G.R. No.

120959 November 14, 1996

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.

YIP WAI MING, accused-appellant.

MELO, J.:

Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong nationals, came to Manila on
vacation on July 10, 1993. The two were engaged to be married. Hardly a day had passed when Lam Po
Chun was brutally beaten up and strangled to death in their hotel room. On the day of the killing, July 11,
1993, Yip Wai Ming, was touring Metro Manila with Filipino welcomers while Lam Po Chun was left in the
hotel room allegedly because she had a headache and was not feeling well enough to do the sights.

For the slaying, an Information was lodged against Yip Wai Ming on July 19, 1991, which averred :

That on or about July 11, 1993, in the City of Manila, Philippines, the said accused did then and there
wilfully, unlawfully and feloniously with intent to kill with treachery and evident premeditation, did then
and there attack, assault and use personal violence upon one Lam Po Chun by then and there mauling
and strangling the latter, thereby inflicting upon her mortal and fatal wounds which were the direct and
immediate cause of her death thereafter.

On May 15, 1995, Branch 44 of the Regional Trial Court of the National Capital Judicial Region stationed
in Manila and presided over by the Honorable Lolita O. Gal-lang rendered a decision in essence finding
that Yip Wai Ming killed his fiancee before he left for the Metro Manila tour. Disposed thus the trial
court:

WHEREFORE, in view of the forgoing established evidence, judgment is hereby rendered convicting the
accused Yip Wai Ming beyond reasonable doubt of the crime of Murder as charged in the information
and as defined in Article 248, paragraph 5 of the Revised Penal Code, and in accordance therewith the
aggravating circumstance of evident premeditation which attended the commission of the offense, the
said accused Yip Wai Ming is hereby sentenced to suffer the penalty of Reclusion Perpetua with all the
accessory penalties provided for by law.

Accused is likewise ordered to pay the heirs of the deceased Lam Po Chun of Hongkong the death
indemnity for damages at Fifty Thousand (P50,000.00) Pesos; Moral and compensatory damages of Fifty
Thousand (P50,000.00) Pesos each or a total of One Hundred Thousand Pesos (P100,000.00); plus costs
of suit.

The accused being detained, he is credited with the full extent of the period under which he was under
detention, in accordance with the rules governing convicted prisoners.

SO ORDERED.

(p. 69, Rollo.)

There was no eyewitness to the actual killing of Lam Po Chun. All the evidence about the killing is
circumstantial. The key issue in the instant appeal is, therefore, whether or not the circumstantial
evidence linking accused-appellant to the killing is sufficient to sustain a judgment of conviction beyond
reasonable doubt.

The evidence upon which the prosecution convinced the trial court of accused-appellant's guilt beyond
reasonable doubt is summarized in the Solicitor-General's brief as follows :

On or about 7 o'clock in the evening of July 10, 1993, appellant and his fiancee Lam Po Chun who are
both Hongkong nationals, checked in at Park Hotel located at No. 1032-34 Belen St., Paco, Manila. They
were billeted at Room 210. Angel Gonzaga, the roomboy on duty, assisted the couple in going up to their
room located at the second floor of the hotel (p. 14, tsn, October 13, 1993, p. 66, tsn, September 1,
1993). When they reached Room 210, appellant got the key from Angel Gonzaga and informed the latter
that they do not need any room service, particularly the bringing of foods and other orders to their room
(pp. 67-69, tsn, September 1, 1993).

After staying for about an hour inside Room 210, the couple went down to the lobby of the hotel.
Appellant asked the front desk receptionist on duty to call a certain Gwen delos Santos and to instruct
her to pick them up the following day, July 11, 1993, a Sunday at 10 o' clock in the morning (pp. 21-25,
tsn, September 8, 1993).

At about past 8 o'clock in the same evening of July 10, 1993, Cariza Destresa, occupant of Room 211
which is adjacent to Room 210, heard a noise which sounds like a heated argument between a man and
a woman coming from the room occupied by appellant and Lam Po Chun. The heated discussions lasted
for thirty (30) minutes and thereafter subsided.

In the following morning, that is, July 11, 1993, at around 9:15, the same Cariza Destreza again heard a
banging which sounds like somebody was thrown and stomped on the floor inside Room 210. Cariza,
who became curious, went near the wall dividing her room and Room 210. She heard a cry of a woman
as if she cannot breathe (pp. 23-24, tsn, August 30, 1993).

At about 10 o'clock a.m., Gwen delos Santos, together with two lady companions, arrived at the lobby of
the Park Hotel. The receptionist informed appellant by telephone of her arrival. In response, appellant
came down without his fiancee Lam Po Chun. After a while, he together with Gwen delos Santos and the
latter's companions, left the hotel. Before leaving, he gave instruction to the front desk receptionist not
to disturb his fiancee at Room 210. He also ordered not to accept any telephone calls, no room cleaning
and no room service (pp. 37- 43, tsn, October 18, 1993).

When appellant left, the front desk receptionist, Enriquieta Patria, noticed him to be in a hurry,
perspiring and looking very scared (p. 32, tsn, September 22, 1993).

During the whole morning of July 11, 1993, after appellant left the hotel until his return at 11 o'clock in
the evening, he did not call his fiancee Lam Po Chun to verify her physical condition (p. 44 tsn, October
18, 1993, p. 18, tsn, November 23, 1993).

When appellant arrived at 11 o'clock p.m. on that day, he asked the receptionist for the key of his room.
Then together with Fortunato Villa, the roomboy, proceeded to Room 210. When the lock was opened
and the door was pushed, Lam Po Chun was found dead lying face down on the bed covered with a
blanket. Appellant removed the blanket and pretended to exclaim "My God, she is dead" but did not
even embrace his fiancee. Instead, appellant asked the room boy to go down the hotel to inform the
front desk, the security guard and other hotel employees to call the police (pp. 8-27, tsn, October 18,
1993).

When the police arrived, they conducted an examination of the condition of the doors and windows of
the room as well as the body of the victim and the other surroundings. They found no signs of forcible
entry and they observed that no one can enter from the outside except the one who has the key. The
police also saw the victim wrapped in a colored blanket lying face down. When they removed the
blanket and tried to change the position of her body, the latter was already in state of rigor mortis, which
indicates that the victim has been dead for ten (10) to twelve (12) hours. The police calculated that Lam
Po Chun must have died between 9 to 10 in the morning of July 11, 1993 (pp. 2-29), tsn, September 22,
1993).

Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted an autopsy of the body of the victim.
His examination (Exh. V) revealed that the cause of death was "asphyxia by strangulation." Dr. Lagonera
explained that asphyxia is caused by lack of oxygen entering the body when the entrance of air going to
the respiratory system is blocked (pp. 6-19, tsn, December 14, 1993).

Prior to the death of the victim, her brother, Lam Chi Keung, learned that her life was insured with the
Insurance Company of New Zealand in Causeway Bay, Hongkong, with appellant as the beneficiary. The
premium paid for the insurance was more than the monthly salary of the deceased as an insurance
underwriter in Hongkong (Exh. X).

It was on the bases of the foregoing facts that appellant was charged before the Regional Trial Court in
Manila for the crime of murder committed against the person of Lam Po Chun.

(pp. 3-7, Appellee' Brief, ff. p. 176, Rollo.)

In his brief, accused-appellant offers explanatory facts and argues that the findings of fact of the trial
court are based mainly on the prosecution evidence displaying bias against accused-appellant. He
contends that the court made unwarranted and unfounded conclusions on the basis of self-contradictory
and conflicting evidence.

Accused-appellant, at the time of the commission of the crime, was a customer relations officer of Well
Motors Company in Kowloon, Hongkong. He met Lam Po Chun at a party in 1991. Both were
sportsminded and after a short courtship, the two began to have a relationship, living together in the
same apartment. The two toured China and Macao together in 1992. In April, 1993 the two decided to
get married. In May 1993, they registered with the Hongkong Marriage Registry. The wedding was set for
August 29, 1993.

An office-mate of accused-appellant named Tessie "Amay" Ticar encouraged him and Lam Po Chun to
tour the Philippines in celebration of their engagement. After finishing the travel arrangements, the two
were given by Ticar the names (Toots, Monique, and Gwen) of her cousins in Manila and their telephone
number. Photos of their Manila contacts were shown to them. In addition to his Citibank credit card,
accused-appellant brought P24,000.00 secured at a Hongkong money exchange and HK$4,000.00. Lam
Po Chun had HK$3,000.00.

The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on board Cathay Pacific Flight CX 903. They
arrived at Park Hotel around 7 P.M. From their hotel room, accused-appellant called their contact, Gwen
delos Santos, by telephone informing her of their arrival. The two ate outside at McDonald's restaurant.

Accused-appellant woke up the following morning Sunday, July 11, 1993 at around 8 o'clock. After
the usual amenities, including a shower, the two had breakfast in the hotel restaurant, then they went
back to their room. At around 10 o'clock that same morning, accused-appellant received a phone call
from the hotel staff telling him that their visitors had arrived.

He then went to the lobby ahead of Lam Po Chun, introduced himself to the delos Santos sisters, Gwen
and Monique, and their mother. A few minutes later, Lom Po Chun joined them. Two bottles of perfume
were given to the sisters as arrival gifts.

Gwen delos Santos invited the couple to tour the city but Lam Po Chun decided to stay behind as it was
very hot and she had a headache. She excused herself and went up to her room, followed later by
accused-appellant to get another bottle of perfume.

Accused-appellant claims that before leaving, he instructed the clerk at the front desk to give Lam Po
Chun some medicine for headache and, as much as possible, not to disturb her.

Accused-appellant, Gwen, Monique, and the sisters' mother took a taxicab to Landmark Department
Store where they window shopped. Accused-appellant states that from a telephone booth in the store,
he called Lam Po Chun but no one answered his call. From Landmark where they had lunch, the four
went to Shoemart Department Store in Makati. Accused-appellant bought a Giordano T-shirt at
Landmark and chocolates at Shoemart. Gwen delos Santos brought the group to the house of her aunt,
Edna Bayona, at Roces, Quezon City. From Roces St., Gwen delos Santos brought the group to her home
in Balut, Tondo. Using the delos Santos telephone, accused-appellant called his office in Hongkong. The
PLDT receipt showed that the call was made at 6:44 P.M. on July 11, 1993. Accused-appellant claims that,
afterwards, he called up Lam Po Chun at their hotel room but the phone just kept on ringing with
nobody answering it. The group had dinner at the delos Santos house in Tondo. After dinner, Gwen delos
Santos' brother and sister-in-law arrived. They insisted in bringing their guest to a restaurant near Manila
Bay for coffee, but it was full so they proceeded to Tia Maria, a Mexican restaurant in Makati.

Finally, the delos Santos family brought Andy Yip back to the Park Hotel, arriving there at around 10:30
PM. Before the delos Santos group left, there was an agreement that the following morning accused-
appellant and Lam Po Chun would join them in another city tour.

After accused-appellant's knocks at the door of their room remained unanswered, he went back to the
hotel front desk and asked the hotel staff to open the door for him. The room was dark. Accused-
appellant put on the light switch. He wanted to give the roomboy who accompanied him a P20 or P30 tip
but his smallest bill was P100. He went to a side table to get some smaller change. It was then when he
noticed the disordered room, a glass case and wallet on the floor, and Lam Po Chun lying face down on
one of the beds.

Accused-appellant tried to wake Lam Po Chun up by calling her name but when she did not respond, he
lifted up her face, moving her body sidewards. He saw blood. Shocked, he shouted at the roomboy to call
a doctor.

Several people rushed to Room 210. A foreigner looked at Lam Po Chun and said she was dead. The
foreigner placed his arms around accused-appellant who was slumped on the floor and motioned for
him to leave the room. Accused-appellant refused, but he was made to move out and to go to the lobby,
at which place, dazed and crying, he called up Gwen delos Santos to inform her of what happened. Gwen
could not believe what she heard, but she assured accused-appellant that they were going to the hotel.
Policemen then arrived.

In the instant appeal, accused-appellant, through his new counsel, former Justice Ramon C. Fernandez,
assigns the following alleged errors:

THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSED-APPELLANT WAS ARRESTED WITHOUT
WARRANT, WAS TORTURED AND WAS NOT INFORMED THAT HE HAD THE RIGHT TO REMAIN SILENT AND
BE ASSISTED BY INDEPENDENT AND COMPETENT COUNSEL DURING CUSTODIAL INVESTIGATION.

II

THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT HAD THE VICTIM APPLE INSURED
AND LATER KILLED HER FOR THE INSURANCE PROCEEDS.

III
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT COMMITTED A CRIME OF MURDER
AGGRAVATED BY EVIDENT PREMEDITATION.

IV

THE TRIAL COURT ERRED IN GIVING CREDENCE TO THE TESTIMONY OF OFFICER ALEJANDRO
YANQUILING, JR.

THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONY OF CARISA DESTREZA WHO INCURRED
SERIOUS CONTRADICTIONS ON MATERIAL POINTS.

VI

THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONIES OF THE OTHER PROSECUTION WITNESSES
THAT CONTRADICTED EACH OTHER ON MATERIAL POINTS.

VII

THE TRIAL COURT ERRED IN HOLDING THAT THE TESTIMONIES OF THE WITNESSES OF THE ACCUSED ARE
INCREDIBLE.

VIII

THE TRIAL COURT ERRED IN FINDING THAT THE PROSECUTION HAS ESTABLISHED THE GUILT OF THE
ACCUSED-APPELLANT BY PROOF BEYOND REASONABLE DOUBT.

IX

THE TRIAL COURT ERRED IN NOT COMPLETELY ACQUITTING THE ACCUSED-APPELLANT OF THE CRIME
CHARGED IN THE INFORMATION.

(pp. 80-82, Rollo.)

The trial court, in arriving at its conclusions, took the various facts presented by the prosecution, tied
them up together like parts of a jig-saw puzzle, and came up with a complete picture of circumstantial
evidence depicting not only the commission of the crime itself but also the motive behind it.

Our review of the record, however, discloses that certain key elements, without which the picture of the
crime would be faulty and unsound, are not based on reliable evidence. They appear to be mere
surmises and assumptions rather than hard facts or well-grounded conclusions.

A key element in the web of circumstantial evidence is motive which the prosecution tried to establish.
Accused-appellant and Lam Po Chun were engaged to be married. They had toured China and Macao
together. They were living together in one apartment. They were registered with the Hongkong Marriage
Registry in May 1993. Marriage date was set for August 29, 1993. This date was only a month and a half
away from the date of death of Lam Po Chun. In the absence of direct evidence indubitably showing that
accused-appellant was the perpetrator of the killing, motive becomes important. The theory developed
by the prosecution was not only of a cold-blooded crime but a well-planned one, including its timing up
to the half hour. It is not the kind of crime that a man would commit against his wife-to-be unless a
strong motive for it existed.

The trial court would have been justified in finding that there was evident premeditation of murder if the
story is proved that Lam Po Chun insured herself for the amounts of US $498,750.00 and US $249,375.00
naming accused-appellant as the beneficiary.

There is, however, no evidence that the victim secured an insurance policy for a big amount in US dollars
and indicated accused-appellant as the beneficiary. The prosecution presented Exhibit "X", a mere xerox
copy of a document captioned "Proposal for Life Insurance" as proof the alleged insurance. It is not a
certified copy, nor was the original first identified.

The authenticity of the document has thus not been duly established. Exhibit "X" was secured in
Hongkong when Lam Chi Keung, the brother of the victim, learned that his sister was murdered in
Manila. It is not shown how and from whom the information about any alleged insurance having been
secured came. There is no signature indicating that the victim herself applied for the insurance. There is
no marking in Exhibit "X" of any entry which purports to be the victim's signature. There is a signature of
Apple Lam which is most unusual for an insurance application because the victim's name is Lam Po Chun.
To be sure nobody insures himself or herself under a nickname. The entries in the form are in block
letters uniformly written by one hand. Below the printed name "Lam Po Chun" are Chinese characters
which presumably are the Chinese translation of her name. Nobody was presented to identify the author
of the "block" handwriting. Neither the prosecution nor the trial court made any comparisons, such as
the signature of Lam Po Chun on her passport (Exh. "C"), with her purported signature or any other entry
in the form.

It needs not much emphasis to say that an application form does not prove that insurance was secured.
Anybody can get an application form for insurance, fill it up at home before filing it with the insurance
company. In fact, the very first sentence of the form states that it merely "forms the basis of a contract
between you and NZI Life." There was no contract yet.

There is evidence in the record that the family of Lam Po Chun did not like her relationship with accused-
appellant. After all the trouble that her brother went through to gather evidence to pin down accused-
appellant, the fact that all he could come up with is an unsigned insurance application form shows there
was no insurance money forthcoming for accused-appellant if Lam Po Chun died. There is no proof that
the insurance company approved the proposal, no proof that any premium payments were made, and
no proof from the record of exhibits as to the date it was accomplished. It appearing that no insurance
was issued to Lam Po Chun with accused-appellant as the beneficiary, the motive capitalized upon by the
trial court vanishes. Thus, the picture changes to one of the alleged perpetrator killing his fiancee under
cold-blooded circumstances for nothing.
There are other suspicious circumstances about the insurance angle. Lam Po Chun was working for the
National insurance Company. Why then should she insure her life with the New Zealand Insurance
Company? Lam's monthly salary was only HK $5,000.00. The premiums for the insurance were HK
$5,400.00 or US $702.00 per month. Why should Lam insure herself with the monthly premiums
exceeding her monthly salary? And why should any insurance company approve insurance, the
premiums of which the supposed insured obviously con not afford to pay, in the absence of any showing
that somebody else is paying for said premiums. It is not even indicated whether or not there are rules in
Hongkong allowing a big amount of insurance to be secured where the beneficiary is not a spouse, a
parent, a sibling, a child, or other close relative.

Accused-appellant points out an apparent lapse of the trial court related to the matter of insurance. At
page 33 of the decision, the trial court stated:

Indeed, Yip Wai Ming testified that he met Andy Kwong in a restaurant in Hongkong and told Yip and Lam
Po Chun should be married and there must be an insurance for her life . . . .

(p. 33, RTC Decision; p. 66, Rollo.)

The source of the above finding is stated by the court as "tsn hearing Sept. 22, 1992." But accused-
appellant Yip Wai Ming did not testify on September 22, 1992. The entire 112 pages of the testimony on
that date came from SP02 Yanquiling. The next hearing was on September 29, 1993. All the 100 pages of
the testimony on that date came from Yanquiling. The next hearing on October 13, 1993 resulted in 105
pages of testimony, also from Yanquiling. This Court is at a complete loss as to the reason of the trial
court sourcing its statement to accused-appellant's alleged testimony.

Lam Po Chun must have been unbelievably trusting or stupid to follow the alleged advice of Andy Kwong.
It is usually the man who insures himself with the wife or future wife or beneficiary instead of the other
way around. Why should Lam Po Chun, with her relatively small salary which is not even enough to pay
for the monthly premiums, insure herself for such a big amount. This is another reason why doubts arise
as to the truth of the insurance angle.

Another key factor which we believe was not satisfactorily established is the time of death. This element
is material because from 10 A.M. of July 11, 1993 up to the time the body was discovered late that
evening, accused-appellant was in the company of Gwen delos Santos, her sister Monique, and their
mother, touring Metro Manila and going from place to place. This much is established.

To go around this problem of accused-appellant being away from the scene of the crime during the
above mentioned hours, the prosecution introduced testimonial evidence as to the probable time of
death, always placing it within the narrow 45-minute period between 9:15 and 10 A.M. of July 11, 1993,
the time when Cariza Destresa, the occupant of the adjoining room, heard banging sounds coming from
the room of accused-appellant, and the time accused-appellant left with his Filipino friends.

The prosecution alleges that at 10 A.M., Lam Po Chun was already dead. However, Gwen delos Santos
who never saw the couple before was categorical in declaring that she met both of them at the lobby
before the group left for the tour (tsn, Feb. 14, 1994, p. 64; p. 20, RTC Decision; p. 150, Rollo), but Lam
Po Chun asked to be excused because of a headache. In fact, delos Santos was able to identify Lam Po
Chun from pictures shown during the trial. She could not have done this unless she really saw and met
the victim at the hotel lobby at around 10 A.M. of July 11, 1993.

The prosecution introduced an expert in the person of Dr. Manuel Lagonera to establish the probable
time of death. Dr. Lagonera, medico-legal officer of the PNP Western Police District, after extensive
questioning on his qualifications as on expert witness, what he discovered as the cause of death
(strangulation), the contents of the deceased's stomach, injuries sustained, and the condition of the
cadaver, was asked to establish the time of death, to wit:

Q. If we use thirty six (36) hours to forty eight (48) hours, will you agree with me that it is possible
that the victim was killed in the morning of July 10, 1993?

A. I cannot, I have no basis whether the victim was killed in he morning or in the afternoon

(tsn, Dec. 14, 1993, p. 31.)

Dr. Lagonera's testimony on the number of assailants was similar. He had no basis for an answer, thusly:

ATTY. PASCUA:

Q. Would you be able to determine also based on your findings your autopsy whether the
assailants, the number of the assailants?

WITNESS:

A. I have no basis, Sir.

ATTY. PASCUA:

Q. You have no basis. And would it also have been possible, that there were more than one
assailants?

WITNESS:

A. It is possible also.

ATTY. PASCUA:

Q. It is possible also, who simultaneously inflicted the wounds of the victim?

WITNESS:

A. It is possible.

ATTY. PASCUA:
Q. Based also on your autopsy report, were there signs that the victim put a struggle?

WITNESS:

A. There were no injuries in the hand or forearms or upper arms of the victim. So, there were no
sign of struggle on the part of the victim.

ATTY. PASCUA:

Q. And your basis in saying that there was no struggle on the part of the victim was that there were
no apparent or seen injuries in the hands of the victim?

WITNESS:

A. Yes, sir.

ATTY. PASCUA:

Q. But you did not examine the fingernails?

WITNESS:

A. No, I did not examine, Sir.

ATTY. PASCUA:

Q. Were there also injuries at the back portion of the head of the victim?

WITNESS:

A. No injuries at the back, all in front.

ATTY. PASCUA:

Q. All in front, meaning in terms of probability and based on your professional opinion, the attack
would have come from a frontal attack or the attacker would have come from behind to inflict the frontal
injuries of the victim?

WITNESS:

A. It can be the attack coming from behind in the front or both, sir.

ATTY. PASCUA:

Q. But in your professional opinion or in your experience, based on the injuries sustained including
the location of the injuries on the body of the victim, would it be more probable that the attack came
from in front of the victim?

WITNESS:
A. Yes, it is possible, Sir.

(tsn, Dec. 14, 1993, pp. 60-63.)

Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn, Dec. 14, 1993, p. 108). It is
undisputed that at around 8:30 A.M. of July 11, 1993 accused-appellant and Lam Po Chun took breakfast
together at the hotel restaurant. She could not have been killed on July 10, 1993. The autopsy conducted
by Dr. Lagonera and the testimony of accused-appellant coincided insofar as the food taken at breakfast
is concerned. The couple ate eggs, bacon, and toasted bread. But the doctor was insistent that the death
occurred the previous day.

Where a medico-legal expert of the police department could not, with any measure of preciseness, fix
the time of death, the police investigator was bold and daring enough to establish it. Surprisingly, the
trial court accepted this kind of evidence. SP02 Alejandro Yanquiling testified that he arrived at the Park
Hotel at about 11:25 o'clock on the evening of July 11, 1993 to conduct the investigation of the crime. At
the time, the victim showed signs of rigor mortis, stiffening of the muscle joints, with liquid and blood
oozing from the nose and mouth. On the basis of his observations, he declared that the victim had been
dead for 10 to 12 hours.

The trial court stated that if the victim had been dead from 10 to 12 hours at 11:35 o'clock in the
evening, it is safe to conclude that she was killed between 9 and 10 o'clock on the morning of July 11,
1993. The mathematics of the trial court is faulty. Twelve hours before 11:35 P.M. would be 11:35 A.M..
Ten hours earlier would even be later 1.35 P.M. Since accused-appellant was unquestionably with
Gwen delos Santos and her group touring and shopping in megamalls between 10 A.M. and 11:35 P.M.,
the assailant or assailants must have been other people who were able to gain entry into the hotel room
at that time.

The trial court stated that there was no sign of any forcible entry into the room, no broken locks,
windows, etc. The answer is simple. Somebody could have knocked on the door and Lam Po Chun could
have opened it thinking they were hotel staff. Unfortunately, Detective Yanquiling was so sure of himself
that after pinpointing accused-appellant as the culprit, he did not follow any other leads. In the course of
his interviews with witnesses, his purpose was simply to nail down one suspect. His investigation was
angled towards pinning down Yip Wai Ming. In fact, Gwen delos Santos testified that Yanquiling talked to
her over the telephone almost daily urging her to change her testimony.

Officer Yanquiling testified on cross-examination that he did not apply any mode of scientific
investigation. If a medico-legal expert of the same police department who conducted an autopsy had no
basis for giving the probable time of death, the police officer who merely looked at the body and saw the
blood oozing out of the victim's nose and mouth must have simply guessed such time, plucking it out of
thin air. The trial court accepted the erroneous timing, conveniently placing it where a finding of guilt
would follow as a consequence.

Before a conviction can be had upon circumstantial evidence, the circumstances should constitute an
unbroken chain which leads to but one fair and reasonable conclusion, which points to the accused, to
the exclusion of all others, of the guilty person (U.S. vs. Villos, 6 Phil. 510 [1906]; People vs. Subano, 73
Phil. 692 [1942]). Every hypothesis consistent with innocence must be excluded if guilt beyond
reasonable doubt is based on circumstantial evidence (U.S. vs. Cajayon, 2 Phil. 570 [1903]; U.S. vs. Tan
Chian, 17 Phil. 209 [1910]; U.S. vs. Levente, 18 Phil. 439 [1911]). All the evidence must be consistent with
the hypothesis that the accused is guilty, and at the same time inconsistent with the hypothesis that he
is innocent, and with every other rational hypothesis except that of guilt (People vs. Andia, 2 SCRA 423
[1961]).

The tests as to the sufficiency of the circumstantial evidence to prove guilt beyond reasonable doubt
have not been met in the case at bar.

The chain of circumstances is not unbroken. The most vital circumstantial evidence in this case is that
which proves that accused-appellant killed the victim so he could gain from the insurance proceeds on
the life of the victim. Another vital circumstance is the time of death precisely between 9:15 and 10 A.M.
Both were not satisfactorily established by the prosecution. Where the weakest link in the chain of
evidence is at the same time the most vital circumstance, there can be no other alternative but to acquit
the accused (People vs. Maaborang, 9 SCRA 108 [1963]).

Since the sentence of conviction is based on the crime having been committed within a short time
frame, accused-appellant cannot be convicted on the strength of circumstantial evidence if doubts are
entertained as to where he was at that particular time and reasonable conclusions can be had that other
culprits could have entered the room after accused-appellant left with the delos Santos family. Other
people could have killed the victim.

The trial court also relied heavily on the testimony of Cariza Destresa, a 19-year old cultural dancer
occupying with her Australian boyfriend Peter Humphrey, the adjoining Room 211. Destresa testified
that while she was in Room 211 at about 9:15 o'clock on the morning of July 11, 1993, she heard banging
sounds in Room 210, as if somebody was being thrown, and there was stomping on the floor. The
banging sounds lasted about thirty (30) minutes, an improbably long time to kill a woman. Destresa
stated that she placed her ear near the wall and heard the cry of a woman having difficulty in breathing.

The witness heard the banging sounds between 9:15 and 9:45 A.M. of July 11, 1993, not before or after.
The unreliability of Destresa's memory as to dates and time is shown by the fact that when asked as to
the date of her Australian boyfriend's arrival in the Philippines, she stated, "July 29, 1993." Pressed by
the prosecuting attorney if she was sure of said date, she changed this to "July 16, 1993." Pressed
further:

Q. Are you sure that he arrived in the Philippines on July 16, 1993?

A. I can't exactly remember the date of the arrival of my boyfriend here in the Philippines because
his coming was sudden, Sir.

(tsn, Sept. 30, 1993, p. 10.)

On July 16 and July 19, 1993 Lam Po Chun was already dead. If Peter Humphrey was still in Australia on
July 11, 1993, how could he occupy with his girlfriend the next door room, Room 211, on that date at the
Park Hotel. If Destresa cannot remember the date her Australian boyfriend arrived, how could the trial
court rely on her memory as to the 30-minute interval from 9:15 A.M. to 9:45 A.M. of July 11, 1993
when the alleged murder took place. Asked what time on July 13, 1993 she gave her sworn statement to
the police, Destresa answered, "I am not sure, may be it was in the early morning between 2 or 3 o'clock
of that day, Sir." Destresa was asked how she could be certain of July 13, 1993 as the date of her sworn
statement. She answered that this was the day her boyfriend left for Australia (tsn, Aug. 31, 1993, p. 29).
In her testimony given on the same day, Destresa states that she stayed in Room 211 for 3 months. She
later changed her mind and said she stayed there only when Peter Humphrey was in the Philippines.
According to the witness, Peter left on May 29, 1993; arrived in June and July; left in June; arrived in July;
left on July 13, 1993. Destresa was confused and evasive not only as to dates, but also as to her
employment, stating at the start of her testimony that she was jobless, but later declaring that she was a
dancer with the "Rampage" group and performed in Dubai.

Destresa testified at one point that she heard an argument between a man and a woman in a dialect she
could not understand. This was supposed to be on the evening of July 11, 1993. At that time, the victim
had long been dead. Destresa gave various contradictory statements in her August 30, 1993; August 31,
1993; and September 1, 1993 testimony. To our mind, the trial court gravely erred in relying on her
testimony.

Accused-appellant was arrested on July 13, 1993, two days after the killing. There was no warrant of
arrest. Officer Yanquiling testified that there was no warrant and he arrested the accused-appellant
based on "series of circumstantial evidence." He had no personal knowledge of Yip Wai Ming having
committed the crime. Accused-appellant stated that five police officers at the police station beat him up.
They asked him to undress, forced him to lie down on a bench, sat on his stomach, placed a handkerchief
over his face, and poured water and beer over his face. When he could no longer bear the pain, he
admitted the crime charged. participated in a re-enactment, and signed an extrajudicial statement. All
the while, he was not informed of his right to remain silent nor did he have counsel of his choice to assist
him in confessing the crime.

The custodial interrogation of accused-appellant was violative of Section 12, Article III of the
Constitution. The Constitution provides that "(3) Any confession or admission obtained in violation of
this section or Section 17 hereof shall be inadmissible against him." Section 17, Article III provides: "No
person shell be compelled to be a witness against himself." Any confession, including a re-enactment
without admonition of the right to silence and to counsel, and without counsel chosen by the accused is
inadmissible in evidence (People vs. Duero, 104 SCRA 379 [1981]).

This Court notes that accused-appellant did not file any complaint or charges against the police officers
who allegedly tortured him. But he was a foreign national, a tourist charged with a serious crime, finding
himself in strange surroundings. In Hongkong, there would have been family members and friends who
could have given him moral support. He would have known that he was being questioned in his own
country, being investigated under the laws of that country. The degree of intimidation needed to coerce
a person to confess to the commission of a crime he did not commit would be much less if he is in a
strange land. Accused-appellant states that his lawyers told him not to file any charges against the
policemen. He followed their advice, obviously not wanting to get into more trouble.

This Court has carefully gone over the record of this case. We simply cannot state that the circumstantial
evidence is in its entirety credible and unbroken and that the finding of guilt excludes any other
possibility that the accused-appellant may be innocent.

Most of the circumstantial evidence in this case came from the investigation conducted by Officer
Alejandro Yanquiling or from the prodding by him of various witnesses. The desire of a police officer to
solve a high profile crime which could mean a promotion or additional medals and commendations is
admirable. However, an investigator must pursue various leads and hypotheses instead of
singlemindedly pursuing one suspect and limiting his investigation to that one possibility, excluding
various other probabilities. The killing of a tourist is a blot on the peace and order situation in the
Philippines and must be solved. Still, concentrating on pinning down an alien companion of the victim
and not pursuing the possibilities that other persons could have killed the victim for her money and
valuables does not speak well of our crime detection system. It is not enough to solve a crime. The truth
is more important and justice must be rendered.

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accused-appellant Yip Wai
Ming is acquitted of the charge of murder on grounds of reasonable doubt and his immediate release
from custody is ordered unless he is being held on other legal grounds.

SO ORDERED

G.R. No. 114427 February 6, 1995

ARMANDO GEAGONIA, petitioner,

vs.

COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.:

Four our review under Rule 45 of the Rules of Court is the decision1 of the Court of Appeals in CA-G.R.
SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia," reversing
the decision of the Insurance Commission in I.C. Case No. 3340 which awarded the claim of petitioner
Armando Geagonia against private respondent Country Bankers Insurance Corporation.
The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan del
Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F-146222
for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and
covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and
women wear and other usual to assured's business."

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

Zenco Sales, Inc.

P55,698.00

F. Legaspi Gen. Merchandise

86,432.50

Cebu Tesing Textiles

250,000.00

(on credit)

P392,130.50

The policy contained the following condition:

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

On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San
Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed prompting
him to file with the private respondent a claim under the policy. On 28 December 1990, the private
respondent denied the claim because it found that at the time of the loss the petitioner's stocks-in-trade
were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144, for P100,000.00 each,
issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These policies
indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage
clause reading:

MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may
appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. Phils. First CEB/F
24758.4

The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the
policy.

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

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

In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the
PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or securing
his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These
findings were based on the petitioner's testimony that he came to know of the PFIC policies only when
he filed his claim with the private respondent and that Cebu Tesing Textile obtained them and paid for
their premiums without informing him thereof. The Insurance Commission then decreed:

WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the
sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the
amount of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is
hereby dismissed.

Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission in
its resolution of 20 August 1993, 10 the private respondent appealed to the Court of Appeals by way of a
petition for review. The petition was docketed as CA-G.R. SP No. 31916.

In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the Insurance
Commission because it found that the petitioner knew of the existence of the two other policies issued
by the PFIC. It said:

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

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

In is clear that it was the private respondent [petitioner herein] who took out the policies on the same
property subject of the insurance with petitioner. Hence, in failing to disclose the existence of these
insurances private respondent violated Condition No. 3 of Fire Policy No. 1462. . . .

Indeed private respondent's allegation of lack of knowledge of the provisions insurances is belied by his
letter to petitioner [of 18 January 1991. The body of the letter reads as follows;]

xxx xxx xxx

Please be informed that I have no knowledge of the provision requiring me to inform your office about
my

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

Sir, I am only an ordinary businessman interested in protecting my investments. The actual value of my
stocks damaged by the fire was estimated by the Police Department to be P1,000,000.00 (Please see
xerox copy of Police Report Annex "A"). My Income Statement as of December 31, 1989 or five months
before the fire, shows my merchandise inventory was already some P595,455.75. . . . These will support
my claim that the amount claimed under the three policies are much below the value of my stocks lost.

xxx xxx xxx

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

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

A . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASI-

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

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

EVIDENCE DURING THE HEARING OR TRIAL; AND

C . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE
RESPONDENT.

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

The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of
reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter was not
offered in evidence and thus should not have been considered in deciding the case. However, as
correctly pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's
complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral part of the complaint. 12 It has
attained the status of a judicial admission and since its due execution and authenticity was not denied by
the other party, the petitioner is bound by it even if it were not introduced as an independent evidence.
13

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

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

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law.
Its incorporation in the policy is allowed by Section 75 of the Insurance Code 15 which provides that "[a]
policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of
an immaterial provision does not avoid the policy." Such a condition is a provision which invariably
appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is
commonly known as the additional or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the

policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject
matter, the same interest therein, and the same risk.17

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be one policy, or each may take out a separate policy covering his
interest, either at the same or at separate times. 18 The mortgagor's insurable interest covers the full
value of the mortgaged property, even though the mortgage debt is equivalent to the full value of the
property.19 The mortgagee's insurable interest is to the extent of the debt, since the property is relied
upon as security thereof, and in insuring he is not insuring the property but his interest or lien thereon.
His insurable interest is prima facie the value mortgaged and extends only to the amount of the debt,
not exceeding the value of the mortgaged property. 20 Thus, separate insurances covering different
insurable interests may be obtained by the mortgagor and the mortgagee.

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

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest
may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by the
insurer but not made a party to the contract himself. Hence, any act of the mortgagor which defeats his
right will also defeat the right of the mortgagee. 22 This kind of policy covers only such interest as the
mortgagee has at the issuing of the policy.23

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

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

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

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

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

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

or in the 1930 case of Santa Ana vs. Commercial Union Assurance

Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the objects
thereby assured must be declared by the insured in writing and he must cause the company to add or
insert it in the policy, without which such policy shall be null and void, and the insured will not be
entitled to indemnity in case of loss," Condition 3 in the private respondent's policy No. F-14622 does
not absolutely declare void any violation thereof. It expressly provides that the condition "shall not apply
when the total insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00."

It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor
of the insured and strictly against the company, the reason being, undoubtedly, to afford the greatest
protection which the insured was endeavoring to secure when he applied for insurance. It is also a
cardinal principle of law that forfeitures are not favored and that any construction which would result in
the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is possible to
construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for
such forfeiture. 29 Stated differently, provisions, conditions or exceptions in policies which tend to work
a forfeiture of insurance policies should be construed most strictly against those for whose benefits they
are inserted, and most favorably toward those against whom they are intended to operate. 30 The
reason for this is that, except for riders which may later be inserted, the insured sees the contract
already in its final form and has had no voice in the selection or arrangement of the words employed
therein. On the other hand, the language of the contract was carefully chosen and deliberated upon by
experts and legal advisers who had acted exclusively in the interest of the insurers and the technical
language employed therein is rarely understood by ordinary laymen. 31

With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally
free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude
that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to
the extent exceeding P200,000.00 of the total policies obtained.

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

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance
in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to
assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to
discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in
fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property
owner obtains insurance policies from two or more insurers in a total amount that exceeds the
property's value, the insured may have an inducement to destroy the property for the purpose of
collecting the insurance. The public as well as the insurer is interested in preventing a situation in which
a fire would be profitable to the insured.32

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP
No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 is REINSTATED.

Costs against private respondent Country Bankers Insurance Corporation.

SO ORDERED
G.R. No. 84628 November 16, 1989

HEIRS OF ILDEFONSO COSCOLLUELA, SR., INC., petitioner,

vs.

RICO GENERAL INSURANCE CORPORATION, COURT OF APPEALS (11th Division), and HON. ENRIQUE T.
JOCSON, Judge, Regional Trial Court of Negros Occidental Branch, respondents.

Ildefonso S. Villanueva and Rolando N. Medalla for petitioner.

Limbaga, Bana-ag, Bana-ag & Associates for private respondent.

GUTIERREZ, JR., J.:

The main issues raised in this petition for review on certiorari are whether the Court of Appeals erred in:
(1) affirming the dismissal by the trial court of the complaint for damages on the ground of lack of cause
of action, and in (2) denying due course to a petition for certiorari on the ground that the remedy of the
petitioner to assail said order is appeal.

Petitioner, Heirs of Ildefonso Coscoluella, Inc. is a domestic corporation and the registered owner of an
Isuzu KBD Pick-up truck bearing Motor No. 663296 and Plate No. LTV-FAW-189. The vehicle was insured
with the private respondent Rico General Insurance Corporation for a consideration of P100,000.00
excluding third party liability under Commercial Vehicle Policy No. CV-122415 per Renewal Certificate
No. 02189. The premiums and other expenses for insurance paid covered the period from October 1,
1986 to October 1, 1987.

On August 28, 1987 and within the period covered by the insurance, the insured vehicle was severely
damaged and rendered unserviceable when fired upon by a group of unidentified armed persons at
Hacienda Puyas, Barangay Blumentritt, Murcia, Negros Occidental. In the same incident, four persons
died.
Petitioner filed its claim of P80,000.00 for the repair of the vehicle but private respondent, in a letter
dated October 8, 1987, refused to grant it. As a consequence, the petitioner was prompted to file a
complaint with the Regional Trial Court, 6th Judicial Region, Branch 47 at Bacolod City, docketed as Civil
Case No. 4707, to recover the claim of P80,000.00 plus interest and attorney's fees.

The private respondent filed a motion to dismiss alleging that the complaint lacks a cause of action
because the firing by armed men is a risk excepted under the following provisions in the insurance
policy:

The Company shall not be liable under any Section of the Policy in respect of:

1. xxxxx

2. xxxxx

3. Except in respect of claims arising under Sections I and II of the policy, any accident, loss,
damage or liability directly or indirectly, proximately or remotely occasioned by, contributed to by or
traceable to, or arising out of, or in connection with flood, typhoon, hurricane, volcanic eruption,
earthquake or other convulsion of nature, invasion, the act of foreign enemies, hostilities or warlike
operations (whether war be declared or not), civil commotion, mutiny, rebellion, insurrection, military or
usurped power, or by any direct or indirect consequences of any of the said occurrences and in the event
of any claim hereunder, the insured shall prove that the accident, loss or damage or liability arose
independently of, and was in no way connected with, or occasioned by, or contributed to, any of the said
occurrences, or any consequence thereof, and in default of such proof, the Company shall not be liable
to make any payment in respect of such claim. (Emphasis supplied; see Rollo, p. 33,71)

The private respondent alleged that the firing was "an indirect consequence of rebellion, insurrection or
civil commotion." The petitioner opposed the motion, saying that the quoted provision does not apply in
the absence of an official governmental proclamation of any of the above-enumerated conditions.

The trial court ordered the dismissal of the complaint for lack of cause of action stating that the damage
arose from a civil commotion or was a direct result thereof. (Rollo, p. 37)

A motion for reconsideration filed by the petitioner was denied by the trial court which further noted
that "Courts can take effective cognizance of the general civil disturbance in the country akin to civil war
without any executive proclamation of the existence of such unsettling condition." (Rollo, p. 38)

A second motion for reconsideration was filed but was later withdrawn.

Petitioner filed a notice of appeal which was given due course. However, the trial court, stated in its
order that "the records of the case will not be transmitted to the Court of Appeals, the appropriate
remedy being (a) petition for review by way of certiorari." In that same order, the trial court took
cognizance of the withdrawal of the second motion for reconsideration but noted the police blotter
appended to said motion which showed that "other than M-16 Armalite Rifles (the number of which
were not specified for unknown reasons), nothing else was taken by the attackers." (Rollo, p. 40)
Thereafter, the petitioner filed a petition for certiorari with the Court of Appeals. The appellate court
denied the petition, affirmed the trial court's dismissal order, and also ruled that an appeal in the
ordinary course of law, not a special civil action of certiorari, is the proper remedy for the petitioner in
assailing the dismissal order.

Hence, this petition to review the respondent appellate court's decision.

Petitioner asserts that its complaint states a cause of action since ultimate facts were alleged as follows:

3. That, on August 28, 1987, the ISUZU KBD PICK-UP referred to in the preceding paragraph was
damaged as a result of an incident at Hda. Puyas, Barangay Blumentritt, Murcia, Negros Occidental,
when it was fired upon by a group of unidentified armed persons causing even the death of four (4)
persons and rendering the said vehicle almost totally damaged and unserviceable;

4. That when the said incident occurred on August 28, 1987, the said ISUZU KBD PICK-UP was insured
by the defendant for P100,000.00 excluding third-party liability under Commercial Vehicle Policy No.
CV/122415 per Renewal Certificate No. 02189 a copy of which is herewith attached as Annex "B"; and
with the premiums and other expenses thereon duly paid for under Official Receipt No. 691, dated
September 8, 1986, covering the period from October 1, 1986 to October 1, 1987, a copy of the same
being attached hereto as Annex "C";

5. That, the damage on said motor vehicle being a "fait accompli" and that it was insured by the
defendant at the time it was damaged, it is the obligation of the defendant to restore the said vehicle to
its former physical and running condition when it was insured however defendant refused and still
refuses and fails, despite demands in writing made by plaintiff and its counsel to that effect, copies of
said letters attached hereto as Annexes "D" & "E";

6. That, for purposes of restoring the ISUZU KBD PICK-UP insured by the defendant to its former
physical and running condition when it was insured, as mentioned above, would cost P80,000.00, which
will include repair, repainting, replacement of spare parts, labor, etc., the said amount having arrived at
upon inspection and appraisal of the said motor vehicle by knowledgeable and technical people;

7. That, as a consequence of defendant's refusal to settle or pay the just claim of plaintiff, plaintiff has
been compelled to hire the legal services of counsel for the protection of its rights and interest at the
agreed fee of P15,000.00, for and as attorney's fees, which sum plaintiff is claiming from the defendant.
(At pp. 29-30, Rollo)

Petitioner further maintains that the order of dismissal was erroneous in that: it overlooked the principle
that a motion to dismiss a complaint on the ground of failure to state a cause of action hypothetically
admits the allegations in the complaint; no trial was held for the reception of proof that the firing
incident was a direct or indirect result of a civil commotion, mutiny, insurrection or rebellion; private
respondent had the burden of proof to show that the cause was really an excepted risk; and in any case,
the nature of the incident as a "civil disturbance" must first be officially proclaimed by the executive
branch of the government. Private respondent, on the other hand, argues that the accident was really a
result of a civil commotion, one of the fatalities being a military officer. (Rollo, p. 59)

After a review of the records, the Court finds that the allegations set forth in the complaint sufficiently
establish a cause of action. The following are the requisites for the existence of a cause of action: (1) a
right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect, or not to violate such right; and (3) an act or
omission on the part of the said defendant constituting a violation of the plaintiff's right or a breach of
the obligation of the defendant to the plaintiff. (Cole v. Vda. de Gregoria, 116 SCRA 670 [1982]; Baliwag
Transit, Inc. v. Ople, G. R. No. 57642, March 16, 1989)

The facts as alleged clearly define the existence of a right of the petitioner to a just claim against the
insurer for the payment of the indemnity for a loss due to an event against which the petitioner's vehicle
was insured. The insurance contract mentioned therein manifests a right to pursue a claim and a duty on
the part of the insurer or private respondent to compensate the insured in case of a risk insured against.
The refusal of the insurer to satisfy the claim and the consequent loss to the petitioner in incurring the
cost of acquiring legal assistance on the matter constitutes a violation or an injury brought to the
petitioner.

There is, therefore, a sufficient cause of action upon which the trial court can render a valid judgment.
(Taedo v. Bernad, et al; G. R. No. 66520, August 30, 1988).

The Court is very much cognizant of the principle that a motion to dismiss on the ground of failure to
state a cause of action stated in the complaint hypothetically admits the truth of the facts therein. The
Court notes the following limitations on the hypothetical admission:

The hypothetical admission is however limited to the relevant and material facts well pleaded in the
complaint and inferences fairly deducible therefrom. The admission does not extend to conclusions or
interpretations of law: nor does it cover allegations of fact the falsity of which is subject to judicial
notice. (U. Baez Electric Light Co. v. Abra Electric Cooperative, Inc., 119 SCRA 90 [1982])

Applying the above principle, we hold that the private respondent's motion to dismiss hypothetically
admits the facts alleged in the complaint. We do not find anything in the complaint which does not
deserve admission by the motion since there are no "conclusions or interpretations of law" nor
"allegations of fact the falsity of which is subject to judicial notice." It is clear that the complaint does no
more and no less than state simply that the van was damaged due to the firing by unidentified armed
men. Since the complaint does not explicitly state nor intimate civil strife which private respondent
insists to be the cause of the damage, the motion to dismiss cannot go beyond the admission of the facts
stated and inferences reasonably deducible from them. Any other assertion by the private respondent is
subject to proof. Meanwhile, the sufficiency of the petitioner's cause of action has been shown since,
admitting the facts alleged, a valid judgment can be rendered.

The private respondent's invocation of the exceptions clause in the insurance policy as the basis for its
non-liability and the consequent dismissal of the complaint is without merit. We also reiterate the
established rule that when the terms of an insurance contract contain limitations on liability, the court
"should construe them in such a way as to preclude the insurer from non-compliance with his
obligations." (Taurus Taxi Co. Inc. v. Capital Insurance and Surety Company, Inc., 24 SCRA 454 [l968]) A
policy of insurance with a narration of exceptions tending to work a forfeiture of the policy shall be
interpreted liberally in favor of the insured and strictly against the insurance company or the party for
whose benefit they are inserted. (Eagle Star Insurance, Ltd. v. Chia Yu, 96 Phil. 696 [1955]; Trinidad v.
Orient Protective Asso., 67 Phil. 181 [1939]; Serrano v. Court of Appeals, 130 SCRA 327 [1984]; and
National Power Corp. v. Court of Appeals, 145 SCRA 533 [1986]).

The facts alleged in the complaint do not give a complete scenario of the real nature of the firing
incident. Hence, it was incumbent upon the trial judge to have made a deeper scrutiny into the
circumstances of the case by receiving evidence instead of summarily disposing of the case. Contrary to
what the respondent appellate court says, this case does not present a pure question of law but
demands a factual determination of whether the incident was a result of events falling under the
exceptions to the liability of private respondent contained in the policy of insurance.

We agree with the petitioner's claim that the burden of proof to show that the insured is not liable
because of an excepted risk is on the private respondent. The Rules of Court in its Section 1, Rule 131
provides that "each party must prove his affirmative allegations." (Summit Guaranty and Insurance Co.,
Inc. vs. Court of Appeals, 110 SCRA 241 [1981]; Tai Tong Chuache & Co. v. Insurance Commissioner, 158
SCRA 366 [1988]; Paris-Manila Perfume Co. v. Phoenix Assurance Co., 49 Phil. 753 [1926]). Where the
insurer denies liability for a loss alleged to be due to a risk not insured against, but fails to establish the
truth of such fact by concrete proofs, the Court rules that the insurer is liable under the terms and
conditions of the policy by which it has bound itself. In this case, the dismissal order without hearing and
reception of evidence to prove that the firing incident was indeed a result of a civil commotion, rebellion
or insurrection constitutes reversible error on the part of the trial court.

The Court stresses that it would be a grave and dangerous procedure for the courts to permit insurance
companies to escape liability through a motion to dismiss without the benefit of hearing and evidence
every time someone is killed, or as in this case,. property is damaged in an ambush. The question on the
nature of the firing incident for the purpose of determining whether or not the insurer is liable must first
be threshed out and resolved in a full-blown trial.

The evidence to be received does not even have to relate to the existence of an official government
proclamation of the nature of the incident because the latter is not an explicit requirement in the
exception clause resolved in a mere motion to dismiss and is, for purposes of this petition for review on
certiorari, immaterial. This particular issue on when to take cognizance of a rebellion for purposes of the
law on contracts and obligations should have been developed during the trial on the merits or may have
to await remedial legislation in Insurance Law or a decision in a more appropriate case.

The petitioner also questions the reasoning of the Court of Appeals in denying due course to the petition
for certiorari. The appellate court said that even assuming for the sake of argument that the dismissal
order by the trial court was not procedurally correct for lack of hearing, there was only an "error of
judgment or procedure" correctible only by appeal then available in the ordinary course of law and not
by a special civil action of certiorari which cannot be a substitute for appeal.

The records show that the remedy of appeal was actually intended to be pursued by petitioner. However,
the appeal was rendered unfeasible when the trial judge refused to transmit the records to the appellate
court. (see Rollo, p. 40) The judge, in effect, ruled out the remedy of appeal which was supposed to be
availed of as a matter of right. In filing a petition for certiorari, the petitioner was acting upon the
instructions of the judge. Under a situation where there was no more plain, speedy and adequate
remedy in the ordinary course of law, the only available recourse was to file a special civil action of
certiorari to determine whether or not the dismissal order was issued with grave abuse of discretion.

It is apparent, moreover, that the respondent appellate court failed to appreciation the petitioner's
predicament. The trial judge, aside from dismissing the complaint which we now rule to have a sufficient
cause of action, likewise prevented an ordinary appeal to prosper in contravention of what is provided
for by the rules of procedure.

The April 6, 1988 order of the trial judge stating that the appropriate remedy was a petition for review by
way of certiorari is deplorable. The lower court cannot even distinguish between an original petition for
certiorari and a petition for review by way of certiorari. A petition for review before the Court of Appeals
could have been availed of if what is challenged is an adverse decision of the Regional Trial Court in its
appellate capacity affirming, modifying or reversing a decision of a municipal trial court or lower
tribunal. (Section 22, Batas Pambansa Blg. 129 and Section 22 (6) of the Interim Rules). In this case, the
petitioner assailed the dismissal order of the Regional Trial Court of a complaint originally filed with it.
This adverse order which had the effect of a judgment on the merits, may be appealed to the Court of
Appeals by filing a notice of appeal within fifteen (15) days from receipt of notice of the order both on
questions of law and of fact. (Section 39, Batas Pambansa Blg. 129 and Section 19 (a) of the Interim
Rules). This was exactly what petitioner did after its motion for reconsideration was denied.
Unfortunately, the trial judge failed to see the propriety of this recourse. And the Court of Appeals
compounded the problem when it denied the petitioner any remedy arising from the Judge's wrong
instructions.

The filing of the petition for certiorari was proper. Petitioner has satisfactorily shown before the
respondent appellate court that the trial judge "acted whimsically in total disregard of evidence material
to and even decisive of the controversy". (Pure Foods Corp. v. National Labor Relations Commission, G. R.
No. 78591, March 21, 1989).

The extraordinary writ of certiorari is always available where there is no appeal or any other plain,
speedy and adequate remedy in the ordinary course of law. (Tropical Homes, Inc. v. National Housing
Authority, 152 SCRA 540 [1987]; Pure Foods Corp. v. NLRC, supra)

Since the petitioner was denied the remedy of appeal, the Court deems that a certiorari petition was in
order.
WHEREFORE, considering the foregoing, the petition is hereby GRANTED. The decision of the respondent
Court of Appeals affirming the dismissal order by the Regional Trial Court is hereby REVERSED and SET
ASIDE. Let the case be remanded to the lower court for trial on the merits.

SO ORDERED

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:

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 respondent after the issuance of the two regular marine insurance policies, thereby
leaving no account unpaid by 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 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.

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 necessary to ask petitioner to pay
premium on the Cover Note, for the loss insured against having already occurred, the more practical
procedure is simply to deduct the premium from the amount due the petitioner on the Cover Note. The
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 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 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:

Section 84.Delay in the presentation to an insurer of notice or proof of loss is waived if caused by 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.

ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is
reinstated in toto with the affirmance of this Court. No special pronouncement as to costs.

SO ORDERED

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

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.

HONORABLE COURT OF APPEALS, respondents.

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

LAPULAPU D. MONDRAGON, petitioner,

vs.

HON. COURT OF APPEALS and NGO HING, respondents.

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.

Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:

The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29,
1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief, through these
petitions for certiorari by way of appeal, from the amended decision of respondent Court of Appeals
which affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the defendants
(herein petitioners Great Pacific Ligfe Assurance Company and Mondragon) jointly and severally to pay
plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the
date of the filing of the complaint, and the sum of P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great
Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year endownment
policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said respondent
supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life
in Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally
type-wrote the data on the application form which was signed by private respondent Ngo Hing. The
latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he reatined the
amount of P1,317.00 as his commission for being a duly authorized agebt of Pacific Life. Upon the
payment of the insurance premuim, the binding deposit receipt (Exhibit E) was issued to private
respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the insurance application. Then on April
30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance application (Exhibit 3-
M). The letter stated that the said life insurance application for 20-year endowment plan is not available
for minors below seven years old, but Pacific Life can consider the same under the Juvenile Triple Action
Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the
company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life
again strongly recommending the approval of the 20-year endowment insurance plan to children,
pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage
(Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication
of bronchopneumonia. Thereupon, private respondent sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the recovery of the same before the Court
of First Instance of Cebu, which rendered the adverse decision as earlier refered to against both
petitioners.

The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a
temporary contract of the life insurance in question; and (2) whether private respondent Ngo Hing
concealed the state of health and physical condition of Helen Go, which rendered void the aforesaid
Exhibit E.

1. At the back of Exhibit E are condition precedents required before a deposit is considered a
BINDING RECEIPT. These conditions state that:

A. If the Company or its agent, shan have received the premium deposit ... and the insurance
application, ON or PRIOR to the date of medical examination ... said insurance shan be in force and in
effect from the date of such medical examination, for such period as is covered by the deposit ...,
PROVIDED the company shall be satisfied that on said date the applicant was insurable on standard rates
under its rule for the amount of insurance and the kind of policy requested in the application.

D. If the Company does not accept the application on standard rate for the amount of insurance
and/or the kind of policy requested in the application but issue, or offers to issue a policy for a different
plan and/or amount ..., the insurance shall not be in force and in effect until the applicant shall have
accepted the policy as issued or offered by the Company and shall have paid the full premium thereof. If
the applicant does not accept the policy, the deposit shall be refunded.

E. If the applicant shall not have been insurable under Condition A above, and the Company
declines to approve the application the insurance applied for shall not have been in force at any time and
the sum paid be returned to the applicant upon the surrender of this receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be
merely a provisional or temporary insurance contract and only upon compliance of the following
conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2)
that if the company does not accept the application and offers to issue a policy for a different plan, the
insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the
deposit shall be reftmded; and (3) that if the applicant is not ble according to the standard rates, and the
company disapproves the application, the insurance applied for shall not be in force at any time, and the
premium paid shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same on the basis of whether or
not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had never become in force
at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not
insure outright. As held by this Court, where an agreement is made between the applicant and the
agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The
acceptance is merely conditional and is subordinated to the act of the company in approving or rejecting
the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De
Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific
Life disapproved the insurance application in question on the ground that it is not offering the twenty-
year endowment insurance policy to children less than seven years of age. What it offered instead is
another plan known as the Juvenile Triple Action, which private respondent failed to accept. In the
absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over
the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old
daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding
deposit receipt, there could have been no insurance contract duly perfected between thenl Accordingly,
the deposit paid by private respondent shall have to be refunded by Pacific Life.

As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other
contracts, must be assented to by both parties either in person or by their agents ... The contract, to be
binding from the date of the application, must have been a completed contract, one that leaves nothing
to be dione, nothing to be completed, nothing to be passed upon, or determined, before it shall take
effect. There can be no contract of insurance unless the minds of the parties have met in agreement."

We are not impressed with private respondent's contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance application would not have any adverse effect on the
allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first place, there was no
contract perfected between the parties who had no meeting of their minds. Private respondet, being an
authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company
does not offer the life insurance applied for. When he filed the insurance application in dispute, private
respondent was, therefore, only taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question along with his proposal that
the insurance company starts to offer the 20-year endowment insurance plan for children less than
seven years. Nonetheless, the record discloses that Pacific Life had rejected the proposal and
recommendation. Secondly, having an insurable interest on the life of his one-year old daughter, aside
from being an insurance agent and an offense associate of petitioner Mondragon, private respondent
Ngo Hing must have known and followed the progress on the processing of such application and could
not pretend ignorance of the Company's rejection of the 20-year endowment life insurance application.

At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate
Associate Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to the
amended decision of the respondent court which completely reversed the original decision, the
following:
Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply
thereto of appellant Mondragon reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly communicated to Ngo; Hing, father of
the minor applicant. I am not quite conninced that this was so. Ngo Hing, as father of the applicant
herself, was precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement
of appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing
was "our associate" and that it was the latter who "insisted that the plan be placed on the 20-year
endowment plan." Under these circumstances, it is inconceivable that the progress in the processing of
the application was not brought home to his knowledge. He must have been duly apprised of the
rejection of the application for a 20-year endowment plan otherwise Mondragon would not have
asserted that it was Ngo Hing himself who insisted on the application as originally filed, thereby implictly
declining the offer to consider the application under the Juvenile Triple Action Plan. Besides, the
associate of Mondragon that he was, Ngo Hing should only be presumed to know what kind of policies
are available in the company for minors below 7 years old. What he and Mondragon were apparently
trying to do in the premises was merely to prod the company into going into the business of issuing
endowment policies for minors just as other insurance companies allegedly do. Until such a definite
policy is however, adopted by the company, it can hardly be said that it could have been bound at all
under the binding slip for a plan of insurance that it could not have, by then issued at all. (Amended
Decision, Rollo, pp- 52-53).

2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private
respondent had deliberately concealed the state of health and piysical condition of his daughter Helen
Go. Wher private regpondeit supplied the required essential data for the insurance application form, he
was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital physical
defect could never be ensconced nor disguished. Nonetheless, private respondent, in apparent bad faith,
withheld the fact materal to the risk to be assumed by the insurance compary. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known. his duty and responsibility to such a
material fact. Had he diamond said significant fact in the insurance application fom Pacific Life would
have verified the same and would have had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and
perfect candor or openness and honesty; the absence of any concealment or demotion, however slight
[Black's Law Dictionary, 2nd Edition], not for the alone but equally so for the insurer (Field man's
Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which
a partY knows aDd Ought to communicate (Section 25, Act No. 2427). Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.:
Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life Insurance
Company, 7 SCRA 316). Private respondent appears guilty thereof.

We are thus constrained to hold that no insurance contract was perfected between the parties with the
noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined,
having been comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered
absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from their civil
liabilities as found by respondent Court and ordering the aforesaid insurance company to reimburse the
amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against private
respondent.

SO ORDERED

G.R. No. 128833 April 20, 1998

RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO, petitioners,

vs.

COURT OF APPEALS and GOYU & SONS, INC., respondents.

G.R. No. 128834 April 20, 1998

RIZAL COMMERCIAL BANKING CORPORATION, petitioners,

vs.

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

G.R. No. 128866 April 20, 1998

MALAYAN INSURANCE INC., petitioners,

vs.

GOYU & SONS, INC. respondent.

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

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

The undisputed facts may be summarized as follows:

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

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

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

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

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

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

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

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

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

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

b. To pay the plaintiff damages by was of interest for the duration of the delay since July 27, 1992
(ninety days after defendant insurer's receipt of the required proof of loss and notice of loss) at the rate
of twice the ceiling prescribed by the Monetary Board, on the following amounts:

1) P50,000,000.00 from July 27, 1992 up to the time said amount was deposited with this Court
on January 7, 1994;

2) P24,040,518.58 from July 27, 1992 up to the time when the writs of attachments were
received by defendant Malayan;

2. For defendant Rizal Commercial Banking Corporation:

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

3. For both defendants Malayan and RCBC:

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

1) P1,000,000.00 as exemplary damages;

2) P1,000,000.00 as, and for, attorney's fees;

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

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

(Record, pp. 478-479.)

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

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

1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:

a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the amount of
P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and damages by way of interest
commencing July 27, 1992 until the time Goyu receives the said amount at the rate of thirty-seven (37%)
percent per annum which is twice the ceiling prescribed by the Monetary Board.

2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION;

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

3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING

CORPORATION, UY CHUN BING AND ELI D. LAO:

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

1. P1,500,000.00 as exemplary damages;

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

4. And on RCBC's Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan obligation
with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any interest, surcharges and
penalties.

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

(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking review and
consequent reversal of the above dispositions of the Court of Appeals.

In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376, which case, by
virtue of the Court of Appeals' resolution dated August 7, 1996, was consolidated with C.A. G.R. No. CV-
46162 (subject of herein G.R. No. 128833). At issue in said petition is RCBC's right to intervene in the
action between Alfredo C. Sebastian (the creditor) and GOYU (the debtor), where the subject insurance
policies were attached in favor of Sebastian.

After a careful reviews of the material facts as found by the two courts below in relation to the pertinent
and applicable laws, we find merit in the submission of RCBC and MICO.

The several causes of action pursued below by GOYU gave rise to several related issues which are now
submitted in the petitions before us. This Court, however, discerns one primary and central issue, and
this is, whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the
mortgagor, in case of the occurrence of loss.

As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU, the latter executed
several mortgage contracts in favor of RCBC. It was expressly stipulated in these mortgage contracts that
GOYU shall insure the mortgaged property with any of the insurance companies acceptable to RCBC.
GOYU indeed insured the mortgaged property with MICO, an insurance company acceptable to RCBC.
Bases on their stipulations in the mortgage contracts, GOYU was supposed to endorse these insurance
policies in favor of, and deliver them, to RCBC. Alchester Insurance Agency, Inc., MICO's underwriter
from whom GOYU obtained the subject insurance policies, prepared the nine endorsements (see Exh. "1-
Malayan" to "9-Malayan"; also Exh. "51-RCBC" to "59-RCBC"), copies of which were delivered to GOYU,
RCBC, and MICO. However, because these endorsements do not bear the signature of any officer of
GOYU, the trial court, as well as the Court of Appeals, concluded that the endorsements are defective.

We do not quite agree.

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

It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The
Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in
favor of any particular beneficiary or payee other than the insured had not such named payee or
beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and
purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other
insurance company. Alchester would not have found out that the subject pieces of property were
mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been
for GOYU, Alchester would not have known of GOYU's intention of obtaining insurance coverage in
compliance with its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not
have endorsed the policies to RCBC had it not been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor
of mortgagor RCBC. The basis and purpose of the doctrine was explained in Philippine National Bank vs.
Court of Appeals (94 SCRA 357 [1979]), to wit:

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

(p. 368.)

Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she
prepared in quadruplicate on February 11, 1992 the nine endorsement documents for GOYU's nine
insurance policies in favor of RCBC. The original copies of each of these nine endorsement documents
were sent to GOYU, and the others were sent to RCBC and MICO, while the fourth copies were detained
for Alchester's file (tsn, February 23, pp. 7-8). GOYU has not denied having received from Alchester the
originals of these documents.

RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the
stipulation in the mortgage contracts. We find such reliance to be justified under the circumstances of
the case. GOYU failed to seasonably repudiate the authority of the person or persons who prepared such
endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the
credit facilities extended to it by RCBC. After the occurrence of the loss insure against, it was too late for
GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to
prepare and issue said endorsements. If there had not been actually an implied ratification of said
endorsements by virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing
their operative effects. To permit GOYU to capitalize on its non-confirmation of these endorsements
while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that
there was due endorsement pursuant to their mortgage contracts, is to countenance grave
contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court
cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize
RCBC's right to the proceeds of the insurance polices if not for the actual endorsement of the policies, at
least on the basis of the equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of
insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is
made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take
exception to the strict application of said provision, it having been sufficiently established that it was the
intention of the parties to designate RCBC as the party for whose benefit the insurance policies were
taken out. Consider thus the following:

1. It is undisputed that the insured pieces of property were the subject of mortgage contracts
entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from
RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook
to have the mortgaged property properly covered against any loss by an insurance company acceptable
to RCBC.

2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no
less than a sister company of RCBC and definitely an acceptable insurance company to RCBC.

3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency,

Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not assail, until of late, the
validity of said endorsements.

4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities
extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken
by GOYU to cover the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement documents
prepared by Alchester, GOYU, despite the absence of its written conformity thereto, obviously
considered said endorsement to be sufficient compliance with its obligation under the mortgage
contracts since RCBC accordingly continued to extend the benefits of its credits facilities and GOYU
continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the
beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have to
be given full force and effect particular case. The insurance proceeds may, therefore, be exclusively
applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for
whose benefit the polices were clearly intended.

Moreover, the law's evident intention to protect the interests of the mortgage upon the mortgaged
property is expressed in Article 2127 of the Civil Code which states:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits,
and the rents or income not yet received when the obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue
of expropriation for public use, with the declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third
person.

Significantly, the Court notes that out of the 10 insurance policies subject of this case, only 8 of them
appear to have been subject of the endorsements prepared and delivered by Alchester for and upon
instructions of GOYU as shown below:

INSURANCE POLICY PARTICULARS ENDORSEMENT

a. Policy Number F-114-07795 None

Issue Date March 18, 1992

Expiry Date April 5, 1993

Amount P9,646,224.92

b. Policy Number ACIA/F-174-07660 Exhibit "1-Malayan"

Issue Date January 18, 1992

Expiry Date February 9, 1993

Amount P4,307,217.54

c. Policy Number ACIA/F-114-07661 Exhibit "2-Malayan"

Issue Date January 18, 1992

Expiry Date February 15, 1993

Amount P6,603,586.43

d. Policy Number ACIA/F-114-07662 Exhibit "3-Malayan"

Issue Date January 18, 1992

Expiry Date (not legible)

Amount P6,603,586.43

e. Policy Number ACIA/F-114-07663 Exhibit "4-Malayan"

Issue Date January 18, 1992

Expiry Date February 9, 1993

Amount P9,457,972.76

f. Policy Number ACIA/F-114-07623 Exhibit "7-Malayan"

Issue Date January 13, 1992

Expiry Date January 13, 1993

Amount P24,750,000.00
g. Policy Number ACIA/F-174-07223 Exhibit "6-Malayan"

Issue Date May 29, 1991

Expiry Date June 27, 1992

Amount P6,000,000.00

h. Policy Number CI/F-128-03341 None

Issue Date May 3, 1991

Expiry Date May 3, 1992

Amount P10,000,000.00

i. Policy Number F-114-07402 Exhibit "8-Malayan"

Issue Date September 16, 1991

Expiry Date October 19, 1992

Amount P32,252,125.20

j. Policy Number F-114-07525 Exhibit "9-Malayan"

Issue Date November 20, 1991

Expiry Date December 5, 1992

Amount P6,603,586.43

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

Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted by MICO's
witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record shows no endorsement for
Policy Number CI/F-128-03341 [(h) above]. Also, one of the endorsement documents, Exhibit "5-
Malayan", refers to a certain insurance policy number ACIA-F-07066, which is not among the insurance
policies involved in the complaint.

The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being
excessively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled
to have the force and effect of an endorsement by GOYU itself, these 8 policies can not be attached by
GOYU's other creditors up to the extent of the GOYU's outstanding obligation in RCBC's favor. Section 53
of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied
exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent
of GOYU's obligation with RCBC, the interest of GOYU in the subject policies had been transferred to
RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other
creditors of GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless
forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two
other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by
GOYU's other creditors. To the extent of GOYU's outstanding obligation with RCBC, all the rest of the
other insurance policies above-listed which were endorsed to RCBC, are, therefore, to be released from
attachment, garnishment, and levy by the other creditors of GOYU.

This brings us to the next issue to be resolved, which is, the extent of GOYU's outstanding obligation with
RCBC which the proceeds of the 8 insurance policies will discharge and liquidate, or put differently, the
actual amount of GOYU's liability to RCBC.

The Court of Appeals simply echoed the declaration of the trial court finding that GOYU's total obligation
to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning the trial court's exclusion of
Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91) and Promissory Note No. 420-92
(renewal of Promissory Note No. 952-91) on the ground that their execution is highly questionable for
not only are these dated after the fire, but also because the signatures of either GOYU or any its
representative are conspicuously absent. Accordingly, the Court of Appeals speculated thusly:

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

(Rollo, pp. 181-182.)

The fact that the promissory notes bear dates posterior to the fire does not necessarily mean that the
documents are spurious, for it is presumed that the ordinary course of business had been followed
(Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 22 SCRA 486 [1993]). The obligor and not
the holder of the negotiable instrument has the burden of proof of showing that he no longer owes the
obligee any amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).

Even casting aside the presumption of regularity of private transactions, receipt of the loan amounting to
P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the testimony of Go Song
Hiap when he answered the queries of the trial court.

ATTY. NATIVIDAD

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

A: Yes, sir, I received the amount.

COURT

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

WITNESS:
Yes, Your Honor, I received all the amounts.

COURT

Indicated in the Promissory Notes?

WITNESS

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

COURT

Q Your mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct?

A Yes, Your Honor.

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

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

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

(Exhibit BB.)

The Court of Appeals erred in placing much significance on the fact that the excluded promissory notes
are dated after the fire. It failed to consider that said notes had for their origin transactions
consummated prior to the fire. Thus, careful attention must be paid to the fact that Promissory Notes
No. 420-92 and 421-92 are mere renewals of Promissory Notes No. 908-91 and 952-91, loans already
availed of by GOYU.

The two courts below erred in failing to see that the promissory notes which they ruled should be
excluded for bearing dates which are after that of the fire, are mere renewals of previous ones. The
proceeds of the loan represented by these promissory notes were admittedly received by GOYU. There is
ample factual and legal basis for giving GOYU's judicial admission of liability in the amount of
P116,301,992.60 full force and effect.

It should, however, be quickly added that whatever amount RCBC may have recovered from the other
insurers of the mortgage property will, nonetheless, have to be applied as payment against GOYU's
obligation. But, contrary to the lower courts' findings, payments effected by GOYU prior to January 21,
1993 should no longer be deducted. Such payments had obviously been duly considered by GOYU, in its
aforequoted letter date March 9, 1993, wherein it admitted that its past due account totaled
P116,301,992.60 as of January 21, 1993.

The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of January 21, 1993,
to wit:

Total Obligation as admitted by GOYU

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

Broken down as follows:

Principal 1 Interest

Regular 80,535,946.32

FDU 27,548,025.17

____________

Total 108,083,971.49 8,218,021.11 2

LESS:

1) Proceeds from

Seaboard Eastern

Insurance Company 6,095,145.81

2) Proceeds from

Equitable Insurance

Company 2,756,373.00

3) Payment from

foreign department

negotiation: 203,584.89

___________

9,055,104.70 3

================

NET AMOUNT as of January 21, 1993 P107,246,887.90

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

It is to be noted in this regard that even the trial court hedgingly and with much uncertainty deleted the
payment of additional interest, penalties, and charges, in this manner:

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

(Record, p. 476)

The essence or rationale for the payment of interest or cost of money is separate and distinct from that
of surcharges and penalties. What may justify a court in not allowing the creditor to charge surcharges
and penalties despite express stipulation therefor in a valid agreement, may not equally justify non-
payment of interest. The charging of interest for loans forms a very essential and fundamental element
of the banking business, which may truly be considered to be at the very core of its existence or being. It
is inconceivable for a bank to grant loans for which it will not charge any interest at all. We fail to find
justification for the Court of Appeal's outright deletion of the payment of interest as agreed upon in the
respective promissory notes. This constitutes gross error.

For the computation of the interest due to be paid to RCBC, the following rules of thumb laid down by
this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals (234 SCRA 78 [1994]), shall apply, to wit:

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

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the actual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on

the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date of the judgment of the court
is made (at 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, be on the amount
finally adjudged.

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

(pp. 95-97).

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

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

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

Art. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be equitably
reduced if they are iniquitous and unconscionable.
In exercising this vested power to determine what is iniquitous and unconscionable, the Court must
consider the circumstances of each case. It should be stressed that the Court will not make any sweeping
ruling that surcharges and penalties imposed by banks for non-payment of the loans extended by them
are generally iniquitous and unconscionable. What may be iniquitous and unconscionable in one case,
may be totally just and equitable in another. This provision of law will have to be applied to the
established facts of any given case. Given the circumstance under which GOYU found itself after the
occurrence of the fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the
penalty charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates to
2% and 3%, respectively. Furthermore, in the light of GOYU's offer to pay the amount of P116,301,992.60
to RCBC as March 1993 (See: Exhibit "BB"), which RCBC refused, we find it more in keeping with justice
and equity for RCBC not to charge additional interest, surcharges, and penalties from that time onward.

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

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

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

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

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

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

(pp. 701-702.)

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

WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of December 16, 1996
and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED and SET ASIDE, and a new one entered:

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

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

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

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

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

SO ORDERED

G.R. No. 77530 October 5, 1989

ABOITIZ SHIPPING CORPORATION, petitioner,

vs.

PHILIPPINE AMERICAN GENERAL INSURANCE CO., respondent.

Cinco, Sarmiento, Ridad & Salinas for petitioner.

Fajardo Law Offices for private respondent.

GANCAYCO, J.:
Marinduque Mining Industrial Corporation (Marinduque for short) shipped on board SS Arthur Maersk
from Boston, U.S.A. a shipment of one (1) skid carton parts for valves as evidenced by bill of lading No.
BOSF-45607 issued by the Maersk Lines dated April 25, 1980. 1

The shipment was ordered from Jamesbury, Singapore PTE, LTD., which issued the cargo's packing list
2 and Invoice number 3 showing the contents of the carton. The consular invoice was issued by the
Philippine Consulate in Singapore for the shipment showing the contents and its total price amounting
to $39,419.60 as well as the freight and other charges amounting to $2,791.73. 4 When the cargo
arrived in Manila, it was received and deposited in the office of Aboitiz Shipping Corporation (Aboitiz
for short) at Pier 4, North Harbor, Manila for transhipment to Nonoc Island for which it issued bill of
lading No. 23. 5

On July 7,1980 Marinduque, as consignee of the cargo, made a report to the effect that said cargo was
pilfered on the night of July 3, 1980 while there was heavy rain at the Aboitiz terminal and that of the
total value of the cargo of $42,209.33, only $7,412.00 worth remains of the cargo with the
recommendation that the claim be made against Aboitiz. 6

The services of the Manila Adjusters and Surveyors Co. (Manila Adjusters for brevity) were engaged by
the Phil-American General Insurance Co., Inc. (Phil Am for short) which came out with the report that
the cargo in question was delivered at Pier 4, North Harbor on July 3, 1980 which cargo, when
inspected on July 5, 1980 showed that it was pilfered. The list of the remaining contents was in the
report. 7 A confirmatory report was submitted by the Manila Adjusters dated November 8,1980. 8

On August 11, 1980, Marinduque filed a claim against Aboitiz in the amount of P246,430.80
representing the value of the pilfered cargo. 9 On the same day Marinduque filed a claim for the same
amount against the Phil-Am on the latter's policy MRN-01754 PAG. 10

On August 25, 1981 Phil-Am paid Marinduque the sum of P246,430.80 as insurer of the cargo. 11

Phil-Am then filed a complaint in the Regional Trial Court (RTC) of Manila against Aboitiz for the
recovery of the same amount alleging that it has been subrogated to the rights of Marinduque.

In a decision rendered on January 11, 1984, the complaint was dismissed with costs against the
plaintiff. A motion for reconsideration of this decision was denied in an order dated March 19,1984.

Hence the Phil-Am appealed to the Court of Appeals wherein in due course a decision was rendered
on December 17, 1986 reversing the appealed order of dismissal of the complaint and ordering
defendant Aboitiz to pay plaintiff Phil-Am the sum of P246,430,80 plus P15,000.00 as attorney's fees.
12 A motion for reconsideration thereof was denied in a resolution of the appellate court dated
February 27, 1987.

Hence the herein petition for review for certiorari filed by Aboitiz predicated on five assignments of
errors, the resolution of which revolves on the singular issue of whether petitioner was properly held
liable to the private respondent by the appellate court.
The petition is devoid of merit.

The main thrust of the petition is that the findings of the trial court that the insurance policy covering
the cargo was issued at the time when the cargo was already pilfered and that the coverage under
Marine Policy No. 100105 PAG never began and that Marine Policy No. 100184 did not attach to the
shipment because the shipment was never loaded on any vessel of the defendant should be entitled
to considerable weight.

The records of this case show that private respondent executed a continuous and open insurance
coverage covering goods of Marinduque imported into and exported from the Philippines which took
effect after September 1, 1975, as contained in Marine Open Policy No. 100184.13 A similar insurance
coverage was also executed by petitioner in favor of Marinduque for all its goods shipped or moved
within the territorial limits of the Philippines also effective after September 1, 1975 and contained in
Marine Open Policy No. 100185. 14

The questioned shipment is covered by this continuing open insurance coverage from the time it was
loaded aboard the SS Arthur Maersk in Boston, U.S.A. to the time it was delivered to the possession of
petitioner at its offices at Pier 4 in Manila until it was pilfered when the great majority of the cargo
was lost on July 3, 1980.

The trial court in dismissing the complaint apparently relied on Marine Risk Note No. 017545 which
was issued by private respondent only on July 28, 1980 15 after the shipment in question was already
pilfered .16 Obviously the trial court mistook said Marine Risk Note as an insurance policy when it is
not. It is only an acknowledgment or declaration of the private respondent confirming the specific
shipment covered by its Marine Open Policy, the evaluation of the cargo and the chargeable premium.
17

The contention of the petitioner that it could not be liable for the pilferage of the cargo as it was
stolen even before it was loaded on its vessel is untenable. Petitioner received the cargo when it
arrived in Manila at its offices at Pier 4, North Harbor and it was while in its possession and before
loading it in its vessel that the cargo was pilfered. Its liability is clear.

Petitioner also decries the proceedings before the lower court as ex-parte without affording it due
process. The records however show that the petitioner was declared in default and thus the evidence
for Marinduque was received ex-parte in accordance with the rules. Petitioner had only itself to blame
under the circumstances.

WHEREFORE, the petition is DISMISSED with costs against petitioner.

SO ORDERED
G.R. No. 71360 July 16, 1986

DEVELOPMENT INSURANCE CORPORATION, petitioner,

vs.

INTERMEDIATE APPELLATE COURT, and PHILIPPINE UNION REALTY DEVELOPMENT CORPORATION,

respondents.

Balgos & Perez Law Offices for petitioner.

Agustin M. Sundiam for private respondent.

CRUZ, J.:
A fire occurred in the building of the private respondent and it sued for recovery of damages from the
petitioner on the basis of an insurance contract between them. The petitioner allegedly failed to
answer on time and was declared in default by the trial court. A judgment of default was subsequently
rendered on the strength of the evidence submitted ex parte by the private respondent, which was
allowed full recovery of its claimed damages. On learning of this decision, the petitioner moved to lift
the order of default, invoking excusable neglect, and to vacate the judgment by default. Its motion
was denied. It then went to the respondent court, which affirmed the decision of the trial court in
toto. The petitioner is now before us, hoping presumably that it will fare better here than before the
trial court and the Intermediate Appellate Court. We shall see.

On the question of default, the record argues mightily against it. It is indisputable that summons was
served on it, through its senior vice-president, on June 19,1980. On July 14, 1980, ten days after the
expiration of the original 15-day period to answer (excluding July 4), its counsel filed an ex parte
motion for an extension of five days within which to file its answer. On July 18, 1980, the last day of
the requested extension-which at the time had not yet been granted-the same counsel filed a second
motion for another 5-day extension, fourteen days after the expiry of the original period to file its
answer. The trial court nevertheless gave it five days from July 14, 1980, or until July 19, 1980, within
which to file its answer. But it did not. It did so only on July 26, 1980, after the expiry of the original
and extended periods, or twenty-one days after the July 5, deadline. As a consequence, the trial court,
on motion of the private respondent filed on July 28, 1980, declared the petitioner in default. This was
done almost one month later, on August 25, 1980. Even so, the petitioner made no move at all for two
months thereafter. It was only on October 27, 1980, more than one month after the judgment of
default was rendered by the trial court on September 26, 1980, that it filed a motion to lift the order of
default and vacate the judgment by default.1

The pattern of inexcusable neglect, if not deliberate delay, is all too clear. The petitioner has
slumbered on its right and awakened too late. While it is true that in Trajano v. Cruz,2 which it cites,
this Court declared "that judgments by default are generally looked upon with disfavor," the default
judgment in that case was set aside precisely because there was excusable neglect, Summons in that
case was served through "an employee in petitioners' office and not the person in-charge," whereas in
the present case summons was served on the vice-president of the petitioner who however refused to
accept it. Furthermore, as Justice Guerrero noted, there was no evidence showing that the petitioners
in Trajano intended to unduly delay the case.

Besides, the petitioners in Trajano had a valid defense against the complaint filed against them, and
this justified a relaxation of the procedural rules to allow full hearing on the substantive issues raised.
In the instant case, by contrast, the petitioner must just the same fail on the merits even if the default
orders were to be lifted. As the respondent Court observed, "Nothing would be gained by having the
order of default set aside considering the appellant has no valid defense in its favor." 3
The petitioner's claim that the insurance covered only the building and not the elevators is absurd, to
say the least. This Court has little patience with puerile arguments that affront common sense, let
alone basic legal principles with which even law students are familiar. The circumstance that the
building insured is seven stories high and so had to be provided with elevators-a legal requirement
known to the petitioner as an insurance company-makes its contention all the more ridiculous.

No less preposterous is the petitioner's claim that the elevators were insured after the occurrence of
the fire, a case of shutting the barn door after the horse had escaped, so to speak.4 This pretense
merits scant attention. Equally undeserving of serious consideration is its submission that the
elevators were not damaged by the fire, against the report of The arson investigators of the INP5 and,
indeed, its own expressed admission in its answer6 where it affirmed that the fire "damaged or
destroyed a portion of the 7th floor of the insured building and more particularly a Hitachi elevator
control panel." 7

There is no reason to disturb the factual findings of the lower court, as affirmed by the Intermediate
Appellate Court, that the heat and moisture caused by the fire damaged although they did not actually
burn the elevators. Neither is this Court justified in reversing their determination, also factual, of the
value of the loss sustained by the private respondent in the amount of P508,867.00.

The only remaining question to be settled is the amount of the indemnity due to the private
respondent under its insurance contract with the petitioner. This will require an examination of this
contract, Policy No. RY/F-082, as renewed, by virtue of which the petitioner insured the private
respondent's building against fire for P2,500,000.00. 8

The petitioner argues that since at the time of the fire the building insured was worth P5,800,000.00,
the private respondent should be considered its own insurer for the difference between that amount
and the face value of the policy and should share pro rata in the loss sustained. Accordingly, the
private respondent is entitled to an indemnity of only P67,629.31, the rest of the loss to be shouldered
by it alone. In support of this contention, the petitioner cites Condition 17 of the policy, which
provides:

If the property hereby insured shall, at the breaking out of any fire, be collectively of greater value
than the sum insured thereon then the insured shall be considered as being his own insurer for the
difference, and shall bear a ratable proportion of the loss accordingly. Every item, if more than one, of
the policy shall be separately subject to this condition.

However, there is no evidence on record that the building was worth P5,800,000.00 at the time of the
loss; only the petitioner says so and it does not back up its self-serving estimate with any independent
corroboration. On the contrary, the building was insured at P2,500,000.00, and this must be
considered, by agreement of the insurer and the insured, the actual value of the property insured on
the day the fire occurred. This valuation becomes even more believable if it is remembered that at the
time the building was burned it was still under construction and not yet completed.

The Court notes that Policy RY/F-082 is an open policy and is subject to the express condition that:
Open Policy

This is an open policy as defined in Section 57 of the Insurance Act. In the event of loss, whether total
or partial, it is understood that the amount of the loss shall be subject to appraisal and the liability of
the company, if established, shall be limited to the actual loss, subject to the applicable terms,
conditions, warranties and clauses of this Policy, and in no case shall exceed the amount of the policy.

As defined in the aforestated provision, which is now Section 60 of the Insurance Code, "an open
policy is one in which the value of the thing insured is not agreed upon but is left to be ascertained in
case of loss. " This means that the actual loss, as determined, will represent the total indemnity due
the insured from the insurer except only that the total indemnity shall not exceed the face value of the
policy.

The actual loss has been ascertained in this case and, to repeat, this Court will respect such factual
determination in the absence of proof that it was arrived at arbitrarily. There is no such showing.
Hence, applying the open policy clause as expressly agreed upon by the parties in their contract, we
hold that the private respondent is entitled to the payment of indemnity under the said contract in the
total amount of P508,867.00.

The refusal of its vice-president to receive the private respondent's complaint, as reported in the
sheriff's return, was the first indication of the petitioner's intention to prolong this case and postpone
the discharge of its obligation to the private respondent under this agreement. That intention was
revealed further in its subsequent acts-or inaction-which indeed enabled it to avoid payment for more
than five years from the filing of the claim against it in 1980. The petitioner has temporized long
enough to avoid its legitimate responsibility; the delay must and does end now.

WHEREFORE, the appealed decision is affirmed in full, with costs against the petitioner.

SO ORDERED
G.R. No. L-5915 March 31, 1955

EAGLE STAR INSURANCE CO., LTD., KURR STEAMSHIP CO., INC., ROOSEVELT STEAMSHIP AGENCY, INC.,
and LEIF HOEGH & COMPANY, A/S., petitioners,

vs.

CHIA YU, respondent.

Ross, Selph, Carrascoso and Janda and Delfin L. Gonzales for petitioner.

Nabong and Sese for respondent.

REYES, A., J.:

On January 15, 1946, Atkin, Kroll & Co., loaded on the S. S. Roeph Silverlight owned and operated by
Leigh Hoegh & Co., A/S, of San Francisco California, 14 bales of assorted underwear valued at
P8,085.23 consigned to Chia Yu in the City of Manila. The shipment was insured against all risks by
Eagle Star Ins. Co. of San Francisco, California, under a policy issued to the shipper and by the latter
assigned to the consignee. The vessel arrived in Manila on February 10, 1946, and on March 4 started
discharging its cargo into the custody of the Manila Terminal Co., Inc., which was then operating the
arrastre service for the Bureau of Customs. But the 14 bales consigned to Chia Yu only 10 were
delivered to him as the remaining 3 could not be found. Three of those delivered were also found
damaged to the extent of 50 per cent.

Chia Yu claimed indemnity for the missing and damaged bales. But the claim was declined, first, by the
carrier and afterward by the insurer, whereupon Chia Yu brought the present action against both,
including their respective agents in the Philippines. Commenced in the Court of First Instance of
Manila on November 16, 1948, or more than two years after delivery of the damaged bales and the
date when the missing bales should have been delivered, the action was resisted by the defendants
principally on the ground of prescription. But the trial court found for plaintiff and rendered judgment
in his favor for the sum claimed plus legal interest and costs. The judgment was affirmed by the Court
of Appeals, and the case is now before us on appeal by certiorari.

Except for the controversy as to the amount for which the carrier could be held liable under the terms
of the bill of lading, the only question presented for determination is whether plaintiff's action has
prescribed.

On the part of the carrier the defense of prescription is made to rest on the following stipulation of
the bill of lading:

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after the delivery of the goods or the date when the goods
should have been delivered.

The stipulation is but a repetition of a provision contained in section 3 (6) of the United States Carriage
of Goods by Sea, Act of 1936, which was adopted and made applicable to the Philippines by
Commonwealth Act 65 and by express agreement incorporated by reference in the bill of lading.
Following our decision in Chua Kuy vs. Everett Steamship Corporation,1 G. R. No L-5554 (May 27, 1953)
and in E. R. Elser, Inc., et al., vs. Court of Appeals,. et al.,2 G. R. No. L-6517 (November 29, 1954) giving
force and effect to this kind of stipulation in bills of lading covering shipments from the United States
to the Philippines, we have to hold that plaintiff's failure to bring his action "within one year after the
delivery of the goods or the date when the goods should have been delivered" discharged the carrier
from all liability. This dispenses with the necessity of deciding how much could be recovered from the
carrier under the terms of the bill of lading.

The case for the insurer stands on a different footing, for its claim of prescription is founded upon the
terms of the policy and not upon the bill of lading. Under our law the time limit for bringing a civil
action upon a written contract is ten years after the right of action accrues. (Sec. 43, Act 190; Art.
1144, New Civil Code.) But counsel for the insurer claim that this statutory in the policy:

No suit action on this Policy, for the recovery of any claim, shall be sustainable in any Court of law or
equity unless the insured shall have fully complied with all the terms and conditions of this Policy nor
unless commenced with twelve (12) months next after the happening of the loss . . .

To this we cannot agree.

In the case of E. Macias & Co. vs. China Fire Insurance & Co., Ltd., et al., 46 Phil. 345, relied upon by
the insurer, this Court held that a clause in an insurance policy providing that an action upon the policy
by the insured must be brought within a certain time is, if reasonable, valid and will prevail over
statutory limitations of the action. That decision, however, was rendered before the passage of Act
4101, which amended the Insurance Act by inserting the following section in chapter one thereof:

SEC. 61-A. Any condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause of
action accrues, is void.

As "matters respecting a remedy, such as the bringing of suit, admissibility of evidence, and statute of
limitations, depend upon the law of the place where the suit is brought" (Insular Government vs.
Frank, 13 Phil. 236), any policy clause repugnant to this amendment to the Insurance Act cannot be
given effect in an action in our courts.

Examining the policy sued upon in the present case, we find that its prescriptive clause, if given effect
in accordance with the terms of the policy, would reduce the period allowed the insured for bringing
his action to less than one year. This is so because the said clause makes the prescriptive period begin
from the happening of the loss and at the same time provides that the no suit on the policy shall be
sustainable in any court unless the insured shall have first fully complied with all the terms and
conditions of the policy, among them that which requires that, as so as the loss is determined, written
claim therefor be filed with the carrier and that the letter to the carrier and the latter's reply should be
attached to the claim papers to be sent to the insurer. It is obvious that compliance with this condition
precedent will necessarily consume time and thus shorten the period for bringing suit to less than one
year if the period is to begin, as stated in the policy, from "the happening of the loss." Being contrary
to the law of the forum, such stipulation cannot be given effect.

It may perhaps be suggested that the policy clause relied on by the insurer for defeating plaintiff's
action should be given the construction that would harmonize it with section 61-A of the Insurance Act
by taking it to mean that the time given the insured for bringing his suit is twelve months after the
cause of action accrues. But the question then would be: When did the cause of action accrue? On
that question we agree with the court below that plaintiff's cause of action did not accrue until his
claim was finally rejected by the insurance company. This is because, before such final rejection, there
was no real necessity for bringing suit. As the policy provides that the insured should file his claim,
first, with the carrier and then with the insurer, he had a right to wait for his claim to be finally
decided before going to court. The law does not encourages unnecessary litigation.

At this junction it should be explained that while the decision of the Court of Appeals states that the
claim against the insurance company "was finally rejected o April 22, 1947, as correctly concluded by
the court below," it is obvious from the context and we find it to be a fact that the date meant was
April 22, 1948, for this was the date when, according to the finding of the trial court, the insurance
company in London rejected the claim. The trial court's decision says:
On September 21, 1946, after Roosevelt Steamship Agency Inc., and Manila Terminal Co., Inc., denied
plaintiff's claim, a formal insurance claim was filed with Kerr & Co., Ltd., local agents of Eagle Star
Insurance Co., Ltd., (Exh. L.)Kerr & Co., Ltd., referred the insurance claim to Eagle Star Insurance Co.,
Ltd. in London but the latter, after insistent request of plaintiffs for action, rejected the claim on April
22, 1948, giving as its reasons the lapse of the expiry day of the risks covered by the policy and
returned the claim documents only in August of 1948. (pp. 87-88, Record on Appeal.)

Furthermore, there is nothing in the record to show that the claim was rejected in the year 1947,
either by the insurance company in London or its settling agents in the Philippines, while on the other
hand defendant's own Exhibit L-1 is indisputable proof that it was on 22nd April 1948" that the settling
agents informed the claimant "that after due and careful consideration, our Principals confirm our
declination of this claim." It not appearing that the settling agents' decision on claims against their
principals were not subject to reversal or modification by the latter, while on the contrary the
insurance policy expressly stipulates, under the heading "Important Notice," that the said agents
"have authority to certify only as to the nature, cause and extent of the damage," and it furthermore
appearing that a reiteration of plaintiffs claim was made to the principals and the latter gave it due
course since only "after due and careful consideration" did they confirm the action taken by the
agents, we conclude that, for the purpose of the present action, we should consider plaintiff's claim to
have been finally rejected by the insurer on April 22, 1948. Having been filed within twelve months
form that date, the action cannot be deemed to have prescribed even on the supposition that the
period given the insured for bringing suit under the prescriptive clause of the policy is twelve months
after the accrual of the cause of action.

In concluding, we may state that contractual limitations contained in insurance policies are regarded
with extreme jealousy by courts and will be strictly construed against the insurer and should not be
permitted to prevent a recovery when their just and honest application would not produce that result.
(46 C. J. S. 273.)

Wherefore, the judgment appealed from is reversed with respect to the carrier and its agents but
affirmed with respect to the insurance company and its agents, with costs against the latte
G.R. No. L-24566 July 29, 1968

AGRICULTURAL CREDIT & COOPERATIVE FINANCING ADMINISTRATION (ACCFA), plaintiff-appellant,

vs.

ALPHA INSURANCE & SURETY CO., INC., defendant-appellee,

RICARDO A. LADINES, ET AL., third party-defendants-appellees.

Deogracias E. Lerma and Esmeraldo U. Guloy for plaintiff-appellant.

L. L. Reyes for defendant-appellee.

Geronimo F. Abellera for third party defendants-appellees.

REYES, J.B.L., J.:

Appeal, on points of law, against a decision of the Court of First Instance of Manila, in its Case No.
43372, upholding a motion to dismiss.

At issue is the question whether or not the provision of a fidelity bond that no action shall be had or
maintained thereon unless commenced within one year from the making of a claim for the loss upon
which the action is based, is valid or void, in view of Section 61-A of the Insurance Act invalidating
stipulations limiting the time for commencing an action thereon to less than one year from the time
the cause of action accrues.

Material to this decision are the following facts: 1wph1.t

According to the allegations of the complaint, in order to guarantee the Asingan Farmers' Cooperative
Marketing Association, Inc. (FACOMA) against loss on account of "personal dishonesty, amounting to
larceny or estafa of its Secretary-Treasurer, Ricardo A. Ladines, the appellee, Alpha Insurance & Surety
Company had issued, on 14 February 1958, its bond, No. P-FID-15-58, for the sum of Five Thousand
Pesos (P5,000.00) with said Ricardo Ladines as principal and the appellee as solidary surety. On the
same date, the Asingan FACOMA assigned its rights to the appellant, Agricultural Credit Cooperative
and Financing Administration (ACCFA for short), with approval of the principal and the surety.

During the effectivity of the bond, Ricardo Ladines converted and misappropriated, to his personal
benefit, some P11,513.22 of the FACOMA funds, of which P6,307.33 belonged to the ACCFA. Upon
discovery of the loss, ACCFA immediately notified in writing the survey company on 10 October 1958,
and presented the proof of loss within the period fixed in the bond; but despite repeated demands the
surety company refused and failed to pay. Whereupon, ACCFA filed suit against appellee on 30 May
1960.

Defendant Alpha Insurance & Surety Co., Inc., (now appellee) moved to dismiss the complaint for
failure to state a cause of action, giving as reason that (1) the same was filed more than one year after
plaintiff made claim for loss, contrary to the eighth condition of the bond, providing as follows: .

EIGHT LIMITATION OF ACTION

No action, suit or proceeding shall be had or maintained upon this Bond unless the same be
commenced within one year from the time of making claim for the loss upon which such action, suit or
proceeding, is based, in accordance with the fourth section hereof.

(2) the complaint failed to show that plaintiff had filed civil or criminal action against Ladines, as
required by conditions 4 and 11 of the bond; and (3) that Ladines was a necessary and indispensable
party but had not been joined as such.

At first, the Court of First Instance denied dismissal; but, upon reconsideration, the court reversed its
original stand, and dismissed the complaint on the ground that the action was filed beyond the
contractual limitation period (Record on Appeal, pages 56-59).

Hence, this appeal.

We find the appeal meritorious.

A fidelity bond is, in effect, in the nature of a contract of insurance against loss from misconduct, and
is governed by the same principles of interpretation: Mechanics Savings Bank & Trust Co. vs.
Guarantee Company, 68 Fed. 459; Pao Chan Wei vs. Nemorosa, 103 Phil. 57. Consequently, the
condition of the bond in question, limiting the period for bringing action thereon, is subject to the
provisions of Section 61-A of the Insurance Act (No. 2427), as amended by Act 4101 of the pre-
Commonwealth Philippine Legislature, prescribing that

SEC. 61-A A condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause of
action accrues is void.
Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a
correlative obligation of the defendant but also "an act or omission of the defendant in violation of
said legal right" (Maao Sugar Central vs. Barrios, 79 Phil. 666), the cause of action does not accrue until
the party obligated refuses, expressly or impliedly, to comply with its duty (in this case, to pay the
amount of the bond). The year for instituting action in court must be reckoned, therefore, from the
time of appellee's refusal to comply with its bond; it can not be counted from the creditor's filing of
the claim of loss, for that does not import that the surety company will refuse to pay. In so far,
therefore, as condition eight of the bond requires action to be filed within one year from the filing of
the claim for loss, such stipulation contradicts the public policy expressed in Section 61-A of the
Philippine Insurance Act. Condition eight of the bond, therefore, is null and void, and the appellant is
not bound to comply with its provisions.

In Eagle Star Insurance Co. vs. Chia Yu, 96 Phil. 696, 701, this Court ruled: .1wph1.t

It may perhaps be suggested that the policy clause relied on by the insurer for defeating plaintiff's
action should be given the construction that would harmonize it with section 61-A of the Insurance Act
by taking it to mean that the time given the insured for bringing his suit is twelve months after the
cause of action accrues. But the question then would be: When did the cause of action accrue? On
that question we agree with the court below that plaintiff's cause of action did not accrue until his
claim was finally rejected by the insurance company. This is because, before such final rejection, there
was no real necessity for bringing suit. As the policy provides that the insured should file his claim,
first, with the carrier and then with the insurer, he had a right to wait for his claim to be finally
decided before going to court. The law does not encourage unnecessary litigation.

The discouraging of unnecessary litigation must be deemed a rule of public policy, considering the
unrelieved congestion in the courts.

As a consequence of the foregoing, condition eight of the Alpha bond is null and void, and action may
be brought within the statutory period of limitation for written contracts (New Civil Code, Article
1144). The case of Ang vs. Fulton Fire Insurance Co., 2 S.C.R.A. 945 (31 July 1961), relied upon by the
Court a quo, is no authority against the views herein expressed, since the effect of Section 61-A of the
Insurance Law on the terms of the Policy or contract was not there considered.

The condition of previous conviction (paragraph b, clause 4, of the contract) having been deleted by
express agreement and the surety having assumed solidary liability, the other grounds of the motion
to dismiss are equally untenable. A creditor may proceed against any one of the solidary debtors, or
some or all of them simultaneously (Article 1216, New Civil Code).

WHEREFORE, the appealed order granting the motion to dismiss is reversed and set aside, and the
records are remanded to the Court of First Instance, with instructions to require defendant to answer
and thereafter proceed in conformity with the law and the Rules of Court. Costs against appellee. So
ordered
G.R. No. 82036 May 22, 1997

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner,

vs.

HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

HERMOSISIMA, JR., J.:

The petition herein seeks the review and reversal of the decision 1 of respondent Court of Appeals 2
affirming in toto the judgment 3 of the Regional Trial Court 4 in an action for damages 5 filed by
private respondent Vicente Mendoza, Jr. as heir of his mother who was killed in a vehicular accident.

Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and
the alleged insurer of the vehicle which featured in the vehicular accident into one complaint. The
erring taxicab was allegedly covered by a third-party liability insurance policy issued by petitioner
Travellers Insurance & Surety Corporation.

The evidence presented before the trial court established the following facts:

At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza
Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking along
Tayuman corner Gregorio Perfecto Streets, she was bumped by a taxi that was running fast. Several
persons witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio
Tabalno. After the bumping, the old woman was seen sprawled on the pavement. Right away, the
good Samaritan that he was, Mavilla ran towards the old woman and held her on his lap to inquire
from her what had happened, but obviously she was already in shock and could not talk. At this
moment, a private jeep stopped. With the driver of that vehicle, the two helped board the old woman
on the jeep and brought her to the Mary Johnston Hospital in Tondo.

. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to
Rizal Avenue and vice-versa, also witnessed the incident. It was on his return trip from Rizal Avenue
when Lopez saw the plaintiff and his brother who were crying near the scene of the accident. Upon
learning that the two were the sons of the old woman, Lopez told them what had happened. The
Mendoza brothers were then able to trace their mother at the Mary Johnston Hospital where they
were advised by the attending physician that they should bring the patient to the National Orthopedic
Hospital because of her fractured bones. Instead, the victim was brought to the U.S.T. Hospital where
she expired at 9:00 o'clock that same morning. Death was caused by "traumatic shock" as a result of
the severe injuries she sustained . . .
. . . The evidence shows that at the moment the victim was bumped by the vehicle, the latter was
running fast, so much so that because of the strong impact the old woman was thrown away and she
fell on the pavement. . . . In truth, in that related criminal case against defendant Dumlao . . . the trial
court found as a fact that therein accused "was driving the subject taxicab in a careless, reckless and
imprudent manner and at a speed greater than what was reasonable and proper without taking the
necessary precaution to avoid accident to persons . . . considering the condition of the traffic at the
place at the time aforementioned" . . . Moreover, the driver fled from the scene of the accident and
without rendering assistance to the victim. . . .

. . . Three (3) witnesses who were at the scene at the time identified the taxi involved, though not
necessarily the driver thereof. Marvilla saw a lone taxi speeding away just after the bumping which,
when it passed by him, said witness noticed to be a Lady Love Taxi with Plate No. 438, painted
maroon, with baggage bar attached on the baggage compartment and with an antenae [sic] attached
at the right rear side. The same descriptions were revealed by Ernesto Lopez, who further described
the taxi to have . . . reflectorized decorations on the edges of the glass at the back . . . A third witness
in the person of Eulogio Tabalno . . . made similar descriptions although, because of the fast speed of
the taxi, he was only able to detect the last digit of the plate number which is "8". . . . [T]he police
proceeded to the garage of Lady Love Taxi and then and there they took possession of such a taxi and
later impounded it in the impounding area of the agency concerned. . . . [T]he eyewitnesses . . . were
unanimous in pointing to that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein.

. . . During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi
bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the vehicle was driven last July 20,
1980 by one Rodrigo Dumlao. . ." . . . It was on the basis of this affidavit of the registered owner that
caused the police to apprehend Rodrigo Dumlao, and consequently to have him prosecuted and
eventually convicted of the offense . . . . . . . [S]aid Dumlao absconded in that criminal case, specially at
the time of the promulgation of the judgment therein so much so that he is now a fugitive from
justice.6

Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady
Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private respondent's
mother. Subsequently, private respondent amended his complaint to include petitioner as the
compulsory insurer of the said taxicab under Certificate of Cover No. 1447785-3.

After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the "Heirs of
the late Feliza Vineza de Mendoza," and against defendants Rodrigo Dumlao, Armando Abellon and
Travellers Insurance and Surety Corporation, by ordering the latter to pay, jointly and severally, the
former the following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the rate
of 12% per annum from October 17, 1980, when the complaint was filed, until the said amount is fully
paid;

(b) P30,000.00 as death indemnity;

(c) P25,000.00 as moral damages;

(d) P10,000.00 as by way of corrective or exemplary damages; and

(e) Another P10,000.00 by way of attorney's fees and other litigation expenses.

Defendants are further ordered to pay, jointly and severally, the costs of this suit.

SO ORDERED. 7

Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of
the trial court was affirmed by respondent appellate court. Petitioner's Motion for Reconsideration 8
of September 22, 1987 was denied in a Resolution 9 dated February 9, 1988.

Hence this petition.

Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady
Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for third-party liability
insurance, private respondent failed to file a written notice of claim with petitioner as required by
Section 384 of P.D. No. 612, otherwise known as the Insurance Code.

We find the petition to be meritorious.

When private respondent filed his amended complaint to implead petitioner as party defendant and
therein alleged that petitioner was the third-party liability insurer of the Lady Love taxicab that fatally
hit private respondent's mother, private respondent did not attach a copy of the insurance contract to
the amended complaint. Private respondent does not deny this omission.

It is significant to point out at this juncture that the right of a third person to sue the insurer depends
on whether the contract of insurance is intended to benefit third persons also or only the insured.

[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . . which the
Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . is
one for indemnity against liability; from the fact then that the insured is liable to the third person,
such third person is entitled to sue the insurer.

The right of the person injured to sue the insurer of the party at fault (insured), depends on whether
the contract of insurance is intended to benefit third persons also or on the insured And the test
applied has been this: Where the contract provides for indemnity against liability to third persons,
then third persons to whom the insured is liable can sue the insurer. Where the contract is for
indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the
contract being solely to reimburse the insured for liability actually discharged by him thru payment to
third persons, said third persons' recourse being thus limited to the insured alone. 10

Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial
court could not have been able to apprise itself of the real nature and pecuniary limits of petitioner's
liability. More importantly, the trial court could not have possibly ascertained the right of private
respondent as third person to sue petitioner as insurer of the Lady Love taxicab because the trial court
never saw nor read the insurance contract and learned of its terms and conditions.

Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love
taxicab that fatally hit private respondent's mother, considering that petitioner precisely presented
the defense of lack of insurance coverage before the trial court. Neither did the trial court issue a
subpoena duces tecum to have the insurance contract produced before it under pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly found petitioner liable
jointly and severally with the owner and the driver of the Lady Love taxicab, for damages accruing to
private respondent.

Apparently, the trial court did not distinguish between the private respondent's cause of action
against the owner and the driver of the Lady Love taxicab and his cause of action against petitioner.
The former is based on torts and quasi-delicts while the latter is based on contract. Confusing these
two sources of obligations as they arise from the same act of the taxicab fatally hitting private
respondent's mother, and in the face of overwhelming evidence of the reckless imprudence of the
driver of the Lady Love taxicab, the trial court brushed aside its ignorance of the terms and conditions
of the insurance contract and forthwith found all three the driver of the taxicab, the owner of the
taxicab, and the alleged insurer of the taxicab jointly and severally liable for actual, moral and
exemplary damages as well as attorney's fees and litigation expenses. This is clearly a misapplication
of the law by the trial court, and respondent appellate court grievously erred in not having reversed
the trial court on this ground.

While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer
under indemnity contracts against third-party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is
based on contract; that of the insured is based on tort. 11

Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case
that:

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary
debtors. On the other hand, insurance is defined as "a contract whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event."

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice
Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the
qualification that petitioner's liability is only up to P20,000.00. In the context of a solidary obligation,
petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,103.00,
notwithstanding the qualification made by the trial court. But, how can petitioner be obliged to pay
the entire obligation when the amount stated in its insurance policy with respondent Sio Choy for
indemnity against third-party liability is only P20,000.00? Moreover, the qualification made in the
decision of the trial court to the effect that petitioner is sentenced to pay up to P20,000.00 only when
the obligation to pay P29,103.00 is made solidary is an evident breach of the concept of a solidary
obligation. 12

The above principles take on more significance in the light of the counter-allegation of petitioner that,
assuming arguendo that it is the insurer of the Lady Love taxicab in question, its liability is limited to
only P50,000.00, this being its standard amount of coverage in vehicle insurance policies. It bears
repeating that no copy of the insurance contract was ever proffered before the trial court by the
private respondent, notwithstanding knowledge of the fact that the latter's complaint against
petitioner is one under a written contract. Thus, the trial court proceeded to hold petitioner liable for
an award of damages exceeding its limited liability of P50,000.00. This only shows beyond doubt that
the trial court was under the erroneous presumption that petitioner could be found liable absent
proof of the contract and based merely on the proof of reckless imprudence on the part of the driver
of the Lady Love taxicab that fatally hit private respondent's mother.

II

Petitioner did not tire in arguing before the trial court and the respondent appellate court that,
assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private
respondent's cause of action against petitioner did not successfully accrue because he failed to file
with petitioner a written notice of claim within six (6) months from the date of the accident as
required by Section 384 of the Insurance Code.

At the time of the vehicular incident which resulted in the death of private respondent's mother,
during which time the Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874,
Section 384 provided as follows:

Any person having any claim upon the policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company concerned a written notice of claim setting forth
the amount of his loss, and/or the nature, extent and duration of the injuries sustained as certified by
a duly licensed physician. Notice of claim must be filed within six months from date of the accident,
otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or
injury must be brought in proper cases, with the Commission or the Courts within one year from date
of accident, otherwise the claimant's right of action shall prescribe [emphasis supplied].
In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we ruled that the
one year prescription period to bring suit in court against the insurer should be counted from the time
that the insurer rejects the written claim filed therewith by the insured, the beneficiary or the third
person interested under the insurance policy. We explained:

It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak
to hide itself from its liabilities. The facts of these cases evidently reflect the deliberate efforts of
petitioner company to prevent the filing of a formal action against it. Bearing in mind that if it
succeeds in doing so until one year lapses from the date of the accident it could set up the defense of
prescription, petitioner company made private respondents believe that their claims would be settled
in order that the latter will not find it necessary to immediately bring suit. In violation of its duties to
adopt and implement reasonable standards for the prompt investigation of claims and to effectuate
prompt, fair and equitable settlement of claims, and with manifest bad faith, petitioner company
devised means and ways of stalling the settlement proceeding . . . [N]o steps were taken to process
the claim and no rejection of said claim was ever made even if private respondent had already
complied with all the requirements. . . .

This Court has made the observation that some insurance companies have been inventing excuses to
avoid their just obligations and it is only the State that can give the protection which the insuring
public needs from possible abuses of the insurers. 14

It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically
provide that "action or suit for recovery of damage due to loss or injury must be brought in proper
cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise the
claimant's right of action shall prescribe" [emphasis ours]. 15

We have certainly ruled with consistency that the prescriptive period to bring suit in court under an
insurance policy, begins to run from the date of the insurer's rejection of the claim filed by the insured,
the beneficiary or any person claiming under an insurance contract. This ruling is premised upon the
compliance by the persons suing under an insurance contract, with the indispensable requirement of
having filed the written claim mandated by Section 384 of the insurance Code before and after its
amendment. Absent such written claim filed by the person suing under an insurance contract, no
cause of action accrues under such insurance contract, considering that it is the rejection of that claim
that triggers the running of the one-year prescriptive period to bring suit in court, and there can be no
opportunity for the insurer to even reject a claim if none has been filed in the first place, as in the
instant case.

The one-year period should instead be counted from the date of rejection by the insurer as this is the
time when the cause of action accrues. . . .

In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:

The plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance
company. This is because, before such final rejection, there was no real necessity for bringing suit.
The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha Insurance
and Surety Co., viz:

Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a
correlative obligation of the defendant but also an act or omission of the defendant in violation of said
legal right, the cause of action does not accrue until the party obligated refuses, expressly or impliedly,
to comply with its duty. 16

When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected
by petitioner, and private respondent does not dispute such asseveration through a denial in his
pleadings, we are constrained to rule that respondent appellate court committed reversible error in
finding petitioner liable under an insurance contract the existence of which had not at all been proven
in court. Even if there were such a contract, private respondent's cause of action can not prevail
because he failed to file the written claim mandated by Section 384 of the Insurance Code. He is
deemed, under this legal provision, to have waived his rights as against petitioner-insurer.

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 09416 and the decision of the Regional Trial Court in Civil Case No. 135486 are REVERSED and
SET ASIDE insofar as Travelers Insurance & Surety Corporation was found jointly and severally liable to
pay actual, moral and exemplary damages, death indemnity, attorney's fees and litigation expenses in
Civil Case No. 135486. The complaint against Travellers Insurance & Surety Corporation in said case is
hereby ordered dismissed.

No pronouncement as to costs.

SO ORDERED

G.R. No. 114167 July 12, 1995

COASTWISE LIGHTERAGE CORPORATION, petitioner,

vs.

COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.

RESOLUTION
FRANCISCO, R., J.:

This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17, 1993,
affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is liable to pay
herein private respondent the amount of P700,000.00, plus legal interest thereon, another sum of
P100,000.00 as attorney's fees and the cost of the suit.

The factual background of this case is as follows:

Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila
with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb barges. The
barges were towed in tandem by the tugboat MT Marica, which is likewise owned by Coastwise.

Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long"1 As a consequence, the molasses at the
cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted the
consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter, Pag-asa
Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent, Philippine
General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner, Coastwise
Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which paid the consignee, Pag-
asa Sales, Inc., the amount of P700,000.00, representing the value of the damaged cargo of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of
Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the
latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims which
the consignee may have against the carrier, which is presumed to have violated the contract of
carriage.

The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court of
Appeals, the award was affirmed.

Hence, this petition.

There are two main issues to be resolved herein. First, whether or not petitioner Coastwise Lighterage
was transformed into a private carrier, by virtue of the contract of affreightment which it entered into
with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a private carrier,
did it exercise the ordinary diligence to which a private carrier is in turn bound? Second, whether or
not the insurer was subrogated into the rights of the consignee against the carrier, upon payment by
the insurer of the value of the consignee's goods lost while on board one of the carrier's vessels.

On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it
was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the
shipment of molasses from Negros Oriental to Manila and refers to this contract as a "charter
agreement". It then proceeds to cite the case of Home Insurance Company vs. American Steamship
Agencies, Inc.2 wherein this Court held: ". . . a common carrier undertaking to carry a special cargo or
chartered to a special person only becomes a private carrier."

Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the
court are as follows:

Accordingly, the charter party contract is one of affreightment over the whole vessel, rather than a
demise. As such, the liability of the shipowner for acts or negligence of its captain and crew, would
remain in the absence of stipulation.3

The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals,4 wherein we
ruled:

Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the
owner for the voyage or service stipulated. The charterer mans the vessel with his own people and
becomes the owner pro hac vice, subject to liability to others for damages caused by negligence. To
create a demise, the owner of a vessel must completely and exclusively relinquish possession,
command and navigation thereof to the charterer, anything short of such a complete transfer is a
contract of affreightment (time or voyage charter party) or not a charter party at all.

On the other hand a contract of affreightment is one in which the owner of the vessel leases part or all
of its space to haul goods for others. It is a contract for special service to be rendered by the owner of
the vessel and under such contract the general owner retains the possession, command and
navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return
for his payment of the charter hire. . . . .

. . . . An owner who retains possession of the ship though the hold is the property of the charterer,
remains liable as carrier and must answer for any breach of duty as to the care, loading and unloading
of the cargo. . . .

Although a charter party may transform a common carrier into a private one, the same however is not
true in a contract of affreightment on account of the aforementioned distinctions between the two.

Petitioner admits that the contract it entered into with the consignee was one of affreightment.5 We
agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one
point to another, but the possession, command and navigation of the vessels remained with petitioner
Coastwise Lighterage.

Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the
contract of affreightment, was not converted into a private carrier, but remained a common carrier
and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in
good order to a carrier and the subsequent arrival of the same goods at the place of destination in bad
order makes for a prima facie case against the carrier.

It follows then that the presumption of negligence that attaches to common carriers, once the goods it
transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.

The records show that the damage to the barge which carried the cargo of molasses was caused by its
hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a
submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause of
the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any effort
to prepare a chart to indicate the location of sunken derelicts within Manila North Harbor to avoid
navigational accidents"6 effectively contributed to the happening of this mishap. Thus, being unaware
of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the same.
Nothing could have prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence.

However, petitioner's assertion is belied by the evidence on record where it appeared that far from
having rendered service with the greatest skill and utmost foresight, and being free from fault, the
carrier was culpably remiss in the observance of its duties.

Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by the
provisions of the Civil Code) provides:

Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to contract
in accordance with this code, and prove the skill capacity and qualifications necessary to command
and direct the vessel, as established by marine and navigation laws, ordinances or regulations, and
must not be disqualified according to the same for the discharge of the duties of the position. . . .

Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates
this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful
accident. It may also logically, follow that a person without license to navigate, lacks not just the skill
to do so, but also the utmost familiarity with the usual and safe routes taken by seasoned and legally
authorized ones. Had the patron been licensed, he could be presumed to have both the skill and the
knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay on their
way to Pier 18.

As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported, by
proof of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more rule
against the petitioner. We have already found petitioner liable for breach of the contract of carriage it
entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of the cargo which
petitioner-carrier was transporting, it was not the carrier which paid the value thereof to Pag-asa
Sales, Inc. but the latter's insurer, herein private respondent PhilGen.

Article 2207 of the Civil Code is explicit on this point:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who violated the contract. . . .

This legal provision containing the equitable principle of subrogation has been applied in a long line of
cases including Compania Maritima v. Insurance Company of North America;7 Fireman's Fund
Insurance Company v. Jamilla & Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court of
Appeals,9 wherein this Court explained:

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured,
then the insurer, upon payment to the assured will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the
insurer to the assured operated as an equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.

Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-asa
Sales, Inc., the consignee of the cargo of molasses totally damaged while being transported by
petitioner Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales, Inc.
may have had against the carrier, herein petitioner Coastwise Lighterage.

WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming the
order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to pay
respondent Philippine General Insurance Company the "principal amount of P700,000.00 plus interest
thereon at the legal rate computed from March 29, 1989, the date the complaint was filed until fully
paid and another sum of P100,000.00 as attorney's fees and costs"10 is likewise hereby AFFIRMED

SO ORDERED
G.R. No. 110597 May 8, 1996

SERVICEWIDE SPECIALIST, INCORPORATED, petitioner,

vs.

THE HON. COURT OF APPEALS, RICARDO TRINIDAD and ELISA TRINIDAD, respondents.

ROMERO, J.:p

Petitioner seeks review of the decision1 of the Court of Appeals affirming the decision of the Regional
Trial Court of Manila which (1) dismissed the complaint for replevin and damages filed by petitioner
before the Metropolitan Trial Court of Manila and (2) ordered petitioner to pay private respondents
P10,000.00 as attorney's fees, P2,000.00 as litigation expenses plus costs of the suit.
The facts show that on August 1, 1983, private respondent spouses Ricardo and Elisa Trinidad purchased
one unit Isuzu Gemini car, 1983 model, yellow in color, from Autoworld Sales Corporation. The price was
P98,156.00 payable in 24 equal monthly installments of P4,089.00 every 15th of each month beginning
September 1983 to August 15, 1985.

To secure payment thereof, the Trinidads executed on the same date a promissory note and a deed of
chattel mortgage on the subject car in favor of Autoworld Sales Corporation.

Also on the same date, Autoworld assigned its interests on the promissory note and chattel mortgage to
Filinvest Credit Corporation (Filinvest). These assignments were made with due notice to private
respondents.

On April 15, 1984, private respondents delivered seventeen (17) checks to Filinvest Credit Corporation in
full payment of the car. The checks were in the same amount of P3,969.00 each, sixteen of which were
postdated to be applied for the remaining installments from April 15, 1984 to August 15, 1985. Proper
receipts were issued by Filinvest Credit Corporation to private respondents and all documents regarding
ownership of the car were released to them. Private respondents immediately used the car as a taxi, a
fact known to the vendor.

On November 8, 1985, Filinvest assigned all its rights and interests on the promissory note and chattel
mortgage in favor of petitioner.

On November 18, 1985, private respondent Ricardo Trinidad received a demand letter from petitioner
dated November 8, 1985 stating that an assignment of credit had been made by Filinvest in its favor and
that the Trinidads had not paid two successive installments on the car which had matured on July 15 and
August 15, 1985. No mention was made in the letter that Filinvest had paid insurance premiums to Perla
Compania de Seguros to insure the car against loss and damage corresponding to two years, i.e., from
July 29, 1984 to July 29, 1985 and July 29, 1985 to July 29, 1986. Private respondents were also never
informed by Filinvest that their installment payments on the car were converted to premium payments
on the insurance.

After informing private respondents that they failed to pay the last two consecutive monthly
installments, petitioner demanded that either they pay the whole remaining balance of P6,977.67,
including accrued interest, or return possession of the car to petitioner.

When private respondents refused to pay the amount demanded or to return the car, petitioner filed an
action for replevin and damages with the Metropolitan Trial Court, Branch V, Manila. The sole issue
resolved by the trial court was whether private respondents were liable for the payment of the insurance
premiums effected by petitioner.

On July 24, 1990, a decision was rendered by the trial court in favor of petitioner, the dispositive portion
of which states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff ordering the defendants to pay
plaintiff jointly and severally the sum of P16,977.67 plus interest thereon at the rate of 24% per annum
from January 8, 1986 until fully paid. To pay the sum of P4,773.04 as attorney's fees.

SO ORDERED.2

Private respondents appealed to the Regional Trial Court of Manila, Branch 46. The RTC found that a
renewal of insurance (caused by Filinvest on the mortgaged chattel) was issued twice by Perla Compania
de Seguros, Inc. in the name of Ricardo Trinidad for private ear loss and damage. On both occasions, no
notice was made whatsoever to private respondents that Filinvest was applying the installment
payments made by them for the car to the payment of the insurance premiums. Furthermore, no notice
was made to private respondents that Filinvest had assigned the promissory note and chattel mortgage
to petitioner.

The RTC held that petitioner had no cause of action against private respondents because the latter
issued the checks with the understanding that they were to be applied to the payment in full of the car
and that the same were all duly encashed by petitioner. No prior demand having been made on private
respondents for the payment of the insurance premiums, the RTC held that the complaint was not a just
suit and dismissed the complaint, awarding P10,000.00 for attorney's fees, P2,000.00 as expenses for
litigation plus costs of the suit to private respondents.

Petitioner appealed to the Court of Appeals, which affirmed the decision of the Regional Trial Court.

Hence, this petition.

The central issue in this case is: whether or not petitioner should have applied the installment payments
made by private respondents for the payment of the car to the payment of the insurance premiums
without prior notice to private respondents.

The provision in the Chattel Mortgage subject of the controversy states:

The said MORTGAGOR covenants and agrees that he will cause the property/ies herein above mortgaged
to be insured against loss or damage by accident, theft and fire for a period of one year from date
thereof and every year thereafter until the mortgage obligation is fully paid with an insurance company,
or companies acceptable to the MORTGAGEE in an amount not less than the outstanding balance of the
mortgage obligation; that he will make all loss, if any, under such policy or policies, payable to the
MORTGAGEE or its assigns as its interest may appear and forewith deliver such policy or policies to the
MORTGAGEE, the said MORTGAGOR further covenants and agrees that default of his effecting or
renewing such insurance and delivering the policies so endorsed to the MORTGAGEE within five (5) days
after the execution of this mortgage or the expiry date of the insurance the MORTGAGEE, may, at his
option, but without any obligation to do so effect such insurance or obtain such renewal for the account
of the MORTGAGOR and that any money so disbursed the MORTGAGEE shall be added to the principal
indebtedness hereby secured and shall become due and payable at the time for the payment of the
immediately coming or following installment to be due under the note aforesaid after the date of such
insurance renewal and shall bear interest at the same rate as the principal indebtedness.3 (Emphasis
supplied)

Petitioner contends that the matter about the notice is deemed waived by private respondents because
the car should be fully covered at all times. Petitioner claims that if, as stated in the Chattel Mortgage,
private respondents failed to renew the insurance, petitioner is entitled to renew the same for the
account of private respondents without any notice to them.

The petition is unmeritorious.

While it is true that the Chattel Mortgage does not say that notice to the mortgagor of the renewal of
the insurance premium by the mortgagee is necessary, at the same time, there is no provision that
authorizes petitioner to apply the payments made to it for the payment of the chattel to the payment of
the said premiums. From the records of the case, it is clear that private respondents had fully paid for
the car. This fact was never rebutted by petitioner; it was the insurance premiums pertaining to the two-
year period from July 29, 1984 to July 29, 1986 that petitioner claims were not paid.

Both the Regional Trial Court and the Court of Appeals found that before the mortgagee (petitioner) may
effect the renewal of insurance, two conditions must be met: (1) Default by the mortgagor (private
respondents) in effecting renewal of the insurance and (2) failure to deliver the policy with endorsement
to petitioner.

The Court notes an additional element of the provisions regarding the renewal of the insurance;
specifically, that petitioner was under no obligation to effect the same. In other words, petitioner as
mortgagee was not duty-bound to renew the insurance in the event that private respondents failed to do
so; it was merely optional on its part.

The question now arises whether private respondents were in default for failing to have the car covered
by insurance for the period in question. Private respondents claim that the car was duly covered and the
Court finds no evidence on record showing this assertion to be false. Petitioner has averred, however,
that the insurance taken by private respondents was only for third-party liability and not the
comprehensive insurance required.

If petitioner was aware that the insurance coverage was inadequate, why did it not inform private
respondent about it? After all, since petitioner was under no obligation to effect renewal thereof, it is but
logical that it should relay to private respondents any defect of the insurance coverage before itself
assuming the same.

Furthermore, even if the car were not covered with the proper insurance, there is nothing in the
provisions of the Chattel Mortgage that authorizes petitioner to apply previous payments for the car to
the insurance. What is stated is: ". . . that any money so disbursed by the mortgagee shall be added to
the principal indebtedness hereby secured . . . " (emphasis supplied). Clear is it that petitioner is not
obligated to convert any of the installments made by private respondents for the car to the payment for
the renewal of the insurance. Should it decide to do so, it has to send notice to private respondents who
had already paid in full the principal indebtedness in question.

When petitioner wrote private respondents the November 8, 1985 demand letter regarding non-
payment of the installments, no mention was made of unpaid insurance premiums. Thus, private
respondents were quite justified in ignoring the same since, to the best of their knowledge, they had
already paid for the car in full.

Finally, while we agree with the appellate court that the complaint against private respondent should be
dismissed, we find that the award of P10,000.00 as attorney's fees to them to be erroneous.

Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its claimant is
compelled to litigate with third persons or to incur expenses to protect his interest by reason of an
unjustified act or omission on the part of the party from whom it is sought. To be sure, private
respondents were forced to litigate to protect their rights but as we have previously held: "where no
sufficient showing of bad faith would be reflected in a party's persistence in a case other than an
erroneous conviction of the righteousness of his cause, attorney's fee shall not be recovered as cost."4

Attorney's fees cannot be awarded to a party simply because the judgment was favorable to it, for that
amounts to imposing a premium on the right to redress grievances in Court.5

When it has not been sufficiently established that the complaint was filed to harass the other party or
when an action was filed in the sincere belief that the cause was meritorious, an award of attorney's fees
is not proper.6

The Court, therefore, deletes the award of P10,000.00 to private respondents as attorney's fees.

WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED with the modification that the
award of P10,000.00 as attorney's fees is hereby DELETED.

SO ORDERED.