G.R. No.

166245 April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance
application be considered as approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 2 with petitioner Eternal Gardens Memorial Park Corporation (Eternal).
Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective
for a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for
the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its
effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good
health shall be required for all Lot Purchasers as part of the application. The Company reserves the right to require
further evidence of insurability satisfactory to the Company in respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan
(including arrears up to but not exceeding 2 months) as reported by the Assured to the Company or the sum of
P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while insured
under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However,
there shall be no insurance if the application of the Lot Purchaser is not approved by the Company. 3
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the
application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the
instant petition, Eternal complied by submitting a letter dated December 29, 1982, 4containing a list of insurable balances of its
lot buyers for October 1982. One of those included in the list as "new business" was a certain John Chuang. His balance of
payments was PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuang’s death. Attached to the
claim were the following documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate stating that Chuang is a
naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the following documents relative to
its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form attached); (2) Assured’s Certificate (with form
attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of
Account showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November 14, 1984, 7 which was received by Philamlife on
November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim. This prompted Eternal
to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986. 8
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20, 1986, 9 a portion of which
reads:
 The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in
October 1982 for the total maximum insurable amount of P100,000.00 each. No application for Group Insurance was
submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of Insurability provision, "a declaration
of good health shall be required for all Lot Purchasers as party of the application." We cite further the provision on
Effective Date of Coverage under the policy which states that "there shall be no insurance if the application is not
approved by the Company." Since no application had been submitted by the Insured/Assured, prior to his death, for our
approval but was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under
the Policy. We wish to point out that Eternal Gardens being the Assured was a party to the Contract and was therefore
aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage but
are held by us in trust for the payor until the prerequisites for insurance coverage shall have been met. We will however,
return all the premiums which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife,
docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against Defendant
PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the
Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorney’s
fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang’s application for insurance which he accomplished before his death, as testified to
by Eternal’s witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance
Application Forms & Cert."10 It further ruled that due to Philamlife’s inaction from the submission of the requirements of the
group insurance on December 29, 1982 to Chuang’s death on August 2, 1984, as well as Philamlife’s acceptance of the premiums
during the same period, Philamlife was deemed to have approved Chuang’s application. The RTC said that since the contract is a
group life insurance, once proof of death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SET ASIDE, and
the complaint is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuang’s application was not enclosed in Eternal’s letter dated December
29, 1982. It further ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance
Code. Thus, the CA concluded, there being no application form, Chuang was not covered by Philamlife’s insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not therefore determined by this Honorable
Court, or has decided it in a way not in accord with law or with the applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to respondent PhilamLife before the death of John
Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.
The Court’s Ruling
As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first level courts,
considering their findings of facts are conclusive and binding on this Court. However, such rule is subject to exceptions, as
enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the [CA]
went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings [of the CA] are contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in
the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.12 (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of the
insurance application of Chuang before his death. In Eternal’s letter dated December 29, 1982, a list of insurable interests of
buyers for October 1982 was attached, including Chuang in the list of new businesses. Eternal added it was noted at the bottom
of said letter that the corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter that was
apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy of the insurance application
which was signed by Chuang himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must present
evidence showing that Philamlife received a copy of Chuang’s insurance application.
The evidence on record supports Eternal’s position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance
forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of acknowledging
receipt of the letter together with the attachments. Such receipt is an admission by Philamlife against its own interest. 13 The
burden of evidence has shifted to Philamlife, which must prove that the letter did not contain Chuang’s insurance application.
However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang’s insurance application.
To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped as received, the contents of
the letter are correct and accounted for.
Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to inconsistencies is groundless. The trial
court is in the best position to determine the reliability and credibility of the witnesses, because it has the opportunity to
observe firsthand the witnesses’ demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and
conclusive on the appellate court, unless some facts or circumstances of weight and substance have been overlooked,
misapprehended, or misinterpreted, 14 that, if considered, might affect the result of the case. 15
An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of substance
and value.
Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as shown by
the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of this is
submitted to Philamlife together with the monthly remittances and the second copy is remained or retained with the
marketing department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does not [ask]
for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted with that payment together with the new
clients all the originals I see to it before I sign the transmittal letter the originals are attached therein. 16
In other words, the witness admitted not knowing where the original insurance application was, but believed that the application
was transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance application forms
were accomplished and the testimony of Mendoza on who actually filled out the application form, these are minor
inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies
are too trivial to affect the credibility of witnesses, and these may even serve to strengthen their credibility as these negate any
suspicion that the testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution’s evidence as a whole or
reflect on the witnesses’ honesty. The test is whether the testimonies agree on essential facts and whether the
respective versions corroborate and substantially coincide with each other so as to make a consistent and coherent
whole.18
In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is whether
the insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are minor
and do not affect the credibility of Eternal’s witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated
December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However,
there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state
that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the
second sentence appears to require Philamlife to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the
insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court
of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance
with its obligations.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:
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. 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. 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. 20
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed in
favor of the insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase of a memorial
lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and
binding until terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life
Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of
the insurance contract. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the
insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance
contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage.
More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of the industry,
confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance
contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the
insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be
obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the
application as a valid, binding, and effective insurance contract. 21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 isREVERSED and SET ASIDE.
The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra-judicial
demand by Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until
full payment of this award; and
(4) To pay Eternal attorney’s fees in the amount of PhP 10,000. No costs. SO ORDERED.
G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS and JULITA TRINOS
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 answered no to the following question:
Have you or any of your family members ever consulted or been treated for high blood 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, 1989. Accordingly, he was issued Health
Care Agreement No. P010194. Under the agreement, respondent’s 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 physical
examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then
from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. 2
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one
month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health
care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner,
there was a concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s
confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent
paid the hospitalization expenses herself, amounting to about P76,000.00.
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, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese
General Hospital where he died on the same day.
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 docketed as Civil Case No. 90-53795. She asked for reimbursement
of her expenses plus moral damages and attorney’s 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 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;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved
petitioner Reverente.4 Petitioner’s motion for reconsideration was denied.5 Hence, petitioner brought the instant petition for
review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability
clause" under the Insurance Code6 does not apply.1âwphi1.nêt
Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a member
may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner
also points out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike
in an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a
period of one year, as compared to insurance contracts which last longer, 7 petitioner argues that the incontestability clause does
not apply, as the same requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance
company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the
Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration
to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing
a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium. 8
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a
person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life
and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary
interest;
(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 performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health 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, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that in the application for
health coverage, petitioners required respondent’s husband to sign an express authorization for any person, organization or
entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination. 10 Specifically, the Health Care Agreement signed by
respondent’s husband states:
We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this
application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there
shall be no contract of health care coverage unless and until an Agreement is issued on this application and the full
Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of
proposed Members; that no information acquired by any Representative of PhilamCare shall be binding upon
PhilamCare unless set out in writing in the application;that any physician is, by these presents, expressly authorized to
disclose or give testimony at anytime relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any
Agreement issued on this application shall be a ratification of any correction in or addition to this application as stated in
the space for Home Office Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the
applicant’s medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my 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 or examination. This authorization is in connection with the
application for health care coverage only. A photographic copy of this authorization shall be as valid as the
original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member in the application or medical
examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed 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
The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely
depends on opinion rather than fact, especially coming from respondent’s husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy
even though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid
the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium,
and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing
character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further
inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally
states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the
 impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is
obvious and amounts to actual fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract.16 Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or
without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility
under the agreement, petitioner is bound to answer the same to the 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 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
Anent the incontestability of the membership of respondent’s husband, we quote with approval the following findings of the trial
court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from
the date of issuance of the Agreement within which to contest the membership of the patient if he had previous
ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or
hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. 23
Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their
marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature
of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that
respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately
prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the professional fees of the
attending physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14,
1995 is AFFIRMED.
SO ORDERED.
G.R. No. 185964 June 16, 2014
ASIAN TERMINALS, INC. vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION
REYES, J.:
This is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court seeking to annul and set aside the Decision 2 dated
October 10, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 99021 which adjudged petitioner Asian Terminals, Inc. (ATI)
liable to pay the money claims of respondent First Lepanto-Taisho Insurance Corporation (FIRST LEPANTO).
The Undisputed Facts
On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags complete and in good condition were
loaded and received on board M/V "Da Feng" owned by China Ocean Shipping Co. (COSCO) in favor of consignee, Grand Asian
Sales, Inc. (GASI). Based on a Certificate of Insurance 4 dated August 24, 1995, it appears that the shipment was insured against all
risks by GASI with FIRST LEPANTO for ₱7,959,550.50 under Marine Open Policy No. 0123.
The shipment arrived in Manila on July 18, 1996 and was discharged into the possession and custody of ATI, a domestic
corporation engaged in arrastre business. The shipment remained for quite some time at ATI’s storage area until it was
withdrawn by broker, Proven Customs Brokerage Corporation (PROVEN), on August 8 and 9, 1996 for delivery to the consignee.
Upon receipt of the shipment,5 GASI subjected the same to inspection and found that the delivered goods incurred shortages of
8,600 kilograms and spillage of 3,315 kg for a total of11,915 kg of loss/damage valued at ₱166,772.41.
GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines, Inc. (SMITH BELL), 6ATI7 and
PROVEN8 but was denied. Hence, it pursued indemnification from the shipment’s insurer. 9
After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount of ₱165,772.40 as insurance indemnity.10
Thereafter, GASI executed a Release of Claim11 discharging FIRST LEPANTO from any and all liabilities pertaining to the
lost/damaged shipment and subrogating it to all the rights of recovery and claims the former may have against any person or
corporation in relation to the lost/damaged shipment.
As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the Philippines, SMITH BELL, PROVEN and ATI,
reimbursement of the amount it paid to GASI. When FIRST LEPANTO’s demands were not heeded, it filed on May 29, 1997 a
Complaint12 for sum of money before the Metropolitan Trial Court (MeTC) of Manila, Branch 3. FIRST LEPANTO sought that it be
reimbursed the amount of 166,772.41, twenty-five percent (25%) thereof as attorney’s fees, and costs of suit.
ATI denied liability for the lost/damaged shipment and claimed that it exercised due diligence and care in handling the
same.13 ATI averred that upon arrival of the shipment, SMITH BELL requested for its inspection 14 and it was discovered that one
jumbo bag thereof sustained loss/damage while in the custody of COSCO as evidenced by Turn Over Survey of Bad Order Cargo
No. 47890 dated August 6, 199615 jointly executed by the respective representatives of ATI and COSCO. During the withdrawal of
the shipment by PROVEN from ATI’s warehouse, the entire shipment was re-examined and it was found to be exactly in the same
condition as when it was turned over to ATI such that one jumbo bag was damaged. To bolster this claim, ATI submitted Request
for Bad Order Survey No. 40622 dated August 9, 1996 16 jointly executed by the respective representatives of ATI and PROVEN. ATI
also submitted various Cargo Gate Passes17 showing that PROVEN was able to completely withdraw all the shipment from ATI’s
warehouse in good order condition except for that one damaged jumbo bag.
In the alternative, ATI asserted that even if it is found liable for the lost/damaged portion of the shipment, its contract for cargo
handling services limits its liability to not more than ₱5,000.00 per package. ATI interposed a counterclaim of ₱20,000.00 against
FIRST LEPANTO as and for attorney’s fees. It also filed a cross-claim against its co-defendants COSCO and SMITH BELL in the event
that it is made liable to FIRST LEPANTO.18
PROVEN denied any liability for the lost/damaged shipment and averred that the complaint alleged no specific acts or omissions
that makes it liable for damages. PROVEN claimed that the damages in the shipment were sustained before they were withdrawn
from ATI’s custody under which the shipment was left in an open area exposed to the elements, thieves and vandals. PROVEN
contended that it exercised due diligence and prudence in handling the shipment. PROVEN also filed a counterclaim for
attorney’s fees and damages.19
Despite receipt of summons on December 4, 1996, 20 COSCO and SMITH BELL failed to file an answer to the complaint. FIRST
LEPANTO thus moved that they be declared in default 21 but the motion was denied by the MeTC on the ground that under Rule
9, Section 3 of the Rules of Civil Procedure, "when a pleading asserting a claim states a common cause of action against several
defending parties, some of whom answer and the other fail to do so, the Court shall try the case against all upon the answers
thus filed, and render judgment upon the evidence presented." 22
Ruling of the MeTC
23
In a Judgment dated May 30, 2006, the MeTC absolved ATI and PROVEN from any liability and instead found COSCO to be the
party at fault and hence liable for the loss/damage sustained by the subject shipment. However, the MeTC ruled it has no
jurisdiction over COSCO because it is a foreign corporation. Also, it cannot enforce judgment upon SMITH BELL because no
evidence was presented establishing that it is indeed the Philippine agent of COSCO. There is also no evidence attributing any
fault to SMITH BELL. Consequently, the complaint was dismissed in this wise:
WHEREFORE, in light of the foregoing, judgment is hereby rendered DISMISSING the instant case for failure of [FIRST LEPANTO]
to sufficiently establish its cause o faction against [ATI, COSCO, SMITH BELL, and PROVEN].
The counterclaims of [ATI and PROVEN] are likewise dismissed for lack of legal basis.
No pronouncement as to cost.
SO ORDERED.24
Ruling of the Regional Trial Court
On appeal, the Regional Trial Court (RTC) reversed the MeTC’s findings. In its Decision 25 dated January 26, 2007, the RTC of
Manila, Branch 21, in Civil Case No. 06-116237, rejected the contentions of ATI upon its observation that the same is belied by its
very own documentary evidence. The RTC remarked that, if, as alleged by ATI, one jumbo bag was already in bad order condition
upon its receipt of the shipment from COSCO on July 18, 1996, then how come that the Request for Bad Order Survey and the
Turn Over Survey of Bad Order Cargo were prepared only weeks thereafter or on August 9, 1996 and August 6, 1996,
respectively. ATI was adjudged unable to prove that it exercised due diligence while in custody of the shipment and hence,
negligent and should be held liable for the damages caused to GASI which, in turn, is subrogated by FIRST LEPANTO.
The RTC rejected ATI’s contention that its liability is limited only to ₱5,000.00 per package because its Management Contract
with the Philippine Ports Authority (PPA) purportedly containing the same was not presented as evidence. More importantly,
FIRST LEPANTO or GASI cannot be deemed bound thereby because they were not parties thereto. Lastly, the RTC did not give
merit to ATI’s defense that any claim against it has already prescribed because GASI failed to file any claim within the 15-day
period stated in the gate pass issued by ATI to GASI’s broker, PROVEN. Accordingly, the RTC disposed thus:
WHEREFORE, in light of the foregoing, the judgment on appeal is hereby REVERSED.
[ATI] is hereby ordered to reimburse [FIRST LEPANTO] the amount of [P]165,772.40 with legal interest until fully paid, to pay
[FIRST LEPANTO] 10% of the amount due the latter as and for attorney’s fees plus the costs of suit.
The complaint against [COSCO/SMITH BELL and PROVEN] are DISMISSED for lack of evidence against them. The counterclaim and
cross[-]claim of [ATI] are likewise DISMISSED for lack of merit.
SO ORDERED.26
Ruling of the CA
ATI sought recourse with the CA challenging the RTC’s finding that FIRST LEPANTO was validly subrogated to the rights of GASI
with respect to the lost/damaged shipment. ATI argued that there was no valid subrogation because FIRSTLEPANTO failed to
present a valid, existing and enforceable Marine Open Policy or insurance contract. ATI reasoned that the Certificate of Insurance
or Marine Cover Note submitted by FIRST LEPANTO as evidence is not the same as an actual insurance contract.
In its Decision27 dated October 10, 2008, the CA dismissed the appeal and held that the Release of Claim and the Certificate of
Insurance presented by FIRST LEPANTO sufficiently established its relationship with the consignee and that upon proof of
payment of the latter’s claim for damages, FIRST LEPANTO was subrogated to its rights against those liable for the lost/damaged
shipment.
The CA also affirmed the ruling of the RTC that the subject shipment was damaged while in the custody of ATI. Thus, the CA
disposed as follows:
WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED and the instant petition is DENIED for lack of merit.
SO ORDERED.28
ATI moved for reconsideration but the motion was denied in the CA Resolution 29 dated January 12, 2009. Hence, this petition
arguing that:
(a) The presentation of the insurance policy is indispensable in proving the right of FIRST LEPANTO to be subrogated to the right
of the consignee pursuant to the ruling in Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance Inc.; 30
(b) ATI cannot be barred from invoking the defense of prescription as provided for in the gate passes in consonance with the
ruling in International Container Terminal Services, Inc. v. Prudential Guarantee and Assurance Co, Inc. 31
Ruling of the Court
The Court denies the petition.
ATI failed to prove that it exercised
due care and diligence while the
shipment was under its custody,
control and possession as arrastre
operator.
It must be emphasized that factual questions pertaining to ATI’s liability for the loss/damage sustained by GASI has already been
settled in the uniform factual findings of the RTC and the CA that: ATI failed to prove by preponderance of evidence that it
exercised due diligence in handling the shipment.
Such findings are binding and conclusive upon this Court since a review thereof is proscribed by the nature of the present
petition. Only questions of law are allowed in petitions for review on certiorari under Rule 45 of the Rules of Court. It is not the
Court’s duty to review, examine, and evaluate or weigh all over again the probative value of the evidence presented, especially
where the findings of the RTC are affirmed by the CA, as in this case. 32
There are only specific instances when the Court deviates from the rule and conducts a review of the courts a quo’s factual
findings, such as when: (1) the inference made is manifestly mistaken, absurd or impossible; (2) there is grave abuse of
discretion;(3) the findings are grounded entirely on speculations, surmises or conjectures; (4) the judgment of the CA is based on
misapprehension of facts; (5) the CA, in making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (6) the findings of fact are conclusions without citation of specific evidence on which
they are based; (7) the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (8) the findings of fact of the CA are premised on the absence of evidence
and are contradicted by the evidence on record. 33
None of these instances, however, are present in this case. Moreover, it is unmistakable that ATI has already conceded to the
factual findings of RTC and CA adjudging it liable for the shipment’s loss/damage considering the absence of arguments
pertaining to such issue in the petition at bar.
These notwithstanding, the Court scrutinized the records of the case and found that indeed, ATI is liable as the arrastre operator
for the lost/damaged portion of the shipment.
The relationship between the consignee and the arrastre operator is akin to that existing between the consignee and/or the
owner of the shipped goods and the common carrier, or that between a depositor and a warehouseman. Hence, in the
performance of its obligations, an arrastre operator should observe the same degree of diligence as that required of a common
carrier and a warehouseman. Being the custodian of the goods discharged from a vessel, an arrastre operator’s duty is to take
good care of the goods and to turn them over to the party entitled to their possession. 34
In a claim for loss filed by the consignee (or the insurer), the burden of proof to show compliance with the obligation to deliver
the goods to the appropriate party devolves upon the arrastre operator. Since the safekeeping of the goods is its responsibility, it
must prove that the losses were not due to its negligence or to that of its employees. To avoid liability, the arrastre operator must
prove that it exercised diligence and due care in handling the shipment. 35
ATI failed to discharge its burden of proof. Instead, it insisted on shifting the blame to COSCO on the basis of the Request for Bad
Order Survey dated August 9, 1996 purportedly showing that when ATI received the shipment, one jumbo bag thereof was
already in damaged condition.
The RTC and CA were both correct in concluding that ATI’s contention was improbable and illogical. As judiciously discerned by
the courts a quo, the date of the document was too distant from the date when the shipment was actually received by ATI from
COSCO on July 18, 1996. In fact, what the document established is that when the loss/damage was discovered, the shipment has
been in ATI’s custody for at least two weeks. This circumstance, coupled with the undisputed declaration of PROVEN’s witnesses
that while the shipment was in ATI’s custody, it was left in an open area exposed to the elements, thieves and vandals, 36 all
generate the conclusion that ATI failed to exercise due care and diligence while the subject shipment was under its custody,
control and possession as arrastre operator.
To prove the exercise of diligence in handling the subject cargoes, an arrastre operator must do more than merely show the
possibility that some other party could be responsible for the loss or the damage. 37 It must prove that it used all reasonable
means to handle and store the shipment with due care and diligence including safeguarding it from weather elements, thieves or
vandals.
Non-presentation of the insurance
contract is not fatal to FIRST
LEPANTO’s cause of action for
reimbursement as subrogee.
It is conspicuous from the records that ATI put in issue the submission of the insurance contract for the first time before the CA.
Despite opportunity to study FIRST LEPANTO’s complaint before the MeTC, ATI failed to allege in its answer the necessity of the
insurance contract. Neither was the same considered during pre-trial as one of the decisive matters in the case. Further, ATI
never challenged the relevancy or materiality of the Certificate of Insurance presented by FIRST LEPANTO as evidence during trial
as proof of its right to be subrogated in the consignee’s stead. Since it was not agreed during the pre-trial proceedings that FIRST
LEPANTO will have to prove its subrogation rights by presenting a copy of the insurance contract, ATI is barred from pleading the
absence of such contract in its appeal. It is imperative for the parties to disclose during pre-trial all issues they intend to raise
during the trial because, they are bound by the delimitation of such issues. The determination of issues during the pre-trial
conference bars the consideration of other questions, whether during trial or on appeal. 38
A faithful adherence to the rule by litigants is ensured by the equally settled principle that a party cannot change his theory on
appeal as such act violates the basic rudiments of fair play and due process. As stressed in Jose v. Alfuerto: 39
[A] party cannot change his theory ofthe case or his cause of action on appeal. Points of law, theories, issues and arguments not
brought to the attention of the lower court will not be considered by the reviewing court. The defenses not pleaded in the
answer cannot, on appeal, change fundamentally the nature of the issue in the case. To do so would be unfair to the adverse
party, who had no opportunity to present evidence in connection with the new theory; this would offend the basic rules of due
process and fair play.40 (Citation omitted)
While the Court may adopt a liberal stance and relax the rule, no reasonable explanation, however, was introduced to justify ATI’s
failure to timely question the basis of FIRST LEPANTO’s rights as a subrogee.
The fact that the CA took cognizance of and resolved the said issue did not cure or ratify ATI’s faux pas. "[A] judgment that goes
beyond the issues and purports to adjudicate something on which the court did not hear the parties, is not only irregular but also
extrajudicial and invalid."41 Thus, for resolving an issue not framed during the pre-trial and on which the parties were not heard
during the trial, that portion of the CA’s judgment discussing the necessity of presenting an insurance contract was erroneous.
At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s right to collect reimbursement as the
subrogee of GASI.
"Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities." 42 The right of
subrogation springs from Article 2207 of the Civil Code which states:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrong-doer or the person who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may recover the insured
value of the lost/damaged cargo in the exercise of its subrogatory right. In Malayan Insurance Co., Inc. v.Regis Brokerage
Corp.,43 the Court stated that the presentation of the contract constitutive of the insurance relationship between the consignee
and insurer is critical because it is the legal basis of the latter’s right to subrogation. 44
In Home Insurance Corporation v. CA, 45 the Court also held that the insurance contract was necessary to prove that it covered the
hauling portion of the shipment and was not limited to the transport of the cargo while at sea. The shipment in that case passed
through six stages with different parties involved in each stage until it reached the consignee. The insurance contract, which was
not presented in evidence, was necessary to determine the scope of the insurer’s liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the cargo was sustained. 46
An analogous disposition was arrived at in the Wallem 47 case cited by ATI wherein the Court held that the insurance contract
must be presented in evidence in order to determine the extent of its coverage. It was further ruled therein that the liability of
the carrier from whom reimbursement was demanded was not established with certainty because the alleged shortage incurred
by the cargoes was not definitively determined. 48
Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by declaring that a marine
insurance policy is dispensable evidence in reimbursement claims instituted by the insurer.
In Delsan Transport Lines, Inc. v. CA, 49 the Court ruled that the right of subrogation accrues simply upon payment by the
insurance company of the insurance claim. Hence, presentation in evidence of the marine insurance policy is not indispensable
before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory
right. The subrogation receipt, by itself, was held sufficient to establish not only the relationship between the insurer and
consignee, but also the amount paid to settle the insurance claim. The presentation of the insurance contract was deemed not
fatal to the insurer’s cause of action because the loss of the cargo undoubtedly occurred while on board the petitioner’s vessel. 50
The same rationale was the basis of the judgment in International Container Terminal Services, Inc. v. FGU Insurance
Corporation,51 wherein the arrastre operator was found liable for the lost shipment despite the failure of the insurance company
to offer in evidence the insurance contract or policy. As in Delsan, it was certain that the loss of the cargo occurred while in the
petitioner’s custody.52
Based on the attendant facts of the instant case, the application of the exception is warranted.1âwphi1 As discussed above, it is
already settled that the loss/damage to the GASI’s shipment occurred while they were in ATI’s custody, possession and control as
arrastre operator. Verily, the Certificate of Insurance 53 and the Release of Claim54presented as evidence sufficiently established
FIRST LEPANTO’s right to collect reimbursement as the subrogee of the consignee, GASI.
With ATI’s liability having been positively established, to strictly require the presentation of the insurance contract will run
counter to the principle of equity upon which the doctrine of subrogation is premised. Subrogation is designed to promote and
to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice,
equity and good conscience ought to pay.55
The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies which the
insured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance company of the insurance
claim. It accrues simply upon payment by the insurance company of the insurance claim. 56
ATI cannot invoke prescription
ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred from seeking payment for the lost/damaged shipment
because the claim letter of GASI to ATI was served only on September 27, 1996 or more than one month from the date the
shipment was delivered to the consignee’s warehouse on August 9, 1996. The claim of GASI was thus filed beyond the 15-day
period stated in ATI’s Management Contract with PPA which in turn was reproduced in the gate passes issued to the consignee’s
broker, PROVEN, as follows:
Issuance of this Gate Pass Constitutes delivery to and receipt by consignee of the goods as described above in good order and
condition unless an accompanying x x x certificates duly issued and noted on the face of this Gate Pass appeals. [sic]
This Gate pass is subject to all terms and conditions defined in the Management Contract between the Philippine Port[s]
Authority and Asian Terminals, Inc. and amendment thereto and alterations thereof particularly but not limited to the [A]rticle VI
thereof, limiting the contractor’s liability to [P]5,000.00 per package unless the importation is otherwise specified or manifested
or communicated in writing together with the invoice value and supported by a certified packing list to the contractor by the
interested party or parties before the discharge of the goods and corresponding arrastre charges have been paid providing
exception or restrictions from liability releasing the contractor from liability among others unless a formal claim with the
required annexes shall have been filed with the contractor within fifteen (15) days from date of issuance by the contractors or
certificate of loss, damages, injury, or Certificate of non-delivery. 57
The contention is bereft of merit. As clarified in Insurance Company of North America v. Asian Terminals, Inc., 58substantial
compliance with the 15-day time limitation is allowed provided that the consignee has made a provisional claim thru a request
for bad order survey or examination report, viz:
Although the formal claim was filed beyond the 15-day period from the issuance of the examination report on the request for
bad order survey, the purpose of the time limitations for the filing of claims had already been fully satisfied by the request of the
consignee’s broker for a bad order survey and by the examination report of the arrastre operator on the result thereof, as the
arrastre operator had become aware of and had verified the facts giving rise to its liability. Hence, the arrastre operator suffered
no prejudice by the lack of strict compliance with the 15-day limitation to file the formal complaint. 59 (Citations omitted)
In the present case, ATI was notified of the loss/damage to the subject shipment as early as August 9, 1996 thru a Request for
Bad Order Survey60 jointly prepared by the consignee’s broker, PROVEN, and the representatives of ATI. For having submitted a
provisional claim, GASI is thus deemed to have substantially complied with the notice requirement to the arrastre operator
notwithstanding that a formal claim was sent to the latter only on September 27, 1996. ATI was not deprived the best
opportunity to probe immediately the veracity of such claims. Verily then, GASI, thru its subrogee FIRST LEPANTO, is not barred
by filing the herein action in court.
ATI cannot rely on the ruling in Prudentiat61 because the consignee therein made no provisional claim thru request for bad order
survey and instead filed a claim for the first time after four months from receipt of the shipment.
Attorney's fees and interests
All told, ATI is liable to pay FIRST LEPANTO the amount of the Pl 65, 772.40 representing the insurance indemnity paid by the
latter to GASI. Pursuant to Nacar v. Gallery Frames, 62 the said amount shall earn a legal interest at the rate of six percent (6%) per
annum from the date of finality of this judgment until its full satisfaction.
As correctly imposed by the RTC and the CA, ten percent (10%) of the judgment award is reasonable as and for attorney's fees
considering the length of time that has passed in prosecuting the claim. 63
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision dated October 10, 2008 of the Court of Appeals
in CA-G.R. SP No. 99021 is hereby AFFIRMED insofar as it adjudged liable and ordered Asian Terminals, Inc., to pay First Lepanto-
Taisho Insurance Corp., the amount of ₱165,772.40, ten percent (10%) thereof as and for attorney's fees, plus costs of suit. The
said amount shall earn legal interest at the rate of six percent ( 6%) per annum from the date of finality of this judgment until its
full satisfaction.
SO ORDERED.

G.R. No. 124520 August 18, 1997

Sps. NILO and STELLA UY CHA, and UNITED INSURANCE CO., INC. vs. COURT OF APPEALS and CKS DEVELOPMENT CORP.
PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent Court of
Appeals.
The undisputed facts of the case are as follows:
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS
Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.
2. One of the stipulations of the one (1) year lease contract states:
18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall
or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the
LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and
transferred to the LESSOR for its own benefit; . . .1
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire the merchandise
inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United)
without the written consent of private respondent CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a
demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS,
based on its lease contract with the Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein defendant United to pay
CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorney's
fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11 January 1996, affirming the
trial court decision, deleting however the awards for exemplary damages and attorney's fees. A motion for reconsideration by
United was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the Court of Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE CONTRACT OF
LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY
TO LAW, MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A
CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF
THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH
IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A
STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL
OF THE RESPONDENT CORPORATION. 2
The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract entered into
between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha
spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is
obtained without the prior written consent of the latter.
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals, good
customs, public order or public policy. 3
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person
having an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a
contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time
the loss occurs.4 The basis of such requirement of insurable interest in property insured is based on sound public policy: to
prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code, which provides:
Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any
interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed
by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased
premises under the provisions of Section 17 of the Insurance Code which provide:
Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss
of injury thereof.
Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire insurance
policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the
insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to
the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of
the fire insurance policy to a person (CKS) who has no insurable interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a fire insurance policy
over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision is hereby entered,
awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
SO ORDERED.

G.R. No. 147839 June 8, 2006

GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF NORTH AMERICA
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of the Court of Appeals (CA) in CA-
G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in
Civil Case No. 92-322 and upheld the causes of action for damages of Insurance Company of North America (respondent) against
Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for
reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local
distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire
insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in
the Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45
days after the time of the loss covered under this Policy." 3 The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and
delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date
of the covering invoice or actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers
and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in
Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of
ready-made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with
respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25,
1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was
subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but these
went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property
covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's right of subrogation
has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not
prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never consented to
paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held that the fire was purely accidental;
that the cause of the fire was not attributable to the negligence of the petitioner; that it has not been established that petitioner
is the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for purpose of securing the
payment of purchase price, the above-described merchandise remains the property of the vendor until the purchase price is fully
paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the CA rendered its decision setting aside the decision of the
RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is entered ordering
defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol
Marketing Corporation, plus legal interest from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss Phil.,
Inc., plus legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing
sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales invoices is an
exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is
borne by the owner of the thing at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC
and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go against
petitioner; that, being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a creditor. 11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11, 2001. 13
Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED
TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE
IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since an
insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it was not credit that
was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of the non-payment
by petitioner of any obligation; that, even if the insurance is deemed as one over credit, there was no loss as the accounts were
not yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such demands
came from respondent only after it had already paid IMC and LSPI under the fire insurance policies. 15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of loss
when they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurance could
be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; that petitioner was
not privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval ever
secured; that this lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its interest
to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon delivery to
petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the
presumption of liability under Article 1265 16 of the Civil Code; that the fire was caused through petitioner's negligence in failing
to provide stringent measures of caution, care and maintenance on its property because electric wires do not usually short
circuit unless there are defects in their installation or when there is lack of proper maintenance and supervision of the property;
that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be liable to
respondent for contracted lawyer's fees, litigation expenses and cost of suit. 17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited to
reviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants or
any of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court. 20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (1)
when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the
issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing a fire
insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the
ready-made clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction. 22 In this
case, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines." 23 ; and defined
book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss
covered under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the
goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged
intention of the parties, the terms are to be understood literally just as they appear on the face of the contract. 25 Thus, what
were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through
fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales
invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described
merchandise remains the property of the vendor until the purchase price thereof is fully paid." 26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been
made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the
buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the
delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears
the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial
economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured."
Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b)
an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the
expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the
subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is
sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or
destroyed by the peril against which it is insured.29 Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.30Indeed, a vendor or seller retains an insurable interest in the property sold so
long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's
lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45
days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the Civil Code is misplaced.
As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC
and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As
correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment
even by reason of a fortuitous event shall not relieve him of his liability. 33 The rationale for this is that the rule that an obligor
should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in
the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not
apply when the obligation is pecuniary in nature. 34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designated merely by
its class or genus without any particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the
effect of extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never perish. Genus
nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of
the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here is
whether it has been established that petitioner has outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22" 38 show that petitioner has an
outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC.
Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these
documents have been properly identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is
sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to
settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to
Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not
an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00
in the fire that razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence.
Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated April 11, 2001
of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATIONthat the order to pay the amount
of P535,613.00 to respondent is DELETED for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 211212, June 08, 2016

SUN LIFE OF CANADA (PHILIPPINES), INC. v. MA. DAISY'S. SIBYA, JESUS MANUEL S. SIBYA III, JAIME LUIS S. SIBYA, AND THE
ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR.
REYES, J.:
Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul and set aside the
Decision2 dated November 18, 2013 and Resolution3 dated February 13, 2014 of the Court of Appeals (CA) in CA-G.R. CV. No.
93269. In both instances, the CA affirmed the Decision 4 dated March 16, 2009 of the Regional Trial Court (RTC) of Makati City,
Branch 136, in Civil Case No. 01-1506, ordering petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy S. Sibya
(Ma. Daisy), Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts of P1,000,000.00 as death benefits,
P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney's fees and costs of suit. Insofar
as the charges for violation of Sections 241 and 242 of Presidential Decree No. 612, or the Insurance Code of the Philippines,
however, the CA modified the decision of the RTC and absolved Sun Life therein.
Statement of Facts of the Case
On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his Application for Insurance,
he indicated that he had sought advice for kidney problems. 5 Atty. Jesus Jr. indicated the following in his application:
"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at National Kidney Institute,
discharged after 3 days, no recurrence as claimed." 6ChanRoblesVirtualawlibrary
On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy No. 031097335. The policy
indicated the respondents as beneficiaries and entitles them to a death benefit of P1,000,000.00 should Atty. Jesus Jr. dies on or
before February 5, 2021, or a sum of money if Atty. Jesus Jr. is still living on the endowment date. 7
On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma. Daisy filed a Claimant's
Statement with Sun Life to seek the death benefits indicated in his insurance policy. 8
In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details on Atty. Jesus Jr.'s medical
history were not disclosed in his application. Simultaneously, Sun Life tendered a check representing the refund of the premiums
paid by Atty. Jesus Jr.9
The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun Life, however, refused to
heed the respondents' requests and instead filed a Complaint for Rescission before the RTC and prayed for judicial confirmation
of Atty. Jesus Jr.'s rescission of insurance policy. 10
In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his previous medical treatment at
the National Kidney Transplant Institute in May and August of 1994. According to Sun Life, the undisclosed fact suggested that
the insured was in "renal failure" and at a high risk medical condition. Consequently, had it known such fact, it would not have
issued the insurance policy in favor of Atty. Jesus Jr. 11
For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his application for insurance.
They averred that Atty. Jesus Jr. was in good faith when he signed the insurance application and even authorized Sun Life to
inquire further into his medical history for verification purposes. According to them, the complaint is just a ploy to avoid the
payment of insurance claims.12
Ruling of the RTC
On March 16, 2009, the RTC issued its Decision 13 dismissing the complaint for lack of merit. The RTC held that Sun Life violated
Sections 241, paragraph 1(b), (d), and (e) 14 and 24215 of the Insurance Code when it refused to pay the rightful claim of the
respondents. Moreover, the RTC ordered Sun Life to pay the amounts of P1,000,000.00 as death benefits, P100,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney's fees and costs of suit.

The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when he applied for life insurance
with Sun Life. It observed that given the disclosures and the waiver and authorization to investigate executed by Atty. Jesus Jr. to
Sun Life, the latter had all the means of ascertaining the facts allegedly concealed by the applicant. 16 Aggrieved, Sun Life elevated
the case to the CA.
Ruling of the CA
On appeal, the CA issued its Decision17 dated November 18, 2013 affirming the RTC decision in ordering Sun Life to pay death
benefits and damages in favor of the respondents. The CA, however, modified the RTC decision by absolving Sun Life from the
charges of violation of Sections 241 and 242 of the Insurance Code. 18

The CA ruled that the evidence on records show that there was no fraudulent intent on the part of Atty. Jesus Jr. in submitting his
insurance application. Instead, it found that Atty. Jesus Jr. admitted in his application that he had sought medical treatment for
kidney ailment.19

Sun Life filed a Motion for Partial Reconsideration 20 dated December 11, 2013 but the same was denied in a Resolution 21 dated
February 13, 2014. Undaunted, Sun Life filed an appeal by way of petition for review oncertiorari under Rule 45 of the Rules of
Court before this Court.
The Issue
Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the RTC decision finding that there
was no concealment or misrepresentation when Atty. Jesus Jr. submitted his insurance application with Sun Life.
Ruling of the Court
The petition has no merit.
In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within the two-year contestability
period, the insurer is bound to make good its obligation under the policy, regardless of the presence or lack of concealment or
misrepresentation. The Court held:
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the provision, an insurer
is given two years - from the effectivity of a life insurance contract and while the insured is alive - to discover or prove that the
policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his
agent. After the two-year period lapses, or when the insured dies within the period, the insurer must make good on the policy,
even though the policy was obtained by fraud, concealment, or misrepresentation. This is not to say that insurance fraud must
be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business must be penalized, for such
recklessness and lack of discrimination ultimately work to the detriment of bona fidetakers of insurance and the public in
general.23 (Emphasis ours)
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years from its issuance, to
investigate and verify whether the policy was obtained by fraud, concealment, or misrepresentation. Upon the death of Atty.
Jesus Jr., however, on May 11, 2001, or a mere three months from the issuance of the policy, Sun Life loses its right to rescind the
policy. As discussed in Manila Bankers, the death of the insured within the two-year period will render the right of the insurer to
rescind the policy nugatory. As such, the incontestability period will now set in.
Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the Court agrees, nonetheless,
with the CA when it held that Sun Life failed to show that Atty. Jesus Jr. committed concealment and misrepresentation.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for kidney ailment. Moreover, he
executed an authorization in favor of Sun Life to conduct investigation in reference with his medical history. The decision in part
states:
Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought medical treatment for kidney
ailment. When asked to provide details on the said medication, [Atty. Jesus Jr.] indicated the following information: year ("1987"),
medical procedure ("undergone lithotripsy due to kidney stone"), length of confinement ("3 days"), attending physician ("Dr.
Jesus Benjamin Mendoza") and the hospital ("National Kidney Institute").
It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun Life] the opportunity to obtain information on the
facts disclosed by [Atty. Jesus Jr.] in his insurance application. x x x
xxxx
Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed his medical history since [Sun
Life] had the means of ascertaining [Atty. Jesus Jr.'s] medical record.
With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical doctor, and his answer "no
recurrence" may be construed as an honest opinion. Where matters of opinion or judgment are called for, answers made in good
faith and without intent to deceive will not avoid a policy even though they are untrue. 24 (Citations omitted and italics in the
original)
Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the insurance contract.
Concealment as a defense for the insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer. 25 In the present case, Sun Life failed to clearly and
satisfactorily establish its allegations, and is therefore liable to pay the proceeds of the insurance.

Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower courts are entitled to great
weight and respect on appeal, and in fact accorded finality when supported by substantial evidence on the record. 26

WHEREFORE, the petition for review is DENIED. The Decision dated November 18, 2013 and Resolution dated February 13, 2014
of the Court of Appeals in CA-G.R. CV. No. 93269 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 114427 February 6, 1995

ARMANDO GEAGONIA vs. COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION
DAVIDE, JR., J.:
Four our review under Rule 45 of the Rules of Court is the decision 1 of the Court of Appeals in CA-G.R. SP No. 31916, entitled
"Country Bankers Insurance Corporation versus Armando Geagonia," reversing the decision of the Insurance Commission in I.C.
Case No. 3340 which awarded the claim of petitioner Armando Geagonia against private respondent Country Bankers Insurance
Corporation.
The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On 22 December
1989, he obtained from the private respondent fire insurance policy No. F-14622 2 for P100,000.00. The period of the policy was
from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of dry goods such
as RTW's for men and women wear and other usual to assured's business."
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co.,
Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks amounting to
P392,130.50, itemized as follows:
Zenco Sales, Inc. P55,698.00

F. Legaspi Gen. Merchandise 86,432.50

Cebu Tesing Textiles 250,000.00 (on credit)

—————

P392,130.50
The policy contained the following condition:
3. The insured shall give notice to the Company of any insurance or insurances already affected, or which may
subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in
process and/or inventories only hereby insured, and unless such notice be given and the particulars of such
insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this
policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance
or insurances in force at the time of the loss or damage is not more than P200,000.00.
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur.
The petitioner's insured stock-in-trade were completely destroyed prompting him to file with the private respondent a claim
under the policy. On 28 December 1990, the private respondent denied the claim because it found that at the time of the loss
the petitioner's stocks-in-trade were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These policies
indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear
subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. — Phils. First CEB/F 24758. 4
The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy.
The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission (Case No. 3340) for the
recovery of P100,000.00 under fire insurance policy No. F-14622 and for attorney's fees and costs of litigation. He attached as
Annex "AM"6 thereof his letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted in the said
letter that at the time he obtained the private respondent's fire insurance policy he knew that the two policies issued by the PFIC
were already in existence; however, he had no knowledge of the provision in the private respondent's policy requiring him to
inform it of the prior policies; this requirement was not mentioned to him by the private respondent's agent; and had it been
mentioned, he would not have withheld such information. He further asserted that the total of the amounts claimed under the
three policies was below the actual value of his stocks at the time of loss, which was P1,000,000.00.
In its answer,7 the private respondent specifically denied the allegations in the complaint and set up as its principal defense the
violation of Condition 3 of the policy.
In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did not violate Condition 3 as he had no
knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles which
procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had
insurable interest on the stocks. These findings were based on the petitioner's testimony that he came to know of the PFIC
policies only when he filed his claim with the private respondent and that Cebu Tesing Textile obtained them and paid for their
premiums without informing him thereof. The Insurance Commission then decreed:
 WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the sum of
P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of
P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is hereby dismissed.
Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission in its resolution of 20
August 1993, 10 the private respondent appealed to the Court of Appeals by way of a petition for review. The petition was
docketed as CA-G.R. SP No. 31916.
In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the Insurance Commission because it found
that the petitioner knew of the existence of the two other policies issued by the PFIC. It said:
It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken in the
name of private respondent [petitioner herein]. The policy states that "DISCOUNT MART (MR. ARMANDO
GEAGONIA, PROP)" was the assured and that "TESING TEXTILES" [was] only the mortgagee of the goods.
In addition, the premiums on both policies were paid for by private respondent, not by the Tesing Textiles
which is alleged to have taken out the other insurance without the knowledge of private respondent. This is
shown by Premium Invoices nos. 46632 and 46630. (Annexes M and N). In both invoices, Tesing Textiles is
indicated to be only the mortgagee of the goods insured but the party to which they were issued were the
"DISCOUNT MART (MR. ARMANDO GEAGONIA)."
In is clear that it was the private respondent [petitioner herein] who took out the policies on the same property
subject of the insurance with petitioner. Hence, in failing to disclose the existence of these insurances private
respondent violated Condition No. 3 of Fire Policy No. 1462. . . .
Indeed private respondent's allegation of lack of knowledge of the provisions insurances is belied by his letter
to petitioner [of 18 January 1991. The body of the letter reads as follows;]
xxx xxx xxx
Please be informed that I have no knowledge of the provision requiring me to inform your
office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention
about said requirement at the time he was convincing me to insure with you. If he only die or
even inquired if I had other existing policies covering my establishment, I would have told him
so. You will note that at the time he talked to me until I decided to insure with your company
the two policies aforementioned were already in effect. Therefore I would have no reason to
withhold such information and I would have desisted to part with my hard earned peso to
pay the insurance premiums [if] I know I could not recover anything.
Sir, I am only an ordinary businessman interested in protecting my investments. The actual
value of my stocks damaged by the fire was estimated by the Police Department to be
P1,000,000.00 (Please see xerox copy of Police Report Annex "A"). My Income Statement as
of December 31, 1989 or five months before the fire, shows my merchandise inventory was
already some P595,455.75. . . . These will support my claim that the amount claimed under
the three policies are much below the value of my stocks lost.
xxx xxx xxx
The letter contradicts private respondent's pretension that he did not know that there were other insurances
taken on the stock-in-trade and seriously puts in question his credibility.
His motion to reconsider the adverse decision having been denied, the petitioner filed the instant petition. He contends therein
that the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of jurisdiction:
A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASI-JUDICIAL
BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED
RESPECT AND EVEN FINALITY BY THE COURTS;
B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS EVIDENCE DURING
THE HEARING OR TRIAL; AND
C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE RESPONDENT.
The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior knowledge of the two
insurance policies issued by the PFIC when he obtained the fire insurance policy from the private respondent, thereby, for not
disclosing such fact, violating Condition 3 of the policy, and (b) if he had, whether he is precluded from recovering therefrom.
The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of reconsideration of 18 January
1991, is without merit. The petitioner claims that the said letter was not offered in evidence and thus should not have been
considered in deciding the case. However, as correctly pointed out by the Court of Appeals, a copy of this letter was attached to
the petitioner's complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral part of the complaint. 12 It has attained
the status of a judicial admission and since its due execution and authenticity was not denied by the other party, the petitioner is
bound by it even if it were not introduced as an independent evidence. 13
As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the previous two policies. The
Court of Appeals disagreed and found otherwise in view of the explicit admission by the petitioner in his letter to the private
respondent of 18 January 1991, which was quoted in the challenged decision of the Court of Appeals. These divergent findings of
fact constitute an exception to the general rule that in petitions for review under Rule 45, only questions of law are involved and
findings of fact by the Court of Appeals are conclusive and binding upon this Court. 14
We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC. His letter of 18 January
1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary before the Insurance
Commissioner and which the latter relied upon cannot prevail over a written admission madeante litem motam. It was, indeed,
incredible that he did not know about the prior policies since these policies were not new or original. Policy No. GA-28144 was a
renewal of Policy No. F-24758, while Policy No. GA-28146 had been renewed twice, the previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law. Its incorporation in the
policy is allowed by Section 75 of the Insurance Code 15 which provides that "[a] policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy." Such a condition is a
provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is
commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other
insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject matter, the same interest
therein, and the same risk.17
As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both
interests may be one policy, or each may take out a separate policy covering his interest, either at the same or at separate
times. 18 The mortgagor's insurable interest covers the full value of the mortgaged property, even though the mortgage debt is
equivalent to the full value of the property. 19 The mortgagee's insurable interest is to the extent of the debt, since the property is
relied upon as security thereof, and in insuring he is not insuring the property but his interest or lien thereon. His insurable
interest is prima facie the value mortgaged and extends only to the amount of the debt, not exceeding the value of the
mortgaged property. 20Thus, separate insurances covering different insurable interests may be obtained by the mortgagor and
the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice. The mortgagee may
be made the beneficial payee in several ways. He may become the assignee of the policy with the consent of the insurer; or the
mere pledgee without such consent; or the original policy may contain a mortgage clause; or a rider making the policy payable to
the mortgagee "as his interest may appear" may be attached; or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and insurer, may be attached; or the policy, though by its terms payable
absolutely to the mortgagor, may have been procured by a mortgagor under a contract duty to insure for the mortgagee's
benefit, in which case the mortgagee acquires an equitable lien upon the proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest may appear, the
mortgagee is only a beneficiary under the contract, and recognized as such by the insurer but not made a party to the contract
himself. Hence, any act of the mortgagor which defeats his right will also defeat the right of the mortgagee. 22 This kind of policy
covers only such interest as the mortgagee has at the issuing of the policy. 23
On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the terms of an agreement
by which the mortgagor is to pay the premiums upon such insurance. 24 It has been noted, however, that although the mortgagee
is himself the insured, as where he applies for a policy, fully informs the authorized agent of his interest, pays the premiums, and
obtains on the assurance that it insures him, the policy is in fact in the form used to insure a mortgagor with loss payable
clause. 25
The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage clause which reads:
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the
terms of this policy.
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng
Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27 which read:
The insured shall give notice to the company of any insurance or insurances already effected, or which may
subsequently be effected covering any of the property hereby insured, and unless such notice be given and the
particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the
Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited.
 or in the 1930 case of Santa Ana vs. Commercial Union Assurance
Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured must
be declared by the insured in writing and he must cause the company to add or insert it in the policy, without which
such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in the
private respondent's policy No. F-14622 does not absolutely declare void any violation thereof. It expressly provides that
the condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not
more than P200,000.00."
It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor of the insured and strictly
against the company, the reason being, undoubtedly, to afford the greatest protection which the insured was endeavoring to
secure when he applied for insurance. It is also a cardinal principle of law that forfeitures are not favored and that any
construction which would result in the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is
possible to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for such
forfeiture. 29 Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance
policies should be construed most strictly against those for whose benefits they are inserted, and most favorably toward those
against whom they are intended to operate. 30 The reason for this is that, except for riders which may later be inserted, the
insured sees the contract already in its final form and has had no voice in the selection or arrangement of the words employed
therein. On the other hand, the language of the contract was carefully chosen and deliberated upon by experts and legal advisers
who had acted exclusively in the interest of the insurers and the technical language employed therein is rarely understood by
ordinary laymen. 31
With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally free from ambiguity and
must, perforce, be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to double
insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.
The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property or
properties consisting of stocks in trade, goods in process and/or inventories only hereby insured," and the portion regarding the
insured's declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of
P50,000.00. A double insurance exists where the same person is insured by several insurers separately in respect of the same
subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged property are
distinct and separate. Since the two policies of the PFIC do not cover the same interest as that covered by the policy of the
private respondent, no double insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's
right to recover on the private respondent's policy.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of
loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a loss not
exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of
"other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property
owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may
have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is
interested in preventing a situation in which a fire would be profitable to the insured. 32
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE
and the decision of the Insurance Commission in Case No. 3340 is REINSTATED.
Costs against private respondent Country Bankers Insurance Corporation.
SO ORDERED.
G.R. No. 195176 April 18, 2016
THE INSULAR LIFE ASSURANCE COMPANY, LTD. vs. PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU
DEL CASTILLO, J.:
The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date that the insurer approved· the
application for reinstatement. However, in light of the ambiguity in the insurance documents to this case, this Court adopts the
interpretation favorable to the insured in determining the date when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2 of the Court of Appeals (CA), which dismissed
the Petition in CA-GR. CV No. 81730, and its December 13, 2010 Resolution3 which denied the petitioner Insular Life Assurance
Company Ltd. 's (Insular Life) motion for partial reconsideration. 4
Factual Antecedents
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter’s Diamond Jubilee
Insurance Plan. Felipe accomplished the required medical questionnaire wherein he did not declare any illness or adverse
medical condition. Insular Life thereafter issued him Policy Number A000015683 with a face value of P1 million. This took effect
on June 22, 1997.5
On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium covering the period from June 22, 1999 to June 23,
2000.6
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as premium. Except for the change
in his occupation of being self-employed to being the Municipal Mayor of Binuangan, Misamis Oriental, all the other information
submitted by Felipe in his application for reinstatement was virtually identical to those mentioned in his original policy. 7
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be considered if he agreed to
certain conditions such as payment of additional premium and the cancellation of the riders pertaining to
premium waiver and accidental death benefits. Felipe agreed to these conditions 8 and on December 27, 1999 paid the agreed
additional premium of P3,054.50.9
On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which reads:
This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by the Company on the
understanding that the following changes are made on the policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and
forming parts of this policy [are] deleted.
In consequence thereof, the premium rates on this policy are adjusted to P28,000.00 annually, P14,843.00 semi-annually and
P7,557.00 quarterly, Philippine currency. 10
On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period from June 22, 2000 to June
22, 2001. And on July 2, 2001, he also paid the same amount as annual premium covering the period from June 22, 2001 to June
21, 2002.11
On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of death:
Immediate cause: a. End stage renal failure, Hepatic failure
Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia. 12
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe’s beneficiaries or respondents) filed with
Insular Life a claim for benefit under the reinstated policy. This claim was denied. Instead, Insular Life advised Felipe’s
beneficiaries that it had decided to rescind the reinstated policy on the grounds of concealment and misrepresentation by Felipe.
Hence, respondents instituted a complaint for specific performance with damages. Respondents prayed that the reinstated life
insurance policy be declared valid, enforceable and binding on Insular Life; and that the latter be ordered to pay unto Felipe’s
beneficiaries the proceeds of this policy, among others. 13
In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes Mellitus, Diabetes
Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior to his application for reinstatement of his
insurance policy; and that it would not have reinstated the insurance policy had Felipe disclosed the material information on his
adverse health condition. It contended that when Felipe died, the policy was still
contestable.14
Ruling of the Regional Trial Court (RTC)
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found 15 for Felipe’s beneficiaries, thus:
WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by preponderance of evidence, judgment is
hereby rendered in their favor and against defendants, ordering the latter to pay jointly and severally the
sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it is fully paid representing
the face value of Plan Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N. Khu[,] Sr; the sum of P20,000.00
as moral damages; P30,000.00 as attorney’s fees; P10,000.00 as litigation expenses.
SO ORDERED.16
In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the latter’s claim that the insurance policy was
reinstated on June 22, 1999. The RTC cited the ruling in Malayan Insurance Corporation v. Court of
Appeals17 that any ambiguity in a contract of insurance should be resolved strictly against the insurer upon the principle that an
insurance contract is a contract of adhesion.18 The RTC also held that the reinstated insurance policy had already become
incontestable by the time of Felipe’s death on September 22, 2001 since more than two years had already lapsed from the date
of the policy’s reinstatement on June 22, 1999. The RTC noted that since it was Insular Life itself that supplied all the pertinent
forms relative to the reinstated policy, then it is barred from taking advantage of any ambiguity/obscurity perceived therein
particularly as regards the date when the reinstated insurance policy became effective.
Ruling of the Court of Appeals
On June 24, 2010, the CA issued the assailed Decision 19 which contained the following decretal portion:
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is AFFIRMED with the MODIFICATION that the
award of moral damages, attorney’s fees and litigation expenses [is] DELETED.
SO ORDERED.20
The CA upheld the RTC’s ruling on the non-contestability of the reinstated insurance policy on the date the insured died. It
declared that contrary to Insular Life’s contention, there in fact exists a genuine ambiguity or obscurity in the language of the two
documents prepared by Insular Life itself, viz., Felipe’s Letter of Acceptance and Insular Life’s Endorsement; that given the
obscurity/ambiguity in the language of these two documents, the construction/interpretation that favors the insured’s right to
recover should be adopted; and that in keeping with this principle, the insurance policy in dispute must be deemed reinstated as
of June 22, 1999.21
Insular Life moved for partial reconsideration 22 but this was denied by the CA in its Resolution of December 13, 2010. 23 Hence,
the present Petition.
Issue
The fundamental issue to be resolved in this case is whether Felipe’s reinstated life insurance policy is already incontestable at
the time of his death.
Petitioner’s Arguments
In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should not be allowed to recover on
the reinstated insurance policy because the two-year contestability period had not yet lapsed inasmuch as the insurance policy
was reinstated only on December 27, 1999, whereas Felipe died on September 22, 2001; 24 that the CA overlooked the fact that
Felipe paid the additional extra premium only on December 27, 1999, hence, it is only upon this date that the reinstated policy
had become effective; that the CA erred in declaring that resort to the principles of statutory construction is still necessary to
resolve that question given that the Application for Reinstatement, the Letter of Acceptance and the Endorsement in and by
themselves already embodied unequivocal provisions stipulating that the two-year contestability clause should be reckoned from
the date of approval of the reinstatement;25 and that Felipe’s misrepresentation and concealment of material facts in regard to
his health or adverse medical condition gave it (Insular Life) the right to rescind the contract of insurance and consequently, the
right to deny the claim of Felipe’s beneficiaries for death benefits under the disputed policy. 26
Respondents’ Arguments
Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of Acceptance and in the Endorsement
is unclear whether it refers to the subject of the sentence, i.e., the "reinstatement of this policy" or to the subsequent phrase
"changes are made on the policy;" that granting that there was any obscurity or ambiguity in the insurance policy, the same
should be laid at the door of Insular Life as it was this insurance company that prepared the necessary documents that make up
the same;27 and that given the CA’s finding which effectively affirmed the RTC’s finding on this particular issue, it stands to reason
that the insurance policy had indeed become incontestable upon the date of Felipe’s death. 28
Our Ruling
We deny the Petition.
The Insurance Code pertinently provides that:
Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right
must be exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the
insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.
The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance Corporation v. Aban,29
Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers enough time to
inquire whether the policy was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming
individuals that their attempts at insurance fraud would be timely uncovered – thus deterring them from venturing into such
nefarious enterprise. At the same time, legitimate policy holders are absolutely protected from unwarranted denial of their
claims or delay in the collection of insurance proceeds occasioned by allegations of fraud, concealment, or misrepresentation by
insurers, claims which may no longer be set up after the two-year period expires as ordained under the law.
xxxx
The Court therefore agrees fully with the appellate court’s pronouncement that-
xxxx
‘The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation within a
period of two (2) years. It is not fair for the insurer to collect the premiums as long as the insured is still alive, only to raise the
issue of fraudulent concealment or misrepresentation when the insured dies in order to defeat the right of the beneficiary to
recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability to recover
under the policy when the insured dies. The provision also makes clear when the two-year period should commence in case the
policy should lapse and is reinstated, that is, from the date of the last reinstatement’.
In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also involves the herein petitioner, it was there
held that the reinstatement of the insured’s policy is to be reckoned from the date when the
application was processed and approved by the insurer. There, we stressed that:
To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. x x x
xxxx
In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy No.
9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit
the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be
considered reinstated after the Application for Reinstatement had been processed and approved by Insular Life during Eulogio’s
lifetime and good health.31
Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date when the same was approved
by the insurer.
In this case, the parties differ as to when the reinstatement was actually approved. Insular Life claims that it approved the
reinstatement only on December 27, 1999. On the other hand, respondents contend that it was on June
22, 1999 that the reinstatement took effect.
The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the Endorsement.
The Letter of Acceptance32 wherein Felipe affixed his signature was actually drafted and prepared by Insular Life. This pro-forma
document reads as follows:
LETTER OF ACCEPTANCE
Place: Cag. De [O]ro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683
Gentlemen:
Thru your Reinstatement Section, I/WE learned that this policy may be reinstated provided I/we agree to the following
condition/s indicated with a check mark:
[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per thousand of insurance; effective
June 22, 1999
 [ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the standard rates; the SAR at P____
annually per thousand of Insurance;
[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.
[]
I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of the policy.
Very truly yours,
Felipe N. Khu, Sr.
After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager, Jesse James R. Toyhorada, issued
an Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is again quoted as follows:
ENDORSEMENT
PN-A000015683
This certifies that as agreed to by the Insured, the reinstatement of this policy has been approved by the Company on the
understanding that the following changes are made on the policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and
forming parts of this policy is deleted.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00 annuallly, [P]14,843.00 semi-annually
and [P]7,557.00 quarterly, Philippine Currency.
Cagayan de Oro City, 07 January 2000.
RCV/
(Signed) Authorized Signature
Based on the foregoing, we find that the CA did not commit any error in holding that the subject insurance policy be considered
as reinstated on June 22, 1999. This finding must be upheld not only because it accords with the evidence, but also because this
is favorable to the insured who was not responsible for causing the ambiguity or obscurity in the insurance contract. 34
The CA expounded on this point thus –
The Court discerns a genuine ambiguity or obscurity in the language of the two documents.
In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an extra/additional x x x premium of P5.00 a
year per thousand of insurance; effective June 22, 1999". It is true that the phrase as used in this
particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court notes that the reinstatement
was conditioned upon the payment of additional premium not only prospectively, that is, to cover the
remainder of the annual period of coverage, but also retroactively, that is for the period starting June 22, 1999. Hence, by paying
the amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier paid on September 7, 1999, Khu
had paid for the insurance coverage starting June 22, 1999. At the very least, this circumstance has engendered a true lacuna.
In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear whether the phrase
"effective June 22, 1999" refers to the subject of the sentence, namely "the reinstatement of this policy," or to the subsequent
phrase "changes are made on the policy."
The court below is correct. Given the obscurity of the language, the construction favorable to the insured will be adopted by the
courts.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of contestability has lapsed. 35
In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance Company, 36 we ruled in favor of the
insured and in favor of the effectivity of the insurance contract in the midst of ambiguity in theinsurance contract provisions. We
held that:
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the
insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in MalayanInsurance Corporation v. Court
of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in
favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of
adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy
and must be construed in such a way as to preclude the insurer from noncompliance with its obligations.
 xxxx
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance
contracts are wholly prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts are contracts of adhesion containing technical
terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to
avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants,
insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or
otherwise be bound to honor the application as a valid, binding, and effective insurance contract. 37
Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated on June 22, 1999 vis-a-vis
Felipe’s death on September 22, 2001.1âwphi1 As such, the subject insurance policy has already become incontestable at the
time of Felipe’s death.
Finally, we agree with the CA that there is neither basis nor justification for the RTC’s award of moral damages, attorney’s fees
and litigation expenses; hence this award must be deleted.
WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and December 13, 2010 Resolution of the Court of
Appeals in CA-GR. CV No. 81730 are AFFIRMED.
SO ORDERED.

G.R. No. 183272 October 15, 2014

SUN LIFE OF CANADA (PHILIPPINES), INC. vs. SANDRA TAN KIT and The Estate of the Deceased NORBERTO TAN KIT
DEL CASTILLO, J.:
The Court of Appeals' (CA) imposition of 12o/o interest on the ₱13,080.93 premium refund is the only matter in question in this
case.
This Petition for Review on Certiorari1 assails the October 17, 2007 Decision2 of CA in CA-GR. CV No. 86923, which, among others,
imposed a 12% per annum rate of interest reckoned from the time of death of the insured until fully paid, on the premium to be
reimbursed by petitioner Sun Life of Canada (Philippines), Inc. (petitioner) to respondents Sandra Tan Kit (respondent Tan Kit)
and the Estate of the Deceased Norberto Tan Kit (respondent estate). Likewise assailed in this Petition is the CA's June 12, 2008
Resolution3 denying petitioner's Motion for Reconsideration of the said Decision.
Factual Antecedents
Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto), whose application for a life
insurance policy,4 with face value of ₱300,000.00, was granted by petitioner on October 28, 1999. On February 19, 2001, or
within the two-year contestability period,5 Norberto died of disseminated gastric carcinoma. 6Consequently, respondent Tan Kit
filed a claim under the subject policy.
In a Letter7 dated September 3, 2001, petitioner denied respondent Tan Kit’s claim on account of Norberto’s failure to fully and
faithfully disclose in his insurance application certain material and relevant information about his health and smoking history.
Specifically, Norberto answered "No" to the question inquiring whether he had smoked cigarettes or cigars within the last 12
months prior to filling out said application.8 However, the medical report of Dr. Anna Chua (Dr. Chua), one of the several
physicians that Norberto consulted for his illness, reveals that he was a smoker and had only stopped smoking in August 1999.
According to petitioner, its underwriters would not have approved Norberto’s application for life insurance had they been given
the correct information. Believing that the policy is null and void, petitioner opined that its liability is limited to the refund of all
the premiums paid. Accordingly, it enclosed in the said letter a check for ₱13,080.93 representing the premium refund.
In a letter9 dated September 13, 2001, respondent Tan Kit refused to accept the check and insisted on the payment of the
insurance proceeds.
On October 4, 2002, petitioner filed a Complaint 10 for Rescission of Insurance Contract before the Regional Trial Court (RTC) of
Makati City.
Ruling of the Regional Trial Court
In its November 30, 2005 Decision,11 the RTC noted that petitioner’s physician, Dr. Charity Salvador (Dr. Salvador), conducted
medical examination on Norberto. Moreover, petitioner’s agent, Irma Joy E. Javelosa (Javelosa), answered "NO" to the question
"Are you aware of anything about the life to be insured’s lifestyle, hazardous sports, habits, medical history, or any risk factor
that would have an adverse effect on insurability?" in her Agent’s Report. Javelosa also already knew Norberto two years prior to
the approval of the latter’s application for insurance. The RTC concluded that petitioner, through the above-mentioned
circumstances, had already cleared Norberto of any misrepresentation that he may have committed. The RTC also opined that
the affidavit of Dr. Chua, presented as part of petitioner’s evidence and which confirmed the fact that the insured was a smoker
and only stopped smoking a year ago [1999], is hearsay since Dr. Chua did not testify in court. Further, since Norberto had a
subsisting insurance policy with petitioner during his application for insurance subject of this case, it was incumbent upon
petitioner to ascertain the health condition of Norberto considering the additional burden that it was assuming. Lastly, petitioner
did not comply with the requirements for rescission of insurance contract as held in Philamcare Health Systems, Inc. v. Court of
Appeals.12 Thus, the dispositive portion of the RTC Decision:
WHEREFORE, in view of the foregoing considerations, this court hereby finds in favor of the [respondents and] against the
[petitioner], hence it hereby orders the [petitioner] to pay the [respondent], Sandra Tan Kit, the sum of Philippine Pesos: THREE
HUNDRED THOUSAND (₱300,000.00), representing the face value of the insurance policy with interest at six percent (6%) per
annum from October 4, 2002 until fully paid.
Cost de oficio.
SO ORDERED.13
Petitioner moved for reconsideration,14 but was denied in an Order15 dated February 15, 2006.
Hence, petitioner appealed to the CA.
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC’s ruling in its Decision16 dated October 17, 2007.
From the records, the CA found that prior to his death, Norberto had consulted two physicians, Dr. Chua on August 19, 2000, and
Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to whom he confided that he had stopped smoking only in 1999. At the
time therefore that he applied for insurance policy on October 28, 1999, there is no truth to his claim that he did not smoke
cigarettes within 12 months prior to the said application. The CA thus held that Norberto is guilty of concealment which misled
petitioner in forming its estimates of the risks of the insurance policy. This gave petitioner the right to rescind the insurance
contract which it properly exercised in this case.
In addition, the CA held that the content of Norberto’s medical records are deemed admitted by respondents since they failed to
deny the same despite having received from petitioner a Request for Admission pursuant to Rule 26 of the Rules of Court. 17 And
since an admission is in the nature of evidence the legal effects of which form part of the records, the CA discredited the RTC’s
ruling that the subject medical records and the affidavits executed by Norberto’s physicians attesting to the truth of the same
were hearsay.
The dispositive portion of the CA Decision reads:
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the appealed Decision REVERSED and SET
ASIDE, and in lieu thereof, a judgment is hereby rendered GRANTING the complaint a quo.
Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of ₱13,080.93 representing the [premium] paid by the
insured with interest at the rate of 12% per annum from the time of the death of the insured until fully paid.
SO ORDERED.18
The parties filed their separate motions for reconsideration. 19 While respondents questioned the factual and legal bases of the
CA Decision, petitioner, on the other hand, assailed the imposition of interest on the premium ordered refunded to respondents.
However, the appellate court denied the motions in its June 12, 2008 Resolution, 20 viz:
WHEREFORE, the foregoing considered, the separate motions for reconsideration filed by the [petitioner] and the [respondents]
are hereby DENIED.
SO ORDERED.21
Only petitioner appealed to this Court through the present Petition for Review on Certiorari.
Issue
The sole issue in this case is whether petitioner is liable to pay interest on the premium to be refunded to respondents.
The Parties’ Arguments
Petitioner argues that no interest should have been imposed on the premium to be refunded because the CA Decision does not
provide any legal or factual basis therefor; that petitioner directly and timely tendered to respondents an amount representing
the premium refund but they rejected it since they opted to pursue their claim for the proceeds of the insurance policy; that
respondents should bear the consequence of their unsound decision of rejecting the refund tendered to them; and, that
petitioner is not guilty of delay or of invalid or unjust rescission as to make it liable for interest. Hence, following the ruling in Tio
Khe Chio v. Court of Appeals,22 no interest can be assessed against petitioner.
Respondents, on the other hand, contend that the reimbursement of premium is clearly a money obligation or one that arises
from forbearance of money, hence, the imposition of 12% interest per annum is just, proper and supported by jurisprudence.
While they admit that they refused the tender of payment of the premium refund, they aver that they only did so because they
did not want to abandon their claim for the proceeds of the insurance policy. In any case, what petitioner should have done
under the circumstances was to consign the amount of payment in court during the pendency of the case.
Our Ruling
Tio Khe Chio is not applicable in this case.
Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the issue of payment of
interest.1âwphi1 There, the Court pointed to Sections 243 and 244 of the Insurance Code which explicitly provide for payment of
interest when there is unjustified refusal or withholding of payment of the claim by the insurer, 23 and to Article 220924 of the
New Civil Code which likewise provides for payment of interest when the debtor is in delay.
The Court finds, however, that Tio Khe Chio is not applicable here as it deals with payment of interest on the insurance proceeds
in which the claim therefor was either unreasonably denied or withheld or the insurer incurred delay in the payment thereof. In
this case, what is involved is an order for petitioner to refund to respondents the insurance premium paid by Norberto as a
consequence of the rescission of the insurance contract on account of the latter’s concealment of material information in his
insurance application. Moreover, petitioner did not unreasonably deny or withhold the insurance proceeds as it was satisfactorily
established that Norberto was guilty of concealment.
Nature of interest imposed by the CA
There are two kinds of interest – monetary and compensatory.
"Monetary interest refers to the compensation set by the parties for the use or forbearance of money." 25 No such interest shall
be due unless it has been expressly stipulated in writing. 26 "On the other hand, compensatory interest refers to the penalty or
indemnity for damages imposed by law or by the courts." 27 The interest mentioned in Articles 2209 and 2212 28of the Civil Code
applies to compensatory interest.29
Clearly and contrary to respondents’ assertion, the interest imposed by the CA is not monetary interest because aside from the
fact that there is no use or forbearance of money involved in this case, the subject interest was not one which was agreed upon
by the parties in writing. This being the case and judging from the tenor of the CA, to wit:
Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of ₱13,080.93 representing the [premium] paid by the
insured with interest at the rate of 12% per annum from time of death of the insured until fully paid. 30
there can be no other conclusion than that the interest imposed by the appellate court is in the nature of compensatory interest.
The CA incorrectly imposed compensatory interest on the premium refund reckoned from the time of death of the insured until
fully paid
As a form of damages, compensatory interest is due only if the obligor is proven to have failed to comply with his obligation. 31
In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was rescinding the policy due to
concealment, petitioner tendered the refund of premium by attaching to the said notice a check representing the amount of
refund. However, respondents refused to accept the same since they were seeking for the release of the proceeds of the policy.
Because of this discord, petitioner filed for judicial rescission of the contract. Petitioner, after receiving an adverse judgment from
the RTC, appealed to the CA. And as may be recalled, the appellate court found Norberto guilty of concealment and thus upheld
the rescission of the insurance contract and consequently decreed the obligation of petitioner to return to respondents the
premium paid by Norberto. Moreover, we find that petitioner did not incur delay or unjustifiably deny the claim.
Based on the foregoing, we find that petitioner properly complied with its obligation under the law and contract. Hence, it
should not be made liable to pay compensatory interest.
Considering the prevailing circumstances of the case, we hereby direct petitioner to reimburse the premium paid within 15 days
from date of finality of this Decision. If petitioner fails to pay within the said period, then the amount shall be deemed equivalent
to a forbearance of credit.32 In such a case, the rate of interest shall be 6% per annum. 33
WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in CA-G.R. CV No. 86923 is MODIFIED in that
petitioner Sun Life of Canada (Philippines), Inc. is ordered to reimburse to respondents Sandra Tan Kit and the Estate of the
Deceased Norberto Tan Kit the sum of ~13,080.93 representing the premium paid by the insured within fifteen (15) days from
date of finality of this Decision. If the amount is not reimbursed within said period, the same shall earn interest of 6% per annum
until fully paid.
SO ORDERED.

G.R. No. 138060 September 1, 2004

WILLIAM TIU, doing business under the name and style of "D’ Rough Riders," and VIRGILIO TE LAS PIÑAS vs. PEDRO A.
ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY AND INSURANCE, INC.
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision 1 of the Court of Appeals in CA-
G.R. CV No. 54354 affirming with modification the Decision 2 of the Regional Trial Court, 7th Judicial Region, Cebu City, Branch 20,
in Civil Case No. CEB-5963 for breach of contract of carriage, damages and attorney’s fees, and the Resolution dated February 26,
1999 denying the motion for reconsideration thereof.
The following facts are undisputed:
At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks and General Merchandise"
bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio
Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The driver,
Sergio Pedrano, then parked along the right side of the national highway and removed the damaged tire to have it
vulcanized at a nearby shop, about 700 meters away. 3Pedrano left his helper, Jose Mitante, Jr. to keep watch over the
stalled vehicle, and instructed the latter to place a spare tire six fathoms away 4 behind the stalled truck to serve as a
warning for oncoming vehicles. The truck’s tail lights were also left on. It was about 12:00 a.m., March 16, 1987.
At about 4:45 a.m., D’ Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te Laspiñas was cruising along
the national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and had
come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and Felisa Pepito
Arriesgado, who were seated at the right side of the bus, about three (3) or four (4) places from the front seat.
As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about 25 meters away. 5He applied the
breaks and tried to swerve to the left to avoid hitting the truck. But it was too late; the bus rammed into the truck’s left rear. The
impact damaged the right side of the bus and left several passengers injured. Pedro Arriesgado lost consciousness and suffered a
fracture in his right colles.6 His wife, Felisa, was brought to the Danao City Hospital. She was later transferred to the Southern
Island Medical Center where she died shortly thereafter. 7
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and attorney’s fees before the
Regional Trial Court of Cebu City, Branch 20, against the petitioners, D’ Rough Riders bus operator William Tiu and his driver,
Virgilio Te Laspiñas on May 27, 1987. The respondent alleged that the passenger bus in question was cruising at a fast and high
speed along the national road, and that petitioner Laspiñas did not take precautionary measures to avoid the accident. 8 Thus:
6. That the accident resulted to the death of the plaintiff’s wife, Felisa Pepito Arriesgado, as evidenced by a Certificate of
Death, a xerox copy of which is hereto attached as integral part hereof and marked as ANNEX – "A", and physical injuries
to several of its passengers, including plaintiff himself who suffered a "COLLES FRACTURE RIGHT," per Medical
Certificate, a xerox copy of which is hereto attached as integral part hereof and marked as ANNEX – "B" hereof.
7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspiñas of the said Rough Riders passenger
bus, plaintiff and his wife, Felisa Pepito Arriesgado, failed to safely reach their destination which was Cebu City, the
proximate cause of which was defendant-driver’s failure to observe utmost diligence required of a very cautious person
under all circumstances.
8. That defendant William Tiu, being the owner and operator of the said Rough Riders passenger bus which figured in
the said accident, wherein plaintiff and his wife were riding at the time of the accident, is therefore directly liable for the
breach of contract of carriage for his failure to transport plaintiff and his wife safely to their place of destination which
was Cebu City, and which failure in his obligation to transport safely his passengers was due to and in consequence of
his failure to exercise the diligence of a good father of the family in the selection and supervision of his employees,
particularly defendant-driver Virgilio Te Laspiñas.9
The respondent prayed that judgment be rendered in his favor and that the petitioners be condemned to pay the following
damages:
1). To pay to plaintiff, jointly and severally, the amount of ₱30,000.00 for the death and untimely demise of plaintiff’s
wife, Felisa Pepito Arriesgado;
2). To pay to plaintiff, jointly and severally, the amount of ₱38,441.50, representing actual expenses incurred by the
plaintiff in connection with the death/burial of plaintiff’s wife;
3). To pay to plaintiff, jointly and severally, the amount of ₱1,113.80, representing medical/hospitalization expenses
incurred by plaintiff for the injuries sustained by him;
4). To pay to plaintiff, jointly and severally, the amount of ₱50,000.00 for moral damages;
5). To pay to plaintiff, jointly and severally, the amount of ₱50,000.00 by way of exemplary damages;
6). To pay to plaintiff, jointly and severally, the amount of ₱20,000.00 for attorney’s fees;
7). To pay to plaintiff, jointly and severally, the amount of ₱5,000.00 for litigation expenses.
PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN LAW AND EQUITY. 10
The petitioners, for their part, filed a Third-Party Complaint 11 on August 21, 1987 against the following: respondent Philippine
Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent Benjamin Condor, the registered owner of the
cargo truck; and respondent Sergio Pedrano, the driver of the truck. They alleged that petitioner Laspiñas was negotiating the
uphill climb along the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It was further
alleged that the truck was parked in a slanted manner, its rear portion almost in the middle of the highway, and that no early
warning device was displayed. Petitioner Laspiñas promptly applied the brakes and swerved to the left to avoid hitting the truck
head-on, but despite his efforts to avoid damage to property and physical injuries on the passengers, the right side portion of the
bus hit the cargo truck’s left rear. The petitioners further alleged, thus:
5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered in the name of the third-party
defendant Benjamin Condor and was left unattended by its driver Sergio Pedrano, one of the third-party defendants, at
the time of the incident;
6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked (sic) "Condor Hollow Blocks &
General Merchandise," with Plate No. GBP-675 which was recklessly and imprudently parked along the national highway
of Compostela, Cebu during the vehicular accident in question, and third-party defendant Benjamin Condor, as the
registered owner of the cargo truck who failed to exercise due diligence in the selection and supervision of third-party
defendant Sergio Pedrano, are jointly and severally liable to the third-party plaintiffs for whatever liability that may be
adjudged against said third-party plaintiffs or are directly liable of (sic) the alleged death of plaintiff’s wife;
7. That in addition to all that are stated above and in the answer which are intended to show reckless imprudence on
the part of the third-party defendants, the third-party plaintiffs hereby declare that during the vehicular accident in
question, third-party defendant was clearly violating Section 34, par. (g) of the Land Transportation and Traffic Code…
…
10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William Tiu, is covered by a common
carrier liability insurance with Certificate of Cover No. 054940 issued by Philippine Phoenix Surety and Insurance, Inc.,
Cebu City Branch, in favor of third-party plaintiff William Tiu which covers the period from July 22, 1986 to July 22, 1987
and that the said insurance coverage was valid, binding and subsisting during the time of the aforementioned incident
(Annex "A" as part hereof);
11. That after the aforesaid alleged incident, third-party plaintiff notified third-party defendant Philippine Phoenix
Surety and Insurance, Inc., of the alleged incident hereto mentioned, but to no avail;
12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be adversely adjudged, they stand to pay
damages sought by the plaintiff and therefore could also look up to the Philippine Phoenix Surety and Insurance, Inc.,
for contribution, indemnification and/or reimbursement of any liability or obligation that they might [be] adjudged per
insurance coverage duly entered into by and between third-party plaintiff William Tiu and third-party defendant
Philippine Phoenix Surety and Insurance, Inc.;… 12
The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu, but averred that it had already
attended to and settled the claims of those who were injured during the incident. 13 It could not accede to the claim of
respondent Arriesgado, as such claim was way beyond the scheduled indemnity as contained in the contract of insurance. 14
After the parties presented their respective evidence, the trial court ruled in favor of respondent Arriesgado. The dispositive
portion of the decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff as against defendant William Tiu
ordering the latter to pay the plaintiff the following amounts:
1 - The sum of FIFTY THOUSAND PESOS (₱50,000.00) as moral damages;
2 - The sum of FIFTY THOUSAND PESOS (₱50,000.00) as exemplary damages;
3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE PESOS (₱38,441.00) as actual damages;
4 - The sum of TWENTY THOUSAND PESOS (₱20,000.00) as attorney’s fees;
5 - The sum of FIVE THOUSAND PESOS (₱5,000.00) as costs of suit;
SO ORDERED.15
According to the trial court, there was no dispute that petitioner William Tiu was engaged in business as a common carrier, in
view of his admission that D’ Rough Rider passenger bus which figured in the accident was owned by him; that he had been
engaged in the transportation business for 25 years with a sole proprietorship; and that he owned 34 buses. The trial court ruled
that if petitioner Laspiñas had not been driving at a fast pace, he could have easily swerved to the left to avoid hitting the truck,
thus, averting the unfortunate incident. It then concluded that petitioner Laspiñas was negligent.
The trial court also ruled that the absence of an early warning device near the place where the truck was parked was not
sufficient to impute negligence on the part of respondent Pedrano, since the tail lights of the truck were fully on, and the vicinity
was well lighted by street lamps.16 It also found that the testimony of petitioner Tiu, that he based the selection of his driver
Laspiñas on efficiency and in-service training, and that the latter had been so far an efficient and good driver for the past six
years of his employment, was insufficient to prove that he observed the diligence of a good father of a family in the selection and
supervision of his employees.
After the petitioner’s motion for reconsideration of the said decision was denied, the petitioners elevated the case to the Court
of Appeals on the following issues:
I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS RECKLESS AND IMPRUDENT WHEN HE PARKED THE
CARGO TRUCK IN AN OBLIQUE MANNER;
II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE OR
TO DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT MAY BE ADJUDGED TO THE SAID DEFENDANTS-
APPELLANTS;
III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIÑAS WAS GUILTY OF GROSS NEGLIGENCE;
IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED THE DUE DILIGENCE OF A GOOD FATHER OF A
FAMILY IN THE SELECTION AND SUPERVISION OF HIS DRIVERS;
V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-APPELLANT WILLIAM TIU IS LIABLE TO PLAINTIFF-
APPELLEE, WHETHER THERE IS LEGAL AND FACTUAL BASIS IN AWARDING EXCESSIVE MORAL DAMAGES, EX[E]MPLARY
DAMAGES, ATTORNEY’S FEES AND LITIGATION EXPENSES TO PLAINTIFF-APPELLEE;
VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. IS LIABLE TO DEFENDANT-
APPELLANT WILLIAM TIU.17
The appellate court rendered judgment affirming the trial court’s decision with the modification that the awards for moral and
exemplary damages were reduced to ₱25,000. The dispositive portion reads:
WHEREFORE, the appealed Decision dated November 6, 1995 is hereby MODIFIED such that the awards for moral and
exemplary damages are each reduced to ₱25,000.00 or a total of ₱50,000.00 for both. The judgment is AFFIRMED in all
other respects.
SO ORDERED.18
According to the appellate court, the action of respondent Arriesgado was based not on quasi-delict but on breach of contract of
carriage. As a common carrier, it was incumbent upon petitioner Tiu to prove that extraordinary diligence was observed in
ensuring the safety of passengers during transportation. Since the latter failed to do so, he should be held liable for respondent
Arriesgado’s claim. The CA also ruled that no evidence was presented against the respondent PPSII, and as such, it could not be
held liable for respondent Arriesgado’s claim, nor for contribution, indemnification and/or reimbursement in case the petitioners
were adjudged liable.
The petitioners now come to this Court and ascribe the following errors committed by the appellate court:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING RESPONDENTS BENJAMIN CONDOR AND SERGIO
PEDRANO GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONERS
FOR WHATEVER LIABILITY THAT MAY BE ADJUDGED AGAINST THEM.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS GUILTY OF NEGLIGENCE AND HENCE, LIABLE
TO RESPONDENT PEDRO A. ARRIESGADO.
III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONER WILLIAM TIU LIABLE FOR EXEMPLARY
DAMAGES, ATTORNEY’S FEES AND LITIGATION EXPENSES.
IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT PHILIPPINE PHOENIX SURETY AND
INSURANCE, INC. LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONER WILLIAM TIU. 19
According to the petitioners, the appellate court erred in failing to appreciate the absence of an early warning device and/or
built-in reflectors at the front and back of the cargo truck, in clear violation of Section 34, par. (g) of the Land Transportation and
Traffic Code. They aver that such violation is only a proof of respondent Pedrano’s negligence, as provided under Article 2185 of
the New Civil Code. They also question the appellate court’s failure to take into account that the truck was parked in an oblique
manner, its rear portion almost at the center of the road. As such, the proximate cause of the incident was the gross recklessness
and imprudence of respondent Pedrano, creating the presumption of negligence on the part of respondent Condor in
supervising his employees, which presumption was not rebutted. The petitioners then contend that respondents Condor and
Pedrano should be held jointly and severally liable to respondent Arriesgado for the payment of the latter’s claim.
The petitioners, likewise, aver that expert evidence should have been presented to prove that petitioner Laspiñas was driving at a
very fast speed, and that the CA could not reach such conclusion by merely considering the damages on the cargo truck. It was
also pointed out that petitioner Tiu presented evidence that he had exercised the diligence of a good father of a family in the
selection and supervision of his drivers.
The petitioners further allege that there is no legal and factual basis to require petitioner Tiu to pay exemplary damages as no
evidence was presented to show that the latter acted in a fraudulent, reckless and oppressive manner, or that he had an active
participation in the negligent act of petitioner Laspiñas.
Finally, the petitioners contend that respondent PPSII admitted in its answer that while it had attended to and settled the claims
of the other injured passengers, respondent Arriesgado’s claim remained unsettled as it was beyond the scheduled indemnity
under the insurance contract. The petitioners argue that said respondent PPSII should have settled the said claim in accordance
with the scheduled indemnity instead of just denying the same.
On the other hand, respondent Arriesgado argues that two of the issues raised by the petitioners involved questions of fact, not
reviewable by the Supreme Court: the finding of negligence on the part of the petitioners and their liability to him; and the
award of exemplary damages, attorney’s fees and litigation expenses in his favor. Invoking the principle of equity and justice,
respondent Arriesgado pointed out that if there was an error to be reviewed in the CA decision, it should be geared towards the
restoration of the moral and exemplary damages to ₱50,000 each, or a total of ₱100,000 which was reduced by the Court of
Appeals to ₱25,000 each, or a total of only ₱50,000.
Respondent Arriesgado also alleged that respondents Condor and Pedrano, and respondent Phoenix Surety, are parties with
whom he had no contract of carriage, and had no cause of action against. It was pointed out that only the petitioners needed to
be sued, as driver and operator of the ill-fated bus, on account of their failure to bring the Arriesgado Spouses to their place of
destination as agreed upon in the contract of carriage, using the utmost diligence of very cautious persons with due regard for all
circumstances.
Respondents Condor and Pedrano point out that, as correctly ruled by the Court of Appeals, the proximate cause of the
unfortunate incident was the fast speed at which petitioner Laspiñas was driving the bus owned by petitioner Tiu. According to
the respondents, the allegation that the truck was not equipped with an early warning device could not in any way have
prevented the incident from happening. It was also pointed out that respondent Condor had always exercised the due diligence
required in the selection and supervision of his employees, and that he was not a party to the contract of carriage between the
petitioners and respondent Arriesgado.
Respondent PPSII, for its part, alleges that contrary to the allegation of petitioner Tiu, it settled all the claims of those injured in
accordance with the insurance contract. It further avers that it did not deny respondent Arriesgado’s claim, and emphasizes that
its liability should be within the scheduled limits of indemnity under the said contract. The respondent concludes that while it is
true that insurance contracts are contracts of indemnity, the measure of the insurer’s liability is determined by the insured’s
compliance with the terms thereof.
The Court’s Ruling
At the outset, it must be stressed that this Court is not a trier of facts. 20 Factual findings of the Court of Appeals are final and may
not be reviewed on appeal by this Court, except when the lower court and the CA arrived at diverse factual findings. 21 The
petitioners in this case assail the finding of both the trial and the appellate courts that petitioner Laspiñas was driving at a very
fast speed before the bus owned by petitioner Tiu collided with respondent Condor’s stalled truck. This is clearly one of fact, not
reviewable by the Court in a petition for review under Rule 45. 22
On this ground alone, the petition is destined to fail.
However, considering that novel questions of law are likewise involved, the Court resolves to examine and rule on the merits of
the case.
Petitioner Laspiñas Was negligent in driving The Ill-fated bus
In his testimony before the trial court, petitioner Laspiñas claimed that he was traversing the two-lane road at Compostela, Cebu
at a speed of only forty (40) to fifty (50) kilometers per hour before the incident occurred. 23 He also admitted that he saw the
truck which was parked in an "oblique position" at about 25 meters before impact, 24and tried to avoid hitting it by swerving to
the left. However, even in the absence of expert evidence, the damage sustained by the truck 25 itself supports the finding of both
the trial court and the appellate court, that the D’ Rough Rider bus driven by petitioner Laspiñas was traveling at a fast pace.
Since he saw the stalled truck at a distance of 25 meters, petitioner Laspiñas had more than enough time to swerve to his left to
avoid hitting it; that is, if the speed of the bus was only 40 to 50 kilometers per hour as he claimed. As found by the Court of
Appeals, it is easier to believe that petitioner Laspiñas was driving at a very fast speed, since at 4:45 a.m., the hour of the
accident, there were no oncoming vehicles at the opposite direction. Petitioner Laspiñas could have swerved to the left lane with
proper clearance, and, thus, could have avoided the truck. 26 Instinct, at the very least, would have prompted him to apply the
breaks to avert the impending disaster which he must have foreseen when he caught sight of the stalled truck. As we had
occasion to reiterate:
A man must use common sense, and exercise due reflection in all his acts; it is his duty to be cautious, careful and
prudent, if not from instinct, then through fear of recurring punishment. He is responsible for such results as anyone
might foresee and for acts which no one would have performed except through culpable abandon. Otherwise, his own
person, rights and property, and those of his fellow beings, would ever be exposed to all manner of danger and injury. 27
We agree with the following findings of the trial court, which were affirmed by the CA on appeal:
 A close study and evaluation of the testimonies and the documentary proofs submitted by the parties which have direct
bearing on the issue of negligence, this Court as shown by preponderance of evidence that defendant Virgilio Te
Laspiñas failed to observe extraordinary diligence as a driver of the common carrier in this case. It is quite hard to
accept his version of the incident that he did not see at a reasonable distance ahead the cargo truck that was parked
when the Rough Rider [Bus] just came out of the bridge which is on an (sic) [more] elevated position than the place
where the cargo truck was parked. With its headlights fully on, defendant driver of the Rough Rider was in a vantage
position to see the cargo truck ahead which was parked and he could just easily have avoided hitting and bumping the
same by maneuvering to the left without hitting the said cargo truck. Besides, it is (sic) shown that there was still much
room or space for the Rough Rider to pass at the left lane of the said national highway even if the cargo truck had
occupied the entire right lane thereof. It is not true that if the Rough Rider would proceed to pass through the left lane
it would fall into a canal considering that there was much space for it to pass without hitting and bumping the cargo
truck at the left lane of said national highway. The records, further, showed that there was no incoming vehicle at the
opposite lane of the national highway which would have prevented the Rough Rider from not swerving to its left in
order to avoid hitting and bumping the parked cargo truck. But the evidence showed that the Rough Rider instead of
swerving to the still spacious left lane of the national highway plowed directly into the parked cargo truck hitting the
latter at its rear portion; and thus, the (sic) causing damages not only to herein plaintiff but to the cargo truck as well. 28
Indeed, petitioner Laspiñas’ negligence in driving the bus is apparent in the records. By his own admission, he had just passed a
bridge and was traversing the highway of Compostela, Cebu at a speed of 40 to 50 kilometers per hour before the collision
occurred. The maximum speed allowed by law on a bridge is only 30 kilometers per hour. 29 And, as correctly pointed out by the
trial court, petitioner Laspiñas also violated Section 35 of the Land Transportation and Traffic Code, Republic Act No. 4136, as
amended:1avvphil.net
Sec. 35. Restriction as to speed. – (a) Any person driving a motor vehicle on a highway shall drive the same at a careful
and prudent speed, not greater nor less than is reasonable and proper, having due regard for the traffic, the width of the
highway, and or any other condition then and there existing; and no person shall drive any motor vehicle upon a
highway at such speed as to endanger the life, limb and property of any person, nor at a speed greater than will permit
him to bring the vehicle to a stop within the assured clear distance ahead. 30
Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of the mishap, he was
violating any traffic regulation.31
Petitioner Tiu failed to Overcome the presumption
Of negligence against him as One engaged in the business
Of common carriage
The rules which common carriers should observe as to the safety of their passengers are set forth in the Civil Code, Articles
1733,32 175533 and 1756.34 In this case, respondent Arriesgado and his deceased wife contracted with petitioner Tiu, as owner
and operator of D’ Rough Riders bus service, for transportation from Maya, Daanbantayan, Cebu, to Cebu City for the price of
₱18.00.35 It is undisputed that the respondent and his wife were not safely transported to the destination agreed upon. In
actions for breach of contract, only the existence of such contract, and the fact that the obligor, in this case the common carrier,
failed to transport his passenger safely to his destination are the matters that need to be proved. 36 This is because under the said
contract of carriage, the petitioners assumed the express obligation to transport the respondent and his wife to their destination
safely and to observe extraordinary diligence with due regard for all circumstances. 37 Any injury suffered by the passengers in the
course thereof is immediately attributable to the negligence of the carrier. 38Upon the happening of the accident, the
presumption of negligence at once arises, and it becomes the duty of a common carrier to prove that he observed extraordinary
diligence in the care of his passengers.39 It must be stressed that in requiring the highest possible degree of diligence from
common carriers and in creating a presumption of negligence against them, the law compels them to curb the recklessness of
their drivers.40
While evidence may be submitted to overcome such presumption of negligence, it must be shown that the carrier observed the
required extraordinary diligence, which means that the carrier must show the utmost diligence of very cautious persons as far as
human care and foresight can provide, or that the accident was caused by fortuitous event. 41 As correctly found by the trial court,
petitioner Tiu failed to conclusively rebut such presumption. The negligence of petitioner Laspiñas as driver of the passenger bus
is, thus, binding against petitioner Tiu, as the owner of the passenger bus engaged as a common carrier. 42
The Doctrine of Last Clear Chance
Is Inapplicable in the Case at Bar
Contrary to the petitioner’s contention, the principle of last clear chance is inapplicable in the instant case, as it only applies in a
suit between the owners and drivers of two colliding vehicles. It does not arise where a passenger demands responsibility from
the carrier to enforce its contractual obligations, for it would be inequitable to exempt the negligent driver and its owner on the
ground that the other driver was likewise guilty of negligence. 43 The common law notion of last clear chance permitted courts to
grant recovery to a plaintiff who has also been negligent provided that the defendant had the last clear chance to avoid the
casualty and failed to do so. Accordingly, it is difficult to see what role, if any, the common law of last clear chance doctrine has
to play in a jurisdiction where the common law concept of contributory negligence as an absolute bar to recovery by the plaintiff,
has itself been rejected, as it has been in Article 2179 of the Civil Code. 44
Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgado’s wife due to the negligence of petitioner
Laspiñas, his employee, on this score.
Respondents Pedrano and Condor were likewise Negligent
In Phoenix Construction, Inc. v. Intermediate Appellate Court, 45 where therein respondent Dionisio sustained injuries when his
vehicle rammed against a dump truck parked askew, the Court ruled that the improper parking of a dump truck without any
warning lights or reflector devices created an unreasonable risk for anyone driving within the vicinity, and for having created such
risk, the truck driver must be held responsible. In ruling against the petitioner therein, the Court elucidated, thus:
… In our view, Dionisio’s negligence, although later in point of time than the truck driver’s negligence, and therefore
closer to the accident, was not an efficient intervening or independent cause. What the petitioners describe as an
"intervening cause" was no more than a foreseeable consequence of the risk created by the negligent manner in which
the truck driver had parked the dump truck. In other words, the petitioner truck driver owed a duty to private
respondent Dionisio and others similarly situated not to impose upon them the very risk the truck driver had created.
Dionisio’s negligence was not that of an independent and overpowering nature as to cut, as it were, the chain of
causation in fact between the improper parking of the dump truck and the accident, nor to sever the juris vinculum of
liability. …
We hold that private respondent Dionisio’s negligence was "only contributory," that the "immediate and proximate
cause" of the injury remained the truck driver’s "lack of due care."… 46
In this case, both the trial and the appellate courts failed to consider that respondent Pedrano was also negligent in leaving the
truck parked askew without any warning lights or reflector devices to alert oncoming vehicles, and that such failure created the
presumption of negligence on the part of his employer, respondent Condor, in supervising his employees properly and
adequately. As we ruled in Poblete v. Fabros:47
It is such a firmly established principle, as to have virtually formed part of the law itself, that the negligence of the
employee gives rise to the presumption of negligence on the part of the employer. This is the presumed negligence in
the selection and supervision of employee. The theory of presumed negligence, in contrast with the American doctrine
of respondeat superior, where the negligence of the employee is conclusively presumed to be the negligence of the
employer, is clearly deducible from the last paragraph of Article 2180 of the Civil Code which provides that the
responsibility therein mentioned shall cease if the employers prove that they observed all the diligence of a good father
of a family to prevent damages. …48
The petitioners were correct in invoking respondent Pedrano’s failure to observe Article IV, Section 34(g) of the Rep. Act No.
4136, which provides:1avvphil.net
(g) Lights when parked or disabled. – Appropriate parking lights or flares visible one hundred meters away shall be
displayed at a corner of the vehicle whenever such vehicle is parked on highways or in places that are not well-lighted or
is placed in such manner as to endanger passing traffic.
The manner in which the truck was parked clearly endangered oncoming traffic on both sides, considering that the tire blowout
which stalled the truck in the first place occurred in the wee hours of the morning. The Court can only now surmise that the
unfortunate incident could have been averted had respondent Condor, the owner of the truck, equipped the said vehicle with
lights, flares, or, at the very least, an early warning device. 49 Hence, we cannot subscribe to respondents Condor and Pedrano’s
claim that they should be absolved from liability because, as found by the trial and appellate courts, the proximate cause of the
collision was the fast speed at which petitioner Laspiñas drove the bus. To accept this proposition would be to come too close to
wiping out the fundamental principle of law that a man must respond for the foreseeable consequences of his own negligent act
or omission. Indeed, our law on quasi-delicts seeks to reduce the risks and burdens of living in society and to allocate them
among its members. To accept this proposition would be to weaken the very bonds of society. 50
The Liability of
Respondent PPSII
as Insurer
The trial court in this case did not rule on the liability of respondent PPSII, while the appellate court ruled that, as no evidence
was presented against it, the insurance company is not liable.
A perusal of the records will show that when the petitioners filed the Third-Party Complaint against respondent PPSII, they failed
to attach a copy of the terms of the insurance contract itself. Only Certificate of Cover No. 054940 51 issued in favor of "Mr.
William Tiu, Lahug, Cebu City" signed by Cosme H. Boniel was appended to the third-party complaint. The date of issuance, July
22, 1986, the period of insurance, from July 22, 1986 to July 22, 1987, as well as the following items, were also indicated
therein:\
SCHEDULED VEHICLE
MODEL MAKE TYPE OF BODY COLOR BLT FILE NO.
Isuzu Forward Bus blue mixed
PLATE NO. SERIAL/CHASSIS NO. MOTOR NO. AUTHORIZED CAPACITY UNLADEN WEIGHT
PBP-724 SER450-1584124 677836 50 6 Cyls. Kgs.
SECTION 1/11 *LIMITS OF LIABILITY PREMIUMS PAID
A. THIRD PARTY LIABILITY ₱50,000.00 ₱540.0052
B. PASSENGER LIABILITY Per Person Per Accident
₱12,000.00 ₱50,000
In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted the existence of the contract of insurance, in view of
its failure to specifically deny the same as required under then Section 8(a), Rule 8 of the Rules of Court, 54 which reads:
Sec. 8. How to contest genuineness of such documents. When an action or defense is founded upon a written
instrument copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness
and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies
them, and sets forth what he claims to be the facts; but the requirement of an oath does not apply when the adverse
party does not appear to be a party to the instrument or when compliance with an order for inspection of the original
instrument is refused.
In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it was liable thereon. It claimed,
however, that it had attended to and settled the claims of those injured during the incident, and set up the following as special
affirmative defenses:
Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and incorporates by way of
reference the preceding paragraphs and further states THAT:-
8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali Palces who sustained
injuries during the incident in question. In fact, it settled financially their claims per vouchers duly signed by
them and they duly executed Affidavit[s] of Desistance to that effect, xerox copies of which are hereto attached
as Annexes 1, 2, 3, 4, 5, and 6 respectively;
9. With respect to the claim of plaintiff, herein answering third party defendant through its authorized
insurance adjuster attended to said claim. In fact, there were negotiations to that effect. Only that it cannot
accede to the demand of said claimant considering that the claim was way beyond the scheduled indemnity as
per contract entered into with third party plaintiff William Tiu and third party defendant (Philippine Phoenix
Surety and Insurance, Inc.). Third party Plaintiff William Tiu knew all along the limitation as earlier stated, he
being an old hand in the transportation business; 55…
Considering the admissions made by respondent PPSII, the existence of the insurance contract and the salient terms thereof
cannot be dispatched. It must be noted that after filing its answer, respondent PPSII no longer objected to the presentation of
evidence by respondent Arriesgado and the insured petitioner Tiu. Even in its Memorandum 56 before the Court, respondent PPSII
admitted the existence of the contract, but averred as follows:
Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification and/or reimbursement. This has no
basis under the contract. Under the contract, PPSII will pay all sums necessary to discharge liability of the insured
subject to the limits of liability but not to exceed the limits of liability as so stated in the contract. Also, it is stated in the
contract that in the event of accident involving indemnity to more than one person, the limits of liability shall not
exceed the aggregate amount so specified by law to all persons to be indemnified. 57
As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the Compulsory Motor Vehicle
Liability Insurance Law. It was expressly provided therein that the limit of the insurer’s liability for each person was ₱12,000,
while the limit per accident was pegged at ₱50,000. An insurer in an indemnity contract for third party liability is directly liable to
the injured party up to the extent specified in the agreement but it cannot be held solidarily liable beyond that amount. 58 The
respondent PPSII could not then just deny petitioner Tiu’s claim; it should have paid ₱12,000 for the death of Felisa
Arriesgado,59 and respondent Arriesgado’s hospitalization expenses of ₱1,113.80, which the trial court found to have been duly
supported by receipts. The total amount of the claims, even when added to that of the other injured passengers which the
respondent PPSII claimed to have settled,60 would not exceed the ₱50,000 limit under the insurance agreement.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to provide compensation
for the death or bodily injuries suffered by innocent third parties or passengers as a result of the negligent operation and use of
motor vehicles. The victims and/or their dependents are assured of immediate financial assistance, regardless of the financial
capacity of motor vehicle owners.61 As the Court, speaking through Associate Justice Leonardo A. Quisumbing, explained in
Government Service Insurance System v. Court of Appeals: 62
However, although the victim may proceed directly against the insurer for indemnity, the third party liability is only up
to the extent of the insurance policy and those required by law. While it is true that where the insurance contract
provides for indemnity against liability to third persons, and such persons can directly sue the insurer, the direct liability
of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held liable in
solidum with the insured and/or the other parties found at fault. For the liability of the insurer is based on contract; that
of the insured carrier or vehicle owner is based on tort. …
 Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract of insurance,
in accordance with the CMVLI law. At the time of the incident, the schedule of indemnities for death and bodily injuries,
professional fees and other charges payable under a CMVLI coverage was provided for under the Insurance
Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As therein provided, the maximum
indemnity for death was twelve thousand (₱12,000.00) pesos per victim. The schedules for medical expenses were also
provided by said IMC, specifically in paragraphs (C) to (G). 63
Damages to be Awarded
The trial court correctly awarded moral damages in the amount of ₱50,000 in favor of respondent Arriesgado. The award of
exemplary damages by way of example or correction of the public good, 64 is likewise in order. As the Court ratiocinated in
Kapalaran Bus Line v. Coronado:65
…While the immediate beneficiaries of the standard of extraordinary diligence are, of course, the passengers and
owners of cargo carried by a common carrier, they are not the only persons that the law seeks to benefit. For if common
carriers carefully observed the statutory standard of extraordinary diligence in respect of their own passengers, they
cannot help but simultaneously benefit pedestrians and the passengers of other vehicles who are equally entitled to the
safe and convenient use of our roads and highways. The law seeks to stop and prevent the slaughter and maiming of
people (whether passengers or not) on our highways and buses, the very size and power of which seem to inflame the
minds of their drivers. Article 2231 of the Civil Code explicitly authorizes the imposition of exemplary damages in cases
of quasi-delicts "if the defendant acted with gross negligence."… 66
The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is entitled to indemnity in the amount
of ₱50,000.00.67
The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly and severally liable for said amount,
conformably with the following pronouncement of the Court in Fabre, Jr. vs. Court of Appeals: 68
The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff was
riding concurred with the negligence of a third party who was the driver of another vehicle, thus causing an accident. In
Anuran v. Buño, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit
Corporation v. Court of Appeals, the bus company, its driver, the operator of the other vehicle and the driver of the
vehicle were jointly and severally held liable to the injured passenger or the latter’s heirs. The basis of this allocation of
liability was explained in Viluan v. Court of Appeals, thus:
"Nor should it make difference that the liability of petitioner [bus owner] springs from contract while that of
respondents [owner and driver of other vehicle] arises from quasi-delict. As early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the negligence of the driver of
the bus on which he was riding and of the driver of another vehicle, the drivers as well as the owners of the
two vehicles are jointly and severally liable for damages. Some members of the Court, though, are of the view
that under the circumstances they are liable on quasi-delict." 69
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATIONS:
(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu are ORDERED to pay, jointly and
severally, respondent Pedro A. Arriesgado the total amount of ₱13,113.80;
(2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano are ORDERED to pay, jointly and severally,
respondent Pedro A. Arriesgado ₱50,000.00 as indemnity; ₱26,441.50 as actual damages; ₱50,000.00 as moral
damages; ₱50,000.00 as exemplary damages; and ₱20,000.00 as attorney’s fees.
SO ORDERED.

G.R. No. 190702 February 27, 2017

JAIME T. GAISANO vs. DEVELOPMENT INSURANCE AND SURETY CORPORATION
JARDELEZA, J.:
This is a petition for review on certiorari1 seeking to nullify the Court of Appeals' (CA) September 11, 2009 Decision 2 and
November 24, 2009 Resolution3 in CA-G.R. CV No. 81225. The CA reversed the September 24, 2003 Decision 4 of the Regional Trial
Court (RTC) in Civil Case No. 97-85464. The RTC granted Jaime T. Gaisano's (petitioner) claim on the proceeds of the
comprehensive commercial vehicle policy issued by Development Insurance and Surety Corporation (respondent), viz.:
IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the defendant-appellant ordered to pay the plaintiff-
appellee the sum of ₱55,620.60 with interest at 6 percent per annum from the date of the denial of the claim on October 9,
1996 until payment.
SO ORDERED.5
I
The facts are undisputed. Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number GTJ-777
(vehicle), while respondent is a domestic corporation engaged in the insurance business. 6 On September 27, 1996, respondent
issued a comprehensive commercial vehicle policy7 to petitioner in the amount of ₱1,500,000.00 over the vehicle for a period of
one year commencing on September 27, 1996 up to September 27, 1997. 8 Respondent also issued two other commercial vehicle
policies to petitioner covering two other motor vehicles for the same period. 9
To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific Underwriters Agency (Trans-Pacific),
issued a statement of account to petitioner's company, Noah's Ark Merchandising (Noah's Ark). 10Noah's Ark immediately
processed the payments and issued a Far East Bank check dated September 27, 1996 payable to Trans-Pacific on the same
day.11 The check bearing the amount of ₱140,893.50 represents payment for the three insurance policies, with ₱55,620.60 for
the premium and other charges over the vehicle.12 However, nobody from Trans-Pacific picked up the check that day (September
27) because its president and general manager, Rolando Herradura, was celebrating his birthday. Trans-Pacific informed Noah's
Ark that its messenger would get the check the next day, September 28. 13
In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing manager Achilles Pacquing
(Pacquing) as a service company vehicle, the vehicle was stolen in the vicinity of SM Megamall at Ortigas, Mandaluyong City.
Pacquing reported the loss to the Philippine National Police Traffic Management Command at Camp Crame in Quezon
City.14 Despite search and retrieval efforts, the vehicle was not recovered. 15
Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an official receipt numbered
124713 dated September 28, 1996, acknowledging the receipt of ₱55,620.60 for the premium and other charges over the
vehicle.16 The check issued to Trans-Pacific for ₱140,893.50 was deposited with Metrobank for encashment on October 1, 1996. 17
On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner reported the loss and filed a claim
with respondent for the insurance proceeds of ₱1,500,000.00.18 After investigation, respondent denied petitioner's claim on the
ground that there was no insurance contract.19 Petitioner, through counsel, sent a final demand on July 7, 1997. 20 Respondent,
however, refused to pay the insurance proceeds or return the premium paid on the vehicle.
On October 9, 1997, petitioner filed a complaint for collection of sum of money and damages 21 with the RTC where it sought . to
collect the insurance proceeds from respondent. In its Answer, 22 respondent asserted that the non-payment of the premium
rendered the policy ineffective. The premium was received by the respondent only on October 2, 1996, and there was no known
loss covered by the policy to which the payment could be applied. 23
In its Decision24 dated September 24, 2003, the RTC ruled in favor of petitioner. It considered the premium paid as of September
27, even if the check was received only on September 28 because (1) respondent's agent, Trans-Pacific, acknowledged payment
of the premium on that date, September 27, and (2) the check that petitioner issued was honored by respondent in
acknowledgment of the authority of the agent to receive it. 25 Instead of returning the premium, respondent sent a checklist of
requirements to petitioner and assigned an underwriter to investigate the claim. 26 The RTC ruled that it would be unjust and
inequitable not to allow a recovery on the policy while allowing respondent to retain the premium paid. 27 Thus, petitioner was
awarded an indemnity of ₱l,500,000.00 and attorney's fees of ₱50,000.00.28
After respondent's motion for reconsideration was denied, 29 it filed a Notice of Appeal.30 Records were forwarded to the CA.31
The CA granted respondent's appeal.32 The CA upheld respondent's position that an insurance contract becomes valid and
binding only after the premium is paid pursuant to Section 77 of the Insurance Code (Presidential Decree No. 612, as amended
by Republic Act No. 10607).33 It found that the premium was not yet paid at the time of the loss on September 27, but only a day
after or on September 28, 1996, when the check was picked up by Trans-Pacific. 34 It also found that none of the exceptions to
Section 77 obtains in this case.35 Nevertheless, the CA ordered respondent to return the premium it received in the amount of
₱55,620.60, with interest at the rate of 6%per annum from the date of the denial of the claim on October 9, 1996 until
payment.36
Hence petitioner filed this petition. He argues that there was a valid and binding insurance contract between him and
respondent.37 He submits that it comes within the exceptions to the rule in Section 77 of the Insurance Code that no contract of
insurance becomes binding unless and until the premium thereof has been paid. The prohibitive tenor of Section 77 does not
apply because the parties stipulated for the payment of premiums. 38 The parties intended the contract of insurance to be
immediately effective upon issuance, despite non-payment of the premium, because respondent trusted petitioner. 39 He adds
that respondent waived its right to a pre-payment in full of the terms of the policy, and is in estoppel. 40
Petitioner also argues that assuming he is not entitled to recover insurance proceeds, but only to the return of the premiums
paid, then he should be able to recover the full amount of ₱140,893.50, and not merely ₱55,620.60.41The insurance policy
covered three vehicles yet respondent's intention was merely to disregard the contract for only the lost vehicle. 42 According to
petitioner, the principle of mutuality of contracts is violated, at his expense, if respondent is allowed to be excused from
performance on the insurance contract only for one vehicle, but not as to the two others, just because no loss is suffered as to
the two. To allow this "would be to place exclusively in the hands of one of the contracting parties the right to decide whether
the contract should stand or not x x x. "43
For failure of respondent to file its comment to the petition, we declared respondent to have waived its right to file a comment in
our June 15, 2011 Resolution.44
The lone issue here is whether there is a binding insurance contract between petitioner and respondent.
II
We deny the petition.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event.45 Just like any other contract, it requires a cause or consideration. The consideration is the
premium, which must be paid at the time and in the way and manner specified in the policy. 46 If not so paid, the policy will lapse
and be forfeited by its own terms.47
The law, however, limits the parties' autonomy as to when payment of premium may be made for the contract to take effect. The
general rule in insurance laws is that unless the premium is paid, the insurance policy is not valid and binding. 48 Section 77 of the
Insurance Code, applicable at the time of the issuance of the policy, provides:
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the
grace period provision applies.
In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. We explained that in an insurance contract, both the
insured and insurer undertake risks. On one hand, there is the insured, a member of a group exposed to a particular peril, who
contributes premiums under the risk of receiving nothing in return in case the contingency does not happen; on the other, there
is the insurer, who undertakes to pay the entire sum agreed upon in case the contingency happens. This risk-distributing
mechanism operates under a system where, by prompt payment of the premiums, the insurer is able to meet its legal obligation
to maintain a legal reserve fund needed to meet its contingent obligations to the public. The premium, therefore, is the elixir
vitae or source of life of the insurance business:
In the desire to safeguard the interest of the assured, it must not be ignored that the contract of insurance is primarily a risk-
distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer.
From these contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party therefore
takes a risk: the insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and
the insured, that of parting with the amount required as premium. without receiving anything therefor in case the contingency
does not happen. To ensure payment for these losses, the law mandates all insurance companies to maintain a legal reserve fund
in favor of those claiming under their policies. It should be understood that the integrity of this fund cannot be secured and
maintained if by judicial fiat partial offerings of premiums were to be construed as a legal nexusbetween the applicant and the
insurer despite an express agreement to the contrary. For what could prevent the insurance applicant from deliberately or
willfully holding back full premium payment and wait for the risk insured against to transpire and then conveniently pass on the
balance of the premium to be deducted from the proceeds of the insurance? x x x
xxx
And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer
must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt
payment and full satisfaction. It must be emphasized here that all actuarial calculations and various tabulations of probabilities of
losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock
insurance firms are enabled to offer the assurance of security to the public at favorable rates. x x x 50 (Citations omitted.)
Here, there is no dispute that the check was delivered to and was accepted by respondent's agent, Trans-Pacific, only on
September 28, 1996. No payment of premium had thus been made at the time of the loss of the vehicle on September 27, 1996.
While petitioner claims that Trans-Pacific was informed that the check was ready for pick-up on September 27, 1996, the notice
of the availability of the check, by itself, does not produce the effect of payment of the premium. Trans-Pacific could not be
considered in delay in accepting the check because when it informed petitioner that it will only be able to pick-up the check the
next day, petitioner did not protest to this, but instead allowed Trans-Pacific to do so. Thus, at the time of loss, there was no
payment of premium yet to make the insurance policy effective.
There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is paid. InUCPB General
Insurance Co., Inc. v. Masagana Telamart, Inc.,51 we said:
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to extend
the period to pay the premium. But are there exceptions to Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period
provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium
is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,wherein we ruled that Section
77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made
at the time of loss. We said therein, thus:
We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that the
petitioners and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered
payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three
years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to
honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue
collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the
premiums were not prepaid in full.
Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in its Resolution
denying the motion for reconsideration of its decision:
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract,
We are not prepared to rule that the request to make installment payments duly approved by the insurer would prevent the
entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment.
Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an
acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy
binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy
is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an
understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted.
By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth exception to
Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the
insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the tem1,
recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term.
xxx
Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be permitted against Petitioner,
which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77.
Estoppel bars it from taking refuge under said Section, since Respondent relied in good faith on such practice. Estoppel then is
the fifth exception to Section 77.52 (Citations omitted.)
In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or industrial life policy, whenever
the grace period provision applies, as expressly provided by Section 77 itself; (2) where the insurer acknowledged in the policy or
contract of insurance itself the receipt of premium, even if premium has not been actually paid, as expressly provided by Section
78 itself; (3) where the parties agreed that premium payment shall be in installments and partial payment has been made at the
time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;53(4) where the insurer granted the insured a
credit term for the payment of the premium, and loss occurs before the expiration of the term, as held in Makati Tuscany
Condominium Corp.;and (5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term for the
payment of premiums.
The insurance policy in question does not fall under the first to third exceptions laid out in UCPB General Insurance Co., Inc.: (1)
the policy is not a life or industrial life policy; (2) the policy does not contain an acknowledgment of the receipt of premium but
merely a statement of account on its face;54 and (3) no payment of an installment was made at the time of loss on September 27.
Petitioner argues that his case falls under the fourth and fifth exceptions because the parties intended the contract of insurance
to be immediately effective upon issuance, despite non-payment of the premium. This waiver to a pre-payment in full of the
premium places respondent in estoppel.
We do not agree with petitioner.
The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany Condominium Corp. and UCPB
General Insurance Co., Inc. Both contemplate situations where the insurers have consistently granted the insured a credit
extension or term for the payment of the premium. Here, however, petitioner failed to establish the fact of a grant by
respondent of a credit term in his favor, or that the grant has been consistent. While there was mention of a credit agreement
between Trans-Pacific and respondent, such arrangement was not proven and was internal between agent and principal. 55 Under
the principle of relativity of contracts, contracts bind the parties who entered into it. It cannot favor or prejudice a third person,
even if he is aware of the contract and has acted with knowledge. 56
We cannot sustain petitioner's claim that the parties agreed that the insurance contract is immediately effective upon issuance
despite nonpayment of the premiums.1âwphi1 Even if there is a waiver of pre-payment of premiums, that in itself does not
become an exception to Section 77, unless the insured clearly gave a credit term or extension. This is the clear import of the
fourth exception in the UCPB General Insurance Co., Inc. To rule otherwise would render nugatory the requirement in Section 77
that "[n]otwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, x x x." Moreover, the policy itself states:
WHEREAS THE INSURED, by his corresponding proposal and declaration, and which shall be the basis of this Contract and
deemed incorporated herein, has applied to the company for the insurance hereinafter contained, subject to the payment of the
Premium as consideration for such insurance.57(Emphasis supplied.)
The policy states that the insured's application for the insurance is subject to the payment of the premium.1âwphi1 There is no
waiver of pre-payment, in full or in installment, of the premiums under the policy. Consequently, respondent cannot be placed
in estoppel.
Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy became effective for lack of
premium payment.
The consequence of this declaration is that petitioner is entitled to a return of the premium paid for the vehicle in the amount of
₱55,620.60 under the principle of unjust enrichment. There is unjust enrichment when a person unjustly retains a benefit to the
loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and
good conscience.58 Petitioner cannot claim the full amount of ₱140,893.50, which includes the payment of premiums for the two
other vehicles. These two policies are not affected by our ruling on the policy subject of this case because they were issued as
separate and independent contracts of insurance.59 We, however, find that the award shall earn legal interest of 6% from the
time of extra judicial demand on July 7, 1997.60
WHEREFORE, the petition is DENIED. The assailed Decision of the CA dated September 11, 2009 and the Resolution dated
November 24, 2009 are AFFIRMED with the MODIFICATION that respondent should return the amount of P55,620.60 with the
legal interest computed at the rate of 6% per annum reckoned from July 7, 1997 until finality of this judgment. Thereafter, the
total amount shall earn interest at the rate of 6% per annum from the finality of this judgment until its full satisfaction.
SO ORDERED.

G.R. No. L-66935 November 11, 1985

ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber Enterprises and ONG CHIONG vs.
INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY CORPORATION
GUTIERREZ, JR., J.:
This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court which absolved the respondent
insurance company from liability on the grounds that the vessel carrying the insured cargo was unseaworthy and the loss of said
cargo was caused not by the perils of the sea but by the perils of the ship.
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier, entered into a contract with the
petitioners whereby the former would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs from
Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with
respondent Pioneer Insurance and Surety Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage and
delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable 10 sank with the 811
pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. As alleged by the petitioners in their complaint and as
found by both the trial and appellate courts, the barge where the logs were loaded was not seaworthy such that it developed a
leak. The appellate court further found that one of the hatches was left open causing water to enter the barge and because the
barge was not provided with the necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside the
barge.
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of the shipment
plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to respondent Pioneer
claiming the full amount of P100,000.00 under the insurance policy but respondent refused to pay on the ground that its hability
depended upon the "Total loss by Total Loss of Vessel only". Hence, petitioners commenced Civil Case No. 86599 against Manila
Bay and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision reads:
FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance and Surety Corporation
to pay plaintiffs, jointly and severally, the sum of P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in addition, the sum of
P50,000.00, plus P12,500.00, that the latter advanced to the former as down payment for transporting the logs
in question;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for lack of merit, but as to its
cross-claim against its co-defendant Manila Bay Lighterage Corporation, the latter is ordered to reimburse the
former for whatever amount it may pay the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for lack of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages are ordered dismissed,
for lack of merits; plaintiffs' claim for attorney's fees in the sum of P10,000.00 is hereby granted, against both
defendants, who are, moreover ordered to pay the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%) from March 25, 1975,
until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal. According to the petitioners, the
transportation company is no longer doing business and is without funds.
During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part of the logs. The court
ordered them to be sold to the highest bidder with the funds to be deposited in a bank in the name of Civil Case No. 86599.
On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer from liability after finding that
there was a breach of implied warranty of seaworthiness on the part of the petitioners and that the loss of the insured cargo was
caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is not covered by the marine insurance
policy.
After the appellate court denied their motion for reconsideration, the petitioners filed this petition with the following
assignments of errors:
I
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF MARINE CARGO INSURANCE,
THERE IS A WARRANTY OF SEAWORTHINESS BY THE CARGO OWNER.
II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS OF THE CARGO IN THIS CASE WAS
CAUSED BY "PERILS OF THE SHIP" AND NOT BY "PERILS OF THE SEA."
 III
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE RETURN TO PETITIONER OF THE
AMOUNT OF P8,000.00 WHICH WAS DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT
WERE RECOVERED.
In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness provided for in the
Insurance Code refers only to the responsibility of the shipowner who must see to it that his ship is reasonably fit to make in
safety the contemplated voyage.
The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its seaworthiness.
They argue that a cargo owner has no control over the structure of the ship, its cables, anchors, fuel and provisions, the manner
of loading his cargo and the cargo of other shippers, and the hiring of a sufficient number of competent officers and seamen. The
petitioners' arguments have no merit.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to appeal the questioned
decision. However, the petitioners state that Manila Bay has ceased operating as a firm and nothing may be recovered from it.
They are, therefore, trying to recover their losses from the insurer.
The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of
marine insurance, a warranty is implied that the ship is seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the subject of marine
insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to whoever is insuring the
cargo whether he be the shipowner or not.
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40):
The same conclusion must be reached if the question be discussed with reference to the seaworthiness of the
ship. It is universally accepted that in every contract of insurance upon anything which is the subject of marine
insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage.
This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance
and may not be used by him as a defense in order to recover on the marine insurance policy.
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):
There was no look-out, and both that and the rate of speed were contrary to the Canadian Statute. The
exception of losses occasioned by unseaworthiness was in effect a warranty that a loss should not be so
occasioned, and whether the fact of unseaworthiness were known or unknown would be immaterial.
Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the
obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. The shipper of
cargo may have no control over the vessel but he has full control in the choice of the common carrier that will transport his
goods. Or the cargo owner may enter into a contract of insurance which specifically provides that the insurer answers not only
for the perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by the private respondents:
In marine cases, the risks insured against are "perils of the sea" (Chute v. North River Ins. Co., Minn—214 NW
472, 55 ALR 933). The purpose of such insurance is protection against contingencies and against possible
damages and such a policy does not cover a loss or injury which must inevitably take place in the ordinary
course of things. There is no doubt that the term 'perils of the sea' extends only to losses caused by sea
damage, or by the violence of the elements, and does not embrace all losses happening at sea. They insure
against losses from extraordinary occurrences only, such as stress of weather, winds and waves, lightning,
tempests, rocks and the like. These are understood to be the "perils of the sea" referred in the policy, and not
those ordinary perils which every vessel must encounter. "Perils of the sea" has been said to include only such
losses as are of extraordinarynature, or arise from some overwhelming power, which cannot be guarded
against by the ordinary exertion of human skill and prudence. Damage done to a vessel by perils of the sea
includes every species of damages done to a vessel at sea, as distinguished from the ordinary wear and tear of
the voyage, and distinct from injuries suffered by the vessel in consequence of her not being seaworthy at the
 outset of her voyage (as in this case). It is also the general rule that everything which happens thru the
inherent vice of the thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not
otherwise borne in the policy. (14 RCL on Insurance, Sec. 384, pp. 1203- 1204; Cia. de Navegacion v. Firemen's
Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459).
With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was caused by the perils of the
sea, not by the perils of the ship because as found by the trial court, the barge was turned loose from the tugboat east of Cabuli
Point "where it was buffeted by storm and waves." Moreover, petitioners also maintain that barratry, against which the cargo
was also insured, existed when the personnel of the tugboat and the barge committed a mistake by turning loose the barge from
the tugboat east of Cabuli Point. The trial court also found that the stranding and foundering of Mable 10 was due to improper
loading of the logs as well as to a leak in the barge which constituted negligence.
On the contention of the petitioners that the trial court found that the loss was occasioned by the perils of the sea characterized
by the "storm and waves" which buffeted the vessel, the records show that the court ruled otherwise. It stated:
xxx xxx xxx
... The other affirmative defense of defendant Lighterage, 'That the supposed loss of the logs was occasioned
by force majeure... "was not supported by the evidence. At the time Mable 10 sank, there was no typhoon but
ordinary strong wind and waves, a condition which is natural and normal in the open sea. The evidence shows
that the sinking of Mable 10 was due to improper loading of the logs on one side so that the barge was tilting
on one side and for that it did not navigate on even keel; that it was no longer seaworthy that was why it
developed leak; that the personnel of the tugboat and the barge committed a mistake when it turned loose the
barge from the tugboat east of Cabuli point where it was buffeted by storm and waves, while the tugboat
proceeded to west of Cabuli point where it was protected by the mountain side from the storm and waves
coming from the east direction. ..."
In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier developed a leak which allowed
water to come in and that one of the hatches of said barge was negligently left open by the person in charge thereof causing
more water to come in and that "the loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of
defendant carrier and/or defendant carrier's representatives on barge Mable 10."
It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. The facts
clearly negate the petitioners' claim under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of
Canton, supra, we had occasion to elaborate on the term "perils of the ship." We ruled:
It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results
from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the
negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo under
ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the "peril of
the ship." The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the
ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A.
C., 503, 509), there must, in order to make the insurer liable, be some casualty, something which could not be
foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to secure an
indemnity against accidents which may happen, not against events which must happen.
In the present case the entrance of the sea water into the ship's hold through the defective pipe already
described was not due to any accident which happened during the voyage, but to the failure of the ship's
owner properly to repair a defect of the existence of which he was apprised. The loss was therefore more
analogous to that which directly results from simple unseaworthiness than to that which result from the perils
of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room to doubt the liability of the shipowner
for such a loss as occurred in this case. By parity of reasoning the insurer is not liable; for generally speaking,
the shipowner excepts the perils of the sea from his engagement under the bill of lading, while this is the very
perils against which the insurer intends to give protection. As applied to the present case it results that the
owners of the damaged rice must look to the shipowner for redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of the vessel's crew.
Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or crew in pursuance of some
unlawful or fraudulent purpose without the consent of the owners, and to the prejudice of the owner's interest." (Sec. 171, U.S.
Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1951, p. 929.)
Barratry necessarily requires a willful and intentional act in its commission. No honest error of judgment or mere negligence,
unless criminally gross, can be barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the vessel's crew. There was
only simple negligence or lack of skill. Hence, the second assignment of error must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00 representing the amount of the
salvaged logs should have been awarded to them. However, this should be deducted from the amounts which have been
adjudicated against Manila Bay Lighterage Corporation by the trial court.
WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of P8,000.00 representing the
value of the salvaged logs which was ordered to be deposited in the Manila Banking Corporation in the name of Civil Case No.
86599 is hereby awarded and ordered paid to the petitioners. The liability adjudged against Manila Bay Lighterage Corporation in
the decision of the trial court is accordingly reduced by the same amount.
SO ORDERED.

G.R. No. 204736 November 28, 2016

MANULIFE PHILIPPINES, INC. vs. HERMENEGILDA YBAÑEZ
DEL CASTILLO, J.:
Assailed in this Petition for Review on Certiorari2 are the April 26, 2012 Decision3 of the Court of Appeals (CA) in CA-G.R. CV No.
95561 and its December 10, 2012 Resolution4 which affirmed the April 22, 2008 Decision 5 and the June 15, 2009 Order6 of the
Regional Trial Court (RTC), Branch 57, Makati City in Civil Case No. 04-1119.
Factual Antecedents Before the RTC of Makati City, Manulife Philippines, Inc. (Manulife) instituted a Complaint 7 for Rescission of
Insurance Contracts against Hermenegilda Ybañez (Hermenegilda) and the BPI Family Savings Bank (BPI Family). This was
docketed as Civil Case No. 04-1119.
It is alleged in the Complaint that Insurance Policy Nos. 6066517-1 8 and 6300532-69 (subject insurance policies) which Manulife
issued on October 25, 2002 and on July 25, 2003, respectively, both in favor of Dr. Gumersindo Solidum Ybañez (insured), were
void due to concealment or misrepresentation of material facts in the latter's applications for life insurance, particularly the
forms entitled Non-Medical Evidence dated August 28, 2002 (NME), 10 Medical Evidence Exam dated September 10, 2002
(MEE),11 and the Declaration of Insurability in the Application for Life Insurance (DOI) dated July 9, 2003; 12 that He1menegilda,
wife of the said insured, was revocably designated as beneficiary in the subject insurance policies; that on November 17, 2003,
when one of the subject insurance policies had been in force for only one year and three months, while the other for only four
months, the insured died; that on December 10, 2003, Hermenegilda, now widow to the said insured, filed a Claimant's
Statement-Death Claim13 with respect to the subject insurance policies; that the Death Certificate dated November 17,
200314 stated that the insured had "Hepatocellular CA., Crd Stage 4, secondary to Uric Acid Nephropathy; SAM Nephropathy
recurrent malignant pleural effusion; NASCVC"; that Manulife conducted an investigation into the circumstances leading to the
said insured's death, in view of the aforementioned entries in the said insured's Death Certificate; that Manulife thereafter
concluded that the insured misrepresented or concealed material facts at the time the subject insurance policies were applied
for; and that for this reason Manulife accordingly denied Hermenegilda's death claims and refunded the premiums that the
insured paid on the subject insurance policies.15
Manulife also set forth in said Complaint the details of the insured's supposed misrepresentation/s or concealment/s, to wit:
2.6. On the basis of the authority granted by [Hermenegilda] in her Claimant's
Statement (Annex "H"), [Manulife] conducted an investigation [into] the Insured's medical records and history, and discovered
that the Insured concealed material facts which the law, good faith, and fair dealing required him to reveal when he answered
the [NME] (Annex ''C"), [the MEE] (Annex "D"), and [the DOI] (Annex "E"), as follows:
(1) Insured's confinement at the Cebu Doctors' Hospital [CDH] from 27 December 2000 to 3l December 2000, wherein he
underwent total parotidectomy on 28 December 2000 due to the swelling of his right parotid gland and the presence of a tumor,
and was found to have had a history of being hypertensive, and his kidneys have become atretic or shrunken. A copy of each of
the Admission and Discharge Record and PGIS' Interns' Progress Notes and Operative Record of the [CDH] is attached hereto and
made an integral part hereof as Annex "K", "K-1", and "K-2'', respectively.
(2) Insured's confinement at the CDH from 9 May 2002 to 14 May 2002, wherein he was diagnosed to have acute pancreatitis, in
addition to being hypertensive. A copy [of] each of the Insured's Admission and Discharge Record and Doctor's History/Progress
Notes is attached hereto and made an integral part hereof as Annex "L" and "L-1", respectively.
(3) Insured's diagnosis for leptospirosis in 2000. A copy [of] each of the Insured's Admission and Discharge Record and History
Sheet is attached hereto and made an integral part hereof as Annex "M" and "M-1",respectively.
x x xx
2.8. Due to the Insured's concealment of material facts at the time the subject insurance policies were applied for and issued,
[Manulife] exercised its right to rescind the subject insurance contracts and denied the claims on those policies.
xxxx16
Manulife thus prayed that judgment be rendered finding its act of rescinding the subject insurance policies proper; declaring
these subject insurance policies null and void; and discharging it from any obligation whatsoever under these policies. 17
In her Answer, Hermenegilda countered that:
6. [Manulife's own insurance agent, Ms. Elvira Monteclaros herself] assured [the insured,] that there would be no problem
regarding the application for the insurance policy. In fact, it was Monteclaros who filled up everything in the questionnaire
(Annex "C" of the [C]omplaint), so that [all that the insured needed to do was sign it,] and it's done. [It was also Ms. Monteclaros
who herself] checked in advance all the boxes in Annex "C," [that the insured himself was required to answer or check].
xxxx
10. The four grounds for denial as enumerated in Annex "N" of the complaint are refuted as follows:
1) [The insured's] hospital confinement on 27 December 2000 at [the CDH was] due to right parotid swelling secondary to tumor
[for which he] underwent Parotidectomy on 28 December 2000. (- There is an obvious scar and disfigurement in the right side of
[the insured's] face, in front, and below his ear. This [ought to] have been easily noticed by [Manulife's company] physician, Dr.
[Winifredo] Lumapas.
2) [The insured's] history of Hypertension [has been] noted 03 years prior to [the insured's] admission on 27 December 2000.
(This is not something serious or fatal)
3) [The insured's] history of Leptospirosis in 2000. (This is not confirmed)
4) [The insured's] hospital confinement [at the CDH] on 09 May 2002 with findings of Acute Pancreatitis (This is related to the
gallstones of [the insured]. When the gallbladder is diseased, distention is impossible and its pressure-regulating function is lost -
a fact that may explain high incidence of pancreatitis in patient with cholecystic disease. [The insured] had cholecystitis, so his
acute pancreatitis is related to the cholecystitis and chol[e]lithiasis (gallstones).
x x xx
11. [Manulife] accepted [the insured's] application, and now that a claim for the benefits [is] made, [Manulife now] says that [the
insured] misrepresented and concealed his past illnesses[!] In the form filled up by [Dr. Winifredo F. Lumapas,] Manulife's
[company] physician, dated 9/10/02, [the insured] checked the column which says ''yes" [to] the following questions:
• Have you had electrocardiograms, when, why, result? ([Manulife's company physician] wrote the answer which stated that
result was normal.) ' .
• Have you seen a doctor, or had treatment operation on hospital case during the last five years?
12. x x x It is rather strange that [the insured's] parotidectomy was not included in the report when the scar of that operation can
not be concealed because it caused a disfigurement in the right side. of his face in front and below his ear. This is just too obvious
to be overlooked by [Manulife's company physician] who examined and interviewed [the insured] before accepting the policy. x x
x
13. x x x [Undoubtedly, Manulife] had the option to inquire further [into the insured's physical condition, because the insured
had given it authority to do so] based on the authority given by [the insured. And how come that Manulife] was able to gather all
[these] information now and not before [the insured] was ensured? x x x
xxxx
16. Moreover, in the comments of [the said] Dr. Lumapas, (Annex "D" of the Complaint), he said the physical condition of [the]
then prospective insurance policy holder, [the insured, was] "below average". x x x [Estoppel now bars Manulife from claiming
the contrary.]
17. [Especially] worth noting are the [following] comments of [the said Dr. Lumapas, on the insured's answer to the
questionnaires] - (Annex "D" of the Complaint ). [to wit:]
"4.d. Have you had any electrocardiograms, when, why, result. "Yes"
- on June 2002 at CDH, Cebu City
= Cardiac clearance for surgery
= Result normal
16. Have you seen a doctor, or had treatment, operation or hospital care during the last 5 years? "Yes" admitted at [CDH,] Cebu
City by Dr. Lamberto Garcia and Dr. Jorge Ang for Chronic Calculous Chol[e]cystitis
=Cholecystectomy done [J]une 7[,] 2002 by Dr. Ang
=Biopsy: Gallbladder Chronic Calculous Cholestitis
=CBC, Hepatitis Panel done – all negative results except hepatitis antigen(+)
18. Do you consume alcohol beverages? If so, how much? Yes, consumes 1-2 shots of whisky during socials.
25. The abdomen - Abnormality of any viscus, genitalia or evidence of hemia or operation - post cholecystectomy scar.
26. The head and neck - vision, optic, fundi, hearing, speech, thyroid etc. Yes wears eyeglasses for reading. (This is where
[Manulife's company physician] should have written the scar of [the insured's] parotidectomy as shown in the picture).
32. From your knowledge of this person would you consider his/ her health to be Average [] Below average[/] Poor []
18. It is interesting to note that the answers in the insurance agent's form for [the insured] (Annex "C" of the Complaint)
did not jibe with the answers [made by] Dr. Lumapas in Annex "D" of the Complaint. This only boosts Hermenegilda's claim that x
x x indeed, it was the Manulife's agent herself, (Ms. Montesclaros) who checked all the items in the said form to speed up the
insurance application and its approval, [so she could] get her commission as soon as possible.
19. In fine, at the time when both insurance policies in question were submitted for approval to [Manulife, the latter had had all
the forewarnings that should have put it on guard or on notice that things were not what it wanted them to be, reason enough
to bestir it into exercising greater prudence and caution to further inquire into] the health or medical history of [the insured]. In
particular, Manulife ought to have noted the fact that the insured was at that time already 65 years old, x x x that he had a
previous operation, and x x x that his health was "below average. x x x 18
On November 25, 2005, BPI Family filed a Manifestation 19 praying that either it be dropped from the case or that the case be
dismissed with respect to it (BPI Family), because it no longer had any interest in the subject insurance policies as asssignee
because the insured’s obligation with it (BPI Family) had already been settled or paid. Since no objection was interposed to this
prayer by either Manulife or Hermenegilda, the RTC granted this prayer in its Order of November 25, 2005. 20
Then in the Second Order dated November 25, 2005, 21 the RTC considered the pre-trial as te1minated. Trial then ensued.
Manulife presented its sole witness in the person of Ms. Jessiebelle Victoriano (Victoriano ), the Senior Manager of its Claims and
Settlements Department.22 The oral testimony of this witness chiefly involved identifying herself as the Senior Manager of
Manulife's Claims and Settlements Department and also identifying the following pieces of evidence; 23 the subject insurance
policies; NME, MEE, DOI; the Assignment of Policy No. 6066517-1 to BPI Family as collateral, dated July 9, 2003; its Letter dated
July 10, 2003 re: assignment of said Policy; death claim filed by Hermenegilda on December 10, 2003; the insured's Death
Certificate; the Marriage Contract between the insured and Hermenegilda; copies of CDH's Admission and Discharge Records of
the insured for December 2000 re:parotidectomy; copies of CDH's PGIS' Interns' Notes and CDH Operative Record dated
December 28, 2000 re:hypertension; copies of CDH's Admission and Discharge Record of the insured for May 2002, and the
Doctor's History/Progress Notes re: acute pancreatitis and hypertension; copies of CDH's Admission and Discharge Record of the
insured for October 2003 re: leptospirosis; letters dated March 24, 2004 to Hermenegilda and BPI Family; and BPI Checks
deposited on April 10, 2004 and May 14, 2004 to the bank accounts of BPI Family and Hermenegilda, respectively, representing
the premium refund.
In its Order of October 2, 2006, 24 the RTC admitted all these exhibits.
Like Manulife, Hermenegilda, in amplication of her case, also called only one witness to the witness stand: her counsel of record,
Atty. Edgardo Mayol (Atty. Mayol), whose testimony focused on his professional engagement with Hermenegilda and the
monetary expenses he incurred in attending to the hearings in this case. 25Hermenegilda thereafter filed her Formal Offer of
Evidence26 wherein she proffered the following: NME, MEE, DOI, the insured's driver's license, her letter dated May 8, 2004
protesting the denial by Manulife of her insurance claim, the contract of services between her and Atty. Mayol, the official
receipts for plane tickets, terminal fees, and boarding passes, attesting to Atty. Mayol's plane travels to and from Cebu City to
attend to this case. These were all admitted by the RTC. 27
Ruling of the Regional Trial Court
After due proceedings, the RTC dismissed Manulife's Complaint, thus:
WHEREFORE, premises duly considered, judgment is hereby rendered DISMISSING the instant case for insufficiency of evidence.
[Manulife] is hereby ordered to pay [Hermenegilda] actual expenses in the sum of ₱40,050.00 and attorney's fees in the sum of
₱l00,000. [Hermenegilda's] claim for moral and exemplary damages is denied for lack of evidence.
SO .ORDERED.28
The RTC found no merit at all in Manulife's Complaint for rescission of the subject insurance policies because it utterly failed to
prove that the insured had committed the alleged misrepresentation/s or concealment/s. In fact, Victoriano, the one and only
witness that Manulife called to the witness stand, gave no first-hand, direct evidence at all relative to the particulars of the
alleged misrepresentation/s or concealment/s that the insured allegedly practiced or committed against it. This witness did not
testify at all in respect to the circumstances under which these documentary exhibits were executed, nor yet about what these
documentary exhibits purported to embody. The RTC stressed that the CDH medical records that might or could have established
the insured's misrepresentation/s or concealment/s were inadmissible for being hearsay, because Manulife did not present the
physician or doctor, or any responsible official of the CDH, who could confirm the due execution and authenticity of its medical
records; that if anything, Manulife itself admitted in its Reply 29 that its very own company physician, Dr. Winifredo Lumapas, had
duly noted the insured's scar, even as the same company physician also categorized in the MEE the insured's health as "below
average"; and that in short, it is evident that Manulife thus had had ample opportunity to verify and to inquire further into the
insured' s medical history commencing from the date of the MEE but opted not to do so; and that if things did not come up to its
standards or expectations, it was totally at liberty to reject the insured's applications altogether, or it could have demanded a
higher premium for the insurance coverage.
The RTC further ruled that Hermenegilda was entitled to attorney's fees in the sum of ₱l00,000.00 and actual expenses in the
amount of ₱40,050.00, because she was compelled to litigate to defend her interest against Manulife' s patently unjustified act
in rejecting her clearly valid and lawful claim. The RTC also found merit in Hermenegilda’s claims relative to the expenses she
paid her Cebu-based counsel.
In its Order of June 15, 2009,30 the RTC denied for lack of merit Manulife's motion for reconsideration 31 and Hermenegilda's
motion for partial reconsideration. From the RTC's Decision, Manulife filed a Notice of Appeal 33 which was given due course by
the RTC in its Order of June 11, 2010.34
Ruling of the Court of Appeals
In its appellate review, the CA virtually adopted en toto the findings of facts made by, and the conclusions of law arrived at, by
the RTC. Thus, the CA decreed:
WHEREFORE, the instant appeal is DENIED. The assailed Decision dated April 22, 2008 and Order dated June 15, 2009 of the
Regional Trial Court of Makati, Branch 57, are hereby AFFIRMED.
SO ORDERED.35
The CA, like the RTC, found Manulife's Complaint bereft of legal and factual bases. The CA ruled that it is settled that
misrepresentation or concealment in insurance is an affirmative defense, which the insurer must establish by convincing
evidence if it is to avoid liability; and that in this case the one and only witness presented by Manulife utterly failed to prove the
basic elements of the alleged misrepresentation/s or concealment/s of material facts imputed by Manulife against the now
deceased insured. The CA held that there is no basis for Manulife's claim that it is exempted from the duty of proving the
insured's supposed misrepresentation/s or concealment/s, as these had allegedly been admitted already in Hermenegilda's
Answer; that in the absence of authentication by a competent witness, the purported CDH medical records of the insured are
deemed hearsay hence, inadmissible, and devoid of probative value; and that the medical certificate, even if admitted in
evidence as an exception to the hearsay rule, was still without probative value because the physician or doctor or the hospital's
official who issued it, was not called to the witness stand to validate it or to attest to it.
Manulife moved for reconsideration36 of the CA's Decision, but this was denied by the CA in its Resolution of December 10,
2012;37 hence, the present recourse.
Issue: Whether the CA committed any reversible error in affirming the RTC Decision dismissing Manulife's Complaint for
rescission of insurance contracts for failure to prove concealment on the part of the insured.
Our Ruling
The present recourse essentially challenges anew the findings of fact by both the RTC and the CA that the Complaint for
rescission of the insurance policies in question will not prosper because Manulife failed to prove concealment on the part of the
insured. This is not allowed. It is horn-book law that in appeal by certiorari to this Court under Rule 45 of the Revised Rules of
Court, the findings of fact by the CA, especially where such findings of fact are affirmatory or confirmatory of the findings of fact
of the RTC, as in this case, are conclusive upon this Court. The reason is simple: this Court not being a trial court, it does not
embark upon the task of dissecting, analyzing, evaluating, calibrating or weighing all over again the evidence, testimonial or
documentary, that the parties adduced during trial. Of course, there are exceptions to this rule, such as (1) when the conclusion
is grounded upon speculations, surmises or conjectures; (2) when the inference is manifestly mistaken, absurd or impossible; (3)
when there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings
of fact are conflicting; (6) when there is no citation of specific evidence on which the factual findings are based; (7) when the
findings of absence of facts is contradicted by the presence of evidence on record; (8) when the findings of the CA are contrary to
the findings of the RTC; (9) when the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion; (10) when the findings of the CA are beyond the issues of the case; and (11) when the CA’s
findings are contrary to the admission of both parties.38 We are satisfied that none of these exceptions obtains in the Petition at
bench. Thus, this Court must defer to the findings of fact of the RTC – as affirmed or confirmed by the CA – that Manulife’s
Complaint for rescission of the insurance policies in question was totally bereft of factual and legal bases because it had utterly
failed to prove that the insured had committed the alleged misrepresentation/s or concealment/s of material facts imputed
against him. The RTC correctly held that the CDH’s medical records that might have established the insured’s purported
misrepresentation/s or concealment/s was inadmissible for being hearsay, given the fact that Manulife failed to present the
physician or any responsible official of the CDH who could confirm or attest to the due execution and authenticity of the alleged
medical records. Manulife had utterly failed to prove by convincing evidence that it had been beguiled, inveigled, or cajoled into
selling the insurance to the insured who purportedly with malice and deceit passed himself off as thoroughly sound and healthy,
and thus a fit and proper applicant for life insurance. Manulife's sole witness gave no evidence at all relative to the particulars of
the purported concealment or misrepresentation allegedly perpetrated by the insured. In fact, Victoriano merely perfunctorily
identified the documentary exhibits adduced by Manulife; she never testified in regard to the circumstances attending the
execution of these documentary exhibits much less in regard to its contents. Of course, the mere mechanical act of identifying
these documentary exhibits, without the testimonies of the actual participating parties thereto, adds up to nothing. These
documentary exhibits did not automatically validate or explain themselves. "The fraudulent intent on the part of the insured
must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability
is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
insurer."39For failure of Manulife to prove intent to defraud on the part of the insured, it cannot validly sue for rescission of
insurance contracts.
WHEREFORE, the Petition is DENIED. The assailed Decision of the Court of Appeals dated April 26, 2012 in CA-G.R. CV No. 95561
and its December 10, 2012 Resolution, are AFFIRMED. SO ORDERED.
G.R. No. 185565 November 26, 2014
LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR INTERNATIONAL SHIPPING COMPANY, INCORPORATED
vs. MALAYAN INSURANCE COMPANY, INCORPORATED
REYES, J.:
This is a Petition for Review on Certiorari 1 filed by Loadstai Shipping Company, Incorporated and Loadstar International Shipping
Company, Incorporated (petitioners) against Malayan Insurance Company, Incorporated (Malayan) seeking to set aside the
Decision2 dated April 14, 2008 and Resolution3 dated December 11, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 82758,
which reversed and set aside the Decision4 dated March 31, 2004 of the Regional Trial Court of Manila, Branch 34, in Civil Case
No. 01-101885.
The facts as found by the CA, are as follows:
Loadstar International Shipping, Inc.(Loadstar Shipping) and Philippine Associated Smelting and Refining Corporation (PASAR)
entered into a Contract of Affreightment for domestic bulk transport of the latter’s copper concentrates for a period of one year
from November 1, 1998 to October 31, 1999. The contract was extended up to the end of October 2000.
On September 10, 2000, 5,065.47 wet metric tons (WMT) of copper concentrates were loaded in Cargo Hold Nos. 1 and 2 of MV
"Bobcat", a marine vessel owned by Loadstar International Shipping Co., Inc. (Loadstar International) and operated by Loadstar
Shipping under a charter party agreement. The shipper and consignee under the Bill of Lading are Philex Mining Corporation
(Philex) and PASAR, respectively. The cargo was insured with Malayan Insurance Company, Inc. (Malayan) under Open Policy No.
M/OP/2000/001-582. P & I Association is the third party liability insurer of Loadstar Shipping.
On said date (September 10, 2000), MV "Bobcat" sailed from Poro Point, San Fernando, La Union bound for Isabel, Leyte. On
September 12, 2000, while in the vicinity of Cresta de Gallo, the vessel’s chief officer on routine inspection found a crack on
starboard sideof the main deck which caused seawater to enter and wet the cargo inside Cargo Hold No. 2 forward/aft. The
cracks at the top deck starboard side of Cargo Hold No. 2, measuring 1.21 meters long x 0.39 meters wide, and at top deck aft
section starboard side on other point, measuring 0.82 meters long x 0.32 meters wide, were welded.
Immediately after the vessel arrived at Isabel, Leyte anchorage area, on September 13, 2000, PASAR and Philex’s representatives
boarded and inspected the vessel and undertook sampling of the copper concentrates. In its preliminary report dated September
15, 2000, the Elite Adjusters and Surveyor, Inc. (Elite Surveyor) confirmed that samples of copper concentrates from Cargo Hold
No. 2 were contaminated by seawater. Consequently, PASAR rejected 750 MT of the 2,300 MT cargo discharged from Cargo Hold
No. 2.
On November 6, 2000, PASAR sent a formal notice of claim in the amount of [P]37,477,361.31 to Loadstar Shipping. In its final
report dated November 16, 2000, Elite Surveyor recommended payment to the assured the amount of [P]32,351,102.32 as
adjusted. On the basis of such recommendation, Malayan paid PASAR the amount of [P]32,351,102.32.
Meanwhile, on November 24, 2000, Malayan wrote Loadstar Shipping informing the latter of a prospective buyer for the
damaged copper concentrates and the opportunity to nominate/refer other salvage buyers to PASAR. On November 29, 2000,
Malayan wrote Loadstar Shipping informing the latter of the acceptance of PASAR’s proposal to take the damaged copper
concentrates at a residual value of US$90,000.00. On December 9, 2000, Loadstar Shipping wrote Malayan requesting for the
reversal of its decision to accept PASAR’s proposal and the conduct of a public bidding to allow Loadstar Shipping to match or top
PASAR’s bid by 10%.
On January 23, 2001, PASAR signed a subrogation receipt in favor of Malayan. To recover the amount paid and in the exercise of
its right of subrogation, Malayan demanded reimbursement from Loadstar Shipping, which refused to comply. Consequently, on
September 19, 2001, Malayan instituted with the RTC a complaint for damages. The complaint was later amended to include
Loadstar International as party defendant.
In its amended complaint, Malayan mainly alleged that as a direct and natural consequence of the unseaworthiness of the
vessel, PASAR suffered loss of the cargo. It prayed for the amount of [P]33,934,948.75, representing actual damages plus legal
interest fromdate of filing of the complaint until fully paid, and attorney’s fees in the amount of not less than [P]500,000.00. It
also sought to declare the bill of lading as void since it violates the provisions of Articles 1734 and 1745 of the Civil Code.
On October 30, 2002, Loadstar Shipping and Loadstar International filed their answer with counterclaim, denying plaintiff
appellant’s allegations and averring as follows: that they are not engaged in the business as common carriers but as private
carriers; that the vessel was seaworthy and defendants-appellees exercised the required diligence under the law; that the entry
of water into Cargo Hold No. 2 must have been caused by force majeureor heavy weather; that due to the inherent nature of the
cargo and the use of water in its production process, the same cannot be considered damaged or contaminated; that
defendants-appellees were denied reasonable opportunity to participate in the salvage sale; that the claim had prescribed in
accordance with the bill of lading provisions and the Code of Commerce; that plaintiff-appellant’s claim is excessive, grossly
overstated, unreasonable and unsubstantiated; that their liability, if any, should not exceed the CIFvalue of the lost/damaged
cargo as set forth in the bill of lading, charter party or customary rules of trade; and that the arbitration clause in the contract of
affreightment should be followed.
After trial, and considering that the billof lading, which was marked as Exhibit "B", is unreadable, the RTC issued on February 17,
2004 an order directing the counsel for Malayan to furnish it with a clearer copy of the same within three (3) days from receipt of
the order. On February 23, 2004, Malayan filed a compliance attaching thereto copy of the bill of lading.
On March 31, 2004, the RTC rendered a judgment dismissing the complaint as well as the counterclaim. The RTC was convinced
that the vessel was seaworthy at the time of loading and that the damage was attributable to the perils of the sea (natural
disaster) and not due to the fault or negligence of Loadstar Shipping.
The RTC found that although contaminated by seawater, the copper concentrates can still be used. Itgave credence to the
testimony of Francisco Esguerra, defendants-appellees’ expert witness, that despite high chlorine content, the copper
concentrates remain intact and will not lose their value. The gold and silver remain with the grains/concentrates even if soaked
with seawater and does not melt. The RTC observed that the purchase agreement between PASAR and Philex contains a penalty
clause and has no rejection clause. Despite this agreement, the parties failed to sit down and assess the penalty.
The RTC also found that defendants-appellees were not afforded the opportunity to object or participate or nominate a
participant in the sale of the contaminated copper concentrates to lessen the damages to be paid. No record was presented to
show that a public bidding was conducted. Malayan sold the contaminated copper concentrates to PASAR at a low price then
paid PASAR the total value of the damaged concentrate without deducting anything from the claim.
Finally, the RTC denied the prayer to declare the Bill of Lading null and void for lack of basis because what was attached to
Malayan’s compliance was still an unreadable machine copy thereof. 5 (Citations omitted)
Ruling of the CA
On April 14, 2008, the CA rendered its Decision, 6 the dispositive portion of which reads: WHEREFORE, the appeal is GRANTED.
The Decision dated March 31, 2004 of the RTC, Branch 34, Manila in Civil Case No. 01-101885, is REVERSED and SET ASIDE. In lieu
thereof, a new judgment is entered, ORDERING defendants-appellees to pay plaintiff-appellant ₱33,934,948.75 as actual
damages, plus legal interest at 6% annually from the date of the trial court’s decision. Upon the finality of the decision, the total
amount of the judgment shall earn annual interest at 12% until full payment.
SO ORDERED.7
On December 11, 2008, the CA modified the above decision through a Resolution, 8 the fallo thereof states:
WHEREFORE, the Motion for Reconsiderationis PARTLY GRANTED. The decision of this Court dated April 14, 2008 is PARTIALLY
RECONSIDERED and MODIFIED. Defendants-appellees are ORDERED to pay to plaintiff-appellant ₱33,934,948.74 as actual
damages, less US$90,000.00, computed at the exchange rate prevailing on November 29, 2000, plus legal interest at 6% annually
from the date of the trial court’s decision. Upon the finality of the decision, the total amount of the judgment shall earn annual
interest at 12% until full payment.
SO ORDERED.9
The CA discussed that the amount of US$90,000.00 should have been deducted from Malayan’s claim against the petitioners in
order to prevent undue enrichment on the part of Malayan. Otherwise, Malayan would recover from the petitioners not merely
the entire amount of 33,934,948.74 as actual damages, but would also end up unjustly enriching itself in the amount of
US$90,000.00 – the residual value of the subject copper concentrates it sold to Philippine Associated Smelting and Refining
Corporation (PASAR) on November 29, 2000.10 Issues
In sum, the grounds presented by the petitioners for the Court’s consideration are the following:
I.
THE [CA] HAS NO BASIS IN REVERSING THE DECISION OF THE TRIAL COURT. THERE IS NOTHING IN THE DECISION OF THE
HONORABLE COURT THAT REVERSED THE FACTUAL FINDINGS AND CONCLUSIONS OF THE TRIAL COURT, THAT THERE WAS NO
ACTUAL LOSS OR DAMAGE TO THE CARGO OF COPPER CONCENTRATES WHICH WOULD MAKE LOADSTAR AS THE SHIPOWNER
LIABLE FOR A CARGO CLAIM. CONSEQUENTLY, THERE IS NO BASIS FOR THE COURT TO ORDER LOADSTAR TO PAY ACTUAL
DAMAGES IN THE AMOUNT OF PH₱33 MILLION.11
II.
M/V BOBCAT IS A PRIVATE CARRIER, THE HONORABLE COURT HAD NO BASIS IN RULING THAT IT IS A COMMON CARRIER. THE
DECISION OF THE TRIAL COURT IS BEREFT OF ANY CATEGORICAL FINDING THAT M/V BOBCAT IS A COMMON CARRIER. 12
III.
THE HONORABLE COURT OFAPPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT RESPONDENT’S PAYMENT TO PASAR,
ON THE BASIS OF THE LATTER’S FRAUDULENT CLAIM, ENTITLED RESPONDENT AUTOMATIC RIGHT OF RECOVERY BY VIRTUE OF
SUBROGATION.13
Ruling of the Court
I. Proof of actual damages
It is not disputed that the copper concentrates carried by M/V Bobcat from Poro Point, La Union to Isabel, Leyte were indeed
contaminated with seawater. The issue lies on whether such contamination resulted to damage, and the costs thereof, if
any,incurred by the insured PASAR.
The petitioners argued that the copper concentrates, despite being dampened with seawater, is neither subject to penalty nor
rejection. Under the Philex Mining Corporation (Philex)-PASAR Purchase Contract Agreement, there is no rejection clause.
Instead, there is a pre-agreed formula for the imposition of penalty in case other elements exceeding the provided minimum
level would be found on the concentrates. 14 Since the chlorine content on the copper concentrates is still below the minimum
level provided under the Philex-PASAR purchase contract, no penalty may be imposed against the petitioners. 15
Malayan opposed the petitioners’ invocation of the Philex-PASAR purchase agreement, stating that the contract involved in this
case is a contract of affreightment between the petitioners and PASAR, not the agreement between Philex and PASAR, which was
a contract for the sale of copper concentrates. 16
On this score, the Court agrees withMalayan that contrary to the trial court’s disquisition, the petitioners cannot validly invoke
the penalty clause under the Philex-PASAR purchase agreement, where penalties are to be imposed by the buyer PASAR against
the seller Philex if some elements exceeding the agreed limitations are found on the copper concentrates upon delivery. The
petitioners are not privy tothe contract of sale of the copper concentrates. The contract between PASAR and the petitioners is a
contract of carriage of goods and not a contract of sale. Therefore, the petitioners and PASAR are bound by the laws on
transportation of goods and their contract of affreightment. Since the Contract of Affreightment 17 between the petitioners and
PASAR is silent as regards the computation of damages, whereas the bill of lading presented before the trial court is
undecipherable, the New Civil Code and the Code ofCommerce shall govern the contract between the parties.
Malayan paid PASAR the amount of 32,351,102.32 covering the latter’s claim of damage to the cargo. 18 This is based on the
recommendation of Elite Adjustors and Surveyors, Inc. (Elite) which both Malayan and PASAR agreed to. The computation of Elite
is presented as follows:
Computation of Loss Payable.We computed for the insured value of the loss and loss payable, based on the following pertinent
data:
1) Total quantity shipped - 5,065.47 wet metric tons and at risk or (Risk Note and B/L) 4,568.907 dry metric tons
2) Total sum insured - [P]212,032,203.77 (Risk Note and Endorsement)
3) Quantity damaged: 777.290 wet metric tons or (Pasar Laboratory Cert. & 696.336 dry metric tons discharge &
sampling Cert.dated September 21, 2000)
Computation:
Total sum insured x Qty. damaged= Insured value of damage
Total Qty. in DMT (DMT) (DMT)
[P] 212,032,203.77 x 696.336 DMT = [P]32,315,312.32
4,568.907 DMT
Insured value of damage = [P] 32,315,312.32 19
Based on the preceding computation, the sum of ₱32,315,312.32 represents damages for the total loss ofthat portion of the
cargo which were contaminated with seawater and not merely the depreciation in its value. Strangely though, after claiming
damages for the total loss of that portion, PASAR bought back the contaminated copper concentrates from Malayan at the price
of US$90,000.00. The fact of repurchase is enough to conclude that the contamination of the copper concentrates cannot be
considered as total loss on the part of PASAR.
The following provisions of the Code of Commerce state how damages on goods delivered by the carrier should be appraised:
Article 361. The merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been expressly
stipulated. As a consequence, all the losses and deteriorations which the goods may suffer during the transportation by reason of
fortuitous event, force majeure, or the inherent nature and defect of the goods, shall be for the account and risk of the shipper.
Proof of these accidents is incumbent upon the carrier.
Article 362. Nevertheless, the carrier shall be liable for the losses and damages resulting from the causes mentioned in the
preceding article if it is proved, as against him, that they arose through his negligence or by reason of his having failed to take the
precautions which usage has established among careful persons, unless the shipper has committed fraud in the bill of lading,
representing the goods to be of a kind or quality different from what they really were.
If, notwithstanding the precautions referred to in this article, the goods transported run the risk of being lost, on account of their
nature or by reason of unavoidable accident, there being no time for their owners to dispose of them, the carrier may proceed to
sell them, placing them for this purpose at the disposal of the judicial authority or of the officials designated by special
provisions.
xxxx
Article 364. If the effect of the damage referred to in Article 361 is merely a diminution in the value of the goods, the obligation
of the carrier shall be reduced to the payment of the amount which, in the judgment of experts, constitutes such difference in
value.
Article 365. If, in consequence of the damage, the goods are rendered useless for sale and consumption for the purposes for
which they are properly destined, the consignee shall not be bound to receive them, and he may have them in the hands of the
carrier, demanding of the latter their value at the current price on that day.
If among the damaged goods there should be some pieces in good condition and without any defect, the foregoing provision
shall be applicable with respect to those damaged and the consignee shall receive those which are sound, this segregation to be
made by distinct and separate pieces and without dividing a single object, unless the consignee proves the impossibility of
conveniently making use of them in this form.
The same rule shall be applied to merchandise in bales or packages, separating those parcels which appear sound.
From the above-cited provisions, if the goods are delivered but arrived at the destination in damaged condition, the remedies to
be pursued by the consignee depend on the extent of damage on the goods.
If the goods are rendered useless for sale, consumption or for the intended purpose, the consignee may reject the goods and
demand the payment of such goods at their marketprice on that day pursuant to Article 365. In case the damaged portion of the
goods can be segregated from those delivered in good condition, the consignee may reject those in damaged condition and
accept merely those which are in good condition. But if the consignee is able to prove that it is impossible to use those goods
which were delivered in good condition without the others, then the entire shipment may be rejected. To reiterate, under Article
365, the nature of damage must be such that the goods are rendered useless for sale, consumption or intended purpose for the
consignee to be able to validly reject them.
If the effect of damage on the goods consisted merely of diminution in value, the carrier is bound to pay only the difference
between its price on that day and its depreciated value as provided under Article 364.
Malayan, as the insurer of PASAR, neither stated nor proved that the goods are rendered useless or unfit for the purpose
intended by PASAR due to contamination with seawater. Hence, there is no basis for the goods’ rejection under Article 365 of the
Code of Commerce. Clearly, it is erroneous for Malayan to reimburse PASAR as though the latter suffered from total loss of goods
in the absence of proof that PASAR sustained such kind of loss. Otherwise, there will be no difference inthe indemnification of
goods which were not delivered at all; or delivered but rendered useless, compared against those which were delivered albeit,
there is diminution in value.
Malayan also failed to establish the legal basis of its decision to sell back the rejected copper concentrates to PASAR. It cannot be
ascertained how and when Malayan deemed itself asthe owner of the rejected copper concentrates to have these validly
disposed of. If the goods were rejected, it only means there was no acceptance on the part of PASAR from the carrier.
Furthermore, PASAR and Malayan simply agreed on the purchase price of US$90,000.00 without any allegation or proof that the
said price was the depreciated value based on the appraisal of experts as provided under Article 364 of the Code of Commerce.
II. Subrogation of Malayan to the rights of PASAR
Malayan’s claim against the petitioners is based on subrogation to the rights possessed by PASAR as consignee of the allegedly
damaged goods. The right of subrogation stems from Article 2207 of the New Civil Code which states:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrong doer or the person who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
"The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment of the insurance claim by the insurer." 20 The right of subrogation is however, not absolute.
"There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third
party liable for the loss or damage, from liability, the insurer’s right of subrogation is defeated. x x x Similarly, where the insurer
pays the assured the value of the lostgoods without notifying the carrier who has in good faith settled the assured’s claim for
loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his
right of subrogation. x x x And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby
effecting ‘voluntary payment,’ the former has no right of subrogation against the third party liable for the loss x x x." 21
The rights of a subrogee cannot be superior to the rights possessed by a subrogor. "Subrogation is the substitution of one person
in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other
in relation to a debt or claim, including its remedies or securities. The rights to which the subrogee succeeds are the same as, but
not greaterthan, those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the
subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect
steps into the shoes of the insured and can recover only ifthe insured likewise could have recovered." 22 Consequently, an insurer
indemnifies the insured based on the loss or injury the latter actually suffered from. If there is no loss or injury, then there is no
obligation on the part of the insurer to indemnify the insured. Should the insurer pay the insured and it turns out that
indemnification is not due, or if due, the amount paid is excessive, the insurer takes the risk of not being able to seek
recompense from the alleged wrongdoer. This is because the supposed subrogor did not possessthe right to be indemnified and
therefore, no right to collect is passed on to the subrogee. As regards the determination of actual damages, "[i]t is axiomatic that
actual damages must be proved with reasonable degree of certainty and a party is entitled only to such compensation for the
pecuniary loss that was duly proven."23 Article 2199 of the New Civil Code speaks of how actual damages are awarded:
Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.
Whereas the CA modified its Decision dated April 14, 2008 by deducting the amount of US$90,000.00 fromthe award, the same
is still iniquitous for the petitioners because PASAR and Malayan never proved the actual damages sustained by PASAR. It is a
flawed notion to merely accept that the salvage value of the goods is US$90,000.00, since the price was arbitrarily fixed between
PASAR and Malayan. Actual damages to PASAR, for example, could include the diminution in value as appraised by experts or the
expenses which PASAR incurred for the restoration of the copper concentrates to its former condition, ifthere is damage and
rectification is still possible.
It is also note worthy that when the expert witness for the petitioners, Engineer Francisco Esguerra (Esguerra), testified as
regards the lack of any adverse effect of seawater on copper concentrates, Malayan never presented evidence of its own in
refutation to Esguerra’s testimony. And, even if the Court will disregard the entirety of his testimony, the effect on Malayan’s
cause of action is nil. As Malayan is claiming for actual damages, it bears the burden of proof to substantiate its claim.
"The burden of proof is on the party who would be defeated if no evidence would be presented on either side. The burden is to
establish one’s case by a preponderance of evidence which means that the evidence, as a whole, adduced by one side, is
superior tothat of the other. Actual damages are not presumed. The claimant must prove the actual amount of loss with a
reasonable degree of certainty premised upon competent proof and on the best evidence obtainable. Specific facts that could
afford a basis for measuring whatever compensatory or actual damages are borne must be pointed out. Actual damages cannot
be anchored on mere surmises, speculations or conjectures." 24
Having ruled that Malayan did not adduce proof of pecuniary loss to PASAR for which the latter was questionably indemnified,
there is no necessity to expound further on the other issues raised by the petitioners and Malayan in this case.
WHEREFORE, the petition is GRANTED. The Decision dated April 14, 2008 and Resolution dated December 11, 2008 of the Court
of Appeals in CA-G.R. CV No. 82758 are hereby REVERSED and SET ASIDE. The Decision dated March 31, 2004 of the Regional
Trial Comi of Manila, Branch 34 in Civil Case No·. 01-101885 is REINSTATED.
SO ORDERED.

G.R. No. 198174 September 2, 2013

ALPHA INSURANCE AND SURETY CO. vs. ARSENIA SONIA CASTOR
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision 1 dated May 31, 2011
and Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-00186, with petitioner,
involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to pay the respondent the
amount of Six Hundred Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to said vehicle during the period covered,
which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the above-
described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor vehicle to respondent and
despite diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly reported the incident to
the police and concomitantly notified petitioner of the said loss and demanded payment of the insurance proceeds in the total
sum of ₱630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others, thus:
Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which states that the culprit,
who stole the Insure[d] unit, is employed with you. We would like to invite you on the provision of the Policy under Exceptions to
Section-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE INSURED’S SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception refers to
damage of the motor vehicle and not to its loss. However, petitioner’s denial of respondent’s insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the Regional Trial Court
(RTC) of Quezon City on September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the
latter as follows:
To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time of demand up to the time the
amount is fully settled;
To pay attorney’s fees in the sum of ₱65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual basis. 3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated December 19, 2008, of Branch
215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution dated August 10,
2011.
Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION
WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION DOES
NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR
UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY
WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN
IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT. 5
Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
SECTION III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Schedule Vehicle and
its accessories and spare parts whilst thereon:
(a)
by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon
wear and tear;
(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c)
by malicious act;
(d)
whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland waterway, lift or
elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and every loss for
each and every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the Insured’s estimate of Fair
Market Value as shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service. 6
In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of "Exceptions
to Section III," means loss due to injury or harm to person, property or reputation, and should be construed to cover malicious
"loss" as in "theft." Thus, it asserts that the loss of respondent’s vehicle as a result of it being stolen by the latter’s driver is
excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by the driver of the insured
is not an exception to the coverage from the insurance policy, since Section III thereof did not qualify as to who would commit
the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy subject of this case.
This is evident from the very provision of Section III – "Loss or Damage." The insurance company, subject to the limits of liability,
is obligated to indemnify the insured against theft. Said provision does not qualify as to who would commit the theft. Thus, even
if the same is committed by the driver of the insured, there being no categorical declaration of exception, the same must be
covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for
which the parties entered into the contract which is to insure against risks of loss or damage to the goods. Such interpretation
should result from the natural and reasonable meaning of language in the policy. Where restrictive provisions are open to two
interpretations, that which is most favorable to the insured is adopted." The defendant would argue that if the person employed
by the insured would commit the theft and the insurer would be held liable, then this would result to an absurd situation where
the insurer would also be held liable if the insured would commit the theft. This argument is certainly flawed. Of course, if the
theft would be committed by the insured himself, the same would be an exception to the coverage since in that case there would
be fraud on the part of the insured or breach of material warranty under Section 69 of the Insurance Code. 7
Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their
plain, ordinary and popular sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying
the excluded classes therein are to be given their meaning as understood in common speech. 9
Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary usage. The word "loss"
refers to the act or fact of losing, or failure to keep possession, while the word "damage" means deterioration or injury to
property.1âwphi1
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under paragraph 4 of
"Exceptions to Section III," since the same refers only to "malicious damage," or more specifically, "injury" to the motor vehicle
caused by a person under the insured’s service. Paragraph 4 clearly does not contemplate "loss of property," as what happened
in the instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions from coverage,
is the damage that is the direct result from the deliberate or willful act of the insured, members of his family, and any person in
the insured’s service, whose clear plan or purpose was to cause damage to the insured vehicle for purposes of defrauding the
insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly delineate between the
terms "loss" and "damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic dictates that it
should have used the term "damage" alone in the entire policy or otherwise included a clear definition of the said term as part of
the provisions of the said insurance contract. Which is why the Court finds it puzzling that in the said policy’s provision detailing
the exceptions to the policy’s coverage in Section III thereof, which is one of the crucial parts in the insurance contract, the
insurer, after liberally using the words "loss" and "damage" in the entire policy, suddenly went specific by using the word
"damage" only in the policy’s exception regarding "malicious damage." Now, the defendant-appellant would like this Court to
believe that it really intended the word "damage" in the term "malicious damage" to include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense
and meaning of the terms which the parties thereto have used. In the case of property insurance policies, the evident intention
of the contracting parties, i.e., the insurer and the assured, determine the import of the various terms and provisions embodied
in the policy. However, when the terms of the insurance policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, the policy will be construed by the courts liberally in favor of the
assured and strictly against the insurer. 10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the 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. Thus, in
Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance Company, 11 this Court ruled –
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the
insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court
of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in
favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of
adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy
and must be construed in such a way as to preclude the insurer from non-compliance with its obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:
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. 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. 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. 12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the Decision dated May
31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.

G.R. No. 207277 January 16, 2017

MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY. EMMANUEL G. VILLANUEVA, SONNY RUBIN, 1 ENGR.
FRANCISCO MONDELO, and MICHAEL REQUIJO vs. EMMA CONCEPCION L. LIN
DEL CASTILLO, J.:
Assailed in this Petition for Review on Certiorari4 are the December 21, 2012 Decision5 of the Court of Appeals (CA) and its May
22, 2013 Resolution6 in CA-GR. SP No. 118894, both of which found no grave abuse of discretion in the twin Orders issued by the
Regional Trial Court (RTC) of Manila, Branch 52, on September 29, 2010 7 and on January 25, 20118 in Civil Case No. 10-122738.
Factual Antecedents
On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint 9 for Collection of Sum of Money with Damages against
Malayan Insurance Co., Inc. (Malayan), Yvonne Yuchengco (Yvonne), Atty. Emmanuel Villanueva, Sonny Rubin, Engr. Francisco
Mondelo, Michael Angelo Requijo (collectively, the petitioners), and the Rizal Commercial and Banking Corporation (RCBC). This
was docketed as Civil Case No. 10-122738 of Branch 52 of the Manila RTC.
Lin alleged that she obtained various loans from RCBC secured by six clustered warehouses located at Plaridel, Bulacan; that the
five warehouses were insured with Malayan against fire for ₱56 million while the remaining warehouse was insured for ₱2
million; that on February 24, 2008, the five warehouses were gutted by fire; that on April 8, 2008 the Bureau of Fire Protection
(BFP) issued a Fire Clearance Certification to her (April 8, 2008 FCC) after having determined that the cause of fire was accidental;
that despite the foregoing, her demand for payment of her insurance claim was denied since the forensic investigators hired by
Malayan claimed that the cause of the fire was arson and not accidental; that she sought assistance from the Insurance
Commission (IC) which, after a meeting among the parties and a conduct of reinvestigation into the cause/s of the fire,
recommended that Malayan pay Lin's insurance claim and/or accord great weight to the BFP's findings; that in defiance thereof,
Malayan still denied or refused to pay her insurance claim; and that for these reasons, Malayan's corporate officers should also
be held liable for acquiescing to Malayan's unjustified refusal to pay her insurance claim.
As against RCBC, Lin averred that notwithstanding the loss of the mortgaged properties, the bank refused to go after Malayan
and instead insisted that she herself must pay the loans to RCBC, otherwise, foreclosure proceedings would ensue; and that to
add insult to injury, RCBC has been compounding the interest on her loans, despite RCBC's failure or refusal to go after Malayan.
Lin thus prayed in Civil Case No. 10-122738 that judgment be rendered ordering petitioners to pay her insurance claim plus
interest on the amounts due or owing her; that her loans and mortgage to RCBC be deemed extinguished as of February 2008;
that RCBC be enjoined from foreclosing the mortgage on the properties put up as collaterals; and that petitioners he ordered to
pay her ₱l,217,928.88 in the concept of filing foes, costs of suit,₱l million as exemplary damages, and ₱500,000.00 as attorney’s
fees.
Some five months later, or on June 17, 2010, Lin filed before the IC an administrative case 10 against Malayan, represented this
time by Yvonne. This was docketed as Administrative Case No. 431.
In this administrative case, Lin claimed that since it had been conclusively found that the cause of the fire was "accidental," the
only issue left to be resolved is whether Malayan should be held liable for unfair claim settlement practice under Section 241 in
relation to Section 247 of the Insurance Code due to its unjustified refusal to settle her claim; and that in consequence of the
foregoing failings, Malayan's license to operate as a non-life insurance company should be revoked or suspended, until such time
that it fully complies with the IC Resolution ordering it to accord more weight to the BFP's findings.
On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-122738 based on forum shopping. It argued that the
administrative case was instituted to prompt or incite IC into ordering Malayan to pay her insurance claim; that the elements of
forum shopping are present in these two cases because there exists identity of parties since Malayan's individual officers who
were impleaded in the civil case are also involved in the administrative case; that the same interests are shared and represented
in both the civil and administrative cases; that there is identity of causes of action and reliefs sought in the two cases since the
administrative case is merely disguised as an unfair claim settlement charge, although its real purpose is to allow Lin to recover
her insurance claim from Malayan; that Lin sought to obtain the same reliefs in the administrative case as in the civil case; that
Lin did not comply with her sworn undertaking in the Certification on Non-Forum Shopping which she attached to the civil case,
because she deliberately failed to notify the RTC about the pending administrative case within five days from the filing thereof.
This motion to dismiss drew a Comment/Opposition, 11 which Lin filed on August 31, 2010.
Ruling of the Regional Trial Court
In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss, thus:
WHEREFORE, the MOTION TO DISMISS filed by [petitioners] is hereby DENIED for lack of merit.
Furnish the parties through their respective [counsels] with a copy each [of] the Order.
SO ORDERED.13
The RTC held that in the administrative case, Lin was seeking a relief clearly distinct from that sought in the civil case; that while
in the administrative case Lin prayed for the suspension or revocation of Malayan's license to operate as a non-life insurance
company, in the civil case Lin prayed for the collection of a sum of money with damages; that it is abundantly clear that any
judgment that would be obtained in either case would not be res judicata to the other, hence, there is no forum shopping to
speak of.
In its Order of January 25, 2011, 14 the RTC likewise denied, for lack of merit, petitioners' Motion for Reconsideration.
Ruling of the Court of Appeals
Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before the CA. However, in a Decision 16dated December
21, 2012, the CA upheld the RTC, and disposed as follows:
WHEREFORE absent grave abuse of discretion on the part of respondent Judge, the Petition forCertiorari and Prohibition (with
Temporary Restraining Order and Preliminary Injunction) is DISMISSED.
SO ORDERED.17
The CA, as did the RTC, found that Lin did not commit forum shopping chiefly for the reason that the issues raised and the reliefs
prayed for in the civil case were essentially different from those in the administrative case, hence Lin had no duty at all to inform
the RTC about the institution or pendency of the administrative case.
The CA ruled that forum shopping exists where the elements of litis pendentia concurred, and where a final judgment in one case
will amount to res judicata in the other. The CA held that of the three elements of forum shopping viz., (l) identity of parties, or
at least such parties as would represent the same interest in both actions, (2) identity of rights asserted and reliefs prayed for,
the relief being founded on the same facts, and (3) identity of the two proceedings such that any judgment rendered in one
action will, regardless of which party is successful, amount to res judicata in the other action under consideration, only the first
element may be deemed present in the instant case. The CA held that there is here identity of parties in the civil and
administrative cases because Lin is the complainant in both the civil and administrative cases, and these actions were filed
against the same petitioners, the same RCBC and the same Malayan, represented by Yvonne, respectively. It held that there is
however no identity of rights asserted and reliefs prayed for because in the civil case, it was Lin's assertion that petitioners had
violated her rights to recover the full amount of her insurance claim, which is why she prayed/demanded that petitioners pay her
insurance claim plus damages; whereas in the administrative case, Lin's assertion was that petitioners were guilty of unfair claim
settlement practice, for which reason she prayed that Malayan's license to operate as an insurance company be revoked or
suspended; that the judgment in the civil case, regardless of which party is successful, would not amount to res judicata in the
administrative case in view of the different issues involved, the dissimilarity in the quantum of evidence required, and the
distinct mode or procedure to be observed in each case.
Petitioners moved for reconsideration 18 of the CA's Decision, but this motion was denied by the CA in its Resolution of May 22,
2013.19
Issues
Before this Court, petitioners instituted the present Petition, 20 which raises the following issues:
The [CA] not only decided questions of substance contrary to law and the applicable decisions of this Honorable Court, it also
sanctioned a flagrant departure from the accepted and usual course of judicial proceedings.
A.
The [CA] erred in not dismissing the Civil Case on the ground of willful and deliberate [forum shopping] despite the fact that the
civil case and the administrative case both seek the payment of the same fire insurance claim.
B.
The [CA] erred in not dismissing the civil case for failure on the part of [Lin] to comply with her undertaking in her verification
and certification of non-forum shopping appended to the civil complaint. 21
Petitioners' Arguments
In praying for the reversal of the CA Decision, petitioners argue that regardless of nomenclature, it is Lin and no one else who
filed the administrative case, and that she is not a mere complaining witness therein; that it is settled that only substantial
identity of parties is required for res judicata to apply; that the sharing of the same interest is sufficient to constitute identity of
parties; that Lin has not denied that the subject of both the administrative case and the civil case involved the same fire
insurance claim; that there is here identity of causes of action, too, because the ultimate objective of both the civil case and the
administrative case is to compel Malayan to pay Lin's fire insurance claim; that although the reliefs sought in the civil case and
those in the administrative case are worded differently, Lin was actually asking for the payment of her insurance claim in both
cases; that it is well-entrenched that a party cannot escape the operation of the principle in res judicata that a cause of action
cannot be litigated twice just by varying the form of action or the method of presenting the case; that Go v. Office of the
Ombudsman22is inapplicable because the issue in that case was whether there was unreasonable delay in withholding the
insured's claims, which would warrant the revocation or suspension of the insurers' licenses, and not whether the insurers
should pay the insured's insurance claim; that Almendras Mining Corporation v. Office of the Insurance Commission 23does not
apply to this case either, because the parties in said case agreed to submit the case for resolution on the sole issue of whether
the revocation or suspension of the insurer's license was justified; and that petitioners will suffer irreparable injury as a
consequence of having to defend themselves in a case which should have been dismissed on the ground of forum shopping.
Respondents Arguments
Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an administrative case for unfair claim settlement practice may
proceed simultaneously with, or independently of, the civil case for collection of the insurance proceeds filed by the same
claimant since a judgment in one will not amount to res judicata to the other, and vice versa, due to the variance or differences
in the issues, in the quantum of evidence, and in the procedure to be followed in prosecuting the cases; that in this case the CA
cited the teaching in Go v. Office of the Ombudsman that there was no grave abuse of discretion in the RTC's dismissal of
petitioners' motion to dismiss; that the CA correctly held that the RTC did not commit grave abuse of discretion in denying
petitioners' motion to dismiss because the elements of forum shopping were absent; that there is here no identity of parties
because while she (respondent) is the plaintiff in the civil case, she is only a complaining witness in the administrative case since
it is the IC that is the real party in interest in the administrative case; that the cause of action in the civil case consists of
Malayan's failure or refusal to pay her insurance claim, whereas in the administrative case, it consists of Malayan's unfair claim
settlement practice; that the issue in the civil case is whether Malayan is liable to pay Lin's insurance claim, while the issue in the
administrative case is whether Malayan's license to operate should be revoked or suspended for engaging in unfair claim
settlement practice; and that the relief sought in the civil case consists in the payment of a sum of money plus damages, while
the relief in the administrative case consists of the revocation or suspension of Malayan's license to operate as an insurance
company. According to Lin, although in the administrative case she prayed that the IC Resolution ordering Malayan to accord
weight to the BFP's findings be declared final, this did not mean that she was therein seeking payment of her insurance claim,
but rather that the IC can now impose the appropriate administrative sanctions upon Malayan; that if Malayan felt compelled to
pay Lin's insurance claim for fear that its license to operate as an insurance firm might be suspended or revoked, then this is just
a logical result of its failure or refusal to pay the insurance claim; that the judgment in the civil case will not amount to res
judicata in the administrative case, and vice versa, pursuant to the case law ruling inGo v. Office of the Ombudsman25and
in Almendras v. Office of the Insurance Commission, 26 both of which categorically allowed the insurance clain1ants therein to file
both a civil and an administrative case against insurers; that the rule against forum shopping was designed to serve a noble
purpose,viz., to be an instrument of justice, hence, it can in no way be interpreted to subvert such a noble purpose.
Our Ruling
We deny this Petition. We hold that the case law rulings in the Go and Almendras cases27 control and govern the case at bench.
First off, it is elementary that "an order denying a motion to dismiss is merely interlocutory and, therefore, not appealable, x x x
to x x x avoid undue inconvenience to the appealing party by having to assail orders as they are promulgated by the court, when
all such orders may be contested in a single appeal." 28
Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the assailed Orders, acted with grave abuse of
discretion amounting to lack or excess of jurisdiction. "It is well-settled that an act of a court or tribunal may only be considered
to have been done in grave abuse of discretion when the same was performed in a capricious or whimsical exercise of judgment
which is equivalent to lack or excess of jurisdiction." 29 "[F]or grave abuse of discretion to exist, the abuse of discretion must be
patent and gross so as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act
at all in contemplation of law." 30
In the present case, petitioners basically insist that Lin committed willful and deliberate forum shopping which warrants the
dismissal of her civil case because it is not much different from the administrative case in terms of the parties involved, the
causes of action pleaded, and the reliefs prayed for. Petitioners also posit that another ground warranting the dismissal of the
civil case was Lin's failure to notify the RTC about the pendency of the administrative case within five days from the filing thereof.
These arguments will not avail. The proscription against forum shopping is found in Section 5, Rule 7 of the Rules of Court, which
provides:
SEC. 5. Certification against forum shopping. --The plaintiff or principal party shall certify under oath in the complaint or other
initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith; (a)
that he has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-
judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other
pending action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same
or similar action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein
his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory
pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon motion and after
hearing. The submission of a false certification or non-compliance with any of the undertakings therein shall constitute indirect
contempt of court, without prejudice to the corresponding administrative and criminal actions. If the acts of the party or his
counsel clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal with prejudice
and shall constitute direct contempt, as well as a cause for administrative sanctions. (n)
The above-stated rule covers the very essence of forum shopping itself, and the constitutive elements thereof viz., the cognate
concepts of litis pendentia and res judicata -
x x x [T]he essence of forum shopping is the filing of multiple suits involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a favorable judgment. It exists where the elements of litis
pendentiaare present or where a final judgment in one case will amount to res judicata in another. On the other hand, for litis
pendentia to be a ground for the dismissal of an action, the following requisites must concur: (a) identity of parties, or at least
such parties who represent the same interests in both actions; (b) identity of rights asserted and relief prayed for, the relief being
founded on the same facts; and (c) the identity with respect to the two preceding particulars in the two cases is such that any
judgment that may be rendered in the pending case, regardless of which party is successful, would amount tores judicata in the
other case.31
Res judicata, in turn, has the following requisites: "(1) the former judgment must be final; (2) it must have been rendered by a
court having jurisdiction over the subject matter and over the parties; (3) it must be a judgment on the merits; and (4) there
must be, between the first and second actions, (a) identity of parties, (b) identity of subject matter, and (c) identity of cause of
action."32
"The settled rule is that criminal and civil cases are altogether different from administrative matters, such that the disposition in
the first two will not inevitably govern the third and vice versa."33In the context of the case at bar, matters handled by the IC are
delineated as either regulatory or adjudicatory, both of which have distinct characteristics, as postulated in Almendras Mining
Corporation v. Office of the Insurance Commission: 34
The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as amended, clearly indicate that the Office of the [IC]
is an administrative agency vested with regulatory power as well as with adjudicatory authority. Among the several regulatory or
non-quasi-judicial duties of the Insurance Commissioner under the Insurance Code is the authority to issue, or refuse issuance of,
a Certificate of Authority to a person or entity desirous of engaging in insurance business in the Philippines, and to revoke or
suspend such Certificate of Authority upon a finding of the existence of statutory grounds for such revocation or suspension. The
grounds for revocation or suspension of an insurer's Certificate of Authority are set out in Section 241 and in Section 247 of the
Insurance Code as amended. The general regulatory authority of the Insurance Commissioner is described in Section 414 of the
Insurance Code, as amended, in the following terms:
'Section 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and
other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall, notwithstanding any existing laws to the contrary, have sole and exclusive
authority to regulate the issuance and sale of variable contracts as defined in section two hundred thirty-two and to provide for
the licensing of persons selling such contracts, and to issue such reasonable rules and regulations governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders[,] and decisions as he may deem necessary to secure the
enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance [DOF Secretary]. Except as
otherwise specified, decisions made by the Commissioner shall be appealable to the [DOF Secretary].' (Italics supplied)
which Section also specifies the authority to which a decision of the Insurance Commissioner rendered in the exercise of its
regulatory function may be appealed.
The adjudicatory authority of the Insurance Commissioner is generally described in Section 416 of the Insurance Code, as
amended, which reads as follows:
'Sec. 416. The Commissioner shall have the power to adjudicate claims and complaints involving any loss, damage or liability for
which an insurer may be answerable under any kind of policy or contract of insurance, or for which such insurer may be liable
under a contract of suretyship, or for which a reinsurer may be sued under any contract or reinsurance it may have entered into,
or for which a mutual benefit association may be held liable under the membership certificates it has issued to its
members, where the amount of any such loss, damage or liability, excluding interests, cost and attorney’sfees, being claimed or
sued upon any kind of insurance, bond, reinsurance contract, or membership certificate does not exceed in any single claim one
hundred thousand pesos.
xxxx
The authority to adjudicate granted to the Commissioner under this section shall be concurrent with that of the civil courts, but
the filing of a complaint with the Commissioner shall preclude the civil courts from taking cognizance of a suit involving the same
subject matter.' (Italics supplied)
Continuing, Section 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also specifies the authority to which appeal may be
taken from a final order or decision of the Commissioner given in the exercise of his adjudicatory or quasi-judicial power:
'Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and effect of a judgment. Any
party may appeal from a final order, ruling or decision of the Commissioner by filing with the Commissioner within thirty days
from receipt of copy of such order, ruling or decision a notice of appeal to the Intermediate Appellate Court (now the Court of
Appeals) in the manner provided for in the Rules of Court for appeals from the Regional Trial Court to the Intermediate Appellate
Court (now the Court of Appeals)
x x x x'
It may be noted that under Section 9 (3) of B.P. Big. 129, appeals from a final decision of the Insurance Commissioner rendered in
the exercise of his adjudicatory authority now fall within theexclusive appellate jurisdiction of the Court of Appeals.35
Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a-vis the principles enunciating that a civil case
before the trial court involving recovery of payment of the insured's insurance claim plus damages, can proceed simultaneously
with an administrative case before the IC.37 Expounding on the foregoing points, this Court said -
**The findings of the trial court will not necessarily foreclose the administrative case before the [IC], or[vice versa]. True, the
parties are the same, and both actions are predicated on the same set of facts, and will require identical evidence. But the issues
to be resolved, the quantum of evidence, the procedure to be followed[,] and the reliefs to be adjudged by these two bodies are
different.
Petitioner's causes of action in Civil Case No. Q-95-23135 are predicated on the insurers' refusal to pay her fire insurance claims
despite notice, proofs of losses and other supporting documents. Thus, petitioner prays in her complaint that the insurers be
ordered to pay the full-insured value of the losses, as embodied in their respective policies. Petitioner also sought payment of
interests and damages in her favor caused by the alleged delay and refusal of the insurers to pay her claims. The principal issue
then that must be resolved by the trial court is whether or not petitioner is entitled to the payment of her insurance claims and
damages. The matter of whether or not there is unreasonable delay or denial of the claims is merely an incident to be resolved
by the trial court, necessary to ascertain petitioner's right to claim damages, as prescribed by Section 244 of the Insurance Code.
On the other hand, the core, if not the sole bone of contention in Adm. Case No. RD-156, is the issue of whether or not there
was unreasonable delay or denial of the claims of petitioner, and if in the affirmative, whether or not that would justify the
suspension or revocation of the insurers' licenses.
Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by a preponderance of evidence, or simply put, such
evidence that is of greater weight, or more convincing than that which is offered in opposition to it. In Adm. Case No. RD-156,
the degree of proof required of petitioner to establish her claim is substantial evidence, which has been defined as that amount
of relevant evidence that a reasonable mind might accept as adequate to justify the conclusion.
In addition, the procedure to be followed by the trial court is governed by the Rules of Court, while the [IC] has its own set of
rules and it is not bound by the rigidities of technical rules of procedure. These two bodies conduct independent means of
ascertaining the ultimate facts of their respective cases that will serve as basis for their respective decisions.1âwphi1
If, for example, the trial court finds that there was no unreasonable delay or denial of her claims, it does not automatically mean
that there was in fact no such unreasonable delay or denial that would justify the revocation or suspension of the licenses of the
concerned insurance companies. It only means that petitioner failed to prove by preponderance of evidence that she is entitled
to damages. Such finding would not restrain the [IC], in the exercise of its regulatory power, from making its own finding of
unreasonable delay or denial as long as it is supported by substantial evidence.
While the possibility that these two bodies will come up with conflicting resolutions on the same issue is not far-fetched, the
finding or conclusion of one would not necessarily be binding on the other given the difference in the issues involved, the
quantum of evidence required and the procedure to be followed.
Moreover, public interest and public policy demand the speedy and inexpensive disposition of administrative cases.
Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-23135. 38
As the aforecited cases are analogous in many aspects to the present case, both in respect to their factual backdrop and in their
jurisprudential teachings, the case law ruling in the Almendras and in the Go cases must apply with implacable force to the
present case. Consistency alone demands - because justice cannot be inconsistent - that the final authoritative mandate in the
cited cases must produce an end result not much different from the present case.
All told, we find that the CA did not err in holding that the petitioners utterly failed to prove that the RTC exhibited grave abuse
of discretion, amounting to lack or excess of jurisdiction, which would justify the issuance of the extraordinary writ of certiorari.39
WHEREFORE, the Petition is DENIED. The December 21, 2012 Decision and the May 22, 2013 Resolution of the Court of Appeals
in CA-GR. SP No. 118894 are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.

[ G.R. No. 207526, October 03, 2018 ]

THE INSULAR ASSURANCE CO., LTD. V. THE HEIRS OF JOSE H. ALVAREZ
[G.R. No. 210156, October 3, 2018]
UNION BANK OF THE PHILIPPINES, PETITIONER, V. HEIRS OF JOSE H. ALVAREZ, RESPONDENTS.
LEONEN, J.:
The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to concealment, but not so in cases of
rescission due to false representations. When an abundance of available documentary evidence can be referenced to
demonstrate a design to defraud, presenting a singular document with an erroneous entry does not qualify as clear and
convincing proof of fraudulent intent. Neither does belatedly invoking just one other document, which was not even authored by
the alleged miscreant.
This resolves the consolidated Petitions for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure. The first,
docketed as G.R. No. 207526,[1] was brought by The Insular Life Assurance Co., Ltd. (Insular Life). The second, docketed as G.R.
No. 210156,[2] was brought by Union Bank of the Philippines (UnionBank). These consolidated petitions seek the reversal of the
assailed Court of Appeals May 21, 2013 Decision [3] and November 6, 2013 Resolution[4] in CA-G.R. CV No. 91820.
The assailed Court of Appeals May 21, 2013 Decision denied Insular Life's and UnionBank's separate appeals and affirmed the
January 29, 2007 Decision[5] of Branch 148, Regional Trial Court, Makati City. The Regional Trial Court ruled in favor of Jose H.
Alvarez's (Alvarez) heirs[6] (the Heirs of Alvarez) in their action for specific performance against Insular Life and UnionBank. It
ordered compliance with the insurance undertaking on the Group Mortgage Redemption Insurance covering a loan obtained by
Alvarez from UnionBank by applying its proceeds as payment for that loan. It also nullified the extrajudicial foreclosure ensuing
from the non-payment of Alvarez's loan, and required UnionBank to reconvey title and ownership over the foreclosed property
to Alvarez's estate. Lastly, it ordered Insular Life's and UnionBank's payment of attorney's fees and costs of suit. [7]
The assailed Court of Appeals November 6, 2013 Resolution denied UnionBank's Motion for Reconsideration. [8]
Alvarez and his wife, Adelina, owned a residential lot with improvements covered by Transfer Certificate of Title (TCT) No. C-
315023 and registered in the Caloocan City Registry of Deeds. [9]
On June 18, 1997, Alvarez applied for and was granted a housing loan by UnionBank in the amount of P648,000.00. This loan was
secured by a promissory note,[10] a real estate mortgage over the lot,[11] and a mortgage redemption insurance taken on the life of
Alvarez with UnionBank as beneficiary. Alvarez was among the mortgagors included in the list of qualified debtors covered by the
Group Mortgage Redemption Insurance that UnionBank had with Insular Life. [12]
Alvarez passed away on April 17, 1998.[13] In May 1998, UnionBank filed with Insular Life a death claim under Alvarez's name
pursuant to the Group Mortgage Redemption Insurance. In line with Insular Life's standard procedures, UnionBank was required
to submit documents to support the claim. These included: (1) Alvarez's birth, marriage, and death certificates; (2) the attending
physician's statement; (3) the claimant's statement; and (4) Alvarez's statement of account. [14]
Insular Life denied the claim after determining that Alvarez was not eligible for coverage as he was supposedly more than 60
years old at the time of his loan's approval. [15]
With the claim's denial, the monthly amortizations of the loan stood unpaid. UnionBank sent the Heirs of Alvarez a demand
letter,[16] giving them 10 days to vacate the lot. Subsequently, on October 4, 1999, the lot was foreclosed and sold at a public
auction with UnionBank as the highest bidder. [17]
On February 14, 2001, the Heirs of Alvarez filed a Complaint [18] for Declaration of Nullity of Contract and Damages against
UnionBank, a certain Alfonso P. Miranda (Miranda), who supposedly benefitted from the loan, and the insurer which was
identified only as John Doe.[19] The Heirs of Alvarez denied knowledge of any loan obtained by Alvarez. [20]
The Heirs of Alvarez claimed that after Alvarez's death, they came upon a document captioned "Letter of Undertaking," which
appeared to have been sent by UnionBank to Miranda. In this document, UnionBank bound itself to deliver to Miranda
P466,000.00 of the approved P648,000.00 housing loan, provided that Miranda would deliver to it TCT No. C-315023, "free from
any liens and/or encumbrances."[21]
The Complaint was later amended and converted into one for specific performance [22] to include a demand against Insular Life to
fulfill its obligation as an insurer under the Group Mortgage Redemption Insurance. [23]
In its defense, UnionBank asserted that the Heirs of Alvarez could not feign ignorance over the existence of the loan and
mortgage considering the Special Power of Attorney[24] executed by Adelina in favor of her late husband, which authorized him to
apply for a housing loan with UnionBank. [25]
For its part, Insular Life maintained that based on the documents submitted by UnionBank, Alvarez was no longer eligible under
the Group Mortgage Redemption Insurance since he was more than 60 years old when his loan was approved. [26]
In its January 29, 2007 Decision,[27] the Regional Trial Court ruled in favor of the Heirs of Alvarez. It found no indication that
Alvarez had any fraudulent intent when he gave UnionBank information about his age and date of birth. It explained that
UnionBank initiated and negotiated the Group Mortgage Redemption Insurance with Insular Life, and that "ordinary customers
will not know about [insurance policies such as this] unless it is brought to their knowledge by the bank." [28] It noted that if
UnionBank's personnel were mindful of their duties and if Alvarez appeared to be disqualified for the insurance, they should
have immediately informed him of his disqualification. It emphasized that in evaluating Alvarez's worthiness for the loan,
UnionBank had been in possession of materials sufficient to inform itself of Alvarez's personal circumstances. It added that if
Insular Life had any doubt on the information that UnionBank had provided, it should have inquired further instead of relying
solely on the information readily available to it and immediately refusing to pay. [29]
The dispositive portion of the Regional Trial Court's January 29, 2007 Decision read:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against defendants order (sic):
1. Defendants to comply with the insurance undertaking under Mortgage Redemption Insurance Policy No. G-098496 by paying
its proceeds to be applied as payment of the outstanding loan obligation of deceased Jose H. Alvarez with defendant Union Bank;
2. The extrajudicial foreclosure of the real estate mortgage over Jose H. Alvarez's TCT No. C-315023 a nullity and without legal
force and effect and to release the mortgage encumbrance thereon;
3. Defendant Union Bank to reconvey the title and ownership over TCT No. C-315023 to the Estate of the deceased Jose H.
Alvarez for the benefit of his heirs and successors-in-interest;
4. Defendants jointly and severally to pay the plaintiffs the sum of P50,000.00 as and for attorney's fees;
5. Defendants jointly and severally to pay the costs of the suit.
SO ORDERED.[30]
UnionBank[31] and Insular Life[32] filed separate appeals before the Court of Appeals.
In its assailed May 21, 2013 Decision,[33] the Court of Appeals affirmed the Regional Trial Court's ruling. It noted that the errors
assigned by Insular Life and UnionBank to the Regional Trial Court boiled down to the issue of whether or not Alvarez was guilty
of fraudulent misrepresentation as to warrant the rescission of the Group Mortgage Redemption Insurance obtained by
UnionBank on Alvarez's life. It explained that fraud is never presumed and fraudulent misrepresentation as a defense of the
insurer to avoid liability must be established by convincing evidence. Insular Life, in this case, failed to establish this defense. It
only relied on Alvarez's Health Statement Form where he wrote "1942" as his birth year. However, this form alone was
insufficient to prove that he fraudulently intended to misrepresent his age. It noted that aside from the Health Statement Form,
Alvarez had to fill out an application for insurance. This application would have supported the conclusion that he consistently
wrote "1942" in all the documents that he had submitted to UnionBank. However, the records made no reference to this
document.[34]
The Court of Appeals added that assuming that fraudulent misrepresentation entitled Insular Life to rescind the contract, it
should have first complied with certain conditions before it could exercise its right to rescind. The conditions were:
(1) prior notice of cancellation to [the] insured; (2) notice must be based on the occurrence after effective date of the policy of
one or more grounds mentioned; (3) must be in writing, mailed or delivered to the insured at the address shown in the policy;
and (4) must state the grounds relied upon provided in Section 64 of the Insurance Code and upon [the] request of [the] insured,
to furnish facts on which cancellation is based.[35]
None of these conditions were fulfilled. Finally, the letter of denial dated April 8, 1999 was furnished only to UnionBank. [36]
Insular Life opted to directly appeal before this Court. Its appeal was docketed as G.R. No. 207526. [37]UnionBank, on the other
hand, filed its Motion for Reconsideration (of the Decision dated May 21, 2013), [38] which the Court of Appeals denied in its
November 6, 2013 Resolution.[39] UnionBank then filed before this Court its Petition, docketed as G.R. No. 210156. [40]
In its March 12, 2014 Resolution, this Court consolidated Insular Life's and UnionBank's Petitions. [41]
In response to the Court of Appeals' reasoning that intent to defraud must be established, Insular Life pinpoints concealment,
rather than fraudulent misrepresentation, as the key to the validity of its rescission. It asserts that Alvarez's concealment of his
age, whether intentional or unintentional, entitles it to rescind the insurance contract. [42] It claims that proof of fraudulent intent
is not necessary for the insurer to rescind the contract on account of concealment. [43] It adds that it did not rely solely on
Alvarez's Health Statement Form but also on his representations during the background check conducted by UnionBank where
he said that he was only 55 years old at the time of application. As an insurance contract is a contract uberrima fides, it claims
that it has every right to rely on Alvarez's good faith in its dealing with him. [44]
UnionBank claims that the real estate mortgage is not affected by the status of the Group Mortgage Redemption Insurance as
they are two (2) different contracts. Thus, any concealment made by Alvarez should not result in the invalidation of the
foreclosure.[45]
For this Court's resolution are the following issues:
First, whether or not petitioner The Insular Life Assurance Co., Ltd. is obliged to pay Union Bank of the Philippines the balance of
Jose H. Alvarez's loan given the claim that he lied about his age at the time of the approval of his loan; and
Second, whether or not petitioner Union Bank of the Philippines was correct in proceeding with the foreclosure following Insular
Life Assurance Co., Ltd.'s refusal to pay.
I.A
Fraud is not to be presumed, for "otherwise, courts would be indulging in speculations and surmises." [46]Moreover, it is not to be
established lightly. Rather, "[i]t must be established by clear and convincing evidence . . . [; a] mere preponderance of evidence is
not even adequate to prove fraud."[47] These precepts hold true when allegations of fraud are raised as grounds justifying the
invalidation of contracts, as the fraud committed by a party tends to vitiate the other party's consent. [48]
Citing Section 27 of the Insurance Code, however, Insular Life asserts that in cases of rescission due to concealment, i.e., when a
party "neglect[s] to communicate that which [he or she] knows and ought to communicate," [49] proof of fraudulent intent is not
necessary.[50]
Section 27 reads:
Section 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.
(Emphasis supplied)
The statutory text is unequivocal. Insular Life correctly notes that proof of fraudulent intent is unnecessary for the rescission of
an insurance contract on account of concealment.
This is neither because intent to defraud is intrinsically irrelevant in concealment, nor because concealment has nothing to do
with fraud. To the contrary, it is because in insurance contracts, concealing material facts [51] is inherently fraudulent: "if a material
fact is actually known to the [insured], its concealment must of itself necessarily be a fraud." [52] When one knows a material fact
and conceals it, "it is difficult to see how the inference of a fraudulent intent or intentional concealment can be avoided." [53] Thus,
a concealment, regardless of actual intent to defraud, "is equivalent to a false representation." [54]
This Court has long settled this equivalence. Argente v. West Coast Life Insurance,[55] quoting heavily from Joyce's The Law of
Insurance, explained how concealment of material facts in insurance contracts is tantamount to causal fraud, [56] deceptively
inducing an insurer into "accepting the risk, or accepting it at the rate of premium agreed upon." [57] Argente explained:
One ground for the rescission of a contract of insurance under the Insurance Act is "a concealment," which in section 25 is
defined as "A neglect to communicate that which a party knows and ought to communicate." Appellant argues that the alleged
concealment was immaterial and insufficient to avoid the policy. We cannot agree. . . . If the policy was procured by fraudulent
representations, the contract of insurance apparently set forth therein was never legally existent. It can fairly be assumed that
had the true facts been disclosed by the assured, the insurance would never have been granted.
In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is found the following:
Concealment exists where the assured has knowledge of a fact material to the risk, and honesty, good faith, and fair dealing
requires that he should communicate it to the assured, but he designedly and intentionally withholds the same.
Another rule is that if the assured undertakes to state all the circumstances affecting the risk, a full and fair statement of all is
required.
It is also held that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have
been intentionally withheld; so it is held under English law that if no inquiries are made and no fraud or design to conceal enters
into the concealment the contract is not avoided. And it is determined that even though silence may constitute
misrepresentation or concealment it is not of itself necessarily so as it is a question of fact. Nor is there a concealment justifying
a forfeiture where the fact of insanity is not disclosed no questions being asked concerning the same. . . .
But it would seem that if a material fact is actually known to the assured, its concealment must of itself necessarily be a fraud,
and if the fact is one which the assured ought to know, or is presumed to know, the presumption of knowledge ought to place
the assured in the same position as in the former case with relation to material facts; and if the jury in such cases find the fact
material, and one tending to increase the risk, it is difficult to see how the inference of a fraudulent intent or intentional
concealment can be avoided. And it is declared that if a material fact is concealed by assured it is equivalent to a false
representation that it does not exist and that the essentials are the truth of the representations whether they were intended to
mislead and did insurer accept them as true and act upon them to his prejudice. So it is decided that under a stipulation voiding
the policy for concealment or misrepresentation of any material fact or if his interest is not truly stated or is other than the sole
and unconditional ownership the facts are unimportant that insured did not intend to deceive or withhold information as to
encumbrances even though no questions were asked. And if insured while being examined for life insurance and knowing that
she had heart disease, falsely stated that she was in good health, and though she could not read the application, it was explained
to her and the questions asked through an interpreter, and the application like the policy contained a provision that no liability
should be incurred unless the policy was delivered while the insured was in good health, the court properly directed a verdict for
the insurer, though a witness who was present at the examination testified that the insured was not asked whether she had
heart disease.
....
The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the
risk, or accepting it at the rate of premium agreed upon; The insurer, relying upon the belief that the assured will disclose every
material fact within his actual or presumed knowledge, is misled into a belief that the circumstance withheld does not exist, and
he is thereby induced to estimate the risk upon a false basis that it does not exist. The principal question, therefore, must be,
Was the assurer misled or deceived into entering a contract obligation or in fixing the premium of insurance by a withholding of
material information or facts within the assured's knowledge or presumed knowledge?
It therefore follows that the assurer in assuming a risk is entitled to know every material fact of which the assured has exclusive
or peculiar knowledge, as well as all material facts which directly tend to increase the hazard or risk which are known by the
assured, or which ought to be or are presumed to be known by him. And a concealment of such facts vitiates the policy. "It does
not seem to be necessary . . . that the . . . suppression of the truth should have been willful." If it were but an inadvertent
omission, yet if it were material to the risk and such as the plaintiff should have known to be so, it would render the policy void.
But it is held that if untrue or false answers are given in response to inquiries and they relate to material facts the policy is
avoided without regard to the knowledge or fraud of assured, although under the statute statements are representations which
must be fraudulent to avoid the policy. So under certain codes the important inquiries are whether the concealment was willful
and related to a matter material to the risk. [58] (Emphasis supplied)
Echoing Argente, Saturnino v. Philippine American Life Insurance Co.[59] stated:
In this jurisdiction, a concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance,
concealment being defined as "negligence to communicate that which a party knows and ought to communicate" (Sections 25 &
26, Act No. 2427). In the case of Argente vs. West Coast Life Insurance Co., 51 Phil. 725, 732, this Court said, quoting from Joyce,
The Law of Insurance, 2nd ed. Vol. 3:
The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the
risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon the belief that the assured will disclose every
material fact within his actual or presumed knowledge, is misled into a belief that the circumstance withheld does not exist, and
he is thereby induced to estimate the risk upon a false basis that it does not exist. [60]
In Vda. de Canilang v. Court of Appeals,[61] this Court considered an alternative version of Section 27, i.e., prior to the Insurance
Code's amendment by Batas Pambansa Blg. 874, which omitted the qualifier "whether intentional or unintentional." Vda. de
Canilang clarified that even without this qualifier, Section 27 still covers '"anyconcealment' without regard to whether such
concealment is intentional or unintentional,"[62] thus:
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information to the insurer was not
"intentional" in nature, for the reason that Jaime Canilang believed that he was suffering from minor ailment like a common cold.
Section 27 of the Insurance Code of 1978 as it existed from 1974 up to 1985, that is, throughout the time range material for
present purposes, provided that:
Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to rescind a contract of insurance.
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by B.P. Blg. 874. This subsequent statute modified
Section 27 of the Insurance Code of 1978 so as to read as follows:
Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.
The unspoken theory of the Insurance Commissioner appears to have been that by deleting the phrase "intentional or
unintentional," the Insurance Code of 1978 (prior to its amendment by B.P. Blg. 874) intended to limit the kinds of concealment
which generate a right to rescind on the part of the injured party to "intentional concealments." This argument is not persuasive.
As a simple matter of grammar, it may be noted that "intentional" and "unintentional" cancel each other out. The net result
therefore of the phrase "whether intentional or unintentional" is precisely to leave unqualified the term "concealment."
Thus, Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment" without regard to whether
such concealment is intentional or unintentional. The phrase "whether intentional or unintentional" was in fact superfluous. The
deletion of the phrase "whether intentional or unintentional" could not have had the effect of imposing an affirmative
requirement that a concealment must be intentional if it is to entitle the injured party to rescind a contract of insurance. The
restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or unintentional" merely underscored the fact that all
throughout (from 1914 to 1985), the statute did not require proof that concealment must be "intentional" in order to authorize
rescission by the injured party.[63] (Emphasis supplied)
Following Vda. de Canilang, this Court was categorical in Sunlife Assurance Co. of Canada v. Court of Appeals:[64] '"good faith' is no
defense in concealment."[65]
I.B
It does not escape this Court's attention that there have been decisions that maintained that in cases of concealment,
"fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract." [66] However,
these decisions proceed from an inordinately segregated reading of Argente and have not been heedful of plain statutory text.
While focusing on the equivalence between concealment and false representation, they fail to account for the manifest textual
peculiarity whereby the negation of distinctions between intentional and unintentional acts is found only in Section 27, the
provision concerning rescission due to concealment, but not in the counterpart provision concerning false representations. [67]
Ng Gan Zee v. Asian Crusader Life,[68] decided in 1983, stated:
Section 27 of the Insurance Law [Act 2427] provides:
Sec. 27. Such party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which
are material to the contract, and which the other has not the means of ascertaining, and as to which he makes no warranty.
Thus, "concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair
dealing requires that he should communicate it to the assurer, but he designedly and intentionally withholds the same."
It has also been held "that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact
must have been intentionally withheld."
Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant. Sec. 27 of the Insurance Law,
above-quoted, nevertheless requires that fraudulent intent on the part of the insured be established to entitle the insurer to
rescind the contract. And as correctly observed by the lower court, "misrepresentation as a defense of the insurer to avoid
liability is an 'affirmative' defense. The duty to establish such a defense by satisfactory and convincing evidence rests upon the
defendant. The evidence before the Court does not clearly and satisfactorily establish that defense." [69] (Emphasis supplied)
Ng Gan Zee makes a fundamental error in interpretation.
Ng Gan Zee's fourth footnote purports that the phrase quoted in the italicized paragraph was from Argente.[70]While the phrase
indeed appears in Argente, it is not Argente itself which stated the quoted phrase; rather, it was Joyce's The Law of Insurance.
In any case, Ng Gan Zee limited itself to a brief quote from Joyce. It discarded much of the discussion that Argentelifted from
Joyce. Most notably, it discarded the portion where Joyce explained that concealment is necessarily fraudulent when the matter
that was concealed is "a material fact . . . actually known to the [insured]." [71] Thus, Ng Gan Zee omitted the discussion explaining
and accounting for why proof of actual fraudulent intent may be dispensed with in cases of concealment, i.e., that concealment
of material facts is fraudulent in and of itself. Contrast this with Saturnino which, though also quoting only briefly
from Argente and Joyce, did not cursorily focus on the equivalence between concealment and false representations, but rather
on the underlying reason for this equivalence. Ng Gan Zee focused on the result, i.e., equivalence, without accounting for the
cause.
In like manner as Ng Gan Zee, Great Pacific Life v. Court of Appeals [72] stated:
The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the insurance
contract. Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might have caused his death.
Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing
requires that he should communicate it to the assured, but he designedly and intentionally withholds the same.
....
The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and satisfactorily
establish its defense, and is therefore liable to pay the proceeds of the insurance. [73] (Emphasis supplied)
So too, Philamcare Health Systems, Inc. v. Court of Appeals [74] stated:
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty
to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. [75] (Emphasis supplied)
Great Pacific Life and Philamcare perpetuate Ng Gan Zee's unfortunate error.
Of the two (2) paragraphs this Court quoted from Great Pacific Life, the first cites Argente.[76] Much like Ng Gan Zee, it quotes an
isolated portion of Joyce but fails to account for that part of Joyce's discussion that explains how fraud inheres in concealment.
The last sentence in this first quoted paragraph merely reproduces the first paragraph that Argente lifted from Joyce. The second
quoted paragraph cites Ng Gan Zee[77] and confounds concealment with misrepresentation.
The first sentence of the quoted paragraph from Philamcare cites Great Pacific Life and Ng Gan Zee.[78] At this juncture, a
contagion of Ng Gan Zee's error can be observed.
More than misreading Argente and Joyce, Ng Gan Zee, Great Pacific Life, and Philamcare contradict Section 27's plain text. The
statute's clear and unmistakable text must prevail. For purposes of rescission, Section 27 of the Insurance Code unequivocally
negates any distinction between intentional and unintentional concealments. Pronouncements in jurisprudence cannot
undermine this explicit legislative intent.
I.C
While Insular Life correctly reads Section 27 as making no distinction between intentional and unintentional concealment, it
erroneously pleads Section 27 as the proper statutory anchor of this case.
The Insurance Code distinguishes representations from concealments. Chapter 1, Title 4 is on concealments. It spans Sections 26
to 35 of the Insurance Code;[79] it is where Section 27 is found. Chapter 1, Title 5 is on representations. It spans Sections 36 to 48
of the Insurance Code.[80]
Section 26 defines concealment as "[a] neglect to communicate that which a party knows and ought to communicate." However,
Alvarez did not withhold information on or neglect to state his age. He made an actual declaration and assertion about it.
What this case involves, instead, is an allegedly false representation. Section 44 of the Insurance Code states, "A representation is
to be deemed false when the facts fail to correspond with its assertions or stipulations." If indeed Alvarez misdeclared his age
such that his assertion fails to correspond with his factual age, he made a false representation, not a concealment.
At no point does Chapter 1, Title 5 of the Insurance Code replicate Section 27's language negating the distinction between
intentional and unintentional concealment. Section 45 is Chapter 1, Title 5's counterpart provision to Section 27, and concerns
rescission due to false representations. It reads:
Section 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to
rescind the contract from the time when the representation becomes false.
Not being similarly qualified as rescission under Section 27, rescission under Section 45 remains subject to the basic precept of
fraud having to be proven by clear and convincing evidence. In this respect, Ng Gan Zee's and similar cases' pronouncements on
the need for proof of fraudulent intent in cases of misrepresentation are logically sound, albeit the specific reference
to Argente as ultimate authority is misplaced. Thus, while Great Pacific Life confounded concealment with misrepresentation by
its citation of Ng Gan Zee, it nevertheless acceptably stated that:
The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer. [81]
Conformably, subsequent fraud cases citing Great Pacific Life which do not exclusively concern concealment rightly maintain that
"[f]raudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract." [82] To
illustrate, Manila Bankers Life Insurance Corp. v. Aban[83] was correct in explaining:
With the above crucial finding of fact — that it was Sotero who obtained the insurance for herself — petitioner's case is severely
weakened, if not totally disproved. Allegations of fraud, which are predicated on respondent's alleged posing as Sotero and
forgery of her signature in the insurance application, are at once belied by the trial and appellate courts' finding that Sotero
herself took out the insurance for herself. "Fraudulent intent on the part of the insured must be established to entitle the insurer
to rescind the contract." In the absence of proof of such fraudulent intent, no right to rescind arises. [84]
Concealment applies only with respect to material facts. That is, those facts which by their nature would clearly, unequivocally,
and logically be known by the insured as necessary for the insurer to calculate the proper risks.
The absence of the requirement of intention definitely increases the onus on the insured. Between the insured and the insurer, it
is true that the latter may have more resources to evaluate risks. Insurance companies are imbued with public trust in the sense
that they have the obligation to ensure that they will be able to provide succor to those that enter into contracts with them by
being both frugal and, at the same time, diligent in their assessment of the risk which they take with every insurance contract.
However, even with their tremendous resources, a material fact concealed by the insured cannot simply be considered by the
insurance company. The insurance company may have huge resources, but the law does not require it to be omniscient.
On the other hand, when the insured makes a representation, it is incumbent on them to assure themselves that a
representation on a material fact is not false; and if it is false, that it is not a fraudulent misrepresentation of a material fact. This
returns the burden to insurance companies, which, in general, have more resources than the insured to check the veracity of the
insured's beliefs as to a statement of fact. Consciousness in defraudation is imperative and it is for the insurer to show this.
There may be a mistaken impression, on the part of the insured, on the extent to which precision on one's age may alter the
calculation of risks with definitiveness. Deliberation attendant to an apparently inaccurate declaration is vital to ascertaining
fraud.
I.D
Spouses Manalo v. Roldan-Confesor [85]
explained what qualifies as clear and convincing proof:
Clear and convincing proof is ". . . more than mere preponderance, but not to extent of such certainty as is required beyond
reasonable doubt as in criminal cases . . ."while substantial evidence ". . . consists of more than a mere scintilla of evidence but
may be somewhat less than a preponderance . . ." Consequently, in the hierarchy of evidentiary values, We find proof beyond
reasonable doubt at the highest level, followed by clear and convincing evidence, preponderance of evidence, and substantial
evidence, in that order.[86]
The assailed Court of Appeals May 21, 2013 Decision discussed the evidentiary deficiency in Insular Life's cause, i.e., how it relied
on nothing but a single piece of evidence to prove fraudulent intent:
At bar, Insular Life basically relied on the Health Statement form personally accomplished by Jose Alvarez wherein he wrote that
his birth year was 1942. However, such form alone is not sufficient absent any other indications that he purposely wrote 1942 as
his birth year. It should be pointed out that, apart from a health statement form, an application for insurance is required first and
foremost to be answered and filled-up. However, the records are deficient of this application which would eventually depict to Us
Jose Alvarez's fraudulent intent to misrepresent his age. For, if he continually written (sic) 1942 in all the documents he
submitted with UBP and Insular Life then there is really a clear precursor of his fraudulent intent. Otherwise, a mere Health
Statement form bearing a wrong birth year should not be relied at.
As aptly pointed out by the court a quo:
....
If the defendant Insular Life had any doubt about the information, particularly the data which are material to the risk, such as the
age of the insured, which defendant Union Bank provided, it is not justified for the insurer to rely solely therefrom, but it is
obligated under the circumstances to make further inquiry. . . . [87]
The Court of Appeals' observations are well-taken. Consistent with the requirement of clear and convincing evidence, it was
Insular Life's burden to establish the merits of its own case. Relative strength as against respondents' evidence does not suffice.
A single piece of evidence hardly qualifies as clear and convincing. Its contents could just as easily have been an isolated mistake.
Alvarez must have accomplished and submitted many other documents when he applied for the housing loan and executed
supporting instruments like the promissory note, real estate mortgage, and Group Mortgage Redemption Insurance. A design to
defraud would have demanded his consistency. He needed to maintain appearances across all documents. Otherwise, he would
doom his own ruse.
He needed to have been consistent, not only before Insular Life, but even before UnionBank. Even as it was only Insular Life's
approval that was at stake with the Group Mortgage Redemption Insurance, Alvarez must have realized that as it was an
accessory agreement to his housing loan with UnionBank. Insular Life was well in a position to verify information, whether
through simple cross referencing or through concerted queries with UnionBank.
Despite these circumstances, the best that Insular Life could come up with before the Regional Trial Court and the Court of
Appeals was a single document. The Court of Appeals was straightforward, i.e., the most basic document that Alvarez
accomplished in relation to Insular Life must have been an insurance application form. Strangely, Insular Life failed to adduce
even this document—a piece of evidence that was not only commonsensical, but also one which has always been in its
possession and disposal.
Even now, before this Court, Insular Life has been unable to address the importuning for it to account for Alvarez's insurance
application form. Given the basic presumption under our rules on evidence "[t]hat evidence willfully suppressed would be
adverse if produced,"[88] this raises doubts, perhaps not entirely on Insular Life's good faith, but, at the very least, on the certainty
and confidence it has in its own evidence.
Rather than demonstrate Alvarez's consistent fraudulent design, Insular Life comes before this Court pleading nothing but just
one other instance when Alvarez supposedly declared himself to have been 55 years old. It claims that it did not rely solely on
Alvarez's Health Statement Form but also on his Background Checking Report. [89]
Reliance on this report is problematic. It was not prepared by Alvarez himself. Rather, it was accomplished by a UnionBank
employee following the conduct of credit investigation. Insular Life notes a statement by UnionBank's Josefina Barte that all
information in the Background Checking Report was supplied by Alvarez. [90] But this is a self-serving statement, wholly reliant on
the assumption of that employee's flawless performance of her duty to record findings. Precisely, it is a claim that needed to be
vetted. It had to be tested under the crucible of a court trial, that is, through the rigors of presentation and authentication of
evidence, cross-examination, and personal perusal by a judge. Yet, Insular Life would now have this Court sustain its appreciation,
solely on the strength of its own representations.
An erroneous statement's dual occurrence in the Health Statement Form and the Background Checking Report concededly
reduces the likelihood of honest mistakes or overlooked inaccuracies. However, in the context of so many other documents being
available to ascertain the error, a mere dual occurrence does not definitively establish a fraudulent scheme. This is especially so
when the errors could not be directly and exclusively attributed to a single author.
Pleading just one (1) additional document still fails to establish the consistent fraudulent design that was Insular Life's burden to
prove by clear and convincing evidence. Insular Life had all the opportunity to demonstrate Alvarez's pattern of consistently
indicating erroneous entries for his age. All it needed to do was to inventory the documents submitted by Alvarez and note the
statements he made concerning his age. This was not a cumbersome task, yet it failed at it. Its failure to discharge its burden of
proving must thwart its plea for relief from this Court.
II
Having settled Insular Life's continuing liability under the Group Mortgage Redemption Insurance, this Court proceeds to the
matter of the propriety of UnionBank's foreclosure.
UnionBank insists that the real estate mortgage is a contract separate and distinct from the Group Mortgage Redemption
Insurance; thus, it should not be affected by the validity or invalidity of Insular Life's rescission. [91] It also cites Great Pacific Life,
which it claims involves a similar set of facts as this case, and underscores how this Court in that case did not nullify the
foreclosure despite a finding that the rescission was improper, but instead considered the foreclosure as a supervening event. [92]
Great Pacific Life similarly involved an insurer's rescission of a mortgage redemption insurance on account of a supposed
concealment. This Court sustained the lower courts' conclusions holding the rescission invalid and maintaining the insurer's
liability to pay the mortgage. However, this Court considered the foreclosure, which in the interim had been completed, as a
supervening event. Ruling on the basis of equity, this Court concluded that the insurance proceeds, which should have been paid
to the mortgagee, were now due to the heirs of the insured:
However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private respondent's
memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding loan.
Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio
protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly
belong to Dr. Leuterio's heirs represented by his widow, herein private respondent Medarda Leuterio. [93]
Maglaque v. Planters Development Bank[94] sustained a mortgagor's right to foreclose in the event of a mortgagee's death:
[T]he rule is that a secured creditor holding a real estate mortgage has three (3) options in case of death of the
debtor. These are:
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;

(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and

(3) to rely on the mortgage exclusively, foreclosing the same at anytime before it is barred by prescription, without right to file a
claim for any deficiency.[95]
This is in keeping with Rule 86, Section 7 of the Rules of Court, which states:
Section 7. Mortgage debt due from estate. — A creditor holding a claim against the deceased secured by mortgage or other
collateral security, may abandon the security and prosecute his claim in the manner provided in this rule, and share in the
general distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by action in court,
making the executor or administrator a party defendant, and if there is a judgment for a deficiency, after the sale of the
mortgaged premises, or the property pledged, in the foreclosure or other proceeding to realize upon the security, he may claim
his deficiency judgment in the manner provided in the preceding section; or he may rely upon his mortgage or other security
alone, and foreclose the same at any time within the period of the statute of limitations, and in that event he shall not be
admitted as a creditor, and shall receive no share in the distribution of the other assets of the estate; but nothing herein
contained shall prohibit the executor or administrator from redeeming the property mortgaged or pledged, by paying the debt
for which it is held as security, under the direction of the court, if the court shall adjudge it to be for the best interest of the
estate that such redemption shall be made.
While the mortgagee's right to proceed with foreclosure is settled, this Court finds the debacle at the heart of this case to have
been borne in large, if not equal measure, by UnionBank's oversight. UnionBank contributed to setting in motion a course of
events that culminated in the unjust foreclosure of Alvarez's mortgaged lot. As such a contributor, its profiting from the wrongful
foreclosure cannot be condoned.
The Regional Trial Court explained how UnionBank was remiss:
If at the time of the application, Jose H. Alvarez appears disqualified, and the personnel of the bank is mindful of his duties, then
the personnel of the bank will immediately tell the late Jose H. Alvarez [that] he is not qualified. As it would appear in this case,
there is nothing to show nor indicate that the late Jose H. Alvarez exhibited any fraudulent intent when the bank was given
certain data such as his age and date of birth. The bank is already in its possession sufficient materials to inform itself regarding
the true and actual age, civil status and other personal circumstances of Jose Alvarez to merit approval of the loan applied for. It
was the same informative materials from which the defendant Union Bank lifted the data it provided the defendant Insular Life
for the consummation of the insurance contract, without which, the bank would not have favorably approved the loan. [96]
These observations are well-taken.
Great Pacific Life, in considering the insurable interest involved in a mortgage redemption insurance, discussed:
To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The
rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device for
the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract
so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds
from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from
paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of
death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness.
[97]
(Emphasis supplied)
The Regional Trial Court was correct in emphasizing that Alvarez entered into the Group Mortgage Redemption Insurance
entirely upon UnionBank's prodding. Bank clients are generally unaware of insurance policies such as a mortgage redemption
insurance unless brought to their knowledge by a bank. The processing of a mortgage redemption insurance was within
UnionBank's regular course of business. It knew the import of truthfully and carefully accomplished applications. To facilitate the
principal contract of the loan and its accessory obligations such as the real estate mortgage and the mortgage redemption
insurance, UnionBank completed credit appraisals and background checks. Thus, the Regional Trial Court was correct in noting
that UnionBank had been in possession of materials sufficient to inform itself of Alvarez's personal circumstances. [98]
UnionBank was the indispensable nexus between Alvarez and Insular Life. Not only was it well in a position to address any
erroneous information transmitted to Insular Life, it was also in its best interest to do so. After all, payments by the insurer
relieve it of the otherwise burdensome ordeal of foreclosing a mortgage.
This is not to say that UnionBank was the consummate guardian of the veracity and accuracy of Alvarez's representations. It is
merely to say that given the circumstances, considering Insular Life's protestation over supposedly false declarations, UnionBank
was in a position to facilitate the inquiry on whether or not a fraudulent design had been effected. However, rather than actively
engaging in an effort to verify, it appears that UnionBank stood idly by, hardly bothering to ascertain if other pieces of evidence
in its custody would attest to or belie a fraudulent scheme.
UnionBank approved Alvarez's loan and real estate mortgage, and endorsed the mortgage redemption insurance to Insular Life.
Fully aware of considerations that could have disqualified Alvarez, it nevertheless acted as though nothing was irregular. It itself
acted as if, and therefore represented that, Alvarez was qualified. Yet, when confronted with Insular Life's challenge, it readily
abandoned the stance that it had earlier maintained and capitulated to Insular Life's assertion of fraud.
UnionBank's headlong succumbing casts doubt on its own confidence in the information in its possession. This, in turn, raises
questions on the soundness of the credit investigation and background checks it had conducted prior to approving Alvarez' loan.
In Poole-Blunden v. Union Bank of the Philippines,[99] this Court emphasized that the high degree of diligence required of banks
"equally holds true in their dealing with mortgaged real properties, and subsequently acquired through foreclosure." [100] It
specifically drew attention to this requisite high degree of diligence in relation to "[c]redit investigations [which] are standard
practice for banks before approving loans."[101]
The foreclosure here may well be a completed intervening occurrence, but Great Pacific Life's leaning to an irremediable
supervening event cannot avail. What is involved here is not the mortgagor's medical history, as inGreat Pacific Life, which the
mortgagee bank was otherwise incapable of perfectly ascertaining. Rather, it is merely the mortgagor's age. This information was
easily available from and verifiable on several documents. UnionBank's passivity and indifference, even when it was in a prime
position to enable a more conscientious consideration, were not just a cause of Insular Life's rescission bereft of clear and
convincing proof of a design to defraud, but also, ultimately, of the unjust seizure of Alvarez's property. By this complicity,
UnionBank cannot be allowed to profit. Its foreclosure must be annulled.
WHEREFORE, the Petitions are DENIED. The assailed Court of Appeals May 21, 2013 Decision and November 6, 2013 Resolution
in CA G.R. CV No. 91820 are AFFIRMED.
Petitioners Union Bank of the Philippines and The Insular Life Assurance Co., Ltd. are ordered to comply with the insurance
undertaking under Mortgage Redemption Insurance Policy No. G-098496 by applying its proceeds as payment of the outstanding
loan obligation of deceased Jose H. Alvarez with respondent Union Bank of the Philippines;
The extrajudicial foreclosure of the real estate mortgage over Jose H. Alvarez's TCT No. C-315023 is declared null and without
legal force and effect;
Petitioner Union Bank of the Philippines is ordered to reconvey the title and ownership over the lot covered by TCT No. C-315023
to the Estate of the deceased Jose H. Alvarez for the benefit of his heirs and successors-in-interest; and
Petitioners Union Bank of the Philippines and The Insular Life Assurance Co., Ltd. are ordered to jointly and severally pay
respondents the Heirs of Jose H. Alvarez attorney's fees and the costs of suit. SO ORDERED.

G.R. No. 152334 September 24, 2014

H.H. HOLLERO CONSTRUCTION, INC. vs. GOVERNMENT SERVICE INSURANCE SYSTEM and POOL OF MACHINERY INSURERS
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari 1 are the Decision2 dated March 13, 2001 and the Resolution3 dated February 21,
2002 of the Court of Appeals (CA) in CA-G.R. CV No. 63175, which set aside and reversed the Judgment 4 dated February 3, 1999
of the Regional Trial Court of Quezon City, Branch 220 (RTC) in Civil Case No. 91-10144, and dismissed petitioner H.H. Hollero
Construction, Inc.' s (petitioner) Complaint for Sum of Money and Damages under the insurance policies issued by public
respondent, the Government Service Insurance System (GSIS), on the ground of prescription.
The Facts
On April 26, 1988, the GSIS and petitioner entered into a Project Agreement (Agreement) whereby the latter undertook the
development of a GSIS housing project known as Modesta Village Section B (Project). 5 Petitioner obligated itself to insurethe
Project, including all the improvements, upon the execution of the Agreement under a Contractors’ All Risks (CAR) Insurance with
the GSIS General Insurance Department for an amount equal to its cost or sound value, which shall not be subject to any
automatic annual reduction.6
Pursuant to its undertaking, petitioner secured CAR Policy No. 88/085 7 in the amount of ₱1,000,000.00 for land development,
which was later increased to ₱10,000,000.00,8 effective from May 2, 1988 to May 2, 1989.9Petitioner likewise secured CAR Policy
No. 88/08610 in the amount of ₱1,000,000.00 for the construction of twenty (20) housing units, which amount was later
increased to ₱17,750,000.0011 to cover the construction of another 355 new units, effective from May 2, 1988 toJune 1,
1989.12 In turn, the GSIS reinsured CAR Policy No. 88/085 with respondent Pool of Machinery Insurers (Pool). 13
Under both policies, it was provided that: (a) there must be prior notice of claim for loss, damage or liability within fourteen (14)
days from the occurrence of the loss or damage;14 (b) all benefits thereunder shall be forfeited if no action is instituted within
twelve(12) months after the rejection of the claim for loss, damage or liability; 15 and (c) if the sum insured is found to be less
than the amount required to be insured, the amount recoverable shall be reduced tosuch proportion before taking into account
the deductibles stated in the schedule (average clause provision). 16
During the construction, three (3) typhoons hit the country, namely, Typhoon Biring from June 1 to June 4, 1988, Typhoon
Huaning on July 29, 1988, and Typhoon Saling on October 11, 1989, which caused considerable damage to the
Project.17 Accordingly, petitioner filed several claims for indemnity with the GSIS on June 30, 1988, 18 August 25, 1988,19 and
October 18, 1989,20 respectively.
In a letter21 dated April 26, 1990, the GSIS rejected petitioner’s indemnity claims for the damages wrought by Typhoons Biring
and Huaning, finding that no amount is recoverable pursuant to the average clause provision under the policies. 22 In a
letter23 dated June 21, 1990, the GSIS similarly rejected petitioner’s indemnity claim for damages wrought by Typhoon Saling on a
"no loss" basis, itappearing from its records that the policies were not renewed before the onset of the said typhoon. 24
In a letter25 dated April 18, 1991, petitioner impugned the rejection of its claims for damages/loss on accountof Typhoon Saling,
and reiterated its demand for the settlement of its claims.
On September 27, 1991, petitioner filed a Complaint 26 for Sum of Money and Damages before the RTC, docketed as Civil Case No.
91-10144,27 which was opposed by the GSIS through a Motion to Dismiss 28 dated October 25, 1991 on the ground that the causes
of action stated therein are barred by the twelve-month limitation provided under the policies, i.e., the complaint was filed more
than one(1) year from the rejection of the indemnity claims. The RTC, in an Order 29 dated May 13, 1993, denied the said motion;
hence, the GSIS filed its answer30 with counterclaims for litigation expenses, attorney’s fees, and exemplary damages.
Subsequently, the GSIS filed a Third Party Complaint 31 for indemnification against Pool, the reinsurer.
The RTC Ruling
32
In a Judgment dated February 3, 1999, the RTC granted petitioner’s indemnity claims. It held that: (a) the average
clauseprovision in the policies which did not contain the assentor signature of the petitioner cannot limit the GSIS’ liability, for
being inefficacious and contrary to public policy;33 (b) petitioner has established that the damages it sustained were due to the
peril insured against;34 and (c) CAR Policy No. 88/086 was deemed renewed when the GSIS withheld the amount of 35,855.00
corresponding to the premium payable,35 from the retentions it released to petitioner. 36 The RTC thereby declared the GSIS liable
for petitioner’s indemnity claims for the damages brought about by the said typhoons, less the stipulated deductions under the
policies,plus 6% legal interest from the dates of extrajudicial demand, as well as for attorney’s fees and costs of suit. It further
dismissed for lack of merit GSIS’s counterclaim and third party complaint. 37
Dissatisfied, the GSIS elevated the matter to the CA. The CA Ruling In a Decision 38 dated March 13, 2001, the CAset aside and
reversed the RTC Judgment, thereby dismissing the complaint. It ruled that the complaint filed on September 27, 1991 was
barred by prescription, having been commenced beyond the twelve-month limitation provided under the policies, reckoned from
the final rejection of the indemnity claims on April 26, 1990 and June 21, 1990. The Issue Before the Court
The essential issue for the Court’s resolution is whether or not the CA committed reversible error in dismissing the complaint
onthe ground of prescription.
The Court’s Ruling
The petition lacks merit.
Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary, and popular sense.39
Section 1040 of the General Conditions of the subject CAR Policies commonly read:
10. If a claim is in any respect fraudulent, or if any false declaration is made or used in support thereof, or if any fraudulent
means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is
made and rejected and no action or suit is commenced within twelve months after such rejectionor, in case of arbitration taking
place as provided herein, within twelve months after the Arbitrator or Arbitrators or Umpire have made their award, all benefit
under this Policy shall be forfeited. (Emphases supplied)
In this relation, case law illumines that the prescriptive period for the insured’s action for indemnity should bereckoned from the
"final rejection" of the claim.41
Here, petitioner insists that the GSIS’s letters dated April 26, 1990 and June 21, 1990 did not amount to a "final rejection" ofits
claims, arguing that they were mere tentative resolutions pending further action on petitioner’s part or submission of proof in
refutation of the reasons for rejection.42 Hence, its causes of action for indemnity did not accrue on those dates.
The Court does not agree.
A perusal of the letter43 dated April 26, 1990 shows that the GSIS denied petitioner’s indemnity claims wrought by Typhoons
Biring and Huaning, it appearing that no amount was recoverable under the policies. While the GSIS gave petitioner the
opportunity to dispute its findings, neither of the parties pursued any further action on the matter; this logically shows that they
deemed the said letter as a rejection of the claims. Lest it cause any confusion, the statement in that letter pertaining to any
queries petitioner may have on the denial should be construed, at best, as a form of notice to the former that it had the
opportunity to seek reconsideration of the GSIS’s rejection. Surely, petitioner cannot construe the said letter to be a mere
"tentative resolution." In fact, despite its disavowals, petitioner admitted in its pleadings 44 that the GSIS indeed denied its claim
through the aforementioned letter, buttarried in commencing the necessary action in court.
The same conclusion obtains for the letter 45 dated June 21, 1990 denying petitioner’s indemnity claim caused by Typhoon Saling
on a "no loss" basis due to the non-renewal of the policies therefor before the onset of the said typhoon. The fact that petitioner
filed a letter46 of reconsideration therefrom dated April 18, 1991, considering too the inaction of the GSIS on the same similarly
shows that the June 21, 1990 letter was also a final rejection of petitioner’s indemnity claim.
As correctly observed by the CA, "final rejection" simply means denial by the insurer of the claims of the insured and not the
rejection or denial by the insurer of the insured’s motion or request for reconsideration. 47 The rejection referred to should be
construed as the rejection in the first instance,48 as in the two instances above-discussed.
Comparable to the foregoing is the Court’s action in the case of Sun Insurance Office, Ltd. v. CA 49 wherein it debunked "[t]he
contention of the respondents [therein] that the one-year prescriptive period does not start to run until the petition for
reconsideration had been resolved by the insurer," holding that such view "runs counter to the declared purpose for requiring
that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from the denial of the
claim."50 In this regard, the Court rationalized that "uphold[ing]respondents' contention would contradict and defeat the very
principle which this Court had laid down. Moreover, it can easily be used by insured persons as a scheme or device to waste time
until any evidence which may be considered against them is destroyed." 51 Expounding on the matter, the Court had this to say:
The crucial issue in this case is: When does the cause of action accrue?
In support of private respondent’s view, two rulings of this Court have been cited, namely, the case of Eagle Star Insurance
Co.vs.Chia Yu ([supra note 41]), where the Court held:
The right of the insured to the payment of his loss accrues from the happening of the loss. However, the cause of action in an
insurance contract does not accrue until the insured’s claim is finally rejected by the insurer. This is because before such final
rejection there is no real necessity for bringing suit.
and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding that:
Since "cause of action" requires as essential elements not only a legal right of the plaintiff and a correlated obligation of the
defendant in violation of the said legal right, the cause of action does not accrue until the party obligated (surety) refuses,
expressly or impliedly, to comply with its duty (in this case to pay the amount of the bond)."
Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured' s cause of action or his right
to file a claim either in the Insurance Commission or in a court of competent jurisdiction [as in this case] commences from the
time of the denial of his claim by the Insurer, either expressly or impliedly.1âwphi1
But as pointed out by the petitioner insurance company, the rejection referred to should be construed as the rejection, in the
first instance, for if what is being referred to is a reiterated rejection conveyed in a resolution of a yetition for reconsideration,
such should have been expressly stipulated.52
In light of the foregoing, it is thus clear that petitioner's causes of action for indemnity respectively accrued from its receipt of
the letters dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in the first instance. Consequently,
given that it allowed more than twelve (12) months to lapse before filing the necessary complaint before the R TC on September
27, 1991, its causes of action had already prescribed.
WHEREFORE, the petition is DENIED. The Decision dated March 13, 2001 and the Resolution dated February 21, 2002 of the
Court of Appeals (CA) in CA-G.R. CV No. 63175 are hereby AFFIRMED. SO ORDERED.

G.R. No. 165585 November 20, 2013

GOVERNMENT SERVICE INSURANCE SYSTEM vs. PRUDENTIAL GUARANTEE AND ASSURANCE, INC., DEVELOPMENT BANK OF
THE PHILIPPINES and LAND BANK OF THE PHILIPPINES
PERLAS-BERNABE, J.:
Assailed in these consolidated petitions for review on Certiorari 1 are separate issuances of the Court of Appeals (CA) in relation to
the complaint for sum of money filed by Prudential Guarantee and Assurance, Inc. (PGAI) against the Government Service
Insurance System (GSIS) before the Regional Trial Court of Makati City, Branch 149 (RTC), docketed as Civil Case No. 01-1634.
In particular, the petition in G.R. No. 165585 assails the Decision 2 dated May 26, 2004 and Resolution3 dated October 6, 2004 of
the CA in CA-G.R. SP No. 69289 which affirmed the Order 4 dated February 14, 2002, as well as the Order,5 Notices of
Garnishment,6 and Writ of Execution,7 all dated February 19, 2002, issued by the RTC authorizing execution pending appeal.
On the other hand, the petition in G.R. No. 176982 assails the Decision 8 dated October 30, 2006 and Resolution9dated March 12,
2007 of the CA in CA-G.R. CV No. 73965 which dismissed the appeal filed by GSIS, affirming with modification the Order 10 dated
January 11, 2002 of the RTC rendering judgment on the pleadings.
The Facts
Sometime in March 1999, the National Electrification Administration (NEA) entered into a Memorandum of Agreement 11 (MOA)
with GSIS insuring all real and personal properties mortgaged to it by electrical cooperatives under an Industrial All Risks Policy
(IAR policy).12 The total sum insured under the IAR policy was ₱16,731,141,166.80, out of which, 95% or ₱15,894,584,108.40
was reinsured by GSIS with PGAI for a period of one year or from March 5, 1999 to March 5, 2000. 13 As reflected in Reinsurance
Request Note No. 99-15014(reinsurance cover) and the Reinsurance Binder15 dated April 21, 1999 (reinsurance binder), GSIS
agreed to pay PGAI reinsurance premiums in the amount of ₱32,885,894.52 per quarter or a total of ₱131,543,578.08.16 While
GSIS remitted to PGAI the reinsurance premiums for the first three quarters, it, however, failed to pay the fourth and last
reinsurance premium due on December 5, 1999 despite demands. This prompted PGAI to file, on November 15, 2001, a
Complaint17 for sum of money (complaint) against GSIS before the RTC, docketed as Civil Case No. 01-1634.
In its complaint, PGAI alleged, among others, that: (a) after it had issued the IAR policy, it further reinsured the risks covered
under the said reinsurance with reputable reinsurers worldwide such as Lloyds of London, Copenhagen Re, Cigna Singapore, CCR,
Generali, and Arig;18 (b) the first three reinsurance premiums were paid to PGAI by GSIS and, in the same vein, NEA paid the first
three reinsurance premiums due to GSIS;19 (c) GSIS failed to pay PGAI the fourth and last reinsurance premium due on December
5, 1999;20 (d) the IAR policy remained in full force and effect for the entire insurable period and, in fact, the losses/damages on
various risks reinsured by PGAI were paid and accordingly settled by it; 21 (e) PGAI is under continuous pressure from its reinsurers
in the international market to settle the matter; 22 and (f) GSIS acknowledged its obligation to pay the last reinsurance premium as
it, in turn, demanded from NEA the fourth and last reinsurance premium. 23
In its Answer,24 GSIS admitted, among others, that: (a) its request for reinsurance cover was accepted by PGAI in a reinsurance
binder;25 (b) it remitted to PGAI the first three reinsurance premiums which were paid by NEA; 26 and (c) it failed to remit the
fourth and last reinsurance premium to PGAI.27 It, however, denied, inter alia, that: (a) it had acknowledged its obligation to pay
the last quarter’s reinsurance premium to PGAI; 28 and (b) the IAR policy remained in full force and effect for the entire insurable
period of March 5, 1999 to March 5, 2000.29 GSIS also proffered the following affirmative defenses: (a) the complaint states no
cause of action against GSIS because the non-payment of the last reinsurance premium only renders the reinsurance contract
ineffective, and does not give PGAI a right of action to collect; 30 (b) pursuant to the regulations issued by the Commission on
Audit, GSIS is prohibited from advancing payments to PGAI occasioned by the failure of the principal insured, NEA, to pay the
insurance premium;31 and (c) PGAI’s cause of action lies against NEA since GSIS merely acted as a conduit. 32 By way of
counterclaim, GSIS prayed that PGAI be ordered to pay exemplary damages, including litigation expenses, and costs of suit. 33
On December 18, 2001, PGAI filed a Motion for Judgment on the Pleadings 34 averring that GSIS essentially admitted the material
allegations of the complaint, such as: (a) the existence of the MOA between NEA and GSIS; (b) the existence of the reinsurance
binder between GSIS and PGAI; (c) the remittance by GSIS to PGAI of the first three quarterly reinsurance premiums; and (d) the
failure/refusal of GSIS to remit the fourth and last reinsurance premium. 35 Hence, PGAI prayed that the RTC render a judgment
on the pleadings pursuant to Section 1, Rule 34 of the Rules of Court (Rules). GSIS opposed 36 the foregoing motion by reiterating
the allegations and defenses in its Answer.
On January 11, 2002, the RTC issued an Order37 (January 11, 2002 Order) granting PGAI’s Motion for Judgment on the Pleadings.
It observed that the admissions of GSIS that it paid the first three quarterly reinsurance premiums to PGAI affirmed the validity of
the contract of reinsurance between them. As such, GSIS cannot now renege on its obligation to remit the last and remaining
quarterly reinsurance premium.38 It further pointed out that while it is true that the payment of the premium is a requisite for
the validity of an insurance contract as provided under Section 77 of Presidential Decree No. (PD) 612, 39 otherwise known as
"The Insurance Code," it was held in Makati Tuscany Condominium Corp. v. CA 40 (Makati Tuscany) that insurance policies are valid
even if the premiums were paid in installments, as in this case. 41 Thus, in view of the foregoing, the RTC ordered GSIS to pay PGAI
the last quarter reinsurance premium in the sum of ₱32,885,894.52, including interests amounting to ₱6,519,515.91 as of July
31, 2000 until full payment, attorney’s fees, and costs of suit. 42 Dissatisfied, GSIS filed a notice of appeal.43
Meanwhile, PGAI filed a Motion for Execution Pending Appeal 44 based on the following reasons: (a) GSIS’ appeal was patently
dilatory since it already acknowledged the validity of PGAI’s claim; 45 (b) GSIS posted no valid defense as its Answer raised no
genuine issues;46 and (c) PGAI would suffer serious and irreparable injury as it may be blacklisted as a consequence of the non-
payment of premiums due.47 PGAI also manifested its willingness to post a sufficient surety bond to answer for any resulting
damage to GSIS.48 The latter opposed49 the motion asserting that there lies no sufficient ground or urgency to justify execution
pending appeal. It also claimed that all its funds and properties are exempted from execution citing Section 39 of Republic Act
No. (RA) 8291,50 otherwise known as "The Government Service Insurance System Act of 1997." 51
On February 14, 2002, the RTC issued an Order52 (February 14, 2002 Order) granting PGAI’s Motion for Execution Pending Appeal,
conditioned on the posting of a bond. It further held that only the GSIS Social Insurance Fund is exempt from execution.
Accordingly, PGAI duly posted a surety bond which the RTC approved through an Order 53 dated February 19, 2002, resulting to
the issuance of a writ of execution54 and notices of garnishment55 (February 19, 2002 issuances), all of even date, against GSIS.
The CA Proceedings Antecedent to G.R. No. 165585
Aggrieved by the RTC’s February 14, 2002 Order, as well as the February 19, 2002 issuances, GSIS – without first filing a motion
for reconsideration (from the said order of execution) or a sufficient supersedeas bond 56 – filed on February 26, 2002 a petition
for certiorari57 before the CA, docketed as CA-G.R. SP No. 69289, against the RTC and PGAI. It also impleaded in the said petition
the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) as nominal parties so as to render
them subject to the writs and processes of the CA. 58
In its petition, GSIS argued that: (a) none of the grounds proffered by PGAI justifies the issuance of a writ of execution pending
appeal;59 and (b) all funds and assets of GSIS are exempt from execution and levy in accordance with RA 8291. 60
On April 4, 2002, the CA issued a temporary restraining order (TRO) 61 enjoining the garnishment of GSIS’ funds with LBP and DBP.
Nevertheless, since the TRO’s effectivity lapsed, GSIS’ funds with the LBP were eventually garnished. 62
On May 26, 2004, the CA rendered a Decision 63 dismissing GSIS’ petition, upholding, among others, the validity of the execution
pending appeal pursuant to the RTC’s February 14, 2002 Order as well as the February 19, 2002 issuances. It found that the
impending blacklisting of PGAI constitutes a good reason for allowing the execution pending appeal (also known as
"discretionary execution") considering that the imposition of international sanctions on any single local insurance company puts
in grave and immediate jeopardy not only the viability of that company but also the integrity of the entire local insurance system
including that of the state insurance agency. It pointed out that the insurance business thrives on credibility which is maintained
by honoring financial commitments.
On the claimed exemption of GSIS funds from execution, the CA held that such exemption only covers funds under the Social
Insurance Fund which remains liable for the payment of benefits like retirement, disability and death compensation and not
those covered under the General Insurance Fund, as in this case, which are meant for investment in the business of insurance
and reinsurance.64
GSIS’ motion for reconsideration65 was denied by the CA in a Resolution66 dated October 6, 2004. Hence, the petition for review
on certiorari in G.R. No. 165585.67
The CA Proceedings Antecedent to G.R. No. 176982
Separately, GSIS also assailed the RTC’s January 11, 2002 Order which granted PGAI’s Motion for Judgment on the Pleadings
through an appeal68 filed on October 7, 2002, docketed as CA G.R. CV No. 73965.
GSIS averred that the RTC gravely erred in: (a) rendering judgment on the pleadings since it specifically denied the material
allegations in PGAI’s complaint; (b) ordering execution pending appeal since there are no justifiable reasons for the same; and (c)
effecting execution against funds and assets of GSIS given that RA 8291 exempts the same from levy, execution and
garnishment.69
For its part, PGAI maintained that: (a) the judgment on the pleadings was in order given that GSIS never disputed the facts as
alleged in its complaint; (b) the discretionary execution was proper in view of the dilatory methods employed by GSIS in order to
evade the payment of a valid obligation; and (c) the general insurance fund of GSIS, which was attached and garnished by the
RTC, is not exempt from execution.70
In a Decision71 dated October 30, 2006, the CA sustained the RTC’s January 11, 2002 Order but deleted the awards of interest and
attorney’s fees for lack of factual and legal basis. 72
The CA ruled that judgment on the pleadings was proper since GSIS did not specifically deny the genuineness, due execution, and
perfection of its reinsurance contract with PGAI.73 In fact, PGAI even settled reinsurance claims during the covering period
rendering the reinsurance contract not only perfected but partially executed as well. 74
Passing on the issue of the exemption from execution of GSIS funds, the CA, citing Rubia v. GSIS 75 (Rubia), held that the
exemption provided for by RA 8291 is not absolute since it only pertains to the social security benefits of its members; thus,
funds used by the GSIS for business investments and commercial ventures, as in this case, may be attached and garnished. 76
GSIS’ motion for reconsideration77 was denied by the CA in a Resolution78 dated March 12, 2007. Hence, the present petition for
review on certiorari in G.R. No. 176982.79
The Issues Before the Court
In these consolidated petitions, the essential issues are the following: (a) in G.R. No. 165585, whether the CA erred in (1)
upholding the RTC’s February 14, 2002 Order authorizing execution pending appeal, and (2) ruling that only the Social Insurance
Fund and not the General Fund of the GSIS is exempt from garnishment; and (b) in G.R. No. 176982, whether the CA erred in
sustaining the RTC’s January 11, 2002 Order rendering judgment on the pleadings.
The Court’s Ruling
The petitions are partly meritorious.
A. Good reasons to allow execution pending appeal and the nature of the exemption under Section 39 of RA 8291.
The execution of a judgment pending appeal is an exception to the general rule that only a final judgment may be executed. 80 In
order to grant the same pursuant to Section 2,81 Rule 39 of the Rules, the following requisites must concur: (a) there must be a
motion by the prevailing party with notice to the adverse party; (b) there must be a good reason for execution pending appeal;
and (c) the good reason must be stated in a special order. 82
Good reasons call for the attendance of compelling circumstances warranting immediate execution for fear that favorable
judgment may yield to an empty victory. In this regard, the Rules do not categorically and strictly define what constitutes "good
reason," and hence, its presence or absence must be determined in view of the peculiar circumstances of each case. As a guide,
jurisprudence dictates that the "good reason" yardstick imports a superior circumstance that will outweigh injury or damage to
the adverse party.83 Corollarily, the requirement of "good reason" does not necessarily entail unassailable and flawless basis but
at the very least, an invocation thereof must be premised on solid footing. 84
In the case at bar, the RTC, as affirmed by the CA, granted PGAI’s motion for execution pending appeal on the ground that the
impending sanctions against it by foreign underwriters/reinsurers constitute good reasons therefor. It must, however, be
observed that PGAI has not proffered any evidence to substantiate its claim, as it merely presented bare allegations thereon. It is
hornbook doctrine that mere allegations do not constitute proof. As held in Real v. Belo, 85 "it is basic in the rule of evidence that
bare allegations, unsubstantiated by evidence, are not equivalent to proof. In short, mere allegations are not evidence." 86 Hence,
without any sufficient basis to support the existence of its alleged "good reasons," it cannot be said that the second requisite to
allow an execution pending appeal exists. To reiterate, the requirement of "good reasons" must be premised on solid footing so
as to ensure that the "superior circumstance" which would impel immediate execution is not merely contrived or based on
speculation. This, however, PGAI failed to demonstrate in the present case. In fine, the Court therefore holds that the CA’s
affirmance of the RTC’s February 14, 2002 Order authorizing execution pending appeal, as well as the February 19, 2002
issuances related thereto, was improper.
Nevertheless, while an execution pending appeal should not lie in view of the above-discussed reasons, it must be noted that the
funds and assets of GSIS may – after the resolution of the appeal and barring any provisional injunction thereto – be subject to
execution, attachment, garnishment or levy since the exemption under Section 39 of RA 8291 87 does not operate to deny private
entities from properly enforcing their contractual claims against GSIS. 88 This has been established in the case of Rubia wherein
the Court held as follows:
The declared policy of the State in Section 39 of the GSIS Charter granting GSIS an exemption from tax, lien, attachment, levy,
execution, and other legal processes should be read together with the grant of power to the GSIS to invest its "excess funds"
under Section 36 of the same Act. Under Section 36, the GSIS is granted the ancillary power to invest in business and other
ventures for the benefit of the employees, by using its excess funds for investment purposes. In the exercise of such function and
power, the GSIS is allowed to assume a character similar to a private corporation. Thus, it may sue and be sued, as also explicitly
granted by its charter.
Needless to say, where proper, under Section 36, the GSIS may be held liable for the contracts it has entered into in the course of
its business investments. For GSIS cannot claim a special immunity from liability in regard to its business ventures under said
Section.
Nor can it deny contracting parties, in our view, the right of redress and the enforcement of a claim, particularly as it arises from
a purely contractual relationship of a private character between an individual and the GSIS. 89(Emphases supplied and citations
omitted)
Thus, the petition in G.R. No. 165585 is partly granted.
B. Propriety of judgment on the pleadings.
Judgment on the pleadings is appropriate when an answer fails to tender an issue, or otherwise admits the material allegations
of the adverse party’s pleading. The rule is stated in Section 1, Rule 34 of the Rules which reads as follows:
Sec. 1. Judgment on the pleadings. – Where an answer fails to tender an issue, or otherwise admits the material allegations of
the adverse party’s pleading, the court may, on motion of that party, direct judgment on such pleading. x x x.
In this relation, jurisprudence dictates that an answer fails to tender an issue if it does not comply with the requirements of a
specific denial as set out in Sections 890 and 10,91 Rule 8 of the Rules, resulting in the admission of the material allegations of the
adverse party’s pleadings.92
As such, it is a form of judgment that is exclusively based on the submitted pleadings without the introduction of evidence as the
factual issues remain uncontroverted.93
In this case, records disclose that in its Answer, GSIS admitted the material allegations of PGAI’s complaint warranting the grant
of the relief prayed for. In particular, GSIS admitted that: (a) it made a request for reinsurance cover which PGAI accepted in a
reinsurance binder effective for one year;94 (b) it remitted only the first three reinsurance premium payments to PGAI; 95 (c) it
failed to pay PGAI the fourth and final reinsurance premium installment; 96 and (d) it received demand letters from PGAI.97 It also
did not refute the allegation of PGAI that it settled reinsurance claims during the reinsured period. On the basis of these
admissions, the Court finds that the CA did not err in affirming the propriety of a judgment on the pleadings.
GSIS’ affirmative defense that the non-payment of the last reinsurance premium merely rendered the contract ineffective
pursuant to Section 7798 of PD 612 no longer involves any factual issue, but stands solely as a mere question of law in the light of
the foregoing admissions hence allowing for a judgment on the pleadings. Besides, in the case of Makati Tuscany, the Court
already ruled that the non-payment of subsequent installment premiums would not prevent the insurance contract from taking
effect; that the parties intended to make the insurance contract valid and binding is evinced from the fact that the insured paid –
and the insurer received – several reinsurance premiums due thereon, although the former refused to pay the remaining
balance, viz:
We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that
petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered
payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three
(3) years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer’s
intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer
to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse
that the premiums were not prepaid in full.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of the appellate
court contained in its Resolution denying the motion to reconsider its Decision —
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract,
We are not prepared to rule that the request to make installment payments duly approved by the insurer, would prevent the
entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment .
Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an
acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy
binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy
is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy (De Leon, the Insurance Code, at p. 175). So is
an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted.
[I]n the case before Us, petitioner paid the initial installment and thereafter made staggered payments resulting in full payment
of the 1982 and 1983 insurance policies.1âwphi1 For the 1984 policy, petitioner paid two (2) installments although it refused to
pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid,
effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the
expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the
appellate court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums
paid if the insurer was exposed to the risk insured for any period, however brief or momentary. 99 (Emphases supplied and
citation omitted)
Thus, owing to the identical complexion of Makati Tuscany with the present case, the Court upholds PGAI’s right to be paid by
GSIS the amount of the fourth and last reinsurance premium pursuant to the reinsurance contract between them. All told, the
petition in G.R. No. 176982 is denied.
WHEREFORE, the petition in G.R. No. 165585 is PARTLY GRANTED. The Decision dated May 26, 2004 and Resolution dated
October 6, 2004 of the Court of Appeals in CA-G.R. SP No. 69289 are MODIFIED only insofar as it upheld the validity of Prudential
Guarantee and Assurance, Inc.’s execution pending appeal. In this respect, the Order dated February 14, 2002 of the Regional
Trial Court of Makati, Branch 149 as well as all other issuances related thereto are set aside.
On the other hand, the petition in G.R. No. 176982 is DENIED. The Decision dated October 30, 2006 and Resolution dated March
12, 2007 in CA-G.R. CV No. 73965 are hereby AFFIRMED.
SO ORDERED.

G.R. No. 223592, August 07, 2017

EQUITABLE INSURANCE CORPORATION v. TRANSMODAL INTERNATIONAL, INC.
PERALTA, J.:
This is to resolve the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated May 11, 2016, of petitioner
Equitable Insurance Corporation that seeks to reverse and set aside the Decision 1 dated September 15, 2015 and
Resolution2 dated March 17, 2016 of the Court of Appeals (CA) reversing the Decision3 dated June 18, 2013 of the Regional Trial
Court (RTC), Branch 26, Manila in a civil case for actual damages.

The facts follow.

Sytengco Enterprises Corporation (Sytengco) hired respondent Transmodal International, Inc. (Transmodal) to clear from the
customs authorities and withdraw, transport, and deliver to its warehouse, cargoes consisting of 200 cartons of gum Arabic with
a total weight of 5,000 kilograms valued at US21,750.00.

The said cargoes arrived in Manila on August 14, 2004 and were brought to Ocean Links Container Terminal Center, Inc. pending
their release by the Bureau of Customs (BOC) and on September 2, 2004, respondent Transmodal withdrew the same cargoes
and delivered them to Sytengco's warehouse. It was noted in the delivery receipt that all the containers were wet.

In a preliminary survey conducted by Elite Adjusters and Surveyors, Inc. (Elite Surveyors), it was found that 187 cartons had water
marks and the contents of the 13 wet cartons were partly hardened. On October 13, 2004, a re-inspection was conducted and it
was found that the contents of the randomly opened 20 cartons were about 40% to 60% hardened, while 8 cartons had marks of
previous wetting. In its final report dated October 27, 2004, Elite Surveyor fixed the computed loss payable at P728,712.00 after
adjustment of 50% loss allowance.

Thus, on November 2, 2004, Sytengco demanded from respondent Transmodal the payment of P1,457,424.00 as compensation
for total loss of shipment. On that same date, petitioner Equitable Insurance, as insurer of the cargoes per Marine Open Policy
No. MN-MRN-HO-000549 paid Sytengco's claim for P728,712.00. On October 4, 2004, Sytengco then signed a subrogation
receipt and loss receipt in favor of petitioner Equitable Insurance. As such, petitioner Equitable Insurance demanded from
respondent Transmodal reimbursement of the payment given to Sytengco.

Thereafter, petitioner Equitable Insurance filed a complaint for damages invoking its right as subrogee after paying Sytengco's
insurance claim and averred that respondent Transmodal's fault and gross negligence were the causes of the damages sustained
by Sytengco's shipment. Petitioner Equitable Insurance prayed for the payment of P728,712.00 actual damages with 6% interest
from the date of the filing of the complaint until full payment, plus attorney's fees and cost of suit.

Respondent Transmodal denied knowledge of an insurance policy and claimed that petitioner Equitable Insurance has no cause
of action against it because the damages to the cargoes were not due to its fault or gross negligence. According to the same
respondent, the cargoes arrived at Sytengco's warehouse around 11:30 in the morning of September 1, 2004, however, Sytengco
did not immediately receive the said cargoes and as a result, the cargoes got wet due to the rain that occurred on the night of
September 1, 2004. Respondent Transmodal also questioned the timeliness of Sytengco's formal claim for payment which was
allegedly made more than 14 days from the time the cargoes were placed at its disposal in contravention of the stipulations in
the delivery receipts.

The RTC, in its Decision dated June 18, 2013, found in favor of petitioner Equitable Insurance, thus, the following dispositive
portion of said decision:
WHEREFORE, based on the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering
the latter to pay the following:chanRoblesvirtualLawlibrary
(1) Actual damages in the amount of Php728,712.00 plus 6% interest from judicial demand until full payment;

(2) Attorney's fees in the amount equivalent to 10% of the amount claimed;

(3) Costs of suit. SO ORDERED.4

According to the RTC, petitioner Equitable Insurance was able to prove by substantial evidence its right to institute an action as
subrogee of Sytengco. It also ruled that petitioner Equitable Insurance's non-presentation of the insurance policy and non-
compliance with Section 7, Rule 8 of the Rules of Court on actionable document were raised for the first time in respondent
Transmodal's memorandum and also noted that petitioner Equitable Insurance had, in fact, submitted a copy of the insurance
contract.

Respondent Transmodal appealed the RTC's decision to the CA. The CA, on September 15, 2015, promulgated its decision
reversing the RTC's decision. It disposed of the appeal as follows:chanRoblesvirtualLawlibrary
WHEREFORE, the appeal is hereby GRANTED. The June 18,2013 Decision of the Regional Trial Court, Branch 26, Manila in Civil
Case No. 06-114861 is REVERSED and SET ASIDE. Accordingly, Equitable Insurance Corp.'s complaint is DISMISSED for failure to
prove cause of action.

SO ORDERED.5
The CA ruled that there was no proof of insurance of the cargoes at the time of the loss and that the subrogation was improper.
According to the CA, the insurance contract was neither attached in the complaint nor offered in evidence for the perusal and
appreciation of the RTC, and what was presented was just the marine risk note.

Hence, the present petition after the CA denied petitioner Equitable Insurance's motion for reconsideration.

Petitioner Equitable Insurance enumerates the following assignment of errors:chanRoblesvirtualLawlibrary

1. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT THE CASE OF MALAYAN INSURANCE CO., INC. V. REGIS
BROKERAGE CORP. (G.R. NO. 172156, NOVEMBER 23, 2007) IS NOT APPLICABLE IN THE INSTANT CASE;

2. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT THE FACTS SURROUNDING THE CASE OF MALAYAN
INSURANCE CO., INC. V. REGIS BROKERAGE CORP. (G.R. NO. 172156, NOVEMBER 23, 2007) IS DIFFERENT FROM THE FACTS
ATTENDING THE INSTANT CASE;

3. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF TISON V. COURT OF APPEALS, 276 SCRA 582;

4. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF COMPAÑA MARITIMA V. INSURANCE COMPANY
OF NORTH AMERICA, 12 SCRA 213;

5. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF DELSAN TRANSPORT LINES, INC. V. COURT OF
APPEALS, 273 SCRA 262;

6. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE. 6
It is the contention of petitioner Equitable Insurance that the CA erred in not applying certain jurisprudence on this case which it
deemed applicable. It also argues that the present case is not a suit between the insured Sytengco and the insurer but one
between the consignee Sytengco and the respondent common carrier since petitioner Equitable Insurance merely stepped into
the shoes of the said insured who has a direct cause of action against respondent Transmodal on account of the damage
sustained by the subject cargo, thus, the carrier cannot set up as defense any defect in the insurance policy because it cannot
avoid its liability to the consignee under the contract of carriage which binds it to pay any loss or damage that may be caused to
the cargo involved therein.

In its Comment7 dated July 25, 2016, respondent Transmodal avers that the CA did not err in not applying certain jurisprudence
in the latter's decision. Respondent Transmodal further refutes all the assigned errors that petitioner Equitable Insurance
enumerated in its petition.

A closer look at the arguments raised in the petition would show that petitioner is indeed asking this Court to review the factual
findings of the CA which is not within the scope of a petition for review under Rule 45 of the Rules of Court. However, this Court
has recognized exceptions to the rule that the findings of fact of the CA are conclusive and binding in the following instances: (1)
when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the
issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.8 Considering that the findings of facts of the RTC and the CA are glaringly in contrast, this
Court deems it proper to review the present case.

In ruling that petitioner's subrogation right is improper, the CA stated that it found no proof of insurance of the cargoes at the
time of their loss. It also found that what was presented in court was the marine risk note and not the insurance contract or
policy, thus:chanRoblesvirtualLawlibrary
A perusal of the complaint and the other documentary evidence submitted by Equitable Insurance such as the preliminary and
final report clearly shows that the claims for damages and subrogation were based on Policy No. MN-MRN-HO-0005479.
However, said insurance contract was neither attached in the complaint nor offered in evidence for the perusal and
appreciation of the court a quo. Instead, Equitable Insurance presented the marine risk note. For clarity, We quote the pertinent
portions of the marine risk note, viz.:chanRoblesvirtualLawlibrary
Line & Subline
MARINE CARGO
RISK NOTE
Policy No.:
MN-MRN-HO-0005479
Issue date Sep. 08, 2004
Invoice No. 59298 V

Assured: SYTENGCO ENTERPRISES CORPORATION

Address: 10RESTHAVEN ST.
SAN FRANCISCO DEL MONTE SUBDIVISION,
QUEZON CITY, METRO MANILA

We have this day noted the undermentioned risk in your favor and hereby guarantee that this document has all the force and
effect of the terms and conditions of EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-MOP-HO-0000099.

L/C AMOUNT: USD 21,750.00 MARK-UP: 20%

SUM INSURED: PHP 1,457,424.00 EXCHANGE RATE: 55.8400

CARGO: 200 CTNS. GUM ARABIC POWDER KB-120

Supplier: JUMBO TRADING CO., LTD.

Vessel: ASIAN ZEPHYR VOYAGE No.: 062N
BL#:MNL04086310
ETD: 09-AUG-04 ETA: 13-AUG-04
From: THAILAND To: Manila, Philippines9
As such, according to the CA, the case of Eastern Shipping Lines, Inc. v. Prudential Guarantee and Assurance, Inc. 10 is applicable,
wherein this Court held that a marine risk note is not an insurance policy. The CA also found applicable this Court's ruling
in Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,11 stating that a marine policy is constitutive of the insurer-insured
relationship, thus, such document should have been attached to the complaint as mandated by Section 7, 12 Rule 8 of the Rules of
Court.

Petitioner, however, insists that the CA erred in applying the case ofMalayan because the plaintiff therein did not present the
marine insurance policy whereas in the present case, petitioner has presented not only the marine risk note but also Marine
Open Policy No. MN-MOP-HO-000009913which were all admitted in evidence.

Indeed, a perusal of the records would show that petitioner is correct in its claim that the marine insurance policy was offered as
evidence. In fact, in the questioned decision of the CA, the latter, mentioned such policy, thus:chanRoblesvirtualLawlibrary
Contrary to the ruling of the RTC, the marine policy was not at all presented. As borne by the records, only the marine risk note
and EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-MOP-HO-0000099 were offered in evidence. These pieces of
evidence are immaterial to Equitable Insurance's cause of action. We have earlier pointed out that a marine risk note is
insufficient to prove the insurer's claim. Although the marine risk note provided that it "has all the force and effect of the terms
and conditions of EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-MOP-HO-0000099," there is nothing in the
records showing that the said policy is related to Policy No. MN-MRN-HO-005479 which was the basis of Equitable Insurance's
complaint. It did not escape our attention that the second page of the marine risk note explicitly stated that it was "attached to
and forming part of the Policy No. MN-MRN-005479." Thus, without the presentation of Policy No. MN-MRN-005479, We cannot
simply assume that the terms and conditions, including the period of coverage, of such policy are similar to Marine Policy No.
MN-MOP-HO-0000099.14
As such, respondent had the opportunity to examine the said documents or to object to its presentation as pieces of evidence.
The records also show that respondent was able to cross-examine petitioner's witness regarding the said documents. Thus, it was
well established that petitioner has the right to step into the shoes of the insured who has a direct cause of action against herein
respondent on account of the damages sustained by the cargoes. "Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities." 15 The right of subrogation springs from Article 2207 of the Civil Code which
states:chanRoblesvirtualLawlibrary
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
The records further show that petitioner was able to accomplish its obligation under the insurance policy as it has paid the
assured of its insurance claim in the amount of P728,712,00 as evidenced by, among others, the Subrogation Receipt, 16 Loss
Receipt,17 Check Voucher,18 and Equitable PCI Bank Check No. 0000013925. 19 The payment by the insurer to the insured operates
as an equitable assignment to the insurer of all the remedies which the insured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.20

This Court's ruling in Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corporation 21 is highly instructive,
thus:chanRoblesvirtualLawlibrary
As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may recover the insured
value of the lost/damaged cargo in the exercise of its subrogatory right. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,
the Court stated that the presentation of the contract constitutive of the insurance relationship between the consignee and
insurer is critical because it is the legal basis of the latter's right to subrogation.

In Home Insurance Corporation v. CA, the Court also held that the insurance contract was necessary to prove that it covered the
hauling portion of the shipment and was not limited to the transport of the cargo while at sea. The shipment in that case passed
through six stages with different parties involved in each stage until it reached the consignee. The insurance contract, which was
not presented in evidence, was necessary to determine the scope of the insurer's liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the cargo was sustained.

An analogous disposition was arrived at in the Wallem case cited by ATI wherein the Court held that the insurance contract must
be presented in evidence in order to determine the extent of its coverage. It was further ruled therein that the liability of the
carrier from whom reimbursement was demanded was not established with certainty because the alleged shortage incurred by
the cargoes was not definitively determined.

Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by declaring that a marine
insurance policy is dispensable evidence in reimbursement claims instituted by the insurer.

In Delsan Transport Lines, Inc. v. CA, the Court ruled that the right of subrogation accrues simply upon payment by the insurance
company of the insurance claim. Hence, presentation in evidence of the marine insurance policy is not indispensable before the
insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The
subrogation receipt, by itself, was held sufficient to establish not only the relationship between the insurer and consignee, but
also the amount paid to settle the insurance claim. The presentation of the insurance contract was deemed not fatal to the
insurer's cause of action because the loss of the cargo undoubtedly occurred while on board the petitioner's vessel.

The same rationale was the basis of the judgment inInternational Container Terminal Services, Inc. v. FGU Insurance Corporation,
wherein the arrastre operator was found liable for the lost shipment despite the failure of the insurance company to offer in
evidence the insurance contract or policy. As in Delsan, it was certain that the loss of the cargo occurred while in the petitioner's
custody.22
In view thereof, the RTC did not err in its ruling, thus:chanRoblesvirtualLawlibrary
Defendant in its memorandum, raised the issue that plaintiff failed to attach in its complaint a copy of the Marine Open
Insurance Policy, thus, it failed to establish its cause of action as subrogee of the consignee quoting the case of Malayan
Insurance Co., Inc. v. Regis Brokerage Corp.

The above-mentioned case is not applicable in the instant case. In Malayan Insurance Co. v. Regis Brokerage, Malayan did not
submit the copy of the insurance contract or policy. In the instant case, plaintiff submitted the copy of the insurance contract. In
fact, the non-presentation of the insurance contract is not fatal to its cause of action.

In the more recent case of Asian Terminals, Inc. v. Malayan Insurance Co., Inc., it was held:chanRoblesvirtualLawlibrary
Similarly, in this case, the presentation of the insurance contract or policy was not necessary. Although petitioner objected to the
admission of the Subrogation Receipt in its Comment to respondent's formal offer of evidence on the ground that respondent
failed to present the insurance contract or policy, a perusal of petitioner's Answer and Pre-trial Brief shows that petitioner never
questioned respondent's right to subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was
no issue regarding the validity of the insurance contract or policy, or any provision thereof, respondent had no reason to present
the insurance contract or policy as evidence during the trial.
Perusal of the records likewise show that the defendant failed to raise the issue of non-compliance with Section 7, Rule 8 of the
1997 Rules of Procedure and the non-presentation of insurance policy during the pre-trial. In the same case, it was
held:chanRoblesvirtualLawlibrary
Petitioner claims that respondent's non-presentation of the insurance contract or policy between the respondent and the
consignee is fatal to its cause of action.

We do not agree.

First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues agreed upon by the parties to be
resolved during the pre-trial. As we have said, the determination of issues during the pre-trial conference bars the consideration
of other questions, whether during trial or on appeal. Thus, [t]he parties must disclose during pre-trial all issues they intend to
raise during the trial, except those involving privileged or impeaching matters. x x x The basis of the rule is simple. Petitioners are
bound by the delimitation of the issues during the pre-trial because they themselves agreed to the same.
Plaintiff was able to prove by substantial evidence their right to institute this action as subrogee of the insured. The defendant
did not present any evidence or witness to bolster their defense and to contradict plaintiffs allegation. 23
To reiterate, in this case, petitioner was able to present as evidence the marine open policy that vested upon it, its rights as a
subrogee. Subrogation is designed to promote and to accomplish justice and is the mode which equity adopts to compel the
ultimate payment of a debt by one who injustice, equity and good conscience ought to pay. 24

WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated May 11, 2016, of petitioner
Equitable Insurance Corporation is GRANTED. Consequently, the Decision dated September 15, 2015 and Resolution dated
March 17, 2016 of the Court of Appeals in CA-G.R. CV No. 101296 are REVERSED and SET ASIDE, and the Decision dated June 18,
2013 of the Regional Trial Court, Branch 26, Manila isAFFIRMED and REINSTATED.

SO ORDERED.
G.R. No. 189524 October 11, 2017
ORIENTAL ASSURANCE CORPORATION vs. MANUEL ONG, doing business under the business name of WESTERN PACIFIC
TRANSPORT SERVICES AND/OR ASIAN TERMINALS, INC.
LEONEN, J.:
The consignee's claim letter that was received by the arrastre operator two (2) days after complete delivery of the cargo
constitutes substantial compliance with the time limitation for filing claims under the Gate Pass and the Management Contract.
However, the arrastre operator's liability for damage to the cargo is limited to ₱5,000.00 per package in accordance with the
Management Contract.
This Rule 45 Petition for Review on Certiorari1 seeks a review of the February 19, 2009 Decision 2 and August 25, 2009
Resolution3 of the Court of Appeals in CA-G.R. CV No. 89311. The Court of Appeals affirmed the Regional Trial Court's dismissal of
the complaint on the ground that the claim of petitioner Oriental Assurance Corporation (Oriental) had already prescribed.
JEA Steel Industries, Inc. (JEA Steel) imported from South Korea 72 aluminum-zinc-alloy-coated steel sheets in coils. These steel
sheets were transported to Manila on board the vessel M/V Dooyang Glory as evidenced by Bill of Lading No. HDMUBSOML-
214s01 l.4
Upon arrival of the vessel at the Manila South Harbor on June 10, 2002, the 72 coils were discharged and stored in Pier 9 under
the custody of the arrastre contractor, Asian Terminals, Inc. (Asian Terminals). 5
From the storage compound of Asian.Tem1inals, the coils were loaded on the trucks of Manuel Ong (Ong) and delivered to JEA
Steel's plant in Barangay Lapidario, Trece Martirez, Cavite on June 14, 2002 6 and June 17, 2002.7 Eleven of these coils ''were
found to be in damaged condition, dented or their normal round shape deformed." 8
JEA Steel filed a claim with Oriental for the value of the 11 damaged coils, pursuant to Marine Insurance Policy No. OAC/M-
12292.9
Oriental paid JEA Steel the sum of ₱521,530.16 and subsequently demanded indemnity from Ong and Asian Terminals
(respondents), but they10 refused to pay.
On May 19, 2003, Oriental filed a Complaint 11 before the Regional Trial Court of Manila for sum of money against respondents. 12
Ong countered that the 1l coils were already damaged when they were loaded on board his trucks and transported to the
consignee.13
For its part, Asian Terminals claimed that it exercised due diligence in handling the cargo, that the cargo was released to the
consignee's representative in the same condition as when received from the vessel, and that the damages were sustained while
in the custody of the vessel or the customs broker. 14
Asian Terminals further argued that Oriental's claim was barred for the latter's failure to file a notice of claim within the 15-day
period provided in the Gate Pass and in Article VII, Section 7.01 of the Contract for Cargo Handling Services (Management
Contract) between the Philippine Ports Authority and Asian Terminals. 15 The Gate Pass was signed by the consignee's
representative to acknowledge the delivery and receipt of the shipment. 16The dorsal side of this Gate Pass stated:
PROVISIONS
Issuance of this Gate Pass constitutes delivery to and receipt by the consignee of the goods as described above in good order and
condition unless an accompanying B.O. certificate duly signed and noted on the fact (sic) of this Gate Pass appears.
This Gate Pass is subject to all terms and conditions defined in the Management Contract between the Philippine Ports Authority
and Asian Terminals, Inc. and amendment and alterations thereof particularly but not limited to the Article VI thereof, limiting
the contractor's liability to ₱5,000 per package unless the transportation is otherwise specified or manifested or communicated
in writing together with the invoice value and supported by a certified packing list to the contractor by the interested party or
parties before the discharge of the goods and corresponding arrastre charges have been paid providing exception or restriction
from liability among others, unless a formal claim with the required annexes shall have been filed with the contractor within
fifteen (15) days from date of issuance by the contractor's certificate of loss, damage, injury or certificate of non-delivery. 17
Asian Terminals added that its liability, if any, should not exceed ₱5,000.00, pursuant to said Section 7.01.18
After trial, Branch 39, Regional Trial Court, Manila rendered its Decision 19 on August 9, 2006 dismissing the complaint. It found no
preponderance of evidence to establish that respondents were the ones responsible for the damage to the 11 coils. 20 Oriental's
Motion for Reconsideration was likewise denied by the Regional Trial Court in its Resolution 21 dated June 6, 2007.
The Court of Appeals dismissed Oriental's appeal on the ground that its claim had already prescribed. 22 The Court of Appeals
found that 11 of the coils were already damaged before they were loaded in Ong's trucks. 23 Hence, the legal presumption of
negligence applies against Asian Terminals unless it is able to prove that it exercised extraordinary diligence in the handling of the
cargo.24 The Court of Appeals held that as an arrastre operator, Asian Terminals was bound to observe the same degree of care
required of common carriers.25 The Court of Appeals further ruled that while Asian Terminals failed to rebut the presumption of
negligence against it, it cannot be held liable to pay the value of the damaged coils because Oriental's claim was filed beyond the
15-day prescriptive period stated in the Gate Pass. According to the Court of Appeals, it can resolve the issue of prescription
despite not being assigned as an error on appeal as it was already raised, although not tackled, in the lower court. The Court of
Appeals also denied petitioner's subsequent motion for reconsideration. 26
Hence, this petition was filed before this Court. Respondents filed their respective Comments, 27 and Oriental filed its Motion to
Admit Consolidated Reply28 together with its Consolidated Reply.29
In compliance with this Court's January 18, 2012 Resolution, 30 Asian Terminals31 and Oriental32 filed their respective memoranda.
Ong filed a Manifestation,33 adopting the arguments contained in the Memorandum of Asian Terminals.
The issues for this Court's resolution are:
First, whether or not the Court of Appeals gravely erred in passing upon the issue of prescription even though it was not an
assigned error in the appeal;
Second, whether or not the claim against Asian Terminals, Inc. is barred by prescription; and
Finally, whether or not the Court of Appeals gravely erred in ruling that Manuel Ong is not liable for the damage of the cargo. 34
I
Oriental submits that the "Court of Appeals cannot rule on the issue of prescription as this was not included in the assignment of
errors ... nor was this properly argued by any of the parties in their respective briefs filed before the Court of Appeals." 35
On the other hand, Asian Terminals counters that the Court of Appeals properly reviewed the issue of prescription even though it
was not raised in Oriental's appeal brief. This issue is closely related to the liability of Asian Terminals for the damaged shipment,
the first error in Oriental's appeal. Moreover, Asian Terminals asserts that it raised the issue of prescription before the trial court,
although it was not resolved.36
This Court agrees with Asian Terminals. The Court of Appeals properly passed upon the issue of prescription.
Rule 51, Section 8 of the Rules of Court provides:
Section 8. Questions that may be decided. No error which does not affect the jurisdiction over the subject matter or the validity
of the judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors, or closely
related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and
clerical errors.
An assignment of en-or is' generally required for appellate review. 37 Section 8 provides that only errors which have been stated in
the assignment of en-ors and properly argued in the brief will be considered by the appellate court. The exceptions to this rule
are errors affecting jurisdiction over the subject matter as well as plain and clerical errors. 38
However, in a number of cases,39 this Co mi recognized the appellate courts' ample authority to consider errors that were not
assigned. This is in accord with the liberal spirit of the Rules of Court with a view to securing a "just, speedy and inexpensive
disposition" of every case.40 In Mendoza v. Bautista:41
[A]n appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the appeal in
these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b) matters not assigned as
errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) matters not assigned as errors on
appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the
interests of justice or to avoid dispensing piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in
the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which
the lower court ignored; (e) matters not assigned as errors on appeal but closely related to an error assigned; and (f) matters not
assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent. 42
Exceptions (d) and (e) apply in this case.
The issue of whether or not Oriental's claim has prescribed was raised in the Regional Trial Court and evidence was presented by
Asian Terminals.43 However, this matter was no longer discussed by the Regional Trial Court in its decision in view of its finding
that Oriental failed to clearly establish that respondents were responsible for the damaged coils. 44
Moreover, it was Oriental that appealed to the Court of Appeals. It is comprehensible that respondents failed to discuss the issue
since the arguments in their briefs were limited to refuting the matters raised by petitioner.
Oriental assigned the following as errors in its appeal to the Court of Appeals:
The trial court erred when it declared that [respondents] are not liable for the loss and damage of the goods.
...
The trial court erred in dismissing [Oriental's] complaint and in refusing to grant the reliefs prayed for[.] 45
The issue of prescription is closely related to, and determinant of, the propriety of the lower court's ruling, absolving
respondents from liability for the damaged goods and dismissing Oriental's complaint. Thus, this Court finds no error on the part
of the Court of Appeals in passing upon this issue.
II.A
Going to the substantive issue, Oriental contends that it was not aware of the provisions 46 of the Gate Pass or the Management
Contract, neither of which it was a party to.47 Consequently, it cannot be bound by the stipulation limiting the liability of Asian
Terminals.48
Asian Terminals counters that "[t]he provisions of the Management Contract and the Gate Pass are binding on Oriental as
insurer-subrogee and successor-in-interest of the consignee." 49
This Court finds for Asian Terminals. This issue on whether or not petitioner, who was not a party to the Gate Pass or
Management Contract, is bound by the 15-day prescriptive period fixed in them to file a claim against the arrastre operator is not
new. This has long been settled by this Court.
In Government Service Insurance System v. Manila Railroad Company, 50 this Court held that the provisions of a gate pass or of an
arrastre management contract are binding on an insurer-subrogee even if the latter is not a party to it, viz:
The question whether plaintiff is bound by the stipulation in the Management Contract, Exhibit 1, requiring the filing of a claim
within 15 days from discharge of the goods, as a condition precedent to the accrual of a cause of action against the defendants,
has already been settled in Northern Motors, Inc. vs. Prince Line et al, 107 Phil., 253, Mendoza vs. Phil. Air Lines, Inc., (9 Phil.,
836), and Freixas & Co. vs. Pacific Mail Steamship Co. (42 Phil., 199), adversely to plaintiff's pretense. We have repeatedly held
that, by availing himself of the services of the arrastre operator and taking delivery therefrom in pursuance of a permit and a
pass issued by the latter, which were "subject to all the terms and conditions" of said management contract, including, inter
alia, the requirement thereof that "a claim is filed with the Company within 15 days from the date of arrival of the goods", the
consignee - and, hence, the insurer, or plaintiff herein, as successor to the rights of the consignee - became bound by the
provisions of said contract. The second assignment of error is, therefore, untenable. 51
This doctrine was reiterated in the later case of Summa Insurance Corporation v. Court of Appeals: 52
In the performance of its job, an arrastre operator is bound by the management contract it had executed with the Bureau of
Customs. However, a management contract, which is a sort of a stipulation pour autrui within the meaning of Article 1311 of the
Civil Code, is also binding on a consignee because it is incorporated in the gate pass and delivery receipt which must be
presented by the consignee before delivery can be effected to it. The insurer, as successor-in-interest of the consignee, is likewise
bound by the management contract. Indeed, upon taking delivery of the cargo, a consignee (and necessarily its successor-in-
interest) tacitly accepts the provisions of the management contract, including those which are intended to limit the liability of
one of the contracting parties, the arrastre operator. 53 (Citations omitted)
The fact that Oriental is not a party to the Gate Pass and the Management Contract does not mean that it cannot be bound by
their provisions. Oriental is subrogated to the rights of the consignee simply upon its payment of the insurance claim.
Article 2207 of the Civil Code provides:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury. (Emphasis added)
This Court explained the principle of subrogation in insurance contracts:
A1iicle 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or
damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will
be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to
pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter
may have against the third party whose negligence or wrongful act caused the loss, The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer[.]54
As subrogee, petitioner merely stepped into the shoes of the consignee and may only exercise those rights that the consignee
may have against the wrongdoer who caused the damage.55 "It can recover only the amount that is recoverable by the
assured."56 And since the right of action of the consignee is subject to a precedent condition stipulated in the Gate Pass, which
includes by reference the terms of the Management Contract, necessarily a suit by the insurer is subject to the same precedent
condition.57
Petitioner's assertion that the 15-day prescriptive period could not be enforced upon it to defeat its claim since the Gate Pass
was pro forma and it was not given notice of the Management Contract 58 is untenable.
As stated earlier, the dorsal side of the Gate Pass signed by the consignee's representative upon receipt of the cargo expressly
refers to the Management Contract between the Philippine Ports Authority and Asian Terminals. Hence, the consignee and its
subrogee, petitioner insurance company, are deemed to have notice of this Management Contract. 59
II.B
Petitioner asserts that under the Gate Pass, the 15-day period was to be reckoned from the "date of issuance by the contractor's
certificate of loss, damage, injury or certificate of non-delivery." Since Asian Terminals did not issue any certificate of damage,
then the 15-day period did not begin to run.60
In both its Comment on the Petition and Memorandum, respondent Asian Terminals no longer raised as an issue the matter
regarding its responsibility for the 11 damaged coils. However, respondent Asian Terminals maintains its refusal of liability for
such loss, solely on the basis of petitioner's alleged failure to file a formal claim within 15 days from the date of last delivery of
the steel sheet coils to the consignee's warehouse, in accordance with the Management Contract.
With regard to the reckoning of the 15-day prescriptive period, Asian Terminals posits that "the fifteen-day limit should be
counted from the date consignee obtains knowledge of the loss, damage or misdelivery of the shipment." 61 The contractor's
issuance of a certificate of loss, damage, or non-delivery is not an indispensable condition for the period to run. 62 Asian Terminals
adds that the consignee is presumed to have learned of the damage on June 17, 2002, the date of complete delivery of the
shipment to the consignee's plant, since there was no showing that the consignee learned of the damage later than this
date.63 Thus, counting 15 days, Oriental had until July 2, 2002 to file its claim. 64 Asian Terminals received Oriental's claim only on
July 4, 2002; hence, the claim was barred by prescription. 65
II.C
Again, the dorsal side of the Gate Pass states:
PROVISIONS
Issuance of this Gate Pass constitutes delivery to and receipt by the consignee of the goods as described above in good order and
condition unless an accompanying B.O. certificate duly issued and noted on the fact (sic) of this Gate Pass appears.
This Gate Pass is subject to all terms and conditions defined in the Management Contract between the Philippine Ports Authority
and Asian Terminals, Inc. and amendment and alterations thereof particularly but not limited to the A1iicle VI thereof, limiting
the contractor's liability to ₱5,000 per package unless the transportation is otherwise specified or manifested or communicated
in writing together with the invoice value and supported by a certified packing list to the contractor by the interested party or
parties before the discharge of the goods and corresponding arrastre charges have been paid providing exception or restriction
from liability among others, unless a formal claim with the required annexesshall have been filed with the contractor within
fifteen (15) days .from date of issuance by the contractors certificate of loss, damage, injury or liability or certificate of non-
delivery.66 (Emphasis supplied)
Section 7.01 of the Contract for Cargo Handling Services 67 dated March 17, 1992 between Philippine Ports Authority and then
Marina Port Services, Inc., now Asian Terminals, provides:
Section 7.01 Responsibility and Liability for Losses and Damages; Exceptions. - The CONTRACTOR shall, at its own expense,
handle all merchandise in all work undertaken by it hereunder, diligently and in a skillful, workman-like and efficient manner. The
CONTRACTOR shall be solely responsible as an independent contractor, and hereby agrees to accept liability and to pay to the
shipping company, consignees, consignors or other interested party or parties for the loss, damage or non-delivery of cargoes in
its custody and control to the extent of the actual invoice value of each package which in no case shall be more than FIVE
THOUSAND PESOS (₱5,000.00) each, unless the value of the cargo shipment is otherwise specified or manifested or
communicated in writing together with the declared Bill of Lading value and supported by a certified packing list to the
CONTRACTOR by the interested party or parties before the discharge or loading unto vessel of the goods. This amount of Five
Thousand Pesos (₱5,000.00) per package may be reviewed and adjusted by the AUTHORITY from time to time. THE
CONTRACTOR shall not be responsible for the condition or the contents of any package received, nor for the weight nor for any
loss, injury or damage to the said cargo before or while the goods are being received or remains in the piers, sheds, warehouses
or facility, if the loss, injury or damage is caused by force majeure or -other causes beyond the CONTRACTOR's control or capacity
to prevent or remedy; PROVIDED, that a formal claim together with the necessary copies of Bill of Lading, Invoice, Certified
Packing List and Computation arrived at covering the loss, injury or damage or non-delivery of such goods shall have been filed
with the CONTRACTOR within fifteen (15) days from day of issuance by the CONTRACTOR of a certificate of no11-
delivery; PROVIDED, however, that if said CONTRACTOR fails to issue such certification within fifteen (15) days from receipt of a
written request by the shipper/consignee or his duly authorized representative or any interested party, said certification shall be
deemed to have been issued, and thereafter, the fifteen (15) day period within which to file the claim commences; PROVIDED,
finally, that the request for certification of loss shall be made within thirty (30) days from the date of delivery of the package to
the consignee.68 (Emphasis supplied)
The issuance of a certificate is not an indispensable condition for the 15-day limit to run. The Management Contract expressly
states that upon the contractor's failure to issue a certification within 15 days from receipt of a consignee or his duly authorized
representative or any interested party's written request, this certification "shall be deemed to have been issued, and thereafter,
the fifteen (15) day period within which to file the claim commences." Further, neither petitioner alleges nor the facts of this case
show that a request for a certificate of loss or damage was made by the consignee. Hence, the arrastre operator could not be
expected to issue one.
Based on the Management Contract, the consignee has a period of 30 days from the date of delivery of the package to the
consignee within which to request a certificate of loss from the arrastre operator. From the date of the request for a certificate of
loss, the arrastre operator has a period of 15 days within which to issue a certificate of non-delivery or loss, either actually or
constructively. Moreover, from the date of issuance of a certificate of non-delivery or loss, the consignee has 15 days within
which to file a formal claim covering the loss, injury, damage, or non-delivery of such goods with all accompanying
documentation against the arrastre operator.
This Court has ruled that the purpose of the time limitation for filing claims is "to apprise the arrastre operator of the existence
of a claim and enable it to check on the validity of the claimant's demand while the facts are still fresh for recollection of the
persons who took part in the undertaking and the pertinent papers are still available." 69Despite the changes introduced in the
Management Contract on filing claims, the purpose is still the same.
This Court, in a number of cases,70 has liberally construed the requirement for filing a formal claim and allowed claims filed even
beyond the 15-day prescriptive period after finding that the request for bad order survey or the provisional claim filed by the
consignee had sufficiently served the purpose of a formal claim.
In New Zealand Insurance Co., ltd. v. Navarro, 71 5,974 bags of soybean meal were discharged from the carrying vessel and
received by the arrastre operator on June 28, 1974. The arrastre operator completed its delivery of the shipment to the
consignee on July 9, 1974. On that same day, a bad order examination of the goods delivered was requested by the consignee
and was conducted by the arrastre operator's own inspector, in the presence of representatives of both the Bureau of Customs
and the consignee. The inspector's ensuing bad order examination dated July 9, 1974 certified that 173 out of the 5,974 bags of
soybean meal shipped to Manila were damaged in transitu and an additional 111 bags were damaged after discharge from the
vessel and receipt of the arrastre operator. On August 9, 1974, the consignee filed a formal claim with the arrastre operator. New
Zealand Insurance Co., Ltd., the insurer of the goods, indemnified the consignee and subsequently filed a complaint against the
arrastre operator.
The trial court dismissed the complaint on the ground that the claim was filed with the arrastre operator beyond 15 days from
the issuance of the bad order examination report, which the trial court considered as the certificate of loss, damage, and injury
referred to in the management contract.
This Court ruled that the request for1 and the result of, the bad order examination, filed and done on the last day of delivery of
the cargo to the consignee served the purpose of a formal claim. The arrastre operator had become aware of and had verified
the facts giving rise to its liability. Thus, the arrastre operator suffered no prejudice by the lack of literal compliance with the 15-
day limitation.
New Zealand held:
We took special note of the above pronouncement six (6) years later in Fireman's Fund Insurance Co. v. Manila Port Service Co.,
et al . ..
However, the trial court has overlooked the significance of the request for, and the result of, the bad order examination, which
were filed and done within fifteen days from the haulage of the goods from the vessel. Said request and result, in effect, served
the purpose of a claim, which is –
'to afford the carrier or depositary reasonable opportunity and facilities to check the validity of the claims while facts are still
fresh in the minds of the persons who took part , in the transaction and documents are still available. '(Consunji vs. Manila Port
Service, L-15551, 29 November 1960)
Indeed, the examination undertake[n] by the defendant's own inspector not only gave the defendant an opportunity to check
the goods but is itself a verification of its own liability ...
In other words, what the Court considered as the crucial factor in declaring the defendant arrastre operator liable for the loss
occasioned, in the Fireman's Fund case, was the fact that defendant, by virtue of the consignee's request for a bad order
examination, had been able formally to verify the existence and extent of its liability within fifteen (15) days from the date of
discharge of the shipment from the carrying vessel - i.e., within the same period stipulated under the Management Contract for
the consignee to file a formal claim. That a formal claim had been filed by the consignee beyond the stipulated period of fifteen
(15) days neither relieved defendant of liability nor excused payment thereof, the purpose of a formal claim, as contemplated in
Consunji, having already been fully served and satisfied by the consignee's timely request for, and the eventual result of, the bad
order examination of the nylon merchandise shipped.
Relating the doctrine of Fireman's Fund to the case at bar, ... as early as 9 July 1974 (the date of last delivery to the consignee's
warehouse), respondent Razon had been able to verify and ascertain for itself not only the existence of its liability to the
consignee but, more significantly, the exact amount thereof- i.e., ₱5,746.61, representing the value of 111 bags of soybean meal.
We note further thatsuch verification and ascertainment of liability on the part of respondent Razon, had been accomplished
"within thirty (30) days from the date of delivery of last package to the consignee, broker or importer" as well as "within fifteen
(15) days from the date of issuance by the Contractor [respondent Razon] of a certificate of loss, damage or injury or certificate
of non-delivery" - the periods prescribed under Article VI, Section 1 of the Management Contract here involved, within which a
request for certificate of loss and a formal claim, respectively, must be filed by the consignee or his agent. 72 (Emphasis supplied,
citations omitted)
The same doctrine was adopted in Insurance Co. of North America v. Asian Terminals, Inc. 73 This Court ruled that the Request for
Bad Order Survey and the ensuing examination report satisfied the purpose of a formal claim, as respondent was made aware of
and was able to verify that five (5) skids were damaged or in bad order while in its custody before the last withdrawal of the
shipment. Hence, even if the formal claim was filed beyond the 15-day period stipulated in the Contract, respondent was not
prejudiced by it, since it already knew of the number of skids damaged in its possession per the examination report on the
request for bad order survey.
Thus, in the foregoing cases, "substantial compliance with the 15-day time limitation is allowed provided that the consignee has
made a provisional claim thru a request for bad order survey or examination report." 74
II.D
However, this case presents a new situation in that unlike the previous cases, the facts do not show that a provisional claim or a
request for bad order survey was made by the consignee. Instead, what was only established is that the consignee's claim letter
dated July 2, 2002 was received by respondent on July 4, 2002, or 17 days from last delivery of the coils to the consignee.
Even so, this Court adopts a reasonable interpretation of the stipulations in the Management Contract and hold that petitioner's
complaint is not time-barred.
First, under the express terms of the Management Contract, the consignee had thirty (30) days from receipt of the cargo to
request for a certificate of loss from the arrastre operator. Upon receipt of such request, the arrastre operator would have 15
days to issue a certificate of loss, either actually or constructively. From the date of issuance of the certificate of loss or where no
certificate was issued, from the expiration of the 15-day period, the consignee has 15 days within which to file a formal claim
with the arrastre operator.
In other words, the consignee had 45 to 60 days from the date of last delivery of the goods within which to submit a formal claim
to the arrastre operator.
The consignee's claim letter was received by respondent on July 4, 2002, 75 or 17 days from the last delivery of the goods, still
within the prescribed 30-day period to request a certificate of loss, damage, or injury from the arrastre operator.
This Court finds that whether the consignee files a claim letter or requests for a certificate of loss or bad order examination, the
effect would be the same, in that either would afford the arrastre contractor knowledge that the shipment has been damaged
and an opportunity to examine the nature and extent of the injury. Under the Management Contract, the 30-day period is
considered reasonable for the contractor to make an investigation of a claim.
Hence, the consignee's claim letter is regarded as substantial compliance with the condition precedent set forth in the
Management Contract to hold the arrastre operator liable.
In New Zealand Insurance Co., Ltd. v. Navarro, 76 this Court stressed that an arrastre operator, like respondent, is a public utility,
discharging functions which are heavily invested with public interest.
Provisions limiting the liability of a public utility operator through the imposition of multiple prescriptive periods for the filing of
claims by members of the general public who must deal with the public utility operator, must be carefully scrutinized and
reasonably construed so as to protect the legitimate interest of the public which the utility must serve. 77
Second, evidence shows that upon Asian Terminals' request, Ultraphil Marine and Cargo Survey Corporation 78conducted two (2)
surveys.79 These were:
1. On June 17, 2002 at Pier 9, South Harbor, 80 where it was observed that 11 of the coils were damaged before the shipment was
loaded on Ong's truck;81 and
2. On June 27, 2002, at the warehouse of the consignee in Trece Martires, Cavite, where the same quantity of damaged coils was
observed.82
The surveyor prepared and submitted to Asian Terminals a Final Report dated June 29, 2002. 83
Although its representative was not present during the inspections, 84 the fact that Asian Terminals requested for the cargo survey
shows that it had knowledge of the damage of the shipment while in its possession and that the survey was sought specifically to
ascertain the nature and extent of the damage. Thus, respondent cannot escape liability for the damaged coils, simply by its own
act of not sending a representative, after it had contracted for the survey of the shipment.
II.E
As to the extent of Asian Terminals' liability, Section 7.01 of the Management Contract provides that its liability is limited to the
actual invoice value of each package which should not be more than P5,000.00 each. The exception to this limitation on liability
is:
[U]nless the value of the cargo shipment is otherwise specified or manifested or communicated in writing together with the
declared Bill of Lading value and supported by a certified packing list to the CONTRACTOR by the interested party or parties
before the discharge or loading unto vessel of the goods.85
In this case, the records do not show that the value of the shipment was specified or manifested to Asian Terminals before
discharge from the vessel.1âwphi1 There was no evidence proving the amount of arrastre fees paid by the consignee to Asian
Terminals so as to put the latter on notice of the value of the cargo or that the invoice, packing list, and other shipping
documents were presented to the Bureau of Customs and to Asian Terminals for the proper assessment of the arrastre charges
and other fees. The Cargo Gate Passes86 issued by Asian Terminals do not indicate the value of the cargo.
Accordingly, Asian Terminals' liability should be limited to the maximum recoverable value of ₱5,000.00 per package or coil, the
customary freight unit. Hence, the total recoverable amount is ₱55,000.00 for the 11 damaged coils. This amount shall earn a
legal interest at the rate of 6% per annum from the date of finality of this judgment until its full satisfaction pursuant
to Nacar v. Gallery Frames.87
III
Both the Court of Appeals and the Regional Trial Court found that the 11 coils were already damaged before the coils were
loaded on Ong's truck. Hence, Ong could not be responsible for the damaged shipment.
However, petitioner asserts that Ong should be held solidarily liable with Asian Terminals for acting in bad faith when it did not
apprise the consignee or Asian Terminals about the damaged coils. This Court finds this contention untenable.
This issue was never raised by petitioner in the lower courts. In fact, Ong and Asian Te1minals "(Were] sued in the alternative
because [petitioner was] uncertain against whom it [was] entitled for relief.'' 88 The rule is well-settled that no question will be
considered by the appellate court which has not been raised in the lower court. 89
[A] party cannot change his theory of the case or his cause of action on appeal. Points of la,w, theories, issues and arguments not
brought to the attention of the lower court will not be considered by the reviewing court. The defenses not pleaded in the
answer cannot, on appeal, change fundamentally the nature of the issue in the case. To do so would be unfair to the adverse
party, who had no opportunity to present evidence in connection with the new theory; this would offend the basic rules of due
process and fair play.90
Furthermore, there was no proof of Ong's bad faith. Mere allegation cannot take the place of evidence. Besides, Ong's assertion
that the loading of the cargo on the trucks was undertaken by Asian Terminals and the unloading of the same cargo was
undertaken by the consignee at its warehouse91 remains unrebutted. In fact, Asian Terminals caused the inspection of the
shipment before they were loaded on Ong's trucks on June 17, 2002. 92Moreover, at the consignee's warehouse, the inspection
was done in the presence of the consignee's authorized representative. 93 Thus, Ong is not obliged to inform the consignee or
Asian Terminals about the damaged coils as they would have presumably known about them.
WHEREFORE, the Petition for Review is GRANTED. The February 19, 2009 Decision and August 25, 2009 Resolution of the Court
of Appeals in CA-G.R. CV No. 89311 are SET ASIDE. Respondent Asian Terminals, Inc. is ORDERED to pay petitioner Oriental
Assurance Corporation the amount of ₱55,000.00, with interest at the legal rate of six percent (6%) per annum from the date of
finality of this judgment until fully paid.
SO ORDERED.