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Republic of the Philippines The original counsel of defendant was Atty. Leon Ma. Guerrero.

of defendant was Atty. Leon Ma. Guerrero. As early as February 11, 1953,
SUPREME COURT said counsel showed interest in the early disposal of this case by moving the court to have it set
Manila for trial. The first date set was April 7, 1953, but no hearing was had on that date because
plaintiff had moved to postpone it. The case was next set for hearing on April 28, 1953, but on
EN BANC
motion again of plaintiff, the hearing was transferred to November 6, 1953. Then, upon petition
G.R. No. L-7667 November 28, 1955 of defendant, the trial had to be moved to December 15, 1953, and because Atty. Guerrero
CHERIE PALILEO, plaintiff-appellee, could not appear on said date because of a case he had in Cebu City, the hearing was
vs. postponed to January 18, 1954.
BEATRIZ COSIO, defendant-appellant. And on January 4, 1954, or nineteen days after receiving the notice of hearing, Atty. Guerrero
Claro M. Recto for appellant. was appointed Undersecretary of Foreign Affairs. It is now contended that the appointment
Bengson, Villegas, Jr. and Villar for appellee. was so sudden and unexpected that Atty. Guerrero, after taking his oath, was unable to wind
BAUTISTA ANGELO, J.: up his private cases or make any preparation at all. It is averred that "The days that followed his
appointment were very busy days for defendant's former counsel. There was an immediate
Plaintiff filed a complaint against defendant in the Court of First Instance of Manila praying that need for clearing the backlog of official business, including the reorganization of the
(1) the transaction entered into between them on December 18, 1951 be declared as one of Department of Foreign Affairs and our Foreign Service, and more importantly, he had to assist
loan, and the document executed covering the transaction as one of equitable mortgage to the Secretary of Foreign Affairs in negotiations of national importance like the Japanese
secure the payment of said loan; (2) the defendant be ordered to credit to the plaintiff with reparations, and the revision of the trade agreement with the United States, that, Atty.
the necessary amount from the sum received by the defendant from the Associated Insurance Guerrero had to work as much as fourteen hours daily . . . Because of all these unavoidable
& Surety Co., Inc. and to apply the same to the payment of plaintiff's obligation thus confusion that followed in the wake of Atty. Guerrero's sudden and unexpected appointment,
considering it as fully paid; and (3) the defendant be ordered to pay to plaintiff the difference the trial of this case scheduled for January 18, 1954 escaped his memory, and consequently,
between the alleged indebtedness of plaintiff and the sum received by defendant from the Atty. Guerrero and the defendant were unable to appear when the case was called for trial."
aforementioned insurance company, plus the sum allegedly paid to defendant as interest on These reasons, — it is intimated, — constitute excusable negligence which ordinary prudence
the alleged indebtedness. could not have guarded against and should have been considered by the trial court as
On December 19, 1952, defendant filed her answer setting up as special defense that the sufficient justification to grant the petition of defendant for a rehearing.
transaction entered into between the plaintiff and defendant is one of sale with option to It is a well-settled rule that the granting of a motion to set aside a judgment or order on the
repurchase but that the period for repurchase had expired without plaintiff having returned ground of mistake or excusable negligence is addressed to the sound discretion of the court
the price agreed upon as a result of which the ownership of the property had become (see Coombs vs. Santos, 24 Phil., 446; Daipan vs. Sigabu, 25, Phil., 184). And an order issued in
consolidated in the defendant. Defendant also set up certain counterclaims which involve a the exercise of such discretion is ordinarily not to be disturbed unless it is shown that the court
total amount of P4,900. has gravely abused such discretion. (See Tell vs. Tell, 48 Phil., 70; Macke vs. Camps, 5 Phil., 185;
On April 7, 1953, the case was set for trial on the merits, but because of several postponements Calvo vs. De Gutierrez, 4 Phil., 203; Manzanares vs. Moreta, 38 Phil., 821; Salva vs.Palacio and
asked by the parties, the same has to be set anew for trial on January 12, 1954. On this date, Leuterio, 90 Phil., 731.) In denying the motion for reopening the trial court said: "After going over
neither the defendant nor her counsel appeared, even if the latter had been notified of the the same arguments, this Court is of the opinion, and so holds that the decision of this Court of
postponement almost a month earlier, and so the court received the evidence of the plaintiff. January 18, 1954 should not be disturbed." Considering the stature, ability and experience of
On January 18, 1954, the court, having in view the evidence presented, rendered judgment counsel Leon Ma. Guerrero, and the fact that he was given almost one month notice before
granting the relief prayed for in the complaint. the date set for trial, we are persuaded to conclude that the trial court did not abuse its
On February 2, 1954, the original counsel for the defendant was substituted and the new discretion in refusing to reconsider its decision.
counsel immediately moved that the judgment be set aside on the ground that, due to Coming now to the merits of the case, we note that the lower court made the following
mistake or excusable negligence, defendant was unable to present her evidence and the findings: On December 18, 1951, plaintiff obtained from defendant a loan in the sum of P12,000
decision was contrary to law, and this motion having been denied, defendant took the subject to the following conditions: (a) that plaintiff shall pay to defendant an interest in the
present appeal. amount of P250 a month; (b) that defendant shall deduct from the loan certain obligations of
The important issue to be determined in this appeal is whether the lower court committed a plaintiff to third persons amounting to P4,550, plus the sum of P250 as interest for the first month;
grave abuse of discretion in not reopening the case to give defendant an opportunity to and (c) that after making the above deductions, defendant shall deliver to plaintiff only the
present her evidence considering that the failure of her original counsel to appear was due to balance of the loan of P12,000.
mistake or execusable negligence which ordinary prudence could not have guarded against. Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a total of
P2,250.00 corresponding to nine months from December 18, 1951, on the basis of P250.00 a
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month, which is more than the maximum interest authorized by law. To secure the payment of allowed to retain his claim against the mortgagor, but it passes by subrogation to the insurer, to
the aforesaid loan, defendant required plaintiff to sign a document known as "Conditional Sale the extent of the insurance money paid." (Vance on Insurance, 3rd ed., pp. 772-773) This is the
of Residential Building", purporting to convey to defendant, with right to repurchase, a two- same rule upheld by this Court in a case that arose in this jurisdiction. In the case mentioned,
story building of strong materials belonging to plaintiff. This document did not express the true an insurance contract was taken out by the mortgagee upon his own interest, it being
intention of the parties which was merely to place said property as security for the payment of stipulated that the proceeds would be paid to him only and when the case came up for
the loan. decision, this Court held that the mortgagee, in case of loss, may only recover upon the policy
After the execution of the aforesaid document, defendant insured the building against fire to the extent of his credit at the time of the loss. It was declared that the mortgaged had no
with the Associated Insurance & Surety Co., Inc. for the sum of P15,000, the insurance policy right of action against the mortgagee on the policy. (San Miguel Brewery vs. Law Union, 40
having been issued in the name of defendant. The building was partly destroyed by fire and, Phil., 674.)
after proper demand, defendant collected from the insurance company an indemnity of It is true that there are authorities which hold that "If a mortgagee procures insurance on his
P13,107.00. Plaintiff demanded from defendant that she be credited with the necessary separate interest at his own expense and for his own benefit, without any agreement with the
amount to pay her obligation out of the insurance proceeds but defendant refused to do so. mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled
And on the strength of these facts, the court rendered decision the dispositive part of which to have the insurance proceeds applied in reduction of the mortgage debt" (19 R.C.L., p. 405),
reads as follows: and that, furthermore, the mortgagee "has still a right to recover his whole debt of the
Wherefore, judgment is hereby rendered declaring the transaction had between mortgagor." (King vs. State Mut. F. Ins. Co., 7 Cush. 1; Suffolk F. Ins. Co. vs. Boyden 9 Allen, 123;
plaintiff and defendant, as shown in Exhibit A, an equitable mortgage to secure the See also Loomis vs. Eagle Life & Health Ins. Co., 6 Gray, 396; Washington Mills Emery Mfg.
payment of the sum of P12,000 loaned by the defendant to plaintiff; ordering the Co. vs. Weymouth & B. Mut. F. Ins. Co., 135 Mass. 506; Foster vs. Equitable Mut. F. Ins. Co., 2
defendant to credit the sum of P13,107 received by the defendant from the Gray 216.) But these authorities merely represent the minority view (See case note, 3 Lawyers'
Associated Insurance & surety Co., Inc. to the payment of plaintiff's obligation in the Report Annotated, new series, p. 79). "The general rule and the weight of authority is, that the
sum of P12,000.00 as stated in the complaint, thus considering the agreement of insurer is thereupon subrogated to the rights of the mortgagee under the mortgage. This is put
December 18, 1951 between the herein plaintiff and defendant completely paid and upon the analogy of the situation of the insurer to that of a surety." (Jones on Mortgages, Vol. I,
leaving still a balance in the sum of P1,107 from the insurance collected by defendant; pp. 671-672.)
that as plaintiff had paid to the defendant the sum of P2,250.00 for nine months as Considering the foregoing rules, it would appear that the lower court erred in declaring that
interest on the sum of P12,000 loaned to plaintiff and the legal interest allowed by law the proceeds of the insurance taken out by the defendant on the property mortgaged inured
in this transaction does not exceed 12 per cent per annum, or the sum of P1,440 for to the benefit of the plaintiff and in ordering said defendant to deliver to the plaintiff the
one year, so the herein plaintiff and overpaid the sum of P810 to the defendant, which difference between her indebtedness and the amount of insurance received by the
this Court hereby likewise orders the said defendant to refund to herein plaintiff, plus defendant, for, in the light of the majority rule we have above enunciated, the correct solution
the balance of P1,107 representing the difference of the sum loan of P12,000 and the should be that the proceeds of the insurance should be delivered to the defendant but that
collected insurance of P13,107 from the insurance company abovementioned to her claim against the plaintiff should be considered assigned to the insurance company who is
which the herein plaintiff is entitled to receive, and to pay the costs. deemed subrogated to the rights of the defendant to the extent of the money paid as
The question that now arises is: Is the trial court justified in considering the obligation of plaintiff indemnity.
fully compensated by the insurance amount and in ordering defendant to refund to plaintiff Consistent with the foregoing pronouncement, we therefore modify the judgment of the lower
the sum of P1,107 representing the difference of the loan of P12,000 and the sum of P13,107 court as follows:(1) the transaction had between the plaintiff and defendant as shown in
collected by said defendant from the insurance company notwithstanding the fact that it was Exhibit A is merely an equitable mortgage intended to secure the payment of the loan of
not proven that the insurance was taken for the benefit of the mortgagor? P12,000;(2) that the proceeds of the insurance amounting to P13,107.00 was properly collected
Is is our opinion that on this score the court is in error for its ruling runs counter to the rule by defendant who is not required to account for it to the plaintiff; (3) that the collection of said
governing an insurance taken by a mortgagee independently of the mortgagor. The rule is insurance proceeds shall not be deemed to have compensated the obligation of the plaintiff
that "where a mortgagee, independently of the mortgagor, insures the mortgaged property in to the defendant, but bars the latter from claiming its payment from the former; and (4)
his own name and for his own interest, he is entitled to the insurance proceeds in case of defendant shall pay to the plaintiff the sum of P810.00 representing the overpayment made by
loss, but in such case, he is not allowed to retain his claim against the mortgagor, but is passed plaintiff by way of interest on the loan. No pronouncement as to costs.
by subrogation to the insurer to the extent of the money paid." (Vance on Insurance, 2d ed., p. Bengzon, Montemayor, Reyes, A., Jugo, Labrador , Concepcion, and Reyes, J.B.L., JJ., concur.
654)Or, stated in another way, "the mortgagee may insure his interest in the property
independently of the mortgagor. In that event, upon the destruction of the property the
insurance money paid to the mortgagee will not inure to the benefit of the mortgagor, and the
amount due under the mortgage debt remains unchanged. The mortgagee, however, is not
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Republic of the Philippines Pesos for Attorney's fees, under the imperatives of the monetary power of the
SUPREME COURT peso today;
Manila With costs against the defendant.
THIRD DIVISION SO ORDERED.
G.R. No. 78860 May 28, 1990 When the decision in Civil Case No. NC-794 was about to be executed against her, Milagros
PERLA COMPANIA DE SEGUROS, INC., petitioner, Cayas filed a complaint against PCSI in the Office of the Insurance Commissioner praying that
vs. PCSI be ordered to pay P40,000.00 for all the claims against her arising from the vehicular
HONORABLE COURT OF APPEALS and MILAGROS CAYAS, respondents. accident plus legal and other expenses. 8 Realizing her procedural mistake, she later withdrew
Yabut, Arandia & Associates for petitioner. said complaint. 9
Dolorfino and Dominguez Law Offices for private respondent. Consequently, on November 11, 1981, Milagros Cayas filed a complaint for a sum of money
and damages against PCSI in the Court of First Instance of Cavite (Civil Case No. N-4161). She
alleged therein that to satisfy the judgment in Civil Case No. NC-794, her house and lot were
FERNAN, C.J.: levied upon and sold at public auction for P38,200; 10that to avoid numerous suits and the
This is a petition for review on certiorari of the decision of the Court of Appeals 1 affirming in "detention" of the insured vehicle, she paid P4,000 to each of the following injured passengers:
toto the decision of the Regional Trial Court of Cavite, Branch XVI, 2the dispositive portion of Rosario del Carmen, Ricardo Magsarili and Charlie Antolin; that she could not have suffered
which states: said financial setback had the counsel for PCSI, who also represented her, appeared at the
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering trial of Civil Case No. NC-794 and attended to the claims of the three other victims; that she
defendant Perla Compania de Seguros, Inc. to pay plaintiff Milagros Cayas sought reimbursement of said amounts from the defendant, which notwithstanding the fact
the sum of P50,000.00 under its maximum liability as provided for in the that her claim was within its contractual liability under the insurance policy, refused to make
insurance policy; and the sum of P5,000.00 as reasonable attorney's fee with such re-imbursement; that she suffered moral damages as a consequence of such refusal, and
costs against said defendant. that she was constrained to secure the services of counsel to protect her rights. She prayed
that judgment be rendered directing PCSI to pay her P50,000 for compensation of the injured
SO ORDERED. 3 victims, such sum as the court might approximate as damages, and P6,000 as attorney's fees.
Private respondent Milagros Cayas was the registered owner of a Mazda bus with serial No. In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its
TA3H4 P-000445 and plate No. PUB-4G-593. 4 Said passenger vehicle was insured with Perla dismissal without prejudice. 11 Alleging that she had not received a copy of the answer to the
Compania de Seguros, Inc. (PCSI) under policy No. LTO/60CC04241 issued on February 3, complaint, and that "out of sportsmanship", she did not file a motion to hold PCSI in default,
1978. 5 Milagros Cayas moved for the reconsideration of the dismissal order. Said motion for
On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its reconsideration was acted upon favorably by the court in its order of March 31, 1982.
passengers. One of them, 19-year old Edgardo Perea, sued Milagros Cayas for damages in the About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure
Court of First Instance of Cavite, Branch 6 docketed as Civil Case No. NC-794; while three to file an answer. The motion was granted and plaintiff was allowed to adduce evidence ex-
others, namely: Rosario del Carmen, Ricardo Magsarili and Charlie Antolin, agreed to a parte. On July 13, 1982, the court rendered judgment by default ordering PCSI to pay Milagros
settlement of P4,000.00 each with Milagros Cayas. Cayas P50,000 as compensation for the injured passengers, P5,000 as moral damages and
At the pre-trial of Civil Case No. NC-794, Milagros Cayas failed to appear and hence, she was P5,000 as attorney's fees.
declared as in default. After trial, the court rendered a decision 7 in favor of Perea with its Said decision was set aside after the PCSI filed a motion therefor. Trial of the case ensued. In
dispositive portion reading thus: due course, the court promulgated a decision in Civil Case No. N-4161, the dispositive portion
WHEREFORE, under our present imperatives, judgment is hereby rendered in of which was quoted earlier, finding that:
favor of the plaintiffs and against the defendant Milagros Cayas who is hereby In disavowing its obligation to plaintiff under the insurance policy, defendant
ordered to compensate the plaintiff' Edgar Perea with damages in the sum of advanced the proposition that before it can be made to pay, the liability
Ten Thousand (Pl0,000.00) Pesos for the medical predicament he found himself must first be determined in an appropriate court action. And so plaintiffs
as damaging consequences of defendant Milagros Cayas complete lack of liability was determined in that case filed against her by Perea in the Naic CFI.
diligence of a good father of a family' when she secured the driving services Still, despite this determination of liability, defendant sought escape from its
of one Oscar Figueroa on December, 17, 1978; the sum of Ten Thousand obligation by positing the theory that plaintiff Milagros Cayas lost the Naic
(P10,000.00) Pesos for exemplary damages; the sum of Five Thousand case due to her negligence because of which, efforts exerted by defendant's
(P5,000.00) Pesos for moral damages; the sum of Seven Thousand (P7,000.00) lawyers in protecting Cayas' rights proved futile and rendered nugatory.
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Blame was laid entirely on plaintiff by defendant for losing the Naic case. to the above provisions respecting per person, the total limit
Defendant labored under the impression that had Cayas cooperated fully of the Company's liability for all such damages arising out of
with defendant's lawyers, the latter could have won the suit and thus relieved death or bodily injury sustained by two or more persons as the
of any obligation to Perea Defendant's posture is stretching the factual result of any one accident.
circumstances of the Naic case too far. But even accepting defendant's Conditions Applicable to All Sections
postulate, it cannot be said, nor was it shown positively and convincingly, that
xxx xxx xxx
if the Naic case had proceeded on trial on the merits, a decision favorable to
Milagros Cayas could have been obtained. Nor was it definitely established 5. No admission, offer, promise or payment shall be made by
that if the pre-trial was undertaken in that case, defendant's lawyers could or on behalf of the insured without the written consent of the
have mitigated the claim for damages by Perea against Cayas. 12 Company which shall be entitled, if it so desires, to take over
and conduct in his (sic) name the defense or settlement of
The court, however, held that inasmuch as Milagros Cayas failed to establish that she
any claim, or to prosecute in his (sic) name for its own benefit
underwant moral suffering and mental anguish to justify her prayer for damages, there should
any claim for indemnity or damages or otherwise, and shall
be no such award. But, there being proof that she was compelled to engage the services of
have full discretion in the conduct of any proceedings in the
counsel to protect her rights under the insurance policy, the court allowed attorney's fees in
settlement of any claim, and the insured shall give all such
the amount of P5,000.
information and assistance as the Company may require. If
PCSI appealed to the Court of Appeals, which, in its decision of May 8, 1987 affirmed in the Company shall make any payment in settlement of any
toto the lower court's decision. Its motion for reconsideration having been denied by said claim, and such payment includes any amount not covered
appellate court, PCSI filed the instant petition charging the Court of Appeals with having erred by this Policy, the Insured shall repay the Company the
in affirming in toto the decision of the lower court. amount not so covered.
At the outset, we hold as factual and therefore undeserving of this Court's attention, We have ruled in Stokes vs. Malayan Insurance Co., Inc., 14 that the terms of the contract
petitioner's assertions that private respondent lost Civil Case No. NC-794 because of her constitute the measure of the insurer's liability and compliance therewith is a condition
negligence and that there is no proof that the decision in said case has been executed. Said precedent to the insured's right of recovery from the insurer.
contentions, having been raised and threshed out in the Court of Appeals and rejected by it,
In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for
may no longer be addressed to this Court.
all damages arising out of death or bodily injury sustained by one person as a result of any one
Petitioner's other contentions are primarily concerned with the extent of its liability to private accident at P12,000.00. Said amount complied with the minimum fixed by the law then
respondent under the insurance policy. This, we consider to be the only issue in this case. prevailing, Section 377 of Presidential Decree No. 612 (which was retained by P.D. No. 1460,
Petitioner seeks to limit its liability only to the payment made by private respondent to Perea the Insurance Code of 1978), which provided that the liability of land transportation vehicle
and only up to the amount of P12,000.00. It altogether denies liability for the payments made operators for bodily injuries sustained by a passenger arising out of the use of their vehicles shall
by private respondents to the other three (3) injured passengers Rosario del Carmen, Ricardo not be less than P12,000. In other words, under the law, the minimum liability is P12,000 per
Magsarili and Charlie Antolin in the amount of P4,000.00 each or a total of P12,000.00. passenger. Petitioner's liability under the insurance contract not being less than P12,000.00, and
There is merit in petitioner's assertions. therefore not contrary to law, morals, good customs, public order or public policy, said
stipulation must be upheld as effective, valid and binding as between the parties. 15
The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and to
P50,000.00 per accident. 13 Pertinent provisions of the policy also state: In like manner, we rule as valid and binding upon private respondent the condition above-
quoted requiring her to secure the written permission of petitioner before effecting any
SECTION I-Liability to the Public
payment in settlement of any claim against her. There is nothing unreasonable, arbitrary or
xxx xxx xxx objectionable in this stipulation as would warrant its nullification. The same was obviously
3. The Limit of Liability stated in Schedule A as applicable (a) designed to safeguard the insurer's interest against collusion between the insured and the
to THIRD PARTY is the limit of the Company's liability for all claimants.
damages arising out of death, bodily injury and damage to In her cross-examination before the trial court, Milagros Cayas admitted, thus:
property combined so sustained as the result of any one
Atty. Yabut:
accident; (b) "per person" for PASSENGER liability is the limit of
the Company's liability for all damages arising out of death or q With respect to the other injured passengers of your bus wherein you
bodily injury sustained by one person as the result of any one made payments you did not secure the consent of defendant (herein
accident: (c) "per accident" for PASSENGER liability is, subject petitioner) Perla Compania de Seguros when you made those
payments?
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a I informed them about that THIRD DIVISION
q But they did not give you the written authority that you were [G.R. No. 112360. July 18, 2000]
supposed to pay those claims? RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and
a No, sir . l6 TRANSWORLD KNITTING MILLS, INC., respondents.
It being specifically required that petitioner's written consent be first secured before any DECISION
payment in settlement of any claim could be made, private respondent is precluded from PURISIMA, J.:
seeking reimbursement of the payments made to del Carmen, Magsarili and Antolin in view of
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking
her failure to comply with the condition contained in the insurance policy.
to annul and set aside the July 15, 1993 Decision[1] and October 22, 1993
Clearly, the fundamental principle that contracts are respected as the law between the Resolution[2] of the Court of Appeals[3] in CA-G.R. CV NO. 28779, which modified the
contracting parties finds application in the present case. 17 Thus, it was error on the part of the Ruling[4] of the Regional Trial Court of Pasig, Branch 161, in Civil Case No. 46106.
trial and appellate courts to have disregarded the stipulations of the parties and to have
The antecedent facts that matter are as follows:
substituted their own interpretation of the insurance policy. In Phil. American General Insurance
Co., Inc vs. Mutuc, 18 we ruled that contracts which are the private laws of the contracting On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire
parties should be fulfilled according to the literal sense of their stipulations, if their terms are Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially
clear and leave no room for doubt as to the intention of the contracting parties, for contracts for One Million (P1,000,000.00) Pesos and eventually increased to One Million Five
are obligatory, no matter what form they may be, whenever the essential requisites for their Hundred Thousand (P1,500,000.00) Pesos, covering the period from August 14, 1980 to
validity are present. March 13, 1981.
Moreover, we stated in Pacific Oxygen & Acetylene Co. vs. Central Bank," 19 that the first and Pertinent portions of subject policy on the buildings insured, and location thereof,
fundamental duty of the courts is the application of the law according to its express terms, read:
interpretation being called for only when such literal application is impossible. "On stocks of finished and/or unfinished products, raw materials and supplies
We observe that although Milagros Cayas was able to prove a total loss of only P44,000.00, of every kind and description, the properties of the Insureds and/or held by
petitioner was made liable for the amount of P50,000.00, the maximum liability per accident them in trust, on commission or on joint account with others and/or for which
stipulated in the policy. This is patent error. An insurance indemnity, being merely an assistance they (sic) responsible in case of loss whilst contained and/or stored during the
or restitution insofar as can be fairly ascertained, cannot be availed of by any accident victim currency of this Policy in the premises occupied by them forming part of the
or claimant as an instrument of enrichment by reason of an accident. 20 buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO
UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.
Finally, we find no reason to disturb the award of attorney's fees.
xxx...............xxx...............xxx
WHEREFORE, the decision of the Court of Appeals is hereby modified in that petitioner shall pay
Milagros Cayas the amount of Twelve Thousand Pesos (P12,000. 00) plus legal interest from the Said building of four-span lofty one storey in height with mezzanine portions is
promulgation of the decision of the lower court until it is fully paid and attorney's fees in the constructed of reinforced concrete and hollow blocks and/or concrete under
amount of P5,000.00. No pronouncement as to costs. galvanized iron roof and occupied as hosiery mills, garment and lingerie
factory, transistor-stereo assembly plant, offices, warehouse and caretaker's
SO ORDERED.
quarters.
Gutierrez, Jr., Feliciano, Bidin and Cortes JJ., concur.
'Bounds in front partly by one-storey concrete building under galvanized iron
roof occupied as canteen and guardhouse, partly by building of two and
partly one storey constructed of concrete below, timber above
undergalvanized iron roof occupied as garage and quarters and partly by
open space and/or tracking/ packing, beyond which is the aforementioned
Magdalo Street; on its right and left by driveway, thence open spaces, and at
the rear by open spaces.'"[5]
The same pieces of property insured with the petitioner were also insured with New
India Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld, razing the middle
portion of its four-span building and partly gutting the left and right sections thereof. A

Page 5 of 20
two-storey building (behind said four-span building) where fun and amusement Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for
machines and spare parts were stored, was also destroyed by the fire. Reconsideration before the Court of Appeals, and on October 22, 1993, the Court of
Transworld filed its insurance claims with Rizal Surety & Insurance Company and New Appeals reconsidered its decision of July 15, 1993, as regards the imposition of interest,
India Assurance Company but to no avail. ruling thus:
On May 26, 1982, private respondent brought against the said insurance companies "WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as the
an action for collection of sum of money and damages, docketed as Civil Case No. imposition of legal interest is concerned, that, on the assessment against New
46106 before Branch 161 of the then Court of First Instance of Rizal; praying for India Assurance Company on the amount of P1,818,604.19 and that against
judgment ordering Rizal Insurance and New India to pay the amount of P2,747, 867.00 Rizal Surety & Insurance Company on the amount of P470,328.67, from May
plus legal interest, P400,000.00 as attorney's fees, exemplary damages, expenses of 26, 1982 when the complaint was filed until payment is made. The rest of the
litigation of P50,000.00 and costs of suit.[6] said decision is retained in all other respects.
Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered SO ORDERED."[10]
only the contents of the four-span building, which was partly burned, and not the Undaunted, petitioner Rizal Surety & Insurance Company found its way to this Court
damage caused by the fire on the two-storey annex building.[7] via the present Petition, contending that:
On January 4, 1990, the trial court rendered its decision; disposing as follows: I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX BUILDING
"ACCORDINGLY, judgment is hereby rendered as follows: WHERE THE BULK OF THE BURNED PROPERTIES WERE STORED, WAS INCLUDED IN
THE COVERAGE OF THE INSURANCE POLICY ISSUED BY RIZAL SURETY TO
(1)Dismissing the case as against The New India Assurance Co., Ltd.;
TRANSWORLD.
(2) Ordering defendant Rizal Surety And Insurance Company to pay
II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT
Transwrold (sic) Knitting Mills, Inc. the amount of P826, 500.00 representing the
CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN
actual value of the losses suffered by it; and
IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY SHOW THAT THE PREMISES
(3) Cost against defendant Rizal Surety and Insurance Company. OCCUPIED BY TRANSWORLD, WHERE THE INSURED PROPERTIES WERE LOCATED,
SO ORDERED."[8] SUSTAINED PARTIAL DAMAGE ONLY.
Both the petitioner, Rizal Insurance Company, and private respondent, Transworld III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT TRANSWORLD HAD
Knitting Mills, Inc., went to the Court of Appeals, which came out with its decision of ACTED IN PALPABLE BAD FAITH AND WITH MALICE IN FILING ITS CLEARLY
July 15, 1993 under attack, the decretal portion of which reads: UNFOUNDED CIVIL ACTION, AND IN NOT ORDERING TRANSWORLD TO PAY TO
"WHEREFORE, and upon all the foregoing, the decision of the court below is RIZAL SURETY MORAL AND PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS
MODIFIED in that defendant New India Assurance Company has and is ATTORNEY'S FEES AND EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11,
hereby required to pay plaintiff-appellant the amount of P1,818,604.19 while CIVIL CODE).[11]
the other Rizal Surety has to pay the plaintiff-appellant P470,328.67, based on The Petition is not impressed with merit.
the actual losses sustained by plaintiff Transworld in the fire, totalling It is petitioner's submission that the fire insurance policy litigated upon protected only
P2,790,376.00 as against the amounts of fire insurance coverages respectively the contents of the main building (four-span),[12] and did not include those stored in
extended by New India in the amount of P5,800,000.00 and Rizal Surety and the two-storey annex building. On the other hand, the private respondent theorized
Insurance Company in the amount of P1,500,000.00. that the so called "annex" was not an annex but was actually an integral part of the
No costs. four-span building[13] and therefore, the goods and items stored therein were covered
SO ORDERED."[9] by the same fire insurance policy.

On August 20, 1993, from the aforesaid judgment of the Court of Appeals New India Resolution of the issues posited here hinges on the proper interpretation of the
appealed to this Court theorizing inter alia that the private respondent could not be stipulation in subject fire insurance policy regarding its coverage, which reads:
compensated for the loss of the fun and amusement machines and spare parts stored "xxx contained and/or stored during the currency of this Policy in the premises
at the two-storey building because it (Transworld) had no insurable interest in said occupied by them forming part of the buildings situate (sic) within own
goods or items. Compound xxx"
On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118 Therefrom, it can be gleaned unerringly that the fire insurance policy in question did
(New India Assurance Company Ltd. vs. Court of Appeals). not limit its coverage to what were stored in the four-span building. As opined by the
trial court of origin, two requirements must concur in order that the said fun and

Page 6 of 20
amusement machines and spare parts would be deemed protected by the fire "Art.1377. The interpretation of obscure words or stipulations in a contract shall
insurance policy under scrutiny, to wit: not favor the party who caused the obscurity"
"First, said properties must be contained and/or stored in the areas occupied Conformably, it stands to reason that the doubt should be resolved against the
by Transworld and second, said areas must form part of the building described petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the fire
in the policy xxx"[14] insurance policy contract under scrutiny. Citing the aforecited provision of law in point,
'Said building of four-span lofty one storey in height with the Court in Landicho vs. Government Service Insurance System,[19] ruled:
mezzanine portions is constructed of reinforced concrete and "This is particularly true as regards insurance policies, in respect of which it is
hollow blocks and/or concrete under galvanized iron roof settled that the 'terms in an insurance policy, which are ambiguous,
and occupied as hosiery mills, garment and lingerie factory, equivocal, or uncertain x x x are to be construed strictly and most strongly
transistor-stereo assembly plant, offices, ware house and against the insurer, and liberally in favor of the insured so as to effect the
caretaker's quarter.' dominant purpose of indemnity or payment to the insured, especially where
The Court is mindful of the well-entrenched doctrine that factual findings by the Court forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the
of Appeals are conclusive on the parties and not reviewable by this Court, and the 'insured usually has no voice in the selection or arrangement of the words
same carry even more weight when the Court of Appeals has affirmed the findings of employed and that the language of the contract is selected with great care
fact arrived at by the lower court.[15] and deliberation by experts and legal advisers employed by, and acting
exclusively in the interest of, the insurance company.' (44 C.J.S., p. 1174)."" [20]
In the case under consideration, both the trial court and the Court of Appeals found
that the so called "annex " was not an annex building but an integral and inseparable Equally relevant is the following disquisition of the Court in Fieldmen's Insurance
part of the four-span building described in the policy and consequently, the machines Company, Inc. vs. Vda. De Songco,[21] to wit:
and spare parts stored therein were covered by the fire insurance in dispute. The "'This rigid application of the rule on ambiguities has become necessary in
letter-report of the Manila Adjusters and Surveyor's Company, which petitioner itself view of current business practices. The courts cannot ignore that nowadays
cited and invoked, describes the "annex" building as follows: monopolies, cartels and concentration of capital, endowed with
"Two-storey building constructed of partly timber and partly concrete hollow overwhelming economic power, manage to impose upon parties dealing with
blocks under g.i. roof which is adjoining and intercommunicating with the them cunningly prepared 'agreements' that the weaker party may not
repair of the first right span of the lofty storey building and thence by property change one whit, his participation in the 'agreement' being reduced to the
fence wall."[16] alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by
adherence' (contrats [sic] d'adhesion), in contrast to these entered into by
Verily, the two-storey building involved, a permanent structure which adjoins and
parties bargaining on an equal footing, such contracts (of which policies of
intercommunicates with the "first right span of the lofty storey building",[17] formed part
insurance and international bills of lading are prime example) obviously call
thereof, and meets the requisites for compensability under the fire insurance policy
for greater strictness and vigilance on the part of courts of justice with a view
sued upon.
to protecting the weaker party from abuses and imposition, and prevent their
So also, considering that the two-storey building aforementioned was already existing becoming traps for the unwary (New Civil Code, Article 24; Sent. of Supreme
when subject fire insurance policy contract was entered into on January 12, 1981, Court of Spain, 13 Dec. 1934, 27 February 1942.)'" [22]
having been constructed sometime in 1978,[18] petitioner should have specifically
The issue of whether or not Transworld has an insurable interest in the fun and
excluded the said two-storey building from the coverage of the fire insurance if
amusement machines and spare parts, which entitles it to be indemnified for the loss
minded to exclude the same but if did not, and instead, went on to provide that such
thereof, had been settled in G.R. No. L-111118, entitled New India Assurance
fire insurance policy covers the products, raw materials and supplies stored within the
Company, Ltd., vs. Court of Appeals, where the appeal of New India from the decision
premises of respondent Transworld which was an integral part of the four-span building
of the Court of Appeals under review, was denied with finality by this Court on
occupied by Transworld, knowing fully well the existence of such building adjoining
February 2, 1994.
and intercommunicating with the right section of the four-span building.
The rule on conclusiveness of judgment, which obtains under the premises, precludes
After a careful study, the Court does not find any basis for disturbing what the lower
the relitigation of a particular fact or issue in another action between the same parties
courts found and arrived at.
based on a different claim or cause of action. "xxx the judgment in the prior action
Indeed, the stipulation as to the coverage of the fire insurance policy under operates as estoppel only as to those matters in issue or points controverted, upon the
controversy has created a doubt regarding the portions of the building insured determination of which the finding or judgment was rendered. In fine, the previous
thereby. Article 1377 of the New Civil Code provides:

Page 7 of 20
judgment is conclusive in the second case, only as those matters actually and directly Republic of the Philippines
controverted and determined and not as to matters merely involved therein." [23] SUPREME COURT
Applying the abovecited pronouncement, the Court, in Smith Bell and Company Manila
(Phils.), Inc. vs. Court of Appeals, [24] held that the issue of negligence of the shipping EN BANC
line, which issue had already been passed upon in a case filed by one of the insurers, G.R. No. L-16215 June 29, 1963
is conclusive and can no longer be relitigated in a similar case filed by another insurer
SIMEON DEL ROSARIO, plaintiff-appellee,
against the same shipping line on the basis of the same factual circumstances.
vs.
Ratiocinating further, the Court opined:
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru') had
Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.
been negligent, or so negligent as to have proximately caused the collision
K. V. Faylona for defendant-appellant.
between them, was an issue that was actually, directly and expressly raised,
controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved PAREDES, J.:
that issue in his Decision and held the 'Don Carlos' to have been negligent On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued
rather than the 'Yotai Maru' and, as already noted, that Decision was affirmed Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son
by this Court in G.R. No. L-48839 in a Resolution dated 6 December 1987. The of herein plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity
Reyes Decision thus became final and executory approximately two (2) years for the death of the insured. The pertinent provisions of the Policy, recite:
before the Sison Decision, which is assailed in the case at bar, was Part I. Indemnity For Death
promulgated. Applying the rule of conclusiveness of judgment, the question of
which vessel had been negligent in the collision between the two (2) vessels, If the insured sustains any bodily injury which is effected solely through violent, external,
had long been settled by this Court and could no longer be relitigated in C.A.- visible and accidental means, and which shall result, independently of all other causes
G.R. No. 61206-R. Private respondent Go Thong was certainly bound by the and within sixty (60) days from the occurrence thereof, in the Death of the Insured, the
ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals Company shall pay the amount set opposite such injury:
fell into clear and reversible error when it disregarded the Decision of this
Court affirming the Reyes Decision."[25] Section 1. Injury sustained other than those specified below
unless excepted hereinafter. . . . . . . . P1,000.00
The controversy at bar is on all fours with the aforecited case. Considering that private
respondent's insurable interest in, and compensability for the loss of subject fun and
amusement machines and spare parts, had been adjudicated, settled and sustained Section 2. Injury sustained by the wrecking or disablement of a
by the Court of Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L- railroad passenger car or street railway car in or on which the
111118, in a Resolution, dated February 2, 1994, the same can no longer be relitigated Insured is travelling as a farepaying passenger. . . . . . . . P1,500.00
and passed upon in the present case. Ineluctably, the petitioner, Rizal Surety Insurance
Company, is bound by the ruling of the Court of Appeals and of this Court that the Section 3. Injury sustained by the burning of a church, theatre,
private respondent has an insurable interest in the aforesaid fun and amusement public library or municipal administration building while the
machines and spare parts; and should be indemnified for the loss of the same. Insured is therein at the commencement of the fire. . . . . . . . P2,000.00
So also, the Court of Appeals correctly adjudged petitioner liable for the amount of
P470,328.67, it being the total loss and damage suffered by Transworld for which Section 4. Injury sustained by the wrecking or disablement of a
petitioner Rizal Insurance is liable.[26] regular passenger elevator car in which the Insured is being
All things studiedly considered and viewed in proper perspective, the Court is of the conveyed as a passenger (Elevator in mines excluded)
irresistible conclusion, and so finds, that the Court of Appeals erred not in holding the P2,500.00
petitioner, Rizal Surety Insurance Company, liable for the destruction and loss of the
insured buildings and articles of the private respondent. Section 5. Injury sustained by a stroke of lightning or by a
WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October 22, cyclone. . . . . . . . P3,000.00
1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto. No
pronouncement as to costs. xxx xxx xxx
SO ORDERED. Part VI. Exceptions

Page 8 of 20
This policy shall not cover disappearance of the Insured nor shall it cover Death, P2,000.00 more was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII),
Disability, Hospital fees, or Loss of Time, caused to the insured: praying for it further sum of P10,000.00 as attorney's fees, expenses of litigation and costs.
. . . (h) By drowning except as a consequence of the wrecking or disablement in the Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or
Philippine waters of a passenger steam or motor vessel in which the Insured is travelling claim is set forth in the complaint had already been released, plaintiff having received the full
as a farepaying passenger; . . . . amount due as appearing in policy and as per opinion of the Insurance Commissioner. An
A rider to the Policy contained the following: opposition to the motion to dismiss, was presented by plaintiff, and other pleadings were
subsequently file by the parties. On December 28, 1957, the trial court deferred action on the
IV. DROWNING
motion to dismiss until termination of the trial of the case, it appearing that the ground thereof
It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the was not indubitable. In the Answer to the complaint, defendant company practically
policy is hereby waived by the company, and to form a part of the provision covered by the admitted all the allegations therein, denying only those which stated that under the policy its
policy. liability was P3,000.00.
On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent
the motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy, portions of which read —
Remedios Jayme, were forced to jump off said launch on account of fire which broke out on
xxx xxx xxx
said vessel, resulting in the death of drowning, of the insured and beneficiary in the waters of
Jolo. 1äwphï1.ñët Since the contemporaneous and subsequent acts of the parties show that it was not
their intention that the payment of P1,000.00 to the plaintiff and the signing of the loss
On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim
receipt exhibit "1" would be considered as releasing the defendant completely from its
for payment with defendant company, and on September 13, 1957, defendant company
liability on the policy in question, said intention of the parties should prevail over the
paid to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The
contents of the loss receipt "1" (Articles 1370 and 1371, New Civil Code).
receipt signed by plaintiff reads —
". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to
RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of
P3,000.00 as indemnity for the death of the insured. The insured died of drowning.
PESOS — ONE THOUSAND (P1,000.00) Philippine Currency, being settlement in
Death by drowning is covered by the policy the pertinent provisions of which reads as
full for all claims and demands against said Company as a result of an
follows:
accident which occurred on February 26, 1957, insured under out ACCIDENT
Policy No. 7136, causing the death of the Assured. xxx xxx xxx
In view of the foregoing, this policy is hereby surrendered and CANCELLED. "Part I of the policy fixes specific amounts as indemnities in case of death
resulting from "bodily injury which is effected solely thru violence, external,
LOSS COMPUTATION
visible and accidental means" but, Part I of the Policy is not applicable in case
Amount of Insurance P1,000.00 of death by drowning because death by drowning is not one resulting from
__________ "bodily injury which is affected solely thru violent, external, visible and
vvvvv accidental means" as "Bodily Injury" means a cut, a bruise, or a wound and
On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant drowning is death due to suffocation and not to any cut, bruise or wound."
company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing xxx xxx xxx
said company that said amount was not the correct one. Atty. Francisco claimed —
Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for
The amount payable under the policy, I believe should be P1,500.00 under the recovery apart from the bodily injury because death by bodily injury is covered by Part
provision of Section 2, part 1 of the policy, based on the rule of pari materia as the I of the policy while death by drowning is covered by Part VI thereof. But while the
death of the insured occurred under the circumstances similar to that provided under policy mentions specific amounts that may be recovered for death for bodily injury,
the aforecited section. yet, there is not specific amount mentioned in the policy for death thru drowning
Defendant company, upon receipt of the letter, referred the matter to the Insurance although the latter is, under Part VI of the policy, a ground for recovery thereunder.
Commissioner, who rendered an opinion that the liability of the company was only P1,000.00, Since the defendant has bound itself to pay P1000.00 to P3,000.00 as indemnity for the
pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because of the above death of the insured but the policy does not positively state any definite amount that
opinion, defendant insurance company refused to pay more than P1,000.00. In the meantime, may be recovered in case of death by drowning, there is an ambiguity in this respect
Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for P3,000.00 in the policy, which ambiguity must be interpreted in favor of the insured and strictly
which the Company refused, to pay. Hence, a complaint for the recovery of the balance of against the insurer so as to allow greater indemnity.

Page 9 of 20
xxx xxx xxx The judgment appealed from is hereby affirmed. Without costs.
. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon and Regala, JJ.,
the amount of P1,000.00 to the plaintiff so that there still remains a balance of concur.
P2,000.00 of the amount to which plaintiff is entitled to recover under the policy Exhibit Makalintal, J., reserves his vote.
"A".
The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of Republic of the Philippines
litigation. However, since it is evident that the defendant had not acted in bad faith in SUPREME COURT
refusing to pay plaintiff's claim, the Court cannot award plaintiff's claim for attorney's Manila
fees and expenses of litigation.
THIRD DIVISION
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision
G.R. No. 200784 August 7, 2013
dated July 21, 1958 and hereby renders judgment, ordering the defendant to pay
plaintiff the sum of Two Thousand (P2,000.00) Pesos and to pay the costs. MALAYAN INSURANCE COMPANY, INC., PETITIONER,
vs.
The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
a Resolution dated September 29, 1959, elevated the case to this Court, stating that the
genuine issue is purely legal in nature. DECISION
All the parties agree that indemnity has to be paid. The conflict centers on how much should MENDOZA, J.:
the indemnity be. We believe that under the proven facts and circumstances, the findings and Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the
conclusions of the trial court, are well taken, for they are supported by the generally accepted October 27, 2011 Decision1 of the Court of Appeals (CA), which affirmed with modification the
principles or rulings on insurance, which enunciate that where there is an ambiguity with September 17, 2009 Decision2 of the Regional Trial Court, Branch 15, Manila (RTC), and its
respect to the terms and conditions of the policy, the same will be resolved against the one February 24, 2012 Resolution3 denying the motion for reconsideration filed by petitioner
responsible thereof. It should be recalled in this connection, that generally, the insured, has Malayan Insurance Company., Inc. (Malayan).
little, if any, participation in the preparation of the policy, together with the drafting of its terms The Facts
and Conditions. The interpretation of obscure stipulations in a contract should not favor the
party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the insurance The undisputed factual antecedents were succinctly summarized by the CA as follows:
company. On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F-
. . . . And so it has been generally held that the "terms in an insurance policy, which are 00227-000073 to PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at
ambiguous, equivocal or uncertain . . . are to be construed strictly against, the insurer, Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The
and liberally in favor of the insured so as to effect the dominant purpose of indemnity insurance, which was for Fifteen Million Pesos (?15,000,000.00) and effective for a period of one
or payment to the insured, especially where a forfeiture is involved," (29 Am. Jur. 181) (1) year, was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the
and the reason for this rule is that the "insured usually has no voice in the selection or mortgagee of the insured machineries and equipment.
arrangement of the words employed and that the language of the contract is After the passage of almost a year but prior to the expiration of the insurance coverage, PAP
selected with great care and deliberation by expert and legal advisers employed by, Co. renewed the policy on an "as is" basis. Pursuant thereto, a renewal policy, Fire Insurance
and acting exclusively in the interest of, the insurance company" (44 C.J.S. 1174). Policy No. F-00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to
Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955. May 13, 1998.
. . . . Where two interpretations, equally fair, of languages used in an insurance policy On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries
may be made, that which allows the greater indemnity will prevail. (L'Engel v. Scotish and equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with
Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Malayan in the amount insured.
Cas. 749). In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the
At any event, the policy under consideration, covers death or disability by accidental means, time of the loss, the insured machineries and equipment were transferred by PAP Co. to a
and the appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for location different from that indicated in the policy. Specifically, that the insured machineries
death of the insured. were transferred in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14,
In view of the conclusions reached, it would seem unnecessary to discuss the other issues Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co. argued
raised in the appeal. that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party duty-

Page 10 of 20
bound to relay such information. However, Malayan reiterated its denial of PAP Co.’s claim. The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of
Distraught, PAP Co. filed the complaint below against Malayan.4 the insured properties during the efficacy of the insurance policy. Malayan also failed to show
Ruling of the RTC that its contractual consent was needed before carrying out a transfer of the insured
properties. Despite its bare claim that the original and the renewed insurance policies
On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP
contained provisions on transfer limitations of the insured properties, Malayan never cited the
Company Ltd (PAP) an indemnity for the loss under the fire insurance policy as well as for
specific provisions.
attorney’s fees. The dispositive portion of the RTC decision reads:
The CA further stated that even if there was such a provision on transfer restrictions of the
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff.
insured properties, still Malayan could not escape liability because the transfer was made
Defendant is hereby ordered:
during the subsistence of the original policy, not the renewal policy. PAP transferred the insured
a) properties from the Sanyo Factory to the Pace Pacific Building (Pace Factory) sometime in
To pay plaintiff the sum of FIFTEEN MILLION PESOS (₱15,000,000.00) as and for indemnity for the September 1996. Therefore, Malayan was aware or should have been aware of such transfer
loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum from the when it issued the renewal policy on May 14, 1997. The CA opined that since an insurance
time of loss on October 12, 1997 until fully paid; policy was a contract of adhesion, any ambiguity must be resolved against the party that
b) prepared the contract, which, in this case, was Malayan.

To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (Ph₱500,000.00) as and by way of Finally, the CA added that Malayan failed to show that the transfer of the insured properties
attorney’s fees; [and,] increased the risk of the loss. It, thus, could not use such transfer as an excuse for not paying
the indemnity to PAP. Although the insurance proceeds were payable to RCBC, PAP could still
c) sue Malayan to enforce its rights on the policy because it remained a party to the insurance
To pay the costs of suit. contract.
SO ORDERED.5 Not in conformity with the CA decision, Malayan filed this petition for review anchored on the
The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire following
insurance policy because, although there was a change in the condition of the thing insured GROUNDS
as a result of the transfer of the subject machineries to another location, said insurance I
company failed to show proof that such transfer resulted in the increase of the risk insured
against. In the absence of proof that the alteration of the thing insured increased the risk, the THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE
contract of fire insurance is not affected per Article 169 of the Insurance Code. LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT AFFIRMED THE DECISION
OF THE TRIAL COURT AND THUS RULING IN THE QUESTIONED DECISION AND RESOLUTION THAT
The RTC further stated that PAP’s notice to Rizal Commercial Banking Corporation (RCBC) PETITIONER MALAYAN IS LIABLE UNDER THE INSURANCE CONTRACT BECAUSE:
sufficiently complied with the notice requirement under the policy considering that it was
RCBC which procured the insurance. PAP acted in good faith in notifying RCBC about the CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER MALAYAN WAS ABLE
transfer and the latter even conducted an inspection of the machinery in its new location. TO PROVE AND IT IS NOT DENIED, THAT ON THE FACE OF THE RENEWAL POLICY ISSUED TO
RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR A REPRESENTATION MADE BY
Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT THE SANYO BUILDING. IT IS LIKEWISE
court erred in ordering it to indemnify PAP for the loss of the subject machineries since the UNDISPUTED THAT WHEN THE RENEWAL POLICY WAS ISSUED TO RESPONDENT PAP CO., THE
latter, without notice and/or consent, transferred the same to a location different from that INSURED PROPERTIES WERE NOT AT THE SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION,
indicated in the fire insurance policy. THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS DIFFERENT LOCATION WHEN THE LOSS
Ruling of the CA INSURED AGAINST OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES
On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW,
but deleted the attorney’s fees. The decretal portion of the CA decision reads: BECAUSE OF CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE
WARRANTY UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF THE INSURANCE
WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance
CODE, RESPECTIVELY.
Company must indemnify PAP Co. Ltd the amount of Fifteen Million Pesos (Ph₱15,000,000.00)
for the loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT CONCEALMENT,
from the time of loss on October 12, 1997 until fully paid. However, the Five Hundred Thousand MISREPRESENTATION OR BREACH OF AN AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE
Pesos (Ph₱500,000.00) awarded to PAP Co., Ltd. as attorney’s fees is DELETED. With costs. THAT IT INFORMED PETITIONER MALAYAN THAT THE INSURED PROPERTIES HAD BEEN TRANSFERRED
TO A LOCATION DIFFERENT FROM WHAT WAS INDICATED IN THE INSURANCE POLICY.
SO ORDERED.6

Page 11 of 20
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE CONDITIONS AND properties. In fact, before the issuance of the renewal policy on May 14, 1997, PAP even
LIMITATIONS TO THE RENEWAL POLICY WHICH ARE THE REASONS WHY ITS CLAIM WAS DENIED IN informed it that there would be no changes in the renewal policy. Malayan also argues that
THE FIRST PLACE. IN FACT, THE BEST PROOF THAT RESPONDENT PAP CO. RECOGNIZES THESE PAP is guilty of breach of warranty under the renewal policy in violation of Section 74 of the
CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL Insurance Code9 when, contrary to its affirmation in the renewal policy that the insured
ASSERTION THAT IT SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED properties were located at the Sanyo Factory, these were already transferred to the Pace
BY THE INSURANCE POLICY. Factory. Malayan adds that PAP is guilty of misrepresentation upon a material fact in violation
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN INCREASE IN RISK of Section 45 of the Insurance Code10 when it informed Malayan that there would be no
BECAUSE OF THE UNILATERAL TRANSFER OF THE INSURED PROPERTIES. IN FACT, THIS PIECE OF changes in the original policy, and that the original policy would be renewed on an "as is"
EVIDENCE WAS UNREBUTTED BY RESPONDENT PAP CO. basis.
II Malayan further argues that PAP failed to discharge the burden of proving that the transfer of
the insured properties under the insurance policy was with its knowledge and consent.
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND ESTABLISHED
Granting that PAP informed RCBC of the transfer or change of location of the insured
DECISIONS OF THE HONORABLE COURT WHEN IT IMPOSED INTEREST AT THE RATE OF TWELVE
properties, the same is irrelevant and does not bind Malayan considering that RCBC is a
PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL FULLY PAID.
corporation vested with separate and distinct juridical personality. Malayan did not consent to
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A LOAN OR be the principal of RCBC. RCBC did not also act as Malayan’s representative.
FORBEARANCE OF MONEY FROM WHICH A BREACH ENTITLES A PLAINTIFF TO AN AWARD OF
With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase
INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.
in risk as a result of the unilateral transfer of the insured properties. According to Malayan, the
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD NOT HAVE Sanyo Factory was occupied as a factory of automotive/computer parts by the assured and
BEEN APPLIED BY THE COURT OF APPEALS BECAUSE THERE WAS NEVER ANY FINDING THAT factory of zinc & aluminum die cast and plastic gear for copy machine by Sanyo Precision
PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE PROCEEDS OF THE INSURANCE Phils., Inc. with a rate of 0.449% under 6.1.2 A, while Pace Factory was occupied as factory that
POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN repacked silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.
OPINION ON WHETHER RESPONDENT PAP CO. COMMITTED CONCEALMENT,
PAP’s position
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER
MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED. On the other hand, PAP counters that there is no evidence of any misrepresentation,
concealment or deception on its part and that its claim is not fraudulent. It insists that it can still
III
sue to protect its rights and interest on the policy notwithstanding the fact that the proceeds of
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE the same was payable to RCBC, and that it can collect interest at the rate of 12% per annum
LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT AGREED WITH THE TRIAL on the proceeds of the policy because its claim for indemnity was unduly delayed without
COURT AND HELD IN THE QUESTIONED DECISION THAT THE PROCEEDS OF THE INSURANCE legal justification.
CONTRACT IS PAYABLE TO RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A MORTGAGEE
The Court’s Ruling
CLAUSE IN THE INSURANCE POLICY.
The Court agrees with the position of Malayan that it cannot be held liable for the loss of the
IV
insured properties under the fire insurance policy.
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a
WHEN IT HELD IN THE QUESTIONED DECISION AND RESOLUTION THAT THE INTERPRETATION MOST
?15,000,000.00 fire insurance policy from Malayan covering its machineries and equipment
FAVORABLE TO THE INSURED SHALL BE ADOPTED.7
effective for one (1) year or until May 13, 1997; that the policy expressly stated that the insured
Malayan basically argues that it cannot be held liable under the insurance contract because properties were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA,
PAP committed concealment, misrepresentation and breach of an affirmative warranty under Rosario, Cavite"; that before its expiration, the policy was renewed11 on an "as is" basis for
the renewal policy when it transferred the location of the insured properties without informing another year or until May 13, 1998; that the subject properties were later transferred to the
it. Such transfer affected the correct estimation of the risk which should have enabled Pace Factory also in PEZA; and that on October 12, 1997, during the effectivity of the renewal
Malayan to decide whether it was willing to assume such risk and, if so, at what rate of policy, a fire broke out at the Pace Factory which totally burned the insured properties.
premium. The transfer also affected Malayan’s ability to control the risk by guarding against
The policy forbade the removal of the insured properties unless sanctioned by Malayan
the increase of the risk brought about by the change in conditions, specifically the change in
the location of the risk. Condition No. 9(c) of the renewal policy provides:
Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance 9. Under any of the following circumstances the insurance ceases to attach as regards the
Code8 when it did not inform Malayan of the actual and new location of the insured property affected unless the insured, before the occurrence of any loss or damage, obtains

Page 12 of 20
the sanction of the company signified by endorsement upon the policy, by or on behalf of the I told my Secretary to inform the bank.
Company: Q
xxx xxx xxx You are referring to RCBC?
(c) If property insured be removed to any building or place other than in that which is herein A
stated to be insured.12
Yes, sir.
Evidently, by the clear and express condition in the renewal policy, the removal of the insured
xxxx
property to any building or place required the consent of Malayan. Any transfer effected by
the insured, without the insurer’s consent, would free the latter from any liability. Q
The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal After the RCBC was informed in the manner you stated, what did you do regarding the new
location of these properties at Pace Pacific Bldg. insofar as Malayan Insurance Company is
The records are bereft of any convincing and concrete evidence that Malayan was notified of
concerned?
the transfer of the insured properties from the Sanyo factory to the Pace factory. The Court has
combed the records and found nothing that would show that Malayan was duly notified of A
the transfer of the insured properties. After that transfer, we informed the RCBC about the transfer of the equipment and also
What PAP did to prove that Malayan was notified was to show that it relayed the fact of Malayan Insurance but we were not able to contact Malayan Insurance so I instructed again
transfer to RCBC, the entity which made the referral and the named beneficiary in the policy. my secretary to inform Malayan about the transfer.
Malayan and RCBC might have been sister companies, but such fact did not make one an Q
agent of the other. The fact that RCBC referred PAP to Malayan did not clothe it with authority Who was the secretary you instructed to contact Malayan Insurance, the defendant in this
to represent and bind the said insurance company. After the referral, PAP dealt directly with case?
Malayan.
A
The respondent overlooked the fact that during the November 9, 2006 hearing,13 its counsel
stipulated in open court that it was Malayan’s authorized insurance agent, Rodolfo Talusan, Dory Ramos.
who procured the original policy from Malayan, not RCBC. This was the reason why Talusan’s Q
testimony was dispensed with. How many secretaries do you have at that time in your office?
Moreover, in the previous hearing held on November 17, 2005,14 PAP’s hostile witness, A
Alexander Barrera, Administrative Assistant of Malayan, testified that he was the one who
Only one, sir.
procured Malayan’s renewal policy, not RCBC, and that RCBC merely referred fire insurance
clients to Malayan. He stressed, however, that no written referral agreement exists between Q
RCBC and Malayan. He also denied that PAP notified Malayan about the transfer before the Do you know a certain Maricar Jardiniano?
renewal policy was issued. He added that PAP, through Maricar Jardiniano (Jardiniano), A
informed him that the fire insurance would be renewed on an "as is basis." 15
Yes, sir.
Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it notified RCBC
Q
and Malayan was not indubitably established. At best, PAP could only come up with the
hearsay testimony of its principal witness, Branch Manager Katsumi Yoneda (Mr. Yoneda), who Why do you know her?
testified as follows: A
Q Because she is my secretary.
What did you do as Branch Manager of Pap Co. Ltd.? Q
A So how many secretaries did you have at that time?
What I did I instructed my Secretary, because these equipment was bank loan and because of A
the insurance I told my secretary to notify. Two, sir.
Q Q
To notify whom?
A
Page 13 of 20
What happened with the instruction that you gave to your secretary Dory Ramos about the Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured
matter of informing the defendant Malayan Insurance Co of the new location of the insured properties were transferred to a different location only after the renewal of the fire insurance
properties? policy.
A COURT
She informed me that the notification was already given to Malayan Insurance. Q
Q When did you transfer the machineries and equipments before the renewal or after the
Aside from what she told you how did you know that the information was properly relayed by renewal of the insurance?
the said secretary, Dory Ramos, to Malayan Insurance? A
A After the renewal.
I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir. COURT
Q Q
Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan You understand my question?
Insurance Company about the transfer of the properties insured to the new location, do you A
know what happened insofar this information was given to the defendant Malayan Insurance?
Yes, Your Honor.17 [Emphasis supplied]
A
This enfeebles PAP’s position that the subject properties were already transferred to the Pace
I heard that someone from Malayan Insurance came over to our company. factory before the policy was renewed.
Q The transfer from the Sanyo Factory to the PACE Factory increased the risk.
Did you come to know who was that person who came to your place at Pace Pacific? The courts below held that even if Malayan was not notified thereof, the transfer of the insured
A properties to the Pace Factory was insignificant as it did not increase the risk.
I do not know, sir. Malayan argues that the change of location of the subject properties from the Sanyo Factory
Q to the Pace Factory increased the hazard to which the insured properties were exposed.
Malayan wrote:
How did you know that this person from Malayan Insurance came to your place?
With regards to the exposure of the risk under the old location, this was occupied as factory of
A
automotive/computer parts by the assured, and factory of zinc & aluminum die cast, plastic
It is according to the report given to me. gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But
Q under Pace Pacific Mfg. Corporation this was occupied as factory that repacks silicone
Who gave that report to you? sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A. Hence, there was an increase in
the hazard as indicated by the increase in rate.18
A
The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to
Dory Ramos. a hazardous environment and negatively affected the fire rating stated in the renewal policy.
Q The increase in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk of
Was that report in writing or verbally done? loss. Such increase in risk would necessarily entail an increase in the premium payment on the
fire policy.
A
Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the
Verbal.16 [Emphases supplied]
importance of the issue, PAP failed to refute Malayan’s argument on the increased risk.
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal
Malayan is entitled to rescind the insurance contract
knowledge of the notice to either Malayan or RCBC. PAP should have presented his
secretaries, Dory Ramos and Maricar Jardiniano, at the witness stand. His testimony alone was Considering that the original policy was renewed on an "as is basis," it follows that the renewal
unreliable. policy carried with it the same stipulations and limitations. The terms and conditions in the
renewal policy provided, among others, that the location of the risk insured against is at the
Sanyo factory in PEZA. The subject insured properties, however, were totally burned at the
Pace Factory. Although it was also located in PEZA, Pace Factory was not the location
Page 14 of 20
stipulated in the renewal policy. There being an unconsented removal, the transfer was at MA. LOURDES S. FLORENDO, G.R. No. 186983
PAP’s own risk. Consequently, it must suffer the consequences of the fire. Thus, the Court Petitioner,
agrees with the report of Cunningham Toplis Philippines, Inc., an international loss adjuster
Present:
which investigated the fire incident at the Pace Factory, which opined that "[g]iven that the
location of risk covered under the policy is not the location affected, the policy will, therefore, VELASCO, JR., J., Chairperson,
not respond to this loss/claim."19 - versus - PERALTA,
It can also be said that with the transfer of the location of the subject properties, without ABAD,
notice and without Malayan’s consent, after the renewal of the policy, PAP clearly committed MENDOZA, and
concealment, misrepresentation and a breach of a material warranty. Section 26 of the
Insurance Code provides: PERLAS-BERNABE, JJ.

Section 26. A neglect to communicate that which a party knows and ought to communicate, PHILAM PLANS, INC.,
is called a concealment. PERLA ABCEDE and Promulgated:
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a MA. CELESTE ABCEDE,
contract of insurance." Respondents. February 22, 2012
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or condition of the thing insured. Section
x --------------------------------------------------------------------------------------- x
168 of the Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is limited
by the policy made without the consent of the insurer, by means within the control of the DECISION
insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance. ABAD, J.:
Accordingly, an insurer can exercise its right to rescind an insurance contract when the
following conditions are present, to wit: This case is about an insureds alleged concealment in his pension plan application of
1) the policy limits the use or condition of the thing insured; his true state of health and its effect on the life insurance portion of that plan in case of death.
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer; The Facts and the Case
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.20 On October 23, 1997 Manuel Florendo filed an application for comprehensive pension
In the case at bench, all these circumstances are present. It was clearly established that the plan with respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent
renewal policy stipulated that the insured properties were located at the Sanyo factory; that Perla Abcede. The plan had a pre-need price of P997,050.00, payable in 10 years, and had a
PAP removed the properties without the consent of Malayan; and that the alteration of the maturity value of P2,890,000.00 after 20 years.[1] Manuel signed the application and left to Perla
location increased the risk of loss. the task of supplying the information needed in the application. [2] Respondent Ma. Celeste
Abcede, Perlas daughter, signed the application as sales counselor.[3]
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and
SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable for the
loss of the insured machineries and equipment suffered by PAP Co., Ltd. Aside from pension benefits, the comprehensive pension plan also provided life
SO ORDERED. insurance coverage to Florendo.[4] This was covered by a Group Master Policy that Philippine
American Life Insurance Company (Philam Life) issued to Philam Plans. [5] Under the master
policy, Philam Life was to automatically provide life insurance coverage, including accidental
death, to all who signed up for Philam Plans comprehensive pension plan.[6] If the plan holder
died before the maturity of the plan, his beneficiary was to instead receive the proceeds of
the life insurance, equivalent to the pre-need price. Further, the life insurance was to take care
of any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity
value of the pension plan.[7]

Page 15 of 20
On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584 [8] to 3. Whether or not the CA erred in finding that Philam Plans approval of Manuels
Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid pension plan application and acceptance of his premium payments precluded it from
his quarterly premiums.[9] denying Lourdes claim.
Eleven months later or on September 15, 1998, Manuel died of blood
poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of the Rulings of the Court
benefits under her husbands plan.[10] Because Manuel died before his pension plan matured
and his wife was to get only the benefits of his life insurance, Philam Plans forwarded her claim
to Philam Life.[11] One. Lourdes points out that, seeing the unfilled spaces in Manuels pension plan application
relating to his medical history, Philam Plans should have returned it to him for completion. Since
Philam Plans chose to approve the application just as it was, it cannot cry concealment on
On May 3, 1999 Philam Plans wrote Lourdes a letter,[12] declining her claim. Philam Life Manuels part. Further, Lourdes adds that Philam Plans never queried Manuel directly regarding
found that Manuel was on maintenance medicine for his heart and had an implanted the state of his health. Consequently, it could not blame him for not mentioning it.[19]
pacemaker. Further, he suffered from diabetes mellitus and was taking
insulin. Lourdes renewed her demand for payment under the plan [13] but Philam Plans rejected
it,[14] prompting her to file the present action against the pension plan company before the But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the
Regional Trial Court (RTC) of Quezon City.[15] true state of Manuels health. She forgets that since Philam Plans waived medical examination
for Manuel, it had to rely largely on his stating the truth regarding his health in his
application. For, after all, he knew more than anyone that he had been under treatment for
On March 30, 2006 the RTC rendered judgment,[16] ordering Philam Plans, Perla and heart condition and diabetes for more than five years preceding his submission of that
Ma. Celeste, solidarily, to pay Lourdes all the benefits from her husbands pension plan, application. But he kept those crucial facts from Philam Plans.
namely: P997,050.00, the proceeds of his term insurance, and P2,890,000.00 lump sum pension
benefit upon maturity of his plan; P100,000.00 as moral damages; and to pay the costs of the
suit. The RTC ruled that Manuel was not guilty of concealing the state of his health from his Besides, when Manuel signed the pension plan application, he adopted as his own the written
pension plan application. representations and declarations embodied in it. It is clear from these representations that he
concealed his chronic heart ailment and diabetes from Philam Plans. The pertinent portion of
his representations and declarations read as follows:
On December 18, 2007 the Court of Appeals (CA) reversed the RTC
I hereby represent and declare to the best of my knowledge that:
decision,[17] holding that insurance policies are traditionally contracts uberrimae fidae or
contracts of utmost good faith. As such, it required Manuel to disclose to Philam Plans
conditions affecting the risk of which he was aware or material facts that he knew or ought to xxxx
know.[18]

(c) I have never been treated for heart condition, high blood pressure,
Issues Presented cancer, diabetes, lung, kidney or stomach disorder or any other
physical impairment in the last five years.
The issues presented in this case are:
(d) I am in good health and physical condition.
1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when
he kept blank and did not answer questions in his pension plan application regarding the If your answer to any of the statements above reveal otherwise, please give
ailments he suffered from; details in the space provided for:

2. Whether or not the CA erred in holding that Manuel was bound by the failure of Date of confinement : ____________________________
respondents Perla and Ma. Celeste to declare the condition of Manuels health in the pension Name of Hospital or Clinic : ____________________________
plan application; and
Name of Attending Physician : ____________________________

Page 16 of 20
Findings : ____________________________ But Manuel forgot that in signing the pension plan application, he certified that he wrote all
Others: (Please specify) : ____________________________ the information stated in it or had someone do it under his direction. Thus:
x x x x.[20] (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding his APPLICATION FOR PENSION PLAN
continuing treatments for heart condition and diabetes, the assumption is that he has never (Comprehensive)
been treated for the said illnesses in the last five years preceding his application. This is implicit
from the phrase If your answer to any of the statements above (specifically, the statement: I
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program
have never been treated for heart condition or diabetes) reveal otherwise, please give details
described herein in accordance with the General Provisions set forth in this
in the space provided for. But this is untrue since he had been on Coumadin, a treatment for
application and hereby certify that the date and other information stated
venous thrombosis,[21] and insulin, a drug used in the treatment of diabetes mellitus, at that
herein are written by me or under my direction. x x x.[29] (Emphasis supplied)
time.[22]

Assuming that it was Perla who filled up the application form, Manuel is still bound by
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent,
what it contains since he certified that he authorized her action. Philam Plans had every right
knew that Manuel had a pacemaker implanted on his chest in the 70s or about 20 years
to act on the faith of that certification.
before he signed up for the pension plan.[23] But by its tenor, the responsibility for preparing the
application belonged to Manuel. Nothing in it implies that someone else may provide the
information that Philam Plans needed. Manuel cannot sign the application and disown the Lourdes could not seek comfort from her claim that Perla had assured Manuel that the
responsibility for having it filled up. If he furnished Perla the needed information and delegated state of his health would not hinder the approval of his application and that what is written on
to her the filling up of the application, then she acted on his instruction, not on Philam Plans his application made no difference to the insurance company. But, indubitably, Manuel was
instruction. made aware when he signed the pension plan application that, in granting the same, Philam
Plans and Philam Life were acting on the truth of the representations contained in that
application. Thus:
Lourdes next points out that it made no difference if Manuel failed to reveal the fact
that he had a pacemaker implant in the early 70s since this did not fall within the five-year
timeframe that the disclosure contemplated.[24] But a pacemaker is an electronic device DECLARATIONS AND REPRESENTATIONS
implanted into the body and connected to the wall of the heart, designed to provide regular,
mild, electric shock that stimulates the contraction of the heart muscles and restores normalcy
to the heartbeat.[25] That Manuel still had his pacemaker when he applied for a pension plan in xxxx
October 1997 is an admission that he remained under treatment for irregular heartbeat within
five years preceding that application. I agree that the insurance coverage of this application is based on
the truth of the foregoing representations and is subject to the provisions of the
Besides, as already stated, Manuel had been taking medicine for his heart condition Group Life Insurance Policy issued by THE PHILIPPINE AMERICAN LIFE
and diabetes when he submitted his pension plan application. These clearly fell within the five- INSURANCE CO. to PHILAM PLANS, INC.[30] (Emphasis supplied)
year period. More, even if Perlas knowledge of Manuels pacemaker may be applied to Philam
Plans under the theory of imputed knowledge, [26] it is not claimed that Perla was aware of his As the Court said in New Life Enterprises v. Court of Appeals:[31]
two other afflictions that needed medical treatments. Pursuant to Section 27[27] of the
Insurance Code, Manuels concealment entitles Philam Plans to rescind its contract of
insurance with him. It may be true that x x x insured persons may accept policies without reading
them, and that this is not negligence per se. But, this is not without any
Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let
exception. It is and was incumbent upon petitioner Sy to read the insurance
Perla fill in the required details did not make her his agent and bind him to her concealment of
contracts, and this can be reasonably expected of him considering that he
his true state of health. Since there is no evidence of collusion between them, Perlas fault must
has been a businessman since 1965 and the contract concerns indemnity in
be considered solely her own and cannot prejudice Manuel.[28]
case of loss in his money-making trade of which important consideration he
could not have been unaware as it was precisely the reason for his procuring
the same.[32]
Page 17 of 20
FIRST DIVISION
The same may be said of Manuel, a civil engineer and manager of a construction [G.R. No. 125678. March 18, 2002]
company.[33] He could be expected to know that one must read every document, especially if PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA
it creates rights and obligations affecting him, before signing the same. Manuel is not TRINOS, respondents.
unschooled that the Court must come to his succor. It could reasonably be expected that he
DECISION
would not trifle with something that would provide additional financial security to him and to
his wife in his twilight years. YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he
Three. In a final attempt to defend her claim for benefits under Manuels pension
answered no to the following question:
plan, Lourdes points out that any defect or insufficiency in the information provided by his
pension plan application should be deemed waived after the same has been approved, the Have you or any of your family members ever consulted or been treated for high blood
policy has been issued, and the premiums have been collected. [34] pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).[1]
The application was approved for a period of one year from March 1, 1988 to March 1,
The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a
1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,
one-year incontestability period. It states:
respondents husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of out-patient benefits such as annual
VIII. INCONTESTABILITY physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from
After this Agreement has remained in force for one (1) year, we can March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of
no longer contest for health reasons any claim for insurance under this coverage was increased to a maximum sum of P75,000.00 per disability.[2]
Agreement, except for the reason that installment has not been paid During the period of his coverage, Ernani suffered a heart attack and was confined at the
(lapsed), or that you are not insurable at the time you bought this pension Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was
program by reason of age. If this Agreement lapses but is reinstated in the hospital, respondent tried to claim the benefits under the health care
afterwards, the one (1) year contestability period shall start again on the date agreement. However, petitioner denied her claim saying that the Health Care Agreement was
of approval of your request for reinstatement.[35] void. According to petitioner, there was a concealment regarding Ernanis medical
history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he
was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus,
The above incontestability clause precludes the insurer from disowning liability under
respondent paid the hospitalization expenses herself, amounting to about P76,000.00.
the policy it issued on the ground of concealment or misrepresentation regarding the health of
the insured after a year of its issuance. After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial
difficulties, however, respondent brought her husband home again. In the morning of April 13,
Since Manuel died on the eleventh month following the issuance of his plan,[36] the 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him
one year incontestability period has not yet set in. Consequently, Philam Plans was not barred back to the Chinese General Hospital where he died on the same day.
from questioning Lourdes entitlement to the benefits of her husbands pension plan.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44,
an action for damages against petitioner and its president, Dr. Benito Reverente, which was
WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral
CV 87085 dated December 18, 2007. damages and attorneys fees. After trial, the lower court ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita
SO ORDERED. Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani
Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who
paid the same;

Page 18 of 20
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff; (4) of any person upon whose life any estate or interest vested in him depends.
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff; In the case at bar, the insurable interest of respondents husband in obtaining the health
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit. care agreement was his own health. The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity.[9] Once the member incurs hospital,
SO ORDERED.[3]
medical or any other expense arising from sickness, injury or other stipulated contingent, the
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all health care provider must pay for the same to the extent agreed upon under the contract.
awards for damages and absolved petitioner Reverente.[4] Petitioners motion for
Petitioner argues that respondents husband concealed a material fact in his
reconsideration was denied.[5] Hence, petitioner brought the instant petition for review, raising
application. It appears that in the application for health coverage, petitioners required
the primary argument that a health care agreement is not an insurance contract; hence the
respondents husband to sign an express authorization for any person, organization or entity
incontestability clause under the Insurance Code[6] does not apply.
that has any record or knowledge of his health to furnish any and all information relative to any
Petitioner argues that the agreement grants living benefits, such as medical check-ups hospitalization, consultation, treatment or any other medical advice or
and hospitalization which a member may immediately enjoy so long as he is alive upon examination.[10] Specifically, the Health Care Agreement signed by respondents husband
effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out states:
that only medical and hospitalization benefits are given under the agreement without any
We hereby declare and agree that all statement and answers contained herein and in any
indemnification, unlike in an insurance contract where the insured is indemnified for his
addendum annexed to this application are full, complete and true and bind all parties in
loss. Moreover, since Health Care Agreements are only for a period of one year, as compared
interest under the Agreement herein applied for, that there shall be no contract of health care
to insurance contracts which last longer,[7] petitioner argues that the incontestability clause
coverage unless and until an Agreement is issued on this application and the full Membership
does not apply, as the same requires an effectivity period of at least two years. Petitioner
Fee according to the mode of payment applied for is actually paid during the lifetime and
further argues that it is not an insurance company, which is governed by the Insurance
good health of proposed Members; that no information acquired by any Representative of
Commission, but a Health Maintenance Organization under the authority of the Department of
PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that
Health.
any physician is, by these presents, expressly authorized to disclose or give testimony at
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement anytime relative to any information acquired by him in his professional capacity upon any
whereby one undertakes for a consideration to indemnify another against loss, damage or question affecting the eligibility for health care coverage of the Proposed Members and that
liability arising from an unknown or contingent event. An insurance contract exists where the the acceptance of any Agreement issued on this application shall be a ratification of any
following elements concur: correction in or addition to this application as stated in the space for Home Office
1. The insured has an insurable interest; Endorsement.[11] (Underscoring ours)
2. The insured is subject to a risk of loss by the happening of the designated peril; In addition to the above condition, petitioner additionally required the applicant for
3. The insurer assumes the risk; authorization to inquire about the applicants medical history, thus:
4. Such assumption of risk is part of a general scheme to distribute actual losses I hereby authorize any person, organization, or entity that has any record or knowledge of my
among a large group of persons bearing a similar risk; and health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all
information relative to any hospitalization, consultation, treatment or any other medical advice
5. In consideration of the insurers promise, the insured pays a premium.[8] or examination. This authorization is in connection with the application for health care
Section 3 of the Insurance Code states that any contingent or unknown event, whether coverage only. A photographic copy of this authorization shall be as valid as the
past or future, which may damnify a person having an insurable interest against him, may be original.[12] (Underscoring ours)
insured against. Every person has an insurable interest in the life and health of himself. Section Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:
10 provides:
Failure to disclose or misrepresentation of any material information by the member in the
Every person has an insurable interest in the life and health: application or medical examination, whether intentional or unintentional, shall automatically
(1) of himself, of his spouse and of his children; invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to
(2) of any person on whom he depends wholly or in part for education or support, or return of all Membership Fees paid. An undisclosed or misrepresented information is deemed
in whom he has a pecuniary interest; material if its revelation would have resulted in the declination of the applicant by Philamcare
or the assessment of a higher Membership Fee for the benefit or benefits applied for.[13]
(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or prevent The answer assailed by petitioner was in response to the question relating to the medical
the performance; and history of the applicant. This largely depends on opinion rather than fact, especially coming
from respondents husband who was not a medical doctor. Where matters of opinion or
Page 19 of 20
judgment are called for, answers made in good faith and without intent to deceive will not Anent the incontestability of the membership of respondents husband, we quote with
avoid a policy even though they are untrue.[14] Thus, approval the following findings of the trial court:
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of (U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc.
the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of had twelve months from the date of issuance of the Agreement within which to contest the
the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the membership of the patient if he had previous ailment of asthma, and six months from the
statement is material to the risk, if the statement is obviously of the foregoing character, issuance of the agreement if the patient was sick of diabetes or hypertension. The periods
since in such case the insurer is not justified in relying upon such statement, but is obligated to having expired, the defense of concealment or misrepresentation no longer lie.[23]
make further inquiry. There is a clear distinction between such a case and one in which the Finally, petitioner alleges that respondent was not the legal wife of the deceased
insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, member considering that at the time of their marriage, the deceased was previously married
that which he then knows, to be actually untrue, or the impossibility of which is shown by the to another woman who was still alive. The health care agreement is in the nature of a contract
facts within his knowledge, since in such case the intent to deceive the insurer is obvious and of indemnity. Hence, payment should be made to the party who incurred the expenses. It is
amounts to actual fraud.[15] (Underscoring ours) not controverted that respondent paid all the hospital and medical expenses. She is therefore
The fraudulent intent on the part of the insured must be established to warrant rescission entitled to reimbursement. The records adequately prove the expenses incurred by respondent
of the insurance contract.[16] Concealment as a defense for the health care provider or insurer for the deceaseds hospitalization, medication and the professional fees of the attending
to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory physicians.[24]
and convincing evidence rests upon the provider or insurer. In any case, with or without the WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the
authority to investigate, petitioner is liable for claims made under the contract. Having Court of Appeals dated December 14, 1995 is AFFIRMED.
assumed a responsibility under the agreement, petitioner is bound to answer the same to the
SO ORDERED.
extent agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or whenever he Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.
avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to
rescind a contract of insurance. The right to rescind should be exercised previous to the
commencement of an action on the contract.[17] In this case, no rescission was made. Besides,
the cancellation of health care agreements as in insurance policies require the concurrence
of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more
of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based.[18]
None of the above pre-conditions was fulfilled in this case. When the terms of insurance
contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.[19] Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which
prepared the contract the insurer.[20] By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured, especially to avoid
forfeiture.[21] This is equally applicable to Health Care Agreements. The phraseology used in
medical or hospital service contracts, such as the one at bar, must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of doubtful
import should be strictly construed against the provider.[22]
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