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EN BANC it, all benefits are thereby forfeited; that the claim of the plaintiff is fraudulent as to
the quantity and value of the insured property at the time of the fire. As a fourth
G.R. No. L-25845 December 17, 1926 special defense, it is alleged that the policy becomes forfeited if a loss is occasioned
by the willful act or connivance of the insured, and that the loss in question was
PARIS-MANILA PERFUME CO., also known as PARIS-MANILA PERFUMERY caused by the willful act of Peter Johnson, and it prays that plaintiff's complaint be
CO., plaintiff-appellee, dismissed, with costs.
vs.
PHOENIX ASSURANCE CO., LTD., defendant-appellant. Upon such issues, the evidence was taken, and the lower court rendered judgment
in favor of the plaintiff for P13,000, with legal interest from November 7, 1924, the
STATEMENT date of the filing of the complaint and costs.

Plaintiffs alleges that it is a domestic corporation engaged in the manufacture of On appeal the defendant assigns the following errors:
perfumery and toilet articles. That the defendant is a corporation organized under
the laws of Great Britain, and engaged in the fire insurance business in the I. The lower court erred in finding and concluding that defendant-appellant
Philippine Islands. That on May 22, 1924, it issued to plaintiff its fire insurance issued a policy of insurance to and in the name of the plaintiff-appellee.
policy No. 841163 in the sum of P13,000 upon the property of the plaintiff at No. 1
Calle Cisneros, Cavite, insuring plaintiff's property against fire for that amount; that II. The lower court erred in finding and concluding that Peter Johnson was
with the knowledge of the defendant, the property was also insured in two other the sole proprietor, or else the principal stockholder of Paris-Manila
companies, one for P1,200, and the other for P5,000; that on July 4, 1924, the Perfume Co., plaintiff-appellee.
property covered by the insurance was completely destroyed by fire for the total
loss to the plaintiff of P38.025.56; that under its policy with the defendant, it III. The lower court erred in finding and concluding that the explosion
promptly presented its claim; that the defendant wrongfully and unjustly refused to referred to and excepted in defendant-appellant's policy of insurance
pay it; that on September 29, 1924, plaintiff requested the defendant to appoint an concerned only an explosion where no fire ensures.
arbitrator under the provisions of section 17 of the policy, which was also denied;
that at the time the policy was issued, plaintiff had paid the full amount of the IV. The lower court erred in finding and concluding that the claim
premium up to May 22, 1925, and it prays for judgment against the defendant for presented by plaintiff-appellee as not necesariamente' fraudulent.
P13,000, with legal interest from July 4, 1924, and costs.
V. The lower court erred in overruling defendant-appellant's objection to
For answer the defendant makes a specific denial of paragraphs 1, 3, 4, and 5, and the admission of Exhibit C in evidence.
admits that the plaintiff as a corporation, presented its claim against the defendant,
and that the payment was refused, and admits that plaintiff requested the
VI. The lower court erred in overruling defendant-appellant's objection to
defendant to specify the reason for its refusal, and that plaintiff has made a
the admission of Exhibit D in evidence.
demand for arbitration, and that defendant denied any liability and refused
arbitration, and as a special defense alleges that the policy in question was issued
VII. The lower court erred in overruling defendant-appellant's objection to
"to one Peter Johnson, as proprietor of Paris-Manila Perfumery Co.," and that the
the admission of Exhibits E and F in evidence.
company was not the insured named in the policy, and that the insurance was of no
legal force and effect with the company. As a second special defense, it is alleged
that "the policy of insurance did not cover any loss or damage occasioned by VIII. The lower court erred in overruling defendant-appellant's objection to
explosion," and that the loss was occasioned by an explosion, and was not covered the admission of Exhibit G in evidence.
by the policy. As a third special defense, it is alleged that the policy provides that, if
the claim is fraudulent, and that any false declaration was made or used to obtain
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IX. The lower court erred in overruling defendant-appellant's objection to The real cause of the fire is more or less a matter of conjecture, upon which there is
the admission of Exhibits H and H-1 in evidence. little, if any, evidence.

X. The lower court erred in overruling defendant-appellant's objection to In appellant's brief, it is said:
the admission of Exhibits J, K, L, N, and O in evidence.
The cause of the explosion was and is unknown and wholly a matter of
XI. The lower court erred in finding and concluding that the weight and conjecture. Neither peter Johnson nor Francisco Banta (the only persons in
preponderance of all of the proofs submitted upon the trial did not sustain the building at the time) claimed that either of them saw anything explode.
the contention of defendant-appellant that the fire was occasioned by the (Words in parenthesis inserted by me.)
willful act, or with the connivance, of the insured.
Both Johnson and Banta testified that they heard an explosion, and when they
XII. The lower court erred in finding and concluding that the fire was looked around, they saw fire and felt heat. There is no evidence as to whether the
caused by a firecracker. fire was started before or after the explosion. Neither is there any competent
testimony as to the cause of the explosion.
XIII. The lower court erred in concluding that the plaintiff-appellee was
entitled to judgment upon the facts found by the lower court. The factory where the fire occurred was filed with numerous kinds of essences and
oils used in the manufacture of perfumery and with a quantity of alcohol and
XIV. The lower court erred in rendering judgment in favor of plaintiff- manufactured perfumes, all of which were of a highly inflammable nature, and the
appellee, and in refusing to render its judgment dismissing the complaint fire may have started from any one of a number of reasons. But in the final analysis,
of plaintiff-appellee and absolving defendant-appellant therefrom. the fact remains that there was a fire, and that the plaintiffs property was
destroyed. It is true that it may be that the explosion was the primary cause of the
XV. The lower court erred in denying defendant-appellant's motion for a fire, but that is only a matter of conjecture, and upon that point, the burden of
new trial. proof was upon the defendant.

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

It is admitted that the policy in question was issued on May 22, 1924. 6. Unless otherwise expressly stated in the policy the insurance does not
cover —
Upon its face it recites:
(h) Loss or damage occasioned by the explosion; but loss or damage by explosion of
gas for illuminating or domestic purposes in a building in which gas is not generated
This policy of Insurance Witnesseth. That in consideration of Messrs. Paris-
and which does not form a part of any gas works, will be deemed to be loss by fire
Manila Perfumery Co. (Peter Johnson, Prop.), Cavite, P. I., hereinafter
within the meaning of this policy.
called the insured paying to the Phoenix Assurance Company, Limited,
hereinafter called the company, the sum of pesos two hundred ninety-two
and 50/100, Philippine currency. In answer to that, plaintiff relies upon section 5, which is as follows:

It also appears that the premium on the policy was paid to the defendant by a 5. The insurance does not cover —
company check, which was signed by Johnson, and that the policy in question was
prepared by the defendant. (d) Loss or damage occasioned directly or indirectly, approximately or remotely by
or through or in consequence of:
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(1) Earthquake, hurricane, volcanic eruption or other convulsion of nature, Facts:


and the company shall not be liable for loss or damage arising during or  May 22, 1924: A fire insurance policy was issued by Phoenix Assurance
within a reasonable time after any of the said occurrences, unless it be
Company, Limited to Messrs. Paris-Manila Perfumery Co. (Peter Johnson, Prop.)
proved by the insured to the satisfaction of the company that such loss or
damage was not in any way occasioned by or through or in consequence of for P13,000
any of the said occurrences.  also insured with other insurance companies for P1,200 and P5,000 respectively
 July 4, 1924: The Perfumery was burned unknown of the cause totalling a loss
It will be noted that section 5 excludes not only the damages which may of P38.025.56
immediately result from an earthquake, but also any damage which may follow the  Phoenix refused to pay nor to appoint an arbitrator stating that the policy did
earthquake, and that section 6 excludes only the damages which are the direct not cover any loss or damage occasioned by explosion and stating that the
result of the explosion itself, and that it does not except damages which occurred
claim was fraudulent
from the fire occuring after the explosion, even though the explosion may have
been the primary cause of the fire. But assuming, without deciding, that if it be a  RTC: ordered Phoenix to pay P13,000
fact that the fire resulted from an explosion that fact, if proven, would be a  Phoenix appealed
complete defense, the burden of the proof of that fact is upon the defendant, and  The insurance policy contains:
upon that point, there is a failure of proof. There is no competent evidence as to Unless otherwise expressly stated in the policy the insurance does not cover
whether the explosion caused the fire or the fire caused the explosion. (h) Loss or damage occasioned by the explosion; but loss or damage by explosion
of gas for illuminating or domestic purposes in a building in which gas is not
The defendant has assigned numerous and different errors, but exclusive of the first
generated and which does not form a part of any gas works, will be deemed to be
and second, they are largely question of facts and objections to the admissibility of
the evidence, and upon all of the material questions of fact, the lower court found loss by fire within the meaning of this policy.
for the plaintiff. That is to say, the lower court found as a fact that there was no
fraud in the insurance, and that the value of the property destroyed by the fire was ISSUE: W/N Phoenix should be liable for the loss because there was no explosion
more than the amount of the insurance. The defendant having issued its policy which is an exemption from the policy
which was in legal force and effect at the time of the fire, it is bound by its terms
and conditions, and the property having been destroyed, the burden of proof was
HELD: YES.
upon the defendant to show that it was exempt from liability under the terms and
conditions of the policy, and upon that point, there is a failure of proof.
 If it be a fact that the fire resulted from an explosion that fact, if proven, would
The judgment of the lower court is affirmed, with costs. So ordered. be a complete defense, the burden of the proof of that fact is upon the
defendant, and upon that point, there is a failure of proof
G.R. No. L-25845 December 17, 1926  lower court found as a fact that there was no fraud in the insurance, and that
Lessons Applicable: Loss, the immediate cause of which was the peril insured the value of the property destroyed by the fire was more than the amount of
against, if the proximate cause thereof was NOT excepted in the contract the insurance.
(Insurance)
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EN BANC were notoriously fraudulent, and, accordingly, sustained defendant's second special
defense and dismissed the complaint in each of the three cases, with costs against
G.R. No. L-35848 November 22, 1932 the plaintiff. As to the first special defense, referring to the origin of the fire, the
trial judge merely said that "altho much might be said against the manager of the
THE EAST FURNITURE INC., plaintiff-appellant, plaintiff corporation it is not necessary to make a detailed analysis of the proofs
vs. with respect to the fire, inasmuch as for the purposes of this decision a
THE GLOBE & RUTGERS FIRE INSURANCE CO. OF NEW YORK, defendant-appellee. consideration of the second special defense is sufficient." The trial court overruled
the third and fourth special defenses. From that judgment the plaintiff appealed.
OSTRAND, J.:
The appellant contends that the trial court erred (1) in finding that the claims
presented by the plaintiff to the insurance companies were fraudulent; (2) in giving
The three above entitled actions were instituted in the Court of First Instance of
weight to the testimony of Captain Lorenzo, deputy chief of the Manila Fire
Manila on March 25, 1929, to recover the full amount of three fire insurance police
Department, and Isidro Guevara, a furniture manufacturer, as to the value of the
aggregating P20,000. The complaints in each of these cases alleged in substance
articles found in the premises after the fire; and (3) in dismissing plaintiff's
that the plaintiff is a duly registered partnership engaged in the sale of furniture;
complaints.
that the defendant is a company engaged in the insurance business and duly
constituted in accordance with the laws of the Philippine Islands; that the plaintiff
insured against fire the articles existing in its establishment situated at Nos. 626 and The appellees sustain the finding of the trial court that appellant's claims of loss
628 Rizal Avenue, Manila; that the insurance policies issued by the defendants, were "notoriously fraudulent", and further urge before this court their first special
respectively, were: Globe & Rutgers, P5,000, in force from July 12, 1928, to July 12, defense, i. e., that the fire in question was of intentional origin.
1929; Commercial Union, P5,000, in force during the same period; and The
Continental, P10,000, in force from August 16, 1928, to August 16, 1929; that on 1. With reference to the origin of the fire, the evidence shows that it started at
March 2, 1929, a fire broke out in plaintiff's establishment, as a result of which the about 9.55 p. m. in the second floor of the building which was occupied by the
insured articles therein found were destroyed by the fire; that within the period plaintiff as office and workshop. That floor was constructed of wood, with a
marked in the policies the plaintiff presented to the insurance companies an galvanized iron roof. Immediately after the fire was extinguished Captain Lorenzo,
inventory of the insured furniture which was destroyed by the fire, the value of the deputy chief of the fire department, investigated its origin and found in the
which, before or at the time of the fire, amounted to P52,061.99; and that of the second floor three cans containing gasoline and kapok saturated with gasoline. For
furniture destroyed by the fire some was saved, of the value of P5,000, more or this reason, in his official report of that fire (Exhibit 3), he stated the cause to be:
less. "Suspected incendiary. Intentional. Preventable."

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

With reference to appellant's contention that Guevara's inventory is not reliable


because some of the furniture found in the building at the time of the fire may have
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EAST FURNITURE INC. vs. GLOBE & RUTGERS FIRE INSURANCE CO. OF NEW YORK Condition 12 of each of the insurance policies sued upon provides that "if the claim
be in any respect fraudulent, or if any false declaration be made or used in support
FACTS: thereof, or if any fraudulent means or devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this policy; or, if the loss or damage
On March 2, 1929, a fire broke out in plaintiff's establishment, as a result of which
be occasioned by the wilful act, or with the connivance of the Insured, — all benefit
the insured articles therein found were destroyed by the fire, within the period
under this policy shall be forfeited."
marked in the policies the plaintiff presented to the insurance companies an
inventory of the insured furniture which was destroyed by the fire, the value of
which, before or at the time of the fire, amounted to P52,061.99. Three actions
were instituted in the Court of First Instance of Manila on March 25, 1929, to
recover the full amount of three fire insurance police aggregating P20,000.

The defendants interposed a general denial and as special defenses alleged in


substance (1) that the fire in question was of intentional origin; and (2) that the
claims of loss presented by the plaintiff were false and fraudulent. After the trial,
the lower court found that the claims presented by the plaintiff were notoriously
fraudulent, and, accordingly, sustained defendant's second special defense and
dismissed the complaint in each of the three cases, with costs against the plaintiff.

ISSUE:

Should the special defense of non-recovery on the policy due to wilful acts of the
insured be sustained?

HELD:

Yes. It appears from the record that at the time of the fire the plaintiff was heavily
indebted to the Manila Finance & Discount Corporation, to the Bank of the
Philippine Islands, and to Attorney Alfonso E. Mendoza. This thus led to the
conclusion that defendants' first special defense is well founded — that the fire in
question was of intentional origin and was caused with the connivance of the
plaintiff. Neither the interest of the justice nor public policy would be promoted by
an omission of the courts to expose and condemn incendiarism once the same is
established by competent evidence. It would tend to encourage rather than
suppress that great public menace if the courts do not expose the crime to public
condemnation when the evidence in a case like the present shows that it has really
been committed.
8

EN BANC insurance agents are accessible who, under the incentive of writing large amounts
of insurance, can be induced to close their eyes to obvious dangers.
G.R. No. L-28607 February 21, 1929
On July 10, 1923, Francisco Prats, Elias Hanna and Isidro Bejar registered two
PRATS & COMPANY, a registered partnership, plaintiff-appellant, mercantile partnerships in the Bureau of Commerce and Industry for the purpose of
vs. engaging in mercantile business. The articles of copartnership of these two entities
PHOENIX INSURANCE COMPANY, HARTFORD, CONNECTICUT, a were the same except in the firm names. It was apparently contemplated, in so far
corporation, defendant-appellee. as any legitimate function may have been intended, that Prats & Co. should be an
importing firm, while Hanna, Bejar & Co. should engage in retail businss. As eveents
STREET, J.: show, the existence of the parallel entities, controlled by the same individuals,
supplied, undeniably, suitable engines for accomplishing an exploit of the kind that
was here attempted. Of the three individuals mentioned Elias Hanna and Isidro
This action was instituted in the Court of First Instance of the City of Manila by Prats
Bejar were Turkish subjects of unsavory reputation in insurance circle of Manila,
& Co., a mercantile partnership, for the purpose of recovering from the Phoenix
while Francisco Prats was a Spanish subject who had had some success as a
Insurance Co., of Hartford, Connecticut, the sum of P117,800.60, with interest, by
merchant and, prior to his connection with the two associates above mentioned,
reason of a loss alleged to have been sustained by the plaintiff, on August 21, 1924,
apparently enjoyed a fair reputation. Another individual, who figures in the case as
from a fire, it being alleged that said loss was covered by policy of insurance No.
an instrument of the three partners, is one Domingo Romero, who at that the time
600217, for the sum of P200,000, issued by the defendant company to the plaintiff.
which we are here concerned, was an employee of the Bureau of Internal Revenue,
For answer, the defendant, Pheonix Insurance Co., admitted the insurance of the
with a salary of P150 per month. Ramon Prats, a son of Francisco Prats, was united
policy of insurance but, by way of special defense, alleged, among other things, that
in marriage to a daughter of Domingo Romero, with the result that social relations
the fire in question had been set by the plaintiff, or with its connivance, and that
between Francisco Prats and Domingo Romero were close. Francisco Prats appear
the plaintiff had submitted under oath to the defendant a fraudulent claim of loss,
to have acted as manager for both Prats & Co. and Hanna, Bejar & Co.
in contravention of the express terms of the policy. Upon hearing the cause the trial
court absolved the defendant from the complaint with respect to the obligation
created by the policy which was the subject of the suit, but ordered the defendant On May 27, 1924, Prats, acting for Hanna, Bejar & Co., purchased a one-story
to pay to the plaintiff the sum of P11,731.93, with interest from the filing of the building at 95 Plaza Gardenia, Manila; and soon thereafter he begun to assemble in
complaint, upon account of moneys received from salvage sales, conducted by the this place the stock of merchandise which was the subject of insurance in this case.
defendant, of remnants of the insured stock. From this judgment the plaintiff The building referred to was purchasd outright for the sum of P1,600. It was old and
appealed. was scarcely more than a shed but had been used in times past for human
habitation. It was located in a part of the city which was inconvenient of success to
traders and out of the ordinary channels of business activity. After purchasing the
So far as liability under the policy of insurance which is the subject of this action is
building, Prats knocked out the partitions, removed the floor, and laid along the
concerned, we are of the opinion that the defendant has sufficiently established
center. The main part of the structure was thus converted into a single store, or
two defenses, either of which would be fatal to the right of recovery, namely, first,
bodega, though certain adjuncts, consisting of kitchen and closets, remained
that the fire was set by the procurance or connivance of the plaintiff for the
unchanged in the rear of the building. A sign was then set up over the entrance
purpose of defrauding the insurer; and secondly, that the plaintiff, after the fire,
bearing the firm name "Hanna, Bejar & Co." In effecting the purchase of this
submitted to the defendant a fraudulent claim supported by the false proof, in
building Prats availed himself of the service of Domingo Romero, who lived only
violation of the terms of the policy. Of these defenses the trial judge sustained the
two doors away at 97 Plaza Gardenia.
second but passed the first without express finding. We consider it important,
however, briefly to exhibit the salient facts on both points, not only because of the
considerable sum of money involved, but because the facts appearing in evidence By August 21, 1924, there had been assembled and stored by Prats in the place
supply a typical illustration of the manner in which frauds of this character against above described a stock of goods which, according to the documents exhibited by
the insurance companies may be constructed with some hope of success, when him, had a valuation of P211,329.72, on which he had taken out insurance to the
9

extent of P410,000. At midnight of the day mentioned a fire occurred at 95 Plaza fire should occur, the plaintiff would be able to mislead the defendant as to the
Gardenia, which destroyed the building and ruined its contents, the amount quantity of goods stored in the bodega. This item of proof, though circumstantial in
realized from the salvage of the stock being P11,731.93. its nature, was undoubtedly competent and should have been admitted by the trial
court.
With respect to the insurance upon this stock at the time of the fire, the following
facts appear: In the month of June preceeding the fire, nine policies aggregating The proof submitted by the defendant tends to show that obscure manipulations
P160,000 were taken out by Prats in the name of Hanna, Bejar & Co. on were used by the plaintiff in the storing of merchandise at 95 Plaza Gardenia and in
merchandise stored at 95 Plaza Gardenia. At the time these policies were taken out the removal of part of the contents of the bodega before the fire. In this connection
the valuation of the goods then in said store could not have been more than it appears that forty-five cases of old stock of Hanna, Bejar & Co., at Legaspi, P. I.,
P68,753. On June 28, 1924, Prats procured from the agent of the defendant in this were shipped to Manila before the fire, but instead of being taken directly to 95
case policy of insurance No. 600217 in the amount of P200,000 on merchandise Plaza Gardenia, they were housed for a time in the back part of the lower floor of
stored in the same place. The nine policies already procured had been taken out, as the Bazar Filipino in which Prats & Co. and Hanna, Bejar & Co. had their offices.
we have seen, in the name of Hanna, Bejar & Co.; but when Prats applied to the Moreover, a quantity of merchandise purchased from place shortly before the fire,
agent of the defendant for the P200,000 policy last above mentioned, the agent instead of directly to 95 Plaza Gardenia; and it is the theory of the defendant that
told him that if Hanna or Bejar had any interest in the stock to be insured the policy new merchandise purchased from Talambiras Brothers was substituted for the old
could not be issued for the reason that, in such case, the defendant would not be stock in boxes from Hanna, Bejar & Co. at Legaspi, leaving the old goods to be
able to obtain reinsurance for any part of the policy, owing to the bad reputation of deposited in the bodega to swell the debris of the fire. There is evidence also, which
Hanna and Bejar. Accordingly, at the request of Prats & Co.; and Prats at the same was credited by the court, to the effect that on various occasions before the fire
time assured the agent that Hanna and Bejar were not partners in Prats & Co. With goods were removed from the bodega to the store of B. Abolafia, at Manila, where
the writing of this policy the amount of insurance on the merchandise at 95 Plaza they were received without invoice. Some of these goods were subsequently sent
Gardenia was increased to P360,000, while the value of the stock at that time was away by Abolafia for sale in the provinces.
not probably much in excess of P158,000. On August 11, 1924, or just ten days
before the fire, Prats took out an additional policy for P50,000 in the name of Prats If overinsurance and the assemblage of goods at inflated values in the bodega at 95
& Co. on the same stock. This made a total insurance of P410,000 on the contents Plaza Gardenia, together with the surreptitious abstraction of goods therefrom by
of the store at 95 Plaza Gardenia. At the time, according to Prats himself, the the insured, have suggested a possible intention on the part of its manager to
evaluation of the merchandise then in the place was not in excess of P230,000. realize improperly on its insurance policies, this inference is, in our opinion, but
Furthermore, Prats, about this time, caused the first nine policies which had been beyond reach of reasonable doubt by facts relative to the destruction of the place.
taken out in the name of Hanna, Bejar & Co. to be indorsed to Prats & Co., thereby In this connection we note that about the time the bodega at 95 Plaza Gardenia had
making this firm the sole insured firm with respect to this stock of merchandise. been purchased, Domingo Romero assisted one Ramon Osete to rent No. 69 Calle
Gardenia, which was close to the rear of the building at 95 Plaza Gardenia. Osete
With respect to the origin of the stock thus assembled, we find that part had been appears to have been the individual chose for the role of incendiary, and he slept at
purchased in Europe by Prats; and in connection with its importation from abroad it the place mentioned until the night of the fire. A night or two before the fire this
is noteworthy that on June 18, 1924, Prats & Co. procured a policy of marine Osete, accompanied by one Antonio Prats, appears to have brought two cans of
insurance to be issued by Meerkamp & Co., Ltd., as agents of the India Insurance petroleum to his lodging place at 69 Calle Gardenia. After these cans had been
Co., Ltd., Upon twenty-two cases of silk, of a supposed value of P43,400. at the time taken to Osete's bathroom by his muchacho, the latter was sent out on an errand;
this policy was procured Prats informed the insurer that the goods were soon to and while he was gone the petroleum disappeared. After the fire had been started
arrive from France by the steamer Suwa Maru. For this policy of insurance Prats in the plaintiff's bodega shortly after midnight on August 21, 1924, Osete conveyed
paid out the sum of P736.25. Nevertheless, it now appears that the twenty-two this boy in his automobile to the fire alarm box on Plaza Gardenia. Reaching this
cases of silk covered by this marine policy were fictitious, as no such purchase of silk place, Osete planted the boy there with instructions to stop anyone who might
had been made by Prats & Co. in France or elsewhere. This fact was offered in attempt to turn in the alarm by telling him that he (the boy) had already done so;
evidence by the defendant, as tending to reveal a scheme by which, if a destructive and in fact, after the fire had gained some headway, one Joaquin Silos, who lived
10

near the bodega, ran to the box to turn on the alarm but was stopped in the act by part of the plaintiff, and each constituted a breach of the stipulations of the policy
a person who stated that he had already given the alarm. Nevertheless, when Fire against the use of fraudulent devices and false proof with respect to the loss.
Chief Vanderford reached the scene of the fire a few minutes later, he found that
the box had not been disturbed and he himself turned on the alarm. The boy stated The other point relied upon by his Honor to sustain the conclusion that the plaintiff
that when he was on the way with Osete to the alarm box, as just stated, an had attempted to deceive the defendant with respect to the extent of the loss was
explosion took place in the bodegaand a dull sound was emitted. Vanderford says at least competent in its general bearing on the good faith of the plaintiff, even if,
that upon his arrival he saw that the smoke issuing from thebodega black, as is probably true, not alone sufficient to constitute a breach of the same
suggesting the combustion of some inflammable material like petroleum. He also stipulations. The point is this: After the fire the plaintiff presented to the adjuster
noted the odor of petroleum, as did also some of the firemen who reached the certain cost sheets and copies of supposed invoices in which the prices and
scene. It may be added that when the debris of the fire was subsequently searched, expenses of importation of a quantity of goods were stated at double the true
merchandise soaked with petroleum was found in the ruins. amount. The adjuster soon discovered the artificial nature of these documents, and,
with his consent, they were withdrawn by Prats and subsequently destroyed. At the
Domingo Romero, who had been living at 97 Plaza Gardenia, had before the fire hearing Prats stated that these documents had been fabricated in order that they
taken his family temporarily to the home of Prats in Pasay. But after the fire was might be exhibited to intending purchasers of the goods, thereby making it appear
over the family moved back to 97 Plaza Gardenia, although that place had been to them that the cost of the merchandise had been much greater than it in fact was
considerably damaged by the flames. — a ruse which is supposed to have been entirely innocent or at least not directed
against the insurer. But a question naturally arises as to the purpose which these
Among those who suffered from the fire were the members of the Artigas family, documents might have been made to serve if the fire, as doubtless intended by its
living at 93 Gardenia, on the side opposite Romero's house. Another neighbor who designers, had been so destructive as to remove all vestiges of the stock actually
likewise suffered from the fire was one Juan Atayde, occupant of 67 Calle Gardenia, involved. Upon the whole we are forced to state the conclusion, not only that the
at the side of the house occupied by Osete. Soon after the fire Domingo Romero plaintiff caused the fire to be set, or connived therein, but also that it submitted
quietly passed a 100-peso bill into the hand of Maria Luisa Artigas, a daughter fraudulent proof as the trial judge found.
belonging to the Artigas family. Romero likewise gave the same amount to Juan
Atayde. It is self-evident that the gifts thus made by Romero to Luisa Artigas and Before concluding this opinion we are constrained to make a few observations with
Juan Atayde had other motives than pure charity and that the money probably reference to the trial of this case and the inordinate amount of time consumed in
came from some other source than his own modest earnings. After the fire that a the proceedings. We are told in the appellant's brief that the trial of this case
special investigation was made by the police department with the result that covered a period of almost two years, in which fifty separate sessions were held,
Deputy Chief Lorenzo came to the conclusion that the fire had originated from an without counting the numerous hearings upon the taking of the deposition of
intentional act. Reflection upon the proof before the court engenders in us the Francisco Prats, a partner in the plaintiff firm, whose testimony was taken at the
same belief and conducts us to the further conclusion that Prats & Co. was not alien instance of the defendant. Taken all together, the time thus consumed was out of
to the deed. all proportion to the difficulties of the case. An examination of the voluminous
transcript reveals at least part of the reason for this inordinate consumption of
The finding of the trial court in the effect that the plaintiff had submitted false proof time; since we find that far too much of the space in the transcript is taken up with
in the support of his claim is also, in our opinion, well founded. That conclusion the record of petty skirmishes in court resulting from objections over the admission
appears to have been based upon three items of proof, and with respect to at least of evidence.
two of these, we think that the conclusion of his Honor was correctly drawn. These
two facts are, first, that the plaintiff had submitted a claim for jewelry lost in the In the course of long experience we have observed that justice is most effectivly
fire as of a value of P12,800 when th erule value of said jewelry was about P600; and expeditiously administered in the courts where trivial objections to the
and, secondly, that the plaintiff had sought to recover from the insurance company admission of proof are received with least favor. The practice of excluding evidence
the value of goods which had been surreptitiously withdrawn by it from the bodega on doubtful objection to its materiality or technical objection to the form of the
prior to the fire. Neither of these two facts are consistent with good faith on the questions should be avoided. In a case of any intricacy it is impossible for a judge of
11

first instance, in the early stages of the development of the proof, to know with any
certainty whether testimony is relevant or not; and where there is no indication of
bad faith on the part of the attorney offering the evidence, the court may as a rule
safely accept the testimony upon the statement of the attorney that the proof
offered will be connected later. Moreover, it must be remembered that in the heat
of the battle over which he presides a judge of first instance may possibly fall into
error in judging of the relevancy of proof where a fair and logical connection is in
fact shown. When such a mistake is made and the proof is erroneously ruled out,
the Supreme Court, upon appeal, often finds itself embarrassed and possibly unable
to correct the effects of error without returning the case for a new trial, -- a step
which this court is always very loath to take. On the other hand, the admission of
proof in a court of first instance, even if the question as to its form, materiality, or
relevancy is doubtful, can never result in much harm to either litigant, because the
trial judge is supposed to know the law; and it is its duty, upon final consideration of
the case, to distinguish the relevant and material from the irrelevant and
immaterial. If this course is followed and the cause is prosecuted to the Supreme
Court upon appeal, this court then has all the material before it necessary to make
a correct judgment.

In this connection it should be remembered that many of the technical rules of


evidence which are often invoked in our courts were originally worked out in
England and the United States, where the jury system prevails. These rules were
adopted for the purpose of keeping matter from juries which — it was supposed —
might unduly influence them in deciding on the facts. They have little pertinence to
a system of procedure, like ours, in which the court is judge both of law and facts,
and in which accordingly it is necessary for the court to know what the proof is
before it rules upon the propriety of receiving it. Apart from these considerations is
the circumstance mentioned above that the time consumed in the trial on such
collateral points is generally many times greater than would be consumed if the
questionable testimony should be admitted for what it is worth. What has been
said above finds special relevancy in this case in view of the action of the trial court
in refusing to consider the proof referred to in the opinion showing that the
plaintiff, while engaged in assembling its stock, procured maritime insurance upon a
fictitious importation of silk. We earnestly commend the maintenance of liberal
practice in the admission of proof.

Our examination of the case leads to the conclusion that the result reached by the
trial court was correct.

The appealed decision will therefore be affirmed, and it is also ordered, with costs
against the appellant.
12

SECOND DIVISION the D/B Lucio had no engine of its own, it could not maneuver by itself and had to
[G.R. No. 137775. March 31, 2005] be towed by a tugboat for it to move from one place to another.
FGU INSURANCE CORPORATION, petitioner, vs. THE COURT OF APPEALS, SAN On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City,
MIGUEL CORPORATION, and ESTATE OF ANG GUI, represented by LUCIO, Cebu, on board the D/B Lucio, for towage by M/T ANCO, the following cargoes:
JULIAN, and JAIME, all surnamed ANG, and CO TO, respondents.
Bill of Lading No. Shipment Destination
.

1 25,000 cases Pale Pilsen Estancia, Iloilo


DECISION
350 cases Cerveza Negra Estancia, Iloilo
CHICO-NAZARIO, J.:
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
Before Us are two separate Petitions for review assailing the Decision [1] of the Court
of Appeals in CA-G.R. CV No. 49624 entitled, San Miguel Corporation, Plaintiff- The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer
Appellee versus Estate of Ang Gui, represented by Lucio, Julian and Jaime, all Marketing Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the
surnamed Ang, and Co To, Defendants-Appellants, ThirdParty Plaintiffs versus FGU consignee for the cargoes covered by Bill of Lading No. 2 was SMCs BMD-San Jose
Insurance Corporation, Third-Party Defendant-Appellant, which affirmed in toto the Beer Sales Office, San Jose, Antique.
decision[2] of the Regional Trial Court of Cebu City, Branch 22. The dispositive
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San
portion of the Court of Appeals decision reads:
Jose, Antique. The vessels arrived at San Jose, Antique, at about one oclock in the
afternoon of 30 September 1979. The tugboat M/T ANCO left the barge
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows: immediately after reaching San Jose, Antique.

1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30
interest of 6% per annum to be reckoned from the filing of this case on September 1979, the clouds over the area were dark and the waves were already
October 2, 1990; big. The arrastre workers unloading the cargoes of SMC on board the D/B Lucio
began to complain about their difficulty in unloading the cargoes. SMCs District
2) Ordering defendants to pay plaintiff the sum of P25,000.00 for attorneys Sales Supervisor, Fernando Macabuag, requested ANCOs representative to transfer
fees and an additional sum of P10,000.00 as litigation expenses; the barge to a safer place because the vessel might not be able to withstand the big
3) With cost against defendants. waves.
ANCOs representative did not heed the request because he was confident that the
For the Third-Party Complaint: barge could withstand the waves. This, notwithstanding the fact that at that time,
only the M/T ANCO was left at the wharf of San Jose, Antique, as all other vessels
1) Ordering third-party defendant FGU Insurance Company to pay and reimburse already left the wharf to seek shelter. With the waves growing bigger and bigger,
defendants the amount of P632,700.00.[3] only Ten Thousand Seven Hundred Ninety (10,790) cases of beer were discharged
into the custody of the arrastre operator.
The Facts At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B
Lucio abandoned the vessel because the barges rope attached to the wharf was cut
Evidence shows that Anco Enterprises Company (ANCO), a partnership between off by the big waves. At around midnight, the barge run aground and was broken
Ang Gui and Co To, was engaged in the shipping business. It owned the M/T ANCO and the cargoes of beer in the barge were swept away.
tugboat and the D/B Lucio barge which were operated as common carriers. Since
13

As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two loss of said cargoes occurred as a result of risks insured against in the insurance
Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of policy and during the existence and lifetime of said insurance policy. ANCO went on
Cerveza Negra. The value per case of Pale Pilsen was Forty-Five Pesos and Twenty to assert that in the remote possibility that the court will order ANCO to pay SMCs
Centavos (P45.20). The value of a case of Cerveza Negra was Forty-Seven Pesos and claim, the third-party defendant corporation should be held liable to indemnify or
Ten Centavos (P47.10), hence, SMCs claim against ANCO amounted to One Million reimburse ANCO whatever amounts, or damages, it may be required to pay to SMC.
Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos
In its answer to the Third-Party complaint, third-party defendant FGU admitted the
(P1,346,197.00).
existence of the Insurance Policy under Marine Cover Note No. 29591 but
As a consequence of the incident, SMC filed a complaint for Breach of Contract of maintained that the alleged loss of the cargoes covered by the said insurance policy
Carriage and Damages against ANCO for the amount of One Million Three Hundred cannot be attributed directly or indirectly to any of the risks insured against in the
Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00) plus interest, said insurance policy. According to FGU, it is only liable under the policy to Third-
litigation expenses and Twenty-Five Percent (25%) of the total claim as attorneys party Plaintiff ANCO and/or Plaintiff SMC in case of any of the following:
fees.
a) total loss of the entire shipment;
Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January
b) loss of any case as a result of the sinking of the vessel; or
1993, SMC filed a second amended complaint which was admitted by the Court
impleading the surviving partner, Co To and the Estate of Ang Gui represented by c) loss as a result of the vessel being on fire.
Lucio, Julian and Jaime, all surnamed Ang. The substituted defendants adopted the
original answer with counterclaim of ANCO since the substantial allegations of the Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC
original complaint and the amended complaint are practically the same. failed to exercise ordinary diligence or the diligence of a good father of the family in
the care and supervision of the cargoes insured to prevent its loss and/or
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in destruction.
the complaint were indeed loaded on the vessel belonging to ANCO. It claimed
however that it had an agreement with SMC that ANCO would not be liable for any Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint
losses or damages resulting to the cargoes by reason of fortuitous event. Since the and asked for actual, moral, and exemplary damages and attorneys fees.[1]
cases of beer Pale Pilsen and Cerveza Negra were lost by reason of a storm, a The trial court found that while the cargoes were indeed lost due to fortuitous
fortuitous event which battered and sunk the vessel in which they were loaded, event, there was failure on ANCOs part, through their representatives, to observe
they should not be held liable. ANCO further asserted that there was an agreement the degree of diligence required that would exonerate them from liability. The trial
between them and SMC to insure the cargoes in order to recover indemnity in case court thus held the Estate of Ang Gui and Co To liable to SMC for the amount of the
of loss. Pursuant to that agreement, the cargoes to the extent of Twenty Thousand lost shipment. With respect to the Third-Party complaint, the court a quo found
(20,000) cases was insured with FGU Insurance Corporation (FGU) for the total FGU liable to bear Fifty-Three Percent (53%) of the amount of the lost cargoes.
amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) According to the trial court:
per Marine Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, . . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-
alleging that before the vessel of ANCO left for San Jose, Antique with the cargoes aground and was broken and the beer cargoes on the said barge were swept
owned by SMC, the cargoes, to the extent of Twenty Thousand (20,000) cases, were away. It is the sense of this Court that the risk insured against was the cause of the
insured with FGU for a total amount of Eight Hundred Fifty-Eight Thousand Five loss.
Hundred Pesos (P858,500.00) under Marine Insurance Policy No. 29591. ANCO
further alleged that on or about 02 October 1979, by reason of very strong winds Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00
and heavy waves brought about by a passing typhoon, the vessel run aground near and the amount of the policy was only for P858,500.00, defendants as assured,
the vicinity of San Jose, Antique, as a result of which, the vessel was totally wrecked therefore, were considered co-insurers of third-party defendant FGU Insurance
and its cargoes owned by SMC were lost and/or destroyed. According to ANCO, the Corporation to the extent of 975,405.00 value of the cargo. Consequently, inasmuch
14

as there was partial loss of only P1,346,197.00, the assured shall bear 53% of the second action identity of parties, identity of subject matter, and identity of causes of
loss[4] [Emphasis ours] action.[6]
There is no question that the first three elements of res judicata as enumerated
The appellate court affirmed in toto the decision of the lower court and denied the
above are indeed satisfied by the decision in Civil Case No. R-19341. However, the
motion for reconsideration and the supplemental motion for reconsideration.
doctrine is still inapplicable due to the absence of the last essential requisite of
Hence, the petitions. identity of parties, subject matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant
The Issues while in the instant case, SMC is the plaintiff and the Estate of Ang Gui represented
by Lucio, Julian and Jaime, all surnamed Ang and Co To as defendants, with the
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be latter merely impleading FGU as third-party defendant.
summarized into two: 1) Whether or not respondent Court of Appeals committed
The subject matter of Civil Case No. R-19341 was the insurance contract entered
grave abuse of discretion in holding FGU liable under the insurance contract
into by ANCO, the owner of the vessel, with FGU covering the vessel D/B Lucio,
considering the circumstances surrounding the loss of the cargoes; and 2) Whether
while in the instant case, the subject matter of litigation is the loss of the cargoes of
or not the Court of Appeals committed an error of law in holding that the doctrine
SMC, as shipper, loaded in the D/B Lucio and the resulting failure of ANCO to deliver
of res judicata applies in the instant case.
to SMCs consignees the lost cargo. Otherwise stated, the controversy in the first
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the case involved the rights and liabilities of the shipowner vis--vis that of the insurer,
appellate court based on the following assignments of error: 1) The Court of while the present case involves the rights and liabilities of the shipper vis--vis that
Appeals committed grave abuse of discretion in affirming the findings of the lower of the shipowner. Specifically, Civil Case No. R-19341 was an action for Specific
court that the negligence of the crewmembers of the D/B Lucio was the proximate Performance and Damages based on FGU Marine Hull Insurance Policy No. VMF-
cause of the loss of the cargoes; and 2) The respondent court acted with grave MH-13519 covering the vessel D/B Lucio, while the instant case is an action for
abuse of discretion when it ruled that the appeal was without merit despite the fact Breach of Contract of Carriage and Damages filed by SMC against ANCO based on
that said court had accepted the decision in Civil Case No. R-19341, as affirmed by Bill of Lading No. 1 and No. 2, with defendant ANCO seeking reimbursement from
the Court of Appeals and the Supreme Court, as res judicata. FGU under Insurance Policy No. MA-58486, should the former be held liable to pay
SMC.
Ruling of the Court Moreover, the subject matter of the third-party complaint against FGU in this case
is different from that in Civil Case No. R-19341. In the latter, ANCO was suing FGU
First, we shall endeavor to dispose of the common issue raised by both petitioners for the insurance contract over the vessel while in the former, the third-party
in their respective petitions for review, that is, whether or not the doctrine of res complaint arose from the insurance contract covering the cargoes on board the D/B
judicata applies in the instant case. Lucio.
It is ANCOs contention that the decision in Civil Case No. R-19341,[5] which was The doctrine of res judicata precludes the re-litigation of a particular fact or issue
decided in its favor, constitutes res judicata with respect to the issues raised in the already passed upon by a court of competent jurisdiction in a former judgment, in
case at bar. another action between the same parties based on a different claim or cause of
action. The judgment in the prior action operates as estoppel only as to those
The contention is without merit. There can be no res judicata as between Civil Case
matters in issue or points controverted, upon the determination of which the
No. R-19341 and the case at bar. In order for res judicata to be made applicable in a
finding or judgment was rendered.[7] If a particular point or question is in issue in
case, the following essential requisites must be present: 1) the former judgment
the second action, and the judgment will depend on the determination of that
must be final; 2) the former judgment must have been rendered by a court having
particular point or question, a former judgment between the same parties or their
jurisdiction over the subject matter and the parties; 3) the former judgment must
privies will be final and conclusive in the second if that same point or question was
be a judgment or order on the merits; and 4) there must be between the first and
in issue and adjudicated in the first suit.[8]
15

Since the case at bar arose from the same incident as that involved in Civil Case No. First, ANCO admitted that they failed to deliver to the designated consignee
R-19341, only findings with respect to matters passed upon by the court in the the Twenty Nine Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five
former judgment are conclusive in the disposition of the instant case. A careful Hundred Fifty (550) cases of Cerveza Negra.
perusal of the decision in Civil Case No. R-19341 will reveal that the pivotal issues
Second, it is borne out in the testimony of the witnesses on record that the
resolved by the lower court, as affirmed by both the Court of Appeals and the
Supreme Court, can be summarized into three legal conclusions: 1) that the D/B barge D/B Lucio had no engine of its own and could not maneuver by itself. Yet, the
patron of ANCOs tugboat M/T ANCO left it to fend for itself notwithstanding the
Lucio before and during the voyage was seaworthy; 2) that there was proper notice
fact that as the two vessels arrived at the port of San Jose, Antique, signs of the
of loss made by ANCO within the reglementary period; and 3) that the vessel D/B
impending storm were already manifest. As stated by the lower court, witness Mr.
Lucio was a constructive total loss.
Anastacio Manilag testified that the captain or patron of the tugboat M/T ANCO left
Said decision, however, did not pass upon the issues raised in the instant case. the barge D/B Lucio immediately after it reached San Jose, Antique, despite the fact
Absent therein was any discussion regarding the liability of ANCO for the loss of the that there were already big waves and the area was already dark. This is
cargoes. Neither did the lower court pass upon the issue of the alleged negligence corroborated by defendants own witness, Mr. Fernando Macabueg.[13]
of the crewmembers of the D/B Lucio being the cause of the loss of the cargoes
The trial court continued:
owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the At that precise moment, since it is the duty of the defendant to exercise and
Court of Appeals that there is res judicata. observe extraordinary diligence in the vigilance over the cargo of the plaintiff, the
patron or captain of M/T ANCO, representing the defendant could have placed D/B
Anent ANCOs first assignment of error, i.e., the appellate court committed error in
Lucio in a very safe location before they left knowing or sensing at that time the
concluding that the negligence of ANCOs representatives was the proximate cause
coming of a typhoon. The presence of big waves and dark clouds could have warned
of the loss, said issue is a question of fact assailing the lower courts appreciation of
the patron or captain of M/T ANCO to insure the safety of D/B Lucio including its
evidence on the negligence or lack thereof of the crewmembers of the D/B Lucio.
cargo. D/B Lucio being a barge, without its engine, as the patron or captain of M/T
As a rule, findings of fact of lower courts, particularly when affirmed by the
ANCO knew, could not possibly maneuver by itself. Had the patron or captain of
appellate court, are deemed final and conclusive. The Supreme Court cannot review
M/T ANCO, the representative of the defendants observed extraordinary diligence
such findings on appeal, especially when they are borne out by the records or are
in placing the D/B Lucio in a safe place, the loss to the cargo of the plaintiff could
based on substantial evidence.[9] As held in the case of Donato v. Court of
not have occurred. In short, therefore, defendants through their representatives,
Appeals,[10] in this jurisdiction, it is a fundamental and settled rule that findings of
failed to observe the degree of diligence required of them under the provision of
fact by the trial court are entitled to great weight on appeal and should not be
Art. 1733 of the Civil Code of the Philippines.[14]
disturbed unless for strong and cogent reasons because the trial court is in a better
position to examine real evidence, as well as to observe the demeanor of the
witnesses while testifying in the case.[11] Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the
contention of respondents SMC and FGU that the crewmembers of D/B Lucio
It is not the function of this Court to analyze or weigh evidence all over again, unless should have left port at the onset of the typhoon is like advising the fish to jump
there is a showing that the findings of the lower court are totally devoid of support from the frying pan into the fire and an advice that borders on madness.[15]
or are glaringly erroneous as to constitute palpable error or grave abuse of
discretion.[12] The argument does not persuade. The records show that the D/B Lucio was the only
vessel left at San Jose, Antique, during the time in question. The other vessels were
A careful study of the records shows no cogent reason to fault the findings of the transferred and temporarily moved to Malandong, 5 kilometers from wharf where
lower court, as sustained by the appellate court, that ANCOs representatives failed the barge remained.[16] Clearly, the transferred vessels were definitely safer in
to exercise the extraordinary degree of diligence required by the law to exculpate Malandong than at the port of San Jose, Antique, at that particular time, a fact
them from liability for the loss of the cargoes. which petitioners failed to dispute
16

ANCOs arguments boil down to the claim that the loss of the cargoes was caused by Antique, managed to transfer to another place, a circumstance which prompted
the typhoon Sisang, a fortuitous event (caso fortuito), and there was no fault or SMCs District Sales Supervisor to request that the D/B Lucio be likewise transferred,
negligence on their part. In fact, ANCO claims that their crewmembers exercised but to no avail. The D/B Lucio had no engine and could not maneuver by itself. Even
due diligence to prevent or minimize the loss of the cargoes but their efforts proved if ANCOs representatives wanted to transfer it, they no longer had any means to do
no match to the forces unleashed by the typhoon which, in petitioners own words so as the tugboat M/T ANCO had already departed, leaving the barge to its own
was, by any yardstick, a natural calamity, a fortuitous event, an act of God, the devices. The captain of the tugboat should have had the foresight not to leave the
consequences of which petitioners could not be held liable for. [17] barge alone considering the pending storm.
The Civil Code provides: While the loss of the cargoes was admittedly caused by the typhoon Sisang, a
natural disaster, ANCO could not escape liability to respondent SMC. The records
Art. 1733. Common carriers, from the nature of their business and for reasons of clearly show the failure of petitioners representatives to exercise the extraordinary
public policy are bound to observe extraordinary diligence in the vigilance over the degree of diligence mandated by law. To be exempted from responsibility, the
goods and for the safety of the passengers transported by them, according to all the natural disaster should have been the proximate and only cause of the
circumstances of each case. loss.[20] There must have been no contributory negligence on the part of the
common carrier. As held in the case of Limpangco Sons v. Yangco Steamship Co.:[21]
Such extraordinary diligence in vigilance over the goods is further expressed in
Articles 1734, 1735, and 1745 Nos. 5, 6, and 7 . . . . . . To be exempt from liability because of an act of God, the tug must be free from
any previous negligence or misconduct by which that loss or damage may have
Art. 1734. Common carriers are responsible for the loss, destruction, or been occasioned. For, although the immediate or proximate cause of the loss in any
deterioration of the goods, unless the same is due to any of the following causes given instance may have been what is termed an act of God, yet, if the tug
only: unnecessarily exposed the two to such accident by any culpable act or omission of
its own, it is not excused.[22]
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity; Therefore, as correctly pointed out by the appellate court, there was blatant
negligence on the part of M/T ANCOs crewmembers, first in leaving the engine-less
barge D/B Lucio at the mercy of the storm without the assistance of the tugboat,
Art. 1739. In order that the common carrier may be exempted from responsibility,
and again in failing to heed the request of SMCs representatives to have the barge
the natural disaster must have been the proximate and only cause of the loss.
transferred to a safer place, as was done by the other vessels in the port; thus,
However, the common carrier must exercise due diligence to prevent or minimize
making said blatant negligence the proximate cause of the loss of the cargoes.
loss before, during and after the occurrence of flood, storm, or other natural
disaster in order that the common carrier may be exempted from liability for the We now come to the issue of whether or not FGU can be held liable under the
loss, destruction, or deterioration of the goods . . . (Emphasis supplied) insurance policy to reimburse ANCO for the loss of the cargoes despite the findings
of the respondent court that such loss was occasioned by the blatant negligence of
Caso fortuito or force majeure (which in law are identical insofar as they the latters employees.
exempt an obligor from liability)[18] by definition, are extraordinary events not
foreseeable or avoidable, events that could not be foreseen, or which though One of the purposes for taking out insurance is to protect the insured against the
foreseen, were inevitable. It is therefore not enough that the event should not have consequences of his own negligence and that of his agents. Thus, it is a basic rule in
insurance that the carelessness and negligence of the insured or his agents
been foreseen or anticipated, as is commonly believed but it must be one
constitute no defense on the part of the insurer.[23] This rule however presupposes
impossible to foresee or to avoid.[19]
that the loss has occurred due to causes which could not have been prevented by
In this case, the calamity which caused the loss of the cargoes was not the insured, despite the exercise of due diligence.
unforeseen nor was it unavoidable. In fact, the other vessels in the port of San Jose,
17

The question now is whether there is a certain degree of negligence on the part of gross character as to amount to misconduct or wrongful acts; otherwise, such
the insured or his agents that will deprive him the right to recover under the negligence shall release the insurer from liability under the insurance contract.
insurance contract. We say there is. However, to what extent such negligence must
In the case at bar, both the trial court and the appellate court had concluded from
go in order to exonerate the insurer from liability must be evaluated in light of the
the evidence that the crewmembers of both the D/B Lucio and the M/T ANCO were
circumstances surrounding each case. When evidence show that the insureds
negligence or recklessness is so gross as to be sufficient to constitute a willful act, blatantly negligent. To wit:
the insurer must be exonerated.
There was blatant negligence on the part of the employees of defendants-
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,[24] the United appellants when the patron (operator) of the tug boat immediately left the barge at
States Supreme Court held that: the San Jose, Antique wharf despite the looming bad weather. Negligence was
likewise exhibited by the defendants-appellants representative who did not heed
The ordinary negligence of the insured and his agents has long been held as a part Macabuags request that the barge be moved to a more secure place. The prudent
of the risk which the insurer takes upon himself, and the existence of which, where thing to do, as was done by the other sea vessels at San Jose, Antique during the
it is the proximate cause of the loss, does not absolve the insurer from liability. But time in question, was to transfer the vessel to a safer wharf. The negligence of the
willful exposure, gross negligence, negligence amounting to misconduct, etc., have defendants-appellants is proved by the fact that on 01 October 1979, the only
often been held to release the insurer from such liability.[25] [Emphasis ours] simple vessel left at the wharf in San Jose was the D/B Lucio.[27] [Emphasis ours]

In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. As stated earlier, this Court does not find any reason to deviate from the conclusion
17,731, the owners of an insured vessel attempted to put her across the bar at drawn by the lower court, as sustained by the Court of Appeals, that ANCOs
Hatteras Inlet. She struck on the bar and was wrecked. The master knew that the representatives had failed to exercise extraordinary diligence required of common
depth of water on the bar was such as to make the attempted passage dangerous. carriers in the shipment of SMCs cargoes. Such blatant negligence being the
Judge Clifford held that, under the circumstances, the loss was not within the proximate cause of the loss of the cargoes amounting to One Million Three
protection of the policy, saying: Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case,
Authorities to prove that persons insured cannot recover for a loss occasioned by
concludes that the blatant negligence of ANCOs employees is of such gross
their own wrongful acts are hardly necessary, as the proposition involves an
character that it amounts to a wrongful act which must exonerate FGU from liability
elementary principle of universal application. Losses may be recovered by the
under the insurance contract.
insured, though remotely occasioned by the negligence or misconduct of the
master or crew, if proximately caused by the perils insured against, because such WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24
mistakes and negligence are incident to navigation and constitute a part of the February 1999 is hereby AFFIRMED with MODIFICATION dismissing the third-party
perils which those who engage in such adventures are obliged to incur; but it was complaint.
never supposed that the insured could recover indemnity for a loss occasioned by his
own wrongful act or by that of any agent for whose conduct he was SO ORDERED.
responsible.[26] [Emphasis ours] Lessons Applicable: Loss caused by negligence of the insured (Insurance)

From the above-mentioned decision, the United States Supreme Court has made a FACTS:
distinction between ordinary negligence and gross negligence or negligence
amounting to misconduct and its effect on the insureds right to recover under the  Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To,
insurance contract. According to the Court, while mistake and negligence of the was engaged in the shipping business operating two common carriers
master or crew are incident to navigation and constitute a part of the perils that the
 M/T ANCO tugboat
insurer is obliged to incur, such negligence or recklessness must not be of such
18

 D/B Lucio barge - no engine of its own, it could not maneuver by itself and had  Art. 1734. Common carriers are responsible for the loss, destruction, or
to be towed by a tugboat for it to move from one place to another. deterioration of the goods, unless the same is due to any of the following
 September 23 1979: San Miguel Corporation (SMC) shipped from Mandaue City, causes only:
Cebu, on board the D/B Lucio, for towage by M/T ANCO:
 25,000 cases Pale Pilsen and 350 cases Cerveza Negra - consignee SMC’s Beer (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
Marketing Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo
 15,000 cases Pale Pilsen and 200 cases Cerveza Negra - consignee SMC’s BMD-  Art. 1739. In order that the common carrier may be exempted from
San Jose Beer Sales Office, San Jose, Antique responsibility, the natural disaster must have been the proximate and only
 September 30, 1979: D/B Lucio was towed by the M/T ANCO arrived and M/T cause of the loss. However, the common carrier must exercise due diligence to
ANCO left the barge immediately prevent or minimize loss before, during and after the occurrence of flood,
 The clouds were dark and the waves were big so SMC’s District Sales Supervisor, storm, or other natural disaster in order that the common carrier may be
Fernando Macabuag, requested ANCO’s representative to transfer the barge to exempted from liability for the loss, destruction, or deterioration of the goods .
a safer place but it refused so around the midnight, the barge sunk along Caso fortuito or force majeure
with 29,210 cases of Pale Pilsen and 500 cases of Cerveza Negra totalling  extraordinary events not foreseeable or avoidable, events that could not be
to P1,346,197 foreseen, or which though foreseen, were inevitable
 When SMC claimed against ANCO it stated that they agreed that it would not be  not enough that the event should not have been foreseen or anticipated, as is
liable for any losses or damages resulting to the cargoes by reason of fortuitous commonly believed but it must be one impossible to foresee or to avoid - not in
event and it was agreed to be insured with FGU for 20,000 cases or P858,500 this case
 ANCO filed against FGU  other vessels in the port of San Jose, Antique, managed to transfer to another
 FGU alleged that ANCO and SMC failed to exercise ordinary diligence or the place
diligence of a good father of the family in the care and supervision of the  To be exempted from responsibility, the natural disaster should have been the
cargoes proximate and only cause of the loss. There must have been no contributory
 RTC: ANCO liable to SMC and FGU liable for 53% of the lost cargoes negligence on the part of the common carrier.
 CA affirmed  there was blatant negligence on the part of M/T ANCO’s crewmembers, first in
leaving the engine-less barge D/B Lucio at the mercy of the storm without the
ISSUE: W/N FGU should be exempted from liability to ANCO for the lost cargoes assistance of the tugboat, and again in failing to heed the request of SMC’s
because of a fortuitous event and negligence of ANCO representatives to have the barge transferred to a safer place
 When evidence show that the insured’s negligence or recklessness is so gross as
HELD: YES. Affirmed with modification. Third-party complainant is dismissed. to be sufficient to constitute a willful act, the insurer must be exonerated.
 Art. 1733. Common carriers, from the nature of their business and for reasons  ANCO’s employees is of such gross character that it amounts to a wrongful act
of public policy are bound to observe extraordinary diligence in the vigilance which must exonerate FGU from liability under the insurance contract
over the goods and for the safety of the passengers transported by them,  both the D/B Lucio and the M/T ANCO were blatantly negligent
according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in
Articles 1734, 1735, and 1745 Nos. 5, 6, and 7 . . .
19

EN BANC 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
G.R. No. L-5715 December 20, 1910 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,
E. M. BACHRACH, plaintiff-appellee, and they shall have accepted, the sum required for the renewal of this
vs. policy, the company will, out of their capital stock, and funds, pay or make
BRITISH AMERICAN ASSURANCE COMPANY, a corporation, defendant-appellant. 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
JOHNSON, J.:
thereto, respectively, and not exceeding in the whole the sum of ten
thousand pesos, and also not exceeding, in any case, the amount of the
On the 13th of July, 1908, the plaintiff commenced an action against the defendant
insurable interest therein of the insured at the time of the happening of
to recover the sum of P9,841.50, the amount due, deducting the salvage, upon the such fire.
following fire insurance policy issued by the defendant to the plaintiff:
In witness whereof, the British American Assurance Company has accused
[Fire policy No. 3007499.]
these presents to be signed this 21st day of February, in the year of our
Lord 1908.
This policy of insurance witnesseth, that E. M. Bachrach, esq., Manila
(hereinafter called the insured), having paid to the undersigned, as
For the company.
authorized agent of the British American Assurance Company (hereinafter
called the company), the sum of two thousand pesos Philippine currency,
W. F. STEVENSON & Co. LTD.,
for insuring against loss or damage by fire, as hereinafter mentioned, the
property hereinafter described, in the sum of several sums following, viz:
"By...............................................,
"Manager Agents."
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 And indorsed on the back the following:
accordance with warranty "D" of the tariff attached hereto) the property
of the assured, in trust, on commission or for which he is responsible, The within policy and includes a "Calalac" automobile to the extent of (P1,250)
whilst stored in the ground floor and first story of house and dwelling No. twelve hundred and fifty pesos Philippine currency.
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 — Memo: Permission is hereby granted for the use of gasoline not to exceed 10
bounded in the front by the said calle, on one side by Calle David and on gallons for the above automobile, but only whilst contained in the reservoir of the
the other two sides by buildings of similar construction and occupation. 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.
Co-insurance allowed, particulars of which to be declared in the event of
loss or claim. Manila, 27th February, 1908.

The company hereby agrees with the insured (but subject to the conditions "W. F. STEVENSON & Co. LTD.,
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
20

"By......................................................., Second. That her had made no proof of the loss set up in his complaint for the
"Manager Agents." 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,
The defendant answered the complaint, admitting some of the facts alleged by the 1908, and thereafter on other occasions, had waived all right to require proof of
plaintiff and denying others. The defendant also alleged certain facts under which it said loss by denying all liability under the policy and by declaring said policy to be
claimed that it was released from all obligations whatever under said policy. These null and void.
special facts are as follows:
After hearing the evidence adduced during the trial of the cause, the lower court
First. That the plaintiff maintained a paint and varnish shop in the said building found that the defendant was liable to the plaintiff and rendered a judgment
where the goods which were insured were stored. 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.
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 From that decision the defendant appealed and made the following assignments of
said company, and also that the plaintiff had transferred his interest in certain of error:
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 1. The court erred in failing to hold that the use of the building, No. 16 Calle
the said defendant had not been obtained by the plaintiff, as required by the said Martinez, as a paint and varnish shop annulled the policy of insurance.
policy.
2. The court erred in failing to hold the execution of the chattel mortgages without
Third. That the plaintiff, on the 18th of April, 1908, and immediately preceding the the knowledge and consent of the insurance company annulled the policy of
outbreak of the alleged fire, willfully placed a gasoline can containing 10 gallons of insurance.
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 3. The court erred in holding that the keeping of gasoline and alcohol not in bottles
permit the gasoline to run on the floor of said second story, and after so placing in the building No. 16 Calle Martinez was not such a violation of the conditions of
said gasoline, he, the plaintiff, placed in close proximity to said escaping gasoline a the policy as to render the same null and void.
lighted lamp containing alcohol, thereby greatly increasing the risk of fire.
4. The court erred in failing to find as a fact that E. M. Bachrach, the insured,
Fourth. That the plaintiff made no proof of the loss within the time required by willfully placed a gasoline can containing about 10 gallons of gasoline in the upper
condition five of said policy, nor did the insured file a statement with he municipal story of said building, No. 16 Calle Martinez, in close proximity to a portion of the
or any other judge or court of the goods alleged to have been in said building at the goods, wares, and merchandise stored therein, and that said can was so placed by
time of the alleged fire, nor of the goods saved, nor the loss suffered. said Bachrach as to permit the gasoline to run on the floor of said second story.

The plaintiff, after denying nearly all of the facts set out in the special answer of the 5. The court erred in failing to find as a fact that E. M. Bachrach, after placing said
defendant, alleged: 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
First. That he had been acquitted in a criminal action against him, after a trial duly gasoline a lighted lamp containing alcohol, thereby greatly increasing the risk of
and regularly had, upon a charge of arson, based upon the same alleged facts set fire.
out in the answer of the defendant.
21

6. The court erred in holding that the policy of insurance was in force at the time of first was incidental to the use of the insured article and the second being a
said fire, and that the acts or omissions on the part of the insured which cause, or single instance falls within the doctrine of the case last cited.
tended to cause, the forfeiture of the policy, were waived by the defendant.
It may be added that there was no provision in the policy prohibiting the keeping of
7. The court erred in holding the defendant liable for the loss under the paints and varnishes upon the premises where the insured property was stored. If
policy.lawphil.net the company intended to rely upon a condition of that character, it ought to have
been plainly expressed in the policy.
8. The court erred in refusing to deduct from the loss sustained by Bachrach the
value of the automobile, which was saved without damage. 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
9. The court erred in refusing to grant the motion for a new trial. 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
10. The court erred in refusing to enter judgment in favor of the defendant and policy of insurance.
against the plaintiff.
With reference to this assignment of error, upon reading the policy of insurance
With reference to the first above assignment of error, the lower court in its decision issued by the defendant to the plaintiff, it will be noted that there is no provision in
said: 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
It is claimed that either gasoline or alcohol was kept in violation of the
this question as it was presented:
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 It is claimed that the execution of a chattel mortgage on the insured
justify the forfeiture of the policy on that ground. The property insured property violated what is known as the "alienation clause," which is now
consisted mainly of household furniture kept for the purpose of sale. The found in most policies, and which is expressed in the policies involved in
preservation of the furniture in a salable condition by retouching or cases 6496 and 6497 by a purchase imposing forfeiture if the interest in
otherwise was incidental to the business. The evidence offered by the the property pass from the insured. (Cases 6496 and 6497, in which are
plaintiff is to the effect that alcohol was used in preparing varnish for the involved other action against other insurance companies for the same loss
purpose of retouching, though he also says that the alcohol was kept in as in the present action.)
store and not in the bodegawhere the furniture was. It is well settled that
the keeping of inflammable oils on the premises, though prohibited by the This clause has been the subject of a vast number of judicial decisions (13
policy, does not void it if such keeping is incidental to the business. Thus, Am. & Eng. Encyc. of Law, 2d ed., pp. 239 et seq.), and it is held by the
where a furniture factory keeps benzine for the purposes of operation great weight of authority that the interest in property insured does not
(Davis vs. Pioneer Furniture Company, 78 N. W. Rep., 596; Faust vs. pass by the mere execution of a chattel mortgage and that while a chattel
American Fire Insurance Company, 91 Wis., 158), or where it is used for mortgage is a conditional sale, there is no alienation within the meaning of
the cleaning machinery (Mears vs. Humboldt Insurance Company, 92 Pa. the insurance law until the mortgage acquires a right to take possession by
St., 15; 37 Am. Rep., 647), the insurer can not on that ground avoid default under the terms of the mortgage. No such right is claimed to have
payment of loss, though the keeping of the benzine on the premises is accrued in the case at bar, and the alienation clause is therefore
expressly prohibited. These authorities also appear sufficient to answer the inapplicable.
objection that the insured automobile contained gasoline and that the
plaintiff on one occasion was seen in the bodega with a lighted lamp. The 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
22

the lower court relating to the facts stated in this assignment of error, neither is Regardless of the question whether the plaintiff's letter of April 20 (Exhibit
there any provision in the policy relating to the facts alleged in said assignment of B) was a sufficient compliance with the requirement that he furnish notice
error. 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
Assignment of error numbers 4 and 5 above noted may be considered together. 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
The record discloses that some time prior to the commencement of this present null and void," the furnishing of such notice would be vain and useless. (13
action, a criminal action was commenced against the plaintiff herein in the Court of Am. & Eng. Encyc. of Law, 347, 348, 349.) Besides, "immediate notice" is
First Instance of the city of Manila, in which he was charged with willfully and construed to mean only within a reasonable time.
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 Much the same may be said as to the objection that the insured failed to
trial, the lower court, with the assistance of two assessors, found that the evidence furnish to the insurers his books and papers or to present a detailed
was insufficient to show beyond peradventure of doubt that the defendant was statement to the "juez municipal," in accordance with article 404 of the
guilty of the crime. The evidence adduced during the trial of the criminal cause was Code of Commerce. The last-named provision is similar to one appearing in
introduced as evidence in the present cause. While the evidence shows some very many American policies requiring a certificate from a magistrate nearest
peculiar and suspicious circumstances concerning the burning of the goods covered the loss regarding the circumstance thereof. A denial of liability on other
by the said policy, yet, nevertheless, in view of the findings of the lower court and in grounds waives this requirement (O'Niel vs. Buffalo Fire Insurance
view of the apparent conflict in the testimony, we can not find that there is a Company, 3 N. Y., 122; Peoria Marine Ins. Co. vs. Whitehill, 25 Ill., 382), as
preponderance of evidence showing that the plaintiff did actually set fire or cause well as that relating to the production of books and papers (Ga. Home Ins.
fire to be set to the goods in question. The lower court, in discussing this question, Co. vs. Goode & Co., 95 Va., 751; 66 Jur. Civ., 16). Besides, the insured
said: 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."
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 Besides the foregoing reasons, it may be added that there was no requirement in
was done by another branch of this court in disposing of the criminal the policy in question that such notice be given.
prosecution brought against the insured, on the same ground, based
mainly on the same evidence. And regardless of whether or not the With reference to the assignments of error numbers 7, 9, and 10, they are too
judgment in that proceeding is res adjudicata as to anything here, we are general in their character to merit consideration.
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 With reference to the eight assignment of error above noted, the defendant and
insured of the crime of arson. (Turtell vs. Beamount, 25 Rev. Rep., 644.) In appellant contends that he was entitled to have the amount of his responsibility
order to find that the defense of incendiarism was established here, we reduced by the full value (P1,250) of the said automobile.
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 It does not positively appear of record that the automobile in question was not
though the evidence now produced were much stronger than it is. 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
With reference to the sixth assignment of error above noted, to wit:itc@alf That the P4,000, including the automobile. This amount (P4,000) was distributed among the
court erred in holding that the policy of insurance was in force at the time of said different insurers and the amount of their responsibility was proportionately
fire and that the acts or omissions on the part of the insured which caused or reduced. The defendant and appellant in the present case made no objection at any
tended to cause a forfeiture of the policy were waived by the defendant, the lower time in the lower court to that distribution of the salvage. The claim is now made
court, in discussing this question, said: for the first time. No reason is given why the objection was not made at the time of
23

the distribution of the salvage, including the automobile, among all of the insurers.  It may be added that there was no provision in the policy prohibiting the
The lower court had no opportunity to pass upon the question now presented for keeping of paints and varnishes upon the premises where the insured property
the first time. The defendant stood by and allowed the other insurers to share in
was stored. If the company intended to rely upon a condition of that character,
the salvage, which he claims now wholly belonged to him. We think it is now too
late to raise the question. it ought to have been plainly expressed in the policy.
 alienation clause - forfeiture if the interest in the property pass from the
For all the foregoing reasons, we are of the opinion that the judgment of the lower insured
court should be affirmed, and it is hereby ordered that judgment be entered against  there is no alienation within the meaning of the insurance law until the
the defendant and in favor of the plaintiff for the sum of P9,841.50, with interest at mortgage acquires a right to take possession by default under the terms of the
the rate of 6 per cent from the 13th of July, 1908, with costs. So ordered. mortgage. No such right is claimed to have accrued in the case at bar, and the
alienation clause is therefore inapplicable.
Lessons Applicable: Effect of Change of Interest in Thing Insured (Insurance)  we can not find that there is a preponderance of evidence showing that the
FACTS: plaintiff did actually set fire or cause fire to be set to the goods in question
 It does not positively appear of record that the automobile in question was not
 E. M. Bachrach insured goods belonging to a general furniture store, such as
included in the other policies. It does appear that the automobile was saved
iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands,
and was considered as a part of the salvaged. It is alleged that the salvage
mirrors, and sea-grass furniture stored in the ground floor and first story of
amounted to P4,000, including the automobile. This amount (P4,000) was
house and dwelling with an authorized agent of the British American Assurance
distributed among the different insurers and the amount of their responsibility
Company
was proportionately reduced. The defendant and appellant in the present case
 British American Assurance Company denied alleging that:
made no objection at any time in the lower court to that distribution of the
 property covered by the policy to H. W. Peabody & Co. to secure certain
salvage. The claim is now made for the first time.
indebtedness due and owing to said company
 interest in certain of the goods covered by the said policy is trasnferred to
Facts:
Macke to secure certain obligations assumed by Macke and on behalf of
Bachrach Bachrach insured properties of its general furniture shop with British. The
 willfully placed a gasoline can containing 10 gallons of gasoline close to the properties were subsequently destroyed by fire.
insured goods
Bachrach claims from the insurance company. The claim was denied on the ff
 made no proof of the loss with the time required by the condition
 RTC: British American Assurance Company liable to bACHRACH grounds:

o The policy was allegedly forfeited because the insured stored varnishes and
ISSUE: W/N Bachrach can claim paints within the premises;

HELD: YES. lower court affirmed o Insured stored gasoline in the building; and

o Bachrach executed a chattel mortgage on the properties insured without 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 consent of the insured.
24

Issue:

Whether or not Bachrach can claim the proceeds of the policy.

Held:

Yes.

The policy was NOT forfeited due to the strong paints and varnishes. There was no
express provision pertaining to it and these paints and varnishes are incidental to
the business of the insured to keep the furniture in a saleable condition. The
gasoline stored within the premises was in the reservoir of the car and thus does
not violate any provision in the policy. There is no express prohibition against the
execution of a chattel mortgage on the property insured.
25

EN BANC Appellants vigorously maintain that the obligation of the company to pay the
proceeds of the insurance accrued not upon the death of the insured on November
G.R. No. L-9146 January 27, 1959 2, 1944, but only upon receipt and approval by the company, at its Home Office, of
proof of death of the insured, which was on July 9, 1954 in accordance with the
TERESA VDA. DE FERNANDEZ, ET AL., plaintiffs-appellants, provision of the policy which reads —
vs.
THE NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, defendant- National Life Insurance Company of the Philippine hereby agrees to pay at
appellee. its Home Office, Manila, Ten Thousand Pesos to Juan D. Fernandez
(hereinafter called the insured) on the 15th day of July, 1964, if the Insured
ENDENCIA, J.: is living and this Policy is in force, or upon receipt and approved at its Office
of due proofs of the title of the claimant and of the prior death of the
Insured while this Policy is in force to Teresa Duat Vda. De Fernandez,
Appeal from a decision of the Court of First Instance of Manila applying the
Maria T. and Manuela Fernandez, mother and sisters respectively of the
Ballantyne scale of values upon the proceeds of life insurance taken and maturing
Insured (Hereinafter called the Beneficiary) subject to the right of the
during the Japanese occupation but claimed after liberation.
Insured to change the beneficiary as stated on the second page of this
Policy.
It is undisputed that on July 15, 1944, the National Life Insurance Company of the
Philippines insured the life of Juan D. Fernandez for the sum of P10,000 under
The above stipulation is apparently based on Sec. 91-A of the Insurance Law which
Policy No. 16346 upon payment by the latter of the amount of P444 for the period
provides as follows:
from July 15, 1944, to July 14, 1945, the beneficiaries thereof being his mother
Teresa Duat Vda. de Fernandez and his sisters Maria Teresa Fernandez and Manuel
Fernandez. The insured died on November 2, 1944, at Muntinglupa, Rizal, while the The proceeds of a life insurance policy shall be paid immediately upon
policy was in force. maturity of the policy, unless such proceeds are made payable in
installments or a as an annuity, in which case the installments or annuities
shall be paid as they become due: Provided, however, That in case of a
After a lapse of more than seven years, or on August 1st, 1952, Atty. Alberto L. de la
policy maturing by the death of the insured, the proceeds thereof shall be
Torre, in representation of the beneficiaries, wrote the company advising it that and
paid within sixty days after presentation of the claim and filing of the proof
insured had died in 1944, and claimed the proceeds of the policy. On August 21,
of the death of the insured. Refused to pay the claim within the time
1952, the company answered Atty. De la Torre stating that inasmuch as the status
prescribed herein will entitle the beneficiary to collect interest on the
of the policies issued during the Japanese occupation was still pending
proceeds of the policy for the duration of the delay at the rate of six per
consideration before the courts, it would like to know whether the beneficiaries
centum per annum, unless such failure or refusal to pay is based on the
represented by him were willing to compute the value of their claim under the
ground that the claim is fraudulent . . . .
Ballantyne scale of values. There was no reply to this inquiry, but on July 9, 1954,
the beneficiaries presented instead proofs of death of the insured and at the same
time filed Statement Exhibit G claiming the amount of P10,000. On July 21, 1954, Butterssed on the foregoing provision of law and the aforequoted stipulation as
the company advised the beneficiaries that inasmuch as the policy matured upon well as on the allegation that the filing of proof of death by the beneficiaries is a
the death of the insured on November 2, 1944, the proceeds should be computed condition precedent of the demandability of the obligation of the insurer to pay the
in accordance with the Ballantyne scale, which amount only to P500. In view of this, proceeds, appellants claim that they should be paid P10,000 in Philippine currency
the beneficiaries commenced suit on August 6, 1954, but the lower court sustained and not under the Ballantyne scale of values.
the stand of the company and dismissed the complaint, awarding however to
plaintiffs the sum of P500 in Philippine currency, without interest; hence the We find appellants' contention untenable. In life insurance, the policy matures
appeal. either upon the expiration of the term set forth therein in which case its proceeds
are immediately payable to the insured himself, or upon his death occuring at any
26

time prior to the expiration of such stipulated term, in which case, the proceeds are herein, was not yet in a position to pay the value of the policy for the
payable to his beneficiaries within sixty days after their filing of proof of death (Sec. simple reason that it has not yet reopened. . . .
91-A Insurance Law). In the case at bar, the policy matured upon the death of the
insured on November 2, 1944, and the obligation of the insurer to pay arose as of In the present case the Home Office of the appellee was open for business until the
that date. The sixty-day period fixed by law within which to pay the proceeds after last days of January, 1945, and had business transactions not only with the bank but
presentation of proof of death is merely procedural in nature, evidently to also with its customers before its closure, and as a matter of fact had been making
determine the exact amount to be paid and the interest thereon to which the payments of claims as they were presented. The policy in question having matured
beneficiaries may be entitled to collect in case of unwarranted refusal of the on November 2, 1944, same could have been processed and paid before the
company to pay, and also to enable the insurer to verify or check on the fact of company closed its Home Office in January, 1945. Appellants argue that they could
death which it may even validly waive. It is the happening of the suspensive not have presented their claim and proof of death during the Japanese occupation
condition of death that renders a life even if they wanted to because they knew that the deceased was insured only after
liberation when the policy was handed to them by Mr. Pablo P. Gabriel, a business
policy matured and not the filing of proof of death which, as a above stated, is partner of the deceased. The delay in the presentation of proof of death does not
merely procedural, for even if such proof were presented but if turns out later that make any difference, for it does not alter the date of maturity of the policy nor the
the insured is alive, such filing does not give maturity to the policy. The insured ability of the company to pay the proceeds of the insurance during the Japanese
having died on November 2, 1944, during the Japanese occupation, the proceeds of occupation. Moreover, it is through no fault of the company that such delay was
his policy should be adjusted accordingly, for incurred. At any rate, irrespective of whether there was delay or not in the filing of
proof of death, the hard fact remains that the policy matured and was payable
The rule is already settled that where a debtor could have paid his during the Japanese occupation, and under the doctrine in the Valero vs.
obligation at any time during the Japanese occupation, payment after Sycip case, supra, payment should be adjusted in accordance with the Ballantyne
liberation must be adjusted in accordance with the Ballantyne schedule scale of values.
(De Asis vs. Agdamag, 90 Phil., 249; Ang Lam vs. Peregrina, 92 Phil., 506;
Wilson vs. Berkenkotter, 92 Phil., 918; 49 Off. Gaz. No. 4 1401; Samson vs. Finding no error in the decision appealed from, and there being no question raised
Andal de Aguila, 94 Phil., 402). (Valero vs. Sycip, L-1119. May 23, 1958.) as to the adjusted amount of P500 under the Ballantyne schedule, judgment
affirmed, with costs.
Appellants vehemently invoke our ruling in the case of Salvacion B. Londres vs. The
National Life Insurance Company of the Philippines, 94 Phil., 627 wherein, although
the policy matured during the Japanese occupation, we allowed the proceeds to be
paid in the present legal tender. That case, however, is not applicable to the
present. In that case the insured, Jose Londes, and his two sons were massacred by
Japanese soldiers on February 7, 1945, while the battle for the liberation of Manila
was still raging and downtown offices, including that of the appelle, were closed for
the duration. Thus we declared:

It may therefore be said that the policy became due when the city of
Manila was still under the yoke of the enemy and became payable only
after liberation which took place on March 10, 1945, when President
Osmeña issued Proclamation No. 6 following the restoration of the civil
government by General Douglas MacArthur. And we say that the
policy became payable only after liberation even if it matured sometime
before, because before that eventuality the insurance company, appellant
27

EN BANC of June 1, 1954 to June 1, 1945 (Exh. B). The November 2, 1944, the insured Juan D.
Fernandez died in Muntinglupa Penitentiary, where he was confined as a prisoner
[G.R. No. L-13023. September 30, 1960.] of the Japanese forces that were then in control of the entire country. The August 1,
1952, the applicants, through their attorney, requiring the defendant to pay the
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner, v. TERESA DUAT VDA. amount of the policy in question (Exh. O). In response to this notification, the
DE FERNANDEZ, MANUELA FERNANDEZ and MARIA TERESA defendant expressed its readiness to fix your born of the policy in question on the
FERNANDEZ, Respondents. basis of scale Ballantyne, in the sum of P200.00 (Exh. D) obligation. On 19 July 1954
the applicant's lawyer sent another communication to the defendant to insist on
SYLLABUS payment of the full amount of the policy of P5,000.00 in currency (Exh. E), the
communication accompanying the certify death and report of autopsy of the late
John D. Fernandez promising to submit other evidence that the defendant required
1. OBLIGATIONS AND CONTRACT; PAYMENT; BALLANTYNE SCHEDULE OF VALUES; concerning the death of the deceased. The July 21, 1954, the defendant, in reply to
DOCTRINES REITERATED. — Where a debtor could have paid his obligation at any this last communication, said that did not agree to pay the full amount of P5,000.00
time during the Japanese occupation, payment of the same after liberation must be of the policy but was willing to pay the equivalent thereof in accordance with the
adjusted in accordance with the Ballantyne schedule of values. scale Ballantyne (Exh. F).

These facts were established and are supported by both parties.


DECISION

PADILLA, J.:
The applicants also proved that prior to April 1944, the late John D. Fernandez lived
Petition for a writ of certiorari to review the judgment of the Court of Appeals (C.A.
with his mother and brothers in the city of Manila. In the same month, the mother
-G. R. No. 15989-R) affirming that of the Court of First Instance of Manila (civil case
and sisters of the deceased said left Manila and went to live in Ilagan, Isabela. May
No. 23691).
1944 Enrique Fernandez, a brother of the deceased also left Manila to join his
mother and sisters in Isabela. Being alone in Manila, Juan D. Fernandez joined his
The Court of Appeals made the following findings:
friend Pablo Gabriel in a business and occupied a quarter of the Insular Life Building
as his office and was then that he acquired the policy in question. In August 1944,
This is an appeal from the decision of the Court of First Instance of Manila, part of the two friends were arrested by the Japanese as suspected guerrillas, but the
which is as follows: following month Pablo Gabriel was released. After his release Gabriel became ill
and for reasons he could not visit his office but back in October 1944, when he went
"For the foregoing, the court orders defendant The Insular Life Assurance Co., Ltd., there to collect documents and books that were in the office to keep them at his
to pay the Plaintiffs Teresa Duat Vda. Fernandez and Maria Teresa Fernandez, residence in the street Requesens. Among the documents gathered by Pablo
Represented by her mother her co-plaintiff Teresa Duat Vda. Fernandez, the sum of Gabriel appeared the insurance policy of his friend John D. Fernandez. The
P5,000.00 in Philippine currency, full face value of the policy in question. Shall Past November 2, 1944 Juan D. Fernandez died in Penitentiary Muntinglupa (Exhs. 1 and
Defendant pay the costs. " 2) and his body was collected and buried by his friend Pablo Gabriel. None of the
family members of the deceased could attend the funeral of it because they were
The 1.o. June 1944 the defendant issued the life insurance policy No. 98321 in the absent from Manila. In the last days of February 1945 the applicant Teresa Duat
amount of P5,000.00 for D. Juan Fernandez, which were designated as beneficiaries Vda. Fernandez came to Manila, from Ilagan, and this time Paul Gabriel handed the
to the applicants Teresa Duat Vda. Fernandez and Maria Tereza Fernandez mother insurance policy in question was then that the plaintiffs learned for the first time,
and sister, respectively, of the insured (Exh. A). The insured D. Juan Fernandez paid the existence of that policy and that they were designated as beneficiaries.
the defendant the sum of P265.00 in respect of insurance premium for the period
28

Off. Gaz. No. 4, 1401; Samson v. Andal de Aguila, 94 Phil., 402.) (Valero v. Sycip, L-
11119, May 29, 1958.)
These facts were not challenged by the evidence of the defendant.
. . . The delay in the presentation of proof of death does not make any difference,
The defendant admits that, really, the insured Juan D. Fernandez Muntinglupa died for it does not alter the date of maturity of the policy nor the ability of the company
in the November 2, 1944 and was buried on the 4th of that month; and that when to pay the proceeds of the insurance during the Japanese occupation. Moreover, it
he died said insured, your policy was (was) in force. This defendant proved that at is through no fault of the company that such delay was incurred. At any rate,
the time of death of the insured Fernandez Manila City was (was) still under irrespective of whether there was delay or not in the filing of proof of death, the
Japanese rule and his office remained open until 9 January 1945 when he began the hard fact remains that the policy matured and was payable during the Japanese
battle of liberation. occupation, and under the doctrine in the Valero v. Sycip case, supra, payment
should be adjusted in accordance with the Ballantyne scale of values.
Under the facts presented above, the Court of First Instance of Manila issued its
Under the Ballantyne schedule of values, in November, 1944, when the policy in
decision, part of which is which is bounded above.
question matured, P60 in Japanese military notes was the equivalent of P1 in
Philippine currency. Hence P5,000 in Japanese military notes was equivalent to
The questions raised in this case have been passed upon by this Court in the case of
P83.33 in Philippine currency.
Vda. de Fernandez v. National Life Insurance Company of the Philippines, 105 Phil.,
59; 56 Off. Gaz. 3287, concerning the same assured and beneficiaries, as follows:
The judgment under review is modified by ordering the petitioner to pay the
We find appellants’ contention untenable. In life insurance, the policy matures
respondents the sum of P83.33, without pronouncement as to costs.
either upon the expiration of the term set forth therein, in which case its proceeds
are immediately payable to the insured himself, or upon his death occurring at any
time prior to the expiration of such stipulated term, in which case, the proceeds are
payable to his beneficiaries within sixty days after their filing of proof of death (Sec.
91-A Insurance Law). In the case at bar, the policy matured upon the death of the
insured on November 2, 1944, and the obligation of the insurer to pay arose as of
that date. The sixty- day period fixed by law within which to pay the proceeds after
presentation of proof of death is merely procedural in nature, evidently to
determine the exact amount to be paid and the interest thereon to which the
beneficiaries may be entitled to collect in case of unwarranted refusal of the
company to pay, and also to enable the insurer to verify or check on the fact of
death which it may even validly waive. It is the happening of the suspensive
condition of death that renders a life policy matured and not the filing of proof of
death which, as above stated, is merely procedural, for even if such proof were
presented but it turns out later that the insured is alive, such filing does not give
maturity to the policy. The insured having died on November 2, 1944, during the
Japanese occupation, the proceeds of his policy should be adjusted accordingly,
for.

"The rule is already settled that where a debtor could have paid his obligation at
any time during the Japanese occupation, payment after liberation must be
adjusted in accordance with the Ballantyne schedule (De Asis v. Agdamag, 90 Phil.,
249; Ang Lam v. Peregrina, 92 Phil., 506; Wilson v. Berkenkotter 92 Phil., 918, 49
29

FIRST DIVISION On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the
premium and sent the corresponding notice to Pinca. 3
G.R. No. L-67835 October 12, 1987
On December 24, 1981, payment of the premium for Pinca was received by
MALAYAN INSURANCE CO., INC. (MICO), petitioner, DomingoAdora, agent of MICO. 4
vs.
GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, On January 15, 1982, Adora remitted this payment to MICO,together with other
and CORONACION PINCA, respondents. payments. 5

CRUZ, J.: On January 18, 1982, Pinca's property was completely burned. 6

When a person's house is razed, the fire usually burns down the efforts of a lifetime On February 5, 1982, Pinca's payment was returned by MICO to Adora on the
and forecloses hope for the suddenly somber future. The vanished abode becomes ground that her policy had been cancelled earlier. But Adora refused to accept it. 7
a charred and painful memory. Where once stood a home, there is now, in the
sighing wisps of smoke, only a gray desolation. The dying embers leave ashes in the In due time, Pinca made the requisite demands for payment, which MICO rejected.
heart. She then went to the Insurance Commission. It is because she was ultimately
sustained by the public respondent that the petitioner has come to us for relief.
For peace of mind and as a hedge against possible loss, many people now secure
fire insurance. This is an aleatory contract. By such insurance, the insured in effect From the procedural viewpoint alone, the petition must be rejected. It is stillborn.
wagers that his house will be burned, with the insurer assuring him against the loss,
for a fee. If the house does burn, the insured, while losing his house, wins the The records show that notice of the decision of the public respondent dated April 5,
wagers. The prize is the recompense to be given by the insurer to make good the 1982, was received by MICO on April 10, 1982. 8 On April 25, 1982, it filed a motion
loss the insured has sustained. for reconsideration, which was denied on June 4, 1982. 9 Notice of this denial was
received by MICO on June 13, 1982, as evidenced by Annex "1" duly authenticated
It would be a pity then if, having lost his house, the insured were also to lose the by the Insurance Commission. 10 The instant petition was filed with this Court on
payment he expects to recover for such loss. Sometimes it is his fault that he cannot July 2, 1982. 11
collect, as where there is a defect imputable to him in the insurance contract.
Conversely, the reason may be an unjust refusal of the insurer to acknowledge a The position of the petition is that the petition is governed by Section 416 0f the
just obligation, as has happened many times. Insurance Code giving it thirty days wthin which to appeal by certiorari to this Court.
Alternatively, it also invokes Rule 45 of the Rules of Court. For their part, the public
In the instant case the private respondent has been sustained by the Insurance and private respondents insist that the applicable law is B.P. 129, which they say
Commission in her claim for compensation for her burned property. The petitioner governs not only courts of justice but also quasi-judicial bodies like the Insurance
is now before us to dispute the decision, 1 on the ground that there was no valid Commission. The period for appeal under this law is also fifteen days, as under Rule
insurance contract at the time of the loss. 45.

The chronology of the relevant antecedent facts is as follows: The pivotal date is the date the notice of the denial of the motion for
reconsideration was received by MICO.
On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private
respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is
property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982. 2 a copy of the Order of June 14, 1982, with a signed rubber-stamped notation on the
30

upper left-hand corner that it was received on June 18, 1982, by its legal period, counted from June 13, 1982, would have ended on June 23, 1982, making
department. It does not indicate from whom. At the bottom, significantly, there is the petition filed on July 2, 1982, nine dayslate.
another signature under which are the ciphers "6-13-82," for which no explanation
has been given. Whichever law is applicable, therefore, the petition can and should be dismissed for
late filing.
Against this document, the private respodent points in her Annex "1," 13 the
authenticated copy of the same Order with a rubber-stamped notation at the On the merits, it must also fail. MICO's arguments that there was no payment of
bottom thereof indicating that it was received for the Malayan Insurance Co., Inc. premium and that the policy had been cancelled before the occurence of the loss
by J. Gotladera on "6-13-82." The signature may or may not habe been written by are not acceptable. Its contention that the claim was allowed without proof of loss
the same person who signed at the bottom of the petitioner's Annex "B." is also untenable.

Between the two dates, the court chooses to believe June 13, 1982, not only The petitioner relies heavily on Section 77 of the Insurance Code providing that:
because the numbers "6-13-82" appear on both annexes but also because it is the
date authenticated by the administrative division of the Insurance Commission. SEC. 77. An insurer is entitled to payment of the premium as soon as the
Annex "B" is at worst self-serving; at best, it might only indicate that it was received thing is exposed to the peril insured against. Notwithstanding any
on June 18, 1982, by the legal department of MICO, after it had been received agreement to the contrary, no policy or contract of insurance issued by an
earlier by some other of its personnel on June 13, 1982. Whatever the reason for insurance company is valid and binding unless and until the premium
the delay in transmitting it to the legal department need not detain us here. thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.
Under Section 416 of the Insurance Code, the period for appeal is thirty days from
notice of the decision of the Insurance Commission. The petitioner filed its motion The above provision is not applicable because payment of the premium was in fact
for reconsideration on April 25, 1981, or fifteen days such notice, and the eventually made in this case. Notably, the premium invoice issued to Pinca at the
reglementary period began to run again after June 13, 1981, date of its receipt of time of the delivery of the policy on June 7, 1981 was stamped "Payment Received"
notice of the denial of the said motion for reconsideration. As the herein petition of the amoung of P930.60 on "12-24-81" by Domingo Adora. 14 This is important
was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy because it suggests an understanding between MICO and the insured that such
by four days. payment could be made later, as agent Adora had assured Pinca. In any event, it is
not denied that this payment was actually made by Pinca to Adora, who remitted
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it the same to MICO.
is applicable, would end on June 28, 1982, or also four days from July 2, when the
petition was filed. The payment was made on December 24, 1981, and the fire occured on January 18,
1982. One wonders: suppose the payment had been made and accepted in, say,
If it was filed under B.P. 129, then, considering that the motion for reconsideration August 1981, would the commencement date of the policy have been changed to
was filed on the fifteenth day after MICO received notice of the decision, only one the date of the payment, or would the payment have retroacted to July 22, 1981? If
more day would have remained for it to appeal, to wit, June 14, 1982. That would MICO accepted the payment in December 1981 and the insured property had not
make the petition eighteen days late by July 2. been burned, would that policy not have expired just the same on July 22, 1982,
pursuant to its original terms, and not on December 24, 1982?
Indeed, even if the applicable law were still R.A. 5434, governing appeals from
administrative bodies, the petition would still be tardy. The law provides for a fixed It would seem from MICO's own theory, that the policy would have become
period of ten days from notice of the denial of a seasonable motion for effective only upon payment, if accepted and so would have been valid only from
reconsideration within which to appeal from the decision. Accordingly, that ten-day December 24, 1981m but only up to July 22, 1981, according to the original terms.
31

In others words, the policy would have run for only eight months although the We do not share MICO's view that there was no existing insurance at the time of
premium paid was for one whole year. the loss sustained by Pinca because her policy never became effective for non-
payment of premium. Payment was in fact made, rendering the policy operative as
It is not disputed that the preium was actually paid by Pinca to Adora on December of June 22, 1981, and removing it from the provisions of Article 77, Thereafter, the
24, 1981, who received it on behalf of MICO, to which it was remitted on January policy could be cancelled on any of the supervening grounds enumerated in Article
15, 1982. What is questioned is the validity of Pinca's payment and of Adora's 64 (except "nonpayment of premium") provided the cancellation was made in
authority to receive it. accordance therewith and with Article 65.

MICO's acknowledgment of Adora as its agent defeats its contention that he was Section 64 reads as follows:
not authorized to receive the premium payment on its behalf. It is clearly provided
in Section 306 of the Insurance Code that: SEC. 64. No policy of insurance other than life shall be cancelled by the
insurer except upon prior notice thereof to the insured, and no notice of
SEC. 306. xxx xxx xxx cancellation shall be effective unless it is based on the occurrence, after
the effective date of the policy, of one or more of the following:
Any insurance company which delivers to an insurance agant or insurance
broker a policy or contract of insurance shall be demmed to have (a) non-payment of premium;
authorized such agent or broker to receive on its behalf payment of any
premium which is due on such policy or contract of insurance at the time (b) conviction of a crime arising out of acts increasing the hazard
of its issuance or delivery or which becomes due thereon. insured against;

And it is a well-known principle under the law of agency that: (c) discovery of fraud or material misrepresentation;

Payment to an agent having authority to receive or collect (d) discovery of willful, or reckless acts or commissions increasing
payment is equivalent to payment to the principal himself; such the hazard insured against;
payment is complete when the money delivered is into the
agent's hands and is a discharge of the indebtedness owing to the (e) physical changes in the property insured which result in the
principal. 15 property becoming uninsurable;or

There is the petitioner's argument, however, that Adora was not authorized to (f) a determination by the Commissioner that the continuation of
accept the premium payment because six months had elapsed since the issuance by the policy would violate or would place the insurer in violation of
the policy itself. It is argued that this prohibition was binding upon Pinca, who made this Code.
the payment to Adora at her own riskl as she was bound to first check his authority
to receive it. 16 As for the method of cancellation, Section 65 provides as follows:

MICO is taking an inconsistent stand. While contending that acceptance of the SEC. 65. All notices of cancellation mentioned in the preceding section shall
premium payment was prohibited by the policy, it at the same time insists that the be in writing, mailed or delivered to the named insured at the address
policy never came into force because the premium had not been paid. One surely, shown in the policy, and shall state (a) which of the grounds set forth in
cannot have his cake and eat it too. section sixty-four is relied upon and (b) that, upon written request of the
named insured, the insurer will furnish the facts on which the cancellation
is based.
32

A valid cancellation must, therefore, require concurrence of the following pay on that date, it was because she honestly believed that the policy issued on
conditions: June 7, 1981, was still in effect and she was willing to make her payment retroact to
July 22, 1981, its stipulated commencement date. After all, agent Adora was very
(1) There must be prior notice of cancellation to the insured; 17 accomodating and had earlier told her "to call him up any time" she was ready with
her payment on the policy earlier issued. She was obviously only reciprocating in
(2) The notice must be based on the occurrence, after the effective date of the kind when she paid her premium for the period beginning July 22, 1981, and not
policy, of one or more of the grounds mentioned;18 December 24, 1981.

(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, MICO's suggests that Pinca knew the policy had already been cancelled and that
(c) at the address shown in the policy; 19 when she paid the premium on December 24, 1981, her purpose was "to renew it."
As this could not be done by the agent alone under the terms of the original policy,
the renewal thereof did not legally bind MICO. which had not ratified it. To support
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon
this argument, MICO's cites the following exchange:
and (b) that upon written request of the insured, the insurer will furnish the facts
on which the cancellation is based. 20
Q: Now, Madam Witness, on December 25th you made the alleged payment. Now,
my question is that, did it not come to your mind that after the lapse of six (6)
MICO's claims it cancelled the policy in question on October 15, 1981, for non-
months, your policy was cancelled?
payment of premium. To support this assertion, it presented one of its employees,
who testified that "the original of the endorsement and credit memo" —
presumably meaning the alleged cancellation — "were sent the assured by mail A: I have thought of that but the agent told me to call him up at anytime.
through our mailing section" 21 However, there is no proof that the notice,
assuming it complied with the other requisites mentioned above, was actually Q: So if you thought that your policy was already intended to revive cancelled
mailed to and received by Pinca. All MICO's offers to show that the cancellation was policy?
communicated to the insured is its employee's testimony that the said cancellation
was sent "by mail through our mailing section." without more. The petitioner then A: Misleading, Your Honor.
says that its "stand is enervated (sic) by the legal presumption of regularity and due
performance of duty." 22(not realizing perhaps that "enervated" means Hearing Officer: The testimony of witness is that, she thought of that.
"debilitated" not "strengthened").
Q: I will revise the question. Now, Mrs. Witness, you stated that you thought the
On the other hand, there is the flat denial of Pinca, who says she never received the policy was cancelled. Now, when you made the payment of December 24, 1981,
claimed cancellation and who, of course, did not have to prove such denial your intention was to revive the policy if it was already cancelled?
Considering the strict language of Section 64 that no insurance policy shall be
cancelled except upon prior notice, it behooved MICO's to make sure that the A: Yes, to renew it. 23
cancellation was actually sent to and received by the insured. The presumption
cited is unavailing against the positive duty enjoined by Section 64 upon MICO and
A close study of the above transcript will show that Pinca meant to renew the
the flat denial made by the private respondent that she had received notice of the
policy if it had really been already cancelled but not if it was stffl effective. It was all
claimed cancellation.
conditional. As it has not been shown that there was a valid cancellation of the
policy, there was consequently no need to renew it but to pay the premium
It stands to reason that if Pinca had really received the said notice, she would not thereon. Payment was thus legally made on the original transaction and it could be,
have made payment on the original policy on December 24, 1981. Instead, she and was, validly received on behalf of the insurer by its agent Adora. Adora.
would have asked for a new insurance, effective on that date and until one year
later, and so taken advantage of the extended period. The Court finds that if she did
33

incidentally, had not been informed of the cancellation either and saw no reason SO ORDERED.
not to accept the said payment.
Lessons Applicable: Authority to Receive Payment/Effect of Payment (Insurance)
The last point raised by the petitioner should not pose much difficulty. The Laws Applicable: Article 64, Article 65, Section 77, Section 306 of the Insurance
valuation fixed in fire insurance policy is conclusive in case of total loss in the
Code
absence of fraud, 24 which is not shown here. Loss and its amount may be
determined on the basis of such proof as may be offered by the insured, which FACTS:
need not be of such persuasiveness as is required in judicial proceedings. 25 If, as in  June 7, 1981: Malayan insurance co., inc. (MICO) issued to Coronacion Pinca,
this case, the insured files notice and preliminary proof of loss and the insurer fails Fire Insurance Policy for her property effective July 22, 1981, until July 22, 1982
to specify to the former all the defects thereof and without unnecessary delay, all
objections to notice and proof of loss are deemed waived under Section 90 of the  October 15,1981: MICO allegedly cancelled the policy for non-payment, of the
Insurance Code.
premium and sent the corresponding notice to Pinca
 December 24, 1981: payment of the premium for Pinca was received by
The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to
the extent of Pinca's loss should be considered sufficient. Notably,MICO submitted Domingo Adora, agent of MICO
no evidence to the contrary nor did it even question the extent of the loss in its  January 15, 1982: Adora remitted this payment to MICO,together with other
answer before the Insurance Commission. It is also worth observing that Pinca's payments
property was not the only building bumed in the fire that razed the commercial  January 18, 1982: Pinca's property was completely burned
district of Lao-ang, Samar, on January 18, 1982. 27  February 5, 1982: Pinca's payment was returned by MICO to Adora on the
ground that her policy had been cancelled earlier but Adora refused to accept
There is nothing in the Insurance Code that makes the participation of an adjuster
it and instead demanded for payment
in the assessment of the loss imperative or indespensable, as MICO suggests.
Section 325, which it cites, simply speaks of the licensing and duties of adjusters.  Under Section 416 of the Insurance Code, the period for appeal is thirty days
from notice of the decision of the Insurance Commission. The petitioner filed its
We see in this cases an obvious design to evade or at least delay the discharge of a motion for reconsideration on April 25, 1981, or fifteen days such notice, and
just obligation through efforts bordering on bad faith if not plain duplicity, We note the reglementary period began to run again after June 13, 1981, date of its
that the motion for reconsideration was filed on the fifteenth day from notice of receipt of notice of the denial of the said motion for reconsideration. As the
the decision of the Insurance Commission and that there was a feeble attempt to
herein petition was filed on July 2, 1981, or nineteen days later, there is no
show that the notice of denial of the said motion was not received on June 13,
question that it is tardy by four days.
1982, to further hinder the proceedings and justify the filing of the petition with this
Court fourteen days after June 18, 1982. We also look askance at the alleged  Insurance Commission: favored Pinca
cancellation, of which the insured and MICO's agent himself had no knowledge, and  MICO appealed
the curious fact that although Pinca's payment was remitted to MICO's by its agent
on January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, ISSUE: W/N MICO should be liable because its agent Adora was authorized to
after it presumably had learned of the occurrence of the loss insured against on
receive it
January 18, 1982. These circumstances make the motives of the petitioner highly
suspect, to say the least, and cast serious doubts upon its candor and bona fides.
HELD: YES. petition is DENIED
WHEREFORE, the petition is DENIED. The decision of the Insurance Commission
dated April 10, 1981, and its Order of June 4, 1981, are AFFIRMED in full, with costs  SEC. 77. An insurer is entitled to payment of the premium as soon as the thing
against the petitioner. This decision is immediately executory. is exposed to the peril insured against. Notwithstanding any agreement to the
34

contrary, no policy or contract of insurance issued by an insurance company is


valid and binding unless and until the premium thereof has been paid, except in  SEC. 65. All notices of cancellation mentioned in the preceding section shall be
the case of a life or an industrial life policy whenever the grace period provision in writing, mailed or delivered to the named insured at the address shown in
applies. the policy, and shall state (a) which of the grounds set forth in section sixty-four
 SEC. 306. xxx xxx xxx is relied upon and (b) that, upon written request of the named insured, the
insurer will furnish the facts on which the cancellation is based.
Any insurance company which delivers to an insurance agant or insurance broker a  A valid cancellation must, therefore, require concurrence of the following
policy or contract of insurance shall be demmed to have authorized such agent or conditions:
broker to receive on its behalf payment of any premium which is due on such policy
or contract of insurance at the time of its issuance or delivery or which becomes (1) There must be prior notice of cancellation to the insured;
due thereon.
 Payment to an agent having authority to receive or collect payment is (2) The notice must be based on the occurrence, after the effective date of the
equivalent to payment to the principal himself; such payment is complete when policy, of one or more of the grounds mentioned;
the money delivered is into the agent's hands and is a discharge of the
indebtedness owing to the principal.
 SEC. 64. No policy of insurance other than life shall be cancelled by the insurer (3) The notice must be (a) in writing, (b) mailed, or delivered to the named
except upon prior notice thereof to the insured, and no notice of cancellation insured, (c) at the address shown in the policy;
shall be effective unless it is based on the occurrence, after the effective date of
the policy, of one or more of the following: (4) It must state (a) which of the grounds mentioned in Section 64 is relied upon
and (b) that upon written request of the insured, the insurer will furnish the facts
(a) non-payment of premium; on which the cancellation is based.
 All MICO's offers to show that the cancellation was communicated to the
(b) conviction of a crime arising out of acts increasing the hazard insured against; insured is its employee's testimony that the said cancellation was sent "by mail
through our mailing section." without more
(c) discovery of fraud or material misrepresentation;  It stands to reason that if Pinca had really received the said notice, she would
not have made payment on the original policy on December 24, 1981. Instead,
(d) discovery of willful, or reckless acts or commissions increasing the hazard she would have asked for a new insurance, effective on that date and until one
insured against; year later, and so taken advantage of the extended period.
 Incidentally, Adora had not been informed of the cancellation either and saw no
(e) physical changes in the property insured which result in the property becoming reason not to accept the said payment
uninsurable;or  Although Pinca's payment was remitted to MICO's by its agent on January 15,
1982, MICO sought to return it to Adora only on February 5, 1982, after it
(f) a determination by the Commissioner that the continuation of the policy presumably had learned of the occurrence of the loss insured against on
would violate or would place the insurer in violation of this Code. January 18, 1982 make the motives of MICO highly suspicious

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


35

FACTS:

Coronacion Pinca insured her property for Php 14,000 with Malayan
Insurance Company(MICO) for the period July 22, 1981 to July 22,
1982. On October 15, 1981, MICO cancelled the policy for non-payment. On
December 24, 1981, Domingo Adora, the agent accepted Pinca's payment and
remitted to MICO. On January 18, 1982, Pinca's property was completely
burned . She then demanded from MICO for payment of the insured but the
latter declined on the ground that the policy had been cancelled due to non-
payment. Pinca went to the Insurance Commission, she was ultimately sustained by
the public respondent, thus a petition was filed before the SC.

ISSUE:

Whether or not MICO should be held liable to pay for the insured property.

RULING:

MICO's acknowledgment of Adora as its agent defeats its contention that he was
not authorized to receive the premium payment on its behalf. It is clearly provided
in Section 306 of the Insurance Code that: SEC. 306. xxx xxx xxx Any insurance
company which delivers to an insurance agent or insurance broker a policy
or contract of insurance shall be deemed to have authorized such agent or broker
to receive on its behalf payment of any premium which is due on such policy or
contract of insurance at the time of its issuance or delivery or which
becomes due thereon. And it is a well-known principle under the law of agency
that: Payment to an agent having authority to receive or collect payment
is equivalent to payment to the principal himself; such payment is complete
when the money delivered is into the agent's hands and is a discharge of the
indebtedness owing to the principal. The SC denied the petition and affirmed the
decision of the Insurance Commission.
36

SECOND DIVISION On January 24, 1964, counsel for the petitioner sent a letter of demand to private
respondent for indemnity due to the loss of property by fire under the
G.R. No. L-41014 November 28, 1988 endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17).

PACIFIC BANKING CORPORATION, petitioner, On January 28, 1964, private respondent informed counsel for the petitioner that it
vs. was not yet ready to accede to the latter's demand as the former is awaiting the
COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents. final report of the insurance adjuster, H.H. Bayne Adjustment Company (Brief for
Plaintiff-Appellee, pp. 17-18).
PARAS, J.:
On March 25, 1964, the said insurance adjuster notified counsel for the petitioner
This is a petition for review on certiorari of the decision of respondent Court of that the insured under the policy had not filed any claim with it, nor submitted
Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Oriental proof of loss which is a clear violation of Policy Condition No.11, and for which
Assurance Corporation", which set aside the decision of the Court of First Instance reason, determination of the liability of private respondent could not be had (Supra,
(CFI) of Manila, ** which had in turn granted the complaint for a sum of money in pp. 19-20).
Civil Case No. 56889.
On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the
As gathered from the records, the undisputed facts of this case are as follows: insurance adjuster to verify from the records of the Bureau of Customs the entries
of merchandise taken into the customs bonded warehouse razed by fire as a
reliable proof of loss (Supra, pp. 21-22). For failure of the insurance company to pay
On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued
the loss as demanded, petitioner (plaintiff therein) on April 28, 1 964, filed in the
to the Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured,
court a quo an action for a sum of money against the private respondent, Oriental
for brevity), by which private respondent Oriental Assurance Corporation bound
Assurance Corporation, in the principal sum of P61,000.00 issued in favor of
itself to indemnify the insured for any loss or damage, not exceeding P61,000.00,
Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-36).
caused by fire to its property consisting of stocks, materials and supplies usual to a
shirt factory, including furniture, fixtures, machinery and equipment while
contained in the ground, second and third floors of the building situated at number On May 25, 1964, private respondent raised the following defenses in its answer to
256 Jaboneros St., San Nicolas, Manila, for a period of one year commencing from wit: (a) lack of formal claim by insured over the loss and (b) premature filing of the
that date to October 21, 1964. suit as neither plaintiff nor insured had submitted any proof of loss on the basis of
which defendant would determine its liability and the amount thereof, either to the
private respondent or its ad . adjuster H.H. Bayne Adjustment Co., both in violation
The insured was at the time of the issuance of the policy and is up to this time, a
of Policy Condition No.11 (Record on Appeal, pp. 37-38).
debtor of petitioner in the amount of not less than Eight Hundred Thousand Pesos
(P800,000.00) and the goods described in the policy were held in trust by the
insured for the petitioner under thrust receipts (Record on Appeal, p. 4). At the trial, petitioner presented in evidence Exhibit "H", which is a communication
dated December 22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co. to
Asian Surety Insurance Co., Inc., revealing undeclared co-insurances with the
Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties
following: P30,000.00 with Wellington Insurance; P25,000. 00 with Empire Surety
insured, with the knowledge and consent of private respondent to the effect that
and P250,000.00 with Asian Surety; undertaken by insured Paramount on the same
"loss if any under this policy is payable to the Pacific Banking Corporation".
property covered by its policy with private respondent whereas the only co-
insurances declared in the subject policy are those of P30,000.00 with Malayan
On January 4, 1964, while the aforesaid policy was in full force and effect, a fire
P50,000.00 with South Sea and P25.000.00 with Victory (Brief for the Defendant pp.
broke out on the subject premises destroying the goods contained in its ground and
13-14).
second floors (Record on Appeal, p.5)
37

It will be noted that the defense of fraud and/or violation of Condition No. 3 in the I
Policy, in the form of non-declaration of co-insurances which was not pleaded in the
answer was also not pleaded in the Motion to Dismiss. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN
CONCLUDING FRAUD FROM THE BARE FACT THAT THE INSURED PARAMOUNT
At any rate, on June 30, 1967, the trial court denied private respondent's motion on PROCURED ADDITIONAL INSURANCES OTHER THAN THOSE STATED IN THE POLICY
the ground that the defense of lack of proof of loss or defects therein was raised for IN SPITE OF THE EXISTENCE OF CONTRARY PRESUMPTIONS AND ADMITTED FACT
the first time after the commencement of the suit and that it must be deemed to AND CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF SAID CONCLUSION.
have waived the requirement of proof of loss (Sections 83 and 84, Insurance Act;
Record on Appeal, p. 61). (a) The respondent Court did not consider the legal presumption against the
existence of fraud, which should be established with such quantum of proof as is
On September 9, 1967, the case was considered submitted for decision from which required for any crime.
order private respondent filed a motion for reconsideration to set the case or
further reception of private respondent's additional evidence, "in order to prove (b) The record of the case is bereft of proof of such fraud.
that 'insured has committed a violation of condition No. 3 of the policy in relation to
the other Insurance Clause.' " (Record on Appeal, pp. 61-69). (c) The private respondent insurer did not even plead or in anywise raise fraud as a
defense in its answer or motion to dismiss and, therefore, it should have been
On September 30,1967, the case was set for the continuation of the hearing for the considered waived.
reception merely of the testimony of Alejandro Tan Gatue, Manager of the
Adjustment Co., over the vehement opposition of the petitioner (Record on Appeal, (d) The total amount of insurance procured by the insured from the different
p. 129). companies amounted to hardly onehalf (½) of the value of the goods insured.

On April 18, 1 968, the trial court rendered a decision adjudging private respondent II
liable to the petitioner under the said contract of insurance, the dispositive portion
of which reads:
RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON
THE PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the THEREON SHOULD BE CONSIDERED AFFIRMED.
plaintiff P61,000.00, with interest at the rate of 8% per annum from January 4,
1964, to April 28, 1964, and 12% from April 29, 1964, until the amount is fully paid,
III
P6,100.00, as attorney's fees, and the costs.
THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN
SO ORDERED. (Record on Appeal, pp. 140-141)
HOLDING THAT THE ACTION WAS PREMATURELY BROUGHT BECAUSE THE
REQUIRED CLAIM UNDER THE INSURANCE LAW HAS NOT BEEN FILED,
On appeal, the Court of Appeals reversed the decision of the trial court (Decision NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF PETITIONER-APPELLANT'S
promulgated on April 23, 1975, Rollo, pp. 21-33). LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS
AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY WAIVED
Petitioner filed a motion for reconsideration of the said decision of the respondent THE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER-APPELLANT FOR ITS
Court of Appeals, but this was denied on July 3,1975 for lack of merit (Rollo, pp. 54- FAILURE TO CALL THE ATTENTION OF THE LAYER TO SUCH ALLEGED DEFECTS AND
67), resulting in this petition with the following assigned errors; FOR ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING.

IV
38

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT is not shown to vary or add to the contract, or to terminate a contract which has
INTERPRETING THE PROVISIONS OF THE POLICY LIBERALLY IN FAVOR OF THE once been made, but to show that no contract has ever existed (Tolentino,
HEREIN PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT ONLY THE Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent
ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED. contract is one which has no force and effect from the very beginning, as if it had
never been entered into, and which cannot be validated either by time or by
V ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]).

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN As the insurance policy against fire expressly required that notice should be given
DISMISSING THE CASE AND IN NOT AFFIRMING THE APPEALED DECISION OF THE by the insured of other insurance upon the same property, the total absence of
TRIAL COURT. (Brief for Petitioners, pp. 1-3) such notice nullifies the policy (Sta. Ana v. Commercial Union Assurance Co., 55 Phil.
333 [1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA
The crux of the controversy centers on two points: (a) unrevealed co-insurances 276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA 432 [1974]).
which violated policy conditions No. 3 and (b) failure of the insured to file the
required proof of loss prior to court action. Policy Condition No. 3 explicitly The argument that notice of co-insurances may be made orally is preposterous and
provides: negates policy condition No. 20 which requires every notice and other
communications to the insurer to be written or printed.
3. The Insured shall give notice to the Company of any insurance already effected,
or which may subsequently be effected, covering any of the property hereby Petitioner points out that Condition No. 3 in the policy in relation to the "other
insured, and unless such notice be given and the particulars of such insurance or insurance clause" supposedly to have been violated, cannot certainly defeat the
insurances be stated in or endorsed on this Policy by or on behalf of the Company right of the petitioner to recover the insurance as mortgagee/assignee. Particularly
before the occurrence of any loss or damage, all benefit under this policy shall be referring to the mortgage clause of the policy, petitioner argues that considering
forfeited. (Record on Appeal, p. 12) the purpose for which the endorsement or assignment was made, that is, to protect
the mortgagee/assignee against any untoward act or omission of the insured, it
It is not disputed that the insured failed to reveal before the loss three other would be absurd to hold that petitioner is barred from recovering the insurance on
insurances. As found by the Court of Appeals, by reason of said unrevealed account of the alleged violation committed by the insured (Rollo, Brief for the
insurances, the insured had been guilty of a false declaration; a clear petitioner, pp, 33-35).
misrepresentation and a vital one because where the insured had been asked to
reveal but did not, that was deception. Otherwise stated, had the insurer known It is obvious that petitioner has missed all together the import of subject mortgage
that there were many co-insurances, it could have hesitated or plainly desisted clause which specifically provides:
from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo,
p. 25). Mortgage Clause

Petitioner's contention that the allegation of fraud is but a mere inference or Loss, if any, under this policy, shall be payable to the PACIFIC BANKING
suspicion is untenable. In fact, concrete evidence of fraud or false declaration by CORPORATION Manila mortgagee/trustor as its interest may appear, it being
the insured was furnished by the petitioner itself when the facts alleged in the hereby understood and agreed that this insurance as to the interest of the
policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are mortgagee/trustor only herein, shall not be invalidated by any act or neglect—
materially different from the actual number of co-insurances taken over the subject except fraud or misrepresentation, or arson—of the mortgagor or owner/trustee of
property. Consequently, "the whole foundation of the contract fails, the risk does the property insured; provided, that in case the mortgagor or owner/ trustee
not attach and the policy never becomes a contract between the parties. neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand
Representations of facts are the foundation of the contract and if the foundation pay the same. (Rollo, p. 26)
does not exist, the superstructure does not arise. Falsehood in such representations
39

The paragraph clearly states the exceptions to the general rule that insurance specifications, books, vouchers, invoices, duplicates or copies thereof,
as to the interest of the mortgagee, cannot be invalidated; namely: fraud, or documents, proofs and information with respect to the claim". (Record on
misrepresentation or arson. As correctly found by the Court of Appeals, Appeal, pp. 18-20).
concealment of the aforecited
co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, The evidence adduced shows that twenty-four (24) days after the fire,
p. 27). petitioner merely wrote letters to private respondent to serve as a notice of
loss, thereafter, the former did not furnish the latter whatever pertinent
Undoubtedly, it is but fair and just that where the insured who is primarily documents were necessary to prove and estimate its loss. Instead, petitioner
entitled to receive the proceeds of the policy has by its fraud and/or shifted upon private respondent the burden of fishing out the necessary
misrepresentation, forfeited said right, with more reason petitioner which is information to ascertain the particular account of the articles destroyed by fire
merely claiming as indorsee of said insured, cannot be entitled to such as well as the amount of loss. It is noteworthy that private respondent and its
proceeds. adjuster notified petitioner that insured had not yet filed a written claim nor
submitted the supporting documents in compliance with the requirements set
Petitioner further stressed that fraud which was not pleaded as a defense in forth in the policy. Despite the notice, the latter remained unheedful. Since the
private respondent's answer or motion to dismiss, should be deemed to have required claim by insured, together with the preliminary submittal of relevant
been waived. documents had not been complied with, it follows that private respondent
could not be deemed to have finally rejected petitioner's claim and therefore
It will be noted that the fact of fraud was tried by express or at least implied the latter's cause of action had not yet arisen. Compliance with condition No.
consent of the parties. Petitioner did not only object to the introduction of 11 is a requirement sine qua non to the right to maintain an action as prior
evidence but on the contrary, presented the very evidence that proved its thereto no violation of petitioner's right can be attributable to private
existence. respondent. This is so, as before such final rejection, there was no real
necessity for bringing suit. Petitioner should have endeavored to file the formal
claim and procure all the documents, papers, inventory needed by private
Be that as it may, it is established that the Supreme Court has ample authority
respondent or its adjuster to ascertain the amount of loss and after compliance
to give beyond the pleadings where in the interest of justice and the promotion
await the final rejection of its claim. Indeed, the law does not encourage
of public policy, there is a need to make its own finding to support its
unnecessary litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p.
conclusion. Otherwise stated, the Court can consider a fact which surfaced only
701, supra).<äre||anº•1àw>
after trial proper (Maharlika Publishing Corp. v. Tagle, 142 SCRA 561 [1986]).

Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof
Generally, the cause of action on the policy accrues when the loss occurs, But
was warranted under the circumstances. While it is a cardinal principle of
when the policy provides that no action shall be brought unless the claim is first
insurance law that a policy or contract of insurance is to be construed liberally
presented extrajudicially in the manner provided in the policy, the cause of
in favor of the insured and strictly as against the insurer company (Eagle Star
action will accrue from the time the insurer finally rejects the claim for
Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co., Inc. v. The
payment (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]).
Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v. CA,
145 SCRA 533 [1986]), yet, contracts of insurance, like other contracts, are to
In the case at bar, policy condition No. 11 specifically provides that the insured
be construed according to the sense and meaning of the terms which the
shall on the happening of any loss or damage give notice to the company and
parties themselves have used. If such terms are clear and unambiguous, they
shall within fifteen (15) days after such loss or damage deliver to the private
must be taken and understood in their plain, ordinary and popular sense
respondent (a) a claim in writing giving particular account as to the articles or
(Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing
goods destroyed and the amount of the loss or damage and (b) particulars of all
Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341
other insurances, if any. Likewise, insured was required "at his own expense to
produce, procure and give to the company all such further particulars, plans,
40

[1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311 [1986]; Paramount Shirt is debtor of Pacific Banking amounting to Php800,000. Goods in
Herrera v. Petrophil Corp., 146 SCRA 385 [1986]). policy were held in trust by Paramount for Pacific under thrust receipts. Fire broke
out on 4 January 1964.
Contracts of insurance are contracts of indemnity upon the terms and
conditions specified in the policy. The parties have a right to impose such Pacific sent letter of demand to Oriental. Insurance Adjuster of Oriental notified
reasonable conditions at the time of the making of the contract as they may
Pacific to submit proof of loss pursuant to Policy Condition 11. Pacific did not
deem wise and necessary. The agreement has the force of law between the
parties. The terms of the policy constitute the measure of the insurer's liability, accede but asked Insurance Adjuster to verify records form Bureau of Customs.
and in order to recover, the insured must show himself within those terms. The
compliance of the insured with the terms of the policy is a condition precedent Pacific filed for sum of money against Oriental. Oriental alleged that Pacific
to the light of recovery (Stokes v. Malayan Insurance Co., Inc., 127 SCRA 766 prematurely filed a suit, for neither filing a formal claim over loss pursuant to policy
[1984]). nor submitting any proof of loss.

It appearing that insured has violated or failed to perform the conditions under Trial court decided in favor of Pacific. Decision based on technicality. The defense of
No. 3 and 11 of the contract, and such violation or want of performance has lack of proof of loss and defects were raised for the 1st time. (On presentation of
not been waived by the insurer, the insured cannot recover, much less the evidences by Pacific, it was revealed there was violation of Condition No.3, there
herein petitioner. Courts are not permitted to make contracts for the parties; were undeclared co-insurances under same property –Wellington, Empire, Asian.
the function and duty of the courts is simply to enforce and carry out the
The only declared co-insurances were Malayan, South Sea, and Victory)
contracts actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915];
Union Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p. 276 supra).
CA reversed decision. Concealment of other co-insurances is a misrepresentation
Finally, the established rule in this jurisdiction that findings of fact of the Court and can easily be fraud.
of Appeals when supported by substantial evidence, are not reviewable on
appeal by certiorari, deserves reiteration. Said findings of the appellate court Issues:
are final and cannot be disturbed by the Supreme Court except in certain cases (1) Whether or not unrevealed con-insurances is a violation of Policy Condition
Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA 480 [1982] Director No.3
of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982];
Sacay v. Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 (2) Whether or not there was premature filing of action
[1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]).
Held:
PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the
(1) Yes. Policy Condition 3 provides that the insured must give notice of any
decision appealed from is AFFIRMED. No costs.
insurance already in effect or subsequently be in effect covering same property
being insured. Failure to do so, the policy shall be forfeited.
SO ORDERED.

Failure to reveal before the loss of the 3 other insurances is a clear


Facts: An open Fire Policy issued to Paramount Shirt Manufacturing for Php61,000
misrepresentation or a false declaration. The material fact was asked for but was
on the following: stocks, materils, supplies, furniture, fixture, machinery, equipment
not revealed. Representations of facts are the foundations of the contract. Pacific
contained on the 1st to 3rd floors. Insurance is for a year starting 21 OCTOBER
itself provided for the evidences in trial court that proved existence of
1964.
misrepresentation.
41

(2) Yes. Policy Condition 11 is a sine qua non requirement for maintaining action. It The defense of fraud, in the form of non-declaration of co-insurances which was not
requires that documents necessary to prove and estimate the loss should be pleaded in the answer, was also not pleaded in the Motion to Dismiss.
included with notice of loss. Pacific failed to submit formal claim of loss with The trial court denied the respondent’s motion. Oriental filed another motion to
supporting documents but shifted the burden to the insurance company. Failing to include additional evidence of the co-insurance which could amount to fraud.
submit claimis failure for insurance company to reject claim. Thus, a lack of cause The trial court still made Oriental liable for P 61,000. The CA reversed the trial court
of action to file suit. decision. Pacific Banking filed a motion for reconsideration of the said decision of
the respondent Court of Appeals, but this was denied for lack of merit.
Furthermore, the mortgage clause in the policy specifically providesthat the policy
Issues:
is invalidated by reasons of FRAUD, MISREPRESENTATION and FRAUD. Concealment
1. WON unrevealed co-insurances Violated policy conditions No. 3
can easily be fraud or misrepresentation. 2. WON the insured failed to file the required proof of loss prior to court action.

The insured – PARAMOUNT is not entitled to proceeds. Moreso, Pacific as indorsee Held: Yes. Petition dismissed.
of policy is not entitled.
Ratio:
Facts: 1. Policy Condition No. 3 explicitly provides:
An open fire insurance policy, was issued to Paramount Shirt Manufacturing by 3. The Insured shall give notice to the Company of any insurance already effected,
Oriental Assurance Corporation to indemnify P61,000.00, caused by fire to the or which may subsequently be effected, covering any of the property hereby
factory’s stocks, materials and supplies. insured, and unless such notice be given and the particulars of such insurance or
The insured was a debtor of Pacific Banking in the amount of (P800,000.00) and the insurances be stated in or endorsed on this Policy by or on behalf of the Company
goods described in the policy were held in trust by the insured for Pacific Banking before the occurrence of any loss or damage, all benefit under this policy shall be
under trust receipts. forfeited.
The policy was endorsed to Pacific Banking as mortgagee/ trustor of the properties The insured failed to reveal before the loss three other insurances. Had the insurer
insured, with the knowledge and consent of private respondent to the effect that known that there were many co-insurances, it could have hesitated or plainly
"loss if any under this policy is payable to the Pacific Banking Corporation". desisted from entering into such contract. Hence, the insured was guilty of clear
A fire broke out on the premises destroying the goods contained in the building. fraud.
The bank sent a letter of demand to Oriental for indemnity. Concrete evidence of fraud or false declaration by the insured was furnished by the
The company wasn’t ready to give since it was awaiting the adjuster’s report. petitioner itself when the facts alleged in the policy under clauses "Co-Insurances
The company then made an excuse that the insured had not filed any claim with it, Declared" and "Other Insurance Clause" are materially different from the actual
nor submitted proof of loss which is a clear violation of Policy Condition No.11, as a number of co-insurances taken over the subject property.
result, determination of the liability of private respondent could not be made. As the insurance policy against fire expressly required that notice should be given
Pacific Banking filed in the trial court an action for a sum of money for P61,000.00 by the insured of other insurance upon the same property, the total absence of
against Oriental Assurance. such notice nullifies the policy.
At the trial, petitioner presented communications of the insurance adjuster to Asian Petitioner points out that Condition No. 3 in the policy in relation to the "other
Surety revealing undeclared co-insurances with the following: P30,000 with insurance clause" supposedly to have been violated, cannot certainly defeat the
Wellington Insurance; P25,000 with Empire Surety and P250,000 with Asian Surety right of the petitioner to recover the insurance as mortgagee/assignee. Hence, they
undertaken by insured Paramount on the same property covered by its policy with claimed that the purpose for which the endorsement or assignment was made was
Oriental whereas the only co-insurances declared in the subject policy are those of to protect the mortgagee/assignee against any untoward act or omission of the
P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 with Victory. insured. It would be absurd to hold that petitioner is barred from recovering the
insurance on account of the alleged violation committed by the insured.
42

It is obvious that petitioner has missed all together the import of subject mortgage It appearing that insured has violated or failed to perform the conditions under No.
clause which specifically provides: 3 and 11 of the contract, and such violation or want of performance has not been
“Loss, if any, under this policy, shall be payable to the PACIFIC BANKING waived by the insurer, the insured cannot recover, much less the herein petitioner.
CORPORATION Manila mortgagee/trustor as its interest may appear, it being
hereby understood and agreed that this insurance as to the interest of the
mortgagee/trustor only herein, shall not be invalidated by any act or neglect—
except fraud or misrepresentation, or arson—of the mortgagor or owner/trustee of
the property insured; provided, that in case the mortgagor or owner/ trustee
neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand
pay the same.”
The paragraph clearly states the exceptions to the general rule that insurance as
to the interest of the mortgagee, cannot be invalidated; namely: fraud, or
misrepresentation or arson. Concealment of the aforecited co-insurances can easily
be fraud, or in the very least, misrepresentation.
Undoubtedly, it is but fair and just that where the insured who is primarily entitled
to receive the proceeds of the policy has by its fraud and/or misrepresentation,
forfeited said right.
Petitioner further stressed that fraud which was not pleaded as a defense in private
respondent's answer or motion to dismiss, should be deemed to have been waived.
It will be noted that the fact of fraud was tried by express or at least implied
consent of the parties. Petitioner did not only object to the introduction of evidence
but on the contrary, presented the very evidence that proved its existence.
2. Generally, the cause of action on the policy accrues when the loss occurs, But
when the policy provides that no action shall be brought unless the claim is first
presented extrajudicially in the manner provided in the policy, the cause of
actionwill accrue from the time the insurer finally rejects the claim for payment
In the case at bar, policy condition No. 11 specifically provides that the insured shall
on the happening of any loss or damage give notice to the company and shall within
fifteen (15) days after such loss or damage deliver to the private respondent (a) a
claim in writing giving particular account as to the articles or goods destroyed and
the amount of the loss or damage and (b) particulars of all other insurances, if any.
Twenty-four days after the fire did petitioner merely wrote letters to private
respondent to serve as a notice of loss. It didn’t even furnish other documents.
Instead, petitioner shifted upon private respondent the burden of fishing out the
necessary information to ascertain the particular account of the articles destroyed
by fire as well as the amount of loss. Since the required claim by insured, together
with the preliminary submittal of relevant documents had not been complied with,
it follows that private respondent could not be deemed to have finally rejected
petitioner's claim and therefore there was nocause of action.
43

SECOND DIVISION trucks, also owned by the respondent, and haul it by land to PGPs storage tanks in
[G.R. No. 136888. June 29, 2005] Calamba, Laguna.
PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs. CHEMOIL Upon inspection by PGP, the samples taken from the shipment showed
LIGHTERAGE CORPORATION, respondent. discoloration from yellowish to amber, demonstrating that it was damaged, as DOP
is colorless and water clear. PGP then sent a letter to the petitioner dated 18
DECISION February 1991[8] where it formally made an insurance claim for the loss it sustained
due to the contamination.
CHICO-NAZARIO, J.:
The petitioner requested an independent insurance adjuster, the GIT Insurance
Before Us is a petition for review on certiorari which assails the Decision of the Adjusters, Inc. (GIT), to conduct a Quantity and Condition Survey of the shipment.
Court of Appeals[1] in CA-G.R. CV No. 56209, dated 18 December 1998. The Decision On 22 February 1991, GIT issued a Report,[9] part of which states:
reversed and set aside the decision of the Regional Trial Court (RTC), [2] Branch 16,
City of Manila, which ordered herein respondent to pay the petitioners claim in the As unloading progressed, it was observed on February 14, 1991 that DOP samples
amount of P5,000,000.00 with legal interest from the date of the filing of the taken were discolored from yellowish to amber. Inspection of cargo tanks showed
complaint. manhole covers of ballast tanks ceilings loosely secured. Furthermore, it was noted
that the rubber gaskets of the manhole covers of the ballast tanks re-acted to the
chemical causing shrinkage thus, loosening the covers and cargo ingress to the rusty
ballast tanks[10]
THE FACTS
On 13 May 1991, the petitioner paid PGP the amount of P5,000,000.00[11] as full
Petitioner Philippine Charter Insurance Corporation is a domestic corporation and final payment for the loss. PGP issued a Subrogation Receipt to the petitioner.
engaged in the business of non-life insurance. Respondent Chemoil Lighterage Meanwhile, on 03 April 1991, PGP paid the respondent the amount of P301,909.50
Corporation is also a domestic corporation engaged in the transport of goods. as full payment for the latters services, as evidenced by Official Receipt No. 1274.[12]
On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan, South On 15 July 1991, an action for damages was instituted by the petitioner-insurer
Korea, shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) against respondent-carrier before the RTC, Branch 16, City of Manila, docketed as
on board MT TACHIBANA which was valued at US$90,201.57 under Bill of Lading Civil Case No. 91-57923.[13] The petitioner prayed for actual damages in the amount
No. ULS/MNL-1[3] and another 436.70 metric tons of DOP valued at US$634,724.89 of P5,000,000.00, attorneys fees in the amount of no less than P1,000,000.00, and
under Bill of Lading No. ULS/MNL-2[4] to the Philippines. The consignee was Plastic costs of suit.
Group Phils., Inc. (PGP) in Manila.
An Answer with Compulsory Counterclaim[14] was filed by the respondent on 05
PGP insured the cargo with herein petitioner Philippine Charter Insurance September 1991. The respondent admitted it undertook to transport the
Corporation against all risks. The insurance was under Marine Policies No. MRN- consignees shipment from MT TACHIBANA to the Del Pan Bridge, Pasig River, where
30721[5] dated 06 February 1991 for P31,757,969.19 and No. MRN- it was transferred to its tanker trucks for hauling to PGPs storage tanks in Calamba,
30722[6] for P4,514,881.00. Marine Endorsement No. 2786[7] dated 11 May 1991 Laguna. The respondent alleged that before the DOP was loaded into its barge (LB-
was attached and formed part of MRN-30721, amending the latters insured value 1011), the surveyor/representative of PGP, Adjustment Standard Corporation,
to P24,667,422.03, and reduced the premium accordingly. inspected it and found the same clean, dry, and fit for loading. The entire loading
The ocean tanker MT TACHIBANA unloaded the cargo to Tanker Barge LB-1011 of and unloading of the shipment were also done under the control and supervision of
respondent Chemoil Lighterage Corporation, which shall transport the same to Del PGPs surveyor/representative. It was also mentioned by the respondent that the
Pan Bridge in Pasig River. Tanker Barge LB-1011 would unload the cargo to tanker contract between it and PGP expressly stipulated that it shall be free from any and
all claims arising from contamination, loss of cargo or part thereof; that the
44

consignee accepted the cargo without any protest or notice; and that the cargo I
shall be insured by its owner sans recourse against all risks. As subrogee, the
petitioner was bound by this stipulation. As carrier, no fault and negligence can be THE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE OF CLAIM
attributed against respondent as it exercised extraordinary diligence in handling the WAS NOT FILED WITHIN THE REQUIRED PERIOD.
cargo.[15]
After due hearing, the trial court rendered a Decision on 06 January 1997, the II
dispositive portion of which reads:
THE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT DAMAGE TO THE
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF RESPONDENT CHEMOIL.
plaintiff ordering defendant to pay plaintiffs claim of P5,000,000.00 with legal
interest from the date of the filing of the complaint. The counterclaims are III
DISMISSED.[16]
THE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL COURTS
Aggrieved by the trial courts decision, the respondent sought relief with the Court DECISION AND IN DISMISSING THE COMPLAINT.[24]
of Appeals where it alleged in the main that PGP failed to file any notice, claim or
protest within the period required by Article 366 of the Code of Commerce, which is
a condition precedent to the accrual of a right of action against the carrier. [17] A ISSUES
telephone call which was supposedly made by a certain Alfred Chan, an employee
of PGP, to one of the Vice Presidents of the respondent, informing the latter of the
discoloration, is not the notice required by Article 366 of the Code of Commerce.[18] Synthesized, the issues that must be addressed by this Court are:
On 18 December 1998, the Court of Appeals promulgated its Decision reversing the I
trial court, the dispositive portion of which reads:
WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE REQUIRED
WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and a PERIOD. If the answer is in the affirmative,
new one is entered dismissing the complaint.[19]
II
A petition for review on certiorari[20] was filed by the petitioner with this Court,
praying that the decision of the trial court be affirmed. WHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR
[21] NEGLIGENCE OF THE RESPONDENT.
After the respondent filed its Comment and the petitioner filed its
Reply[22] thereto, this Court issued a Resolution[23] on 18 August 1999, giving due
course to the petition.
THE COURTS RULINGS

ASSIGNMENT OF ERRORS Article 366 of the Code of Commerce has profound application in the case at bar.
This provision of law imparts:

The petitioner assigns as errors the following: Art. 366. Within twenty-four hours following the receipt of the merchandise a claim
may be made against the carrier on account of damage or average found upon
45

opening the packages, provided that the indications of the damage or average Appeals does not actually contradict the finding of fact of the trial court. Both
giving rise to the claim cannot be ascertained from the exterior of said packages, in courts held that, indeed, a telephone call was made by Alfredo Chan to Encarnacion
which case said claim shall only be admitted at the time of the receipt of the Abastillas, informing the latter of the contamination. However, nothing in the trial
packages. courts decision stated that the notice of claim was relayed or filed with the
respondent-carrier immediately or within a period of twenty-four hours from the
After the periods mentioned have elapsed, or after the transportation charges have time the goods were received. The Court of Appeals made the same finding. Having
been paid, no claim whatsoever shall be admitted against the carrier with regard to examined the entire records of the case, we cannot find a shred of evidence that
the condition in which the goods transported were delivered. will precisely and ultimately point to the conclusion that the notice of claim was
timely relayed or filed.
As to the first issue, the petitioner contends that the notice of contamination was The allegation of the petitioner that not only the Vice President of the respondent
given by Alfredo Chan, an employee of PGP, to Ms. Encarnacion Abastillas, Vice was informed, but also its drivers, as testified by Alfredo Chan, during the time that
President for Administration and Operations of the respondent, at the time of the the delivery was actually being made, cannot be given great weight as no driver was
delivery of the cargo, and therefore, within the required period.[25] This was done by presented to the witness stand to prove this. Part of the testimony of Alfredo Chan
telephone. is revealing:
The respondent, however, claims that the supposed notice given by PGP over the Q:
telephone was denied by Ms. Abastillas. Between the testimonies of Alfredo Chan
and Encarnacion Abastillas, the latters testimony is purportedly more credible Mr. Witness, were you in your plant site at the time these various cargoes
because it would be quite unbelievable and contrary to business practice for were delivered?
Alfredo Chan to merely make a verbal notice of claim that involves millions of
A: No, sir.
pesos.[26]
Q: So, do you have a first hand knowledge that your plant representative
On this point, the Court of Appeals declared:
informed the driver of the alleged contamination?

We are inclined to sustain the view that a telephone call made to defendant- A: What do you mean by that?
company could constitute substantial compliance with the requirement of notice
Q: Personal knowledge [that] you yourself heard or saw them [notify] the
considering that the notice was given to a responsible official, the Vice-President,
driver?
who promptly replied that she will look into the matter. However, it must be
pointed out that compliance with the period for filing notice is an essential part of A: No, sir.[28]
the requirement, i.e.. immediately if the damage is apparent, or otherwise within
twenty-four hours from receipt of the goods, the clear import being that prompt From the preceding testimony, it is quite palpable that the witness Alfredo Chan
examination of the goods must be made to ascertain damage if this is not had no personal knowledge that the drivers of the respondent were informed of
immediately apparent. We have examined the evidence, and We are unable to find the contamination.
any proof of compliance with the required period, which is fatal to the accrual of The requirement that a notice of claim should be filed within the period stated by
the right of action against the carrier.[27] Article 366 of the Code of Commerce is not an empty or worthless proviso. In a
case, we held:
The petitioner is of the view that there was an incongruity in the findings of facts of
the trial court and the Court of Appeals, the former allegedly holding that the The object sought to be attained by the requirement of the submission of claims in
period to file the notice had been complied with, while the latter held otherwise. pursuance of this article is to compel the consignee of goods entrusted to a carrier
We do not agree. On the matter concerning the giving of the notice of claim as to make prompt demand for settlement of alleged damages suffered by the goods
required by Article 366 of the Code of Commerce, the finding of fact of the Court of while in transport, so that the carrier will be enabled to verify all such claims at the
46

time of delivery or within twenty-four hours thereafter, and if necessary fix WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals
responsibility and secure evidence as to the nature and extent of the alleged dated 18 December 1998, which reversed and set aside the decision of the trial
damages to the goods while the matter is still fresh in the minds of the parties. [29] court, is hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
In another case, we ruled, thus:

More particularly, where the contract of shipment contains a reasonable


PHILIPPINE CHARTER INSURANCE CORPORATION VS.CHEMOIL LIGHTERAGE HITE GOLD
requirement of giving notice of loss of or injury to the goods, the giving of such
CORPORATIONG.R. No. 136888. June 29, 2005
notice is a condition precedent to the action for loss or injury or the right to enforce
the carriers liability. Such requirement is not an empty formalism. The fundamental
Facts:
reason or purpose of such a stipulation is not to relieve the carrier from just
liability, but reasonably to inform it that the shipment has been damaged and that
Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of non-
it is charged with liability therefore, and to give it an opportunity to examine the
life insurance. Respondent Chemoil Lighterage Corporation is also a domestic corporation engaged
nature and extent of the injury. This protects the carrier by affording it an
in the transport of goods. On24 January 1991, Samkyung Chemical Company, Ltd., based n South
opportunity to make an investigation of a claim while the matter is fresh and easily
Korea, shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board
investigated so as to safeguard itself from false and fraudulent claims.[30]
MT“TACHIBANA” which was valued at US$90,201.57 and another 436.70 metric tons of DOP
valued at US$634,724.89to the Philippines. The consignee was Plastic Group Phils.,Inc. in Manila.
The filing of a claim with the carrier within the time limitation therefore actually PGP insured the cargo with Philippine Charter Insurance Corporation against all risks. The insurance
constitutes a condition precedent to the accrual of a right of action against a carrier was under Marine Policies No. MRN-30721[5]
for loss of, or damage to, the goods. The shipper or consignee must allege and
prove the fulfillment of the condition. If it fails to do so, no right of action against dated 06 February1991. Marine Endorsement No. 2786[7]
the carrier can accrue in favor of the former. The aforementioned requirement is a
reasonable condition precedent; it does not constitute a limitation of action. [31] dated 11 May 1991was attached and formed part of MRN-30721, amending the latter’s insured
The second paragraph of Article 366 of the Code of Commerce is also edifying. It is value to P24,667,422.03, and reduced the premium accordingly. The ocean tanker MT
not only when the period to make a claim has elapsed that no claim whatsoever “TACHIBANA” unloaded the cargo to the tanker barge, which shall transport the same to Del Pan
shall be admitted, as no claim may similarly be admitted after the transportation Bridge in Pasig River and haul it by land to PGP’s storage tanks in Calamba, Laguna. Upon inspection
charges have been paid. by PGP, the samples taken from the shipment show discoloration demonstrating that it was
damaged. PGP then sent a letter where it formally made an insurance claim for the loss it sustained.
In this case, there is no question that the transportation charges have been Petitioner requested the GIT Insurance Adjusters, Inc. (GIT),to conduct a Quantity and Condition
paid, as admitted by the petitioner, and the corresponding official receipt [32] duly Survey of the shipment which issued a report stating that DOP samples taken were discolored.
issued. But the petitioner is of the view that the payment for services does not Inspection of cargo tanks showed manhole covers of ballast tanks’ ceilings loosely secured and that
invalidate its claim. It contends that under the second paragraph of Article 366 of the rubber gaskets of the manhole covers of the ballast tanks re-acted to the chemical causing
the Code of Commerce, it is clear that if notice or protest has been made prior to shrinkage thus, loosening the covers and cargo ingress. Petitioner paid PGP the full and final
payment of services, claim against the bad order condition of the cargo is allowed. payment for the loss and issued a Subrogation Receipt. Meanwhile, PGP paid the respondent the as
full payment for the latter’s services. On 15 July 1991, an action for damages was instituted by the
We do not believe so. As discussed at length above, there is no evidence to
petitioner-insurer against respondent-carrier before the RTC, Br.16, City of Manila. Respondent filed
confirm that the notice of claim was filed within the period provided for under
an answer which admitted that it undertook to transport the shipment, but alleged that before the
Article 366 of the Code of Commerce. Petitioners contention proceeds from a false
DOP was loaded into its barge, the representative of PGP, Adjustment Standard Corporation,
presupposition that the notice of claim was timely filed.
inspected it and found the same clean, dry, and fit for loading, thus accepted the cargo without any
Considering that we have resolved the first issue in the negative, it is therefore protest or notice. As carrier, no fault and negligence can be attributed against respondent as it
unnecessary to make a resolution on the second issue. exercised extraordinary diligence in handling the cargo. After due hearing, the trial court rendered a
47

Decision in favor of plaintiff. On appeal, the Court of Appeals promulgated its Decision reversing the aforementioned requirement is a reasonable condition precedent; it does not constitute a
trial court. A petition for review on certiorari [ was filed by the petitioner with this Court.Issues:1. limitation of action.[31]
Whether or not the Notice of Claim was filed within the required period.2.Whether or not the
damage to the cargo was due to the fault or negligence of the respondent. We do not believe so. As discussed at length above, there is no evidence to confirm that the notice
of claim was filed within the period provided for under Article 366 of the Code of Commerce.
Held: Article 366 of the Code of Commerce has profound application in the case at bar, Petitioner’s contention proceeds from a false presupposition that the notice of claim was timely
which provides that; “Within twenty-four hours following the receipt of the merchandise a claim filed. Considering that we have resolved the first issue in the negative, it is therefore unnecessary to
may be made against the carrier on account of damage or average found upon opening the make a resolution on the second issue.
packages, provided that the indications of the damage or average giving rise to the claim cannot be
ascertained from the exterior of said packages, in which case said claim shall only be admitted at the
time of the receipt of the packages.” After the periods mentioned have elapsed, or after the
transportation charges have been paid, no claim whatsoever shall be admitted against the carrier
with regard to the condition in which the goods transported were delivered. As to the first
issue, the petitioner contends that the notice of contamination was given by PGP
employee, to Ms. Abastillas at the time of the delivery of the cargo, and therefore, within the
required period. The respondent, however, claims that the supposed notice given by PGP over the
telephone was denied by Ms. Abastillas. The Court of Appeals declared: that a telephone call made
to defendant-company could constitute substantial compliance with the requirement of notice.
However, it must be pointed out that compliance with the period for filing notice is an essential part
of the requirement, i.e.. immediately if the damage is apparent, or otherwise within twenty-four
hours from receipt of the goods, the clear import being that prompt examination of the goods must
be made to ascertain damage if this is not immediately apparent. We have examined the evidence,
and We are unable to find
any proof of compliance with the required period, which is fatal to the accrual of the right of action
against the carrier .[27]

Nothing in the trial court’s decision stated that the notice of claim was relayed or filed with the
respondent-carrier immediately or within a period of twenty-four hours from the time the goods
were received. The Court of Appeals made the same finding. Having examined the entire records of
the case, we cannot find a shred of evidence that will precisely and ultimately point to the
conclusion that the notice of claim was timely relayed or filed. The requirement that a notice of
claim should be filed within the period stated by Article 366 of the Code of Commerce is not an
empty or worthless proviso. The object sought to be attained by the requirement of the submission
of claims in pursuance of this article is to compel the consignee of goods entrusted to a carrier to
make prompt demand for settlement of alleged damages suffered by the goods while in transport,
so that the carrier will be enabled to verify all such claims at the time of delivery or within twenty-
four hours thereafter, and if necessary fix responsibility and secure evidence as to the nature and
extent of the alleged damages to the goods while the matter is still fresh in the minds of the parties.
The filing of a claim with the carrier within the time limitation therefore actually constitutes a
condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the
goods. The shipper or consignee must allege and prove the fulfillment of the condition. If
it fails to do so, nor right of action against the carrier can accrue in favor of the former. The
48

SECOND DIVISION the Company endorsed hereon. Any false declaration or breach or this
condition will render this policy null and void.
G.R. No. L-36232 December 19, 1974
At the time of the insurance on April 19, 1962 of Policy No. 4219 in favor of
PIONEER INSURANCE AND SURETY CORPORATION, petitioner-appellant, respondent Yap, an insurance policy for P20,000.00 issued by the Great American
vs. Insurance Company covering the same properties was noted on said policy as co-
OLIVA YAP, represented by her attorney-in-fact, CHUA SOON POON respondent- insurance (Annex "1-E"). Later, on August 29, 1962, the parties executed Exhibit "1-
appellee. K", as an endorsement on Policy No. 4219, stating:

FERNANDEZ, J.:p It is hereby declared and agreed that the co-insurance existing at present
under this policy is as follows: P20,000.00 — Northwest Ins., and not as
This is an appeal by certiorari from the decision of the Court of Appeals dated originally stated. (emphasis supplied)
December 16, 1972, in CA-G.R. No. 36669-R, affirming the judgment of the Court of
First Instance of Manila (Branch VI) in Civil Case No. 54508, which latter court Except as varied by this endorsement, all other terms and conditions
declared plaintiff Oliva Yap, herein respondent, entitled to recover from defendant remain unchanged.
Pioneer Insurance & Surety Corporation, herein petitioner, the full amount of the
damage inquired in Policy No. 4219, which is P25,000.00, plus 12% of said sum from Still later, or on September 26, 1962, respondent Oliva Yap took out another fire
the date of filing of the complaint until full payment, in addition to the sum of insurance policy for P20,000.00 covering the same properties, this time from the
P6,000.00 for attorney's fees, and costs. Federal Insurance Company, Inc., which new policy was, however, procured without
notice to and the written consent of petitioner Pioneer Insurance & Surety
Respondent Oliva Yap was the owner of a store in a two-storey building located at Corporation and, therefore, was not noted as a co-insurance in Policy No. 4219.
No. 856 Juan Luna Street, Manila, where in 1962 she sold shopping bags and
footwear, such as shoes, sandals and step-ins. Chua Soon Poon Oliva Yap's son-in- At dawn on December 19, 1962, a fire broke out in the building housing respondent
law, was in charge of the store. Yap's above-mentioned store, and the said store was burned. Respondent Yap filed
an insurance claim, but the same was denied in petitioner's letter of May 17, 1963
On April 19, 1962, respondent Yap took out Fire Insurance Policy No. 4216 from (Exhibit "G"), on the ground of "breach and/or violation of any and/or all terms and
petitioner Pioneer Insurance & Surety Corporation with a face value of P25,000.00 conditions" of Policy No. 4219.
covering her stocks, office furniture, fixtures and fittings of every kind and
description. Among the conditions in the policy executed by the parties are the On July 17, 1963, Oliva Yap filed with the Court of First Instance of Manila the
following: present complaint, asking, among others, for payment of the face value of her fire
insurance policy. In its answer, petitioner alleged that no property belonging to
The Insured shall give notice to the Company of any insurance or plaintiff Yap and covered by the insurance policy was destroyed by the fire; that
insurances already effected, or which may subsequently be effected, Yap's claim was filed out of time; and that Yap took out an insurance policy from
covering any of the property hereby insured, and unless such notice be another insurance company without petitioner's knowledge and/or endorsement,
given and the particulars of such insurance or insurances be stated in, or in violation of the express stipulations in Policy No. 4219, hence, all benefits
endorsed on this Policy by or on behalf of the Company before the accruing from the policy were deemed forfeited.
occurrence of any loss or damage, all benefits under this Policy shall be
forfeited. (emphasis supplied) It is understood that, except as may be As already stated at the beginning of this opinion, the trial court decided for
stated on the face of this policy there is no other insurance on the property plaintiff Oliva Yap; and its judgment was affirmed in full by the Court of Appeals.
hereby covered and no other insurance is allowed except by the consent of
49

The vital issue in this appeal is whether or not petitioner should be absolved from covering the same properties of respondent Yap and duly noted on Policy No. 4219
liability on Fire Insurance Policy No. 4219 on account of any violation by respondent as c-insurance, ceased, by agreement of the parties (Exhibit "1-L"), to be recognized
Yap of the co-insurance clause therein. In resolving this problem, the Court of by them as a co-insurance policy. The Court of Appeals says that the Great
Appeals stated in its decision: American Insurance policy was substituted by the Federal Insurance policy for the
same amount, and because it was a mere case of substitution, there was no
5. The plaintiff-appellee has not violated the other insurance clause necessity for its endorsement on Policy No. 4219. This finding, as well as reasoning,
(Exhibit 1-F) of the insurance Policy No. 4219 that would justify the suffers from several flaws. There is no evidence to establish and prove such a
defendant-appellant, as insurer, to avoid its liability thereunder. It appears substitution. If anything was substituted for the Great American Insurance policy, it
on the face of said policy that a co-insurance in the amount of P20,000.00 could only be the Northwest Insurance policy for the same amount of P20,000.00.
was secured from the Great American Insurance and was declared by the The endorsement (Exhibit "1-K") quoted above shows the clear intention of the
plaintiff-appellee and recognized by the defendant-appellant. This was parties to recognize on the date the endorsement was made (August 29, 1962), the
later on substituted for the same amount and secured by the Federal existence of only one co-insurance, and that is the Northwest Insurance policy,
Insurance Company. Chua Soon Poon on being cross-examined by counsel which according to the stipulation of the parties during the hearing, was issued on
for the defendant-appellant, declared that the Great American Insurance August 20, 1962 (t.s.n., January 12, 1965, pp. 3-4) and endorsed only on August 20,
policy was cancelled because of the difference in the premium and the 1962. The finding of the Court of Appeals that the Great American Insurance policy
same was changed for that of the Federal (t.s.n., hearing of December 1, was substituted by the Federal Insurance policy is unsubstantiated by the evidence
1964, pp. 35-36). Contrary to the assertion of the defendant-appellant, the of record and indeed contrary to said stipulation and admission of respondent, and
Great American Insurance policy was not substituted by the Northwest is grounded entirely on speculation, surmises or conjectures, hence, not binding on
Insurance policy. As admitted by the defendant-appellant in its brief (p. the Supreme Court. 1
48), the fire insurance policy issued by the Great American Insurance
Company for P20,000.00 (Exhibit 1-E) was cancelled on August 29, 1962. The Court of Appeals would consider petitioner to have waived the formal
On the other hand, the fire insurance policy issued by the Northwest requirement of endorsing the policy of co-insurance "since there was absolutely no
Insurance & Surety Company for P20,000.00 (Exhibit 1-K) was taken out on showing that it was not aware of said substitution and preferred to continue the
July 23, 1962. How then can the Northwest Insurance policy issued on July policy." The fallacy of this argument is that, contrary to Section 1, Rule 131 of the
23, 1962, be considered as having substituted the Great American policy Revised Rules of Court, which requires each party to prove his own allegations, it
which was cancelled only on August 29, 1962? The defendant-appellant would shift to petitioner, respondent's burden of proving her proposition that
can be considered to have waived the formal requirement of indorsing the petitioner was aware of the alleged substitution, and with such knowledge
policy of co-insurance since there was absolutely no showing that it was preferred to continue the policy. Respondent Yap cites Gonzales La O vs. Yek Tong
not aware of said substitution and preferred to continue the policy Lin Fire and Marine Insurance Co., Ltd.2 to justify the assumption but in that case,
(Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co., 55 Phil. unlike here, there was knowledge by the insurer of violations of the contract, to wit:
386). Even assuming that the defendant-appellant did not indorse the "If, with the knowledge of the existence of other insurances which the defendant
Federal Insurance policy, there is no question that the same was only a deemed violations of the contract, it has preferred to continue the policy, its action
substitution and did not in any way increase the amount of the declared amounts to a waiver of the annulment of the contract ..." A waiver must be express.
co-insurance. In other words, there was no increase in the risk assumed by If it is to be implied from conduct mainly, said conduct must be clearly indicative of
the defendant-appellant. a clear intent to waive such right. Especially in the case at bar where petitioner is
assumed to have waived a valuable right, nothing less than a clear, positive waiver,
We do not agree with the conclusion of the Court of Appeals. made with full knowledge of the circumstances, must be required.

There was a violation by respondent Oliva Yap of the co-insurance clause contained By the plain terms of the policy, other insurance without the consent of petitioner
in Policy No. 4219 that resulted in the avoidance of petitioner's liability. The would ipso facto avoid the contract. It required no affirmative act of election on the
insurance policy for P20,000.00 issued by the Great American Insurance Company part of the company to make operative the clause avoiding the contract, wherever
50

the specified conditions should occur. Its obligations ceased, unless, being informed ... And considering the terms of the policy which required the insured to declare
of the fact, it consented to the additional insurance. other insurances, the statement in question must be deemed to be a statement
(warranty) binding on both insurer and insured, that there were no other insurance
The validity of a clause in a fire insurance policy to the effect that the procurement on the property. ...
of additional insurance without the consent of the insurer renders ipso facto the
policy void is well-settled: The annotation then, must be deemed to be a warranty that the property was not
insured by any other policy. Violation thereof entitled the insurer to rescind. (Sec.
In Milwaukee Mechanids' Lumber Co., vs. Gibson, 199 Ark. 542, 134 S. W. 69, Insurance Act.) Such misrepresentation is fatal in the light of our views in Santa
2d 521, 522, a substantially identical clause was sustained and enforced, Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329. The materiality of
the court saying: "The rule in this state and practically all of the states is to non-disclosure of other insurance policies is not open to doubt.
the effect that a clause in a policy to the effect that the procurement of
additional insurance without the consent of the insurer renders the policy Furthermore, even if the annotations were overlooked the defendant insurer would
void is a valid provision. The earlier cases of Planters Mutual Insurance Co., still be free from liability because there is no question that the policy issued by
vs. Green, 72 Ark. 305, 80 S.W. 92, are to the same effect." And see Vance, General Indemnity has not been stated in nor endorsed on Policy No. 471 of
Insurance, 2nd Ed., 725. (Reach vs. Arkansas Farmers Mut. Fire Ins. Co., defendant. And as stipulated in the above-quoted provisions of such policy "all
[Ark. Nov. 14, 1949] 224 S. W. 2d 48, 49.) benefit under this policy shall be forfeited. (Emphasis supplied)

2. Where a policy contains a clause providing that the policy shall be void if The obvious purpose of the aforesaid requirement in the policy is to prevent over-
insured has or shall procure any other insurance on the property, the insurance and thus avert the perpetration of fraud. The public, as well as the
procurement of additional insurance without the consent of the insurer insurer, is interested in preventing the situation in which a fire would be profitable
avoids the policy." (Planters' Mut. Ins. Ass'n vs. Green [Supreme Court of to the insured. According to Justice Story: "The insured has no right to complain, for
Arkansas, March 19, 1904] 80 S.W. 151.) he assents to comply with all the stipulation on his side, in order to entitle himself
to the benefit of the contract, which, upon reason or principle, he has no right to
3. The policy provided that it should be void in case of other insurance ask the court to dispense with the performance of his own part of the agreement,
"without notice and consent of this company. ..." It also authorized the and yet to bind the other party to obligations, which, but for those stipulation
company to terminate the contract at any time, at its option, by giving would not have been entered into." 5
notice and refunding a ratable proportion of the premium. Held, that
additional insurance, unless consented to, or unless a waiver was In view of the above conclusion, We deem it unnecessary to consider the other
shown, ipso facto avoided the contract, and the fact that the company had defenses interposed by petitioner.
not, after notice of such insurance, cancelled the policy, did not justify the
legal conclusion that it had elected to allow it to continue in force." WHEREFORE, the appealed judgment of the Court of Appeals is reversed and set
(Johnson vs. American Fire Ins., Co., [Supreme Court of Minnesota, Aug. aside, and the petitioner absolved from all liability under the policy. Costs against
12, 1889] 43 N.W., 59) private respondent.

The aforecited principles have been applied in this jurisdiction in General Insurance SO ORDERED.
& Surety Corporation vs. Ng Hua 3. There, the policy issued by the General Insurance
& Surety Corporation in favor of respondent Ng Hua contained a provision identical
with the provisions in Policy No. 4219 quoted above. 4 This Court, speaking thru
Justice Cesar P. Bengson, in reversing the judgment of the Court of Appeals and
absolving the insurer from liability under the policy, held:
51

Facts: was substituted by the Federal Insurance policy is indeed contrary to said
stipulation.
Respondent Oliva Yap was the owner of a store in a two-storey building where she Other insurance without the consent of Pioneer would avoid the contract. It
sold shopping bags and footwear. Chua Soon Poon, her son-in-law, was in charge of required no affirmative act of election on the part of the company to make
the store. operative the clause avoiding the contract, wherever the specified conditions
Yap took out a Fire Insurance Policy No. 4216 from Pioneer Insurance with a value should occur. Its obligations ceased, unless, being informed of the fact, it consented
of P25,000.00 covering her stocks, office furniture, fixtures and fittings. to the additional insurance.
Among the conditions in the policy executed by the parties are the following: The validity of a clause in a fire insurance policy to the effect that the procurement
unless such notice be given and the particulars of such insurance or insurances be of additional insurance without theconsent of the insurer renders the policy void is
stated in, or endorsed on this Policy by or on behalf of the Company before the in American jurisprudence.
occurrence of any loss or damage, all benefits under this Policy shall be forfeited… Milwaukee Mechanids' Lumber Co., vs. Gibson- "The rule in this state and
Any false declaration or breach or this condition will render this policy null and void. practically all of the states is to the effect that a clause in a policy to the effect that
Another insurance policy for P20,000.00 issued by Great American covering the the procurement of additional insurance without the consent of the insurer renders
same properties. The endorsement recognized co-insurance by Northwest for the the policy void is a valid provision.”
same value. In this jurisdiction, General Insurance & Surety Corporation vs. Ng Hua-
“The annotation then, must be deemed to be a warranty that the property was not
Oliva Yap took out another fire insurance policy for P20,000.00 covering the same insured by any other policy. Violation thereof entitled the insurer to rescind.
properties from the Federal Insurance Company, Inc., which was procured without Furthermore, even if the annotations were overlooked the defendant insurer would
notice to and the written consent of Pioneer. still be free from liability because there is no question that the policy issued by
General Indemnity has not been stated in nor endorsed on Policy No. 471 of
A fire broke out in the building, and the store was burned. Yap filed an insurance defendant. The obvious purpose of the aforesaid requirement in the policy is to
claim, but the same was denied for a breach. Oliva Yap filed a case for payment of prevent over-insurance and thus avert the perpetration of fraud where a fire would
the face value of her fire insurance policy. The insurance company refused to pay be profitable to the insured.“
because she never informed Pioneer of another insurer. The trial court decided in
favor of Yap. The CA affirmed.

Issue:
Whether or not petitioner should be absolved from liability on the Pioneeer policy
on account of any violation of the co-insurance clause

Held: No. Petition dismissed.

Ratio:

There was a violation. The insurance policy for P20,000.00 issued by the Great
American, ceased to be recognized by them as a co-insurance policy.
The endorsement shows the clear intention of the parties to recognize on the date
the endorsement was made, the existence of only one co-insurance, the Northwest
one. The finding of the Court of Appeals that the Great American Insurance policy
52

SECOND DIVISION On February 8, 1982, Equitable Insurance


Corporation issued Fire Insurance Policy No. 39328 in the amount of P200,000.00.
G.R. No. 94071 March 31, 1992
Thus when the building occupied by the New Life Enterprises
NEW LIFE ENTERPRISES and JULIAN SY, petitioners, was gutted by fire at about 2:00 o'clock in the morning of October 19, 1982, the
vs. stocks in the trade inside said building were insured against
HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE fire in the total amount of P1,550,000.00.
SURETY AND INSURANCE CO., INC. and WESTERN GUARANTY According to the certification issued by the Headquarters, Philippine Constabulary
CORPORATION, respondents. Integrated National Police, Camp Crame, the cause of fire was electrical in
nature. According to the plaintiffs, the building and the stocks inside were burned.
REGALADO, J.: After the fire, Julian Sy went to the agent of
Reliance Insurance whom he asked to accompany him to the office of
the company so that he can file his claim. He averred that in support of his claim, he
This appeal by certiorari seeks the nullification of the decision 1 of respondent Court
submitted the fire clearance, the insurance policies and inventory of stocks. He
of Appeals in CA-G.R. CV No. 13866 which reversed the decision of the Regional
further testified that the three insurance companies are sister
Trial Court, Branch LVII at Lucena City, jointly deciding Civil Cases Nos. 6-84, 7-84
companies, and as a matter of fact when he was following-up his claim with
and 8-84 thereof and consequently ordered the dismissal of the aforesaid actions
Equitable Insurance, the Claims Manager told him to go first to Reliance
filed by herein petitioners.
Insurance and if said company agrees to pay, they would also pay. The same
treatment was given him by the other insurance
The undisputed background of this case as found by the court a quo and adopted by
companies. Ultimately, the three insurance companies denied plaintiffs' claim for
respondent court, being sustained by the evidence on record, we hereby reproduce
payment.
the same with approval. 2
In its letter of denial dated March 9, 1983,
The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a
Western Guaranty Corporationthrough Claims Manager Bernard S. Razon told the
business partnership in the City of Lucena. Under the business name of New Life
plaintiff that his claim "is denied for breach of
Enterprises, the partnership engaged in the sale of construction
policy conditions." Reliance Insurance purveyed the same message in its letter
materials at its place of business, a two storey building situated at Iyam,
dated November 23, 1982 and signed by Executive Vice-President Mary Dee
Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life
Co which said that "plaintiff's claim is denied for breach of policy conditions."
Enterpriseswith Western Guaranty Corporation, Reliance Surety and Insurance. Co.,
The letter of denial received by the plaintiff from Equitable Insurance
Inc., and Equitable Insurance Corporation.
Corporation was of the same tenor, as said letter dated February 22, 1983, and
signed by Vice-President Elma R. Bondad, said "we find that certain
On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. policy conditions were violated, therefore, we regret, we have to deny your claim,
37201 in the amount of P350,000.00. This policy was renewed on May, 13, 1982. as it is hereby denied in its entirety."

On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy In relation to the case against Reliance
No. 69135 inthe amount of P300,000.00 (Renewed under Renewal Surety and Insurance Company, a certain Atty. Serafin D.Dator, acting in behalf of
Certificate No. 41997) An additional insurancewas issued by the same company on the plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 7-84) to
November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of Executive Vice-President Mary Dee Co asking that he be informed as to
P700,000.00. the specific policy conditions allegedly violated by the plaintiff. In her reply-letter
dated March 30, 1983, Executive Vice-President Mary Dee Co informed Atty.
Dator that Julian Sy violated Policy Condition No. "3" which requires the insured
53

to give notice of any insurance or insurances already effected covering the stocks in 3. In Civil Case No. 8-84, judgment is rendered for
trade. 3 the plaintiff New Life Enterprises and against thedefendant Western Guaranty Corp
oration ordering the latter to pay the sum of P350,000.00 to the
Because of the denial of their claims for payment by the three (3) insurance Consolidated Bank and Trust Corporation,
companies, petitioner filed separate Lucena Branch, Lucena City, as stipulated on the face of
civil actions against the former before the Regional Trial Policy No. 37201, and considering that payment of the
Court of Lucena City, which cases were consolidated for trial, aforementioned sum of money has been
and thereafter the court below rendered its decision on December 19, l986 with the unreasonably denied, pursuant to Sec. 244 of the Insurance Code,
following disposition: defendant is further ordered to pay the plaintiff attorney's fees in the amount of
P35,000.00.
WHEREFORE, judgment in the above-entitled cases is rendered in the
following manner, viz: All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 5, 1982, (91st
1. In Civil Case No. 6-84, judgment is rendered for the day from 1st week of November 1983when
plaintiff New Life Enterprises and against the defendant Equitable Insurance insured filed formal claim for full indemnity according to adjuster
Corporation ordering the latter to pay the former the sum of Two Vetremar Dela Merced) until they are fully paid. 4
Hundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insuredhas been unreasonably denied, As aforestated, respondent Court of Appeals reversed said judgment of the trial
pursuant to Sec. 244 of the Insurance Code, defendant is furtherordered to pay the court, hence this petition the crux wherein is whether or not Conditions Nos. 3
plaintiff attorney's fees in the amount of Twenty Thousand (P20,000.00) Pesos. and 27 of the insurance contracts were violated by petitioners thereby resulting in
All sums of money to be paid by virtue hereof shall bear interest at 12% per their forfeiture of all the benefits thereunder.
annum (pursuant to Sec.244 of the Insurance Code) from
February 14, 1983, (91st day from November 16, 1982, when Sworn Statement of Condition No. 3 of said insurance policies, otherwise known as
Fire Claim was received from the insured) until they are fully paid; the "Other Insurance Clause," is uniformly contained in all the aforestated
insurance contracts of herein petitioners, as follows:
2. In Civil Case No. 7-84, judgment is rendered for the plaintiff Julian Sy and against
the defendant Reliance Surety and Insurance Co., 3. The insured shall give notice to the Company
Inc., ordering the latter to pay the former the sum of any insurance or insurances already effected, or which
ofP1,000,000.00 (P300,000.00 under Policy may subsequently be effected, covering any of the property or properties
No. 69135 and P700,000.00 under Policy No. 71547) and consisting of stocks in trade, goods in process
considering that payment of the claim of the and/or inventories only hereby insured, and unless such notice be given
insured has been unreasonably denied, pursuant to and the particulars of such insurance or insurances be stated therein or
Sec.244 of the Insurance Code, defendant is further ordered endorsed on this policy pursuant to Section 50 of the Insurance
to pay the plaintiff the amount of P100,000.00 as attorney's fees. Code, by or on behalf of the Company before the occurrence
of any loss or damage, all benefits under this policy shall be deemed
All sums of money to be paid by virtue hereof shall bear interest at 12% per forfeited, provided however, that this condition shall not apply when the
annum (pursuant to Sec. 244 of the Insurance Code) from February 14, 1983, total insurance or insurances in force at the time of loss or
(91st day from November 16, 1982 when damage not more than P200,000.00. 5
Sworn Statement of Fire Claim was received from the insured) until they are fully
paid; Petitioners admit that the respective insurance policies
issued by private respondents did not state or endorse thereon
54

the other insurance coverage obtained or subsequently effected on the same stocks Yap Dam Chuan could not likewise have obtained such
in trade for the loss of which compensation is claimed by petitioners. 6 The policy knowledge for the same reason, aside from the fact that
issued by respondent Western Guaranty Corporation(Western) did not the insurance with Western was obtained before those of
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and Reliance and Equitable; and that the conclusion of
respondent Equitable Insurance Corporation (Equitable) as co- the trial court that Reliance and Equitable are "sister
insurers on the same stocks, while Reliance's Policies covering the same stocks companies" is an unfounded conjecture drawn from the mere fact that Yap Kam
did not likewise declare Western and Equitable as such co-insurers. It is Chuan was an agent for both companies which also had the same insurance
further admitted by petitioners that Equitable's policy stated "nil" in the space claims adjuster. Availment of the
thereon requiring indication of any co-insurance although there were three (3) services of the same agents and adjusters by different companies is a common
policies subsisting on the same stocks in trade at the time of the loss, namely, that practice in the insurance business and such facts
of Western in the amount of P350,000.00 and two (2) policies of Reliance in the do not warrant the speculative conclusion of the trial court.
total amount of P1,000,000.00. 7
Furthermore, when the words and language of documents are clear and plain
In other words, the coverage by other insurance or co-insurance effected or readily understandable by an ordinary reader thereof, there is absolutely no
or subsequently arranged by petitioners were neither stated nor endorsed in the room for interpretation or construction anymore. 9 Courts are not allowed to make
policies of the three (3) private respondents, warranting forfeiture of all benefits contracts for the parties; rather, they will intervene
thereunder if we are to follow the express stipulation in the aforequoted Policy only when the terms of the policy are ambiguous, equivocal,
Condition No. 3. or uncertain. 10 The parties must abide by the
terms of the contract because such terms constitute the measure
Petitioners contend that they are not to be blamed for the omissions, of the insurer's liability and compliance therewith is a
alleging that insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for condition precedent to the insured's right of recovery from the insurer.11
Reliance and Equitable) knew about the existence of the additional
insurance coverage and that they were not informed about the requirement that While it is a cardinal principle of insurance law that a policy or contract
such other or additional insurance should be stated in the of insurance is to be construed liberally in
policy, as they have not even read policies. 8 These contentions cannot pass judicial favor of the insured and strictly against the insurer
muster. company, yet contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which
The terms of the contract are clear and unambiguous. the parties themselves have used. If such terms are clear and
The insured is specifically required to disclose to the insurer any other insurance unambiguous, they must be taken and understood in their plain, ordinary and
and its particulars which he may have effected on the same subject matter. The popular sense. 12 Moreover, obligations arising from contracts have the force of law
knowledge of such insurance by the insurer's agents, even assuming the acquisition between the contracting parties and should be complied with in good faith. 13
thereof by the former, is not the "notice" that would estop the insurers from
denying the claim. Besides, the so-called theory of imputed knowledge, that is, Petitioners should be aware of the fact that a party is not relieved of the duty to
knowledge of the agent is knowledge of the principal, aside from being exercise the ordinary care and prudence that would be exacted in relation to other
of dubious applicability here has likewise been roundly contracts. The conformity of the insured to the terms of the
refuted by respondent court whose factual findings we find acceptable. policy is implied from his failure to express any disagreement with
what is provided for. 14 It may be true that the majority rule, as cited
Thus, it points out that while petitioner Julian Sy by petitioners, is that injured
claimed that he had informed insurance agent Alvarez regarding the co-insurance persons may accept policies without reading them, and that this is not
on the property, he contradicted negligence per se. 15 But, this is not without any exception. It is and was incumbent
himself by inexplicably claiming that he had not read the terms of the policies; that upon petitioner Sy to read the insurance contracts, and this can be reasonably
55

expected of him considering that he has been a businessman since 1965 16 and the have hesitated or plainly desisted from entering into such contract. Hence, the
contract concerns indemnity in case of loss in his money-making trade of which insured was guilty of clear fraud (Rollo, p. 25).
important consideration he could not have been unaware as it was pre-in case of
loss in his money-making trade of which important consideration he could not have Petitioner's contention that the allegation of fraud is but
been unaware as it was precisely the reason for his procuring the same. a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or
false declaration by the insured was furnished by the petitioner itself when the
We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. facts alleged in the policy under clauses "Co-Insurances Declared" and "Other
Yap: 17 Insurance Clause" are materially different from the actual number of co-
insurances taken over the subject property. Consequently, "the whole foundation
And considering the terms of the policy which required the insured to declare other of the contract fails, the risk does not attach
insurances,the statement in question must be deemed to be a statement and the policy never becomes a contract between the
(warranty) binding on both insurer and insured, that there were no other insurance parties." Representations of facts are the foundation of the contract and if
on the property. . . . the foundation does not exist, the superstructure does not arise.
Falsehood in such representations is not shown to vary or add to the contract, or to
The annotation then, must be deemed to be a warranty that the property was not terminate a contract which has once been made, but to show that no contract has
insured by any other policy. Violation thereof entitled the insurer to rescind (Sec. ever existed (Tolentino, Commercial Laws of the Philippines, p.
69, Insurance Act). Such misrepresentation is fatal in the light of our views in Santa 991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no
Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329. force and effect from the very beginning, as if it had never been entered into, and
The materiality of non-disclosure of other insurance policies is not open to doubt. which cannot be validated either by time or by ratification
(Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).
The obvious purpose of the aforesaid requirement in the policy is to prevent over-
insurance and thus avert the perpetration of fraud. The public, as well as the As the insurance policy against fire expressly required that notice should
insurer, is interested in preventing the situation in which a fire would be profitable be given by the insured of other insurance upon the same property,
to the insured. According to Justice Story: "The insured has the total absence of such notice nullifies the policy.
no right to complain, for he assents to comply with all the stipulations on
his side, in order to entitle himself to the To further warrant and justify the forfeiture of the
benefit of the contract, which, upon reason or principle, he has no right to ask benefits under the insurance contracts involved, we need merely
the court to dispense with the performance of his own part of the agreement, and to turn to Policy Condition No. 15 thereof, which reads in part:
yet to bind the other party to obligations, which, but for those stipulations, would
not have been entered into." 15. . . . if any false declaration be made or used in support thereof, . .
. all benefits under this Policy shall be forfeited . . . . 19
Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et
al., 18 we held: Additionally, insofar as the liability of respondent
Reliance is concerned, it is not denied that the complaint for recovery was filed in
It is not disputed that the insured failed to reveal before the court by petitioners only on January 31, 1984, or after more than one (1) year had
loss three other insurances. As found by the Court elapsed from petitioners' receipt of the insurers' letter of
of Appeals, by reason of said unrevealed insurances, the insured had been guilty of denial on November 29, 1982. Policy Condition No. 27 of their insurance contract
a false declaration; a clear misrepresentation and a vital one because where with Reliance provides:
the insured had been asked to reveal but did not, that was deception. Otherwise
stated, had the insurer known that there were many co-insurances, it could 27. Action or suit clause. —
If a claim be made and rejected and an action or suit be not commenced
56

either in the Insurance Commission or any court of competent jurisdiction In enunciating the above-cited principle, this Court had definitely
of notice of such rejection, or in case of arbitration taking place settled the rationale for the necessity of bringing suits against the Insurer
as provided herein, within twelve (12) months after due notice of within one year from the rejection of the claim. The contention
the award made by the arbitrator or arbitrators of the respondents that the one-year prescriptive period does
or umpire, then the claim shall for all purposes be not start to run until thepetition for reconsideration had been resolved by the insur
deemed to have been abandoned and shall not thereafter be recoverable er, runs counter to the declared purpose for requiring that an
hereunder. 20 action or suit be filed in the Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. To uphold respondents' contention would
On this point, the trial court ruled: contradict and defeat the very principle which this Court had laid down. Moreover,
it can easily be used by insured persons as a scheme or device to waste time
. . . However, because of the peculiar circumstances of this case, we until any evidence which may be considered against them is destroyed.
hesitate
in concluding thatplaintiff's right to ventilate his claim in court has been ba While in the Eagle Star case (96 Phil. 701),
rred by reason of the time constraintprovided in the insurance contract. It this Court uses the phrase "final rejection", the same
is evident that after the plaintiff had received cannot be taken to mean the rejection of a petition for reconsideration as insisted
the letter of denial,he still found it necessary to be informed of the specific by respondents.
causes or reasons for the denial of his claim, reason for which his lawyer, Such was clearly not the meaning contemplated by this Court. The insurance policy i
Atty. Dator deemed it wise to send a letter of inquiry to the defendant n said case provides that the insured should file his claim first, with
which was answered by defendant's Executive Vice-President in a letter the carrier and then with the insurer. The "final rejection" being referred to in said
dated March 30, 1983, . . . case is the rejection by the insurance company. 22
.Assuming, gratuitously, that the letter of Executive Vice-President
Mary Dee Co dated March 30, 1983, was received by plaintiff Furthermore, assuming arguendo that petitioners felt the
on the same date, the period of limitation should start to run only from legitimate need to be clarified as to the policy condition violated, there was a
said date in the spirit of fair play and equity. . . . 21 considerable lapse of time from their receipt of the insurer's clarificatory letter
dated March 30, 1983, up to the time the complaint was filed in court on
We have perforce to reject this theory of the court below for being contrary to January 31, 1984. The one-year prescriptive period was yet
what we have heretofore declared: to expire on November 29, 1983, or about eight (8) months from the
receipt of the clarificatory letter, but petitioners let the
It is important to note the principle laid down period lapse without bringing their action in court. We accordingly find no "peculiar
by this Court in the case of Ang vs. Fulton Fire Insurance Co. (2 SCRA 945 circumstances" sufficient to relax the enforcement of the one-
[1961]) to wit: year prescriptive period and we, therefore, hold that petitioners' claim was
definitely filed out of time.
The condition contained in an insurance policy that claims must be presented
within one year WHEREFORE, finding no cogent reason to disturb the judgment
after rejection is not merely a procedural requirement but an important matter of respondent Court of Appeals, the same is hereby AFFIRMED.
essential to a prompt settlement of claims against insurance companies as it
demands that insurance suits be brought by SO ORDERED.
the insured while the evidence as to the origin and cause of destruction have not
yet disappeared. Lessons Applicable: Requisites of Double insurance (Insurance)
57

FACTS:  The conformity of the insured to the terms of the policy is


implied from his failure to express any disagreement with what is provided for.
 May 15, 1981: Western Guaranty Corporation issued Fire Insurance Policy  a clear misrepresentation and a vital one because where
to New Life Enterprises foar P350,000 the insured had been asked to reveal but did not, that was deception -
 renewed on May, 13, 1982 guilty of clear fraud
 July 30,1981: Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy  total absence of such notice nullifies the policy
to New Life Enterprises for P300,000  assuming arguendo that petitioners felt the
 November 12, 1981; Additional P700,000 legitimate need to be clarified as to the policy condition violated, there was a
 February 8, 1982: Equitable Insurance Corporation issued Fire Insurance Policy considerable lapse of time from their receipt of the insurer's clarificatory letter
to New Life Enterprises for P200,000 dated March 30, 1983, up to the time the complaint was filed in court on
 October 19, 1982 2 am: fire electrical in nature destroyed the stock in trade January 31, 1984. The one-year prescriptive period was yet to
worth P1,550,000 expire on November 29, 1983, or about eight (8) months from the
 Julian Sy went to Reliance to claim but he was refused. Same thing happened receipt of the clarificatory letter, but petitioners let the
with the others who were sister companies. period lapse without bringing their action in court
 Sy violated the "Other Insurance Clause"
 RTC: favored New Life and against the three insurance companies
 CA: reversed -failure to state or endorse the other insurance coverage

ISSUE: W/N Sy can claim against the three insurance companies for violating
the "Other Insurance Clause"

HELD: NO.
 The terms of the contract are clear and unambiguous.
 The insured is specifically required to disclose to the insurer any other
insurance and its particulars which he may have effected on the
same subject matter.
 The knowledge of such insurance by the insurer's agents, even assuming the
acquisition thereof by the former, is not the "notice" that would estop the
insurers from denying the claim.
 conclusion of the trial court that Reliance and Equitable are "sister
companies" is an unfounded conjecture drawn from the mere fact that Yap Kam
Chuan was an agent for both companies which also had the
same insurance claims adjuster
 Availment of the services of the same agents and adjusters by different
companies is a common practice in the insurance business and such facts
do not warrant the speculative conclusion of the trial court.
58

FIRST DIVISION covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured, and unless such
G.R. No. 114427 February 6, 1995 notice be given and the particulars of such insurance or insurances be
stated therein or endorsed in this policy pursuant to Section 50 of the
ARMANDO GEAGONIA, petitioner, Insurance Code, by or on behalf of the Company before the occurrence of
vs. any loss or damage, all benefits under this policy shall be deemed
COURT OF APPEALS and COUNTRY BANKERS INSURANCE forfeited, provided however, that this condition shall not apply when the
CORPORATION, respondents. total insurance or insurances in force at the time of the loss or damage is
not more than P200,000.00.
DAVIDE, JR., J.:
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the
1 public market of San Francisco, Agusan del Sur. The petitioner's insured stock-in-
Four our review under Rule 45 of the Rules of Court is the decision of the Court of
trade were completely destroyed prompting him to file with the private respondent
Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation
a claim under the policy. On 28 December 1990, the private respondent denied the
versus Armando Geagonia," reversing the decision of the Insurance Commission in
claim because it found that at the time of the loss the petitioner's stocks-in-trade
I.C. Case No. 3340 which awarded the claim of petitioner Armando Geagonia
were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144,
against private respondent Country Bankers Insurance Corporation.
for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance
Co., Inc. (hereinafter PFIC). 3 These policies indicate that the insured was "Messrs.
The petitioner is the owner of Norman's Mart located in the public market of San
Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
Francisco, Agusan del Sur. On 22 December 1989, he obtained from the private
respondent fire insurance policy No. F-14622 2 for P100,000.00. The period of the
MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles,
policy was from 22 December 1989 to 22 December 1990 and covered the
Cebu City as their interest may appear subject to the terms of this policy.
following: "Stock-in-trade consisting principally of dry goods such as RTW's for men
CO-INSURANCE DECLARED: P100,000. — Phils. First CEB/F 24758. 4
and women wear and other usual to assured's business."

The basis of the private respondent's denial was the petitioner's alleged violation of
The petitioner declared in the policy under the subheading entitled CO-INSURANCE
Condition 3 of the policy.
that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to
1990, the petitioner had in his inventory stocks amounting to P392,130.50, itemized
as follows: The petitioner then filed a complaint 5 against the private respondent with the
Insurance Commission (Case No. 3340) for the recovery of P100,000.00 under fire
insurance policy No. F-14622 and for attorney's fees and costs of litigation. He
Zenco Sales, Inc. P55,698.00
attached as Annex "AM" 6 thereof his letter of 18 January 1991 which asked for the
F. Legaspi Gen. Merchandise 86,432.50 reconsideration of the denial. He admitted in the said letter that at the time he
Cebu Tesing Textiles 250,000.00 (on credit) obtained the private respondent's fire insurance policy he knew that the two
————— policies issued by the PFIC were already in existence; however, he had no
knowledge of the provision in the private respondent's policy requiring him to
P392,130.50
inform it of the prior policies; this requirement was not mentioned to him by the
private respondent's agent; and had it been mentioned, he would not have
The policy contained the following condition: withheld such information. He further asserted that the total of the amounts
claimed under the three policies was below the actual value of his stocks at the
3. The insured shall give notice to the Company of any insurance or time of loss, which was P1,000,000.00.
insurances already affected, or which may subsequently be effected,
59

In its answer, 7 the private respondent specifically denied the allegations in the goods insured but the party to which they were issued were the
complaint and set up as its principal defense the violation of Condition 3 of the "DISCOUNT MART (MR. ARMANDO GEAGONIA)."
policy.
In is clear that it was the private respondent [petitioner herein] who took out the
In its decision of 21 June 1993, 8 the Insurance Commission found that the policies on the same property subject of the insurance with petitioner. Hence, in
petitioner did not violate Condition 3 as he had no knowledge of the existence of failing to disclose the existence of these insurances private respondent violated
the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Condition No. 3 of Fire Policy No. 1462. . . .
Textiles which procured the PFIC policies without informing him or securing his
consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the Indeed private respondent's allegation of lack of knowledge of the provisions
stocks. These findings were based on the petitioner's testimony that he came to insurances is belied by his letter to petitioner [of 18 January 1991. The body of the
know of the PFIC policies only when he filed his claim with the private respondent letter reads as follows;]
and that Cebu Tesing Textile obtained them and paid for their premiums without
informing him thereof. The Insurance Commission then decreed: Please be informed that I have no knowledge of the provision requiring me
to inform your office about my
WHEREFORE, judgment is hereby rendered ordering the respondent prior insurance under FGA-28146 and F-CEB-24758. Your representative
company to pay complainant the sum of P100,000.00 with legal interest did not mention about said requirement at the time he was convincing me
from the time the complaint was filed until fully satisfied plus the amount to insure with you. If he only die or even inquired if I had other existing
of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim policies covering my establishment, I would have told him so. You will note
of respondent is hereby dismissed. that at the time he talked to me until I decided to insure with your
company the two policies aforementioned were already in effect.
Its motion for the reconsideration of the decision 9 having been denied by the Therefore I would have no reason to withhold such information and I
Insurance Commission in its resolution of 20 August 1993, 10 the private respondent would have desisted to part with my hard earned peso to pay the
appealed to the Court of Appeals by way of a petition for review. The petition was insurance premiums [if] I know I could not recover anything.
docketed as CA-G.R. SP No. 31916.
Sir, I am only an ordinary businessman interested in protecting my
In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision investments. The actual value of my stocks damaged by the fire was
of the Insurance Commission because it found that the petitioner knew of the estimated by the Police Department to be P1,000,000.00 (Please see xerox
existence of the two other policies issued by the PFIC. It said: copy of Police Report Annex "A"). My Income Statement as of December
31, 1989 or five months before the fire, shows my merchandise inventory
It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 was already some P595,455.75. . . . These will support my claim that the
that the insurance was taken in the name of private respondent [petitioner amount claimed under the three policies are much below the value of my
herein]. The policy states that "DISCOUNT MART (MR. ARMANDO stocks lost.
GEAGONIA, PROP)" was the assured and that "TESING TEXTILES" [was] only
the mortgagee of the goods. The letter contradicts private respondent's pretension that he did not know that
there were other insurances taken on the stock-in-trade and seriously puts in
In addition, the premiums on both policies were paid for by private question his credibility.
respondent, not by the Tesing Textiles which is alleged to have taken out
the other insurance without the knowledge of private respondent. This is His motion to reconsider the adverse decision having been denied, the petitioner
shown by Premium Invoices nos. 46632 and 46630. (Annexes M and N). In filed the instant petition. He contends therein that the Court of Appeals acted with
both invoices, Tesing Textiles is indicated to be only the mortgagee of the grave abuse of discretion amounting to lack or excess of jurisdiction:
60

A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE not know about the prior policies since these policies were not new or original.
COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA-
DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED RESPECT 28146 had been renewed twice, the previous policy being F-24792.
AND EVEN FINALITY BY THE COURTS;
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is
B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT not proscribed by law. Its incorporation in the policy is allowed by Section 75 of the
PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND Insurance Code 15 which provides that "[a] policy may declare that a violation of
specified provisions thereof shall avoid it, otherwise the breach of an immaterial
C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE provision does not avoid the policy." Such a condition is a provision which invariably
PRIVATE RESPONDENT. appears in fire insurance policies and is intended to prevent an increase in the
moral hazard. It is commonly known as the additional or "other insurance" clause
The chief issues that crop up from the first and third grounds are (a) whether the and has been upheld as valid and as a warranty that no other insurance exists. Its
petitioner had prior knowledge of the two insurance policies issued by the PFIC violation would thus avoid the
when he obtained the fire insurance policy from the private respondent, thereby, policy. 16 However, in order to constitute a violation, the other insurance must be
for not disclosing such fact, violating Condition 3 of the policy, and (b) if he had, upon same subject matter, the same interest therein, and the same risk. 17
whether he is precluded from recovering therefrom.
As to a mortgaged property, the mortgagor and the mortgagee have each an
The second ground, which is based on the Court of Appeals' reliance on the independent insurable interest therein and both interests may be one policy, or
petitioner's letter of reconsideration of 18 January 1991, is without merit. The each may take out a separate policy covering his interest, either at the same or at
petitioner claims that the said letter was not offered in evidence and thus should separate times. 18 The mortgagor's insurable interest covers the full value of the
not have been considered in deciding the case. However, as correctly pointed out mortgaged property, even though the mortgage debt is equivalent to the full value
by the Court of Appeals, a copy of this letter was attached to the petitioner's of the property. 19 The mortgagee's insurable interest is to the extent of the debt,
complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral part of the since the property is relied upon as security thereof, and in insuring he is not
complaint. 12 It has attained the status of a judicial admission and since its due insuring the property but his interest or lien thereon. His insurable interest is prima
execution and authenticity was not denied by the other party, the petitioner is facie the value mortgaged and extends only to the amount of the debt, not
bound by it even if it were not introduced as an independent evidence. 13 exceeding the value of the mortgaged property. 20 Thus, separate insurances
covering different insurable interests may be obtained by the mortgagor and the
mortgagee.
As to the first issue, the Insurance Commission found that the petitioner had no
knowledge of the previous two policies. The Court of Appeals disagreed and found
otherwise in view of the explicit admission by the petitioner in his letter to the A mortgagor may, however, take out insurance for the benefit of the mortgagee,
private respondent of 18 January 1991, which was quoted in the challenged which is the usual practice. The mortgagee may be made the beneficial payee in
decision of the Court of Appeals. These divergent findings of fact constitute an several ways. He may become the assignee of the policy with the consent of the
exception to the general rule that in petitions for review under Rule 45, only insurer; or the mere pledgee without such consent; or the original policy may
questions of law are involved and findings of fact by the Court of Appeals are contain a mortgage clause; or a rider making the policy payable to the mortgagee
conclusive and binding upon this Court. 14 "as his interest may appear" may be attached; or a "standard mortgage clause,"
containing a collateral independent contract between the mortgagee and insurer,
may be attached; or the policy, though by its terms payable absolutely to the
We agree with the Court of Appeals that the petitioner knew of the prior policies
mortgagor, may have been procured by a mortgagor under a contract duty to
issued by the PFIC. His letter of 18 January 1991 to the private respondent
insure for the mortgagee's benefit, in which case the mortgagee acquires an
conclusively proves this knowledge. His testimony to the contrary before the
equitable lien upon the proceeds. 21
Insurance Commissioner and which the latter relied upon cannot prevail over a
written admission made ante litem motam. It was, indeed, incredible that he did
61

In the policy obtained by the mortgagor with loss payable clause in favor of the loss," Condition 3in the private respondent's policy No. F-14622 does not absolutely
mortgagee as his interest may appear, the mortgagee is only a beneficiary under declare void any violation thereof. It expressly provides that the condition "shall not
the contract, and recognized as such by the insurer but not made a party to the apply when the total insurance or insurances in force at the time of the loss or
contract himself. Hence, any act of the mortgagor which defeats his right will also damage is not more than P200,000.00."
defeat the right of the mortgagee. 22 This kind of policy covers only such interest as
the mortgagee has at the issuing of the policy.23 It is a cardinal rule on insurance that a policy or insurance contract is to be
interpreted liberally in favor of the insured and strictly against the company, the
On the other hand, a mortgagee may also procure a policy as a contracting party in reason being, undoubtedly, to afford the greatest protection which the insured was
accordance with the terms of an agreement by which the mortgagor is to pay the endeavoring to secure when he applied for insurance. It is also a cardinal principle
premiums upon such insurance. 24 It has been noted, however, that although the of law that forfeitures are not favored and that any construction which would result
mortgagee is himself the insured, as where he applies for a policy, fully informs the in the forfeiture of the policy benefits for the person claiming thereunder, will be
authorized agent of his interest, pays the premiums, and obtains on the assurance avoided, if it is possible to construe the policy in a manner which would permit
that it insures him, the policy is in fact in the form used to insure a mortgagor with recovery, as, for example, by finding a waiver for such forfeiture. 29 Stated
loss payable clause. 25 differently, provisions, conditions or exceptions in policies which tend to work a
forfeiture of insurance policies should be construed most strictly against those for
The fire insurance policies issued by the PFIC name the petitioner as the assured whose benefits they are inserted, and most favorably toward those against whom
and contain a mortgage clause which reads: they are intended to operate. 30 The reason for this is that, except for riders which
may later be inserted, the insured sees the contract already in its final form and has
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu had no voice in the selection or arrangement of the words employed therein. On
City as their interest may appear subject to the terms of this the other hand, the language of the contract was carefully chosen and deliberated
policy. upon by experts and legal advisers who had acted exclusively in the interest of the
insurers and the technical language employed therein is rarely understood by
ordinary laymen. 31
This is clearly a simple loss payable clause, not a standard mortgage clause.

With these principles in mind, we are of the opinion that Condition 3 of the subject
It must, however, be underscored that unlike the "other insurance" clauses involved
policy is not totally free from ambiguity and must, perforce, be meticulously
in General Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety
analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to
Corp. vs. Yap, 27 which read:
double insurance, and (b) the nullity of the policy shall only be to the extent
exceeding P200,000.00 of the total policies obtained.
The insured shall give notice to the company of any insurance or
insurances already effected, or which may subsequently be effected
The first conclusion is supported by the portion of the condition referring to other
covering any of the property hereby insured, and unless such notice be
insurance "covering any of the property or properties consisting of stocks in trade,
given and the particulars of such insurance or insurances be stated in or
goods in process and/or inventories only hereby insured," and the portion
endorsed on this Policy by or on behalf of the Company before the
regarding the insured's declaration on the subheading CO-INSURANCE that the co-
occurrence of any loss or damage, all benefits under this Policy shall be
insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double
forfeited.
insurance exists where the same person is insured by several insurers separately in
respect of the same subject and interest. As earlier stated, the insurable interests of
or in the 1930 case of Santa Ana vs. Commercial Union Assurance
a mortgagor and a mortgagee on the mortgaged property are distinct and separate.
Co. 28 which provided "that any outstanding insurance upon the whole or a portion
Since the two policies of the PFIC do not cover the same interest as that covered by
of the objects thereby assured must be declared by the insured in writing and he
the policy of the private respondent, no double insurance exists. The non-disclosure
must cause the company to add or insert it in the policy, without which such policy
shall be null and void, and the insured will not be entitled to indemnity in case of
62

then of the former policies was not fatal to the petitioner's right to recover on the The petitioners’ stocks were destroyed by fire. He then filed a claim which was
private respondent's policy. subsequently denied because the petitioner’s stocks were covered by two other fire
insurance policies for Php 200,000 issued by PFIC. The basis of the private
Furthermore, by stating within Condition 3 itself that such condition shall not apply respondent's denial was the petitioner's alleged violation of Condition 3 of the
if the total insurance in force at the time of loss does not exceed P200,000.00, the policy.
private respondent was amenable to assume a co-insurer's liability up to a loss not
exceeding P200,000.00. What it had in mind was to discourage over-insurance. Geagonia then filed a complaint against the private respondent in the Insurance
Indeed, the rationale behind the incorporation of "other insurance" clause in fire Commission for the recovery of P100,000.00 under fire insurance policy and
policies is to prevent over-insurance and thus avert the perpetration of fraud. When damages. He claimed that he knew the existence of the other two policies. But, he
a property owner obtains insurance policies from two or more insurers in a total said that he had no knowledge of the provision in the private respondent's policy
amount that exceeds the property's value, the insured may have an inducement to requiring him to inform it of the prior policies and this requirement was not
destroy the property for the purpose of collecting the insurance. The public as well mentioned to him by the private respondent's agent.
as the insurer is interested in preventing a situation in which a fire would be The Insurance Commission found that the petitioner did not violate Condition 3 as
profitable to the insured. 32
he had no knowledge of the existence of the two fire insurance policies obtained
from the PFIC; that it was Cebu Tesing Textiles w/c procured the PFIC policies w/o
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of informing him or securing his consent; and that Cebu Tesing Textile, as his creditor,
Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance had insurable interest on the stocks.
Commission in Case No. 3340 is REINSTATED.
The Insurance Commission then ordered the respondent company to pay
Costs against private respondent Country Bankers Insurance Corporation. complainant the sum of P100,000.00 with interest and attorney’s fees.
CA reversed the decision of the Insurance Commission because it found that the
SO ORDERED. petitioner knew of the existence of the two other policies issued by the PFIC.

Facts: Issues:
1. WON the petitioner had not disclosed the two insurance policies when he
Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for obtained the fire insurance and thereby violated Condition 3 of the policy.
P100,000.00. The 1 year policy and covered the stock trading of dry goods. 2. WON he is prohibited from recovering
The policy noted the requirement that
Held: Yes. No. Petition Granted
"3. The insured shall give notice to the Company of any insurance or insurances
already effected, or which may subsequently be effected, covering any of the Ratio:
property or properties consisting of stocks in trade, goods in process and/or 1. The court agreed with the CA that the petitioner knew of the prior policies issued
inventories only hereby insured, and unless notice be given and the particulars of by the PFIC. His letter of 18 January 1991 to the private respondent conclusively
such insurance or insurances be stated therein or endorsed in this policy pursuant proves this knowledge. His testimony to the contrary before the Insurance
to Section 50 of the Insurance Code, by or on behalf of the Company before the Commissioner and which the latter relied upon cannot prevail over a written
occurrence of any loss or damage, all benefits under this policy shall be deemed admission made ante litem motam. It was, indeed, incredible that he did not know
forfeited, provided however, that this condition shall not apply when the total about the prior policies since these policies were not new or original.
insurance or insurances in force at the time of the loss or damage is not more than 2. Stated differently, provisions, conditions or exceptions in policies which tend to
P200,000.00." work a forfeiture of insurance policies should be construed most strictly against
63

those for whose benefits they are inserted, and most favorably toward those Held: A policy may declare that a violation of specified provisions thereof shall avoid
against whom they are intended to operate. it, otherwise, the breach of an immaterial provision does not avoid the policy. To
With these principles in mind, Condition 3 of the subject policy is not totally free constitute a violation of the “other insurance” clause, the other insurance must be
from ambiguity and must be meticulously analyzed. Such analysis leads us to upon the same subject matter, the same interest therein, and the same risk.
conclude that (a) the prohibition applies only to double insurance, and (b) the
nullity of the policy shall only be to the extent exceeding P200,000.00 of the total
policies obtained.
Furthermore, by stating within Condition 3 itself that such condition shall not apply
if the total insurance in force at the time of loss does not exceed P200,000.00, the
private respondent was amenable to assume a co-insurer's liability up to a loss not
exceeding P200,000.00. What it had in mind was to discourage over-insurance.
Indeed, the rationale behind the incorporation of "other insurance" clause in fire
policies is to prevent over-insurance and thus avert the perpetration of fraud. When
a property owner obtains insurance policies from two or more insurers in a total
amount that exceeds the property's value, the insured may have an inducement to
destroy the property for the purpose of collecting the insurance. The public as well
as the insurer is interested in preventing a situation in which a fire would be
profitable to the insured.

Geagonia vs. Court of Appeals, 241 SCRA 152

Facts:

Geagonia, owner of a store, obtained from Country Bankers 1year fire insurance
covering the stock trading of dry goods. The policy noted the requirement
that"3. The insured shall give notice to the Company of any insurance or insurances
already effected, or which may subsequently be effected, covering any of
the property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, The petitioners’ stocks were destroyed by fire. He
then filed a claim which was subsequently denied because the petitioner’s stocks
were covered by two other
fire insurance policies issued by PFIC. The basis of the private respondent's denial
was the petitioner's alleged violation of Condition 3 of the policy. The Insurance
Commission found that the petitioner did not violate Condition 3 as he had no
knowledge of the existence of the two fire insurance policies obtained from the
PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies w/o
informing him or securing his consent; and that Cebu Tesing Textile, as his
creditor,had insurable interest on the stocks.

Issue: Whether or not Geagonia is prohibited from recovering from the Country
Bankers ?
64

SECOND DIVISION Under the contract, Reputable undertook to answer for "all risks with respect to the
goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or
G.R. No. 184300 July 11, 2012 damage of the goods/products due to any and all causes whatsoever, including
theft, robbery, flood, storm, earthquakes, lightning, and other force majeure while
MALAYAN INSURANCE CO., INC., Petitioner, the goods/products are in transit and until actual delivery to the customers,
vs. salesmen, and dealers of the COMPANY".6
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES,
INC., Respondents. The contract also required Reputable to secure an insurance policy on Wyeth’s
goods.7 Thus, on February 11, 1994, Reputable signed a Special Risk Insurance
DECISION Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.

REYES, J.: On October 6, 1994, during the effectivity of the Marine Policy and SR Policy,
Reputable received from Wyeth 1,000 boxes of Promil infant formula worth
P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis,
Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan
Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s products
Insurance Co., lnc. (Malayan) assailing the Decision1 dated February 29, 2008 and
was hijacked by about 10 armed men. They threatened to kill the truck driver and
Resolution2 dated August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No.
two of his helpers should they refuse to turn over the truck and its contents to the
71204 which affirmed with modification the decision of the Regional Trial Court
said highway robbers. The hijacked truck was recovered two weeks later without its
(RTC), Branch 38 of Manila.
cargo.
Antecedent Facts
On March 8, 1995, Philippines First, after due investigation and adjustment, and
pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder
First then demanded reimbursement from Reputable, having been subrogated to
Services, Inc. (Reputable) had been annually executing a contract of carriage,
the rights of Wyeth by virtue of the payment. The latter, however, ignored the
whereby the latter undertook to transport and deliver the former’s products to its
demand.
customers, dealers or salesmen.3
Consequently, Philippines First instituted an action for sum of money against
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine
Reputable on August 12, 1996.8 In its complaint, Philippines First stated that
Policy) from respondent Philippines First Insurance Co., Inc. (Philippines First) to
Reputable is a "private corporation engaged in the business of a common carrier."
secure its interest over its own products. Philippines First thereby insured Wyeth’s
In its answer,9 Reputable claimed that it is a private carrier. It also claimed that it
nutritional, pharmaceutical and other products usual or incidental to the insured’s
cannot be made liable under the contract of carriage with Wyeth since the contract
business while the same were being transported or shipped in the Philippines. The
was not signed by Wyeth’s representative and that the cause of the loss was force
policy covers all risks of direct physical loss or damage from any external cause, if by
majeure, i.e., the hijacking incident.
land, and provides a limit of P6,000,000.00 per any one land vehicle.
Subsequently, Reputable impleaded Malayan as third-party defendant in an effort
On December 1, 1993, Wyeth executed its annual contract of carriage with
to collect the amount covered in the SR Policy. According to Reputable, "it was
Reputable. It turned out, however, that the contract was not signed by Wyeth’s
validly insured with Malayan for P1,000,000.00 with respect to the lost products
representative/s.4 Nevertheless, it was admittedly signed by Reputable’s
under the latter’s Insurance Policy No. SR-0001-02577 effective February 1, 1994 to
representatives, the terms thereof faithfully observed by the parties and, as
February 1, 1995" and that the SR Policy covered the risk of robbery or hijacking.10
previously stated, the same contract of carriage had been annually executed by the
parties every year since 1989.5
65

Disclaiming any liability, Malayan argued, among others, that under Section 5 of the Reputable asserted that the RTC erred in holding that its contract of carriage with
SR Policy, the insurance does not cover any loss or damage to property which at the Wyeth was binding despite Wyeth’s failure to sign the same. Reputable further
time of the happening of such loss or damage is insured by any marine policy and contended that the provisions of the contract are unreasonable, unjust, and
that the SR Policy expressly excluded third-party liability. contrary to law and public policy.

After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines For its part, Malayan invoked Section 5 of its SR Policy, which provides:
First for the amount of indemnity it paid to Wyeth, among others. In turn, Malayan
was found by the RTC to be liable to Reputable to the extent of the policy coverage. Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any
The dispositive portion of the RTC decision provides: loss or damage to property which at the time of the happening of such loss or
damage is insured by or would but for the existence of this policy, be insured by any
WHEREFORE, on the main Complaint, judgment is hereby rendered finding Fire or Marine policy or policies except in respect of any excess beyond the amount
[Reputable] liable for the loss of the Wyeth products and orders it to pay Philippines which would have been payable under the Fire or Marine policy or policies had this
First the following: insurance not been effected.

1. the amount of P2,133,257.00 representing the amount paid by Malayan argued that inasmuch as there was already a marine policy issued by
Philippines First to Wyeth for the loss of the products in question; Philippines First securing the same subject matter against loss and that since the
monetary coverage/value of the Marine Policy is more than enough to indemnify
2. the amount of P15,650.00 representing the adjustment fees paid by the hijacked cargo, Philippines First alone must bear the loss.
Philippines First to hired adjusters/surveyors;
Malayan sought the dismissal of the third-party complaint against it. In the
3. the amount of P50,000.00 as attorney’s fees; and alternative, it prayed that it be held liable for no more than P468,766.70, its alleged
pro-rata share of the loss based on the amount covered by the policy, subject to the
4. the costs of suit. provision of Section 12 of the SR Policy, which states:

On the third-party Complaint, judgment is hereby rendered finding 12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to
any property hereby insured, there be any other subsisting insurance or insurances,
whether effected by the insured or by any other person or persons, covering the
Malayan liable to indemnify [Reputable] the following:
same property, the company shall not be liable to pay or contribute more than its
ratable proportion of such loss or damage.
1. the amount of P1,000,000.00 representing the proceeds of the
insurance policy;
On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of
the RTC, the decretal portion of which reads:
2. the amount of P50,000.00 as attorney’s fees; and
WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September
3. the costs of suit.
2000, as modified in the Order dated 21 July 2001, is AFFIRMED with
MODIFICATION in that the award of attorney’s fees in favor of Reputable is
SO ORDERED.12 DELETED.

Dissatisfied, both Reputable and Malayan filed their respective appeals from the SO ORDERED.13
RTC decision.
66

The CA ruled, among others, that: (1) Reputable is estopped from assailing the conclusive between the parties, and that a review of such finding by the Court is not
validity of the contract of carriage on the ground of lack of signature of Wyeth’s warranted under the circumstances. As to its alleged judicial admission that
representative/s; (2) Reputable is liable under the contract for the value of the Reputable is a common carrier, Philippines First proffered the declaration made by
goods even if the same was lost due to fortuitous event; and (3) Section 12 of the Reputable that it is a private carrier. Said declaration was allegedly reiterated by
SR Policy prevails over Section 5, it being the latter provision; however, since the Reputable in its third party complaint, which in turn was duly admitted by Malayan
ratable proportion provision of Section 12 applies only in case of double insurance, in its answer to the said third-party complaint. In addition, Reputable even
which is not present, then it should not be applied and Malayan should be held presented evidence to prove that it is a private carrier.
liable for the full amount of the policy coverage, that is, P1,000,000.00. 14
As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First
On March 14, 2008, Malayan moved for reconsideration of the assailed decision but reiterated the ruling of the CA. Philippines First, however, prayed for a slight
it was denied by the CA in its Resolution dated August 28, 2008.15 modification of the assailed decision, praying that Reputable and Malayan be
rendered solidarily liable to it in the amount of P998,000.00, which represents the
Hence, this petition. balance from the P1,000.000.00 coverage of the SR Policy after deducting P2,000.00
under Section 10 of the said SR Policy.17
Malayan insists that the CA failed to properly resolve the issue on the "statutory
limitations on the liability of common carriers" and the "difference between an Issues
‘other insurance clause’ and an ‘over insurance clause’."
The liability of Malayan under the SR Policy hinges on the following issues for
Malayan also contends that the CA erred when it held that Reputable is a private resolution:
carrier and should be bound by the contractual stipulations in the contract of
carriage. This argument is based on its assertion that Philippines First judicially 1) Whether Reputable is a private carrier;
admitted in its complaint that Reputable is a common carrier and as such,
Reputable should not be held liable pursuant to Article 1745(6) of the Civil 2) Whether Reputable is strictly bound by the stipulations in its contract of
Code.16 Necessarily, if Reputable is not liable for the loss, then there is no reason to carriage with Wyeth, such that it should be liable for any risk of loss or
hold Malayan liable to Reputable. damage, for any cause whatsoever, including that due to theft or robbery
and other force majeure;
Further, Malayan posits that there resulted in an impairment of contract when the
CA failed to apply the express provisions of Section 5 (referred to by Malayan as 3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and
over insurance clause) and Section 12 (referred to by Malayan as other insurance Section 12 of the SR Policy; and
clause) of its SR Policy as these provisions could have been read together there
being no actual conflict between them. 4) Whether Reputable should be held solidarily liable with Malayan for the
amount of P998,000.00 due to Philippines First.
Reputable, meanwhile, contends that it is exempt from liability for acts committed
by thieves/robbers who act with grave or irresistible threat whether it is a common The Court’s Ruling
carrier or a private/special carrier. It, however, maintains the correctness of the CA
ruling that Malayan is liable to Philippines First for the full amount of its policy
On the first issue – Reputable is a private carrier.
coverage and not merely a ratable portion thereof under Section 12 of the SR
Policy.
The Court agrees with the RTC and CA that Reputable is a private carrier. Well-
entrenched in jurisprudence is the rule that factual findings of the trial court,
Finally, Philippines First contends that the factual finding that Reputable is a private
especially when affirmed by the appellate court, are accorded the highest degree of
carrier should be accorded the highest degree of respect and must be considered
67

respect and considered conclusive between the parties, save for certain exceptional Hence, in the face of Reputable’s contrary admission as to the nature of its own
and meritorious circumstances, none of which are present in this case. 18 business, what was stated by Philippines First in its complaint is reduced to nothing
more than mere allegation, which must be proved for it to be given any weight or
Malayan relies on the alleged judicial admission of Philippines First in its complaint value. The settled rule is that mere allegation is not proof.26
that Reputable is a common carrier.19 Invoking Section 4, Rule 129 of the Rules on
Evidence that "an admission verbal or written, made by a party in the course of the More importantly, the finding of the RTC and CA that Reputable is a special or
proceeding in the same case, does not require proof," it is Malayan’s position that private carrier is warranted by the evidence on record, primarily, the unrebutted
the RTC and CA should have ruled that testimony of Reputable’s Vice President and General Manager, Mr. William Ang
Lian Suan, who expressly stated in open court that Reputable serves only one
Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the customer, Wyeth.27
Civil Code, the liability of Reputable for the loss of Wyeth’s goods should be
dispensed with, or at least diminished. Under Article 1732 of the Civil Code, common carriers are persons, corporations,
firms, or associations engaged in the business of carrying or transporting passenger
It is true that judicial admissions, such as matters alleged in the pleadings do not or goods, or both by land, water or air for compensation, offering their services to
require proof, and need not be offered to be considered by the court. "The court, the public. On the other hand, a private carrier is one wherein the carriage is
for the proper decision of the case, may and should consider, without the generally undertaken by special agreement and it does not hold itself out to carry
introduction of evidence, the facts admitted by the parties."20 The rule on judicial goods for the general public.28 A common carrier becomes a private carrier when it
admission, however, also states that such allegation, statement, or admission is undertakes to carry a special cargo or chartered to a special person only. 29 For all
conclusive as against the pleader,21 and that the facts alleged in the complaint are intents and purposes, therefore, Reputable operated as a private/special carrier
deemed admissions of the plaintiff and binding upon him. 22 In this case, the pleader with regard to its contract of carriage with Wyeth.
or the plaintiff who alleged that Reputable is a common carrier was Philippines
First. It cannot, by any stretch of imagination, be made conclusive as against On the second issue – Reputable is bound by the terms of the contract of carriage.
Reputable whose nature of business is in question.
The extent of a private carrier’s obligation is dictated by the stipulations of a
It should be stressed that Philippines First is not privy to the SR Policy between contract it entered into, provided its stipulations, clauses, terms and conditions are
Wyeth and Reputable; rather, it is a mere subrogee to the right of Wyeth to collect not contrary to law, morals, good customs, public order, or public policy. "The Civil
from Reputable under the terms of the contract of carriage. Philippines First is not Code provisions on common carriers should not be applied where the carrier is not
in any position to make any admission, much more a definitive pronouncement, as acting as such but as a private carrier. Public policy governing common carriers has
to the nature of Reputable’s business and there appears no other connection no force where the public at large is not involved."30
between Philippines First and Reputable which suggests mutual familiarity between
them. Thus, being a private carrier, the extent of Reputable’s liability is fully governed by
the stipulations of the contract of carriage, one of which is that it shall be liable to
Moreover, records show that the alleged judicial admission of Philippines First was Wyeth for the loss of the goods/products due to any and all causes whatsoever,
essentially disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its including theft, robbery and other force majeure while the goods/products are in
answer that it is actually a private or special carrier.23In addition, Reputable stated transit and until actual delivery to Wyeth’s customers, salesmen and dealers. 31
in paragraph 2 of its third-party complaint that it is "a private carrier engaged in the
carriage of goods."24 Such allegation was, in turn, admitted by Malayan in On the third issue – other insurance vis-à-vis over insurance.
paragraph 2 of its answer to the third-party complaint.25 There is also nothing in the
records which show that Philippines First persistently maintained its stance that Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to
Reputable is a common carrier or that it even contested or proved otherwise Section 12 as a "modified ‘other insurance’ clause". 32 In rendering inapplicable said
Reputable’s position that it is a private or special carrier. provisions in the SR Policy, the CA ruled in this wise:
68

Since Sec. 5 calls for Malayan’s complete absolution in case the other insurance Condition No. 3 does not absolutely declare void any violation thereof but expressly
would be sufficient to cover the entire amount of the loss, it is in direct conflict with provides that the condition "shall not apply when the total insurance or insurances
Sec. 12 which provides only for a pro-rated contribution between the two insurers. in force at the time of the loss or damage is not more than P200,000.00."
Being the later provision, and pursuant to the rules on interpretation of contracts,
Sec. 12 should therefore prevail. In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for
the nullity of the SR Policy but simply limits the liability of Malayan only up to the
x x x The intention of both Reputable and Malayan should be given effect as against excess of the amount that was not covered by the other insurance policy. In
the wordings of Sec. 12 of their contract, as it was intended by the parties to interpreting the "other insurance clause" in Geagonia, the Court ruled that the
operate only in case of double insurance, or where the benefits of the policies of prohibition applies only in case of double insurance. The Court ruled that in order to
both plaintiff-appellee and Malayan should pertain to Reputable alone. But since constitute a violation of the clause, the other insurance must be upon same subject
the court a quo correctly ruled that there is no double insurance in this case matter, the same interest therein, and the same risk. Thus, even though the
inasmuch as Reputable was not privy thereto, and therefore did not stand to multiple insurance policies involved were all issued in the name of the same
benefit from the policy issued by plaintiff-appellee in favor of Wyeth, then assured, over the same subject matter and covering the same risk, it was ruled that
Malayan’s stand should be rejected. there was no violation of the "other insurance clause" since there was no double
insurance.
To rule that Sec. 12 operates even in the absence of double insurance would work
injustice to Reputable which, despite paying premiums for a P1,000,000.00 Section 12 of the SR Policy, on the other hand, is the over insurance clause. More
insurance coverage, would not be entitled to recover said amount for the simple particularly, it covers the situation where there is over insurance due to double
reason that the same property is covered by another insurance policy, a policy to insurance. In such case, Section 15 provides that Malayan shall "not be liable to pay
which it was not a party to and much less, from which it did not stand to benefit. or contribute more than its ratable proportion of such loss or damage." This is in
Plainly, this unfair situation could not have been the intention of both Reputable accord with the principle of contribution provided under Section 94(e) of the
and Malayan in signing the insurance contract in question. 33 Insurance Code,37 which states that "where the insured is over insured by double
insurance, each insurer is bound, as between himself and the other insurers, to
In questioning said ruling, Malayan posits that Sections 5 and 12 are separate contribute ratably to the loss in proportion to the amount for which he is liable
provisions applicable under distinct circumstances. Malayan argues that "it will not under his contract."
be completely absolved under Section 5 of its policy if it were the assured itself who
obtained additional insurance coverage on the same property and the loss incurred Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The
by Wyeth’s cargo was more than that insured by Philippines First’s marine policy. pivotal question that now arises is whether there is double insurance in this case
On the other hand, Section 12 will not completely absolve Malayan if additional such that either Section 5 or Section 12 of the SR Policy may be applied.
insurance coverage on the same cargo were obtained by someone besides
Reputable, in which case Malayan’s SR policy will contribute or share ratable By the express provision of Section 93 of the Insurance Code, double insurance
proportion of a covered cargo loss."34 exists where the same person is insured by several insurers separately in respect to
the same subject and interest. The requisites in order for double insurance to arise
Malayan’s position cannot be countenanced. are as follows:38

Section 5 is actually the other insurance clause (also called "additional insurance" 1. The person insured is the same;
and "double insurance"), one akin to Condition No. 3 in issue in Geagonia v.
CA,35 which validity was upheld by the Court as a warranty that no other insurance 2. Two or more insurers insuring separately;
exists. The Court ruled that Condition No. 336 is a condition which is not proscribed
by law as its incorporation in the policy is allowed by Section 75 of the Insurance 3. There is identity of subject matter;
Code. It was also the Court’s finding that unlike the other insurance clauses,
69

4. There is identity of interest insured; and Moreover, the CA correctly ruled that:

5. There is identity of the risk or peril insured against. To rule that Sec. 12 operates even in the absence of double insurance would work
injustice to Reputable which, despite paying premiums for a P1,000,000.00
In the present case, while it is true that the Marine Policy and the SR Policy were insurance coverage, would not be entitled to recover said amount for the simple
both issued over the same subject matter, i.e. goods belonging to Wyeth, and both reason that the same property is covered by another insurance policy, a policy to
covered the same peril insured against, it is, however, beyond cavil that the said which it was not a party to and much less, from which it did not stand to benefit. x x
policies were issued to two different persons or entities. It is undisputed that Wyeth x41
is the recognized insured of Philippines First under its Marine Policy, while
Reputable is the recognized insured of Malayan under the SR Policy. The fact that On the fourth issue – Reputable is not solidarily liable with Malayan.
Reputable procured Malayan’s SR Policy over the goods of Wyeth pursuant merely
to the stipulated requirement under its contract of carriage with the latter does not There is solidary liability only when the obligation expressly so states, when the law
make Reputable a mere agent of Wyeth in obtaining the said SR Policy. so provides or when the nature of the obligation so requires.

The interest of Wyeth over the property subject matter of both insurance contracts In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 the Court ruled
is also different and distinct from that of Reputable’s. The policy issued by that:
Philippines First was in consideration of the legal and/or equitable interest of
Wyeth over its own goods. On the other hand, what was issued by Malayan to Where the insurance contract provides for indemnity against liability to third
Reputable was over the latter’s insurable interest over the safety of the goods, persons, the liability of the insurer is direct and such third persons can directly sue
which may become the basis of the latter’s liability in case of loss or damage to the the insurer. The direct liability of the insurer under indemnity contracts against
property and falls within the contemplation of Section 15 of the Insurance Code.39 third party[- ]liability does not mean, however, that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault, since they
Therefore, even though the two concerned insurance policies were issued over the are being held liable under different obligations. The liability of the insured carrier
same goods and cover the same risk, there arises no double insurance since they or vehicle owner is based on tort, in accordance with the provisions of the Civil
were issued to two different persons/entities having distinct insurable interests. Code; while that of the insurer arises from contract, particularly, the insurance
Necessarily, over insurance by double insurance cannot likewise exist. Hence, as policy:43 (Citation omitted and emphasis supplied)
correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy
can be applied. Suffice it to say that Malayan's and Reputable's respective liabilities arose from
different obligations- Malayan's is based on the SR Policy while Reputable's is based
Apart from the foregoing, the Court is also wont to strictly construe the on the contract of carriage.
controversial provisions of the SR Policy against Malayan.1âwphi1 This is in keeping
with the rule that: All told, the Court finds no reversible error in the judgment sought to be reviewed.

"Indemnity and liability insurance policies are construed in accordance with the WHEREFORE, premises considered, the petition is DENIED. The Decision dated
general rule of resolving any ambiguity therein in favor of the insured, where the February 29, 2008 and Resolution dated August 28, 2008 of the Court of Appeals in
contract or policy is prepared by the insurer. A contract of insurance, being a CA-G.R. CV No. 71204 are hereby AFFIRMED.
contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the
Cost against petitioner Malayan Insurance Co., Inc.
insured and strictly against the insurer. Limitations of liability should be regarded
with extreme jealousy and must be construed in such a way as to preclude the
SO ORDERED.
insurer from noncompliance with its obligations."40
70

EN BANC P1,334.80 with legal interest thereon from the date of the filing of the complaint
until fully paid, P500.00 as attorney's fees, and the costs of the suit.
G.R. No. L-17436 January 31, 1962
On June 9, 1959, defendant filed a motion to dismiss said complaint, on the ground
EQUITABLE INSURANCE AND CASUALTY COMPANY, INC., plaintiff-appellee, that it states no cause of action, as pursuant to Article VIII of the Reinsurance
vs. Agreement between the parties, before a court action can be brought, the parties
RURAL INSURANCE AND SURETY COMPANY, INC., defendant-appellant. agreed to submit all disputes to a board of arbitrators. To this motion, plaintiff duly
filed an opposition. On June 16, 1959, the court denied said motion to dismiss for
lack of merit and required defendant to answer.
BARRERA, J.:

On June 20, 1959, defendant flied its answer alleging as affirmative defenses that
On May 26, 1959, plaintiff Equitable Insurance and Casualty Company, Inc. filed
paragraph 3, Article III of the Reciprocal Reinsurance Agreement between the
with the Court of First Instance of Manila a complaint (Civil Case No. 40282) against
parties is controlled by Article VIII thereof, that the nature of the agreement is "self-
defendant Rural Insurance and Surety Company, Inc. alleging, as first cause of
liquidating between the parties" the reinsurer becoming a reinsured, and the
action, that on November 11, 1957, plaintiff and defendant entered into a
reinsured becoming reinsurer; and that said agreement has not yet been abrogated,
reciprocal facultative reinsurance agreement, wherein they agreed to cede to each
so that plaintiff's liability to defendant is not yet known, nor the liability of
other, by way of facultative reinsurance on policies of insurance or reinsurance
defendant to plaintiff. Defendant prayed that the complaint be dismissed and that
issued by their respective fire insurance departments on risks situated in the
plaintiff be ordered to pay to it attorney's fees in the sum of P700.00 and the costs
Philippines, subject to the stipulations of the agreement; that pursuant to said
of the suit.1äwphï1.ñët
agreement, plaintiff on January 29, 1958, reinsured for P2,000.00 with defendant as
per Reinsurance Application No. 58/038 and accepted by defendant on the same
date, the stock covered by fire insurance Policy No. 5880 issued by plaintiff in behalf On July 8, 1959, plaintiff filed a motion for judgment on the pleadings, which was
of Messrs. Jaen Bermers' Cooperative Marketing Association, Inc.: that on July 4, opposed by defendant on July 13. On July 15, 1959, the court issued an order
1958, the stock insured and covered by said Policy No. 5880 was burned, and the denying said motion.
share of the loss assumed by defendant as per reinsurance agreement was
computed at P2,024.87 including adjuster's fee, for which plaintiff sent to Instead of going into a formal hearing, the parties on August 12, 1959, submitted
defendant for payment by the latter, a statement of account dated March 12, 1959; the case for decision on the following stipulation of facts:
that despite repeated demands by plaintiff, defendant refused and failed to pay the
sum of P2,024.87. On the second cause of action, plaintiff on March 24, 1958 1. That the defendant admits the allegations contained in paragraphs 1, 2,
reinsured in the sum of P2,000.00 with defendant as per Reinsurance Application 3, 4 and all other allegations of the complaint, including the letter of the
No. 58/115 and accepted by defendant on the same date, stock covered by fire Assistant Insurance Commissioner, addressed to Miss Anunciacion Aznar,
insurance Policy No. 6026, issued by plaintiff in behalf of Electric and Lamp Supplies President of the Rural Insurance & Surety Co., dated May 4, 1959, which
(Mr. Pedro Casipe); that on October 13, 1958, said stock was burned and the share reads as follows: .
of loss assumed by defendant as per reinsurance agreement with plaintiff was
computed at P1,334.80 including adjuster's fee, for which plaintiff likewise sent a "MADAM:
statement of account dated February 4, 1959, to defendant with the request that
the same be paid; that notwithstanding repeated demands, defendant refused and "We are enclosing herewith copy of the self-explanatory letter of Mr. S. A.
failed to pay plaintiffs; and that for defendant's failure to pay its share of the losses Santos, General Manager of the above-subject company, dated April 11,
assumed by it, plaintiff has been compelled to institute the present action and to 1959, with the request that we be favored with your comments thereon at
incur attorney's fees and expenses of litigation amounting to P500.00. Plaintiff an early date.
prayed for judgment ordering the defendant to pay said sums of P2,024.80 and
71

"Kindly give your preferential attention hereto." days after their appointment. The seat of arbitration shall be in Manila,
Philippines, and the expenses of arbitration shall be borne in equal
2. That plaintiff admits that the issues and/or dispute subject of the proportion by the parties. The decision of the arbitrators or umpire, as the
present complaint were not submitted to a Board of Arbitrators and case may be, shall be final and binding on both the Company and the
umpire, as provided in paragraph VIII of Annex 'A' to the complaint, but Reinsurer. The arbitrators and umpire shall not be bound by the strict rules
instead the matter was referred to the Insurance Commissioner as of evidence and by judicial formalities in making the award.
evidenced by the letter of said office quoted above." (Emphasis supplied.) .
It is contended that this agreement, not being contrary to law, moral or public
On October 16, 1959, the court rendered a decision the dispositive part of which policy but, on the other hand, dictated by 'wisdom and propriety in insurance
reads: . contracts because losses by fire can duly be determined by competent men who
have technical knowledge on how to determine losses by fire", non-compliance
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of therewith is fatal to the claim of plaintiff-appellee.
the plaintiff Equitable Insurance & Casualty Co., Inc. and against the
defendant Rural Insurance & Surety Co., Inc., ordering the latter to pay to We find no merit in this contention. Under the abovequoted provision of the
the former the sum of P2,024.87, under the first cause of action, with legal Reinsurance Agreement, it would seem clear that the requirement of submitting for
interest from the date of the filing of the complaint until fully paid; the decision to two arbitrators or an umpire the matter of losses by fire or the liability
sum of P1,334.80, under the second cause of action with legal interest of the parties thereto arises only if and when the same is disputed by one of the
from the date of the filing of the complaint, until fully paid; plus the further parties. It does not appear in the instant case that appellant did dispute appellee's
sum of P500.00 as attorney's fees and the costs of the suit. claims. Consequently, appellant may not invoke said provision in avoidance of its
liability to appellee. On this point, the trial court correctly made the following
From this decision, defendant appealed to the Court of Appeals which elevated the observations, to which we fully agree and adopt as our own: .
case to us, no question of fact being involved.
It is true that paragraph (Article VIII) of said Reciprocal Facultative
Under his first assignment of error, defendant-appellant insists that the trial court Reinsurance Agreement required that 'in the event of any question arising
erred in failing to rule that plaintiff-appellee has no causes of action against it, the as to the meaning of, or any way connected with or relating to this
matter not having been referred to the decision of two arbitrators or umpire, Agreement, whether before or after its termination, the parties shall
which, it is claimed, is the condition precedent agreed upon in Article VIII of the endeavor to arrive at a satisfactory compromise by amicable settlement
Reinsurance Agreement entered into between the parties, to wit: . rather than by court action'; and that the dispute should be referred to the
decision of two arbitrators and umpire, as provided, therein. However, in
this particular case, there is absolutely no dispute between the two
ARTICLE VIII
parties, because in the stipulation of facts, the defendant has admitted
that plaintiff has paid its liability to the insured as per its fire insurance
In the event of any question arising as to the meaning of, or any way
policies specified in the two causes of action of the complaint. Defendant
connected with or relating to this Agreement, whether before or after its
has, likewise, admitted its liability as reinsurer under the Reciprocal
termination, the parties shall endeavor to arrive at a satisfactory
Facultative Reinsurance Agreement (Annex "A" to the complaint) to pay to
compromise by amicable settlement rather than by court action. The
the plaintiff its proportional shares, the amounts of which are not
dispute shall be referred to the decision of two arbitrators, of whom one
disputed. Indeed, according to the complaint as admitted by the
shall be appointed in writing by each of the parties within thirty (30) days
defendant, statements of account as to the amounts of its share as
after having been required so to do by the other party in writing, and in
reinsurer and, for all that appears, said defendant has never questioned
case of disagreement between the arbitrators, to the decision of the
the correctness of said amounts. It is, likewise, admitted by the defendant
umpire to be appointed by them in writing before entering on the
in the stipulation of facts, that because of its failure to pay said amounts,
reference. Each party shall submit its case with all particulars within thirty
72

the plaintiff, on April 11, 1959, complained to the Assistant Insurance Equitable likewise reinsured with Rural the stocks of Electric and Lamp Supplies
Commissioner, for official intervention, but said defendant has continued covered by fire insurance policies. The stocks were burned. Rural refused to pay its
to ignore plaintiff's demands for reimbursement under the reinsurance share of loss. Hence this complaint for recovery was filed. Rural moved for its
policies.
dismissal alleging that there is no cause of action. Invoking Article VIII of the
Reinsurance Agreement, it alleged that the matter should be brought to the board
Moreover, as decided by the Court of Appeals in the case of
of arbitrators before the court action could take place. Motion to dismiss denied.
Buenaventura Maligad v. United Assurance Co., Inc., 55 O.G. 6041:
The RTC ruled in favor of Equitable. The appeal to CA was brought to the SC.
If in the course of the settlement of a loss, the action of the company or its
agents amounts to a refusal to pay, the company will be deemed to have Issue: Whether or not Equitable has a cause of action against Rural.
waived the condition precedent with reference to arbitration and a suit
upon the policy will lie. (Chang v. Assurance Corporation, 8 Phil. 399.) Held:
Emphasis supplied.
Yes. It is true that paragraph (Article VIII) of said Reciprocal Facultative Reinsurance
In the second and last assignment of error, appellant claims that "the court a Agreement required that 'in the event of any question arising as to the meaning of,
quo erred in failing to rule that in a facultative obligation the right to choose an or any way connected with or relating to this Agreement, whether before or after
alternative remedy lies only with the debtor, who in this case is the herein its termination, the parties shall endeavor to arrive at a satisfactory compromise by
defendant-appellant", and in support thereof, cites Article 1206 of the new Civil amicable settlement rather than by court action'; and that the dispute should be
Code.
referred to the decision of two arbitrators and umpire, as provided, therein.
However, in this particular case, there is absolutely no dispute between the two
We find no connection whatsoever between this article and the agreement subject
parties, because in the stipulation of facts, the defendant has admitted
of this action, except the word "facultative" used in both. The term "facultative" is
used in reinsurance contracts, and it is so used in this particular case, merely to that plaintiff has paid its liability to the insured as per its fire insurance policies
define the right of the reinsurer to accept or not to accept participation in the risk specified in the two causes of action of the complaint. Defendant has, likewise,
insured. But once the share is accepted, as it was in the case at bar, the obligation is admitted its liability as reinsurer under the Reciprocal Facultative Reinsurance
absolute and the liability assumed thereunder can be discharged by one and only Agreement to pay to the plaintiff its proportional shares, the amounts of which are
way — payment of the share of the losses. There is no alternative nor substitute not disputed. Indeed, according to the complaint as admitted by the defendant,
prestation. statements of account as to the amounts of its share as reinsurer and, for all that
appears, said defendant has never questioned the correctness of said amounts.
WHEREFORE, finding no error in the judgment appealed from of the trial court, the
same is hereby affirmed, with costs against the defendant-appellant. So ordered. The appellant’s claim that the court erred in failing to rule that in a facultative
obligation the right to choose an alternative remedy lies only with the debtor, who
Facts: in this case is Rural was held untenable. The term "facultative" is so used in
reinsurance contracts merely to define the right of the reinsurer to accept or not to
Equitable reinsured with Rural the stock covered by the fire insurance policy issued accept participation in the risk insured. But once the share is accepted, as it was in
by Equitable to Messrs. Jaen Bermer’s Cooperative Marketing Association, Inc. The the case at bar, the obligation is absolute and the liability assumed thereunder can
stocks were burned. A statement of account covering the share of the loss assumed be discharged by payment of the share of the losses. There is no alternative nor
by Rural was sent by Equitable. Despite repeated demands Rural refused to pay. substitute prestation.
73

EN BANC Following are the facts that gave rise to the present controversy:

G.R. No. L-19255 January 18, 1968 On January 1, 1950, Philippine American Life Insurance Company [Philamlife], a
domestic life insurance corporation, and American International Reinsurance
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, petitioner, Company [Airco] of Pembroke, Bermuda, a corporation organized under the laws of
vs. the Republic of Panama, entered into an agreement — reinsurance treaty — which
THE AUDITOR GENERAL, respondent. provides in its paragraph 1, Article I, the following:

SANCHEZ, J.: Art. I. On and after the 1st day of January 1950, the Ceding Company
[Philamlife] agrees to reinsure with AIRCO the entire first excess of such
Broadly stated, petitioner's appeal challenges the correctness of the Auditor life insurance on the lives of persons as may be written by the Ceding
General's ruling that "[r]emittance of premia on insurance policies issued or Company under direct application over and above its maximum limit of
renewed on or after July 16, 1959, or even if issued or renewed before the said retention for life insurance, and AIRCO binds itself, subject to the terms
date, but their reinsurance was effected, only thereafter, are not exempt from the and provisions of this agreement, to accept such reinsurances on the same
margin fee, even if the reinsurance treaty under which they are reinsured was terms and for an amount not exceeding its maximum limit for automatic
approved by the Central Bank before July 16, 1959." So stated, the case calls into acceptance of life reinsurance. . . .
question the applicability of Section 3 of the Margin Law (Republic Act 2609,
approved on July 16, 1959) which exempts certain obligations from payment of the By the third paragraph of the same Article I, it is also stipulated that even though
margin fee, thus: Philamlife "is already on a risk for its maximum retention under policies previously
issued, when new policies are applied for and issued [Philamlife] can cede
Sec. 3. The provisions of this Act shall not apply to the liquidation of drafts automatically any amount, within the limits . . . specified, on the same terms on
drawn under letters of credit nor of contractual obligations calling for which it would be willing to accept the risk for its own account, if it did not already
payment of foreign exchange issued, approved and outstanding as of the have its limit of retention."
date this Act takes effect and the extension thereof, with the same terms
and conditions as the original contractual obligations: Provided, That the Reinsurances under said reinsurance treaty of January 1, 1950 may also be had
repayment of loans contracted by the government of the Philippines with facultatively upon other cases pursuant to Article II thereof, whereby Airco's liability
foreign governments and/or private banks and the importation of begins from acceptance of the risk. These cases include those set forth in paragraph
machineries and equipment by provinces, cities or municipalities for the 2 of the treaty's Article I which expressly excludes from automatic reinsurance the
exclusive use in the operation of public utilities fully-owned and following: (a) any application for life insurance with Philamlife which, together with
maintained by them shall likewise be exempted from the operation of this other papers containing information as to insurability of the risk, shows that "the
Act. total amount of life insurance (including accidental death benefit) applied for to or
already issued by all companies [other life insurance companies which had
Appropriate to state here is that — except as otherwise in the law stated — the previously accepted the risk] exceeds the equivalent of Five Hundred Thousand
Margin Law subjects all sales of foreign exchange by the Central Bank and its Dollars ($500,000) United States currency," and (b) any life on which Philamlife
authorized agent banks to a uniform margin of not more than forty per cent (40%) 'retains for its own account less than its regular maximum limit of retention for the
over the banks' selling rates. 1 The Monetary Board is empowered to fix the margin age, sex, plan, rating and occupation of the risk.'
"at such rate as it may deem necessary to effectively curtail any excessive demand
upon the international reserve." 2 Such margin, however, "shall not be changed Every life insurance policy reinsured under the aforecited agreement "shall be upon
oftener than once a year except upon the recommendation of the National the yearly renewable term plan for the amount at risk under the policy reinsured." 5
Economic Council and the approval of the President." 3 The Monetary Board has
pegged the margin fee at 25%. 4
74

Philamlife agrees to pay premiums for all reinsurances "on an annual premium But the validity of such claim must be tested by the provisions of Section 3 of the
basis." 6 Margin Law quoted earlier in this opinion. Said Section 3 expressly withholds the
enforcement of the provisions of said Act on "contractual obligations calling for
It is conceded that no question ever arose with respect to the remittances made by payment of foreign exchange issued approved and outstanding as of the date this
Philamlife to Airco before July 16, 1959, the date of approval of the Margin Law. Act takes effect and the extension thereof, with the same terms and conditions as
the original contractual obligations."
The Central Bank of the Philippines collected the sum of P268,747.48 as foreign
exchange margin on Philamlife remittances to Airco purportedly totalling True, the reinsurance treaty precedes the Margin Law by over nine years. Nothing
$610,998.63 and made subsequent to July 16, 1959. in that treaty, however, obligates Philamlife to remit to Airco a fixed, certain, and
obligatory sum by way of reinsurance premiums. All that the reinsurance treaty
Philamlife subsequently filed with the Central Bank a claim for the refund of the provides on this point is that Philamlife "agrees to reinsure." The treaty speaks of a
above sum of P268,747.48. The ground therefor was that the reinsurance premiums probability; not a reality. For, without reinsurance, no premium is due. Of course,
so remitted were paid pursuant to the January 1, 1950 reinsurance treaty, and, the reinsurance treaty lays down the duty to remit premiums — if any reinsurance
therefore, were pre-existing obligations expressly exempt from the margin fee. is effected upon the covenants in that treaty written. So it is that the reinsurance
treaty per se cannot give rise to a contractual obligation calling for the payment of
foreign exchange "issued, approved and outstanding as of the date this Act
On June 7, 1960, the Monetary Board — in line with the opinion of its Acting Legal
[Republic Act 2609] takes effect."
Counsel resolved that "reinsurance contracts entered into and approved by the
Central Bank before July 17, 1959 are exempt from the payment of the 25% foreign
exchange margin, even if remittances thereof are made after July 17, 1959," For an exemption to come into play, there must be a reinsurance policy or, as in the
because such remittances "are only made in the implementation of a mother reinsurance treaty provided, a "reinsurance cession" 9 which may be automatic or
contract, a continuing contract, which is the reinsurance treaty." 7 facultative. 10

The foregoing resolution notwithstanding, the Auditor of the Central Bank, on April There should not be any misapprehension as to the distinction between
19, 1961, refused to pass in audit Philamlife's claim for refund. a reinsurance treaty, on the one hand, and a reinsurance policy or a reinsurance
cession, on the other. The concept of one and the other is well expressed thus:
On May 17, 1961, Philamlife sought reconsideration with the Auditor General.
. . . A reinsurance policy is thus a contract of indemnity one insurer makes
with another to protect the first insurer from a risk it has already assumed.
On October 24, 1961, the request for reconsideration was denied. The Auditor
. . . In contradistinction a reinsurance treaty is merely an agreement
General in effect expressed the view that the existence of the reinsurance treaty of
between two insurance companies whereby one agrees to cede and the
January 1, 1950 did not place reinsurance premia — on reinsurance effected on or
other to acceptreinsurance business pursuant to provisions specified in the
after the approval of the Margin Law on July 17, 1959 — out of the reach of said
treaty. The practice of issuing policies by insurance companies includes,
statute. 8
among other things, the issuance of reinsurance policies on standard risks
and also on substandard risks under special arrangements. The lumping of
Hence, the present petition for review.
the different agreements under a contract has resulted in the term known
to the insurance world as "treaties." Such a treaty is, in fact, an agreement
1. The thrust of petitioner's argument is that the premia remitted were in between insurance companies to cover the different situations described.
pursuance of its reinsurance treaty with Airco of January 1, 1950, a contract Reinsurance treaties and reinsurance policies are not synonymous.
antedating the Margin Law, which took effect only on July 16, 1959. Treaties are contracts for insurance; reinsurance policies or cessions . . .
are contracts of insurance. 11
75

Philamlife's obligation to remit reinsurance premiums becomes fixed and definite in foreign exchange. It, too, is an additional arm given, the Central Bank to attain its
upon the execution of the reinsurance cession. Because, for every life insurance objectives, to wit: (1) "[t]o maintain monetary stability in the Philippines;" and (2)
policy ceded to Airco, Philamlife agrees to pay premium. 12It is only after a "[t]o preserve the international value of the peso and the convertibility of the peso
reinsurance cession is made that payment of reinsurance premium may be exacted, into other freely convertible currencies." 16 On top of all these is that that statute
as it is only after Philamlife seeks to remit that reinsurance premium that the was enacted in a background of "dangerously low international reserves." 17
obligation to pay the margin fee arises.
The following explanatory note by the Committee on Banks, Currency and
Upon the premise that the margin fee of P268,747.48 was collected on remittances Corporations on House Bill No. 3663, which later became the Margin Law, Republic
made on reinsurance effected on or after the Margin Law took effect, refund Act 2609, is expressive of the purpose of the law, namely, to reduce the excessive
thereof does not come within the coverage of the exemption circumscribed in demand on and prevent further decline of our international reserves, viz:
Section 3 of the said law.
The international reserves of the Philippines have reached such a low level
2. Nor will the argument that the Margin Law impairs the obligations of contract — as to require remedial action beyond that provided in Republic Act No.
constitutionally proscribed — under the reinsurance treaty, carry the day for 265, inspite of exchange controls which have been in force since 1949. The
petitioner. decline in the level of our international reserves has persisted. The means
and the measures presently authorized in the Charter of the Central Bank
Petitioner's point is that if the Margin Law were, applied, it "would have paid much for dealing with the balance of payments problem have been found
more to have the continuing benefit of reinsurance of its risks than it has been inadequate.
required to do so by the reinsurance treaty in question" and that "the theoretical
equality between the contracting parties . . . would be disturbed and one of them The purpose of this Bill is to provide the Central Bank with an additional
placed at a distinct disadvantage in relation to the other." instrument for effectively coping with the problem and achieving domestic
and international stability of our currency. The additional instrument of
This pose at once loses potency on the face of the rule long recognized that, Central Bank action provided for by this bill consists of a cost restriction on
existing laws form part of the contract "as the measure of the obligation to perform all imports, as well as invisibles, to reduce the excessive demand for
them by the one party and the right acquired by the other." 13 Stated otherwise, foreign exchange. The proceeds that may accrue to the Central Bank from
"[t]he obligation does not inhere and subsist in the contract itself, propio vigore, but the margin will be distributed in accordance with the provisions of section
in the law applicable to the contract." 14 Indeed, Article 1315 of the Civil Code gives 41 of the Bank's Charter.
out the precept that parties to a perfected contract "are bound . . . to all the
consequences which, according to their nature, may be in keeping with . . . law." That some such law as Republic Act 2609 was envisioned by the contracting parties,
Philamlife and Airco, when the January 1, 1950 reinsurance treaty was executed,
Accordingly, when petitioner entered into the reinsurance treaty of January 1, 1950 may be gleaned from the provisions of Article VI of said treaty whereunder
with Airco, it did so with the understanding that the municipal laws of the "[e]xcept in those instances where AIRCO is taxed directly and independently on
Philippines at the time said treaty was executed, became an unwritten condition premiums collected by it from the Ceding Company, AIRCO shall reimburse the
thereof. Such municipal laws constitute part of the obligations of contract. It is in Ceding Company for the tax paid on reinsurance premiums paid AIRCO by the
this context that we say that Republic Act 265, the Central Bank Act, enacted on Ceding Company which are not allowed the Ceding Company, as a deduction in the
June 15, 1948 — previous to the date of the reinsurance treaty — became a part of statement of the Ceding Company."
the obligations of contract created by the latter. And under Republic Act 265,
reasonable restrictions may be imposed by the State through the Central Bank on Petitioner complains that reinsurance contracts abroad would be made impractical
all foreign exchange transactions "in order to protect the international reserve of by the imposition of the 25% margin fee. Reasons there are which should deter us
the Central Bank during an exchange crisis." 15 The Margin Law is nothing more than from giving in to this view. First, there is no concrete evidence that such imposition
a supplement to the Central Bank Act; it is a reasonable restriction on transactions of the 25% margin fee is unreasonable. Second, if really continuance of the existing
76

reinsurance treaty becomes unbearable that contract itself provides that petitioner Tersely put then, "the [constitutional] obligation of contracts provision does not bar
may potestatively write finisthereto on ninety days' written notice. 18 In truth, a proper exercise of the state's police power." 23 Nebia vs. New York, 24 reasons out
petitioner is not forced to continue its reinsurance treaty indefinitely with Airco. that: "Under our form of government the use of property and the making of
contracts are normally matters of private and not of public concern. The general
3. Another roadblock is astride petitioner's route to refund. rule is that both shall be free of governmental interference. But neither property
rights nor contract rights are absolute; for government cannot exist if the citizen
To maintain domestic and international stability in currency is a primary concern of may at will use his property to the detriment of his fellows, or exercise his freedom
the State; it is in pursuance of the constitutional mandate, in the preamble of contract to work them harm. Equally fundamental with the private right is that of
ordained to "promote the general welfare"; it is a matter of public policy. This could the public to regulate it in the common interest." As emphatic, if not more, is the
mean action to forestall a currency debacle, to improve the low international following from Norman vs. Baltimore & Ohio Railroad Company, 25 thus: "Contracts,
reserve, or to conserve and even increase such reserve. however express, cannot fetter the constitutional authority of the Congress.
Contracts may create rights of property, but when contracts deal with a subject
matter which lies within the control of the Congress, they have a congenital
The Margin Law, Republic Act 2609, it is well to remember, is a remedial currency
infirmity. Parties cannot remove their transactions from the reach of dominant
measure. It was thus passed to reduce as far as is practicable the excessive demand
constitutional power by making contracts about them." More. In another case,
for foreign exchange. Petitioner's stand that because it had a continuing — though
pronouncement was made that: "Not only are existing laws read into contracts in
revocable — reinsurance treaty with Airco, all remittances of reinsurance premia
order to fix obligations as between the parties, but the reservation of essential
made by it to its foreign reinsurer should be withdrawn from the operation of the
attributes of sovereign power is also read into contracts as a postulate of the legal
Margin Law, we are constrained to state, is at war with the State's economic policy
order. The policy of protecting contracts against impairment presupposes the
of preserving the stability of our currency. Petitioner may not, in the words of the
maintenance of a government by virtue of which contractual relations are
Solicitor General, "tie the hands of the State and render it powerless to impose
worthwhile — a government which retains adequate authority to secure the peace
certain margin or cost restrictions on its remittances of reinsurance premia in
and good order of society." 26
foreign exchange to fall due as policies become reinsurable under said treaty,
whenever such remittances would constitute an excessive demand on our
international reserves." For the reasons given, the petition for review is hereby denied, and the ruling of the
Auditor General of October 24, 1961 denying refund is hereby affirmed.
Viewed from this focal point, there cannot be an impairment of the obligation of
contracts. For, the State may, through its police power, adopt whatever economic Costs against petitioner. So ordered.
policy may reasonably be deemed to promote public welfare, and to enforce that
policy by legislation adapted to its purpose. 19 We have, in Abe vs. Foster Wheeler Facts:
Corporation, 20 declared that: "The freedom of contract, under our system of
government, is not meant to be absolute. The same is understood to be subject to On January 1950, Philippine American Life Insurance Co.(PHILAM) and, foreign
reasonable legislative regulation aimed at the promotion of publicity health, morals, corporation, American International Reinsurance Co.(AIRCO) entered into a
safety and welfare. In other words, the constitutional guaranty of non-impairment reinsurance treaty where PHILAM agreed to reinsure with AIRCO the excess of life
of obligations of contract is limited by the exercise of the police power of the State,
insurance on the lives of persons written by PHILAM. In their agreement it is also
in the interest of public health, safety, morals and general welfare." It has been
said, and we believe correctly, that "the economic interests of the State may justify stipulated that even though PHILAM is already on a risk for its maximum retention
the exercise of its continuing and dominant protective power notwithstanding under policies previously issued, when new policies are applied for and issued they
interference with contracts." 21 It bears repetition to state at this point that the can cede automatically any amount, within the limits specified.
Margin Law is part of the economic "Stabilization Program" of the country. 22
No question ever arose with respect to the remittances made by Philamlife to Airco
before July 16, 1959, the date of approval of the Margin Law.
77

policy surrendered to AIRCO, PHILAM agrees to pay premium. It is only after a


Subsequently, the Central Bank of the Philippines collected the sum of P268,747.48 reinsurance cession is made that payment of reinsurance premium may be exacted,
as foreign exchange margin on Philamlife remittances to Airco made subsequent to as it is only after PHILAM seeks to remit that reinsurance premium that the
July 16, 1959. obligation to pay the margin fee arises.

PHILAM then filed with the CB a claim for refund for the same amount arguing that
the reinsurance premiums remitted were paid on January 1950 and is therefore
exempt from the 25% foreign exchange margin fee. The Acting legal counsel of the
Monetary board resolved that reinsurance contracts entered into and approved by
the Central Bank before July 17, 1959 are exempt from the payment of the 25%
foreign exchange margin, even if remittances thereof are made after July 17, 1959.

Still the Auditor of the CB denied PHILAM’s claim for refund and reconsideration
was denied, hence the petition.

Issue: Whether PHILAM’s claim was covered by the exemption

Held:

The Court held in the negative stating that for an exemption to come into play,
there must be a reinsurance policy or, as in the reinsurance treaty provided, a
"reinsurance cession" which may be automatic or facultative.

To distinguish, a reinsurance policy is a contract of indemnity one insurer makes


with another to protect the first insurer from a risk it has already assumed. On the
other hand, a reinsurance treaty is merely an agreement between two insurance
companies whereby one agrees to surrender and the other to accept reinsurance
business pursuant to provisions specified in the treaty. Treaties are contracts for
insurance; reinsurance policies or cessions are contracts of insurance.

Although the reinsurance treaty precedes the Margin Law by over nine years
nothing in that treaty obligates PHILAM to remit to AIRCO a fixed, certain, and
obligatory sum by way of reinsurance premiums. All that the reinsurance treaty
provides on this point is that PHILAM "agrees to reinsure." The treaty speaks of a
probability; not a reality.

PHILAM’s obligation to remit reinsurance premiums becomes fixed and definite


upon the execution of the reinsurance cession. Because, for every life insurance
78

EN BANC Meanwhile one of the risks reinsured with FIELDMENS under Cession No. 61-87,
Policy No. RI-1236, issued in favor of the Government Service Insurance System,
G.R. No. L-23447 July 31, 1970 became a liability when the insured property was burned on February 16, 1962.
Since the policy was issued on July 1, 1961, it was supposed to expire on July 1,
FIELDMEN'S INSURANCE CO., INC., petitioner, 1962. 2 The next day, February 17, ASIAN immediately notified FIELDMEN'S of said
vs. fire loss. And on February 26, 1962 ASIAN sent its reply stating, among other things,
ASIAN SURETY & INSURANCE, CO., INC. and THE HONORABLE COURT OF as follows:
APPEALS, respondents.
... we beg to reiterate that your letter of December 7, 1961, terminating
MAKALINTAL, J.: said treaties by December 31, 1961, is not in accordance with the terms
thereof, since there was no prior three months' notice. However,
considering the attitude express (sic) in your aforesaid letter of December
Appeal by certiorari from a decision of the Court of Appeals.
7, 1961, we are willing to waive provision that said treaties may be
cancelled on December 31st of any year, and will consider them cancelled
On various dates — between April 11, 1960 and January 9, 1961 — the Asian Surety
at the end of three (3) months from December 7, 1961, by which time we
& Insurance Company, Inc. and the Fieldmen's insurance Company, Inc. entered
shall be able to render the final accounting you desire.
into seven (7) reinsurance agreements or treaties 1 under the general terms of
which the former, as the ceding company undertook to cede to the latter, as the
FIELDMEN'S, relying on the sufficiency of its notice of termination dated September
reinsuring company, a specified portion of the amount of insurance underwritten
19, 1961 and obviously bent on avoiding its liability under the reinsurance
by ASIAN upon payment to FIELDMEN'S of a proportionate share of the gross rate
agreements with ASIAN, filed a petition for declaratory relief with the Court of First
of the premium applicable with respect to each cession after deducting a
Instance of Manila to seek a declaration that all the reinsurance contracts entered
commission. Said agreements or treaties were to, take effect from certain specific
into between them had terminated as of December 31, 1961 and to obtain an order
dates and were to be in force until cancelled by either party upon previous notice of
directing ASIAN to render final accounting of the transactions between them with
at least three (3) months by registered mail to the other party, the cancellation to
respect to said reinsurance treaties as of the cut-off date.
take effect as of the 31st of December of the year in which the notice was given.

In its answer below ASIAN denied having received FIELDMEN'S letter dated
On September 19, 1961 FIELDMEN'S, by means of registered mail, served notice to
September 19, 1961, and argued that even assuming it did, FIELDMEN'S could not
ASIAN of the former's desire to be relieved from all participation in its various
have terminated the reinsurance treaties as of December 31, 1961 because the
treaties with the latter effective December 31, 1961. This communication, although
letter was merely an expression of FIELDMEN'S desire to cancel the treaties and not
admittedly received by ASIAN on September 25, 1961, did not elicit any reply from
a formal notice of cancellation as contemplated in their reinsurance agreements. By
ASIAN.
way of special defense Asian contended that even if the September 19 letter were
considered sufficient notice of cancellation — thereby rendering the reinsurance
On December 7, 1961 FIELDMEN'S sent another letter to ASIAN expressing regrets
agreements terminated as of December 31, 1961 — the liability of FIELDMEN'S with
at alleged violations committed by the latter with respect to the various treaties
respect to policies or cessions issued under two of the said agreements (marked as
between them; in the same letter, FIELDMENS reiterated its position that it would
Annexes A and B) prior to their cancellation continued to have full force and effect
consider itself "no longer at risk for any reinsurance and/or cession" given by ASIAN
until the stated expiry dates of such policies or cession.
which might be in force on December 31, 1961. Not having received any formal
reply from ASIAN, FIELDMEN'S sent anew a letter on February 17, 1962 reminding
On December 4, 1962 the trial court rendered a decision declaring six 3 of the
ASIAN of the December 7 letter regarding the cancellation of all the reinsurance
seven 4 insurance agreements in question cancelled as of December 31, 1961. At
treaties and cessions as of December 31, 1961. At the same time FIELDMEN'S
the same time, it upheld ASIAN'S position that all cessions of reinsurance made by it
requested ASIAN to submit its final accounting of all cessions made to the former
to FIELDMEN'S prior to the cancellation of the reinsurance treaties continued in full
for the preceding months when the reinsurance agreements were in force.
79

force and effect until expiry dates. The same decision also ordered FIELDMEN'S to the GSIS policy had been made, FIELDMEN'S cannot avoid liability which arose by
make an accounting of its business transactions with ASIAN within 30 days, and to reason of the burning of the insured property.
pay the costs.
With respect to the other four agreements, it would seem that the petition for
On Appeal to the Court of Appeals, the decision of the trial court was substantially declaratory relief is moot, and that no useful purpose would be served by defining
affirmed, with the slight modification that the order for accounting was eliminated, the respective rights and obligations of the parties thereunder. The said agreements
without prejudice to the filing of a proper action between the parties for that have been cancelled, and it does not appear that any claim by or liability in favor of
purpose. the insured has actually arisen under any of the reinsurance cessions made prior to
such cancellation. Future conflicts of the same nature as those which have
The cancellation as of December 31, 1961 of the reinsurance treaties involved in motivated the present action can of course be obviated by using mare precise and
this case is not now in issue. It was declared by both the trial court and the Court of definite terminology in the reinsurance agreements which the parties may enter
Appeals, and has not been challenged here. The main controversy between the into henceforth.
parties is on the question of whether or not said cancellation had the effect of
terminating also the liability of FIELDMEN'S as reinsurer with respect to policies or It is significant to note in this connection: (1) that in ASIAN'S answer to the petition
cessions issued prior to the termination of the principal reinsurance contracts or below, particularly to the allegation in paragraph III concerning the right of either
treaties. party to terminate the reinsurance agreements upon at least three months' notice,
such termination to take effect on the 31st of December of the year in which notice
Of the six reinsurance contracts under consideration two contain provisions, which was given, ASIAN made express reference only to the provisions in the two
clearly and expressly recognize the continuing effectivity of policies ceded under agreements marked as Annexes A and B to the petition that "the liability of
them for reinsurance notwithstanding the cancellation of the contracts themselves. FIELDMEN'S under any current cession ... shall continue in full force and effect until
Thus, as already noted hereinabove, Article 10 of the Facultative Obligatory their natural expiry ...; (2) that the same provisions, and no other, were relied upon
Reinsurance Treaty Fire (Annex A to the petition below) provides "that in the event as a special defense on the question of FIELDMEN'S continued liability; and (3) that
of termination of this Agreement ..., the liability of the Fieldmen's under current in ASIAN'S prayer for relief in its answer it was only with respect to those two
cessions shall continue in full force and effect until their natural expiry ...;" and the agreements that ASIAN asked for a declaration that the cessions on reinsurance
4th paragraph of Article VI of the Personal Accident Reinsurance Treaty (Annex B to issued prior to their cancellation would continue in full force and effect until their
the petition below) states: natural expiry. In other words, ASIAN was quite willing that no similar declaration
be made by the Court with respect to the other agreements, obviously because no
4. On the termination of this Agreement from any cause whatever, the risk reinsured pursuant thereto had become an actual liability. And since those
liability of the REINSURER (Fieldmen's) under any current cession including agreements had been cancelled as of December 31, 1961, there is no point in the
any amounts due to be ceded under the terms of this Agreement and prayer for declaratory judgment concerning them.
which are not cancelled in the ordinary course of business shall continue in
full force until their expiry unless the COMPANY (Asian) shall, prior to the FIELDMEN'S insists on its alternative prayer that all cessions under the six
thirty-first December next following such notice, elect to withdraw the reinsurance agreements be declared rescinded by reason of certain violations
existing cessions .... thereof, as stated by FIELDMEN'S in its letter of December 7, 1961.

Insofar as the two reinsurance agreements with the express stipulations This action, however, is not one for rescission but merely for declaratory relief, and
aforequoted are concerned there is clearly no merit in FIELDMEN'S claim that their the petition contains no averments which would constitute grounds for rescission.
cancellation carried with it ipso facto the termination of all reinsurance cessions Neither are there any findings of fact in the decision of the Court of Appeals upon
thereunder. Such cessions continued to be in force until their respective dates of which rescission may be predicated. If anything, the thrust of said decision is that
expiration. Since it was under one of said agreements, namely, the Facultative ASIAN was not guilty of any substantial breach of the contracts which would
Obligatory Reinsurance Treaty-Fire, that the reinsurance cession corresponding to
80

warrant such a step. And this Conclusion, being factual in nature, is binding and them cancelled at the end of three (3) months from December 7, 1961, by which
conclusive upon this Court. time we shall be able to render the final accounting you desire.

WHEREFORE, the decision appealed from is affirmed insofar as it refers to the FIELDMEN’S filed a petition for declaratory relief with CFI Manila alleging its first letter
Facultative-Obligatory, Reinsurance Treaty and the Personal Accident Reinsurance of notification on SEPT 19, 1961 was sufficient to meet the 3 month period before
Treaty are concerned, and modified with respect to the others by declaring the cancellation and to obtain an order directing ASIAN to render final accounting of the
issues concerning them as moot and academic. No pronouncement as to costs. transactions between them with respect to said reinsurance treaties as of the cut-off
date.
FIELDMEN'S INSURANCE CO., INC.,vs. ASIAN SURETY & INSURANCE, CO., INC. and
CA (1970) CFI DECISION à 6 of 7 agreements are cancelled as of DEC 1961 but agreed with ASIAN
MAKALINTAL, J.: that FIELDMEN’S is still liable for as long the previously contracted policies are still valid.
It also ordered FIELDMEN'S to make an accounting with ASIAN within 30 days.
On various dates the Asian Surety & Insurance and the Fieldmen's insurance entered
into 7 reinsurance agreements or treaties under the general terms of which ASIAN, as CA à Affirmed with modification à the order for accounting was eliminated
the ceding company undertook to cede to FIELDMEN’S, as the reinsuring company, a
specified portion of the amount of insurance underwritten by ASIAN upon payment to ISSUE: WON cancellation had the effect of terminating also the liability of FIELDMEN'S
FIELDMEN'S of a proportionate share of the gross rate of the premium applicable with as reinsurer with respect to policies or cessions issued prior to the termination of the
respect to each cession after deducting a commission. principal reinsurance contracts or treaties?

Agreements were take effect from certain specific dates and were to be in force until Only the cancelled agreements are being considered here à 2 of which contain
cancelled by either party upon previous notice of at least 3 months by registered mail to provisions, which clearly and expressly recognize the continuing effectivity of policies
the other party, the cancellation to take effect as of the 31st of December of the year in ceded under them for reinsurance notwithstanding the cancellation of the contracts
which notice was given. themselves.

Sept and Dec 1961 à FIELDMEN’S sent letters to ASIAN expressing its desire to cancel all Article 10 of the Facultative Obligatory Reinsurance Treaty Fire provides "that in the
agreements between them as of DEC 31, 1961 alleging that ASIAN had already incurred event of termination of this Agreement ..., the liability of the Fieldmen's under current
numerous violations àASIAN received but did not reply cessions shall continue in full force and effect until their natural expiry ...;" and the 4th
paragraph of Article VI of the Personal Accident Reinsurance Treaty states:
Feb 1962 à FIELDMEN’S sent another letter to ASIAn repeating the fact of cancellation
and now requesting ASIAN to submit its final accounting of all cessions made to the 4. On the termination of this Agreement from any cause whatever, the liability of the
former for the preceding months when the reinsurance agreements were in force. REINSURER (Fieldmen's) under any current cession including any amounts due to be
ceded under the terms of this Agreement and which are not cancelled in the ordinary
Meanwhile one of the risks reinsured by FIELDMENS issued in favor of the GSIS became course of business shall continue in full force until their expiry unless the COMPANY
a liability when the insured property was burned on Feb 1962 à The next day ASIAN sent (Asian) shall, prior to the thirty-first December next following such notice, elect to
letter to FIELDMEN’S notifiying them of the loss and stating… withdraw the existing cessions ....

... we beg to reiterate that your letter of December 7, 1961, terminating said It is therefore clear that FIELDMEN’S is still liable despite the cancellation àSuch cessions
treaties by December 31, 1961, is not in accordance with the terms thereof, since continued to be in force until their respective dates of expiration à GSIS policy still valid
there was no prior three months' notice. However, considering the attitude express and subsisting at time of loss à FIELDMEN’S IS LIABLE
(sic) in your aforesaid letter of December 7, 1961, we are willing to waive provision
that said treaties may be cancelled on December 31st of any year, and will consider No need to go into other arguments (did not mention what they are) because the
cancellation of the agreements made them moot
81

SC NOTES à ASIAN only claims continued liability of FIELDMEN’s as to the 2 agreements


that had the provision cited above (as compared to the other 4 cancelled agreements
wherein FIELDMEN’S liability had terminated with the contracts)

FIELDMEN'S insists on its alternative prayer that all cessions under the six reinsurance
agreements be declared rescinded by reason of certain violations thereof, as stated by
FIELDMEN'S in its letter of December 7, 1961 à Court reminds them that this action is for
declaratory relief and not one for rescission and no grounds found by lower courts that
can justify rescission anyway.
82

EN BANC defendant-insurer that have greatly reduced the amount still due and owing under
the judgment under appeal.
G.R. No. L-29508 June 27, 1973
Briefly, the trial court found that from the evidence and stipulation of facts
ARTEX DEVELOPMENT CO., INC., plaintiff-appellee, presented, it appears that the defendant, Wellington Insurance Co., Inc. insured for
vs. P24,346,509.00 the buildings, stocks and machinery of plaintiff Artex Development
WELLINGTON INSURANCE CO., INC., defendant-appellant. Co., Inc., against loss or damage by fire or lighting (Exh. A) upon payment by
plaintiff of the corresponding premiums; that on August 2, 1963, said properties
TEEHANKEE, J.: were insured for an additional sum of P833,034.00 (Exh. A-1) that on May 12, 1963
defendant insured plaintiff against business interruption (use and occupancy) for
P5,200,000.00 (Exh. B); that on September 22, 1963, the buildings, stocks and
In this appeal from the decision of the court of first instance of Rizal at Caloocan
machineries of plaintiff's spinning department were burned; that notice of the loss
city, the Court reiterates the establish doctrine that a third party not privy to a
and damage was given the defendant, and the loss was referred to the H. H. Bayne
contract that contains no stipulations pour autrui in its favor may not sue
Adjustment Co. and the Allied Adjustment Co.; that as per report of the adjusters,
enforcement of the contract.
the total property loss of the plaintiff was the sum of P10,106,554.40 and the total
business interruption loss was P3,000,000.00; that defendant has paid to the
Hence, in this case where the lower court ordered defendant insurer to pay
plaintiff the sum of P6,481,870.07 of the property loss suffered by plaintiff and
plaintiff-insured the balance of the insured property loss of P3,624,683.43 and its
P1,864,134.08 on its business interruption loss, leaving a balance of P3,624,683.43
ascertained business interruption loss of P1,748,460.00 with interest and attorney's
and P1,748,460.00, respectively." 2
fees, the Court affirms the correctness of the lower court's ruling that it is no
defense for the insurer as against insured that the insurer had obtained reinsurance
On May 29, 1969, counsel for plaintiff-appellee filed a manifestation dated April 10,
from other companies to cover its liability.
1969, bearing the conformity of plaintiff itself under the signature of its president,
Domingo G. Castillo, as follows:
Defendant-appellant's lone assignment of error that lower court should have ruled
instead "that plaintiff-appellant cause of action (as insured) should have been
MANIFESTATION
directed against the reinsurers and not against defendant-appellant" is manifestly
untenable since there is no privity of contract between the insured and the
reinsurers. Plaintiff-appellee insured can only move for enforcement of Plaintiff-appellee, through counsel, respectfully manifests that, in view of
its insurance contract with its insurer, the defendant-appellant. the Deeds of Discharge dated 10 April 1969 and Collateral Agreement
dated 10 April 1969, hereto attached as Annexes "A" and "B", the only
remaining liability subject of litigation shall be that proportion of the loss
Unless there is a specific grant in, or assignment of, reinsurance contract in favor of
reinsured with or through Alexander and Alexander, Inc. of New York,
the insured or a manifest intention of the contracting parties to the insurance
U.S.A., namely, P397,813.00 — the rest having been paid and settled per
contrary to grant such benefit or favor to the insured, not being privy to
the said deeds Annexes "A" and "B".
the reinsurance contract, has no cause of action against the reinsurer. It is expressly
provided in section 91 the Insurance Act 1 that "(T)he original insured has no
interest in a contract of insurance." Quezon City for Manila, 10 April 1969.

The lower court's judgment of April 2, 1968 was rendered the basis of the parties' (Signed) NORBERTO J. QUISUMBING Counsel for Plaintiff-Appellant P.O.
stipulation of facts and there is dispute as to the property and business interruption Box No. 226, Manila.
loss of the insured as thus determined nor as to the partial payment made by
83

CONFORME: filed in this Court on 29 May 1969), which should now be fixed at
P397,813.00, plus of course 12% interest per annum thereof for late
ARTEX DEVELOPMENT CO., INC. payment until 10 April 1969, attorney's fees of 15% of the recovery,
expenses of litigation and costs of suit, already adjudged by the lower
By: court, no writ of execution to issue however on any adjudged liability until
(Signed) DOMINGO G. CASTILLO after three (3) years from 10 April 1969, pursuant to the same 'Collateral
President 3 Agreement of the parties.

The amended documents recited further that: On the sole issue of law raised by defendant-appellant in its brief, the Court finds,
as above indicated, that no single clause in the reinsurance contracts has been cited
by defendant-insurer that would justify its claim that they contained a
1. Artex hereby acknowledges receipt of the sum of P3,600,000.00 in Philippine
stipulation pour autrui in favor of plaintiff-insured, and whereby "plaintiff-appellee
currency paid by Minet on behalf itself and Willington and Minet & Co. in full and
is deemed to have agreed to look solely to the reinsurers for indemnity in case of
final settlement of all any claims Artex may have against Willington, Minet and
loss." 7
Minet Co. in respect of the losses resulting from the said fire of 22nd September
1963 the Policies of Insurance and the Contracts Reinsurance specified in the said
Deeds of Discharge and discharge Willington, Minet and Minet & Co. jointly and Article 1311 of our Civil Code expresses the universal rule that "Contracts take
severally from all actions, proceedings, claims, demands, costs and expenses in effect only between the parties, their assigns and heirs" (with the heir being "not
respect thereof including the said judgment obtained in the Court of First Instance liable beyond the value of the property he received from the decedent,") and
of Rizal and additionally Artex waives in favor of Minet and Minet & Co. Artex's right provides for the exception of stipulations pour autrui or in favor of a third person
of recourse against them under Article 1177 of the Civil Code of the Philippines. 4 not a party to the contract, in this wise:

Upon the parties' joint motion dated May 22, 1969 for temporary suspension of the If a contract should contain some stipulation in favor of a third person, he
proceedings by virtue of such payment, the Court per its resolution of June 30, 1969 may demand its fulfillment provided he communicated his acceptance to
resolve to suspend the proceedings until July 30, 1969. 5The Court also noted the obligor before its revocation. A mere incidental benefit or interest of a
defendant-appellant's manifestation dated June 18, 1969, to the effect that "the person is not sufficient. The contracting parties must have clearly and
statement in plaintiff-appellee' Manifestation that the only remaining amount of its deliberately conferred favor upon a third person. (Art. 1311, Civil Code,
claimant subject of litigation is the proportion of the loss reinsured wit Alexander second paragraph)
and Alexander, Inc. of New York, U.S.A. in the amount of P397,813.00 because the
reinsurers of defendant-appellant made additional partial payments, is true and The Court has a since the early case of Uy Tam vs. Leonard 8 that the "intent of the
correct but without prejudice to the legal question presented in defendant- contracting parties to benefit third party by means of such stipulations pour
appellant's brief." 6 autrui must clearly expressed, and hence, a clause in a contractor's executed solely
in favor of the City of Manila and condition pay for all labor and materials cannot be
Thereafter, plaintiff-appellee filed on August 8, 1969 its brief, and prayed for construed stipulation pour autrui available to material men who supplied certain
affirmance of the appealed judgment with modification, as follows: materials to the contractor for use in the performance of the latter's contract with
the city.
In the light of the foregoing discussion, the lower court did not commit any
error in its appealed decision, which must accordingly be sustained and In Bonifacio Bros, Inc. vs. Mora 9 the Court reiterated same established doctrine,
affirmed. It is however respectfully prayed that the same be modified as to holding that the clause in a motor vehicle insurance policy authorizing the owner of
the amount of liability adjudged against defendant appellant in favor of damaged vehicle to contract for its repair does not mean that the repairman may
plaintiff-appellee, in accordance with their Collateral Agreement executed collect the cost of the repair directly the insurer, there being no clause "from which
by them on April 10, 1969 (Annex "B", of manifestation of the same date, we can infer that there is an obligation on the part of the insurance company to pay
84

the cost of repairs directly to them,' and that the mortgagee of the car (expressly The Insurance Commissioner, in her manifestation of May 18, 1973, confirmed the
named in the insure policy as beneficiary of any loss payable thereunder) had better fact of her taking over "title to all property, contracts, rights of action and all of the
right than the repairman to the insurance proceeds. records of the (defendant) insurance company" as liquidator pursuant to section
175-B of the Insurance claiming the sole right-now to officially represent and act for
Plaintiff-insured, not being a party or privy to defendant defendant company and asserting "exclusive jurisdiction determine this claim" even
insurer's reinsurance contracts, therefore, could not directly demand enforcement as against this Court according to her, should be deemed to have "ceased to
of such insurance contracts. Defendant-appellant's contention that the insured jurisdiction over the subject of this pending action," but at the same time
should be deemed have agreed to look solely to the reinsurers for indemnity case of not moving to dismiss the appeal, as suggest plaintiff, and instead manifesting that
loss, since it was evident that with its mere P500,000. paid-up capital stock, it had "the Insurance Commissioner is absolutely without any knowledge information
to secure reinsurance coverage the over P24-million fire insurance coverage of the sufficient to form a belief as to the truth veracity of Plaintiff Appellee's imputation
policy issued by it to plaintiff-insured, is manifestly untenable. to Defendant-Appellant that the latter had filed the above-entitled a only for
delay." 11
Assuming that plaintiff-insured could avail of the reinsurance contracts and directly
sue the reinsurers for payment of the loss, still such assumption would not in any Since the claim at bar of plaintiff against defendant merely for the balance of a
way affect or cancel out defendant-insurer's direct contractual liability to plaintiff- proven undisputed claim (as amount) — long tried and decided as per the trial
insured under the insurance policy to indemnify plaintiff for the property losses. court judgment of April 2, 1968 before the liquidation order issued only last year on
Plaintiff's right as insured to sue defendant as insurer directly and solely would September 18, 1972 — the Court has herein resolved and disposed of the sole issue
thereby not be affected or curtailed in any way, without prejudice to defendant in of law raised in the appeal. Plaintiff's judgment claim as now judiciary determined
turn filing a third party complaint or separate suit against its reinsurers: Thus, will have to be satisfied in compliance with requirements of the Insurance Act
inNaga Development Corp. vs. Court of Appeals 10 the Court held that the contractor governing distribution assets, priorities of payments of proven claims, etc.,
remain liable to the supplier for materials delivered, notwithstanding arrangements insurance companies under liquidation and with prior authorization of the court in
made on its GSIS loan for the GSIS to issue treasury warrants on account of such the liquidation proceeding pending in the Manila court of first instance.
loan, directly in favor of the supplier, since "such an arrangement obviously cannot
destroy or modify the direct legal responsibility of the (contractor) to the (supplier) ACCORDINGLY, as prayed for by plaintiff-appellee in brief, the judgment of the
to pay for what the latter gave and rendered to the former." lower court is affirmed, with the modification that the remaining liability of
defendant appellant to plaintiff-appellee in accordance with the "collateral
On April 4, 1973, plaintiff-appellee filed a manifestation informing the Court that in agreement" of April 10, 1969 is fixed at P397,813.00 with twelve (12%) percent
Republic of the Philippines vs. Wellington Insurance Co., Inc., docketed as Civil Case interest per annum until 10 April 1969, attorney's fees of fifteen (15%) percent of
No. 88046 of the court of first instance of Manila, an order was issued on the recovery, and cost of suit.
September 18, 1972 for the 'Liquidation of said insurance company, herein
defendant-appellant; that the Insurance Commissioner was designated receiver and Topic: Reinsurance
as such issued on November 4, 1972 an order for the filing of claims against said
defendant; that accordingly plaintiff filed its verified statement of claim wherein it FACTS:
asked the Insurance Commissioner "to move to dismiss the above-entitled appeal
as filed only for delay." Wellington insurance insured for P24,346,509 the building stocks and machinery of
plaintiff Artex against loss or damage by fire or lightning upon august 2, 1963 with
Requested by the Court to file their comments, defendant through counsel an additional sum of P833,034.
admitted the fact of liquidation proceedings but denied any dilatory motive in its Another insurance against business interruption (use and occupancy)forP5,200,000.
appeal, stating that "although it does not raise any issue of fact in (this) appeal, yet On September 22, 1963 the building, and machineries were burned and a notice of
the question of law raised (herein) is of first impression in this jurisdiction" and of loss and damage was given to Wellington.
"utmost importance" to insurance companies taking out reinsurance policies.
85

Insurance adjusters computed the loss for the fire as P10,106,544.40 and
Wellington paid only 6,481,870.07, leaving a balance of 3,624,683.43

The computed business interruption loss was P3M but Wellington paid
onlyP1,864,134.08 leaving a balance of P1,748,460 (computation based on case)

Artex through counsel Norberto Quisumbing made a manifestation that only about
P397,ooo is the remaining balance and liability which was the subject of
reinsurance with Alexander and Alexander Inc, of New York, Arte xacknowledging
here the receipt of P3,600,000 as FINAL and FULLSETTLEMENT of all claims against
Welllington

Artex further prays to the court to affirm the lower court’s decision of liquidation
and prayed for modification of the amount of liability to be fixed toP397,813.00
plus 12% interest per annum thereof for the late payment until april 10, 1969 and
attorney’s fees of 15% of the recovery, expenses of litigation, no writ of execution
however to be made within 3years from july10, 1969 per collateral agreement of
the parties.

Wellington in its brief raises the issue that Artex deemed to have agreed to look
SOLELY to the reinsurers for indemnity in case of loss since their paid up capital
stock is only P500,000 and that they have to secure such reinsurance coverage the
over P24M fire insurance coverage of the policy issued by Wellington to Artex.

Issue: WON reinsurance contract of the parties makes the insured to look SOLELY to
the reinsurers for indemnity in case of loss

Ruling:

NO, the insured who is not directly a party or privy to the reinsurance contract
between Wellington and Alexander and Alexander Inc., cannot demand
enforcement of such insurance contracts. The Contracts take effect only between
the parties, their assigns and heirs as provide by Art 1311 of our civil code. Further
it provides that a contract with stipulations pour autrui or in favor of a third person
not a party to the contract, the parties must have CLEARLY and DELIBERATELY
conferred favor upon a third person.

The SC also stated that assuming that Artex directly sue the reinsurers forpayment
this does not in any way affect or cancel out Wellington’s direct contractual liability
to Artex.The SC dispose the case by affirming the prayer of Artex.
86

EN BANC admitted the existence thereof, but pleaded lack of cause of action on the part of
the plaintiffs.
G.R. No. L-23276 November 29, 1968
After appropriate proceedings, the trial court rendered a decision sentencing the
MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., Company to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this
INC., plaintiffs-appellees, appeal by the Company, which contends that plaintiffs have no cause of action
vs. because: 1) the Coquias have no contractual relation with the Company; and 2) the
FIELDMEN'S INSURANCE CO., INC., defendant-appellant. Insured has not complied with the provisions of the policy concerning arbitration.

CONCEPCION, C.J.: As regards the first defense, it should be noted that, although, in general, only
parties to a contract may bring an action based thereon, this rule is subject to
This is an appeal from a decision of the Court of First Instance of Manila, certified to exceptions, one of which is found in the second paragraph of Article 1311 of the
us by the Court of Appeals, only questions of law being involved therein. Indeed, Civil Code of the Philippines, reading:
the pertinent facts have been stipulated and/or, admitted by the parties at the
hearing of the case in the trial court, to dispense with the presentation of evidence If a contract should contain some stipulation in favor of a third person, he
therein. may demand its fulfillment provided he communicated his acceptance to
the obligor before its revocation. A mere incidental benefit or interest of a
It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc. person is not sufficient. The contracting parties must have clearly and
— hereinafter referred to as the Company — issued, in favor of the Manila Yellow deliberately conferred a favor upon a third person.2
Taxicab Co., Inc. — hereinafter referred to as the Insured — a common carrier
accident insurance policy, covering the period from December 1, 1961 to December This is but the restatement of a well-known principle concerning contracts pour
1, 1962. It was stipulated in said policy that: autrui, the enforcement of which may be demanded by a third party for whose
benefit it was made, although not a party to the contract, before the stipulation in
The Company will, subject to the Limits of Liability and under the Terms of his favor has been revoked by the contracting parties. Does the policy in question
this Policy, indemnify the Insured in the event of accident caused by or belong to such class of contracts pour autrui?
arising out of the use of Motor Vehicle against all sums which the Insured
will become legally liable to pay in respect of: Death or bodily injury to any In this connection, said policy provides, inter alia:
fare-paying passengerincluding the Driver, Conductor and/or Inspector
who is riding in the Motor Vehicle insured at the time of accident or Section I — Liability to Passengers. 1. The Company will, subject to the
injury. 1 Limits of Liability and under the Terms of this Policy, indemnify the Insured
in the event of accident caused by or arising out of the use of Motor
While the policy was in force, or on February 10, 1962, a taxicab of the Insured, Vehicle against all sums which the Insured will become legally liable to pay
driven by Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinan, in in respect of: Death or bodily injury to any fare-paying passenger including
consequence of which Carlito died. The Insured filed therefor a claim for P5,000.00 the Driver ... who is riding in the Motor Vehicle insured at the time of
to which the Company replied with an offer to pay P2,000.00, by way of accident or injury.
compromise. The Insured rejected the same and made a counter-offer for
P4,000.00, but the Company did not accept it. Hence, on September 18, 1962, the Section II — Liability to the Public
Insured and Carlito's parents, namely, Melecio Coquia and Maria Espanueva —
hereinafter referred to as the Coquias — filed a complaint against the Company to
collect the proceeds of the aforementioned policy. In its answer, the Company
87

3. In terms of and subject to the limitations of and for the purposes of this If any difference or dispute shall arise with respect to the amount of the
Section, the Company will indemnify any authorized Driver who is driving Company's liability under this Policy, the same shall be referred to the
the Motor Vehicle.... decision of a single arbitrator to be agreed upon by both parties or failing
such agreement of a single arbitrator, to the decision of two arbitrators,
Conditions one to be appointed in writing by each of the parties within one calendar
month after having been required in writing so to do by either of the
7. In the event of death of any person entitled to indemnity under this parties and in case of disagreement between the arbitrators, to the
Policy, the Company will, in respect of the liability incurred by such person, decision of an umpire who shall have been appointed in writing by the
indemnify his personal representatives in terms of and subject to the arbitrators before entering on the reference and the costs of and incident
limitations of this Policy, provided, that such representatives shall, as to the reference shall be dealt with in the Award. And it is hereby expressly
though they were the Insured, observe, fulfill and be subject to the Terms stipulated and declared that it shall be a condition precedent to any right
of this Policy insofar as they can apply. of action or suit upon this Policy that the award by such arbitrator,
arbitrators or umpire of the amount of the Company's liability hereunder if
disputed shall be first obtained.
8. The Company may, at its option, make indemnity payable directly to the
claimants or heirs of claimants, with or without securing the consent of or
prior notification to the Insured, it being the true intention of this Policy to The record shows, however, that none of the parties to the contract invoked this
protect, to the extent herein specified and subject always to the Terms Of section, or made any reference to arbitration, during the negotiations preceding the
this Policy, the liabilities of the Insured towards the passengers of the institution of the present case. In fact, counsel for both parties stipulated, in the
Motor Vehicle and the Public. trial court, that none of them had, at any time during said negotiations, even
suggested the settlement of the issue between them by arbitration, as provided in
said section. Their aforementioned acts or omissions had the effect of a waiver of
Pursuant to these stipulations, the Company "will indemnify any authorized
their respective right to demand an arbitration. Thus, in Kahnweiler vs. Phenix Ins.
Driver who is driving the Motor Vehicle" of the Insured and, in the event of death of
Co. of Brooklyn,5 it was held:
said driver, the Company shall, likewise, "indemnify his personal representatives."
In fact, the Company "may, at its option, make indemnity payable directly to
theclaimants or heirs of claimants ... it being the true intention of this Policy to Another well-settled rule for interpretation of all contracts is that the court
protect ... the liabilities of the Insuredtowards the passengers of the Motor Vehicle will lean to that interpretation of a contract which will make it reasonable
and the Public" — in other words, third parties. and just. Bish. Cont. Sec. 400. Applying these rules to the tenth clause of
this policy, its proper interpretation seems quite clear. When there is a
difference between the company and the insured as to the amount of the
Thus, the policy under consideration is typical of contracts pour autrui, this
loss the policy declares: "The same shall then be submitted to competent
character being made more manifest by the fact that the deceased driver paid fifty
and impartial arbitrators, one to be selected by each party ...". It will be
percent (50%) of the corresponding premiums, which were deducted from his
observed that the obligation to procure or demand an arbitration is not, by
weekly commissions. Under these conditions, it is clear that the Coquias — who,
this clause, in terms imposed on either party. It is not said that either the
admittedly, are the sole heirs of the deceased — have a direct cause of action
company or the insured shall take the initiative in setting the arbitration on
against the Company,3 and, since they could have maintained this action by
foot. The company has no more right to say the insured must do it than the
themselves, without the assistance of the Insured, it goes without saying that they
insured has to say the company must do it. The contract in this respect is
could and did properly join the latter in filing the complaint herein. 4
neither unilateral nor self-executing. To procure a reference to arbitrators,
the joint and concurrent action of both parties to the contract is
The second defense set up by the Company is based upon Section 17 of the policy
indispensable. The right it gives and the obligation it creates to refer the
reading:
differences between the parties to arbitrators are mutual. One party to the
contract cannot bring about an arbitration. Each party is entitled to
88

demand a reference, but neither can compel it, and neither has the right to WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto,
insist that the other shall first demand it, and shall forfeit any right by not with costs against the herein defendant-appellant, Fieldmen's Insurance Co., Inc. It
doing so. If the company demands it, and the insured refuses to arbitrate, is so ordered.
his right of action is suspended until he consents to an arbitration; and if
the insured demands an arbitration, and the company refuses to accede to FACTS:
the demand, the insured may maintain a suit on the policy,
 December 1, 1961: Fieldmen's Insurance Company, Inc. issued in favor of the
notwithstanding the language of the twelfth section of the policy, and,
where neither party demands an arbitration, both parties thereby waive it.6 Manila Yellow Taxicab Co., Inc. (Manila) from December 1, 1961 to December 1,
1962
To the same effect was the decision of the Supreme Court of Minnesota in  February 10, 1962: A taxicab of Manila driven by Carlito Coquia, met a vehicular
Independent School Dist. No. 35, St. Louis County vs. A. Hedenberg & Co., Inc. 7 from accident at Mangaldan, Pangasinana and died
which we quote:  The insured filed a claim for P5,000 in which Fieldmen's replied with an offer to
pay P2,000 by way of compromise
This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W.  The insured rejected it and countered with P4,000
937, decided in 1893, this court held that the parties to a construction
 September 18, 1962: Carlito's parents filed a complaint against the Company for
contract, having proceeded throughout the entire course of their dealings
with each other in entire disregard of the provision of the contract collection
regarding the mode of determining by arbitration the value of the extras,  The company pleaded lack of cause of action
thereby waived such provision.  RTC: ordered to pay the parents

The test for determining whether there has been a waiver in a particular ISSUE: W/N there is a stipulation pour autrui that exempts the general rule that the
case is stated by the author of an exhaustive annotation in 117 A.L.R. p. parents are not a party to the contract
304, as follows: "Any conduct of the parties inconsistent with the notion
that they treated the arbitration provision as in effect, or any conduct
which might be reasonably construed as showing that they did not intend HELD: YES. RTC affirmed.
to avail themselves of such provision, may amount to a waiver thereof and  There is a stipulation that the Company "will indemnify any authorized Driver
estop the party charged with such conduct from claiming its benefits". who is driving the Motor Vehicle" of the Insured and, in the event of death of
said driver, the Company shall, likewise, "indemnify his personal
xxx xxx xxx representatives."
 typical of contracts pour autrui, this character being made more manifest by
The decisive facts here are that both parties from the inception of their
the fact that the deceased driver paid 50% of the corresponding premiums,
dispute proceeded in entire disregard of the provisions of the contract
relating to arbitration and that neither at any stage of such dispute, either which were deducted from his weekly commissions
before or after commencement of the action, demanded arbitration,  expressly stipulated and declared that it shall be a condition precedent to any
either by oral or written demand, pleading, or otherwise. Their conduct right of action or suit upon this Policy that the award by such arbitrator,
was as effective a rejection of the right to arbitrate as if, in the best arbitrators or umpire of the amount of the Company's liability hereunder if
Coolidge tradition, they had said, "We do not choose to arbitrate". As disputed shall be first obtained
arbitration under the express provisions of article 40 was "at the choice of
 both parties from the inception of their dispute proceeded in entire disregard
either party," and was chosen by neither, a waiver by both of the right to
arbitration followed as a matter of law. of the provisions of the contract relating to arbitration
 conduct was as effective a rejection of the right to arbitrate
89

Facts: themselves, without the assistance of the insured it goes without saying that they
could and did properly join the latter in filing the complaint herein.
> On Dec. 1, 1961, Fieldmen’s Insurance co. Issued in favor of the Manila Yellow
Taxicab a common carrier insurance policy with a stipulation that the company shall
FACTS:
indemnify the insured of the sums which the latter wmy be held liable for with
respect to “death or bodily injury to any faire-paying passenger including the driver
On December 1, 1961, Fieldmen’s Insurance Company, Inc (Company) issued, in
and conductor”.
favor of the Manila Yellow Taxicab Co, Inc (Insured) a common carrier accident
> The policy also stated that in “the event of the death of the driver, the Company insurance policy, covering the period from December 1, 1961 to December 1, 1962.
shall indemnify his personal representatives and at the Company’s option may make While the policy was in force (Feb 10, 1962), a taxicab of the Insured, driven by
indemnity payable directly to the claimants or heirs of the claimants.” Carlito Coquia, met an accident at Mangaldan, Pangasinan, in consequence of which
Carllito died.
> During the policy’s lifetime, a taxicab of the insured driven by Coquia met an
accident and Coquia died. The insured filed for a claim of P5,000 to which the Company replied with an offer
> When the company refused to pay the only heirs of Coquia, his parents, they to pay P2,000 by way of compromise. The Insured rejected the same and made a
institued this complaint. The company contends that plaintiffs have no cause of counter-offer of P4,000, but the Company did not accept it.
action since the Coquias have no contractual relationship with the company.
On September 18, 1962, the Insured and Carlito’s parents, Melecio Coquia and
Issue: Whether or not plaintiffs have the right to collect on the policy. Maria Espanueva (Coquias) filed a complaint against the Company to collect the
proceeds of the policy. In its answer, the Company admitted the existence thereof,
Held: but pleaded lack of cause of action on the part of the plaintiffs.

YES. TC decision sentenced the Company to pay the plaintiffs the sum of P4,000 and the
Athough, in general, only parties to a contract may bring an action based thereon, costs. Hence, this appeal.
this rule is subject to exceptions, one of which is found in the second paragraph of
Article 1311 of the Civil Code of the Philippines, reading: "If a contract should ISSUES/HELD:
contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A Whether the Coquias have a contractual relation with the Company – YES, because
mere incidental benefit or interest of a person is not sufficient. The contracting of the principle of pour autriu.
parties must have clearly and deliberately conferred a favor upon a third person."
This is but the restatement of a well-known principle concerning contracts pour Whether the Insured has complied with the provisions of the policy
autrui, the enforcement of which may be demanded by a third party for whose
benefit it was made, although not a party to the contract, before the stipulation in concerning arbitration – YES
his favor has been revoked by the contracting parties
RATIO:
In the case at bar, the policy under consideration is typical of contracts pour autrui
this character being made more manifest by the fact that the deceased driver paid First issue:
fifty percent (50%) of the corresponding premiums, which were deducted from his
weekly commissions. Under these conditions, it is clear that the Coquias — who, Although, in general, only parties to a contract may bring an action based thereon,
admittedly, are the sole heirs of the deceased — have a direct cause of action this rule is subject to exceptions, one of which is found in the second paragraph of
against the Company, and, since they could have maintained this action by Article 1311 of the CC, reading: o "If a contract should contain some stipulation in
90

favor of a third person, he may demand its fulfillment provided he communicated company and the insured as to the amount of the loss the policy declares: 'The
his acceptance to the obligor before its revocation. A mere incidental benefit or same shall then be submitted to competent and impartial arbitrators, one to be
interest of a person is not sufficient. The contracting parties must have clearly and selected by each party x x x'. It will be observed that the obligation to procure or
deliberately conferred a favor upon a third person.” demand an arbitration is not, by this clause, in terms imposed on either party. It is
not said that either- the company or the insured shall take the initiative in setting
Principle of pour autrui – the enforcement of a contract may be demanded by a the arbitration on foot. The company has no more right to say the insured must do
third party for whose benefit it was made, although not a party to the contract, it than the insured has to say the company must do it. The contract in this respect is
before the stipulation in his favor has been revoked by the contracting parties. neither unilateral nor self-executing. To procure a reference to arbitrators, the joint
and concurrent action of both parties to the contract is indispensable. The right it
The policy in question, based on its stipulations on Sections 1 and 2, “will indemnify gives and the obligation it creates to refer the differences between the parties to
any authorized Driver who is driving the Motor Vehicle” of the Insured and, in the arbitrators are mutual. One party to the contract cannot bring about arbitration.
event of the death of said driver, the Company, shall, likewise, “indemnify his Each party is entitled to demand a reference, but neither can compel it, and neither
personal representatives.” In fact, the Company "may, at its option, make has the right to insist that the other shall first demand it, and shall forfeit any right
indemnity payable directly to the claimants or heirs of claimants x x x it being the by not doing so. If the company demands it, and the insured refuses to arbitrate, his
true intention of this Policy to protect x x x the liabilities of the Insured towards the right of action is suspended until he consents to an arbitration; and if the insured
passengers of the Motor Vehicle and the demands an arbitration, and the company refuses to accede to the demand, the
insured may maintain a suit on the policy, notwithstanding the language of the
twelfth section of the policy, and, where neither party demands an arbitration, both
Public" – in other words, third parties.
parties thereby waive it.”
The policy under consideration is typical of contracts pour autriu, this character
being made more manifest by the fact that the deceased driver paid 50% of the
corresponding premiums, which were deducted from his weekly commissions.
Under these consitions, it is clear that the Coquias – who, amdittedly, are the sole
heirs of the deceased – have a direct cause of action against the Company, and,
since they could have maintained his his action by themselves, without the
assistance of the Insured, it goes without saying they could and did properly join the
latter in filing the complaint herein.

Second issue:

Section 17 of the policy (respecting to dispute with respect to the amount) was not
invoked by the Company, or made any reference to arbitration, during the
negotiations proceeding the institution of the present case.

Kahnweiler c. Phenix Ins:

“Another well-settled rule for interpretation of all contracts is that the court will
lean to that interpretation of a contract which will make it reasonable and just.
Bish. Cont. Sec. 400. Applying these rules to the tenth clause of this policy, its
proper interpretation seems quite clear. When there is a difference between the
91

EN BANC A corresponding information for homicide thru reckless imprudence was filed
against Iluminado del Monte, who pleaded guilty. A penalty of four months
G.R. No. L-22042 August 17, 1967 imprisonment was imposed on him.

DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed As a corollary to such action, the heirs of Gervacio Guingon filed an action for
GUINGON, plaintiffs-appellees, damages praying that the sum of P82,771.80 be paid to them jointly and severally
vs. by the defendants, driver Iluminado del Monte, owner and operator Julio Aguilar,
ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY and the Capital Insurance & Surety Co., Inc. For failure to answer the complaint, Del
CO., INC., defendants. Monte and Aguilar were declared in default. Capital Insurance & Surety Co., Inc.
CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant. answered, alleging that the plaintiff has no cause of action against it. During the
trial the following facts were stipulated:
BENGZON, J.P., J.:
COURT: The Court wants to find if there is a stipulation in the policy
Julio Aguilar owned and operated several jeepneys in the City of Manila among whereby the insured is insured against liability to third persons who are
which was one with plate number PUJ-206-Manila, 1961. He entered into a contract not passengers of jeeps.
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 ALMARIO: As far as I know, in my honest belief, there is no
policy was executed by the Capital Insurance & Surety Co., Inc., the pertinent particularization as to the passengers, whether the passengers of the jeep
provisions of which in so far as this case is concerned contains the following: insured or a passenger of another jeep or whether it is a pedestrian. With
those, we can submit the stipulation.
Section II —LIABILITY TO THE PUBLIC
SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65 Rec. on Appeal)
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 On August 27, 1962, the Court of First Instance of Manila rendered its judgment
Motor Vehicle/s or in connection with the loading or unloading of the with the following dispositive portion:
Motor Vehicle/s, against all sums including claimant's costs and expenses
which the Insured shall become legally liable to pay in respect of: WHEREFORE, judgment is rendered sentencing Iluminado del Monte and
Julio Aguilar jointly and severally to pay plaintiffs the sum of P8,572.95 as
a. death of or bodily injury to any person damages for the death of their father, plus P1,000.00 for attorney's fees
plus costs.
b. damage to property
The defendant Capital Insurance and Surety Co., Inc. is hereby sentenced
During the effectivity of such insurance policy on February 20, 1961 Iluminado del to pay the plaintiffs the sum of Five Thousand (P5,000.00) Pesos plus Five
Monte, one of the drivers of the jeepneys operated by Aguilar, while driving along Hundred (P500.00) Pesos as attorney's fees and costs. These sums of
the intersection of Juan Luna and Moro streets, City of Manila, bumped with the P5,000.00 and P500.00 adjudged against Capital Insurance and Surety Co.,
jeepney abovementioned one Gervacio Guingon who had just alighted from Inc. shall be applied in partial satisfaction of the judgment rendered
another jeepney and as a consequence the latter died some days thereafter. against Iluminado del Monte and Julio Aguilar in this case.

SO ORDERED.
92

The case was appealed to the Court of Appeals which appellate court on September The foregoing issues raise two principal: questions: (1) Can plaintiffs sue the insurer
30, 1963 certified the case to Us because the appeal raises purely questions of law. at all? (2) If so, can plaintiffs sue the insurer jointly with the insured?

The issues raised before Us in this appeal are (1) As the company agreed to The policy in the present case, as aforequoted, is one whereby the insurer agreed to
indemnify the insured Julio Aguilar, is it only the insured to whom it is liable? (2) indemnify the insured "against all sums . . . which the Insured shall become
Must Julio Aguilar first show himself to be entitled to indemnity before the legally liable to pay in respect of: a. death of or bodily injury to any person . . . ."
insurance company may be held liable for the same? (3) Plaintiffs not being parties Clearly, therefore, it is one for indemnity against liability;1 from the fact then that
to the insurance contract, do they have a cause of action against the company; and the insured is liable to the third person, such third person is entitled to sue the
(4) Does the fact that the insured is liable to the plaintiffs necessarily mean that the insurer.1äwphï1.ñët
insurer is liable to the insured?
The right of the person injured to sue the insurer of the party at fault (insured),
In the discussion of the points thus raised, what is paramount is the interpretation depends on whether the contract of insurance is intended to benefit third persons
of the insurance contract with the aim in view of attaining the objectives for which also or only the insured. And the test applied has been this: Where the contract
the insurance was taken. The Rules of Court provide that parties may be joined provides for indemnity against liability to third persons, then third persons to whom
either as plaintiffs or defendants, as the right to relief in respect to or arising out of the insured is liable, can sue the insurer. Where the contract is for indemnity
the same transactions is alleged to exist (Sec. 6, Rule 3). The policy, on the other against actual loss or payment, then third persons cannot proceed against the
hand, contains a clause stating: 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
E. Action Against Company thus limited to the insured alone.2

No action shall lie against the Company unless, as a condition precedent thereto, The next question is on the right of the third person to sue the insurer jointly with
the Insured shall have fully complied with all of the terms of this Policy, nor until the the insured. The policy requires, as afore-stated, that suit and final judgment be
amount of the Insured's obligation to pay shall have been finally determined either first obtained against the insured; that only "thereafter" can the person injured
by judgment against the Insured after actual trial or by written agreement of the recover on the policy; it expressly disallows suing the insurer as a co-defendant of
Insured, the claimant, and the Company. 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
Any person or organization or the legal representative thereof who has secured Court.
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 The "no action" clause in the policy of insurance cannot prevail over the Rules of
in this policy shall give any person or organization any right to join the Company as Court provision aimed at avoiding multiplicity of suits. In a case squarely on the
a co-defendant in any action against the Insured to determine the Insured's liability. 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
Bankruptcy or insolvency of the Insured or of the Insured's estate shall not aimed at avoidance of multiplicity of suits. We quote:
relieve the Company of any of its obligations hereunder.
Appellants filed a plea in abatement on the grounds that the suit had been
Appellant contends that the "no action" clause in the policy closes the avenue to prematurely brought against the insurance company, and that it had been
any third party which may be injured in an accident wherein the jeepney of the improperly joined with Zunker, as said insurance company, under the
insured might have been the cause of the injury of third persons, alleging the terms of the policy, was only liable after judgment had been awarded
freedom of contracts. Will the mere fact that such clause was agreed upon by the against Zunker. . . .
parties in an insurance policy prevail over the Rules of Court which authorizes the
joining of parties plaintiffs or defendants?
93

* * * That plea was properly overruled, because under the laws of Texas a  CFI: Iluminado del Monte and Julio Aguilar jointly and severally to pay plaintiffs
dual suit will always be avoided whenever all parties can have a fair trial the sum of P8,572.95 as damages for the death of their father, plus P1,000.00
when joined in one suit. Appellee, had he so desired, could have
for attorney's fees plus costs
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  Capital Insurance and Surety Co., Inc. is hereby sentenced to
it imperative that he should do so, but would permit him to dispose of the pay P5,000 plus P500 as attorney's fees and costs to be applied in partial
whole matter in one suit. satisfaction of the judgment rendered against Iluminado del Monte and Julio
Aguilar in this case
The rule has often been announced in Texas that when two causes of action are ISSUE:
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
1. W/N there a stipulation pour autriu to enable that will enable the heirs to sue
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 against Capital Insurance and Surety Co., Inc.? - YES
from a tort with those arising from a contract, it could not, under the facts of this 2. W/N the heirs can sue the insurer and insured jointly? - YES
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 HELD: Affirmed in toto.
of the same transaction. 1. YES
 policy: the insurer agreed to indemnify the insured "against all sums . . . which
Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and
the Insured shall become legally liable to pay in respect of: a. death of or bodily
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" injury to any person . . . ." - indemnity against liability
clause in the contract of insurance.  TEST: Where the contract provides for indemnity against liability to third
persons, then third persons to whom the insured is liable, CAN sue the
Wherefore, the judgment appealed from is affirmed in toto. Costs against appellant. insurer. Where the contract is for indemnity against actual loss or payment,
So ordered. then third persons CANNOT proceed against the insurer, the contract being
solely to reimburse the insured for liability actually discharged by him thru
Lessons Applicable: Stipulation Pour Autrui (Insurance) payment to third persons, said third persons' recourse being thus limited to the
FACTS: insured alone.
 Julio Aguilar owner and operator of several jeepneys insured them with Capital 2. YES
Insurance & Surety Co., Inc.  policy: expressly disallows suing the insurer as a co-defendant of the insured in
 February 20, 1961: Along the intersection of Juan Luna and Moro streets, City of a suit to determine the latter's liability
Manila, the jeepneys operated by Aguilar driven by Iluminado del  no action close: suit and final judgment be first obtained against the insured;
Monte and Gervacio Guingon bumped and Guingon died some days after that only "thereafter" can the person injured recover on the policy
 Iluminado del Monte was charged with homicide thru reckless imprudence and  Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on
was penalized 4 months imprisonment "Permissive joinder of parties" cannot be superseded, at least with respect to
 The heirs of Gervacio Guingon filed an action for damages praying that third persons not a party to the contract, as herein, by a "no action" clause in
P82,771.80 be paid to them jointly and severally by the driver del Monte, owner the contract of insurance.
and operator Aguilar, and the Capital Insurance & Surety Co., Inc.
94

FIRST DIVISION 1972 as to the cargo's contribution relative to the 'Hermonsa' and from
March 27, 1972 as to the cargo's contribution relative to the 'General
G.R. No. L-41432 July 30, 1979 Aguinaldo;'

IVOR ROBERT DAYTON GIBSON, petitioner, (iii) the amount of P1,831,695.75 as interest-free loan due plaintiff from
vs. defendant be declared repayable upon and only to the extent of any
HON. PEDRO A. REVILLA, in his official capacity as Presiding Judge of Branch XIII, corresponding recovery from the owners of the 'Hermosa' and 'General
Court of First Instance of Rizal, and LEPANTO CONSOLIDATED MINING Aguinaldo; ...
COMPANY, respondents.
Lepanto also sought payment of interest on delayed loan amounts, exemplary
GUERRERO, J. damages of at least P500,000.00, attorney's fees and other litigation expenses, and
other cumulative and/or alternative reliefs as may be lawful, just or equitable in the
This is a petition for review 1 seeking to set aside the Order of the Court of First premises.
Instance of Rizal Branch XIII, presided by respondent Judge Pedro A. Revilla, in Civil
Case No. 20046 entitled "Lepanto Consolidated Mining Company versus Malayan The civil suit thus instituted by Lepanto against Malayan was founded on the fact
Insurance Company, Inc." denying the motion of the petitioner Ivor Robert Dayton that on Sept. 9, 1971, Malayan issued Marine Open Policy No. LIDC-MOP-001/71
Gibson for leave to intervene in said case, and to order the respondent Judge to covering an shipments of copper, gold and silver concentrates in bulk from Poro,
admit him as intervenor therein. San Fernando, La Union to Tacoma, Washington or to other places in the United
States which Lepanto may make on and after August 1, 1971 and until the
The antecedent facts of this case are as follows: cancellation of the policy upon thirty (30) days' written notice. Thereafter, Malayan
obtained reinsurance abroad through Sedgwick, Collins & Co., Limited, a London
insurance brokerage. The Memorandum of Insurance issued by Sedgwick to
Lepanto Consolidated Mining Company (hereinafter referred to as Lepanto) filed on
Malayan on September 24, 1971 listed three groups of underwriters or re-insurers
September 27, 1974 in the Court of First Instance of Rizal, Branch XIII a complaint
and their reinsurance interest are as follows:
with a plea for preliminary mandatory injunction against Malayan Insurance
Company, Inc., (hereinafter referred to as Malayan), docketed as Civil Case No.
20046 seeking the following relief: Lloyds 62.808%
Companies (I.L.U.) 34.705%
Other Companies 2.487%
(a) upon the firing of this complaint, a writ of preliminary mandatory injunction be
100.000%
issued directing defendant to advance to plaintiff an interest-free loan of
P1,831,695.75; and
At the top of the list of underwriting members of Lloyds is Syndicate No. 448,
assuming 2.48% of the risk assumed by the reinsurer, which syndicate number
(b) upon trial on the merits —
petitioner Ivor Robert Dayton Gibson claims to be himself.
(i) an accounting or average adjustments be made for the liquidation of the
In November, 1971, a cargo of concentrates was shipped by Lepanto on the M/V
general average losses, damages and expenses arising from the marine
Hermosa at Poro, San Fernando, La Union destined for Tacoma, Washington. During
accidents subject of this action and the determination of the contributions
the sea voyage, while the vessel was in the Northern Pacific Ocean south of Japan
due from subject cargoes under the Policy;
on or about Nov. 11, 1971, it encountered heavy weather and rough seas which
caused it to roll, pitch and vibrate heavily so that certain shifting boards in the
(ii) defendant be ordered to pay plaintiff the amounts under item (i) above,
vessel broke and part of the cargo shifted transversely, thereby causing a list. The
with interest thereon at the rate of 12% per annum, from February 20,
vessel deviated to Moji, Japan and after the shifting boards were repaired and/or
95

replaced, it proceeded on its trip to Tacoma, but about the end of the month, the On December 4, 1974, Malayan's motion to dismiss was denied. On January 17,
ship once again met with strong winds, monsoon rains, severe winter and very 1975, Malayan filed its Answers incorporating as part of its special and affirmative
rough seas and it roiled, pitched and vibrated heavily so other shifting boards broke defenses the following allegations:
and part of the cargo also shifted causing a heavier list. The captain of the boat,
fearing that the vessel might sink, sailed to Osaka and unloaded the cargo. Expenses (5) Defendant acted in good faith in rejecting plaintiff's insurance claims,
were incurred by Lepanto relative to the cargo while in Japan but eventually the not only because of the circumstances and reasons set forth in the
cargo was transhipped to Tacoma via another vessel. preceding sub-paragraphs (1) to (4) which defendant had been reasonably
led to believe by reports of reputed experts and/or by legal advice as
Also in November, 1971, another cargo of concentrates was shipped by Lepanto on justifying rejection, but also because, as plaintiff had been repeatedly told,
board the MIV General Aguinaldo at Poro, San Fernando, La Union and destined for it is under constraint, on one hand, by customs of the insurance trade to
Tacoma, Washington. Similarly, during the sea voyage on or about November 30, adhere to the decisions of the lead insurers, and on another hand, by its
1971 in the Northern Pacific Ocean southeast of Japan, it met with heavy weather contract with its reinsurer which among others, prohibit settlement of the
and rough seas, causing it to pitch, roll and vibrate heavily so that certain shifting reinsured claims without the reinsurer's assent.
boards in the vessel broke and part of the cargo shifted transversely which caused
the listing of the vessel The captain, fearing also that the vessel The captain, fearing On January 27, 1975, Lepanto filed its reply. On January 30, 1975, the Court denied
also that the vessel might sink, sailed for Miyako, Japan, unloaded the cargo and Lepanto's motion for mandatory preliminary injunction "without prejudice to
expenses were incurred relative to the cargo while in Japan. Thereafter, the cargo reconsider the said motion after the pre-trial of this case shall have been
was transhipped to Tacoma on board another vessel. concluded." On March 19, 1975, the first pre-trial conference was held and on
March 25, 1975, the parties filed their Stipulation of Facts and Issues, which
Lepanto notified Malayan and another insurer, Commercial Union in London in Stipulations was approved en toto in the trial court's order of April 1, 1975.
November and December, 1971 of the accidents. Formal claims under the open
policy were also filed by Lepanto with Malayan in March and July, 1972 upon the Subsequently, pre-trial conferences were held on April 3, 1975, May 21, 1975, and
conclusion of the voyages and the determination of the shortweight. June 19, 1975 when Lepanto concluded its evidence. Defendant through counsel
reserved its right to make a formal offer of its evidence at the continuation of the
The claims were denied by Malayan tentatively at first claiming that it needed time hearing scheduled on July 16, 1975.
to determine whether or not the marine accidents resulted from the inherent vice
or nature of the cargo and finally Malayan rejected Lepanto's insurance claim for Then on June 25, 1975, petitioner Ivor Robert Dayton Gibson filed a motion to
the reason that the cargoes were inherently vicious on loading and such condition intervene as defendant, which motion is as follows:
caused the listing of the vessel.
MOTION TO INTERVENE
Hence, the complaint filed by Lepanto against Malayan in Civil Case No. 20046 for
the interest-free loan to Lepanto as stipulated in the policy computed at COMES NOW Ivor Robert Dayton Gibson, Reinsurer in the above-entitled case,
P1,831,695.75. through undersigned counsel, and to this Honorable Court respectfully & Heges
that:
Malayan filed a motion to dismiss the case on three grounds: 1. that the instant
case has been brought in the name of other than the real party in interest; 2. that 1. Movant is of legal age, a British citizen, with address at Lloyd's Lime Street,
the complaint states no cause of action; and 3. that the claim set forth in the London, EC 3;
complaint has been extinguished.
2. Movant is the leading re-insurer of the risks and liabilities assumed by defendant
Malayan Insurance Co., Inc. in a contract of marine insurance involving two (2)
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separate shipments of copper' concentrates aboard the MV "Hermosa" and the MV Replying to Lepanto's opposition, movant Ivor Robert Dayton Gibson contended
"General Aguinaldo" shipped by Lepanto Consolidated Mining Co., Inc. to American that 1. Contrary to oppositors contention, movant Gibson has a legal interest in the
Smelting & Refining Co. from Poro Point, San Fernando, La Union, to Tacoma, matter in litigation because a contract of reinsurance between the defendant
Washington for which defendant issued Policy No. LIDC-MOP-001/71 dated Malayan Insurance Company, Inc. and the movant herein is a contract of indemnity
September 9, 1971, in the amount of 20% of the declared value of each shipment against liability, and not merely against damage, and therefore, movant has a direct
but not to exceed US $2,000,000 per shipment. and immediate interest in the success of defendant Malayan Insurance Company,
Inc.; 2. Neither estoppel nor laches applies to the movant since the motion to
3. Prior to these two shipments and after defendant Malayan contracted with intervene was filed seasonably on June 25, 1975 during the period of introduction
Lepanto to insure these two (2) copper concentrates shipments against risks of loss of evidence by defendant Malayan; 3. The intervention is not intended for delay;
and damage, defendant Malayan in turn, re-insured its liabilities for losses and movant is merely asserting a legal right or interest in the pending case with the
damages in accordance with the terms of their reinsurance contract. request for opportunity to appear and be joined so that he could protect or assert
such right or interest; and 4. The filing of an independent and separate suit
4. After the defendant Malayan filed Answer to this suit, movant was informed that proposed by the plaintiff is condemned by the basic and fundamental principles
defendant made express reservations "to file in due time a third-party complaint against multiplicity of suits.
against the lead insurers and/or its reinsurers" (par. XVIII, Answer).
On July 26, 1975, Lepanto filed a Rejoinder to the movant's "Reply to Opposition."
5. Movant has a legal interest in the subject matter of litigation in that he stands to On July 28, 1975, Malayan made a manifestation that it had no objection to the
be held liable to pay on its re-insurance contract should judgment be rendered "Motion to Intervene" of Ivor Robert Dayton Gibson and on July 31, 1975, movant
requiring the defendant to pay the claim of the plaintiff. made a Sur-Rejoinder to Lepanto's Rejoinder.

6. To avoid multiplicity of suits and allow all parties who have any relation to the On August 18, 1975, the Court a quo resolved to deny the Motion for Intervention
cause of action, whether legally or in equity, to ventilate expeditiously every issue in the following:
relevant to the suit, it is respectfully submitted that movant be allowed to intervene
as a defendant in the interest of justice. ORDER

7. By the very nature of a contract of reinsurance and considering that the reinsurer Ivor Robert Dayton Gibson, thru counsel, has presented before this Court a motion
is obliged "to pay as may be paid thereon" (referring to the original policies), to intervene on June 25, 1975. In his motion, he alleges that he is a British citizen
although this is subject to other stipulations and conditions of the re-insurance with address at Lloyd's Lime Street, London, EC3; that he is the leading re-insurer of
contract, it will serve better the ends of justice if a full disclosure of all pertinent the risks and liabilities assumed by defendant Malayan Insurance Company, Inc. in
facts and issues is made with the participation of the movant at this trial where his the contract of marine insurance involving the shipments subject of the instant suit.
interests have been and are already inevitably at stake. He further contends that he has a legal interest in the subject matter of litigation
for he stands liable on his reinsurances contract should judgment be rendered
Counsel for the movant submitted the foregoing motion for the consideration and against the defendant and that this intervention would avoid a multiplicity of suits.
resolution of the Court on June 30, 1975. The motion to intervene was opposed by Plaintiff vigorously opposed the motion contending that movant Ivor Robert Dayton
Lepanto on the following grounds: 1. Movant Ivor Robert Dayton Gibson has no Gibson has no legal interest in the matter in litigation or in the success of either
legal interest in the matter in litigation or in the success of either plaintiff or parties in this suit; that he is estopped by laches; that the intervention is intended
defendant; 2. Movant is estopped by his laches from intervening in this action; 3. for delay and will unduly delay the proceedings between plaintiff and defendant;
The intervention is intended for delay and if allowed, win unduly delay the and that movant will not be prejudiced by the present suit and can be fully
proceedings between plaintiff and defendant; and 4. The rights, if any, of movant protected in any separate action which defendant may file against him and his co-
are not prejudiced by the present suit and win be fully protected in a separate insurers.
action against him and his co-insurers by defendant herein.
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Considering the grounds of the opposition, the Court believes that the third and (a) Motion for intervention. — A person desiring to intervene shall file a motion for
fourth grounds raised in the opposition appear highly meritorious. Since movant leave of court with notice upon all the parties to the action.
Ivor Robert Dayton Gibson appears to be only one of several re-insurers of the risks
and liabilities assumed by Malayan Insurance Company, Inc., it is highly probable (b) Discretion of court. — In allowing or disallowing a motion for intervention, the
that other re-insurers may likewise intervene. This would definitely disrupt the trial court, in the exercise of discretion, shall consider whether or not the intervention
between plaintiff and defendant, the principal protagonists in this suit. To allow the will unduly delay or prejudice the adjudication of the rights of the original parties
intervention would certainly unduly delay the proceedings between plaintiff and and whether or not the intervenor's rights may be fully protected in a separate
defendant especially at this stage where plaintiff had already rested its case. It proceeding.
would also compound the issues as more parties and more matters will have to be
litigated. At any rate, Ivor Robert Dayton Gibson may protect whatever interest he (c) Complaint or answer in intervention. — The intervention shall be made by
has in a separate action. complaint filed and served in a regular form, and may be answered as if it were an
original complaint; but where intervenor unites with the defendant in resisting the
IN VIEW OF ALL THE FOREGOING, the Court resolves to deny the motion for claims of the plaintiff, the intervention may be made in the form of an answer to
intervention. the complaint,

SO ORDERED. (d) Time. — Unless a different period is fixed by the court, the complaint or answer
in intervention shall be filed within ten (10) days from notice of the order
Pasig, Rizal, August 18, 1975. permitting such intervention.

Not satisfied with the denial of his Motion to Intervene, petitioner now comes According to pertinent jurisprudence, the term "intervention" refers to the
before Us seeking to set aside the order of denial and to order the respondent proceeding by which one not originally a party to an action is permitted, on his own
Judge to admit him as intervenor. By resolution of this Court dated November 17, application, to appear therein and join one of the original parties in maintaining the
1975, the petition was denied due course for lack of merit, but upon petitioner's action or defense, or to assert a claim or defense against some or all of the parties
motion for reconsideration, the petition was allowed in the Resolution of February to the proceeding as originally instituted. Such a third party may, upon the
18, 1976, treating it as a special civil action. discretion of the court, become a party to a pending proceedings between others
for the protection of some rights or interest alleged by him to be affected by such
The principal issue is whether the lower court committed reversible error in proceedings. 2
refusing the intervention of petitioner Ivor Robert Dayton Gibson in the suit
between Lepanto and Malayan. Intervention is not a matter of absolute right but may be permitted by the court
when the applicant shows facts which satisfy the requirements of the statute
We lay down the law on Intervention as found in Sec. 2, Rule 12 of the Rules of authorizing intervention. 3 Under our rules of Court, what qualifies a person to
Court: intervene is his possession of a legal interest in the matter in litigation, or in the
success of either of the parties, or an interest against both; or when he is so
Section 2. Intervention. — A person may, before or during a trial, be situated as to be adversely affected by a distribution or other disposition of
permitted by the court, in its discretion, to intervene in an action, if he has property in the custody of the court or an officer thereof. 4 As regards the legal
legal interest in the matter in litigation, or in the success of either of the interest as qualifying factor, tills Court has ruled that such interest must be of a
parties or an interest against both, or when he is so situated as to be direct and immediate character so that the intervenor wig either gain or lose by the
adversely affected by a distribution or other disposition of property in the direct legal operation of the judgment. The interest must be actual and material, a
custody of the court or of an officer thereof. concern which is more than mere curiosity, or academic or sentimental desire; it
must not be indirect and contingent, indirect and remote, conjectural,
consequential or collateral. 5 However, notwithstanding the presence of a legal
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interest, permission to intervene is subject to the sound discretion of the court, the apply on cases where intervention is sought, thereby departing from the accepted
exercise of which is limited by considering I 'whether or not the intervention will and usual procedure under the premises.
unduly delay or prejudice the adjudication of the rights of the original parties and
whether or not the intervenor's rights may be fully protected in a separate After carefully considering the arguments of both the petitioner and Lepanto, the
proceeding. 6 Once judicial discretion is exercised, the action of the court cannot be facts and circumstances obtaining in the case at bar and applying Rule 12, Sec. 2 of
reviewed or controlled by mandamus however erroneous it may be, except only the Rules of Court and the doctrines enunciated by the Supreme Court on the
when there is an arbitrary or capricious exercise of discretion, in which case, the matter, We rule that the respondent Judge committed no error of law in denying
fault is correctible by mandamus if there be no other adequate and speedy petitioner's Motion to Intervene. And neither has he abused his discretion in his
remedy. 7 denial of petitioner's Motion for Intervention.

As may be noted in the questioned Order, respondent Judge denied the Motion to It is quite crystal clear that the questioned Order of the respondent Court was
Intervene on the last two grounds of Lepanto's Opposition, namely: "3. The based strictly and squarely on Section 2(b) of Rule 12 which specifically directs the
intervention is intended for delay and if allowed, will unduly delay the proceedings Court in allowing or disallowing a motion for intervention in the exercise of
between plaintiff and defendant; and 4. The rights, if any, of movant are not discretion to consider whether or not the intervention will unduly delay or
prejudiced by the present suit and will be fully protected in a separate action prejudice the adjudication of the rights of the original parties and whether or not
against him and his co-insurers by defendant herein. the intervenor's rights may be fully protected in a separate proceeding. The Court a
quo has specifically and correctly complied with the Rule's mandate and We cannot
Respondent Judge, reasoning out his Order, ruled that "(s)ince movant Ivor Robert fault the respondent Judge therefore.
Dayton Gibson appears to be only one of several co-insurers of the risks and
liabilities assumed by Malayan Insurance Company, Inc., it is highly probable that We reject the contention of the petitioner that the question regarding delay in the
other re-insurers may likewise intervene. This would definitely disrupt the trial adjudication of the rights of the original contending parties, while recognized as
between plaintiff and defendant, the principal protagonists in this suit. To allow the factors in allowing or disallowing intervention, should assume a secondary role to
intervention would certainly unduly delay the proceedings between plaintiff and the primary and imperative requirement that the legal interest of the would-be
defendant especially at this stage where plaintiff had already rested its case. It intervenor in the matter under litigation must be clearly shown and that once the
would also compound the issues as more parties and more matters will have to be legal interest of the would be intervenor is clearly shown, the fact that his
litigated. At any rate, Ivor Robert Dayton Gibson may protect whatever interest he intervention may work to delay a little the main conflict between the parties should
has in a separate action." not by itself justify the denial of intervention.

In his petition, petitioner submits that the respondent Judge, in refusing to Petitioner's contention is untenable. The first paragraph of Section 2, Rule 12
permit/allow him to intervene in Civil Case No. 20046, incorrectly interpreted prescribes the time to intervene and also who may intervene, that is, one who has
and/or appreciated the purpose/intent of the pertinent rules of procedure that legal interest in the matter in litigation, or in the success of either of the parties or
govern intervention of parties in a given action and that the respondent Judge an interest against both or when he is so situated as to be adversely affected by a
erred: (1) In concluding that to allow the intervention of herein petitioner "would distribution or other disposition of property in the custody of the court or of an
definitely disrupt the trial" and "would certainly unduly delay the proceedings," officer thereof Paragraph (b) of the same section directs what matter are to be
when such apprehension appears to be clearly immaterial in determining when considered in exercising discretion to snow or disallow a motion for intervention,
intervention is proper or not; (2) In viewing the alleged availability of another which are whether or not the intervention will unduly delay or prejudice the
recourse on the part of herein petitioner to protect his interest, i.e. separate action, adjudication of the rights of the original parties and whether or not the intervenor's
as an added justification to deny his intervention, despite the fact that the rights may be fully protected in a separate proceeding. Clearly, for the Court to
applicable rule of procedure in this regard (Section 2, Rule 12) does not preclude permit intervention, it must be shown that movant is possession of legal interest in
intervention even if another separate action is appropriate and for available; and the matter in litigation or otherwise qualified under the first paragraph of Section 2,
(3) In its obvious disregard of the very rule (Section 2, Rule 12) precisely designed to and the Court must also consider the matters mentioned in paragraph (b) thereof.
99

The latter are not and should not be taken as secondary to the former for both petitioner, (which) interest as a re-insurer of Malayan's risk is not only inchoate but
must concur since they are equally important, requisite and necessary for material, direct and immediate and for such interest to be in any manner
consideration in the exercise of discretion by the Court to allow or disallow prejudiced without first giving petitioner a chance to be heard would be violative of
intervention. We cannot invest nor render primary or secondary importance to due process. Upon the other hand, a decision in favor of Malayan, recognizing it as
either of these requirements for the law does not make any distinction. Each case not liable under its insurance policies, could subject petitioner to the danger of
must be decided according to its facts and merits, subject to the discretion of the having to admit that Malayan had not breached its insurance contract with the
Court. entity (Lloyds) of which petitioner is the leading syndicate member." (Petitioner's
Memorandum p. 230, Records). Petitioner also asserts that "by the very nature of a
From the particular facts and circumstances of the case at bar, We are satisfied that contract of reinsurance and considering that the re-insurer is obliged 'to pay as may
the respondent Judge has not abused his discretion in denying petitioner's Motion be paid thereon' (referring to the original policies), although this is subject to other
to Intervene. We agree with the holding of the respondent Court that since movant stipulations and conditions of the reinsurance contract, it will serve better the ends
Ivor Robert Dayton Gibson appears to be only one of several re-insurers of the risks of justice if a full disclosure of all pertinent facts and issues is made with the
and liabilities assumed by Malayan Insurance Company, Inc., it is highly probable participation of the movant at this trial where his interests have been and are
that other re- insurers may likewise intervene. The record shows that aside from already inevitably at stake." (Petition, p. 18, Records).
the petitioner there are sixty-three (63) other syndicate members of Lloyds, the
twenty-six (26) companies in the " I.L.U. " group holding a 34.705 % reinsurance On the contrary, Lepanto insists that petitioner win have his day in court and his
interest and the two (2) "Other Companies" holding the balance of the rights can be fully protected in a separate proceeding. According to Lepanto, if it
reinsurances, as listed in Annex "A", Sur-Rejoinder to Lepanto's Rejoinder, pp. 136- loses the case against Malayan, petitioner cannot possibly be liable to Malayan for
138, Records. The high probability that these other re-insurers like the petitioner indemnity on the reinsurances. If Lepanto wins, then petitioner, the sixty-three (63)
herein may likewise intervene if the latter's motion is granted is not an arbitrary other syndicate members of Lloyds, the twenty-six (26) companies in the "I.L.U."
assumption of the Court. Considering petitioner's assertion that he will have the group holding a 34.705% reinsurance interest and the two (2) "Other Companies"
opportunity to show, among others, that the losses and damages purportedly holding the balance of the reinsurances are free either to pay Malayan or to resist
sustained by Lepanto occurred not from the perils of the seas but from perils of the Malayan and thus force Malayan to sue in whatever country most of them,
ships; that Lepanto is not the real party in interest; that it has no cause of action; qualitatively and not quantitatively, may be served with summons.
and, neither has it complied with its obligations under the policy which makes the
filing of the complaint premature (p. 118, Records, Reply to Opposition) if petitioner Petitioner's contention that he has to pay once Malayan is finally adjudged to pay
is allowed to intervene, We hold that there is good and sufficient basis for the Lepanto because of the very nature of a contract of reinsurance and considering
Court a quoto declare that. the trial between Lepanto and Malayan would be that the re-insurer is obliged 'to pay as may be paid thereon' (referring to the
definitely disrupted and would certainly unduly delay the proceedings between the original policies), although this is subject to other stipulations and conditions of the
parties especially at the stage where Lepanto had already rested its case and that reinsurance contract, is without merit. The general rule in the law of reinsurance is
the issues would also be compounded as more parties and more matters will have that the re-insurer is entitled to avail itself of every defense which the re-insured
to be litigated. In other words, the Court's discretion is justified and reasonable. (which is Malayan) might urge in an action by the person originally insured (which is
Lepanto). Specifically, the rule is stated thus —
We also hold that respondent Judge committed no reversible error in further
sustaining the fourth ground of Lepanto's Opposition to the Motion to Intervene Sec. 1238. — In an action on a contract of reinsurance, as a
that the rights, if any, of petitioner are not prejudiced by the present suit and win general rule the reinsurer is entitled to avail itself of every
be fully protected in a separate action against him and his co-insurers by Malayan. defense which the reinsured might urge in an action by the
person originally insured; ...
Petitioner contends that this rights would not be fully protected in a separate
proceeding because "(a) decision in favor of Lepanto, declaring Malayan liable on its The same rule is stated otherwise in 44 An-L Jur. 2d, Sec. 1862, p. 793, as follows:
insurance policies would necessarily and injuriously affect the interests of
100

Moreover, where an action is brought against the reinsurer by the assumed by the reinsurer, which syndicate number petitioner Ivor Robert Dayton
reinsured, the former may assert any defense that the latter might have Gibson claims to be himself. Petitioner then filed a motion to intervene as
made in an action on the policy of original insurance. (Eagle Ins. Co. vs. defendant, which motion was denied by the lower court.
Lafayette, Ins. Co., 9 Ind. 443)
ISSUE: WON THE LOWER COURT COMMITTED, REVERSIBLE ERROR IN REFUSING
As to the effect of the clause "to pay as may be paid thereon" contained in THE INTERVENTION OF THE PETITIONER IN THE SUIT BETWEEN LEPANTO AND
petitioner's re-insurance contract, Arnould, on the Law of Marine Insurance and MALAYAN COMPANIES.
Average, 13th Ed., Vol. 1, Section 327, p. 315, states the rule, thus:
HELD:
It has been decided that this clause does not preclude the reinsurer from
insisting upon proper proof that a loss strictly within the terms of the No. The respondent Judge committed no error of law in denying petitioner’s
original policy has taken place. Motion to Intervene and neither has he abused his discretion in his denial of
petitioner’s Motion for Intervention. We agree with the holding of the respondent
court that since movant Ivor Robert Dayton Gibson appears to be only one of
This clause does not enable the original underwriter to recover from his re-
several re-insurers of the risks and liabilities assumed by Malayan Insurance
insurer to an extent beyond the subscription of the latter.
Company, Inc., it is highly probable that other re-insurers may likewise intervene. If
petitioner is allowed to intervene, We hold that there is good and sufficient basis
It is significant and revealing that petitioner himself admits in his Memorandum, p.
for the Court a quo to declare that the trial between Lepanto and Malayan would
231, Records, that "(o)f course, petitioner, if finally sued in London, (he) could avail
be definitely disrupted and would certainly unduly delay the proceedings between
himself of remedies available to him." He adds that "such a procedure, if not
the parties especially at the stage where Lepanto had already rested its case and
entirely time-consuming, would actually beg the issue on hand. Petitioner believes
that the issue would also be compounded as more parties and more matters will
that his defenses on the claims ventilated in the court a quo can be appreciated
have to be litigated. In other words, the Court’s discretion is justified and
only here; elsewhere in view of the peculiar circumstances surrounding Lepanto's
reasonable. We also hold that respondent Judge committed no reversible error in
claims the basic issue win be obfuscated and perhaps even obliterated by further sustaining the fourth ground of Lepanto’s Opposition to the Motion to
arguments on procedural niceties." However, such a procedural problem is no legal
Intervene that the rights, if any, of petitioner are not prejudiced by the present suit
ground to compel allowance of and insist on his intervention.
and will be fully protected in a separate action against him and his co-insurers by
Malayan. Petitioner’s contention that he has to pay once Malayan is finally
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby dismiss. No costs. adjudged to pay Lepanto because of the very nature of a contract of reinsurance
and considering that the re-insurer is obliged to pay as may be paid thereon
SO ORDERED. (referring to the original policies), although this is subject to other stipulations and
conditions of the reinsurance contract, is without merit. The general rule in the law
FACTS: of reinsurance is that the re-insurer is entitled to avail itself of every defense which
Lepanto Consolidated Mining Company filed a complaint against Malayan Insurance the re-insured (which is Malayan) might urge in an action by the person originally
Company, Inc. The civil suit thus instituted by Lepanto against Malayan was insured (which is Lepanto). As to the effect of the clause “to pay as may be paid
founded on the fact that Malayan issued a Marine Open Policy covering all thereon” contained in petitioner’s re-insurance contract, Arnould, on the Law of
shipments of copper, gold, and silver concentrates in bulk from Poro, San Fernando, Marine Insurance and Average, 13th Ed., Vol. 1, Section 327, p. 315, states the rule,
La Union to Tacoma, Washington or to other places in the United States. Thereafter, this: “It has been decided that this clause does not preclude the reinsurer from
Malayan obtained reinsurance abroad through Sedgwick, Collins & Co., Limited, a insisting upon proper proof that a loss strictly within the terms of the original policy
London insurance brokerage. The Memorandum of Insurance issued by Sedgwick to has taken place. “This clause does not enable the original underwriter to recover
Malayan listed three groups of underwriters or reinsurers – Lloyds 62.808%, from his reinsurer to an extent beyond the subscription of the latter. “Wherefore, in
Companies (I.L.U.) 34.705%, Other companies 2.487%. At the top of the list of view of the foregoing, the petition is hereby dismissed. No costs.” Pacific Timber
underwriting members of Lloyds is Syndicate No. 448, assuming 2.48% of the risk Export Corporation vs Court of Appeals In 1963, Pacific Timber Export Corporation
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(PTEC) applied for a temporary marine insurance from Workmen’s Insurance risk assumed by the reinsurer, which syndicate number petitioner Ivor Robert
Company (WIC) in order for the latter to insure 1,250,000 board feet of logs to be Dayton Gibson claims to be himself. Petitioner then filed a motion to intervene as
exported to Japan. In March 1963, WIC issued a cover note to PTEC for the said defendant, which motion was denied by the lower court.
logs. On April 2, 1963, WIC issued two policies for the logs. However, the total
ISSUE: WON THE LOWER COURT COMMITTED, REVERSIBLE ERROR IN REFUSING
board feet covered this time is only 1,195,498. On April 4, 1963, while the logs were
THE INTERVENTION OF THE PETITIONER IN THE SUIT BETWEEN LEPANTO AND
in transit to Japan, bad weather prevailed and this caused the loss of 32 pieces of
MALAYAN COMPANIES.
logs. WIC then asked an adjuster to investigate the loss. The adjuster submitted
that the logs lost were not covered by the two policies issued on April 2, 1963 but HELD:
said logs were included in the cover note earlier issued. WIC however denied the
insurance claim of PTEC as it averred that the cover note became null and void No. The respondent Judge committed no error of law in denying petitioner’s
when the two policies were subsequently issued. The Court of Appeals ruled that Motion to Intervene and neither has he abused his discretion in his denial of
the cover note is void for lack of valuable consideration as it appeared that no petitioner’s Motion for Intervention. We agree with the holding of the respondent
premium payment therefor was made by PTEC. ISSUE: Whether or not a separate court that since movant Ivor Robert Dayton Gibson appears to be only one of
premium is needed for cover notes. HELD: No. The Cover Note was not without several re-insurers of the risks and liabilities assumed by Malayan Insurance
consideration for which the Court of Appeals held the Cover Note as null and void, Company, Inc., it is highly probable that other re-insurers may likewise intervene. If
and denied recovery therefrom. The fact that no separate premium was paid on the petitioner is allowed to intervene, We hold that there is good and sufficient basis
Cover Note before the loss insured against occurred, does not militate against the for the Court a quo to declare that the trial between Lepanto and Malayan would
validity of PTEC’s contention, for no such premium could have been paid, since by be definitely disrupted and would certainly unduly delay the proceedings between
the nature of the Cover Note, it did not contain, as all Cover Notes do not contain the parties especially at the stage where Lepanto had already rested its case and
particulars of the shipment that would serve as basis for the computation of the that the issue would also be compounded as more parties and more matters will
premiums. As a logical consequence, no separate premiums are intended or have to be litigated. In other words, the Court’s discretion is justified and
required to be paid on a Cover Note. At any rate, it is not disputed that PTEC paid in reasonable. We also hold that respondent Judge committed no reversible error in
full all the premiums as called for by the statement issued by WIC after the issuance further sustaining the fourth ground of Lepanto’s Opposition to the Motion to
of the two regular marine insurance policies, thereby leaving no account unpaid by Intervene that the rights, if any, of petitioner are not prejudiced by the present suit
PTEC due on the insurance coverage, which must be deemed to include the Cover and will be fully protected in a separate action against him and his co-insurers by
Note. If the Note is to be treated as a separate policy instead of integrating it to the Malayan. Petitioner’s contention that he has to pay once Malayan is finally
regular policies subsequently issued, the purpose and function of the Cover Note adjudged to pay Lepanto because of the very nature of a contract of reinsurance
would be set at naught or rendered meaningless, for it is in a real sense a contract, and considering that the re-insurer is obliged to pay as may be paid thereon
not a mere application for insurance which is a mere offer. (referring to the original policies), although this is subject to other stipulations and
FACTS: Lepanto Consolidated Mining Company filed a complaint against conditions of the reinsurance contract, is without merit. The general rule in the law
Malayan Insurance of reinsurance is that the re-insurer is entitled to avail itself of every defense which
the re-insured (which is Malayan) might urge in an action by the person originally
Company, Inc. The civil suit thus instituted by Lepanto against Malayan was insured (which is Lepanto). As to the effect of the clause “to pay as may be paid
founded on the fact that Malayan issued a Marine Open Policy covering all thereon” contained in petitioner’s re-insurance contract, Arnould, on the Law of
shipments of copper, gold, and silver concentrates in bulk from Poro, San Fernando, Marine Insurance and Average, 13th
La Union to Tacoma, Washington or to other places in the United States.
p. 315, states the rule, this: “It has been decided that this clause does not preclude
Thereafter, Malayan obtained reinsurance abroad through Sedgwick, Collins & Co., the reinsurer from insisting upon proper proof that a loss strictly within the terms
Limited, a London insurance brokerage. The Memorandum of Insurance issued by of the original policy has taken place.
Sedgwick to Malayan listed three groups of underwriters or reinsurers – Lloyds
62.808%, Companies (I.L.U.) 34.705%, Other companies 2.487%. At the top of the “This clause does not enable the original underwriter to recover from his reinsurer
list of underwriting members of Lloyds is Syndicate No. 448, assuming 2.48% of the to an extent beyond the subscription of the latter. “Wherefore, in view of the
foregoing, the petition is hereby dismissed. No costs.”
102

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