G.R. No.

L-5715 December 20, 1910

E. M. BACHRACH, plaintiff-appellee,
vs.
BRITISH AMERICAN ASSURANCE COMPANY, a corporation, defendant-appellant.
Haussermann, Ortigas, Cohn and Fisher, for appellant
Kincaid & Hurd and Thomas L. Hartigan, for appellee.

any case, the amount of the insurable interest therein of the insured at the time of
the happening of such fire.
In witness whereof, the British American Assurance Company has accused these
presents to be signed this 21st day of February, in the year of our Lord 1908.
For the company.
W. F. STEVENSON & Co. LTD.,

JOHNSON, J.:
On the 13th of July, 1908, the plaintiff commenced an action against the defendant
to recover the sum of P9,841.50, the amount due, deducting the salvage, upon the
following fire insurance policy issued by the defendant to the plaintiff:

"By...............................................,
"Manager Agents."
And indorsed on the back the following:
The within policy and includes a "Calalac" automobile to the extent of (P1,250)
twelve hundred and fifty pesos Philippine currency.

[Fire policy No. 3007499.]

This policy of insurance witnesseth, that E. M. Bachrach, esq., Manila (hereinafter
called the insured), having paid to the undersigned, as authorized agent of the
British American Assurance Company (hereinafter called the company), the sum of
two thousand pesos Philippine currency, for insuring against loss or damage by fire,
as hereinafter mentioned, the property hereinafter described, in the sum of several
sums following, viz:
Ten thousand pesos Philippine currency, on goods, belonging to a general furniture
store, such as iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus,
washstands, mirrors, and sea-grass furniture (in accordance with warranty "D" of the
tariff attached hereto) the property of the assured, in trust, on commission or for
which he is responsible, whilst stored in the ground floor and first story of house and
dwelling No. 16 Calle Martinez, district 3, block 70, Manila, built, ground floor of
stone and or brick, first story of hard wood and roofed with galvanized iron
bounded in the front by the said calle, on one side by Calle David and on the other
two sides by buildings of similar construction and occupation.
Co-insurance allowed, particulars of which to be declared in the event of loss or
claim.
The company hereby agrees with the insured (but subject to the conditions on the
back hereof, which are to be taken as a part of this policy) that if the property above
described, or any part thereof, shall be destroyed or damaged by fire, at any time
between the 21st day of February, 1908, and 4 o'clock in the afternoon of the 21st
day of February, 1909, or (in case of the renewal of this policy) at any time
afterwards, so long as, and during the period in respect of which the insured shall
have paid to the company, and they shall have accepted, the sum required for the
renewal of this policy, the company will, out of their capital stock, and funds, pay or
make good to the insured the value of the property so destroyed, or the amount of
such damage thereto, to any amount not exceeding, in respect of each or any of the
several matters above specified, the sum set opposite thereto, respectively, and not
exceeding in the whole the sum of ten thousand pesos, and also not exceeding, in

Memo: Permission is hereby granted for the use of gasoline not to exceed 10 gallons
for the above automobile, but only whilst contained in the reservoir of the car. It is
further warranted that the car be neither filled nor emptied in the within-described
building or this policy be null and void.
Manila, 27th February, 1908.
"W. F. STEVENSON & Co. LTD.,
"By.......................................................,
"Manager Agents."
The defendant answered the complaint, admitting some of the facts alleged by the
plaintiff and denying others. The defendant also alleged certain facts under which it
claimed that it was released from all obligations whatever under said policy. These
special facts are as follows:
First. That the plaintiff maintained a paint and varnish shop in the said building
where the goods which were insured were stored.
Second. That the plaintiff transferred his interest in and to the property covered by
the policy to H. W. Peabody & Co. to secure certain indebtedness due and owing to
said company, and also that the plaintiff had transferred his interest in certain of the
goods covered by the said policy to one Macke, to secure certain obligations
assumed by the said Macke for and on behalf of the insured. That the sanction of the
said defendant had not been obtained by the plaintiff, as required by the said policy.

Third. That the plaintiff, on the 18th of April, 1908, and immediately preceding the
outbreak of the alleged fire, willfully placed a gasoline can containing 10 gallons of
gasoline in the upper story of said building in close proximity to a portion of said
goods, wares, and merchandise, which can was so placed by the plaintiff as to
permit the gasoline to run on the floor of said second story, and after so placing said
gasoline, he, the plaintiff, placed in close proximity to said escaping gasoline a
lighted lamp containing alcohol, thereby greatly increasing the risk of fire.
Fourth. That the plaintiff made no proof of the loss within the time required by
condition five of said policy, nor did the insured file a statement with he municipal or
any other judge or court of the goods alleged to have been in said building at the
time of the alleged fire, nor of the goods saved, nor the loss suffered.
The plaintiff, after denying nearly all of the facts set out in the special answer of the
defendant, alleged:
First. That he had been acquitted in a criminal action against him, after a trial duly
and regularly had, upon a charge of arson, based upon the same alleged facts set
out in the answer of the defendant.
Second. That her had made no proof of the loss set up in his complaint for the
reason that immediately after he had, on the 20th of April, 1908, given the
defendant due notice in writing of said loss, the defendant, on the 21st of April,
1908, and thereafter on other occasions, had waived all right to require proof of said
loss by denying all liability under the policy and by declaring said policy to be null
and void.
After hearing the evidence adduced during the trial of the cause, the lower court
found that the defendant was liable to the plaintiff and rendered a judgment against
the defendant for the sum of P9,841.50, with interest for a period of one year at 6
per cent, making a total of P10,431.99, with costs.
From that decision the defendant appealed and made the following assignments of
error:
1. The court erred in failing to hold that the use of the building, No. 16 Calle
Martinez, as a paint and varnish shop annulled the policy of insurance.
2. The court erred in failing to hold the execution of the chattel mortgages without
the knowledge and consent of the insurance company annulled the policy of
insurance.
3. The court erred in holding that the keeping of gasoline and alcohol not in bottles
in the building No. 16 Calle Martinez was not such a violation of the conditions of the
policy as to render the same null and void.
4. The court erred in failing to find as a fact that E. M. Bachrach, the insured, willfully
placed a gasoline can containing about 10 gallons of gasoline in the upper story of
said building, No. 16 Calle Martinez, in close proximity to a portion of the goods,
wares, and merchandise stored therein, and that said can was so placed by said
Bachrach as to permit the gasoline to run on the floor of said second story.

5. The court erred in failing to find as a fact that E. M. Bachrach, after placing said
gasoline can in close proximity to the goods, wares, and merchandise covered by
the policy of insurance, the he (Bachrach) placed in close proximity to said escaping
gasoline a lighted lamp containing alcohol, thereby greatly increasing the risk of fire.
6. The court erred in holding that the policy of insurance was in force at the time of
said fire, and that the acts or omissions on the part of the insured which cause, or
tended to cause, the forfeiture of the policy, were waived by the defendant.
7. The court erred in holding the defendant liable for the loss under the
policy.lawphil.net
8. The court erred in refusing to deduct from the loss sustained by Bachrach the
value of the automobile, which was saved without damage.
9. The court erred in refusing to grant the motion for a new trial.
10. The court erred in refusing to enter judgment in favor of the defendant and
against the plaintiff.
With reference to the first above assignment of error, the lower court in its decision
said:
It is claimed that either gasoline or alcohol was kept in violation of the policy in the
bodega containing the insured property. The testimony on this point is somewhat
conflicting, but conceding all of the defendant's claims, the construction given to
this claim by American courts would not justify the forfeiture of the policy on that
ground. The property insured consisted mainly of household furniture kept for the
purpose of sale. The preservation of the furniture in a salable condition by
retouching or otherwise was incidental to the business. The evidence offered by the
plaintiff is to the effect that alcohol was used in preparing varnish for the purpose of
retouching, though he also says that the alcohol was kept in store and not in the
bodega where the furniture was. It is well settled that the keeping of inflammable
oils on the premises, though prohibited by the policy, does not void it if such keeping
is incidental to the business. Thus, where a furniture factory keeps benzine for the
purposes of operation (Davis vs. Pioneer Furniture Company, 78 N. W. Rep., 596;
Faust vs. American Fire Insurance Company, 91 Wis., 158), or where it is used for the
cleaning machinery (Mears vs. Humboldt Insurance Company, 92 Pa. St., 15; 37 Am.
Rep., 647), the insurer can not on that ground avoid payment of loss, though the
keeping of the benzine on the premises is expressly prohibited. These authorities
also appear sufficient to answer the objection that the insured automobile contained
gasoline and that the plaintiff on one occasion was seen in the bodega with a lighted
lamp. The first was incidental to the use of the insured article and the second being
a single instance falls within the doctrine of the case last cited.
It may be added that there was no provision in the policy prohibiting the keeping of
paints and varnishes upon the premises where the insured property was stored. If
the company intended to rely upon a condition of that character, it ought to have
been plainly expressed in the policy.

With reference to the second above assignment of error, the defendant and
appellant contends that the lower court erred in failing to hold that the execution of
the said chattel mortgage, without the knowledge and consent of the insurance
company and without receiving the sanction of said company, annulled the said
policy of insurance.
With reference to this assignment of error, upon reading the policy of insurance
issued by the defendant to the plaintiff, it will be noted that there is no provision in
said policy prohibiting the plaintiff from placing a mortgage upon the property
insured, but, admitting that such a provision was intended, we think the lower court
has completely answered this contention of the defendant. He said, in passing upon
this question as it was presented:
It is claimed that the execution of a chattel mortgage on the insured property
violated what is known as the "alienation clause," which is now found in most
policies, and which is expressed in the policies involved in cases 6496 and 6497 by a
purchase imposing forfeiture if the interest in the property pass from the insured.
(Cases 6496 and 6497, in which are involved other action against other insurance
companies for the same loss as in the present action.)
This clause has been the subject of a vast number of judicial decisions (13 Am. &
Eng. Encyc. of Law, 2d ed., pp. 239 et seq.), and it is held by the great weight of
authority that the interest in property insured does not pass by the mere execution
of a chattel mortgage and that while a chattel mortgage is a conditional sale, there
is no alienation within the meaning of the insurance law until the mortgage acquires
a right to take possession by default under the terms of the mortgage. No such right
is claimed to have accrued in the case at bar, and the alienation clause is therefore
inapplicable.
With reference to the third assignment of error above noted, upon a reading of the
decision of the lower court it will be found that there is nothing in the decision of the
lower court relating to the facts stated in this assignment of error, neither is there
any provision in the policy relating to the facts alleged in said assignment of error.
Assignment of error numbers 4 and 5 above noted may be considered together.
The record discloses that some time prior to the commencement of this present
action, a criminal action was commenced against the plaintiff herein in the Court of
First Instance of the city of Manila, in which he was charged with willfully and
maliciously burning the property covered by the policy in the present case. At the
conclusion of the criminal action and after hearing the evidence adduced during the
trial, the lower court, with the assistance of two assessors, found that the evidence
was insufficient to show beyond peradventure of doubt that the defendant was
guilty of the crime. The evidence adduced during the trial of the criminal cause was
introduced as evidence in the present cause. While the evidence shows some very
peculiar and suspicious circumstances concerning the burning of the goods covered
by the said policy, yet, nevertheless, in view of the findings of the lower court and in
view of the apparent conflict in the testimony, we can not find that there is a
preponderance of evidence showing that the plaintiff did actually set fire or cause

fire to be set to the goods in question. The lower court, in discussing this question,
said:
As to the claim that the loss occurred through the voluntary act of the insured, we
consider it unnecessary to review the evidence in detail. That was done by another
branch of this court in disposing of the criminal prosecution brought against the
insured, on the same ground, based mainly on the same evidence. And regardless of
whether or not the judgment in that proceeding is res adjudicata as to anything
here, we are at least of the opinion that the evidence to establish this defense
should not be materially less convincing than that required in order to convict the
insured of the crime of arson. (Turtell vs. Beamount, 25 Rev. Rep., 644.) In order to
find that the defense of incendiarism was established here, we would be obliged,
therefore, in effect to set aside the findings of the judge and assessors in the
criminal cause, and this we would be loath to do even though the evidence now
produced were much stronger than it is.
With reference to the sixth assignment of error above noted, to wit:itc@alf That the
court erred in holding that the policy of insurance was in force at the time of said fire
and that the acts or omissions on the part of the insured which caused or tended to
cause a forfeiture of the policy were waived by the defendant, the lower court, in
discussing this question, said:
Regardless of the question whether the plaintiff's letter of April 20 (Exhibit B) was a
sufficient compliance with the requirement that he furnish notice of loss, the fact
remains that on the following day the insurers replied by a letter (Exhibit C)
declaring that the "policies were null and void," and in effect denying liability. It is
well settled by a preponderance of authorities that such a denial is a waiver of
notice of loss, because if the "policies are null and void," the furnishing of such
notice would be vain and useless. (13 Am. & Eng. Encyc. of Law, 347, 348, 349.)
Besides, "immediate notice" is construed to mean only within a reasonable time.
Much the same may be said as to the objection that the insured failed to furnish to
the insurers his books and papers or to present a detailed statement to the "juez
municipal," in accordance with article 404 of the Code of Commerce. The last-named
provision is similar to one appearing in many American policies requiring a
certificate from a magistrate nearest the loss regarding the circumstance thereof. A
denial of liability on other grounds waives this requirement (O'Niel vs. Buffalo Fire
Insurance Company, 3 N. Y., 122; Peoria Marine Ins. Co. vs. Whitehill, 25 Ill., 382), as
well as that relating to the production of books and papers (Ga. Home Ins. Co. vs.
Goode & Co., 95 Va., 751; 66 Jur. Civ., 16). Besides, the insured might have had
difficulty in attempting to comply with this clause, for there is no longer an official
here with the title of "juez municipal."
Besides the foregoing reasons, it may be added that there was no requirement in
the policy in question that such notice be given.
With reference to the assignments of error numbers 7, 9, and 10, they are too
general in their character to merit consideration.

With reference to the eight assignment of error above noted, the defendant and
appellant contends that he was entitled to have the amount of his responsibility
reduced by the full value (P1,250) of the said automobile.
It does not positively appear of record that the automobile in question was not
included in the other policies. It does appear that the automobile was saved and was
considered as a part of the salvaged. It is alleged that the salvage amounted to
P4,000, including the automobile. This amount (P4,000) was distributed among the
different insurers and the amount of their responsibility was proportionately
reduced. The defendant and appellant in the present case made no objection at any
time in the lower court to that distribution of the salvage. The claim is now made for
the first time. No reason is given why the objection was not made at the time of the
distribution of the salvage, including the automobile, among all of the insurers. The
lower court had no opportunity to pass upon the question now presented for the first
time. The defendant stood by and allowed the other insurers to share in the salvage,
which he claims now wholly belonged to him. We think it is now too late to raise the
question.
For all the foregoing reasons, we are of the opinion that the judgment of the lower
court should be affirmed, and it is hereby ordered that judgment be entered against
the defendant and in favor of the plaintiff for the sum of P9,841.50, with interest at
the rate of 6 per cent from the 13th of July, 1908, with costs. So ordered.

G.R. No. L-22738

December 2, 1924

ONG GUAN CAN and THE BANK OF THE PHILIPPINE ISLANDS, Plaintiffs-Appellees, v.
THE CENTURY INSURANCE CO., LTD., Defendant-Appellant.
Eiguren & Razon for appellant.
Aurelio Montinola and Jose M. Hontiverso for appellees.
VILLAMOR, J.:
On April 19, 1924, the Court of First Instance of Iloilo rendered a judgment in favor of
the plaintiff, sentencing the defendant company to pay him the sum of P45,000, the
value of certain policies of fire insurance, with legal interest thereon from February
28, 1923, until payment, with the costs. The defendant company appealed from this

judgment, and now insists that the same must be modified and that it must be
permitted to rebuild the house burnt, subject to the alignment of the street where
the building was erected, and that the appellant be relieved from the payment of the
sum in which said building was insured.chanroblesvirtualawlibrary chanrobles virtual
law library
A building of the plaintiff was insured against fire by the defendant in the sum of
P30,000, as well as the goods and merchandise therein contained in the sum of
P15,000. The house and merchandise insured were burnt early in the morning of
February 28, 1923, while the policies issued by the defendant in favor of the plaintiff
were in force.chanroblesvirtualawlibrary chanrobles virtual law library
The appellant contends that under clause 14 of the conditions of the policies, it may
rebuild the house burnt, and although the house may be smaller, yet it would be
sufficient indemnity to the insured for the actual loss suffered by
him.chanroblesvirtualawlibrary chanrobles virtual law library
The clause cites by the appellant is as follows:
The Company may at its option reinstate or replace the property damaged or
destroyed, or any part thereof, instead of paying the amount of the loss of damages,
or may join with any other Company or insurers in so doing, but the Company shall
not be bound to reinstate exactly or completely, but only as circumstances permit
and in reasonable sufficient manner, and in no case shall the Company be bound to
expend more in reinstatement that it would have cost to reinstate such property as
it was at the time of the occurrence of such loss or damage, nor more than the sum
insured by the Company thereon.
If this clause of the policies is valid, its effect is to make the obligation of the
insurance company an alternative one, that is to say, that it may either pay the
insured value of house, or rebuild it. It must be noted that in alternative obligations,
the debtor, the insurance company in this case, must notify the creditor of his
election, stating which of the two prestations he is disposed to fulfill, in accordance
with article 1133 of the Civil Code. The object of this notice is to give the creditor,
that is, the plaintiff in the instant case, opportunity to express his consent, or to
impugn the election made by the debtor, and only after said notice shall the election
take legal effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court. In the instance case, the record shows that
the appellant company did not give a formal notice of its election to rebuild, and
while the witnesses, Cedrun and Cacho, speak of the proposed reconstruction of the
house destroyed, yet the plaintiff did not give his assent to the proposition, for the
reason that the new house would be smaller and of materials of lower kind than
those employed in the construction of the house destroyed. Upon this point the trial
judge very aptly says in his decision: "It would be an imposition unequitable, as well
as unjust, to compel the plaintiff to accept the rebuilding of a smaller house than the
one burnt, with a lower kind of materials than those of said house, without offering
him an additional indemnity for the difference in size between the two house, which
circumstances were taken into account when the insurance applied for by the
plaintiff was accepted by the defendant." And we may add: Without tendering either
the insured value of the merchandise contained in the house destroyed, which

amounts to the sum of P15,000.chanroblesvirtualawlibrary chanrobles virtual law

library
We find in the record nothing to justify the reversal of the finding of the trial judge,
holding that the election alleged by the appellant to rebuild the house burnt instead
of paying the value of the insurance is improper. To our mind, the judgment
appealed from is in accordance with the merits of the case and the law, and must
be, as is hereby, affirmed with the cost against the appellant. So ordered.cha

FRANCISCO GALIAN, plaintiff-appellant,

vs.
THE STATE ASSURANCE COMPANY, LTD., defendant-appellant.
Recaredo M.a Calvo for plaintiff.
Haussermann, Cohn and Fisher for defendant.
TRENT, J.:
This is an action upon an open policy of fire insurance of household effects. The
property was insured on January 25, 1912, for P3,000. On March 25, 1912, the day
following the fire, the insured presented an itemized statement of the goods
contained in the house at the time of the fire, the total value of which he claims to
be P4,512. The insured property was not a total loss, and some of it was afterward
sold by the insured at public auction for the net amount of P120.40 The complaint
prays for the recovery of the total amount of the policy less two-thirds of the
P120.40, or P2,919.74.
The insurance company interposed a special defense to the effect that the policy
had been forfeited by reason of the fact that the claim presented by the plaintiff was
fraudulently false in that (a) the insured had alleged a total loss, (b) that not all the
articles listed in the plaintiff's claim of loss were in the house where and when the
fire occurred, and (c) that the plaintiff had attributed much greater value to the
articles included in the list than they were worth.

G.R. No. L-8405

February 10, 1915

Upon trial there was evidence for the plaintiff that the statement presented to the
insurance company after the fire was substantially correct, both in quantities and
values. The plaintiff testified that the statement was prepared from memory
immediately after the fire by himself with the assistance of his brother. The
defendant introduced three witnesses, who were sent to the scene of the fire shortly
after it occurred to estimate the value of the property contained in the house. From
photographs submitted in evidence it appears that the first floor of the plaintiff's
residence was not damaged by the fire at all, but did suffer damage from water and
breakage. In the parlor on the second floor the rattan work on the chairs was
entirely consumed, but the woodwork was probably only charred or scorched. The
fire did the most damages in the bedroom, where the roof partly fell in. Articles of
clothing contained in the wardrobes in this room are visible in the photograph, they
having evidently been taken out for inspection after the fire. Mr. Young testified that
upon request of the defendant company he had examined the contents of the house
and estimated the loss at P1,000. He said, however, that this was only a casual
estimate. They pulled out a few drawers of the wardrobes and examined some of the
wearing apparel contained in them. Mr. Dow testified that he made a rough estimate
of the damage done. He estimated the value of the goods on the first floor at P500,
and said that from what he saw of the remains on the upper floor, P1,500 would be a
liberal estimate of the damages done. He did not believe that there was P4,000
worth of property on the second floor. Mr. Laing, agent of the defendant company,
estimated the loss at P1,500. This, he thought, was a very liberal estimate. He
appears to have made a more careful estimate of the value of the different articles
than either of the other witnesses called by the defendant. He testified that nothing
had been entirely consumed by the fire. In this he is contradicted by the plaintiff,

who claims that some of the furniture, even, was totally consumed. From the
appearance of the bedroom, as portrayed by the photograph (Exhibit 4), we are
inclined to believe that some, at least, of the plaintiff's effects were completely
destroyed by the fire.
The court below declined to consider as competent the testimony of the plaintiff and
his brother as to the value of the property on the ground that neither was qualified
to appraise the property. The testimony of the three experts was also dismissed as
not being a reliable basis for a findings as to damages. The court then proceeded to
determine that the property was worth P1,500 at the time of the fire, based upon an
offer of compromise made to the plaintiff by the defendant company at the figure.
This offer was introduced in evidence, it is claimed, without objection by the
defendant company, and the court held that this failure of the defendant to object to
the admission of the offer of compromise rendered it competent evidence.
Thereupon, a judgment in favor of the plaintiff was entered for P1,500, with interest
from the date the complaint was filed. Both parties excepted to this judgment, and
moved for a new trial on the ground that the judgment was manifestly against the
weight of the evidence. These motions being overruled, they have brought the case
to this court by separate bills of exception.
The main issue on this appeal is as to the value of the property. After a careful
examination of the evidence, we are of the opinion that there is no satisfactory
evidence that the plaintiff included in his itemized list of property contained in the
house at the time of the fire, any property which was not there. The plaintiff
prepared the list from memory, and absolute accuracy could hardly be expected.
With regard to the fact that the plaintiff claims there were about 25 chairs in the
house, it may be said that the remains of 8 chairs may be seen in the photograph
(Exhibit 3), and 3 more in the photograph (Exhibit 1). This accounts for nearly half
the number claimed and the plaintiff asserts that a bundle of chairs was stored on
top of some of the wardrobes in the bedroom. The remaining furniture described is
not of an amount or description which convinces us that the floor space in the
plaintiff's dwelling was too limited to contain all of it, in the absence of something
like definite figures as to the size of the house and of the furniture.
The inventory which the plaintiff gives of the wardrobe of himself and wife covers an
amount and quality of clothing which counsel is quite correct in saying is not usually
possessed by persons in the station of life of the plaintiff. It may be well to state
here that the evidence shows the plaintiff to have been a cashier of a local business
house with a salary of P175 per month. In addition to this he and his wife each had
shares of stock in a commercial concerns which brought them between P25 and P30
per month dividends. He had inherited about P15,000 from his father, and was
administrator of his father's estate. While the family wardrobe denotes what might
be considered a high degree of extravagance, we cannot say from the evidence
before us that there was less or other clothing than that described by the plaintiff.
From the photograph (Exhibit 4) it is evident that there was considerable clothing
which had not been consumed and was only damaged by water or smoke. It appears
that the plaintiff's claim wherein this extraordinary list of wearing apparel was set
forth was submitted to the defendant before any of the three experts made his
examination of the property. The defendant was consequently well aware of the
claim which the plaintiff intended to make and could very easily have made an exact

list of the quantity and quality of the clothing which had not been consumed by the
fire, and which would doubtedless have aided us considerably in determining
whether the plaintiff's description of the family clothing was correct. The crossexamination of the plaintiff at the trial did not develop anything material in the way
of contradiction to the list of property submitted by him.
As to the values set out opposite the various items in the plaintiff's list, much the
same reasoning must be applied. If furniture or clothing of the kind and quality
described is not worth the amounts set out by the plaintiff, it would have been easy
for the experts introduced by the plaintiff to take each item separately and show
wherein and how much the price was erroneous. After an inspection of each
separate article in the list, we are not prepared to say that the prices are fabulous.
The testimony of the three witnesses introduced by the defendant we decline to
accept for two reasons: First, because it appears that some of the plaintiff's property
was entirely consumed by the fire and some was so badly damaged that it was
impossible to judge of its value. In the second place, the inspection made by these
several witnesses was so superficial, in view of their opportunity, that their
conclusions do not carry conviction.
As to the ruling of the trial court that the plaintiff and his brother were not qualified
to appraise the value of the household effects of the former, we must say that we do
not agree with the learned trial court on the point. There is nothing in the whole list,
except the jewelry, but what may be legitimately described as household effects
furniture, clothing, dishes, kitchen utensils, etc. They are with which all people of
ordinary education and refinement are reasonably familiar. Such articles are on sale
in retail shops everywhere and the prices are readily available to anyone seeking the
information. Not only this, but most of them are articles which persons with a
reasonably fair income purchase for their own convenience and comfort. Hence,
information as to their value must necessarily be acquired by all such individuals.
While the knowledge of some persons on the subject may be greater than that
possessed by others, this is true of all other branches of knowledge and equally as
true of experts. For these reasons we cannot subscribe to the proposition that none
but experts can testify as to the values of ordinary household articles.
The knowledge of values in most cases does not depend upon professional or other
special skill; and witnesses without having any special experience or training as
would entitle them to be called experts, may yet have gained such knowledge of the
land, or other subject under inquiry, as to aid the court or jury in arriving at a
conclusion. . . . Persons by their common experience and observation necessarily
gain some common use by all or nearly all; and their evidence as to such values is
not excluded by the fact that experts may have more accurate knowledge as to such
values. Obviously the witness must have some means of knowledge as to the nature
and quality of the articles in question before he is qualified to express an opinion as
to values. It would be an idle ceremony to allow witnesses to give their opinions in
evidence, unless they had better means of knowledge as to the subject matter of
their testimony than the jury might possess in common with all other persons. The
qualification of the witness is, of course, a question for the court. (Jones on Ev., sec.
363.)

The plaintiff was intimately acquianted with the articles described by him. He, no
doubt, had purchased most of them. One could hardly expected to be in much better
position to estimate the value of the articles than this. We conclude, therefore, that
the preponderance of the evidence is to the effect that the quantity and quality of
the goods contained in the house at the time of the fire were substantially those
described by the plaintiff in his claim of loss.
Having reached this conclusion, we presume that the defendant company will no
longer insist upon the remainder of its points, which would, if decided favorably to
its contention, tend to reduce the total value of the plaintiff's household effects, but
not to a figure which would make the company's liability under the policy less than
that which they would be held liable under the coinsurance clause of the policy.
We do not understand that the plaintiff at any time alleged a total loss. The list
presented by him the day after the fire is designated as a "Statement of household
furniture and personal effects . . . on hand" at the time of the fire. He latter offered
to abandon the remains of the fire, and still later caused these remains to be sold at
public auction. These facts clearly negative the assertion that he alleged a total loss.
Clause 17 of the conditions of the policy reads: "If the property hereby insured shall,
at the breaking out of any fire, be collectively of greater value than the sum insured
thereon, then the insured shall be considered as being his own insurer for the
difference, and shall bear a ratable proportion of the loss accordingly. Every item, if
more than one, of the policy shall be separately subject to this condition."

mentioned, the property hereinafter described, in the sum or several sums following,
namely:
(Then follows description of the property insured consisting of household goods
exclusively.)
The company hereby agrees with the insured (but subject to the conditions on the
back hereof, which are to be taken as part of this policy) that if the property above
described, or any part thereof, shall be destroyed by fire or lightning, at any time
between the 24th January, 1912, and four o'clock in the afternoon of the 24th
January, 1913, or at any time afterwards so long as and during the period in respect
of which the insured or the insured's representative in interest shall have paid to the
company, and in shall have accepted, the sum required for the renewal of this
policy, on or before the date of renewal in each succeeding year, the company will,
out of its capital stock, and funds, pay or make good to the insured the amount of
such loss or damage, but not exceeding in respect of each or any of the several
matters above specified, the sum set opposite thereto respectively, and not
exceeding in the whole the sum of three thousand pesos Philippine currency. And
also not exceeding, in any case the amount of the insurable interest therein of the
insured at the time of the happening of such fire.
In witness whereof, this is subscribed by the authorized agent of the company, this
25th January, 1912.
For Warner, Barnes & Co., Ltd.:

The property was worth P4,512. The salvage amounted to P120.40. This leaves a
partial loss amounting to P4,391.60. As the property was insured for only P3,000,
the insurer must bear a portion of the loss represented by a fraction the numerator
of which is the amount of the insurance and the denominator of which is the value of
the property at the time of the fire. This entitles the insured to a judgment against
the insurrer for 2,919.92. Let judgment be entered accordingly, without costs in this
instance. So ordered.
Arellano, C. J., Torres, Carson and Araullo, JJ., concur.

Separate Opinions
MORELAND, J., concurring:
The facts in this case are fully stated in the foregoing opinion. I desire to add only
one or two other facts appearing in the record which have to do with the ideas which
I desire to present in this opinion.
The policy on which this action is brought reads as follows:
This policy of insurance witnesseth that Mr. Francisco Galian, of Manila (hereinafter
called the insured), having paid to the undersigned, as authorized agent of the State
Assurance Company, Limited (hereinafter called the company), the premium as
above noted for insuring against loss or damages by fire or lightning as hereinafter

(Sgd.) J.T. FIGUERAS, Manager.

Per power of attorney.
As is clear from this policy, which is the contract signed by the parties, the company
agrees to pay to the insured whatever loss he may suffer on the household goods by
reason of the causes mentioned not to exceed P3,000. In other words, the company
agrees to pay all (not a part only) of the loss or damages which the property may
suffer to the amount of P3,000. This is the essential stipulation of the policy, the one
on which the minds of the parties really met, and, in reality, the only contract to
which the signatures of the parties are attached. However, when we examine the
back of the policy, we find there, in the print, a clause (called clause 17) by means
of which the company withdraws the agreement which forms the body of the policy,
which is signed by the parties and is the one on which the minds of the parties really
met, and substitutes another in its place wholly different in terms, nature and effect.
This clause is quoted in the opinion of the court and is as follows:
17. If the property hereby insured shall, at the breaking out of any fire, be
collectively of greater value than the sum insured thereon, then the insured shall be
considered as being his own insurer for the difference, and shall bear a ratable
proportion of the loss accordingly. Every item, if more than one, of the policy shall be
separately subject to this condition.
This clause, if valid between the parties, creates a contracts, as I have stated,
different in every conceivable aspect from the contract of the policy. By virtue of this

clause we have this situation presented: Mr. Rogers has a library of the value of
P2,000. Not desiring to incur the expense of insuring it for full value, he insured it
against loss or damage by fire to the amount of P1,000. He paid the insurance
premium on P1,000 for ten years. At the end of that item a fire occurs by which the
library is damages in the admitted sum of P1,000. He goes to the insurance
company, confidently expecting that he will receive the amount of the damage,
1,000, for which his library had been insured and on which sum he has been paying
premiums for ten years. Arriving at the office of the company he is informed that the
company did not agree to pay the full loss suffered but that, by virtue of clause 17
above quoted, it agreed to pay only P500; "For," says the company to him, "the
value of your library was P2,000. We were an insurer for P1,000 and you for the
other P1,000. You being a coinsurer with the company in equal amount, you must
stand with the company an equal share of the loss. The loss being P1,000, we pay
you P500, although we admit that, for ten years, you have been paying premiums on
P1,000." Stated concisely, the company pays one-half of what, in the contract signed
by both parties, it had agreed to pay.
By virtue of this clause, therefore, a person who insures his property for less than its
value is required to become an insurer himself . In other words, unless he insures for
full value or more, he becomes himself an insurer (this is the inexplicable part of it),
not for his own benefit but for the benefit of the insurance company. In addition to
having bought the goods and paid for them, he himself insures the uncovered
portion so that he may enjoy the privilege of relieving the company from paying the
sum it has solemnly agreed to pay and on which sum and for the payment of which
by the company he has been paying premiums since the insurance was created.
This amounts to the proposition that, in order to secure what the company has
agreed to pay him, the insured must not only lose P1,000 worth of books but he
must lose all the books he has. To obtain payment for the loss of half of his property
he must lose all of his property. This is very like the assertion of an accident
insurance company that it would pay the insured only half the sum agreed on for the
loss of a leg on the ground that he had escaped with his life. Having lost his leg
instead of his life, he should reduce by one-half or more the amounts of the
insurance to which he was entitled under the terms of the policy for the loss of a leg.
So with the one insured against loss by fire; having had the good fortune to save half
of his property, he must pay for his good fortune by donating to the insurance
company one-half of the value of the property saved.
Whether this condition of affairs is permitted by the laws of the Philippine Islands
now in force I do not stop to inquire. The question was not directly presented or
argued. The validity of the clause creating that condition has been assumed in
default of a challenge thereto. It is clear, however, that the principle involved in
sustaining the legality of such a clause provides a method of payment of loss in
insurance cases quite different from that found in article 428 of the Code of
Commerce, which seems to require full payment of the loss regardless of the value
of the property at the breaking out of the fire. It is possible, however, that, under
article 385, such a clause is legal and enforceable. I have not gone into the matter
deeply, as it seems from a casual reading that such a situation as I have described
above will be difficult under section 164 of the new insurance law, which is to take
effect on the 1st of July next. I do not, therefore, undertake, at this time, to pass on

the question of the validity of the clause, particularly as my brethen on the court are
unanimous in the opinion that clause 17 is legal and proper.
I am aware that such clauses are earnestly defended by insurance companies. But,
in spite of that defense, such clauses are directly opposes to the ordinary meaning
of the contract as written and signed. Their very existence is unknown in most
cases, and were known they are not understood. They are violate of the fair intent of
the agreement and, as a natural consequence, deceive the insured in the majority of
cases. After an insurance company has solemnly agreed, in an instrument signed by
the parties, to pay an insured P1,000 if his loss is P1,000, and then, when his loss in
admittedly P1,000, offers him only P500, clauses permitting such a result are
deception and explanations supporting them without effect. Dissertations on
community of interest, ownership in common, inability to ascertain which portion of
the insured goods was destroyed, the protection to all the property by an insurance
on only half, etc., are metaphysical rather than substantial and, in the great majority
of cases, form no party of the contract which the insured believes, and has the right
to believe, he is entering into. When the company agrees to pay the whole loss, one
must go outside the understanding of the ordinary man to defend the payment of
only half the loss; and when one is insured by an insurance company, common
reason fails and explanations are a burden when he is informed that by the act of
being insured by the insurance company, he became an insurer of the insurance
company. In making contracts with public corporations citizens are entitled to plain
words with plain meanings. They should not be compelled to call upon a dialectician
to plead their cause or a metaphysician to secure their rights. Common sense and
ordinary understanding should be their recourse, and not metaphysics that fertile
field of delusion propagated by language.

JOHNSON, J., dissenting:

I cannot secure my consent to either the argument or the law applied in the present
case.

G.R. No. L-54171 October 28, 1980

JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,
vs.
THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents.

TEEHANKEE, Acting C.J.:

The Court sets aside respondent Insurance Commission's dismissal of petitioner's

complaint and holds that where the insured's car is wrongfully taken without the
insured's consent from the car service and repair shop to whom it had been
entrusted for check-up and repairs (assuming that such taking was for a joy ride, in
the course of which it was totally smashed in an accident), respondent insurer is
liable and must pay insured for the total loss of the insured vehicle under the theft
clause of the policy.
The undisputed facts of the case as found in the appealed decision of April 14, 1980
of respondent insurance commission are as follows:
Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with
respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00
Own Damage; P30,000.00 Theft; and P30,000.00 Third Party Liability, effective
May 16, 1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the
Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978,
while it was in the custody of the Sunday Machine Works, the car was allegedly
taken by six (6) persons and driven out to Montalban, Rizal. While travelling along
Mabini St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car
figured in an accident, hitting and bumping a gravel and sand truck parked at the
right side of the road going south. As a consequence, the gravel and sand truck
veered to the right side of the pavement going south and the car veered to the right
side of the pavement going north. The driver, Benito Mabasa, and one of the
passengers died and the other four sustained physical injuries. The car, as well,
suffered extensive damage. Complainant, thereafter, filed a claim for total loss with
the respondent company but claim was denied. Hence, complainant, was compelled
to institute the present action.
The comprehensive motor car insurance policy for P35,000.00 issued by respondent
Empire Insurance Company admittedly undertook to indemnify the petitioner-insured
against loss or damage to the car (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; and (c) by malicious act.
Respondent insurance commission, however, dismissed petitioner's complaint for
recovery of the total loss of the vehicle against private respondent, sustaining
respondent insurer's contention that the accident did not fall within the provisions of
the policy either for the Own Damage or Theft coverage, invoking the policy
provision on "Authorized Driver" clause. 1
Respondent commission upheld private respondent's contention on the "Authorized
Driver" clause in this wise: "It must be observed that under the above-quoted
provisions, the policy limits the use of the insured vehicle to two (2) persons only,
namely: the insured himself or any person on his (insured's) permission. Under the
second category, it is to be noted that the words "any person' is qualified by the
phrase
... on the insured's order or with his permission.' It is therefore clear that if the
person driving is other than the insured, he must have been duly authorized by the

insured, to drive the vehicle to make the insurance company liable for the driver's
negligence. Complainant admitted that she did not know the person who drove her
vehicle at the time of the accident, much less consented to the use of the same (par.
5 of the complaint). Her husband likewise admitted that he neither knew this driver
Benito Mabasa (Exhibit '4'). With these declarations of complainant and her
husband, we hold that the person who drove the vehicle, in the person of Benito
Mabasa, is not an authorized driver of the complainant. Apparently, this is a violation
of the 'Authorized Driver' clause of the policy.
Respondent commission likewise upheld private respondent's assertion that the car
was not stolen and therefore not covered by the Theft clause, ruling that "The
element of 'taking' in Article 308 of the Revised Penal Code means that the act of
depriving another of the possession and dominion of a movable thing is coupled ...
with the intention. at the time of the 'taking', of withholding it with the character of
permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In other words, there must
have been shown a felonious intent upon the part of the taker of the car, and the
intent must be an intent permanently to deprive the insured of his car," and that
"Such was not the case in this instance. The fact that the car was taken by one of
the residents of the Sunday Machine Works, and the withholding of the same, for a
joy ride should not be construed to mean 'taking' under Art. 308 of the Revised
Penal Code. If at all there was a 'taking', the same was merely temporary in nature.
A temporary taking is held not a taking insured against (48 A LR 2d., page 15)."
The Court finds respondent commission's dismissal of the complaint to be contrary
to the evidence and the law.
First, respondent commission's ruling that the person who drove the vehicle in the
person of Benito Mabasa, who, according to its finding, was one of the residents of
the Sunday Machine Works, Inc. to whom the car had been entrusted for general
check-up and repairs was not an "authorized driver" of petitioner-complainant is too
restrictive and contrary to the established principle that insurance contracts, being
contracts of adhesion where the only participation of the other party is the signing of
his signature or his "adhesion" thereto, "obviously call for greater strictness and
vigilance on the part of courts of justice with a view of protecting the weaker party
from abuse and imposition, and prevent their becoming traps for the unwary. 2
The main purpose of the "authorized driver" clause, as may be seen from its text,
supra, is that a person other than the insured owner, who drives the car on the
insured's order, such as his regular driver, or with his permission, such as a friend or
member of the family or the employees of a car service or repair shop must be duly
licensed drivers and have no disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop
necessarily entrusts his car key to the shop owner and employees who are
presumed to have the insured's permission to drive the car for legitimate purposes
of checking or road-testing the car. The mere happenstance that the employee(s) of
the shop owner diverts the use of the car to his own illicit or unauthorized purpose in
violation of the trust reposed in the shop by the insured car owner does not mean
that the "authorized driver" clause has been violated such as to bar recovery,
provided that such employee is duly qualified to drive under a valid driver's license.

The situation is no different from the regular or family driver, who instead of carrying
out the owner's order to fetch the children from school takes out his girl friend
instead for a joy ride and instead wrecks the car. There is no question of his being an
"authorized driver" which allows recovery of the loss although his trip was for a
personal or illicit purpose without the owner's authorization.
Secondly, and independently of the foregoing (since when a car is unlawfully taken,
it is the theft clause, not the "authorized driver" clause, that applies), where a car is
admittedly as in this case unlawfully and wrongfully taken by some people, be they
employees of the car shop or not to whom it had been entrusted, and taken on a
long trip to Montalban without the owner's consent or knowledge, such taking
constitutes or partakes of the nature of theft as defined in Article 308 of the Revised
Penal Code, viz. "Who are liable for theft. Theft is committed by any person who,
with intent to gain but without violence against or intimidation of persons nor force
upon things, shall take personal property of another without the latter's consent," for
purposes of recovering the loss under the policy in question.
The Court rejects respondent commission's premise that there must be an intent on
the part of the taker of the car "permanently to deprive the insured of his car" and
that since the taking here was for a "joy ride" and "merely temporary in nature," a
"temporary taking is held not a taking insured against."
The evidence does not warrant respondent commission's findings that it was a mere
"joy ride". From the very investigator's report cited in its comment, 3 the police
found from the waist of the car driver Benito Mabasa Bartolome who smashed the
car and was found dead right after the incident "one cal. 45 Colt. and one apple type
grenade," hardly the materials one would bring along on a "joy ride". Then, again, it
is equally evident that the taking proved to be quite permanent rather than
temporary, for the car was totally smashed in the fatal accident and was never
returned in serviceable and useful condition to petitioner-owner.
Assuming, despite the totally inadequate evidence, that the taking was "temporary"
and for a "joy ride", the Court sustains as the better view that which holds that when
a person, either with the object of going to a certain place, or learning how to drive,
or enjoying a free ride, takes possession of a vehicle belonging to another, without
the consent of its owner, he is guilty of theft because by taking possession of the
personal property belonging to another and using it, his intent to gain is evident
since he derives therefrom utility, satisfaction, enjoyment and pleasure. Justice
Ramon C. Aquino cites in his work Groizard who holds that the use of a thing
constitutes gain and Cuello Calon who calls it "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total loss of the
insured car in the sum of P35,000.00 under the theft clause of the policy, subject to
the filing of such claim for reimbursement or payment as it may have as subrogee
against the Sunday Machine Works, Inc.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered
sentencing private respondent to pay petitioner the sum of P35,000.00 with legal
interest from the filing of the complaint until full payment is made and to pay the
costs of suit.

SO ORDERED.

The facts as found by the trial court are as follows:

G.R. No. 96452 May 7, 1992

PERLA COMPANIA DE SEGUROS, INC. petitioner,
vs.
THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.
G.R. No. 96493 May 7, 1992
FCP CREDIT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN LIM,
respondents.
Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner.
Wilson L. Tee for respondents Herminio and Evelyn Lim.

NOCON, J.:
These are two petitions for review on certiorari, one filed by Perla Compania de
Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No.
96493, both seeking to annul and set aside the decision dated July 30, 1990 1 of the
Court of Appeals in CA-G.R. No. 13037, which reversed the decision of the Regional
Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and
damages. The dispositive portion of the decision of the Court of Appeals reads, as
follows:
WHEREFORE, the decision appealed from is reversed; and appellee Perla Compania
de Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn Lim for the
loss of their insured vehicle; while said appellants are ordered to pay appellee FCP
Credit Corporation all the unpaid installments that were due and payable before the
date said vehicle was carnapped; and appellee Perla Compania de Seguros, Inc. is
also ordered to pay appellants moral damages of P12,000.00 for the latter's mental
sufferings, exemplary damages of P20,000.00 for appellee Perla Compania de
Seguros, Inc.'s unreasonable refusal on sham grounds to honor the just insurance
claim of appellants by way of example and correction for public good, and attorney's
fees of P10,000.00 as a just and equitable reimbursement for the expenses incurred
therefor by appellants, and the costs of suit both in the lower court and in this
appeal. 2

On December 24, 1981, private respondents spouses Herminio and Evelyn Lim
executed a promissory note in favor Supercars, Inc. in the sum of P77,940.00,
payable in monthly installments according to the schedule of payment indicated in
said note, 3 and secured by a chattel mortgage over a brand new red Ford Laser
1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is
registered under the name of private respondent Herminio Lim 4 and insured with
the petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive
coverage under Policy No. PC/41PP-QCB-43383. 5
On the same date, Supercars, Inc., with notice to private respondents spouses,
assigned to petitioner FCP Credit Corporation (FCP for brevity) its rights, title and
interest on said promissory note and chattel mortgage as shown by the Deed of
Assignment. 6
At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked
at the back of Broadway Centrum along N. Domingo Street, Quezon City. Private
respondent Evelyn Lim, who was driving said car before it was carnapped,
immediately called up the Anti-Carnapping Unit of the Philippine Constabulary to
report said incident and thereafter, went to the nearest police substation at Araneta,
Cubao to make a police report regarding said incident, as shown by the certification
issued by the Quezon City police. 7
On November 10, 1982, private respondent Evelyn Lim reported said incident to the
Land Transportation Commission in Quezon City, as shown by the letter of her
counsel to said office, 8 in compliance with the insurance requirement. She also filed
a complaint with the Headquarters, Constabulary Highway Patrol Group. 9
On November 11, 1982, private respondent filed a claim for loss with the petitioner
Perla but said claim was denied on November 18, 1982 10 on the ground that Evelyn
Lim, who was using the vehicle before it was carnapped, was in possession of an
expired driver's license at the time of the loss of said vehicle which is in violation of
the authorized driver clause of the insurance policy, which states, to wit:
AUTHORIZED DRIVER:
Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or
with his permission. Provided that the person driving is permitted, in accordance
with the licensing or other laws or regulations, to drive the Scheduled Vehicle, or has
been permitted and is not disqualified by order of a Court of Law or by reason of any
enactment or regulation in that behalf. 11
On November 17, 1982, private respondents requests from petitioner FCP for a
suspension of payment on the monthly amortization agreed upon due to the loss of
the vehicle and, since the carnapped vehicle insured with petitioner Perla, said
insurance company should be made to pay the remaining balance of the promissory
note and the chattel mortgage contract.

Perla, however, denied private respondents' claim. Consequently, petitioner FCP

demanded that private respondents pay the whole balance of the promissory note or
to return the vehicle 12 but the latter refused.
On July 25, 1983, petitioner FCP filed a complaint against private respondents, who
in turn filed an amended third party complaint against petitioner Perla on December
8, 1983. After trial on the merits, the trial court rendered a decision, the dispositive
portion which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally,
plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per annum
from July 2, 1983 until fully paid;
2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and
the costs of suit.
Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint
filed against Third-Party Defendant. 13
Not satisfied with said decision, private respondents appealed the same to the Court
of Appeals, which reversed said decision.
After petitioners' separate motions for reconsideration were denied by the Court of
Appeals in its resolution of December 10, 1990, petitioners filed these separate
petitions for review on certiorari.
Petitioner Perla alleged that there was grave abuse of discretion on the part of the
appellate court in holding that private respondents did not violate the insurance
contract because the authorized driver clause is not applicable to the "Theft" clause
of said Contract.
For its part, petitioner FCP raised the issue of whether or not the loss of the
collateral exempted the debtor from his admitted obligations under the promissory
note particularly the payment of interest, litigation expenses and attorney's fees.
We find no merit in Perla's petition.
The comprehensive motor car insurance policy issued by petitioner Perla undertook
to indemnify the private respondents against loss or damage to the car (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; and (c) by
malicious act. 14
Where a car is admittedly, as in this case, unlawfully and wrongfully taken without
the owner's consent or knowledge, such taking constitutes theft, and, therefore, it is
the "THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that should apply. As
correctly stated by the respondent court in its decision:

. . . Theft is an entirely different legal concept from that of accident. Theft is

committed by a person with the intent to gain or, to put it in another way, with the
concurrence of the doer's will. On the other hand, accident, although it may proceed
or result from negligence, is the happening of an event without the concurrence of
the will of the person by whose agency it was caused. (Bouvier's Law Dictionary, Vol.
I, 1914 ed., p. 101).
Clearly, the risk against accident is distinct from the risk against theft. The
"authorized driver clause" in a typical insurance policy is in contemplation or
anticipation of accident in the legal sense in which it should be understood, and not
in contemplation or anticipation of an event such as theft. The distinction often
seized upon by insurance companies in resisting claims from their assureds
between death occurring as a result of accident and death occurring as a result of
intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had
figured in an accident at the time she drove it with an expired license, then, appellee
Perla Compania could properly resist appellants' claim for indemnification for the
loss or destruction of the vehicle resulting from the accident. But in the present
case. The loss of the insured vehicle did not result from an accident where intent
was involved; the loss in the present case was caused by theft, the commission of
which was attended by intent. 15
It is worthy to note that there is no causal connection between the possession of a
valid driver's license and the loss of a vehicle. To rule otherwise would render car
insurance practically a sham since an insurance company can easily escape liability
by citing restrictions which are not applicable or germane to the claim, thereby
reducing indemnity to a shadow.
We however find the petition of FCP meritorious.
This Court agrees with petitioner FCP that private respondents are not relieved of
their obligation to pay the former the installments due on the promissory note on
account of the loss of the automobile. The chattel mortgage constituted over the
automobile is merely an accessory contract to the promissory note. Being the
principal contract, the promissory note is unaffected by whatever befalls the subject
matter of the accessory contract. Therefore, the unpaid balance on the promissory
note should be paid, and not just the installments due and payable before the
automobile was carnapped, as erronously held by the Court of Appeals.
However, this does not mean that private respondents are bound to pay the interest,
litigation expenses and attorney's fees stipulated in the promissory note. Because of
the peculiar relationship between the three contracts in this case, i.e., the
promissory note, the chattel mortgage contract and the insurance policy, this Court
is compelled to construe all three contracts as intimately interrelated to each other,
despite the fact that at first glance there is no relationship whatsoever between the
parties thereto.
Under the promissory note, private respondents are obliged to pay Supercars, Inc.
the amount stated therein in accordance with the schedule provided for. To secure
said promissory note, private respondents constituted a chattel mortgage in favor of
Supercars, Inc. over the automobile the former purchased from the latter. The

chattel mortgage, in turn, required private respondents to insure the automobile and
to make the proceeds thereof payable to Supercars, Inc. The promissory note and
chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the
knowledge of private respondents. Private respondents were able to secure an
insurance policy from petitioner Perla, and the same was made specifically payable
to petitioner FCP. 16

As to the award of moral damages, exemplary damages and attorney's fees, private
respondents are legally entitled to the same since petitioner Perla had acted in bad
faith by unreasonably refusing to honor the insurance claim of the private
respondents. Besides, awards for moral and exemplary damages, as well as
attorney's fees are left to the sound discretion of the Court. Such discretion, if well
exercised, will not be disturbed on appeal. 19

The insurance policy was therefore meant to be an additional security to the

principal contract, that is, to insure that the promissory note will still be paid in case
the automobile is lost through accident or theft. The Chattel Mortgage Contract
provided that:

WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to

require private respondents to pay petitioner FCP the amount of P55,055.93, with
legal interest from July 2, 1983 until fully paid. The decision appealed from is hereby
affirmed as to all other respects. No pronouncement as to costs.

THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE
PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR
DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM DATE
HEREOF AND EVERY YEAR THEREAFTER UNTIL THE MORTGAGE OBLIGATION IS FULLY
PAID WITH AN INSURANCE COMPANY OR COMPANIES ACCEPTABLE TO THE
MORTGAGEE IN AN AMOUNT NOT LESS THAN THE OUTSTANDING BALANCE OF THE
MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH
POLICY OR POLICIES, PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS
INTERESTS MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO
THE MORTGAGEE, . . . . 17

SO ORDERED.

It is clear from the abovementioned provision that upon the loss of the insured
vehicle, the insurance company Perla undertakes to pay directly to the mortgagor or
to their assignee, FCP, the outstanding balance of the mortgage at the time of said
loss under the mortgage contract. If the claim on the insurance policy had been
approved by petitioner Perla, it would have paid the proceeds thereof directly to
petitioner FCP, and this would have had the effect of extinguishing private
respondents' obligation to petitioner FCP. Therefore, private respondents were
justified in asking petitioner FCP to demand the unpaid installments from petitioner
Perla.
Because petitioner Perla had unreasonably denied their valid claim, private
respondents should not be made to pay the interest, liquidated damages and
attorney's fees as stipulated in the promissory note. As mentioned above, the
contract of indemnity was procured to insure the return of the money loaned from
petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid
claim of the private respondents should not in any way prejudice the latter.
Private respondents can not be said to have unduly enriched themselves at the
expense of petitioner FCP since they will be required to pay the latter the unpaid
balance of its obligation under the promissory note.
In view of the foregoing discussion, We hold that the Court of Appeals did not err in
requiring petitioner Perla to indemnify private respondents for the loss of their
insured vehicle. However, the latter should be ordered to pay petitioner FCP the
amount of P55,055.93, representing the unpaid installments from December 30,
1982 up to July 1, 1983, as shown in the statement of account prepared by
petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid.

boys.
2. ID.; ID.; ID.; ID.; ID.; LIABILITY OF INSURER UNDER THE THEFT CLAUSE OF AN
INSURANCE POLICY; PRIOR CONVICTION NOT REQUIRED IN AN ACTION FOR
RECOVERY ON AN AUTOMOBILE INSURANCE; CASE AT BAR. There need be no prior
conviction for the crime of theft to make an insurer liable under the theft clause of
the policy. Upon the facts stipulated by the parties it is admitted that Catiben had
taken the vehicle for a joy ride and while the same was in his possession he bumped
it against an electric post resulting in damages. That act is theft within a policy of
insurance. In a civil action for recovery on an automobile insurance, the question
whether a person using a certain automobile at the time of the accident stole it or
not is to be determined by a fair preponderance of evidence and not by the rule of
criminal law requiring proof of guilt beyond reasonable doubt (Villacorta v. Insurance
Commission, 100 SCRA 467 [1980]). Besides, there is no provision in the policy
requiring prior criminal conviction for theft.

RESOLUTION

MELENCIO-HERRERA, J.:

This case for "Indemnity for Damages and Attorneys Fees" was elevated to this
Tribunal by the then Court of Appeals on a question of law.
The Stipulation of Facts submitted by the parties before the Court of First Instance of
Davao, Branch I, in Case No. 3789, reads as follows:jgc:chanrobles.com.ph
[G.R. No. L-28772. September 21, 1983.]
ASSOCIATION OF BAPTISTS FOR WORLD EVANGELISM, INC., Plaintiff, v. FIELDMENS
INSURANCE CO., INC., Defendant-Appellant.

"COMES the parties in the above entitled case, through their respective counsels
and to this Honorable Court respectfully submit the following stipulations of
facts:chanrob1es virtual 1aw library

SYLLABUS

1. That plaintiff is a religious corporation duly organized and registered under the
laws of the Philippines, while defendant is also a domestic corporation duly
organized and existing under the laws of the Philippines;

1. MERCANTILE LAW; INSURANCE; COMPREHENSIVE POLICY; UNLAWFUL AND

WRONGFUL TAKING OF VEHICLE FOR A JOY RIDE CONSTITUTES THEFT WITHIN THE
MEANING OF INSURANCE POLICY; RECOVERY FOR DAMAGE NOT BARRED BY THE
ILLEGAL USE OF THE VEHICLE. The Comprehensive Policy issued by the insurance
company includes loss of or damage to the motor vehicle by "burglary . . . or theft."
It is settled that the act of Catiben in taking the vehicle for a joy ride to Toril, Davao
City, constitutes theft within the meaning of the insurance policy and that recovery
for damage to the car is not barred by the illegal use of the car by one of the station

2. That plaintiff, having an insurable interest in a Chevrolet Carry-all, 1955 Model,

with Motor No. 032433272555 and Plate No. E-73317 covered by Registration
Certificate No. 288141 Rizal, issued by the Davao Motor Vehicles Office Agency No.
20 and owned by Reverend Clinton Bonnel, insured said vehicle with the defendant
under Fieldmens Insurance Co., Inc. Private Car Comprehensive Policy No. 22 Jl
1107, attached hereto as Annex A to A-2 against loss or damage up to the amount
of P5,000.00;
3. That in the latter part of 1961, through plaintiffs representative, Dr. Antonio Lim,
the aforementioned Chevrolet Carry-all was placed at the Jones Monument Mobilgas

Service Station at Davao City, under the care of said stations operator, Rene Te so
that said carry-all could be displayed as being for sale, with the understanding that
the latter or any of his station boys would receive a 2% commission should they sell
said vehicle.
4. That on the night of January 18, 1962, Romeo Catiben one of the boys at the
aforementioned Jones Monument Service Station and a nephew of the wife of Rene
Te who is residing with them, took the aforementioned chevrolet carry-all for a joy
ride to Toril, Davao City, without the prior permission, authority or consent of either
the plaintiff or its representative Dr. Antonio Lim, or of Rene Te, and on its way back
to Davao City, said vehicle, due to some mechanical defect accidentally bumped an
electric post causing actual damages valued at P5,518.61.
5. That the issue before the Honorable Court is whether or not for the damage to
the abovementioned Chevrolet Carry-all to be compensable under the
aforementioned Fieldmens Private Car Comprehensive Policy No. 22 JL 11107, there
must be a prior criminal conviction of Romeo Catiben for theft.
WHEREFORE, it is respectfully prayed that this Honorable Court render judgment on
the facts and issues above stipulated after the parties shall have submitted their
respective memoranda."cralaw virtua1aw library
The Trial Court rendered judgment based on the facts stipulated and ordered
defendant insurance company to pay plaintiff association the amount of P5,000.00
as indemnity for the damage sustained by the vehicle, P2,000.00 for attorneys fees,
and costs. Dissatisfied, the insurance company interposed an appeal to the
Appellate Court, docketed as CA-G.R. No. 33543-R, which as above stated, elevated
it to this instance.chanrobles.com:cralaw:red
We affirm. The Comprehensive Policy issued by the insurance company includes loss
of or damage to the motor vehicle by "burglary . . . or theft." It is settled that the act
of Catiben in taking the vehicle for a joy ride to Toril, Davao City, constitutes theft
within the meaning of the insurance policy and that recovery for damage to the car
is not barred by the illegal use of the car by one of the station boys.
". . . where a car is admittedly as in this case unlawfully and wrongfully taken by
some people, be they employees of the car shop or not to whom it had been
entrusted, and taken on a long trip to Montalban without the owners consent or
knowledge, such taking constitutes or partakes of the nature of theft as defined in
Article 308 of the Revised Penal Code, viz.(W)ho are liable for theft. Theft is
committed by any person who, with intent to gain but without violence against or
intimidation of persons nor force upon things, shall take personal property of
another without the latters consent, for purposes of recovering the loss under the
policy in question."cralaw virtua1aw library
". . . the Court sustains as the better view that which holds that when a person,
either with the object of going to a certain place, or learning how to drive, or
enjoying a free ride, takes possession of a vehicle belonging to another, without the
consent of its owner, he is guilty of theft because by taking possession of the
personal property belonging to another and using it, his intent to gain is evident

since he derives therefrom utility, satisfaction, enjoyment and pleasure. Justice

Ramon C. Aquino cites in his work Groizard who holds that the use of a thing
constitutes gain and Cuello Calon who calls it hurto de uso. 1
There need be no prior conviction for the crime of theft to make an insurer liable
under the theft clause of the policy. Upon the facts stipulated by the parties it is
admitted that Catiben had taken the vehicle for a joy ride and while the same was in
his possession he bumped it against an electric post resulting in damages. That act
is theft within a policy of insurance. In a civil action for recovery on an automobile
insurance, the question whether a person using a certain automobile at the time of
the accident stole it or not is to be determined by a fair preponderance of evidence
and not by the rule of criminal law requiring proof of guilt beyond reasonable doubt.
2 Besides, there is no provision in the policy requiring prior criminal conviction for
theft.chanroblesvirtualawlibrary
ACCORDINGLY, finding no error in the judgment appealed from, the same is hereby
affirmed.
Costs against defendant Fieldmens Insurance Co., Inc.
SO ORDERED.

R.M. Blanco for petitioner.

Camacho and Associates for respondents.

PADILLA, J.:
This is a petition for review on certiorari of the Order * of the Regional Trial Court,
Olongapo City, Branch 75, dated 24 April 1986 dismissing petitioner's third party
complaint filed in Criminal Case No. 381-85, a prosecution for reckless imprudence
resulting in damage to property and serious physical injuries. 1
On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA No.
0889, 2 over his Ford Laser car with Plate No. CFN-361 from Makati Insurance
Company, Inc., for third party liability (TPL).<re||an1w> During the effectivity of
the policy, an information 3 for reckless imprudence resulting in damage to property
and serious physical injuries was filed against petitioner. The information reads as
follows:
That on or about the seventeeth (17th) day of May 1985, in the City of Olongapo,
Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused, being then the driver and in actual physical control of a Ford Laser car
bearing Plate No. CFN-361, did then and there wilfully, unlawfully and criminally
drive, operate and manage the said Ford Laser car in a careless, reckless and
imprudent manner without exercising reasonable caution, diligence and due care to
avoid accident to persons and damage to property and in disregard of existing traffic
rules and regulations, causing by such carelessness, recklessness and imprudence
the said Ford Laser car to hit and bump a Volkswagen car bearing Plate No. NJE-338
owned and driven by Felino llano y Legaspi, thereby causing damage in the total
amount of P12,345.00 Pesos, Philippine Currency, and as a result thereof one
Jovencio Poblete, Sr. who was on board of the said Volkswagen car sustained
physical injuries, to wit:
1. 2 cm. laceration of left side of tongue.
2. 6 cm. laceration with partial transection of muscle (almost full thickness) left side
of face.
3. Full thickness laceration of lower lip and adjacent skin.
which injuries causing [sic] deformity on the face. 4

G.R. No. 78848 November 14, 1988

SHERMAN SHAFER, petitioner,
vs.
HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75, and MAKATI
INSURANCE COMPANY, INC., respondents.

The owner of the damaged Volkswagen car filed a separate civil action against
petitioner for damages, while Jovencio Poblete, Sr., who was a passenger in the
Volkswagen car when allegedly hit and bumped by the car driven by petitioner, did
not reserve his right to file a separate civil action for damages. Instead, in the
course of the trial in the criminal case, Poblete, Sr. testified on his claim for damages
for the serious physical injuries which he claimed to have sustained as a result of the
accident.

Upon motion, petitioner was granted leave by the former presiding judge of the trail
court to file a third party complaint against the herein private respondent, Makati
Insurance Company, Inc. Said insurance company, however, moved to vacate the
order granting leave to petitioner to file a third party complaint against it and/or to
dismiss the same. 5
On 24 April 1987, the court a quo issued an order dismissing the third party
complaint on the ground that it was premature, based on the premise that unless
the accused (herein petitioner) is found guilty and sentenced to pay the offended
party (Poblete Sr.) indemnity or damages, the third party complaint is without cause
of action. The court further stated that the better procedure is for the accused
(petitioner) to wait for the outcome of the criminal aspect of the case to determine
whether or not the accused, also the third party plaintiff, has a cause of action
against the third party defendant for the enforcement of its third party liability (TPL)
under the insurance contract. 6 Petitioner moved for reconsideration of said order,
but the motion was denied; 7 hence, this petition.
It is the contention of herein petitioner that the dismissal of the third party complaint
amounts to a denial or curtailment of his right to defend himself in the civil aspect of
the case. Petitioner further raises the legal question of whether the accused in a
criminal action for reckless imprudence, where the civil action is jointly prosecuted,
can legally implead the insurance company as third party defendant under its
private car insurance policy, as one of his modes of defense in the civil aspect of
said proceedings.
On the other hand, the insurance company submits that a third party complaint is,
under the rules, available only if the defendant has a right to demand contribution,
indemnity, subrogation or any other relief in respect of plaintiff's claim, to minimize
the number of lawsuits and avoid the necessity of bringing two (2) or more suits
involving the same subject matter. The insurance company further contends that the
contract of motor vehicle insurance, the damages and attorney's fees claimed by
accused/third party plaintiff are matters entirely different from his criminal liability in
the reckless imprudence case, and that petitioner has no cause of action against the
insurer until petitioner's liability shall have been determined by final judgment, as
stipulated in the contract of insurance. 8
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily
intended to provide compensation for the death or bodily injuries suffered by
innocent third parties or passengers as a result of a negligent operation and use of
motor vehicles. 9 The victims and/or their dependents are assured of immediate
financial assistance, regardless of the financial capacity of motor vehicle owners.
The liability of the insurance company under the Compulsory Motor Vehicle Liability
Insurance is for loss or damage. Where an insurance policy insures directly against
liability, the insurer's liability accrues immediately upon the occurrence of the injury
or event upon which the liability depends, and does not depend on the recovery of
judgment by the injured party against the insured. 10
The injured for whom the contract of insurance is intended can sue directly the
insurer. The general purpose of statutes enabling an injured person to proceed

directly against the insurer is to protect injured persons against the insolvency of the
insured who causes such injury, and to give such injured person a certain beneficial
interest in the proceeds of the policy, and statutes are to be liberally construed so
that their intended purpose may be accomplished. It has even been held that such a
provision creates a contractual relation which inures to the benefit of any and every
person who may be negligently injured by the named insured as if such injured
person were specifically named in the policy. 11
In the event that the injured fails or refuses to include the insurer as party defendant
in his claim for indemnity against the insured, the latter is not prevented by law to
avail of the procedural rules intended to avoid multiplicity of suits. Not even a "no
action" clause under the policy-which requires that a final judgment be first obtained
against the insured and that only thereafter can the person insured recover on the
policy can prevail over the Rules of Court provisions aimed at avoiding multiplicity of
suits. 12
In the instant case, the court a quo erred in dismissing petitioner's third party
complaint on the ground that petitioner had no cause of action yet against the
insurance company (third party defendant). There is no need on the part of the
insured to wait for the decision of the trial court finding him guilty of reckless
imprudence. The occurrence of the injury to the third party immediately gave rise to
the liability of the insurer under its policy.
A third party complaint is a device allowed by the rules of procedure by which the
defendant can bring into the original suit a party against whom he will have a claim
for indemnity or remuneration as a result of a liability established against him in the
original suit. 13 Third party complaints are allowed to minimize the number of
lawsuits and avoid the necessity of bringing two (2) or more actions involving the
same subject matter. They are predicated on the need for expediency and the
avoidance of unnecessary lawsuits. If it appears probable that a second action will
result if the plaintiff prevails, and that this result can be avoided by allowing the
third party complaint to remain, then the motion to dismiss the third party complaint
should be denied. 14
Respondent insurance company's contention that the third party complaint involves
extraneous matter which will only clutter, complicate and delay the criminal case is
without merit. An offense causes two (2) classes of injuries the first is the social
injury produced by the criminal act which is sought to be repaired thru the
imposition of the corresponding penalty, and the second is the personal injury
caused to the victim of the crime, which injury is sought to be compensated thru
indemnity, which is civil in nature. 15
In the instant case, the civil aspect of the offense charged, i.e., serious physical
injuries allegedly suffered by Jovencio Poblete, Sr., was impliedly instituted with the
criminal case. Petitioner may thus raise all defenses available to him insofar as the
criminal and civil aspects of the case are concerned. The claim of petitioner for
payment of indemnity to the injured third party, under the insurance policy, for the
alleged bodily injuries caused to said third party, arose from the offense charged in
the criminal case, from which the injured (Jovencio Poblete, Sr.) has sought to

recover civil damages. Hence, such claim of petitioner against the insurance
company cannot be regarded as not related to the criminal action.
WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April
1987 is SET ASIDE and a new one entered admitting petitioner's third party
complaint against the private respondent Makati Insurance Company, Inc.
SO ORDERED.

G.R. No. L-22042

August 17, 1967

DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed GUINGON,

plaintiffs-appellees,
vs.
ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY CO.,
INC., defendants.
CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant.
Generoso Almario and Associates for plaintiffs-appellees.
Achacoso and Associates for defendant-appellant.
BENGZON, J.P., J.:
Julio Aguilar owned and operated several jeepneys in the City of Manila among
which was one with plate number PUJ-206-Manila, 1961. He entered into a contract
with the Capital Insurance & Surety Co., Inc. insuring the operation of his jeepneys
against accidents with third-party liability. As a consequence thereof an insurance
policy was executed by the Capital Insurance & Surety Co., Inc., the pertinent
provisions of which in so far as this case is concerned contains the following:
Section II LIABILITY TO THE PUBLIC
1. The Company, will, subject to the limits of liability, indemnify the Insured in the
event of accident caused by or arising out of the use of the Motor Vehicle/s or in
connection with the loading or unloading of the Motor Vehicle/s, against all sums
including claimant's costs and expenses which the Insured shall become legally
liable to pay in respect of:
a. death of or bodily injury to any person
b. damage to property

During the effectivity of such insurance policy on February 20, 1961 Iluminado del
Monte, one of the drivers of the jeepneys operated by Aguilar, while driving along
the intersection of Juan Luna and Moro streets, City of Manila, bumped with the
jeepney abovementioned one Gervacio Guingon who had just alighted from another
jeepney and as a consequence the latter died some days thereafter.
A corresponding information for homicide thru reckless imprudence was filed against
Iluminado del Monte, who pleaded guilty. A penalty of four months imprisonment
was imposed on him.

Does the fact that the insured is liable to the plaintiffs necessarily mean that the
insurer is liable to the insured?
In the discussion of the points thus raised, what is paramount is the interpretation of
the insurance contract with the aim in view of attaining the objectives for which the
insurance was taken. The Rules of Court provide that parties may be joined either as
plaintiffs or defendants, as the right to relief in respect to or arising out of the same
transactions is alleged to exist (Sec. 6, Rule 3). The policy, on the other hand,
contains a clause stating:

As a corollary to such action, the heirs of Gervacio Guingon filed an action for
damages praying that the sum of P82,771.80 be paid to them jointly and severally
by the defendants, driver Iluminado del Monte, owner and operator Julio Aguilar, and
the Capital Insurance & Surety Co., Inc. For failure to answer the complaint, Del
Monte and Aguilar were declared in default. Capital Insurance & Surety Co., Inc.
answered, alleging that the plaintiff has no cause of action against it. During the trial
the following facts were stipulated:

E. Action Against Company

COURT: The Court wants to find if there is a stipulation in the policy whereby the
insured is insured against liability to third persons who are not passengers of jeeps.

Any person or organization or the legal representative thereof who has secured such
judgment or written agreement shall thereafter be entitled to recover under this
policy to the extent of the insurance afforded by the Policy. Nothing contained in this
policy shall give any person or organization any right to join the Company as a codefendant in any action against the Insured to determine the Insured's liability.

ALMARIO: As far as I know, in my honest belief, there is no particularization as to the

passengers, whether the passengers of the jeep insured or a passenger of another
jeep or whether it is a pedestrian. With those, we can submit the stipulation.
SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65 Rec. on Appeal)
On August 27, 1962, the Court of First Instance of Manila rendered its judgment with
the following dispositive portion:
WHEREFORE, judgment is rendered sentencing Iluminado del Monte and Julio Aguilar
jointly and severally to pay plaintiffs the sum of P8,572.95 as damages for the death
of their father, plus P1,000.00 for attorney's fees plus costs.
The defendant Capital Insurance and Surety Co., Inc. is hereby sentenced to pay the
plaintiffs the sum of Five Thousand (P5,000.00) Pesos plus Five Hundred (P500.00)
Pesos as attorney's fees and costs. These sums of P5,000.00 and P500.00 adjudged
against Capital Insurance and Surety Co., Inc. shall be applied in partial satisfaction
of the judgment rendered against Iluminado del Monte and Julio Aguilar in this case.
SO ORDERED.
The case was appealed to the Court of Appeals which appellate court on September
30, 1963 certified the case to Us because the appeal raises purely questions of law.
The issues raised before Us in this appeal are (1) As the company agreed to
indemnify the insured Julio Aguilar, is it only the insured to whom it is liable? (2)
Must Julio Aguilar first show himself to be entitled to indemnity before the insurance
company may be held liable for the same? (3) Plaintiffs not being parties to the
insurance contract, do they have a cause of action against the company; and (4)

No action shall lie against the Company unless, as a condition precedent thereto, the
Insured shall have fully complied with all of the terms of this Policy, nor until the
amount of the Insured's obligation to pay shall have been finally determined either
by judgment against the Insured after actual trial or by written agreement of the
Insured, the claimant, and the Company.

Bankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve
the Company of any of its obligations hereunder.
Appellant contends that the "no action" clause in the policy closes the avenue to any
third party which may be injured in an accident wherein the jeepney of the insured
might have been the cause of the injury of third persons, alleging the freedom of
contracts. Will the mere fact that such clause was agreed upon by the parties in an
insurance policy prevail over the Rules of Court which authorizes the joining of
parties plaintiffs or defendants?
The foregoing issues raise two principal: questions: (1) Can plaintiffs sue the insurer
at all? (2) If so, can plaintiffs sue the insurer jointly with the insured?
The policy in the present case, as aforequoted, is one whereby the insurer agreed to
indemnify the insured "against all sums . . . which the Insured shall become legally
liable to pay in respect of: a. death of or bodily injury to any person . . . ." Clearly,
therefore, it is one for indemnity against liability;1 from the fact then that the
insured is liable to the third person, such third person is entitled to sue the
insurer.1wph1.t
The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third persons
also or only the insured. And the test applied has been this: Where the contract
provides for indemnity against liability to third persons, then third persons to whom
the insured is liable, can sue the insurer. Where the contract is for indemnity against
actual loss or payment, then third persons cannot proceed against the insurer, the

contract being solely to reimburse the insured for liability actually discharged by him
thru payment to third persons, said third persons' recourse being thus limited to the
insured alone.2
The next question is on the right of the third person to sue the insurer jointly with
the insured. The policy requires, as afore-stated, that suit and final judgment be first
obtained against the insured; that only "thereafter" can the person injured recover
on the policy; it expressly disallows suing the insurer as a co-defendant of the
insured in a suit to determine the latter's liability. As adverted to before, the query is
which procedure to follow that of the insurance policy or the Rules of Court.
The "no action" clause in the policy of insurance cannot prevail over the Rules of
Court provision aimed at avoiding multiplicity of suits. In a case squarely on the
point, American Automobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA), it was held
that a "no action" clause in a policy of insurance cannot override procedural rules
aimed at avoidance of multiplicity of suits. We quote:
Appellants filed a plea in abatement on the grounds that the suit had been
prematurely brought against the insurance company, and that it had been
improperly joined with Zunker, as said insurance company, under the terms of the
policy, was only liable after judgment had been awarded against Zunker. . . .
* * * That plea was properly overruled, because under the laws of Texas a dual suit
will always be avoided whenever all parties can have a fair trial when joined in one
suit. Appellee, had he so desired, could have prosecuted his claim to judgment as
against Zunker and then have sued on that judgment against the insurance
company, but the law does not make it imperative that he should do so, but would
permit him to dispose of the whole matter in one suit.
The rule has often been announced in Texas that when two causes of action are
connected with each other, or grow out of the same transaction, they may be
properly joined, and in such suit all parties against whom the plaintiff asserts a
common or an alternative liability may be joined as defendants. . . . Even if
appellants had presented any plea in abatement as to joinder of damages arising
from a tort with those arising from a contract, it could not, under the facts of this
case, be sustained, for the rule is that a suit may include an action for breach of
contract and one for tort, provided they are connected with each other or grew out
of the same transaction.
Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and
Sec. 6 of Rule 3 on "Permissive joinder of parties" cannot be superseded, at least
with respect to third persons not a party to the contract, as herein, by a "no action"
clause in the contract of insurance.
Wherefore, the judgment appealed from is affirmed in toto. Costs against appellant.
So ordered.

G.R. No. L-36413 September 26, 1988

MALAYAN INSURANCE CO., INC., petitioner,
vs.
THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO CHOY,
SAN LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION CO., INC.,
respondents.
Freqillana Jr. for petitioner.
B.F. Estrella & Associates for respondent Martin Vallejos.
Vicente Erfe Law Office for respondent Pangasinan Transportation Co., Inc.

Nemesio Callanta for respondent Sio Choy and San Leon Rice Mill, Inc.

PADILLA, J.:
Review on certiorari of the judgment * of the respondent appellate court in CA-G.R.
No. 47319-R, dated 22 February 1973, which affirmed, with some modifications, the
decision, ** dated 27 April 1970, rendered in Civil Case No. U-2021 of the Court of
First Instance of Pangasinan.
The antecedent facts of the case are as follows:
On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of
private respondent Sio Choy Private Car Comprehensive Policy No. MRO/PV-15753,
effective from 18 April 1967 to 18 April 1968, covering a Willys jeep with Motor No.
ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon City, 1967. The
insurance coverage was for "own damage" not to exceed P600.00 and "third-party
liability" in the amount of P20,000.00.
During the effectivity of said insurance policy, and more particularly on 19
December 1967, at about 3:30 o'clock in the afternoon, the insured jeep, while being
driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill,
Inc., collided with a passenger bus belonging to the respondent Pangasinan
Transportation Co., Inc. (PANTRANCO, for short) at the national highway in Barrio San
Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to
the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was riding in
the ill-fated jeep.
As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan
Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of
Pangasinan, which was docketed as Civil Case No. U-2021. He prayed therein that
the defendants be ordered to pay him, jointly and severally, the amount of
P15,000.00, as reimbursement for medical and hospital expenses; P6,000.00, for
lost income; P51,000.00 as actual, moral and compensatory damages; and
P5,000.00, for attorney's fees.
Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an
excessive speed and bumped the PANTRANCO bus which had moved to, and stopped
at, the shoulder of the highway in order to avoid the jeep; and that it had observed
the diligence of a good father of a family to prevent damage, especially in the
selection and supervision of its employees and in the maintenance of its motor
vehicles. It prayed that it be absolved from any and all liability.
Defendant Sio Choy and the petitioner insurance company, in their answer, also
denied liability to the plaintiff, claiming that the fault in the accident was solely
imputable to the PANTRANCO.
Sio Choy, however, later filed a separate answer with a cross-claim against the
herein petitioner wherein he alleged that he had actually paid the plaintiff, Martin C.
Vallejos, the amount of P5,000.00 for hospitalization and other expenses, and, in his

cross-claim against the herein petitioner, he alleged that the petitioner had issued in
his favor a private car comprehensive policy wherein the insurance company
obligated itself to indemnify Sio Choy, as insured, for the damage to his motor
vehicle, as well as for any liability to third persons arising out of any accident during
the effectivity of such insurance contract, which policy was in full force and effect
when the vehicular accident complained of occurred. He prayed that he be
reimbursed by the insurance company for the amount that he may be ordered to
pay.
Also later, the herein petitioner sought, and was granted, leave to file a third-party
complaint against the San Leon Rice Mill, Inc. for the reason that the person driving
the jeep of Sio Choy, at the time of the accident, was an employee of the San Leon
Rice Mill, Inc. performing his duties within the scope of his assigned task, and not an
employee of Sio Choy; and that, as the San Leon Rice Mill, Inc. is the employer of the
deceased driver, Juan P. Campollo, it should be liable for the acts of its employee,
pursuant to Art. 2180 of the Civil Code. The herein petitioner prayed that judgment
be rendered against the San Leon Rice Mill, Inc., making it liable for the amounts
claimed by the plaintiff and/or ordering said San Leon Rice Mill, Inc. to reimburse and
indemnify the petitioner for any sum that it may be ordered to pay the plaintiff.
After trial, judgment was rendered as follows:
WHEREFORE, in view of the foregoing findings of this Court judgment is hereby
rendered in favor of the plaintiff and against Sio Choy and Malayan Insurance Co.,
Inc., and third-party defendant San Leon Rice Mill, Inc., as follows:
(a) P4,103 as actual damages;
(b) P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos for
the period of three (3) years;
(c) P5,000.00 as moral damages;
(d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs.
The above-named parties against whom this judgment is rendered are hereby held
jointly and severally liable. With respect, however, to Malayan Insurance Co., Inc., its
liability will be up to only P20,000.00.
As no satisfactory proof of cost of damage to its bus was presented by defendant
Pantranco, no award should be made in its favor. Its counter-claim for attorney's fees
is also dismissed for not being proved. 1
On appeal, the respondent Court of Appeals affirmed the judgment of the trial court
that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are
jointly and severally liable for the damages awarded to the plaintiff Martin C.
Vallejos. It ruled, however, that the San Leon Rice Mill, Inc. has no obligation to
indemnify or reimburse the petitioner insurance company for whatever amount it
has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy
to the contract of insurance between Sio Choy and the insurance company. 2

Hence, the present recourse by petitioner insurance company.

The petitioner prays for the reversal of the appellate court's judgment, or, in the
alternative, to order the San Leon Rice Mill, Inc. to reimburse petitioner any amount,
in excess of one-half (1/2) of the entire amount of damages, petitioner may be
ordered to pay jointly and severally with Sio Choy.

jeep at the time of the motor vehicle mishap, is Article 2180 of the Civil Code which
reads:
Art. 2180. The obligation imposed by article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is responsible.
xxx xxx xxx

The Court, acting upon the petition, gave due course to the same, but "only insofar
as it concerns the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner,
it being understood that no other aspect of the decision of the Court of Appeals shall
be reviewed, hence, execution may already issue in favor of respondent Martin C.
Vallejos against the respondents, without prejudice to the determination of whether
or not petitioner shall be entitled to reimbursement by respondent San Leon Rice
Mill, Inc. for the whole or part of whatever the former may pay on the P20,000.00 it
has been adjudged to pay respondent Vallejos." 3
However, in order to determine the alleged liability of respondent San Leon Rice Mill,
Inc. to petitioner, it is important to determine first the nature or basis of the liability
of petitioner to respondent Vallejos, as compared to that of respondents Sio Choy
and San Leon Rice Mill, Inc.
Therefore, the two (2) principal issues to be resolved are (1) whether the trial court,
as upheld by the Court of Appeals, was correct in holding petitioner and respondents
Sio Choy and San Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and
(2) whether petitioner is entitled to be reimbursed by respondent San Leon Rice Mill,
Inc. for whatever amount petitioner has been adjudged to pay respondent Vallejos
on its insurance policy.
As to the first issue, it is noted that the trial court found, as affirmed by the appellate
court, that petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. are
jointly and severally liable to respondent Vallejos.
We do not agree with the aforesaid ruling. We hold instead that it is only
respondents Sio Choy and San Leon Rice Mill, Inc, (to the exclusion of the petitioner)
that are solidarily liable to respondent Vallejos for the damages awarded to Vallejos.
It must be observed that respondent Sio Choy is made liable to said plaintiff as
owner of the ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code which
provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if
the former, who was in the vehicle, could have, by the use of due diligence,
prevented the misfortune it is disputably presumed that a driver was negligent, if he
had been found guilty of reckless driving or violating traffic regulations at least twice
within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.
On the other hand, it is noted that the basis of liability of respondent San Leon Rice
Mill, Inc. to plaintiff Vallejos, the former being the employer of the driver of the Willys

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are
not engaged ill any business or industry.
xxx xxx xxx
The responsibility treated in this article shall cease when the persons herein
mentioned proved that they observed all the diligence of a good father of a family to
prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the
principal tortfeasors who are primarily liable to respondent Vallejos. The law states
that the responsibility of two or more persons who are liable for a quasi-delict is
solidarily. 4
On the other hand, the basis of petitioner's liability is its insurance contract with
respondent Sio Choy. If petitioner is adjudged to pay respondent Vallejos in the
amount of not more than P20,000.00, this is on account of its being the insurer of
respondent Sio Choy under the third party liability clause included in the private car
comprehensive policy existing between petitioner and respondent Sio Choy at the
time of the complained vehicular accident.
In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom,
when he was bumped by another passenger jeepney. He died as a result thereof. In
the damage suit filed by the heirs of said passenger against the driver and owner of
the jeepney at fault as well as against the insurance company which insured the
latter jeepney against third party liability, the trial court, affirmed by this Court,
adjudged the owner and the driver of the jeepney at fault jointly and severally liable
to the heirs of the victim in the total amount of P9,572.95 as damages and
attorney's fees; while the insurance company was sentenced to pay the heirs the
amount of P5,500.00 which was to be applied as partial satisfaction of the judgment
rendered against said owner and driver of the jeepney. Thus, in said Guingon case, it
was only the owner and the driver of the jeepney at fault, not including the
insurance company, who were held solidarily liable to the heirs of the victim.
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, 6 however,
the direct liability of the insurer under indemnity contracts against third party
liability does not mean that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault. The liability of the insurer is based on
contract; that of the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos,
but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with
the two principal tortfeasors namely respondents Sio Choy and San Leon Rice Mill,
Inc. For if petitioner-insurer were solidarily liable with said two (2) respondents by
reason of the indemnity contract against third party liability-under which an insurer
can be directly sued by a third party this will result in a violation of the principles
underlying solidary obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against one of
the solidary debtors. 7 On the other hand, insurance is defined as "a contract
whereby one undertakes for a consideration to indemnify another against loss,
damage, or liability arising from an unknown or contingent event." 8
In the case at bar, the trial court held petitioner together with respondents Sio Choy
and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount
of P29,103.00, with the qualification that petitioner's liability is only up to
P20,000.00. In the context of a solidary obligation, petitioner may be compelled by
respondent Vallejos to pay the entire obligation of P29,013.00, notwithstanding the
qualification made by the trial court. But, how can petitioner be obliged to pay the
entire obligation when the amount stated in its insurance policy with respondent Sio
Choy for indemnity against third party liability is only P20,000.00? Moreover, the
qualification made in the decision of the trial court to the effect that petitioner is
sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is
made solidary, is an evident breach of the concept of a solidary obligation. Thus, We
hold that the trial court, as upheld by the Court of Appeals, erred in holding
petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc. to
respondent Vallejos.
As to the second issue, the Court of Appeals, in affirming the decision of the trial
court, ruled that petitioner is not entitled to be reimbursed by respondent San Leon
Rice Mill, Inc. on the ground that said respondent is not privy to the contract of
insurance existing between petitioner and respondent Sio Choy. We disagree.
The appellate court overlooked the principle of subrogation in insurance contracts.
Thus
... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs.
Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is entitled
to be subrogated pro tanto to any right of action which the insured may have
against the third person whose negligence or wrongful act caused the loss (44 Am.
Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance Co.,
283 U.S. 284, 75 L. ed. 1037).
The right of subrogation is of the highest equity. The loss in the first instance is that
of the insured but after reimbursement or compensation, it becomes the loss of the
insurer (44 Am. Jur. 2d, 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio
St. 382).
Although many policies including policies in the standard form, now provide for
subrogation, and thus determine the rights of the insurer in this respect, the

equitable right of subrogation as the legal effect of payment inures to the insurer
without any formal assignment or any express stipulation to that effect in the policy"
(44 Am. Jur. 2nd 746). Stated otherwise, when the insurance company pays for the
loss, such payment operates as an equitable assignment to the insurer of the
property and all remedies which the insured may have for the recovery thereof. That
right is not dependent upon , nor does it grow out of any privity of contract
(emphasis supplied) or upon written assignment of claim, and payment to the
insured makes the insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing
and Heating Co., 264 N.C. 456, 142 SE 2d 18). 9
It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of
riot exceeding P20,000.00, shall become the subrogee of the insured, the
respondent Sio Choy; as such, it is subrogated to whatever rights the latter has
against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to a
solidary debtor who has paid the entire obligation the right to be reimbursed by his
co-debtors for the share which corresponds to each.
Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation.
If two or more solidary debtors offer to pay, the creditor may choose which offer to
accept.
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the payment
is made before the debt is due, no interest for the intervening period may be
demanded.
xxx xxx xxx
In accordance with Article 1217, petitioner, upon payment to respondent Vallejos
and thereby becoming the subrogee of solidary debtor Sio Choy, is entitled to
reimbursement from respondent San Leon Rice Mill, Inc.
To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill,
Inc. are solidarily liable to the respondent Martin C. Vallejos for the amount of
P29,103.00. Vallejos may enforce the entire obligation on only one of said solidary
debtors. If Sio Choy as solidary debtor is made to pay for the entire obligation
(P29,103.00) and petitioner, as insurer of Sio Choy, is compelled to pay P20,000.00
of said entire obligation, petitioner would be entitled, as subrogee of Sio Choy as
against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of
P14,551.50 (which is 1/2 of P29,103.00 )
WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed by
the Court of Appeals, is hereby AFFIRMED, with the modification above-mentioned.
Without pronouncement as to costs.
SO ORDERED.

Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death.
He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito
Into, operated and owned by defendant Destrajo. From the investigation conducted
by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that
was going towards the city poblacion. While overtaking, the PUJ jeep of defendant
Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by
the deceased who was going towards the direction of Lasa, Davao City. The point of
impact was on the lane of the motorcycle and the deceased was thrown from the
road and met his untimely death. 1
Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for
damages and attorney's fees against operator Patricio Destrajo and the Afisco
Insurance Corporation (AFISCO for brevity) before the then Court of First Instance of
Davao, Branch II. An information for homicide thru reckless imprudence was also
filed against Pepito Into.

G.R. No. 60506 August 6, 1992

FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA
M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all
surnamed MAGLANA, herein represented by their mother, FIGURACION VDA. DE
MAGLANA, petitioners,
vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II,
and AFISCO INSURANCE CORPORATION, respondents.
Jose B. Guyo for petitioners.
Angel E. Fernandez for private respondent.

ROMERO, J.:
The nature of the liability of an insurer sued together with the insured/operatorowner of a common carrier which figured in an accident causing the death of a third
person is sought to be defined in this petition for certiorari.
The facts as found by the trial court are as follows:
. . . Lope Maglana was an employee of the Bureau of Customs whose work station
was at Lasa, here in Davao City. On December 20, 1978, early morning, Lope
Maglana was on his way to his work station, driving a motorcycle owned by the

During the pendency of the civil case, Into was sentenced to suffer an indeterminate
penalty of one (1) year, eight (8) months and one (1) day of prision correccional, as
minimum, to four (4) years, nine (9) months and eleven (11) days of prision
correccional, as maximum, with all the accessory penalties provided by law, and to
indemnify the heirs of Lope Maglana, Sr. in the amount of twelve thousand pesos
(P12,000.00) with subsidiary imprisonment in case of insolvency, plus five thousand
pesos (P5,000.00) in the concept of moral and exemplary damages with costs. No
appeal was interposed by accused who later applied for probation. 2
On December 14, 1981, the lower court rendered a decision finding that Destrajo
had not exercised sufficient diligence as the operator of the jeepney. The dispositive
portion of the decision reads:
WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant
Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for loss of income; to
pay plaintiffs the sum of P12,000.00 which amount shall be deducted in the event
judgment in Criminal Case No. 3527-D against the driver, accused Into, shall have
been enforced; to pay plaintiffs the sum of P5,901.70 representing funeral and burial
expenses of the deceased; to pay plaintiffs the sum of P5,000.00 as moral damages
which shall be deducted in the event judgment (sic) in Criminal Case No. 3527-D
against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as attorney's
fees and to pay the costs of suit.
The defendant insurance company is ordered to reimburse defendant Destrajo
whatever amounts the latter shall have paid only up to the extent of its insurance
coverage.
SO ORDERED. 3
Petitioners filed a motion for the reconsideration of the second paragraph of the
dispositive portion of the decision contending that AFISCO should not merely be held
secondarily liable because the Insurance Code provides that the insurer's liability is
"direct and primary and/or jointly and severally with the operator of the vehicle,
although only up to the extent of the insurance coverage." 4 Hence, they argued

that the P20,000.00 coverage of the insurance policy issued by AFISCO, should have
been awarded in their favor.
In its comment on the motion for reconsideration, AFISCO argued that since the
Insurance Code does not expressly provide for a solidary obligation, the presumption
is that the obligation is joint.
In its Order of February 9, 1982, the lower court denied the motion for
reconsideration ruling that since the insurance contract "is in the nature of
suretyship, then the liability of the insurer is secondary only up to the extent of the
insurance coverage." 5
Petitioners filed a second motion for reconsideration reiterating that the liability of
the insurer is direct, primary and solidary with the jeepney operator because the
petitioners became direct beneficiaries under the provision of the policy which, in
effect, is a stipulation pour autrui. 6 This motion was likewise denied for lack of
merit.
Hence, petitioners filed the instant petition for certiorari which, although it does not
seek the reversal of the lower court's decision in its entirety, prays for the setting
aside or modification of the second paragraph of the dispositive portion of said
decision. Petitioners reassert their position that the insurance company is directly
and solidarily liable with the negligent operator up to the extent of its insurance
coverage.
We grant the petition.
The particular provision of the insurance policy on which petitioners base their claim
is as follows:

Sec. 1 LIABILITY TO THE PUBLIC

1. The Company will, subject to the Limits of Liability, pay all sums necessary to
discharge liability of the insured in respect of
(a) death of or bodily injury to any THIRD PARTY
(b) . . . .
2. . . . .
3. In the event of the death of any person entitled to indemnity under this Policy, the
Company will, in respect of the liability incurred to such person indemnify his
personal representatives in terms of, and subject to the terms and conditions hereof.
7
The above-quoted provision leads to no other conclusion but that AFISCO can be
held directly liable by petitioners. As this Court ruled in Shafer vs. Judge, RTC of
Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability,

the insurer's liability accrues immediately upon the occurrence of the injury or even
upon which the liability depends, and does not depend on the recovery of judgment
by the injured party against the insured." 8 The underlying reason behind the third
party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect
injured persons against the insolvency of the insured who causes such injury, and to
give such injured person a certain beneficial interest in the proceeds of the
policy . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00 under
the no-fault clause, AFISCO's liability is now limited to P15,000.00.
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In
Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to
resolve the issue as to the nature of the liability of the insurer and the insured vis-avis the third party injured in an accident. We categorically ruled thus:
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however,
the direct liability of the insurer under indemnity contracts against third party
liability does not mean that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault. The liability of the insurer is based on
contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos
(the injured third party), but it cannot, as incorrectly held by the trial court, be made
"solidarily" liable with the two principal tortfeasors, namely respondents Sio Choy
and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said,
two (2) respondents by reason of the indemnity contract against third party liability
under which an insurer can be directly sued by a third party this will result in a
violation of the principles underlying solidary obligation and insurance contracts.
(emphasis supplied)
The Court then proceeded to distinguish the extent of the liability and manner of
enforcing the same in ordinary contracts from that of insurance contracts. While in
solidary obligations, the creditor may enforce the entire obligation against one of the
solidary debtors, in an insurance contract, the insurer undertakes for a consideration
to indemnify the insured against loss, damage or liability arising from an unknown or
contingent event. 11 Thus, petitioner therein, which, under the insurance contract is
liable only up to P20,000.00, can not be made solidarily liable with the insured for
the entire obligation of P29,013.00 otherwise there would result "an evident breach
of the concept of solidary obligation."
Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under
the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for
the total amount of P53,901.70 in accordance with the decision of the lower court.
Since under both the law and the insurance policy, AFISCO's liability is only up to
P20,000.00, the second paragraph of the dispositive portion of the decision in
question may have unwittingly sown confusion among the petitioners and their
counsel. What should have been clearly stressed as to leave no room for doubt was
the liability of AFISCO under the explicit terms of the insurance contract.

In fine, we conclude that the liability of AFISCO based on the insurance contract is
direct, but not solidary with that of Destrajo which is based on Article 2180 of the
Civil Code. 12 As such, petitioners have the option either to claim the P15,000 from
AFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo
subject to reimbursement from AFISCO to the extent of the insurance coverage.

PHILIPPINE PRYCE ASSURANCE CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, (Fourteenth Division) and GEGROCO, INC., respondents.

While the petition seeks a definitive ruling only on the nature of AFISCO's liability,
we noticed that the lower court erred in the computation of the probable loss of
income. Using the formula: 2/3 of (80-56) x P12,000.00, it awarded P28,800.00. 13
Upon recomputation, the correct amount is P192,000.00. Being a "plain error," we
opt to correct the same. 14 Furthermore, in accordance with prevailing
jurisprudence, the death indemnity is hereby increased to P50,000.00. 15

A.M. Sison, Jr. & Associates for private respondent.

WHEREFORE, premises considered, the present petition is hereby GRANTED. The

award of P28,800.00 representing loss of income is INCREASED to P192,000.00 and
the death indemnity of P12,000.00 to P50,000.00.
SO ORDERED.

Ocampo, Dizon & Domingo and Rey Nathaniel C. Ifurung for petitioner.

NOCON, J.:
Two purely technical, yet mandatory, rules of procedure frustrated petitioner's bid to
get a favorable decision from the Regional Trial Court and then again in the Court of
Appeals. 1 These are non-appearance during the pre-trial despite due notice, and
non-payment of docket fees upon filing of its third-party complaint. Just how strict
should these rules be applied is a crucial issue in this present dispute.
Petitioner, Interworld Assurance Corporation (the company now carries the corporate
name Philippine Pryce Assurance Corporation), was the butt of the complaint for
collection of sum of money, filed on May 13, 1988 by respondent, Gegroco, Inc.
before the Makati Regional Trial Court, Branch 138. The complaint alleged that
petitioner issued two surety bonds (No. 0029, dated July 24, 1987 and No. 0037,
dated October 7, 1987) in behalf of its principal Sagum General Merchandise for FIVE
HUNDRED THOUSAND (P500,000.00) PESOS and ONE MILLION (1,000,000.00)
PESOS, respectively.
On June 16, 1988, summons, together with the copy of the complaint, was served on
petitioner. Within the reglementary period, two successive motions were filed by
petitioner praying for a total of thirty (30) days extention within which to file a
responsible pleading.
In its Answer, dated July 29, 1988, but filed only on August 4, 1988, petitioner
admitted having executed the said bonds, but denied liability because allegedly 1)
the checks which were to pay for the premiums bounced and were dishonored hence
there is no contract to speak of between petitioner and its supposed principal; and
2) that the bonds were merely to guarantee payment of its principal's obligation,
thus, excussion is necessary. After the issues had been joined, the case was set for
pre-trial conference on September 29, 1988. the petitioner received its notice on
September 9, 1988, while the notice addressed to its counsel was returned to the
trial court with the notation "Return to Sender, Unclaimed." 2

G.R. No. 107062 February 21, 1994

On the scheduled date for pre-trial conference, only the counsel for petitioner
appeared while both the representative of respondent and its counsel were present.
The counsel for petitioner manifested that he was unable to contract the VicePresident for operations of petitioner, although his client intended to file a third
party complaint against its principal. Hence, the pre-trial was re-set to October 14,
1988. 3
On October 14, 1988, petitioner filed a "Motion with Leave to Admit Third-Party
Complaint" with the Third-Party Complaint attached. On this same day, in the

presence of the representative for both petitioner and respondent and their counsel,
the pre-trial conference was re-set to December 1, 1988. Meanwhile on November
29, 1988, the court admitted the Third Party Complaint and ordered service of
summons on third party defendants. 4
On scheduled conference in December, petitioner and its counsel did not appear
notwithstanding their notice in open court. 5 The pre-trial was nevertheless re-set to
February 1, 1989. However, when the case was called for pre-trial conference on
February 1, 1989, petitioner was again nor presented by its officer or its counsel,
despite being duly notified. Hence, upon motion of respondent, petitioner was
considered as in default and respondent was allowed to present evidence ex-parte,
which was calendared on February 24, 1989. 6 Petitioner received a copy of the
Order of Default and a copy of the Order setting the reception of respondent's
evidence ex-parte, both dated February 1, 1989, on February 16, 1989. 7
On March 6, 1989, a decision was rendered by the trial court, the dispositive portion
reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Interworld Assurance Corporation to pay the amount of P1,500,000.00
representing the principal of the amount due, plus legal interest thereon from April
7, 1988, until date of payment; and P20,000.00 as and for attorney's fees. 8
Petitioner's "Motion for Reconsideration and New Trial" dated April 17, 1989, having
been denied it elevated its case to the Court of Appeals which however, affirmed the
decision of the trial court as well as the latter's order denying petitioner's motion for
reconsideration.

. . . Defendant's claim that it was not aware of the Order admitting the third-party
complaint is preposterous. Sec. 8, Rule 13 of the Rules, provides:
Completeness of service . . . Service by registered mail is complete upon actual
receipt by the addressee, but if he fails to claim his mail from the post office within
five (5) days from the date of first notice of the postmaster, service shall take effect
at the expiration of such time. 9
Moreover, we observed that all copies of notices and orders issued by the court for
petitioner's counsel were returned with the notation "Return to Sender, Unclaimed."
Yet when he chose to, he would appear in court despite supposed lack of notice.
Second, in the regular course of events, the third-party defendant's answer would
have been regarded as the last pleading referred to in Sec. 1, Rule 20. However,
petitioner cannot just disregard the court's order to be present during the pre-trial
and give a flimsy excuse, such as that the answer has yet to be filed.
The pre-trial is mandatory in any action, the main objective being to simplify,
abbreviate and expedite trial, if not to fully dispense with it. Hence, consistent with
its mandatory character the Rules oblige not only the lawyers but the parties as well
to appear for this purpose before the Court 10 and when a party fails to appear at a
pre-trial conference he may be non-suited or considered as in default. 11
Records show that even at the very start, petitioner could have been declared as in
default since it was not properly presented during the first scheduled pre-trial on
September 29, 1988. Nothing in the record is attached which would show that
petitioner's counsel had a special authority to act in behalf of his client other than as
its lawyer.

Before us, petitioner assigns as errors the following:

I. The respondent Court of Appeals gravely erred in declaring that the case was
already ripe for pre-trial conference when the trial court set it for the holding thereof.
II. The respondent Court of Appeals gravely erred in affirming the decision of the trial
court by relying on the ruling laid down by this Honorable Court in the case of
Manchester Development Corporation v. Court of Appeals, 149 SCRA 562, and
disregarding the doctrine laid down in the case of Sun Insurance Office, Ltd. (SIOL) v.
Asuncion, 170 SCRA 274.
III. The respondent Court of Appeals gravely erred in declaring that it would be
useless and a waste of time to remand the case for further proceedings as
defendant-appellant has no meritorious defense.
We do not find any reversible error in the conclusion reached by the court a quo.
Relying on Section 1, Rule 20 of the Rules of court, petitioner argues that since the
last pleading, which was supposed to be the third-party defendant's answer has not
been filed, the case is not yet ripe for pre-trial. This argument must fail on three
points. First, the trial court asserted, and we agree, that no answer to the third party
complaint is forthcoming as petitioner never initiated the service of summons on the
third party defendant. The court further said:

We have said that in those instances where a party may not himself be present at
the pre-trial, and another person substitutes for him, or his lawyer undertakes to
appear not only as an attorney but in substitution of the client's person, it is
imperative for that representative or the lawyer to have "special authority" to enter
into agreements which otherwise only the client has the capacity to make. 12
Third, the court of Appeals properly considered the third-party complaint as a mere
scrap of paper due to petitioner's failure to pay the requisite docket fees. Said the
court a quo:
A third-party complaint is one of the pleadings for which Clerks of court of Regional
Trial Courts are mandated to collect docket fees pursuant to Section 5, Rule 141 of
the Rules of Court. The record is bereft of any showing tha(t) the appellant paid the
corresponding docket fees on its third-party complaint. Unless and until the
corresponding docket fees are paid, the trial court would not acquire jurisdiction
over the third-party complaint (Manchester Development Corporation vs. Court of
Appeals, 149 SCRA 562). The third-party complaint was thus reduced to a mere
scrap of paper not worthy of the trial court's attention. Hence, the trial court can and
correctly set the case for pre-trial on the basis of the complaint, the answer and the
answer to the counterclaim. 13

It is really irrelevant in the instant case whether the ruling in Sun Insurance Office,
Ltd. (SIOL) v. Asuncion 14 or that in Manchester Development Corp. v. C.A. 15 was
applied. Sun Insurance and Manchester are mere reiteration of old jurisprudential
pronouncements on the effect of non-payment of docket fees. 16 In previous cases,
we have consistently ruled that the court cannot acquire jurisdiction over the subject
matter of a case, unless the docket fees are paid.

sought in their complaints. In the present case, petitioner did not and never
attempted to pay the requisite docket fee. Neither is there any showing that
petitioner even manifested to be given time to pay the requisite docket fee, as in
fact it was not present during the scheduled pre-trial on December 1, 1988 and then
again on February 1, 1989. Perforce, it is as if the third-party complaint was never
filed.

Moreover, the principle laid down in Manchester could have very well been applied
in Sun Insurance. We then said:

Finally, there is reason to believe that partitioner does not really have a good
defense. Petitioner hinges its defense on two arguments, namely: a) that the checks
issued by its principal which were supposed to pay for the premiums, bounced,
hence there is no contract of surety to speak of; and 2) that as early as 1986 and
covering the time of the Surety Bond, Interworld Assurance Company (now Phil.
Pryce) was not yet authorized by the insurance Commission to issue such bonds.

The principle in Manchester [Manchester Development Corp. v. C.A., 149 SCRA 562
(1987)] could very well be applied in the present case. The pattern and the intent to
defraud the government of the docket fee due it is obvious not only in the filing of
the original complaint but also in the filing of the second amended complaint.

The Insurance Code states that:

xxx xxx xxx
In the present case, a more liberal interpretation of the rules is called for considering
that, unlike Manchester, private respondent demonstrated his willingness to abide
by the rules by paying the additional docket fees as required. The promulgation of
the decision in Manchester must have had that sobering influence on private
respondent who thus paid the additional docket fee as ordered by the respondent
court. It triggered his change of stance by manifesting his willingness to pay such
additional docket fees as may be ordered. 17
Thus, we laid down the rules as follows:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but
the payment of the prescribed docket fee, that vests a trial court with jurisdiction
over the subject-matter or nature of the action. Where the filing of the initiatory
pleading is not accompanied by payment of the docket fee, the court may allow
payment of the fee within a reasonable time, but in no case beyond the applicable
prescriptive or reglamentary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee
prescribed therefor is paid. The court may also allow payment of said fee within a
prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the
appropriate pleading and payment of the prescribed filing fee, but subsequently, the
judgment awards a claim nor specified in the pleading, or if specified the same has
not been left for determination by the court, the additional filing fee therefor shall
constitute a lien on the judgment. It shall be the responsibility of the clerk of court or
his duly authorized deputy to enforce said lien and assess and collect the additional
fee. 18
It should be remembered that both in Manchester and Sun Insurance plaintiffs
therein paid docket fees upon filing of their respective pleadings, although the
amount tendered were found to be insufficient considering the amounts of the reliefs

Sec. 177. The surety is entitled to payment of the premium as soon as the contract
of suretyship or bond is perfected and delivered to the obligor. No contract of
suretyship or bonding shall be valid and binding unless and until the premium
therefor has been paid, except where the obligee has accepted the bond, in which
case the bond becomes valid and enforceable irrespective of whether or not the
premium has been paid by the obligor to the surety. . . . (emphasis added)
The above provision outrightly negates petitioner's first defense. In a desperate
attempt to escape liability, petitioner further asserts that the above provision is not
applicable because the respondent allegedly had not accepted the surety bond,
hence could not have delivered the goods to Sagum Enterprises. This statement
clearly intends to muddle the facts as found by the trial court and which are on
record.
In the first place, petitioner, in its answer, admitted to have issued the bonds subject
matter of the original action. 19 Secondly, the testimony of Mr. Leonardo T. Guzman,
witness for the respondent, reveals the following:
Q. What are the conditions and terms of sales you extended to Sagum General
Merchandise?
A. First, we required him to submit to us Surety Bond to guaranty payment of the
spare parts to be purchased. Then we sell to them on 90 days credit. Also, we
required them to issue post-dated checks.
Q. Did Sagum General merchandise comply with your surety bond requirement?
A. Yes. They submitted to us and which we have accepted two surety bonds.
Q Will you please present to us the aforesaid surety bonds?
A. Interworld Assurance Corp. Surety Bond No. 0029 for P500,000 dated July 24,
1987 and Interworld Assurance Corp. Surety Bond No. 0037 for P1,000.000 dated
October 7, 1987. 20

Likewise attached to the record are exhibits C to C-18 21 consisting of delivery

invoices addressed to Sagum General Merchandise proving that parts were
purchased, delivered and received.
On the other hand, petitioner's defense that it did not have authority to issue a
Surety Bond when it did is an admission of fraud committed against respondent. No
person can claim benefit from the wrong he himself committed. A representation
made is rendered conclusive upon the person making it and cannot be denied or
disproved as against the person relying thereon. 22
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals
dismissing the petition before them and affirming the decision of the trial court and
its order denying petitioner's Motion for Reconsideration are hereby AFFIRMED. The
present petition is DISMISSED for lack of merit.
SO ORDERED.

AFP GENERAL INSURANCE CORPORATION,

G.R. No. 151133

Petitioner,
Present:

Quisumbing, J., Chairperson,

Carpio Morales,
- versus -

Tinga,
VELASCO, JR., and
BRION, JJ.

NOEL MOLINA, JUANITO ARQUEZA, LEODY VENANCIO,

JOSE OLAT, ANGEL CORTEZ, PANCRASIO SIMPAO,
CONRADO CALAPON AND NATIONAL LABOR
RELATIONS COMMISSION (FIRST DIVISION),
Respondents.

Promulgated:

June 30, 2008

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

years, plus attorneys fees equivalent to 10% of the entire amount, with Radon
Security and Ever Emporium, Inc. adjudged jointly and severally liable.

DECISION
QUISUMBING, J.:
This is a petition for review on certiorari of the Decision 1[1] dated August
20, 2001 of the Court of Appeals in CA-G.R. SP No. 58763 which dismissed herein
petitioners special civil action for certiorari. Before the appellate court, petitioner
AFP General Insurance Corporation (AFPGIC) sought to reverse the Resolution 2[2]
dated October 5, 1999 of the National Labor Relations Commission (NLRC) in NLRC
NCR CA-011705-96 for having been issued with grave abuse of discretion. The NLRC
affirmed the Order3[3] dated March 30, 1999 of Labor Arbiter Edgardo Madriaga in
NLRC NCR Case No. 02-00672-90 which had denied AFPGICs Omnibus Motion to
Quash Notice/Writ of Garnishment and Discharge AFPGICs appeal bond for failure of
Radon Security & Allied Services Agency (Radon Security) to pay the premiums on
said bond. Equally challenged is the Resolution4[4] dated December 14, 2001 of the
appellate court in CA-G.R. SP No. 58763 which denied herein petitioners motion for
reconsideration.
The facts of this case are not disputed.
The private respondents are the complainants in a case for illegal dismissal,
docketed as NLRC NCR Case No. 02-00672-90, filed against Radon Security & Allied
Services Agency and/or Raquel Aquias and Ever Emporium, Inc. In his Decision
dated August 20, 1996, the Labor Arbiter ruled that the private respondents were
illegally dismissed and ordered Radon Security to pay them separation pay,
backwages, and other monetary claims.
Radon Security appealed the Labor Arbiters decision to public respondent
NLRC and posted a supersedeas bond, issued by herein petitioner AFPGIC as surety.
The appeal was docketed as NLRC NCR CA-011705-96.

Radon Security duly moved for reconsideration, but this was denied by the
NLRC in its Resolution dated June 22, 1998.
Radon Security then filed a Petition for Certiorari docketed as G.R. No.
134891 with this Court, but we dismissed this petition in our Resolution of August
31, 1998.
When the Decision dated April 6, 1998 of the NLRC became final and
executory, private respondents filed an Urgent Motion for Execution. As a result, the
NLRC Research and Information Unit submitted a Computation of the Monetary
Awards in accordance with the NLRC decision. Radon Security opposed said
computation in its Motion for Recomputation.
On February 5, 1999, the Labor Arbiter issued a Writ of Execution 5[5]
incorporating the computation of the NLRC Research and Information Unit. That
same date, the Labor Arbiter dismissed the Motion for Recomputation filed by Radon
Security. By virtue of the writ of execution, the NLRC Sheriff issued a Notice of
Garnishment6[6] against the supersedeas bond.
Both Ever Emporium, Inc. and Radon Security moved to quash the writ of execution.
On March 30, 1999, the Labor Arbiter denied both motions, and Radon
Security appealed to the NLRC.
On April 14, 1999, AFPGIC entered the fray by filing before the Labor Arbiter
an Omnibus Motion to Quash Notice/Writ of Garnishment and to Discharge AFPGICs
Appeal Bond on the ground that said bond has been cancelled and thus nonexistent in view of the failure of Radon Security to pay the yearly premiums. 7[7]

On April 6, 1998, the NLRC affirmed with modification the decision of the
Labor Arbiter. The NLRC found the herein private respondents constructively
dismissed and ordered Radon Security to pay them their separation pay, in lieu of
reinstatement with backwages, as well as their monetary benefits limited to three

On April 30, 1999, the Labor Arbiter denied AFPGICs Omnibus Motion for lack of
merit.8[8] The Labor Arbiter pointed out that the question of non-payment of
premiums is a dispute between the party who posted the bond and the insurer; to
allow the bond to be cancelled because of the non-payment of premiums would
result in a factual and legal absurdity wherein a surety will be rendered nugatory by
the simple expedient of non-payment of premiums.

The petitioner then appealed the Labor Arbiters order to the NLRC. The appeals of
Radon Security and AFPGIC were jointly heard as NLRC NCR CA-011705-96.
On October 5, 1999, the NLRC disposed of NLRC NCR CA-011705-96 in this
wise:
WHEREFORE, premises considered, the appeals under consideration are hereby
DISMISSED for lack of merit.
SO ORDERED.9[9]
In dismissing the appeal of AFPGIC, the NLRC pointed out that AFPGICs theory that
the bond cannot anymore be proceeded against for failure of Radon Security to pay
the premium is untenable, considering that the bond is effective until the finality of
the decision.10[10] The NLRC stressed that a contrary ruling would allow
respondents to simply stop paying the premium to frustrate satisfaction of the
money judgment.11[11]
AFPGIC then moved for reconsideration, but the NLRC denied the motion in its
Resolution12[12] dated February 29, 2000. AFPGIC then filed a special civil action for
certiorari, docketed as CA-G.R. SP No. 58763, with the Court of Appeals, on the
ground that the NLRC committed a grave abuse of discretion in affirming the Order
dated March 30, 1999 of the Labor Arbiter.

Hence, the instant case anchored on the lone assignment of error that:
THE COURT OF APPEALS SERIOUSLY ERRED IN SUSTAINING THE PUBLIC
RESPONDENT NLRC ALTHOUGH THE LATTER GRAVELY ABUSED ITS DISCRETION
WHEN IT ARBITRARILY IGNORED THE FACT THAT SUBJECT APPEAL BOND WAS
ALREADY CANCELLED FOR NON-PAYMENT OF PREMIUM AND THUS IT COULD NOT BE
SUBJECT OF EXECUTION OR GARNISHMENT.15[15]
The petitioner contends that under Section 6416[16] of the Insurance Code, which is
deemed written into every insurance contract or contract of surety, an insurer may
cancel a policy upon non-payment of the premium. Said cancellation is binding
upon the beneficiary as the right of a beneficiary is subordinate to that of the
insured. Petitioner points out that in South Sea Surety & Insurance Co., Inc. v. CA, 17
[17] this Court held that payment of premium is a condition precedent to and
essential for the efficaciousness of a contract of insurance.18[18] Hence, following
UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc., 19[19] no insurance policy,
other than life, issued originally or on renewal is valid and binding until actual
payment of the premium.20[20] The petitioner also points to Malayan urance Co.,
Inc. v. Cruz Arnaldo,21[21] which reiterated that an insurer may cancel an insurance
policy for non-payment of premium.22[22] Hence, according to petitioner, the Court

14

On August 20, 2001, the appellate court dismissed CA-G.R. SP No. 58763,
disposing as follows:
WHEREFORE, the foregoing considered, the petition is denied due course
and accordingly DISMISSED.
SO ORDERED.13[13]

15
16

AFPGIC seasonably moved for reconsideration, but this was denied by the appellate
court in its Resolution14[14] of December 14, 2001.

17

18

10

19

11

20

12

21

13

22

of Appeals committed a reversible error in not holding that under Section 77 23[23] of
the Insurance Code, the surety bond between it and Radon Security was not valid
and binding for non-payment of premiums, even as against a third person who was
intended to benefit therefrom.
The private respondents adopted in toto the ratiocinations of the Court of Appeals
that inasmuch as a supersedeas bond was posted for the benefit of a third person to
guarantee that the money judgment will be satisfied in case it is affirmed on appeal,
the third person who stands to benefit from said bond is entitled to notice of its
cancellation for any reason. Likewise, the NLRC should have been notified to enable
it to take the proper action under the circumstances. The respondents submit that
from its very nature, a supersedeas bond remains effective and the surety liable
thereon until formally discharged from said liability. To hold otherwise would enable
a losing party to frustrate a money judgment by the simple expedient of ceasing to
pay premiums.
We find merit in the submissions of the private respondents.
The controversy before the Court involves more than just the mere
application of the provisions of the Insurance Code to the factual circumstances.
This instant case, after all, traces its roots to a labor controversy involving illegally
dismissed workers. It thus entails the application of labor laws and regulations.
Recall that the heart of the dispute is not an ordinary contract of property or life
insurance, but an appeal bond required by both substantive and adjective law in
appeals in labor disputes, specifically Article 22324[24] of the Labor Code, as
amended by Republic Act No. 6715,25[25] and Rule VI, Section 626[26] of the Revised
NLRC Rules of Procedure. Said provisions mandate that in labor cases where the
judgment appealed from involves a monetary award, the appeal may be perfected
only upon the posting of a cash or surety bond issued by a reputable bonding
company accredited by the NLRC.27[27] The perfection of an appeal by an employer
only upon the posting of a cash or surety bond clearly and categorically shows the
intent of the lawmakers to make the posting of a cash or surety bond by the
employer to be the exclusive means by which an employers appeal may be

perfected.28[28] Additionally, the filing of a cash or surety bond is a jurisdictional

requirement in an appeal involving a money judgment to the NLRC.29[29] In
addition, Rule VI, Section 6 of the Revised NLRC Rules of Procedure is a
contemporaneous construction of Article 223 by the NLRC. As an interpretation of a
law by the implementing administrative agency, it is accorded great respect by this
Court.30[30] Note that Rule VI, Section 6 categorically states that the cash or surety
bond posted in appeals involving monetary awards in labor disputes shall be in
effect until final disposition of the case. This could only be construed to mean that
the surety bond shall remain valid and in force until finality and execution of
judgment, with the resultant discharge of the surety company only thereafter, if we
are to give teeth to the labor protection clause of the Constitution. To construe the
provision any other way would open the floodgates to unscrupulous and heartless
employers who would simply forego paying premiums on their surety bond in order
to evade payment of the monetary judgment. The Court cannot be a party to any
such iniquity.
Moreover, the Insurance Code supports the private respondents arguments. The
petitioners reliance on Sections 64 and 77 of the Insurance Code is misplaced. The
said provisions refer to insurance contracts in general. The instant case pertains to
a surety bond; thus, the applicable provision of the Insurance Code is Section 177, 31
[31] which specifically governs suretyship. It provides that a surety bond, once
accepted by the obligee becomes valid and enforceable, irrespective of whether or
not the premium has been paid by the obligor. The private respondents, the
obligees here, accepted the bond posted by Radon Security and issued by the
petitioner. Hence, the bond is both valid and enforceable. A verbis legis non est
recedendum (from the language of the law there must be no departure). 32[32]
When petitioner surety company cancelled the surety bond because Radon Security
failed to pay the premiums, it gave due notice to the latter but not to the NLRC. By
its failure to give notice to the NLRC, AFPGIC failed to acknowledge that the NLRC
had jurisdiction not only over the appealed case, but also over the appeal bond.
This oversight amounts to disrespect and contempt for a quasi-judicial agency
tasked by law with resolving labor disputes. Until the surety is formally discharged,
it remains subject to the jurisdiction of the NLRC.

23

28

24

29

25

30

26

31

27

32

Our ruling, anchored on concern for the employee, however, does not in any way
seek to derogate the rights and interests of the petitioner as against Radon Security.
The former is not devoid of remedies against the latter. Under Section 176 33[33] of
the Insurance Code, the liability of petitioner and Radon Security is solidary in
nature. There is solidary liability only when the obligation expressly so states, or
when the law so provides, or when the nature of the obligation so requires. 34[34]
Since the law provides that the liability of the surety company and the obligor or
principal is joint and several, then either or both of them may be proceeded against
for the money award.
The Labor Arbiter directed the NLRC Sheriff to garnish the surety bond issued by the
petitioner. The latter, as surety, is mandated to comply with the writ of
garnishment, for as earlier pointed out, the bond remains enforceable and under the
jurisdiction of the NLRC until it is discharged. In turn, the petitioner may proceed to
collect the amount it paid on the bond, plus the premiums due and demandable,
plus any interest owing from Radon Security. This is pursuant to the principle of
subrogation enunciated in Article 206735[35] of the Civil Code which we apply to the
suretyship agreement between AFPGIC and Radon Security, in accordance with
Section 17836[36] of the Insurance Code. Finding no reversible error committed by
the Court of Appeals in CA-G.R. SP No. 58763, we sustain the challenged decision.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed Decision
dated August 20, 2001 of the Court of Appeals in CA-G.R. SP No. 58763 and the
Resolution dated December 14, 2001, of the appellate court denying the herein
petitioners motion for reconsideration are AFFIRMED. Costs against the petitioner.
SO ORDERED.

33
34
35
36

On April 30, 1963 or about five (5) days before the expiration of the liability on the
bond, P.D. Marchessini and Co., Ltd. and Delgado Shipping Agencies, Inc., filed Civil
Case No. 53853 in the Court of First Instance of Manila against the Philippine
Merchants Steamship Co., Inc., Jose L. Bautista, doing business under the name and
style of "Ronquillo Trading", and the herein appellant Capital Insurance & Surety Co.,
Inc. for the sum of $14,800.00 or its equivalent in Philippine currency, the loss they
allegedly suffered as a direct consequence of the failure of the defendants to load
the stipulated quantity of 406 U.S. surplus army vehicles. The appellant was made
party defendant because of the bond it posted in behalf of the appellees.
Upon the expiration of the 12 months life of the bond, the appellant made a formal
demand for the payment of the renewal premiums and cost of documentary stamps
for another year in the amount of P1,827.00.

G.R. No. L-36488 July 25, 1983

CAPITAL INSURANCE & SURETY CO., INC., herein represented by its General Agent,
the PAN AMERICAN INSURANCE AGENCIES, INC., plaintiff-appellant,
vs.
RONQUILLO TRADING and JOSE L. BAUTISTA, defendants-appellees.
Aristorenas, Relova & Enriquez Law Office for plaintiff-appellant.
Josefino Corpuz for defendants-appellees.

The appellees refused to pay, contending that the liability of the appellant under the
surety bond accrued during the period of twelve months the said bond was originally
in force and before its expiration and that the defendants-appellees were under no
obligation to renew the surety bond.
The appellant, therefore, filed a complaint to recover the sum of P l,827.00 against
the appellees in the City Court of Manila. As earlier stated, the city court rendered
judgment absolving the appellees from the complaint.
The appellant appealed the judgment to the Court of First Instance of Manila where
the decision of the city court was affirmed and the complaint dismissed.
Its motion for reconsideration having been denied, appellant filed the instant appeal
with the following lone assignment of error:

GUTIERREZ, JR., J.:

Before us for review is a decision of the Court of First Instance of Manila affirming a
judgment of the City Court of Manila dismissing the plaintiff- appellant's complaint
for sum of money. The case was originally appealed to the Court of Appeals but was
certified to us on a finding that only questions of law are raised.
Capital Surety and Insurance Co., Inc., thru its general agent, executed and issued a
surety bond in the amount of $14,800.00 or its peso equivalent in behalf of Ronquillo
Trading and in favor of S.S. Eurygenes, its master, and/or its agents, Delgado
Shipping Agencies. The bond was a guarantee for any additional freight which may
be determined to be due on a cargo of 258 surplus army vehicles consigned from
Pusan, Korea to the Ronquillo Trading on board the S.S. Eurygenes and booked on
said vessel by the Philippine Merchants Steamship Company, Inc.
In consideration for the issuance by the appellant of the aforesaid surety bond the
appellees executed an indemnity agreement whereby among other things, they
jointly and severally promised to pay the appellant the sum of P1,827.00 in advance
as premium and documentary stamps for each period of twelve months while the
surety bond was in effect.

THE TRIAL COURT ERRED IN HOLDING THAT ONCE SURETY'S LIABILITY UNDER THE
BOND HAS ACCRUED, DEFENDANTS- APPELLEES ARE UNDER NO OBLIGATION TO PAY
THE PREMIUMS AND COSTS OF DOCUMENTARY STAMPS FOR THE SUCCEEDING
PERIOD THAT IT IS IN EFFECT.
The appellant contends that the conclusion of the trial court that "once surety's
liability under the bond has accrued, defendants are under no obligation to pay the
premiums and cost of documentary stamps for the succeeding period that it is in
effect by reason of existing obligation of surety under the bond" is erroneous
because it contradicts the provision of the indemnity agreement which provides:
PREMIUMS. As consideration for the Surety, the undersigned, jointly and severally,
agree to pay the COMPANY the sum of ONE THOUSAND EIGHT HUNDRED ONLY
(P1,800.00) PESOS, Philippine Currency, in advance as premium thereof for every ...
twelve (12) months or fraction thereof, while this bond or any renewal or
substitution thereof is in effect.
According to the appellant, it can be deduced that the payment of renewal
premiums should depend upon the life and effectivity of the bond and not on the
accrual of its liability. It states that as long as the bond is in full force and effect, the
principal should pay the corresponding renewal premium and should continue to do

so even if the liability on the bond has accrued, otherwise, surety companies will be
at the mercy of their principals because while their liability continues to subsist as
long as their accrued liability is not determined, or as long as the court has not
determined their liability, which may take years, the principals pay no consideration
for the use of their bond. And if the case is decided against appellant thereby
holding its bond liable, it must pay the face value of its bond, and yet it is barred
from collecting any consideration for the use of its bond during the pendency of the
case.
The appellees countered that the only purpose of Civil Case No. 53853 was to
enforce a liability which existed even before the bond was executed. The bond was
given to secure payment by appellees of such additional freight as would already be
due on the cargo when it actually arrived in Manila. The bond was not executed to
secure obligation or liability which was still to arise after its twelve month life. While
it is true that the lower court held that the bond was still in effect after its expiry
date, the effectivity was not due to a renewal made by the appellees but because
the surety bond provided that "the liability of the surety will not expire if, as in this
case, it is notified of an existing obligation thereunder". The meaning of the bond's
still being in effect is that, the suit on the bond instituted by the obligees prior to the
expiration of the "liability" thereunder was only for the purpose of enforcing that
liability and amounted to notice to appellant of an already existing or accrued
liability so as not to let that liability lapse or expire and thereby bar enforcement.
We agree with the contention of the appellees. It must be noted that in the surety
bond it is stipulated that the "liability of surety on this bond will expire on May 5,
1963 and said bond will be cancelled 15 days after its expiration, unless surety is
notified of any existing obligations thereunder." Under this stipulation the bond
expired on the stated date and the phrase "unless surety is notified of any existing
obligations thereunder" refers to obligations incurred during the term of the bond.
Furthermore, under the Indemnity Agreement, the appellees "agree to pay the
COMPANY the sum of ONE THOUSAND EIGHT HUNDRED ONLY (P1,800.00) Pesos,
Philippine Currency, in advance as premium thereof for every twelve (12) months or
fraction thereof, while this bond or any renewal or substitution thereof is in effect."
Obviously, the duration of the bond is for "every twelve (12) months or fraction
thereof, while this bond or any renewal or substitution is in effect." Since the
appellees opted not to renew the contract they cannot be obliged to pay the
premiums. More specifically, where a contract of surety is terminated under its
terms, the liability of the principal for premiums after such termination ceases
notwithstanding the pendency of a lawsuit to enforce a liability that accrued during
its stipulated lifetime.
WHEREFORE, the appeal is dismissed for lack of merit. The decision of the court a
quo is affirmed.
SO ORDERED.

Eight (8) years after Emilia Chan Lugay's Cebu Filipina Press was destroyed by fire in
broad daylight, she is still waiting to collect the proceeds of seven (7) fire policies
which the petitioners sold to her.
The petitioners are the six (6) insurance companies that issued fire insurance
policies for the total sum of P4,000,000 to the Cebu Filipino Press of Cebu City, as
follows:
1. Cathay Insurance Company for P1,000,000 under Fire Insurance Policy No. F31056 dated June 10, 1981 renewing Policy No. F27942 (Exh-B-5), covering the
period from June 20, 1981 to June 20, 1982 (Exh-B);
2. Empire Insurance Company for P500,000 under Fire Insurance Policy No. YASCO/F1101 dated March 7, 1981, renewing Policy No. F-1095 (Exh. C-5), covering the
period from March 19, 1981 to March 19, 1982 (Exh. C);
3. Union Insurance Society of Canton, Ltd, for P500,000 under Fire Insurance Policy
No. NU-0530 dated May 5, 1981, renewing Policy No. MU-223903 (Exh. D-5),
covering the period from May 21, 1981 to May 21, 1982 (Exh. D);
4. Paramount Insurance Corp. for P500,000 under Fire Insurance Policy No. 25311
dated July 1, 1981, covering the period from July 15, 1981 to July 15, 1982 (Exh. E);
5. Philippine British Insurance Company for P500,000 under Fire Insurance Policy No.
PB-107861 dated July 6, 1981, renewing Policy No. PB-933 11 (Exh. F-5), covering
the period from July 10, 1981 to July 10, 1982 (Exh. F).
G.R. No. 85624 June 5, 1989
CATHAY INSURANCE CO., INC., EMPIRE INSURANCE CO., UNION INSURANCE SOCIETY
OF CANTON, LTD., PARAMOUNT INSURANCE CORP., PHILIPPINE BRITISH INSURANCE
CO., & PHILIPPINE FIRST INSURANCE CO., petitioners,
vs.
HON. COURT OF APPEALS & EMILIA CHAN LUGAY, respondents.
Guzman, Lasam & Associates and F. S. Sumulong & Associates Law offices for
petitioners.
Garcia & Pepito Law Offices for private respondent.

GRIO-AQUINO, J.:
It has been the sad experience of many who sought protection from disaster or
tragedy through insurance, to realize that insurance is quite easy to buy but difficult
to collect. Insurance companies are prone to invent excuses to avoid their just
obligations (American Home Ins. Co. vs. Court of Appeals, 109 SCRA 180). This case
is one such instance.

6. Philippine British Insurance Company for P500,000 under another Fire Insurance
Policy No. PB-107848 dated July 1, 1981, renewing Policy No. PB-102653 (Exh G-5),
covering the period from July 5, 1981 to July 5, 1982 (Exh. G); and
7. Philippine First Insurance Company for P500,000 under Fire Insurance Policy No.
CEB-G-0515 dated January 28, 1981, covering the period from February 15, 1981 to
February 15, 1982 (Exh. H). (p. 76, Rollo.)
The fire policies described the insured property as "stocks of printing materials,
papers and general merchandise usual to the Assured's trade" (p. 53, Rollo) stored
in a one-storey building of strong materials housing the Cebu Filipina Press located
at UNNO Pres. Quirino cor. Don V. Sotto Sts., Mabolo, Cebu City. The co-insurers were
indicated in each of the policies. All, except one policy (Paramount's), were renewals
of earlier policies issued for the same property.
On December 18, 1981, at around ten o'clock in the morning, the Cebu Filipina Press
was razed by electrical fire together with all the stocks and merchandise stored in
the premises.
On January 15, 1982, Mrs. Lugay, owner and operator of the printing press,
submitted sworn Statements of Loss Formal Claims to the insurers, through their
djusters. She claimed a total loss of P4,595,00.

She submitted proofs of loss required by the adjusters. After nearly ten (10) months
of wating for the insurers to pay his claim, she sued to collect on December 15,
1982. The insurance companies denied liability, alleging violation of certain
conditions of the policy, misdeclaration, and even arson which was not seriously
pressed for, come the pre-trial, the petitioners offered to pay 50% of her claim, but
she insisted in full recovery.
After the trial on the merits, the court rendered judgment in her favor, as follows:
... directing payment by Cathay Insurance Company, Inc., the amount of P1,000,000,
by Empire the amount of P5,000,000.00, by Insurance Society of Canton Limited the
amount P5,000,000.00, by Paramount Insurance Company, the amount
P5,000,000.00, by Philippine British Insurance Company Inc., the amount of
P5,000,000.00 by Philippine First Insurance Company, Inc., the amount of
P5,000,000.00; for all the defendants jointly and severaly to pay P48,000.00
representing expenses of the plaintiff, and a separate amount of 20% of the
P4,000,000.00 representing fees of councel; and interests at the rate of twice the
ceiling being prescribe by the Monetary Board starting from the time when the case
was filed; and finally, with costs. (Decision Court of Appeal, pp. 1-3.) (p. 77, Rollo.)
On appeal to the Court of Appeals, the decision was affirmed in toto (pp. 52-67,
Rollo). Hence, this petition for review under Rule 45 of the Rules of Court wherein the
petitioners allege that the Court of Appeals erred:
1. in holding that the private respondent's cause of action had already acrued when
the complaint was filed on December 15, 1982 and in not holding that the action is
premature;
2. in finding that sufficient proofs of loss had been presented by the private
respondent;
3. in not holding that the private respondent's claim for loss was infrated;
4. in awarding damages to the private respondent in the form of interests equivalent
to double the interest ceiling set by the Monetary Board despite absence of a finding
of unreasonable withholding or refusal to pay the claim; and
5. in awarding exorbitant attorney's fees.
It is plain to see that all these grounds of the petition for review present factual
issues which, in view of the provision in Section 2, Rule 45 of the Rules of Court that
"only questions of law may be raised" this Court may not inquire into by conducting
a tedious reassessment of the "maze of testimonial and documentary evidence" (p.
57, Rollo) of the parties. Referring to the evidence presented at the trial of this case,
the Court of Appeals said:
We are impressed indeed with the patience, diligence and perseverance of the trial
judge in wading through the voluminous documents, making an exhaustive
examination and detailed evaluation of the evidence, and thus emerging from the
maze of testimonial and documentary evidence with accuracy of perception in
determining the merits of the respective claims of the litigants. Accordingly, We are

constrained to honor and stamp our imprimatur to the findings of fact and
conclusions of the trial court since, admittedly, it was in a better position than We
are to examine the real evidence, as well as to observe the demeanor of the
witnesses while testifying in the case (Chase vs. Buencamino, Sr., 136 SCRA 365).
(p. 57, Rollo.)
The finding of the trial court and the Court of Appeals that the insured's cause of
action had already accrued before she filed her complaint is supported by Section
243 of the Insurance Code which fixes a maximum period of 90 days after receipt of
the proofs of loss by the insurer for the latter to pay the insured s claim.
Sec. 243. The amount of any loss or damage for which an insurer may be liable,
under any policy other than the insurance policy, shall be paid within thirty days
after proof of loss is received by the insurer and ascertainment of the loss or
damage is made either by agreement between the insured and the insurer or by
arbitration; but if such ascertainiment is not had or made within sixty days after
such receipt by the insurer of the proof of loss, then the loss or damage shall be paid
within ninety days after such receipt. ... (Insurance Code.)
As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981
and the proofs of loss were submitted from January 15, 1982 through June 21, 1982
in compliance with the adjusters' numerous requests for various documents,
payment should have been made within 90 days thereafter, or on or before
September 21, 1982. Hence, when the assured file her complaint on December 15,
1982, her cause of action had a ready accrued.
There is no merit in the petitioners' contention that the proof of loss were insufficient
because respondent Emilia Chan Luga failed to comply with the adjuster's request
for the submission of her bank statements. Condition No. 13 of the insurance policy
on proofs of loss, provides:
13. The insured shall give immediate written notice to th company of any loss,
protect the property from further damage, forth with separate the damaged and
undamaged personal property, put it in the best possible order, furnish a complete
inventory of the destroyed damaged and undamaged property, showing in detail
quantities, costs, actual cash value and the amount of loss claimed; AN WITHIN
SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE
COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS signed
and sworn to by the insured, stating the knowledge and belief of th insured as to the
following: the time and origin of the loss, the interest of the insured and of all others
in the property, the actual cash value of each item thereof and the amount of loss
thereto, all encumbrances thereon, all other contracts of insurance, whether valid or
not covering any of said property, any changes in the title, use, occupation, location,
possession or exposures of said property since the issuing of this policy, by whom
and for what purpose any buildings herein described and the several parts thereof
were occupied at the time of the loss and whether or not they stood on leased
ground, and shall furnish a copy of all the descriptions and schedules in all policies
and, if required, verified plans and specifications of any building, fixtures or machine
destroyed or damaged. The insured as often as may be reasonable required shall
exhibit to any person designated by the Company all that remains of any property

therein described, and submit to examination under oath by any person named by
the Company, and subscribe the same; as often as may be reasonably required,
shall produce for examination all books of account, bills, invoices, and other
vouchers, or certified copies thereof if originals be lost. At such reasonable time and
place as may be designated by the Company or its representative, and shall permit
extracts and copies thereof to be made.

denial or withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of claim due the insured, ... (Emphasis supplied; p.
66, Rollo.)

No claim under this policy shall be payable unless the terms of this condition have
been complied with. (pp. 55-56, Rollo.)

The petitioners' contention that the charging of double interest was improper
because no unreasonable delay in the processing of the fire claim was proven, is
refuted by the trial court' explicit finding that "there was a delay that was not
reasonable in processing the claim and doing payments" (p. 81, Rollo). Under
Section 244, a prima facie evidence of unreasonable delay in payment of the claim
is created by the failure of the insurer to pay the claim within the time fixed in both
Section 242 and 243 of the Insurance Code.

Condition No. 13, as the Court of Appeals observed, does not require the insured to
produce her bank statements. Therefore, the insured was not obligated to produce
them and the insurers had no right to ask for them. Condition No. 13 was prepared
by the insurers themselves, hence, it "should be taken most strongly" (p. 58, Rollo)
against them.
The Court of Appeals found that the insured "fully complied with the requirements of
Condition No. 13" (p. 58, Rollo). The adjuster's demand for the assured's bank
statements (which under the law on the secrecy of bank deposits, she need not
disclose) would add more requirements to Condition No. 13 of the insurance
contract, and, as pointed out by the Appellate Court, "would amount to giving the
insurers limitless latitude in making unreasonable demands if only to evade and
avoid liability" (p. 58, Rollo).
Nor was the claim inflated. Both the trial court and the Court of Appeals noted that
the proofs were ample and "more than enough ... for defendants (insurers) to do a
just assessment supporting the 1981 fire claim for an amount exceeding four million
pesos" (p. 60, Rollo).
The trial court's award (which was affirmed by the Court of Appeals) of double
interest on the private respondent's claim is lawful and justified under Sections 243
and 244 of the Insurance Code which provide:
Sec. 243. ... Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, ...
Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance
company shall be adjudged to pay damages which shall consist attorney's fees and
other expenses incurred by the insured person by reason of such unreasonable

Section 243 of the Insurance Code is in fact embodied in provision No. 29 of the
policies issued by the petitioners to th private respondents (p. 82, Rollo).

As provided in Section 244 also, by reason of the delay and consequent filing of this
suit by the insured, the insurers "shall be adjudged to pay damages which shall
consist of attorney's fees and other expenses incurred by the insured." In view of the
not insubstantial value of the private respondent's claims and the considerable time
and effort expended by them and their counsel in prosecuting these claims for the
past eight (8) years, We hold that attorney's fees were properly awarded to the
private respondents. However, an award equivalent to (10%) percent of the
proceeds of the policies would be more reasonable than the 20% awarded by the
trial court and th Appellate Court.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. CV-12100 is
affirmed, except the award of attorney's fees to the private respondents which is
hereby reduced to ten (10%) percent of the proceeds of the insurance policies sued
upon. Costs against the petitioners.
SO ORDERED.