-one
(31) days. Similarly, Doctors Call fees must not exceed three hundred pesos (300.00) per day for a maximum
of thirty-one (31) days. Any excess of this amount shall be borne by the employee.
b. Confinement must be in a hospital designated by the COMPANY. For this purpose, the COMPANY shall
designate hospitals in different convenient places to be availed of by the dependents of employees. In cases of
emergency where the dependent is confined without the recommendation of the company doctor or in a
hospital not designated by the COMPANY, the COMPANY shall look into the circumstances of such confinement
and arrange for the payment of the amount to the extent of the hospitalization benefit.
c. The limitations and restrictions listed in Annex "B" must be observed.
d. Payment shall be direct to the hospital and doctor and must be covered by actual billings.
Each employee shall pay one hundred pesos (100.00) per month through salary deduction as his share in the payment
of the insurance premium for the above coverage with the balance of the premium to be paid by the COMPANY. If the
COMPANY is self-insured the one hundred pesos (100.00) per employee monthly contribution shall be given to the
COMPANY which shall shoulder the expenses subject to the above level of benefits and subject to the same limitations
and restrictions provided for in Annex "B" hereof.
The hospitalization expenses must be covered by actual hospital and doctors bills and any amount in excess of the above
mentioned level of benefits will be for the account of the employee.
For purposes of this provision, eligible dependents are the covered employees natural parents, legal spouse and
legitimate or legally adopted or step children who are unmarried, unemployed who have not attained twenty-one (21)
years of age and wholly dependent upon the employee for support.
This provision applies only in cases of actual confinement in the hospital for at least six (6) hours.
Maternity cases are not covered by this section but will be under the next succeeding section on maternity benefits. 6
When the CBA expired on July 31, 1999, the parties executed another CBA7 effective August 1, 1999 to July 31, 2002
incorporating the same provisions on dependents hospitalization insurance benefits but in the increased amount of
50,000.00. The room and board expenses, as well as the doctors call fees, were also increased to 375.00.
On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida), Hermie Juan Oabel (Oabel) and
Jocelyn Martin (Martin), filed claims for reimbursement of hospitalization expenses of their dependents.
MMPC paid only a portion of their hospitalization insurance claims, not the full amount. In the case of Calida, his wife,
Lanie, was confined at Sto. Tomas University Hospital from September 4 to 9, 1998 due to Thyroidectomy. The medical
expenses incurred totalled 29,967.10. Of this amount, 9,000.00 representing professional fees was paid by MEDICard
Philippines, Inc. (MEDICard) which provides health maintenance to Lanie.8 MMPC only paid 12,148.63.9 It did not pay
the 9,000.00 already paid by MEDICard and the 6,278.47 not covered by official receipts. It refused to give to Calida the
difference between the amount of medical expenses of 27,427.1010 which he claimed to be entitled to under the CBA and
the 12,148.63 which MMPC directly paid to the hospital.
In the case of Martin, his father, Jose, was admitted at The Medical City from March 26 to 27, 2000 due to Acid Peptic
Disease and incurred medical expenses amounting to 9,101.30.14 MEDICard paid 8,496.00.15Consequently, MMPC only
paid 288.40,16 after deducting from the total medical expenses the amount paid by MEDICard and the 316.90 discount
given by the hospital.
Claiming that under the CBA, they are entitled to hospital benefits amounting to 27,427.10, 6,769.35 and 8,123.80,
respectively, which should not be reduced by the amounts paid by MEDICard and by Prosper, Calida, Oabel and Martin
asked for reimbursement from MMPC. However, MMPC denied the claims contending that double insurance would result
if the said employees would receive from the company the full amount of hospitalization expenses despite having already
received payment of portions thereof from other health insurance providers.
This prompted the MMPSEU President to write the MMPC President 17 demanding full payment of the hospitalization
benefits. Alleging discrimination against MMPSEU union members, she pointed out that full reimbursement was given in
a similar claim filed by Luisito Cruz (Cruz), a member of the Hourly Union. In a letter-reply,18 MMPC, through its Vice-
President for Industrial Relations Division, clarified that the claims of the said MMPSEU members have already been paid
on the basis of official receipts submitted. It also denied the charge of discrimination and explained that the case of Cruz
involved an entirely different matter since it concerned the admissibility of certified true copies of documents for
reimbursement purposes, which case had been settled through voluntary arbitration.
On August 28, 2000, MMPSEU referred the dispute to the National Conciliation and Mediation Board and requested for
preventive mediation.19
Ms. Cecilia L. ParasPresident
Mitsubishi Motors Phils.
[Salaried] Employees Union
Ortigas Avenue Extension,
Cainta, Rizal
Madam:
We acknowledge receipt of your letter which, to our impression, basically poses the question of whether or not recovery
of medical expenses from a Health Maintenance Organization bars recovery of the same reimbursable amount of medical
expenses under a contract of health or medical insurance.
We wish to opine that in cases of claims for reimbursement of medical expenses where there are two contracts providing
benefits to that effect, recovery may be had on both simultaneously. In the absence of an Other Insurance provision in
these coverages, the courts have uniformly held that an insured is entitled to receive the insurance benefits without
regard to the amount of total benefits provided by other insurance. (INSURANCE LAW, A Guide to Fundamental
Principles, Legal Doctrines, and Commercial Practices; Robert E. Keeton, Alau I. Widiss, p. 261). The result is consistent
with the public policy underlying the collateral source rule that is, x x x the courts have usually concluded that the
liability of a health or accident insurer is not reduced by other possible sources of indemnification or compensation.
(ibid).

Proceedings before the Voluntary Arbitrator Very truly yours,

On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando Capocyan for resolution of the issue involving RICHARD DAVID C. FUNK II
the interpretation of the subject CBA provision.20 Officer-in-Charge
Claims Adjudication Division
MMPSEU alleged that there is nothing in the CBA which prohibits an employee from obtaining other insurance or
declares that medical expenses can be reimbursed only upon presentation of original official receipts. It stressed that the (SGD.)
hospitalization benefits should be computed based on the formula indicated in the CBA without deducting the benefits Attorney IV
derived from other insurance providers. Besides, if reduction is permitted, MMPC would be unjustly benefited from the
monthly premium contributed by the employees through salary deduction. MMPSEU added that its members had
On December 3, 2002, the Voluntary Arbitrator rendered a Decision27 finding MMPC liable to pay or reimburse the
legitimate claims under the CBA and that any doubt as to any of its provisions should be resolved in favor of its members.
amount of hospitalization expenses already paid by other health insurance companies. The Voluntary Arbitrator held that
Moreover, any ambiguity should be resolved in favor of labor. 21
the employees may demand simultaneous payment from both the CBA and their dependents separate health insurance
without resulting to double insurance, since separate premiums were paid for each contract. He also noted that the CBA
On the other hand, MMPC argued that the reimbursement of the entire amounts being claimed by the covered employees, does not prohibit reimbursement in case there are other health insurers.
including those already paid by other insurance companies, would constitute double indemnity or double insurance,
which is circumscribed under the Insurance Code. Moreover, a contract of insurance is a contract of indemnity and the
Proceedings before the Court of Appeals
employees cannot be allowed to profit from their dependents loss. 22

MMPC filed a Petition for Review with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of
Meanwhile, the parties separately sought for a legal opinion from the Insurance Commission relative to the issue at hand.
Preliminary Injunction28 before the CA. It claimed that the Voluntary Arbitrator committed grave abuse of discretion in
In its letter23 to the Insurance Commission, MMPC requested for confirmation of its position that the covered employees
not finding that recovery under both insurance policies constitutes double insurance as both had the same subject
cannot claim insurance benefits for a loss that had already been covered or paid by another insurance company.
matter, interest insured and risk or peril insured against; in relying solely on the unauthorized legal opinion of Atty.
However, the Office of the Insurance Commission opted not to render an opinion on the matter as the same may become
Funk; and in not finding that the employees will be benefited twice for the same loss. In its Comment, 29 MMPSEU
the subject of a formal complaint before it.24 On the other hand, when queried by MMPSEU,25the Insurance Commission,
countered that MMPC will unjustly enrich itself and profit from the monthly premiums paid if full reimbursement is not
through Atty. Richard David C. Funk II (Atty. Funk) of the Claims Adjudication Division, rendered an opinion contained in
made.
a letter,26 viz:
On March 31, 2006, the CA found merit in MMPCs Petition. It ruled that despite the lack of a provision which bars
recovery in case of payment by other insurers, the wordings of the subject provision of the CBA showed that the parties
intended to make MMPC liable only for expenses actually incurred by an employees qualified dependent. In particular,
the provision stipulates that payment should be made directly to the hospital and that the claim should be supported by
actual hospital and doctors bills. These mean that the employees shall only be paid amounts not covered by other health
insurance and is more in keeping with the principle of indemnity in insurance contracts. Besides, a contrary
interpretation would "allow unscrupulous employees to unduly profit from the x x x benefits" and shall "open the
floodgates to questionable claims x x x."30
The dispositive portion of the CA Decision31 reads:
WHEREFORE, the instant petition is GRANTED. The decision of the voluntary arbitrator dated December 3, 2002 is
REVERSED and SET ASIDE and judgment is rendered declaring that under Art. XI, Sec. 4 of the Collective Bargaining
Agreement between petitioner and respondent effective August 1, 1999 to July 31, 2002, the formers obligation to
reimburse the Union members for the hospitalization expenses incurred by their dependents is exclusive of those paid by
the Union members to the hospital.
SO ORDERED.32
In its Motion for Reconsideration,33 MMPSEU pointed out that the alleged oppression that may be committed by abusive
employees is a mere possibility whereas the resulting losses to the employees are real. MMPSEU cited Samsel v. Allstate
Insurance Co.,34 wherein the Arizona Supreme Court explicitly ruled that an insured may recover from separate health
insurance providers, regardless of whether one of them has already paid the medical expenses incurred. On the other
hand, MMPC argued in its Comment35 that the cited foreign case involves a different set of facts.
The CA, in its Resolution36 dated December 5, 2006, denied MMPSEUs motion.
Hence, this Petition.
Issues
MMPSEU presented the following grounds in support of its Petition:
A.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION DATED 03 [DECEMBER] 2002 OF THE
VOLUNTARY ARBITRATOR BELOW WHEN THE SAME WAS SUPPORTED BY SUBSTANTIAL EVIDENCE, INCLUDING THE
OPINION OF THE INSURANCE COMMISSION THAT RECOVERY FROM BOTH THE CBA AND SEPARATE HEALTH CARDS IS
NOT PROHIBITED IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE CBA.
B.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN OVERTURNING THE DECISION OF THE VOLUNTARY
ARBITRATOR WITHOUT EVEN GIVING ANY LEGAL OR JUSTIFIABLE BASIS FOR SUCH REVERSAL.
C.
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO CONSIDER OR EVEN MENTION ANYTHING
ABOUT THE AMERICAN AUTHORITIES CITED IN THE RECORDS THAT DO NOT PROHIBIT, BUT IN FACT ALLOW,
RECOVERY FROM TWO SEPARATE HEALTH PLANS.
D.
THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE TO A POSSIBLE, HENCE MERELY
SPECULATIVE, ABUSE BY EMPLOYEES OF THE BENEFITS IF DOUBLE RECOVERY WERE ALLOWED INSTEAD OF THE
REAL INJURY TO THE EMPLOYEES WHO ARE PAYING FOR THE CBA HOSPITALIZATION BENEFITS THROUGH MONTHLY
SALARY DEDUCTIONS BUT WHO MAY NOT BE ABLE TO AVAIL OF THE SAME IF THEY OR THEIR DEPENDENTS HAVE
OTHER HEALTH INSURANCE.37
MMPSEU avers that the Decision of the Voluntary Arbitrator deserves utmost respect and finality because it is supported
by substantial evidence and is in accordance with the opinion rendered by the Insurance Commission, an agency
equipped with vast knowledge concerning insurance contracts. It maintains that under the CBA, member-employees are
entitled to full reimbursement of medical expenses incurred by their dependents regardless of any amounts paid by the
latters health insurance provider. Otherwise, non-recovery will constitute unjust enrichment on the part of MMPC. It
avers that recovery from both the CBA and other insurance companies is allowed under their CBA and not prohibited by
law nor by jurisprudence.
Our Ruling
The Petition has no merit.
Atty. Funk erred in applying the
collateral source rule.
The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the employees may recover benefits from
different insurance providers without regard to the amount of benefits paid by each. According to him, this view is
consistent with the theory of the collateral source rule.
As part of American personal injury law, the collateral source rule was originally applied to tort cases wherein the
defendant is prevented from benefiting from the plaintiffs receipt of money from other sources. 38 Under this rule, if an
injured person receives compensation for his injuries from a source wholly independent of the tortfeasor, the payment
should not be deducted from the damages which he would otherwise collect from the tortfeasor. 39 In a recent
Decision40 by the Illinois Supreme Court, the rule has been described as "an established exception to the general rule that
damages in negligence actions must be compensatory." The Court went on to explain that although the rule appears to
allow a double recovery, the collateral source will have a lien or subrogation right to prevent such a double recovery. 41 In
Mitchell v. Haldar,42 the collateral source rule was rationalized by the Supreme Court of Delaware:
The collateral source rule is predicated on the theory that a tortfeasor has no interest in, and therefore no right to benefit
from monies received by the injured person from sources unconnected with the defendant. According to the collateral
source rule, a tortfeasor has no right to any mitigation of damages because of payments or compensation received by the
injured person from an independent source. The rationale for the collateral source rule is based upon the quasi-punitive
nature of tort law liability. It has been explained as follows:
The collateral source rule is designed to strike a balance between two competing principles of tort law: (1) a plaintiff is
entitled to compensation sufficient to make him whole, but no more; and (2) a defendant is liable for all damages that
proximately result from his wrong. A plaintiff who receives a double recovery for a single tort enjoys a windfall; a
defendant who escapes, in whole or in part, liability for his wrong enjoys a windfall. Because the law must sanction one
windfall and deny the other, it favors the victim of the wrong rather than the wrongdoer.
Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even if it results in a
windfall for the innocent plaintiff. (Citations omitted)
As seen, the collateral source rule applies in order to place the responsibility for losses on the party causing them. 43Its
application is justified so that "'the wrongdoer should not benefit from the expenditures made by the injured party or
take advantage of contracts or other relations that may exist between the injured party and third persons."44Thus, it finds
no application to cases involving no-fault insurances under which the insured is indemnified for losses by insurance
companies, regardless of who was at fault in the incident generating the losses. 45 Here, it is clear that MMPC is a no-fault
insurer. Hence, it cannot be obliged to pay the hospitalization expenses of the dependents of its employees which had
already been paid by separate health insurance providers of said dependents.
The Voluntary Arbitrator therefore erred in adopting Atty. Funks view that the covered employees are entitled to full
payment of the hospital expenses incurred by their dependents, including the amounts already paid by other health
insurance companies based on the theory of collateral source rule.
The conditions set forth in the CBA provision indicate an intention to limit MMPCs liability only to actual expenses
incurred by the employees dependents, that is, excluding the amounts paid by dependents other health insurance
providers.
The Voluntary Arbitrator ruled that the CBA has no express provision barring claims for hospitalization expenses already
paid by other insurers. Hence, the covered employees can recover from both. The CA did not agree, saying that the
conditions set forth in the CBA implied an intention of the parties to limit MMPCs liability only to the extent of the
expenses actually incurred by their dependents which excludes the amounts shouldered by other health insurance
companies.
We agree with the CA. The condition that payment should be direct to the hospital and doctor implies that MMPC is only
liable to pay medical expenses actually shouldered by the employees dependents. It follows that MMPCs liability is
limited, that is, it does not include the amounts paid by other health insurance providers. This condition is obviously
intended to thwart not only fraudulent claims but also double claims for the same loss of the dependents of covered
employees.
It is well to note at this point that the CBA constitutes a contract between the parties and as such, it should be strictly
construed for the purpose of limiting the amount of the employers liability. 46 The terms of the subject provision are clear
and provide no room for any other interpretation. As there is no ambiguity, the terms must be taken in their plain,
ordinary and popular sense.47 Consequently, MMPSEU cannot rely on the rule that a contract of insurance is to be
liberally construed in favor of the insured. Neither can it rely on the theory that any doubt must be resolved in favor of
labor.
Samsel v. Allstate Insurance Co. is not
on all fours with the case at bar.
MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court of Arizona allowed the insured to
enjoy medical benefits under an automobile policy insurance despite being able to also recover from a separate health
insurer. In that case, the Allstate automobile policy does not contain any clause restricting medical payment coverage to
expenses actually paid by the insured nor does it specifically provide for reduction of medical payments benefits by a
coordination of benefits.48 However, in the case before us, the dependents group hospitalization insurance provision in
the CBA specifically contains a condition which limits MMPCs liability only up to the extent of the expenses that should
be paid by the covered employees dependent to the hospital and doctor. This is evident from the portion which states
that "payment by MMPC shall be direct to the hospital and doctor."49 In contrast, the Allstate automobile policy expressly
gives Allstate the authority to pay directly to the insured person or on the latters behalf all reasonable expenses actually
incurred. Therefore, reliance on Samsel is unavailing because the facts therein are different and not decisive of the issues
in the present case.
To allow reimbursement of amounts paid
under other insurance policies shall
constitute double recovery which is not
sanctioned by law.
MMPSEU insists that MMPC is also liable for the amounts covered under other insurance policies; otherwise, MMPC will
unjustly profit from the premiums the employees contribute through monthly salary deductions.
This contention is unmeritorious.
To constitute unjust enrichment, it must be shown that a party was unjustly enriched in the sense that the term unjustly
could mean illegally or unlawfully.50 A claim for unjust enrichment fails when the person who will benefit has a valid
claim to such benefit.51
The CBA has provided for MMPCs limited liability which extends only up to the amount to be paid to the hospital and
doctor by the employees dependents, excluding those paid by other insurers. Consequently, the covered employees will
not receive more than what is due them; neither is MMPC under any obligation to give more than what is due under the
CBA.
Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the parties must be
determined in accordance with the general principles of insurance law.52 Being in the nature of a non-life insurance
contract and essentially a contract of indemnity, the CBA provision obligates MMPC to indemnify the covered employees
medical expenses incurred by their dependents but only up to the extent of the expenses actually incurred. 53 This is
consistent with the principle of indemnity which proscribes the insured from recovering greater than the loss. 54 Indeed,
to profit from a loss will lead to unjust enrichment and therefore should not be countenanced. As aptly ruled by the CA, to
grant the claims of MMPSEU will permit possible abuse by employees.
WHEREFORE, the Petition is DENIED. The Decision dated March 31, 2006 and Resolution dated December 5, 2006 of the
Court of Appeals in CA-G.R. SP No. 75630, are AFFIRMED.
SO ORDERED.