G.R. No.
L-41014 November 28, 1988 On January 28, 1964, private respondent informed counsel for the petitioner that it was
PACIFIC BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents.
Flores, Ocampo, Dizon and Domingo Law Office for petitioner.
Cabochan and Reyes Law Office for respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision of respondent Court of
Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Oriental
Assurance Corporation", which set aside the decision of the Court of First Instance (CFI)
of Manila, ** which had in turn granted the complaint for a sum of money in Civil Case
No. 56889.
As gathered from the records, the undisputed facts of this case are as follows:
On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to
the Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured, for
brevity), by which private respondent Oriental Assurance Corporation bound itself to
indemnify the insured for any loss or damage, not exceeding P61,000.00, 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 256 Jaboneros St., San Nicolas,
Manila, for a period of one year commencing from that date to October 21, 1964.
The insured was at the time of the issuance of the policy and is up to this time, a 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).
Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties
insured, with the knowledge and consent of private respondent to the effect that "loss if
any under this policy is payable to the Pacific Banking Corporation".
On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out
on the subject premises destroying the goods contained in its ground and second floors
(Record on Appeal, p.5)
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 endorsement of
said policy (Brief for Plaintiff-Appellee, pp. 16-17).
not yet ready to accede to the latter's demand as the former is awaiting the final report of
the insurance adjuster, H.H. Bayne Adjustment Company (Brief for Plaintiff-Appellee, pp.
17-18).
On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that
the insured under the policy had not filed any claim with it, nor submitted proof of loss
which is a clear violation of Policy Condition No.11, and for which reason, determination
of the liability of private respondent could not be had (Supra, pp. 19-20).
On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the 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 the loss as demanded,
petitioner (plaintiff therein) on April 28, 1 964, filed in the court a quo an action for a
sum of money against the private respondent, Oriental Assurance Corporation, in the
principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing Co.
(Record on Appeal, pp. 1-36).
On May 25, 1964, private respondent raised the following defenses in its answer to wit:
(a) lack of formal claim by insured over the loss and (b) premature filing of the 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 of Policy
Condition No.11 (Record on Appeal, pp. 37-38).
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
following: P30,000.00 with Wellington Insurance; P25,000. 00 with Empire Surety and
P250,000.00 with Asian Surety; undertaken by insured Paramount on the same 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 P50,000.00 with South
Sea and P25.000.00 with Victory (Brief for the Defendant pp. 13-14).
It will be noted that the defense of fraud and/or violation of Condition No. 3 in the 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.
At any rate, on June 30, 1967, the trial court denied private respondent's motion on the
ground that the defense of lack of proof of loss or defects therein was raised for the first
time after the commencement of the suit and that it must be deemed to have waived the
requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p.
61).
On September 9, 1967, the case was considered submitted for decision from which 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 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).
On September 30,1967, the case was set for the continuation of the hearing for the
reception merely of the testimony of Alejandro Tan Gatue, Manager of the Adjustment
Co., over the vehement opposition of the petitioner (Record on Appeal, p. 129).
On April 18, 1 968, the trial court rendered a decision adjudging private respondent
liable to the petitioner under the said contract of insurance, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered ordering the defendant to
pay the 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, P6,100.00, as attorney's fees, and the
costs.
SO ORDERED. (Record on Appeal, pp. 140-141)
On appeal, the Court of Appeals reversed the decision of the trial court (Decision
promulgated on April 23, 1975, Rollo, pp. 21-33).
Petitioner filed a motion for reconsideration of the said decision of the respondent Court
of Appeals, but this was denied on July 3,1975 for lack of merit (Rollo, pp. 54-67),
resulting in this petition with the following assigned errors;
I ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING.
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF
LAW IN CONCLUDING FRAUD FROM THE BARE FACT THAT THE
INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES
OTHER THAN THOSE STATED IN THE POLICY IN SPITE OF THE
EXISTENCE OF CONTRARY PRESUMPTIONS AND ADMITTED FACT
AND CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF SAID
CONCLUSION.
(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 required for any crime.
(b) The record of the case is bereft of proof of such
fraud.
(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 considered waived.
(d) The total amount of insurance procured by the
insured from the different companies amounted to
hardly onehalf (½) of the value of the goods
insured.
II
RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING
THE VOTING ON THE PARTICULAR QUESTION OF FRAUD, THE
FINDING OF THE TRIAL COURT THEREON SHOULD BE CONSIDERED
AFFIRMED.
III
THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY
ERRONEOUS IN HOLDING THAT THE ACTION WAS PREMATURELY
BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE INSURANCE
LAW HAS NOT BEEN FILED, NOTWITHSTANDING THE LETTER,
(EXHIBIT "C") OF PETITIONER-APPELLANT'S LAWYER WHICH IS A
SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS AND
NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD
ALREADY WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY
PETITIONER-APPELLANT FOR ITS FAILURE TO CALL THE
ATTENTION OF THE LAYER TO SUCH ALLEGED DEFECTS AND FOR
IV
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF
LAW IN NOT INTERPRETING THE PROVISIONS OF THE POLICY
LIBERALLY IN FAVOR OF THE HEREIN PETITIONER-APPELLANT,
WHO IS NOT THE INSURED BUT ONLY THE ASSIGNEE/MORTGAGEE
OF THE PROPERTY INSURED.
V
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF
LAW IN DISMISSING THE CASE AND IN NOT AFFIRMING THE
APPEALED DECISION OF THE TRIAL COURT. (Brief for Petitioners, pp.
1-3)
The crux of the controversy centers on two points: (a) unrevealed co-insurances 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 provides:
 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 insured, and unless such notice be given and
the particulars of such insurance or insurances be stated in or
endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefit under this policy shall be
forfeited. (Record on Appeal, p. 12)
It is not disputed that the insured failed to reveal before the loss three other insurances.
As found by the Court of Appeals, by reason of said unrevealed insurances, the insured
had been guilty of a false declaration; a clear 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 that there were many co-insurances, it could have
hesitated or plainly desisted from entering into such contract. Hence, the insured was
guilty of clear fraud (Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but 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 facts alleged in the policy under clauses "Co-
Insurances Declared" and "Other Insurance Clause" are materially different from the
actual number of co-insurances taken over the subject property. Consequently, "the
whole foundation of the contract fails, the risk does not attach and the policy never
becomes a contract between the parties. Representations of facts are the foundation of
the contract and if 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
terminate a contract which has once been made, but to show that no contract has ever
existed (Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or
inexistent 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
ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]).
As the insurance policy against fire expressly required that notice should be given by the
insured of other insurance upon the same property, the total absence of 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 276 [1972];
Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA 432 [1974]).
The argument that notice of co-insurances may be made orally is preposterous and
negates policy condition No. 20 which requires every notice and other communications
to the insurer to be written or printed.
Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance
clause" supposedly to have been violated, cannot certainly defeat the right of the
petitioner to recover the insurance as mortgagee/assignee. Particularly referring to the
mortgage clause of the policy, petitioner argues that considering 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 would be absurd to hold that
petitioner is barred from recovering the insurance on account of the alleged violation
committed by the insured (Rollo, Brief for the petitioner, pp, 33-35).
It is obvious that petitioner has missed all together the import of subject mortgage clause
which specifically provides:
Mortgage Clause
Loss, if any, under this policy, shall be payable to the PACIFIC
BANKING 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. (Rollo, p. 26)
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. As correctly found by the Court of Appeals, concealment of the aforecited
co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27).
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, with more reason petitioner which is merely claiming as indorsee of said
insured, cannot be entitled to such proceeds.
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.
Be that as it may, it is established that the Supreme Court has ample authority to give
beyond the pleadings where in the interest of justice and the promotion of public policy,
there is a need to make its own finding to support its conclusion. Otherwise stated, the
Court can consider a fact which surfaced only after trial proper (Maharlika Publishing
Corp. v. Tagle, 142 SCRA 561 [1986]).
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 action will accrue from
the time the insurer finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu,
55 Phil 701 [1955]).
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. Likewise, insured
was required "at his own expense to produce, procure and give to the company all such
further particulars, plans, specifications, books, vouchers, invoices, duplicates or copies
thereof, documents, proofs and information with respect to the claim". (Record on
Appeal, pp. 18-20).
The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely
wrote letters to private respondent to serve as a notice of loss, thereafter, the former did
not furnish the latter whatever pertinent documents were necessary to prove and
estimate its loss. 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. It is noteworthy that private respondent
and its adjuster notified petitioner that insured had not yet filed a written claim nor
submitted the supporting documents in compliance with the requirements set forth in
the policy. Despite the notice, the latter remained unheedful. 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 the latter's cause of action had not yet arisen.
Compliance with condition No. 11 is a requirement sine qua non to the right to maintain
an action as prior thereto no violation of petitioner's right can be attributable to private
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 respondent or its adjuster to
ascertain the amount of loss and after compliance await the final rejection of its claim.
Indeed, the law does not encourage unnecessary litigation (Eagle Star Insurance Co., Ltd.,
et al. v. Chia Yu, p. 701, supra).<äre||anº•1àw>
It appearing that insured has violated or failed to perform the conditions under No. 3 and
11 of the contract, and such violation or want of performance has not been waived by the
insurer, the insured cannot recover, much less the herein petitioner. Courts are not
permitted to make contracts for the parties; the function and duty of the courts is simply
to enforce and carry out the 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).
Finally, the established rule in this jurisdiction that findings of fact of the Court of
Appeals when supported by substantial evidence, are not reviewable on appeal by
certiorari, deserves reiteration. Said findings of the appellate court are final and cannot
be disturbed by the Supreme Court except in certain cases Lereos v. CA, 117 SCRA 395
[1985]; Dalida v. CA, 117 SCRA 480 [1982] Director 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 [1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]).
PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision
appealed from is AFFIRMED. No costs.
SO ORDERED.
Melencio-Herrera, (Chairman), Padilla, Sarmiento and Regalado, JJ., concur.

Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was
warranted under the circumstances. While it is a cardinal principle of insurance law that
a policy or contract of insurance is to be construed liberally in favor of the insured and
strictly as against the insurer company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p.
702, supra; Taurus Taxi Co., Inc. v. The 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 be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous, they must be
taken and understood in their plain, ordinary and popular sense (Young v. Midland
Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc. v. Phil. Guaranty Co.,
Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630
[1983]; GSIS v. CA, 145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385
[1986]).

Contracts of insurance are contracts of indemnity upon the terms and conditions
specified in the policy. The parties have a right to impose such reasonable conditions at
the time of the making of the contract as they may 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, 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 to the light of recovery (Stokes v. Malayan Insurance Co., Inc., 127
SCRA 766 [1984]).
G.R. No. 48049 June 29, 1989
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the Court of Appeals' decision affirming the
decision of the Insurance Commissioner which dismissed the petitioners' complaint
against respondent Philippine American Life Insurance Company for the recovery of the
proceeds from their late father's policy. The facts of the case as found by the Court of
Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner
dismissing herein petitioners' complaint against respondent
Philippine American Life Insurance Company for the recovery of the
proceeds of Policy No. 1082467 in the amount of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners,
applied for life insurance in the amount of P 80,000.00 with
respondent company. Said application was approved and Policy No.
1082467 was issued effective November 6,1973, with petitioners the
beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B).
Petitioners then filed with respondent company their claim for the
proceeds of the life insurance policy. However, in a letter dated
September 11, 1975, respondent company denied petitioners' claim
and rescinded the policy by reason of the alleged misrepresentation
and concealment of material facts made by the deceased Tan Lee
Siong in his application for insurance (Exhibit 3). The premiums paid
on the policy were thereupon refunded .
Alleging that respondent company's refusal to pay them the proceeds
of the policy was unjustified and unreasonable, petitioners filed on
November 27, 1975, a complaint against the former with the Office of
the Insurance Commissioner, docketed as I.C. Case No. 218.
After hearing the evidence of both parties, the Insurance
Commissioner rendered judgment on August 9, 1977, dismissing
petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance
Commissioner's decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer
has the right to rescind the policy contract when insured is already
dead is not in accordance with existing law and applicable
jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer
may be allowed to avoid the policy on grounds of concealment by the
deceased assured, is contrary to the provisions of the policy contract
itself, as well as, of applicable legal provisions and established
jurisprudence.
C. The inference of respondent Court that respondent insurer was
misled in issuing the policy are manifestly mistaken and contrary to
admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the right to rescind
the contract of insurance as rescission must allegedly be done during the lifetime of the
insured within two years and prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance is
given to the insurer by any provision of this chapter, such right must
be exercised previous to the commencement of an action on the
contract.
After a policy of life insurance made payable on the death of the
insured shall have been in force during the lifetime of the insured for a
period of two years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab
initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
According to the petitioners, the Insurance Law was amended and the second paragraph
of Section 48 added to prevent the insurance company from exercising a right to rescind
after the death of the insured.
The so-called "incontestability clause" precludes the insurer from raising the defenses of
false representations or concealment of material facts insofar as health and previous
diseases are concerned if the insurance has been in force for at least two years during the
insured's lifetime. The phrase "during the lifetime" found in Section 48 simply means
that the policy is no longer considered in force after the insured has died. The key phrase
in the second paragraph of Section 48 is "for a period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured died on
April 26,1975. The policy was thus in force for a period of only one
year and five months. Considering that the insured died before the
two-year period had lapsed, respondent company is not, therefore,
barred from proving that the policy is void ab initio by reason of the
insured's fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and
refunded the premiums paid on September 11, 1975, previous to the
commencement of this action on November 27,1975. (Rollo, pp. 99-
100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or
misrepresentation by their late father because Tan Lee Siong did not have to buy
insurance. He was only pressured by insistent salesmen to do so. The petitioners state:
Here then is a case of an assured whose application was submitted
because of repeated visits and solicitations by the insurer's agent.
Assured did not knock at the door of the insurer to buy insurance. He
was the object of solicitations and visits.
Assured was a man of means. He could have obtained a bigger
insurance, not just P 80,000.00. If his purpose were to misrepresent
and to conceal his ailments in anticipation of death during the two-
year period, he certainly could have gotten a bigger insurance. He did
not.
Insurer Philamlife could have presented as witness its Medical
Examiner Dr. Urbano Guinto. It was he who accomplished the
application, Part II, medical. Philamlife did not.
Philamlife could have put to the witness stand its Agent Bienvenido S.
Guinto, a relative to Dr. Guinto, Again Philamlife did not. (pp. 138139,
Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to denounce the
pressure and practice indulged in by agents in selling insurance. At
one time or another most of us have been subjected to that pressure,
that practice. This court took judicial cognizance of the whirlwind
pressure of insurance selling-especially of the agent's practice of
'supplying the information, preparing and answering the
application, submitting the application to their
companies, concluding the transactions and otherwise smoothing out
all difficulties.
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73
Phil. 201; at page 205:
It is of common knowledge that the selling of insurance today is
subjected to the whirlwind pressure of modern salesmanship.
Insurance companies send detailed instructions to their agents to
solicit and procure applications.
These agents are to be found all over the length and breadth of the
land. They are stimulated to more active efforts by contests and by the
keen competition offered by the other rival insurance companies.
They supply all the information, prepare and answer the applications,
submit the applications to their companies, conclude the transactions,
and otherwise smooth out all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the
pressure of insurance salesmanship was not overwhelming as it is
now; when the population of this country was less than one-fourth of
what it is now; when the insurance companies competing with one
another could be counted by the fingers. (pp. 140-142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been subjected
to the whirlwind pressure of insurance salesmanship this Court itself
has long denounced, the assured who dies within the two-year period,
should stand charged of fraudulent concealment and
misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the "incontestability
clause" added by the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance contract or of its There is no strong showing that we should apply the "fine print" or "contract of
last reinstatement within which to contest the policy, whether or not, the insured still adhesion" rule in this case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The
lives within such period. After two years, the defenses of concealment or petitioners cite:
misrepresentation, no matter how patent or well founded, no longer lie. Congress felt
this was a sufficient answer to the various tactics employed by insurance companies to It is a matter of common knowledge that large amounts of money are
avoid liability. The petitioners' interpretation would give rise to the incongruous collected from ignorant persons by companies and associations which
situation where the beneficiaries of an insured who dies right after taking out and paying adopt high sounding titles and print the amount of benefits they agree
for a life insurance policy, would be allowed to collect on the policy even if the insured to pay in large black-faced type, following such undertakings by fine
fraudulently concealed material facts. print conditions which destroy the substance of the promise. All
provisions, conditions, or exceptions which in any way tend to work a
The petitioners argue that no evidence was presented to show that the medical terms forfeiture of the policy should be construed most strongly against
were explained in a layman's language to the insured. They state that the insurer should those for whose benefit they are inserted, and most favorably toward
have presented its two medical field examiners as witnesses. Moreover, the petitioners those against whom they are meant to operate. (Trinidad v. Orient
allege that the policy intends that the medical examination must be conducted before its Protective Assurance Assn., 67 Phil. 184)
issuance otherwise the insurer "waives whatever imperfection by ratification."
There is no showing that the questions in the application form for insurance regarding
We agree with the Court of Appeals which ruled: the insured's medical history are in smaller print than the rest of the printed form or that
they are designed in such a way as to conceal from the applicant their importance. If a
On the other hand, petitioners argue that no evidence was presented warning in bold red letters or a boxed warning similar to that required for cigarette
by respondent company to show that the questions appearing in Part advertisements by the Surgeon General of the United States is necessary, that is for
II of the application for insurance were asked, explained to and Congress or the Insurance Commission to provide as protection against high pressure
understood by the deceased so as to prove concealment on his part. insurance salesmanship. We are limited in this petition to ascertaining whether or not
The same is not well taken. The deceased, by affixing his signature on the respondent Court of Appeals committed reversible error. It is the petitioners' burden
the application form, affirmed the correctness of all the entries and to show that the factual findings of the respondent court are not based on substantial
answers appearing therein. It is but to be expected that he, a evidence or that its conclusions are contrary to applicable law and jurisprudence. They
businessman, would not have affixed his signature on the application have failed to discharge that burden.
form unless he clearly understood its significance. For, the
presumption is that a person intends the ordinary consequence of his WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of
voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and the Court of Appeals is AFFIRMED.
(d), Rule 131, Rules of Court].
SO ORDERED.
The evidence for respondent company shows that on September
19,1972, the deceased was examined by Dr. Victoriano Lim and was
found to be diabetic and hypertensive; that by January, 1973, the
deceased was complaining of progressive weight loss and abdominal
pain and was diagnosed to be suffering from hepatoma, (t.s.n. August
23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug,
testified that the deceased came to see him on December 14, 1973 for
consolation and claimed to have been diabetic for five years. (t.s.n.,
Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made by the
deceased of his consultations and treatments for hypertension,
diabetes and liver disorders, respondent company was thus misled
into accepting the risk and approving his application as medically
standard (Exhibit 5- C) and dispensing with further medical
investigation and examination (Exhibit 5-A). For as long as no adverse
medical history is revealed in the application form, an applicant for
insurance is presumed to be healthy and physically fit and no further
medical investigation or examination is conducted by respondent
company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)
G.R. No. 105135 June 22, 1995 blood tests?
other tests?
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
vs. c) attended or been admitted to any hospital or
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA other medical facility?
BACANI, respondents.
6. Have you ever had or sought advice for:

xxx xxx xxx

QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to
reverse and set aside the Decision dated February 21, 1992 of the Court of Appeals in CA-
G.R. CV No. 29068, and its Resolution dated April 22, 1992, denying reconsideration
thereof.
We grant the petition.
I was examined and confined at the Lung Center of the Philippines, where he was
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself
from petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with
double indemnity in case of accidental death. The designated beneficiary was his mother,
respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a
claim with petitioner, seeking the benefits of the insurance policy taken by her son.
Petitioner conducted an investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not
disclose material facts relevant to the issuance of the policy, thus rendering the contract
of insurance voidable. A check representing the total premiums paid in the amount of
P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false statements in his application when he
answered the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health
practitioner?
b) submitted to:
EGG?
X-rays?
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but limited his answer to a
consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other questions were answered in
the negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for insurance, the insured
diagnosed for renal failure. During his confinement, the deceased was subjected to
urinalysis, ultra-sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent
Rolando Bacani, filed an action for specific performance against petitioner with the
Regional Trial Court, Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer
with counterclaim and a list of exhibits consisting of medical records furnished by the
Lung Center of the Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for
Summary Judgment" where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by the decedent of his health
condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution
of several documents as well as allegations regarding the health of the insured. Private
respondents failed to oppose said request or reply thereto, thereby rendering an
admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of
private respondents. The dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and against the defendant, condemning the latter to pay the former
the amount of One Hundred Thousand Pesos (P100,000.00) the face
value of insured's Insurance Policy No. 3903766, and the Accidental
Death Benefit in the amount of One Hundred Thousand Pesos
 (P100,000.00) and further sum of P5,000.00 in the concept of
reasonable attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the facts concealed by
the insured were made in good faith and under a belief that they need not be disclosed.
Moreover, it held that the health history of the insured was immaterial since the
insurance policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial
court. The appellate court ruled that petitioner cannot avoid its obligation by claiming
concealment because the cause of death was unrelated to the facts concealed by the
insured. It also sustained the finding of the trial court that matters relating to the health
history of the insured were irrelevant since petitioner waived the medical examination
prior to the approval and issuance of the insurance policy. Moreover, the appellate court
agreed with the trial court that the policy was "non-medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on
this Court is not absolute and admits of exceptions, such as when the judgment is based
on a misappreciation of the facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was
concealment and misrepresentation, however, the same was made in "good faith" and
the facts concealed or misrepresented were irrelevant since the policy was "non-
medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of
insurance to communicate to the other, in good faith, all facts within his knowledge
which are material to the contract and as to which he makes no warranty, and which the
other has no means of ascertaining. Said Section provides:
A neglect to communicate that which a party knows and ought to
communicate, is called concealment.
Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom communication is due, in
forming his estimate of the disadvantages of the proposed contract or in making his
inquiries (The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the
insurer matters relating to his health.
The information which the insured failed to disclose were material and relevant to the
approval and issuance of the insurance policy. The matters concealed would have
definitely affected petitioner's action on his application, either by approving it with the
corresponding adjustment for a higher premium or rejecting the same. Moreover, a
disclosure may have warranted a medical examination of the insured by petitioner in
order for it to reasonably assess the risk involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of
the information withheld does not depend on the state of mind of the insured. Neither
does it depend on the actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact
that he was hospitalized for two weeks prior to filing his application for insurance, raises
grave doubts about his bonafides. It appears that such concealment was deliberate on his
part.
The argument, that petitioner's waiver of the medical examination of the insured
debunks the materiality of the facts concealed, is untenable. We reiterate our ruling
in Saturnino v. Philippine American Life Insurance Company, 7 SCRA 316 (1963), that " . . .
the waiver of a medical examination [in a non-medical insurance contract] renders even
more material the information required of the applicant concerning previous condition
of health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to issue
the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of the
Insurance Code, which allows the injured party to rescind a contract of insurance where
there is concealment, ineffective (See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the
insured, it is well settled that the insured need not die of the disease he had failed to
disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in
forming his estimates of the risks of the proposed insurance policy or in making inquiries
(Henson v. The Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of
insurance by reason of the concealment employed by the insured. It must be emphasized
that rescission was exercised within the two-year contestability period as recognized in
Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is
REVERSED and SET ASIDE.
SO ORDERED.
[G.R. No. 120959. November 14, 1996]
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. YIP WAI MING, accused-
appellant.
DECISION
MELO, J.:
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong nationals,
came to Manila on vacation on July 10, 1993. The two were engaged to be
married. Hardly a day had passed when Lam Po Chun was brutally beaten up and
strangled to death in their hotel room. On the day of the killing, July 11, 1993, Yip Wai
Ming, was touring Metro Manila with Filipino welcomers while Lam Po Chun was left in
the hotel room allegedly because she had a headache and was not feeling well enough to
do the sights.
For the slaying, an Information was lodged against Yip Wai Ming on July 19, 1991, which
averred:
That on or about July 11, 1993, in the City of Manila, Philippines, the said accused did
then and there wilfully, unlawfully and feloniously with intent to kill with treachery and
evident premeditation, did then and there attack, assault and use personal violence upon
one Lam Po Chun by then and there mauling and strangling the latter, thereby inflicting
upon her mortal and fatal wounds which were the direct and immediate cause of her
death thereafter.
On May 15, 1995, Branch 44 of the Regional Trial Court of the National Capital Judicial
Region stationed in Manila and presided over by the Honorable Lolita O. Gal-lang
rendered a decision in essence finding that Yip Wai Ming killed his fiancee before he left
for the Metro Manila tour. Disposed thus the trial court:
WHEREFORE, in view of the foregoing established evidence, judgment is hereby
rendered convicting the accused Yip Wai Ming beyond reasonable doubt of the crime of
Murder as charged in the information and as defined in Article 248, paragraph 5 of the
Revised Penal Code, and in accordance therewith the aggravating circumstance of
evident premeditation which attended the commission of the offense, the said accused
Yip Wai Ming is hereby sentenced to suffer the penalty of Reclusion Perpetua with all the
accessory penalties provided for by law.
Accused is likewise ordered to pay the heirs of the deceased Lam Po Chun of Hongkong
the death indemnity for damages at Fifty Thousand (P50,000.00) Pesos; Moral and
compensatory damages of Fifty Thousand (P50,000.00) Pesos each or a total of One
Hundred Thousand Pesos (P100,000.00); plus costs of suit.
The accused being detained, he is credited with the full extent of the period under which
he was under detention, in accordance with the rules governing convicted prisoners.
SO ORDERED.
There was no eyewitness to the actual killing of Lam Po Chun. All the evidence about the
killing is circumstantial. The key issue in the instant appeal is, therefore, whether or not
the circumstantial evidence linking accused-appellant to the killing is sufficient to sustain
a judgment of conviction beyond reasonable doubt.
The evidence upon which the prosecution convinced the trial court of accused-appellants
guilt beyond reasonable doubt is summarized in the Solicitor-Generals brief as follows:
On or about 7 oclock in the evening of July 10, 1993, appellant and his fiancee Lam Po
Chun who are both Hongkong nationals, checked in at Park Hotel located at No. 1032-34
Belen St., Paco, Manila. They were billeted at Room 210. Angel Gonzaga, the roomboy on
duty, assisted the couple in going up to their room located at the second floor of the hotel
(p. 14, tsn, October 13, 1993, p. 66, tsn, September 1, 1993). When they reached Room
210, appellant got the key from Angel Gonzaga and informed the latter that they do not
need any room service, particularly the bringing of foods and other orders to their room
(pp. 67-69, tsn, September 1, 1993).
After staying for about an hour inside Room 210, the couple went down to the lobby of
the hotel. Appellant asked the front desk receptionist on duty to call a certain Gwen
delos Santos and to instruct her to pick them up the following day, July 11, 1993, a
Sunday at 10 oclock in the morning (pp. 21-25, tsn, September 8,1993).
At about past 8 oclock in the same evening of July 10, 1993, Cariza Destreza, occupant of
Room 211 which is adjacent to Room 210, heard a noise which sounds like a heated
argument between a man and a woman coming from the room occupied by appellant and
Lam Po Chun. The heated discussions lasted for thirty (30) minutes and thereafter
subsided.
In the following morning, that is, July 11, 1993, at around 9:15, the same Cariza Destresa
again heard a banging which sounds like somebody was thrown and stomped on the
floor inside Room 210.Cariza, who became curious, went near the wall dividing her room
and Room 210. She heard a cry of a woman as if she cannot breathe (pp. 23-24,
tsn, August 30, 1993).
At about 10 oclock a.m., Gwen delos Santos, together with two lady companions, arrived
at the lobby of the Park Hotel. The receptionist informed appellant by telephone of her
arrival. In response, appellant came down without his fiancee Lam Po Chun. After a while
he together with Gwen delos Santos and the latters companions, left the hotel. Before
leaving, he gave instruction to the front desk receptionist not to disturb his fiancee at
Room 210. He also ordered not to accept any telephone calls, no room cleaning and no
room service (pp. 37-43, tsn, October 18, 1993).
When appellant left, the front desk receptionist, Enriqueta Patria, noticed him to be in a
hurry, perspiring and looking very scared (p. 32, tsn, September 22, 1993).
During the whole morning of July 11, 1993, after appellant left the hotel until his return
at 11 oclock in the evening, he did not call his fiancee Lam Po Chun to verify her physical
condition (p. 44 tsn, October 18, 1993, p. 18, tsn, November 23, 1993).

(p. 69, Rollo.)

When appellant arrived at 11 oclock p.m. on that day, he asked the receptionist for the
key of his room. Then together with Fortunato Villa, the roomboy, proceeded to Room
210. When the lock was opened and the door was pushed, Lam Po Chun was found dead
lying face down on the bed covered with a blanket. Appellant removed the blanket and
pretended to exclaim My God, she is dead but did not even embrace his fiancee. Instead,
appellant asked the room boy to go down the hotel to inform the front desk, the security
guard and other hotel employees to call the police (pp. 8-27, tsn, October 18, 1993).
When the police arrived, they conducted an examination of the condition of the doors
and windows of the room as well as the body of the victim and the other
surroundings. They found no signs of forcible entry and they observed that no one can
enter from the outside except the one who has the key. The police also saw the victim
wrapped in a colored blanket lying face down. When they removed the blanket and tried
to change the position of her body, the latter was already in state of rigor mortis, which
indicates that the victim has been dead for ten (10) to twelve (12) hours. The police
calculated that Lam Po Chun must have died between 9 to 10 in the morning of July 11,
1993 (pp. 2-29), tsn, September 22, 1993).
Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted an autopsy of the body
of the victim. His examination (Exh. V) revealed that the cause of death was asphyxia by
strangulation. Dr. Lagonera explained that asphyxia is caused by lack of oxygen entering
the body when the entrance of air going to the respiratory system is blocked (pp. 6-19,
tsn, December 14, 1993).
Prior to the death of the victim, her brother, Lam Chi Keung, learned that her life was
insured with the Insurance Company of New Zealand in Causeway Bay, Hongkong, with
appellant as the beneficiary. The premium paid for the insurance was more than the
monthly salary of the deceased as an insurance underwriter in Hongkong (Exh. X).
It was on the bases of the foregoing facts that appellant was charged before the Regional
Trial Court in Manila for the crime of murder committed against the person of Lam Po
Chun.
(pp. 3-7, Appellees Brief, ff. p. 176, Rollo.)
In his brief, accused-appellant offers explanatory facts and argues that the findings of fact
of the trial court are based mainly on the prosecution evidence displaying bias against
accused-appellant. He contends that the court made unwarranted and unfounded
conclusions on the basis of self-contradictory and conflicting evidence.
Accused-appellant, at the time of the commission of the crime, was a customer relations
officer of Well Motors Company in Kowloon, Hongkong. He met Lam Po Chun at a party
in 1991. Both were sportsminded and after a short courtship, the two began to have a
relationship, living together in the same apartment. The two
toured China and Macao together in 1992.In April, 1993 the two decided to get
married. In May 1993, they registered with the Hongkong Marriage Registry. The
wedding was set for August 29,1993.
An office-mate of accused-appellant named Tessie Amay Ticar encouraged him and Lam
Po Chun to tour the Philippines in celebration of their engagement. After finishing the
travel arrangements, the two were given by Ticar the names (Toots, Monique, and Gwen)
of her cousins in Manila and their telephone number. Photos of their Manila contacts
were shown to them. In addition to his Citibank credit card, accused-appellant
brought P24,000.00 secured at a Hongkong money exchange and HK$4,000.00. Lam Po
Chun had HK$3,000.00.
The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on board Cathay Pacific
Flight CX 903. They arrived at Park Hotel around 7 P.M. From their hotel room, accused-
appellant called their contact, Gwen delos Santos, by telephone informing her of their
arrival. The two ate outside at McDonalds restaurant
Accused-appellant woke up the following morning - Sunday, July 11, 1993 - at around 8
oclock. After the usual amenities, including a shower, the two had breakfast in the hotel
restaurant, then they went back to their room. At around 10 oclock that same morning,
accused-appellant received a phone call from the hotel staff telling him that their visitors
had arrived.
He then went to the lobby ahead of Lam Po Chun, introduced himself to the delos Santos
sisters, Gwen and Monique, and their mother. A few minutes later, Lam Po Chun joined
them.Two bottles of perfume were given to the sisters as arrival gifts.
Gwen delos Santos invited the couple to tour the city but Lam Po Chun decided to stay
behind as it was very hot and she had a headache. She excused herself and went up to
her room, followed later by accused-appellant to get another bottle of perfume.
Accused-appellant claims that before leaving, he instructed the clerk at the front desk to
give Lam Po Chun some medicine for headache and, as much as possible, not to disturb
her.
Accused-appellant, Gwen, Monique, and the sisters mother took a taxicab to Landmark
Department Store where they window shopped. Accused-appellant states that from a
telephone booth in the store, he called Lam Po Chun but no one answered his call. From
Landmark where they had lunch, the four went to Shoemart Department Store in Makati.
Accused-appellant bought a Giordano T-shirt at Landmark and chocolates at
Shoemart. Gwen delos Santos brought the group to the house of her aunt, Edna Bayona,
at Roces, Quezon City. From Roces St., Gwen delos Santos brought the group to her home
in Balut, Tondo. Using the delos Santos telephone, accused-appellant called his office in
Hongkong. The PLDT receipt showed that the call was made at 6:44 P.M. on July 11,
1993. Accused-appellant claims that, afterwards, he called up Lam Po Chun at their hotel
room but the phone just kept on ringing with nobody answering it. The group had dinner
at the delos Santos house in Tondo. After dinner, Gwen delos Santos brother and sister-
in-law arrived. They insisted in bringing their guest to a restaurant near Manila Bay for
coffee, but it was full so they proceeded to Tia Maria, a Mexican restaurant in Makati.
Finally, the delos Santos family brought Andy Yip back to the Park Hotel, arriving there at
around 10:30 PM. Before the delos Santos group left, there was an agreement that the
following morning accused-appellant and Lam Po Chun would join them in another city
tour.
After accused-appellants knocks at the door of their room remained unanswered, he
went back to the hotel front desk and asked the hotel staff to open the door for him. The
room was dark. Accused-appellant put on the light switch. He wanted to give the
roomboy who accompanied him a P20 or P30 tip but his smallest bill was P100. He went
to a side table to get some smaller change. It was then when he noticed the disordered
room, a glass case and wallet on the floor, and Lam Po Chun lying face down on one of the
beds.
Accused-appellant tried to wake Lam Po Chun up by calling her name but when she did
not respond, he lifted up her face, moving her body sidewards. He saw blood. Shocked, he
shouted at the roomboy to call a doctor.
Several people rushed to Room 210. A foreigner looked at Lam Po Chun and said she was
dead. The foreigner placed his arms around accused-appellant who was slumped on the
floor and motioned for him to leave the room. Accused-appellant refused, but he was
made to move out and to go to the lobby, at which place, dazed and crying, he called up
Gwen delos Santos to inform her of what happened. Gwen could not believe what she
heard, but she assured accused-appellant that they were going to the hotel. Policemen
then arrived.
In the instant appeal, accused-appellant, through his new counsel, former Justice Ramon
C. Fernandez, assigns the following alleged errors:
I
THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSED-APPELLANT WAS
ARRESTED WITHOUT WARRANT, WAS TORTURED AND WAS NOT INFORMED THAT HE
HAD THE RIGHT TO REMAIN SILENT AND BE ASSISTED BY INDEPENDENT AND
COMPETENT COUNSEL DURING CUSTODIAL INVESTIGATION.
II
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT HAD THE
VICTIM APPLE INSURED AND LATER KILLED HER FOR THE INSURANCE PROCEEDS.
III
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT COMMITTED
A CRIME OF MURDER AGGRAVATED BY EVIDENT PREMEDITATION.
IV
THE TRIAL COURT ERRED IN GIVING CREDENCE TO THE TESTIMONY OF OFFICER
ALEJANDRO YANQUILING, JR.
V of murder if the story is proved that Lam Po Chun insured herself for the amounts of US
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONY OF CARISA DESTREZA
WHO INCURRED SERIOUS CONTRADICTIONS ON MATERIAL POINTS.
VI
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONIES OF THE OTHER
PROSECUTION WITNESSES THAT CONTRADICTED EACH OTHER ON MATERIAL
POINTS.
VII
THE TRIAL COURT ERRED IN HOLDING THAT THE TESTIMONIES OF THE WITNESSES
OF THE ACCUSED ARE INCREDIBLE.
VIII
THE TRIAL COURT ERRED IN FINDING THAT THE PROSECUTION HAS ESTABLISHED
THE GUILT OF THE ACCUSED-APPELLANT BY PROOF BEYOND REASONABLE DOUBT.
IX
THE TRIAL COURT ERRED IN NOT COMPLETELY ACQUITTING THE ACCUSED-
APPELLANT OF THE CRIME CHARGED IN THE INFORMATION.
(pp. 80-82, Rollo.)
The trial court, in arriving at its conclusions, took the various facts presented by the
prosecution, tied them up together like parts of a jig-saw puzzle, and came up with a
complete picture of circumstantial evidence depicting not only the commission of the
crime itself but also the motive behind it.
Our review of the record, however, discloses that certain key elements, without which
the picture of the crime would be faulty and unsound, are not based on reliable
evidence. They appear to be mere surmises and assumptions rather than hard facts or
well-grounded conclusions.
A key element in the web of circumstantial evidence is motive which the prosecution
tried to establish. Accused-appellant and Lam Po Chun were engaged to be married. They
had toured China and Macao together. They were living together in one apartment. They
were registered with the Hongkong Marriage Registry in May 1993. Marriage date was
set for August 29, 1993. This date was only a month and a half away from the date of
death of Lam Po Chun. In the absence of direct evidence indubitably showing that
accused-appellant was the perpetrator of the killing, motive becomes important. The
theory developed by the prosecution was not only of a cold-blooded crime but a well-
planned one, including its timing up to the half hour. It is not the kind of crime that a man
would commit against his wife-to-be unless a strong motive for it existed.
The trial court would have been justified in finding that there was evident premeditation
$498,750.00 and US $249,375.00 naming accused-appellant as the beneficiary.
There is, however, no evidence that the victim secured an insurance policy for a big
amount in US dollars and indicated accused-appellant as the beneficiary. The
prosecution presented Exhibit X, a mere xerox copy of a document captioned Proposal
for Life Insurance as proof of the alleged insurance. It is not a certified copy, nor was the
original first identified.
The authenticity of the document has thus not been duly established. Exhibit X was
secured in Hongkong when Lam Chi Keung, the brother of the victim, learned that his
sister was murdered in Manila. It is not shown how and from whom the information
about any alleged insurance having been secured came. There is no signature indicating
that the victim herself applied for the insurance. There is no marking in Exhibit X of any
entry which purports to be the victims signature. There is a signature of Apple Lam
which is most unusual for an insurance application because the victims name is Lam Po
Chun. To be sure nobody insures himself or herself under a nickname. The entries in the
form are in block letters uniformly written by one hand. Below the printed name Lam Po
Chun are Chinese characters which presumably are the Chinese translation of her
name. Nobody was presented to identify the author of the block handwriting. Neither the
prosecution nor the trial court made any comparisons, such as the signature of Lam Po
Chun on her passport (Exh. C), with her purported signature or any other entry in the
form.
It needs not much emphasis to say that an application form does not prove that
insurance was secured. Anybody can get an application form for insurance, fill it up at
home before filing it with the insurance company. In fact, the very first sentence of the
form states that it merely forms the basis of a contract between you and NZI Life. There
was no contract yet.
There is evidence in the record that the family of Lam Po Chun did not like her
relationship with accused-appellant. After all the trouble that her brother went through
to gather evidence to pin down accused-appellant, the fact that all he could come up with
is an unsigned insurance application form shows there was no insurance money
forthcoming for accused-appellant if Lam Po Chun died. There is no proof that the
insurance company approved the proposal, no proof that any premium payments were
made, and no proof from the record of exhibits as to the date it was accomplished. It
appearing that no insurance was issued to Lam Po Chun with accused-appellant as the
beneficiary, the motive capitalized upon by the trial court vanishes.Thus, the picture
changes to one of the alleged perpetrator killing his fiancee under cold-blooded
circumstances for nothing.
There are other suspicious circumstances about the insurance angle. Lam Po Chun was
working for the National Insurance Company. Why then should she insure her life with
the New Zealand Insurance Company? Lams monthly salary was only HK $5,000.00. The
premiums for the insurance were HK $5,400.00 or US $702.00 per month. Why should
Lam insure herself with the monthly premiums exceeding her monthly salary? And why
should any insurance company approve insurance, the premiums of which the supposed
insured obviously can not afford to pay, in the absence of any showing that somebody
else is paying for said premiums. It is not even indicated whether or not there are rules
in Hongkong allowing a big amount of insurance to be secured where the beneficiary is
not a spouse, a parent, a sibling, a child, or other close relative.
Accused-appellant points out an apparent lapse of the trial court related to the matter of
insurance. At page 33 of the decision, the trial court stated:
Indeed, Yip Wai Ming testified that he met Andy Kwong in a restaurant in Hongkong and
told Yip and Lam Po Chun should be married and there must be an insurance for her life .
..
(p. 33, RTC Decision; p. 66, Rollo.)
The source of the above finding is stated by the court as tsn hearing Sept. 22, 1992. But
accused-appellant Yip Wai Ming did not testify on September 22, 1992. The entire 112
pages of the testimony on that date came from SPO2 Yanquiling. The next hearing was on
September 29, 1993. All the 100 pages of the testimony on that date came from
Yanquiling. The next hearing on October 13, 1993 resulted in 105 pages of testimony,
also from Yanquiling. This Court is at a complete loss as to the reason of the trial court
sourcing its statement to accused-appellants alleged testimony.
Lam Po Chun must have been unbelievably trusting or stupid to follow the alleged advice
of Andy Kwong. It is usually the man who insures himself with the wife or future wife as
beneficiary instead of the other way around. Why should Lam Po Chun, with her
relatively small salary which is not even enough to pay for the monthly premiums, insure
herself for such a big amount. This is another reason why doubts arise as to the truth of
the insurance angle.
Another key factor which we believe was not satisfactorily established is the time of
death. This element is material because from 10 A.M. of July 11, 1993 up to the time the
body was discovered late that evening, accused-appellant was in the company of Gwen
delos Santos, her sister Monique, and their mother, touring Metro Manila and going from
place to place. This much is established.
To go around this problem of accused-appellant being away from the scene of the crime
during the above mentioned hours, the prosecution introduced testimonial evidence as
to the probable time of death, always placing it within the narrow 45-minute period
between 9:15 and 10 A.M. of July 11,1993, the time when Cariza Destresa, the occupant
of the adjoining room, heard banging sounds coming from the room of accused-
appellant, and the time accused-appellant left with his Filipino friends.
The prosecution alleges that at 10 A.M., Lam Po Chun was already dead. However, Gwen
delos Santos who never saw the couple before was categorical in declaring that she met
both of them at the lobby before the group left for the tour (tsn, Feb. 14, 1994, p. 64; p.
20, RTC Decision; p. 150, Rollo), but Lam Po Chun asked to be excused because of a
headache. In fact, delos Santos was able to identify Lam Po Chun from pictures shown
during the trial. She could not have done this unless she really saw and met the victim at
the hotel lobby at around 10 A.M. of July 11,1993.
The prosecution introduced an expert in the person of Dr. Manuel Lagonera to establish
the probable time of death. Dr. Lagonera, medico-legal officer of the PNP Western Police
District, after extensive questioning on his qualifications as an expert witness, what he Q. And your basis in saying that there was no struggle on the part of the victim was that
discovered as the cause of death (strangulation), the contents of the deceaseds stomach, there were no apparent or seen injuries in the hands of the victim?
injuries sustained, and the condition of the cadaver, was asked to establish the time of
death, to wit: WITNESS:

Q. If we use thirty six (36) hours to forty eight (48) hours, will you agree with me that it A. Yes, sir.
is possible that the victim was killed in the morning of July 10, 1993?
ATTY. PASCUA:
A. I cannot, I have no basis whether the victim was killed in the morning or in the
Q. But you did not examine the fingernails?
afternoon.
WITNESS:
(tsn, Dec. 14, 1993, p. 31.)
A. No, I did not examine, Sir.
Dr. Lagoneras testimony on the number of assailants was similar. He had no basis for an
answer, thusly: ATTY. PASCUA:

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

Q. Would you be able to determine also based on your findings your autopsy whether the WITNESS:
assailants, the number of the assailants?
A. No injuries at the back, all in front.
WITNESS:
ATTY. PASCUA:
A. I have no basis, Sir.
Q. All in front, meaning in terms of probability and based on your professional opinion,
ATTY. PASCUA: the attack would have come from a frontal attack or the attacker would have come from
behind to inflict the frontal injuries of the victim?
Q. You have no basis. And would it also have been possible, that there were more than
one assailants? WITNESS:

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

A. It is possible also. ATTY. PASCUA:

ATTY. PASCUA: Q. But in your professional opinion or in your experience, based on the injuries sustained
including the location of the injuries on the body of the victim, would it be more probable
Q. It is possible also, who simultaneously inflicted the wounds of the victim?
that the attack came from in front of the victim?
WITNESS:
WITNESS:
A. It is possible.
A. Yes, it is possible, Sir.
ATTY. PASCUA:
(tsn, Dec. 14, 1993, pp. 60-63.)
Q. Based also on your autopsy report, were there signs that the victim put a struggle?
Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn, Dec. 14, 1993,
WITNESS: p.108). It is undisputed that at around 8:30 A.M. of July 11,1993 accused-appellant and
Lam Po Chun took breakfast together at the hotel restaurant. She could not have been
A. There were no injuries in the hand or forearms or upper arms of the victim. So, there killed on July 10,1993. The autopsy conducted by Dr. Lagonera and the testimony of
were no sign of struggle on the part of the victim. accused-appellant coincided insofar as the food taken at breakfast is concerned. The
couple ate eggs, bacon, and toasted bread. But the doctor was insistent that the death
ATTY. PASCUA: occurred the previous day.
Where a medico-legal expert of the police department could not, with any measure of
preciseness, fix the time of death, the police investigator was bold and daring enough to
establish it. Surprisingly, the trial court accepted this kind of evidence. SPO2 Alejandro
Yanquiling testified that he arrived at the Park Hotel at about 11:25 oclock on the
evening of July 11, 1993 to conduct the investigation of the crime. At the time, the victim
showed signs of rigor mortis, stiffening of the muscle joints, with liquid and blood oozing
from the nose and mouth. On the basis of his observations, he declared that the victim
had been dead for 10 to 12 hours.
The trial court stated that if the victim had been dead from 10 to 12 hours at 11:35
oclock in the evening, it is safe to conclude that she was killed between 9 and 10 oclock
on the morning of July 11, 1993. The mathematics of the trial court is faulty. Twelve
hours before 11:35 P.M. would be 11:35 A.M.. Ten hours earlier would even be later --
1:35 P.M.. Since accused-appellant was unquestionably with Gwen delos Santos and her
group touring and shopping in megamalls between 10 A.M. and 11:35 P.M., the assailant
or assailants must have been other people who were able to gain entry into the hotel
room at that time.
The trial court stated that there was no sign of any forcible entry into the room, no
broken locks, windows, etc. The answer is simple. Somebody could have knocked on the
door and Lam Po Chun could have opened it thinking they were hotel
staff. Unfortunately, Detective Yanquiling was so sure of himself that after pinpointing
accused-appellant as the culprit, he did not follow any other leads. In the course of his
interviews with witnesses, his purpose was simply to nail down one suspect. His
investigation was angled towards pinning down Yip Wai Ming. In fact, Gwen delos Santos
testified that Yanquiling talked to her over the telephone almost daily urging her to
change her testimony.
Officer Yanquiling testified on cross-examination that he did not apply any mode of
scientific investigation. If a medico-legal expert of the same police department who
conducted an autopsy had no basis for giving the probable time of death, the police
officer who merely looked at the body and saw the blood oozing out of the victims nose
and mouth must have simply guessed such time, plucking it out of thin air. The trial court
accepted the erroneous timing, conveniently placing it where a finding of guilt would
follow as a consequence.
Before a conviction can be had upon circumstantial evidence, the circumstances should
constitute an unbroken chain which leads to but one fair and reasonable conclusion,
which points to the accused, to the exclusion of all others, as the guilty person (U.S. vs.
Villos, 6 Phil. 510 [1906]; People vs. Subano, 73 Phil. 692 [1942]). Every hypothesis
consistent with innocence must be excluded if guilt beyond reasonable doubt is based on
circumstantial evidence (U.S. vs. Cajayon, 2 Phil. 570 [1903]; U.S. vs. Tan Chian, 17 Phil.
209 [1910]; U.S. vs. Levente, 18 Phil. 439 [1911]). All the evidence must be consistent
with the hypothesis that the accused is guilty, and at the same time inconsistent with the
hypothesis that he is innocent, and with every other rational hypothesis except that of
guilt (People vs. Andia, 2 SCRA 423 [1961]).
The tests as to the sufficiency of the circumstantial evidence to prove guilt beyond
reasonable doubt have not been met in the case at bar.
The chain of circumstances is not unbroken. The most vital circumstantial evidence in
this case is that which proves that accused-appellant killed the victim so he could gain
from the insurance proceeds on the life of the victim. Another vital circumstance is the
time of death precisely between 9:15 and 10 A.M. Both were not satisfactorily
established by the prosecution.Where the weakest link in the chain of evidence is at the
same time the most vital circumstance, there can be no other alternative but to acquit the
accused (People vs. Magborang, 9 SCRA108 [1963]).
Since the sentence of conviction is based on the crime having been committed within a
short time frame, accused-appellant cannot be convicted on the strength of
circumstantial evidence if doubts are entertained as to where he was at that particular
time and reasonable conclusions can be had that other culprits could have entered the
room after accused-appellant left with the delos Santos family. Other people could have
killed the victim.
The trial court also relied heavily on the testimony of Cariza Destresa, a 19-year old
cultural dancer occupying with her Australian boyfriend Peter Humphrey, the adjoining
Room 211.Destresa testified that while she was in Room 211 at about 9:15 oclock on the
morning of July 11,1993, she heard banging sounds in Room 210, as if somebody was
being thrown, and there was stomping on the floor. The banging sounds lasted about
thirty (30) minutes, an improbably long time to kill a woman. Destresa stated that she
placed her ear near the wall and heard the cry of a woman having difficulty in breathing.
The witness heard the banging sounds between 9:15 and 9:45 A.M. of July 11, 1993, not
before or after. The unreliability of Destresas memory as to dates and time is shown by
the fact that when asked as to the date of her Australian boyfriends arrival in the
Philippines, she stated, July 29, 1993. Pressed by the prosecuting attorney if she was sure
of said date, she changed this to July 16,1993. Pressed further:
Q. Are you sure that he arrived in the Philippines on July 16,1993?
A. I cant exactly remember the date of the arrival of my boyfriend here in the Philippines
because his coming was sudden, Sir.
(tsn, Sept. 30, 1993, p.10.)
On July 16 and July 19, 1993 Lam Po Chun was already dead. If Peter Humphrey was still
in Australia on July 11, 1993, how could he occupy with his girlfriend the next door
room, Room 211, on that date at the Park Hotel. If Destresa cannot remember the date
her Australian boyfriend arrived, how could the trial court rely on her memory as to the
30-minute interval from 9:15 A.M. to 9:45 A.M. of July 11, 1993 when the alleged murder
took place. Asked what time on July 13, 1993 she gave her sworn statement to the police,
Destresa answered, I am not sure, may be it was in the early morning between 2 or 3
oclock of that day, Sir. Destresa was asked how she could be certain of July 13, 1993 as
the date of her sworn statement. She answered that this was the day her boyfriend left
for Australia (tsn, Aug. 31, 1993, p. 29). In her testimony given on the same day, Destresa
states that she stayed in Room 211 for 3 months. She later changed her mind and said
she stayed there only when Peter Humphrey was in the Philippines. According to the
witness, Peter left on May 29, 1993; arrived in June and July; left in June; arrived in July;
left on July 13, 1993. Destresa was confused and evasive not only as to dates, but also as
to her employment, stating at the start of her testimony that she was jobless, but later
declaring that she was a dancer with the Rampage group and performed in Dubai.
Destresa testified at one point that she heard an argument between a man and a woman
in a dialect she could not understand. This was supposed to be on the evening of July
11,1993.At that time, the victim had long been dead. Destresa gave various contradictory
statements in her August 30, 1993; August 31,1993; and September 1, 1993
testimony. To our mind, the trial court gravely erred in relying on her testimony.
Accused-appellant was arrested on July 13, 1993, two days after the killing. There was no
warrant of arrest. Officer Yanquiling testified that there was no warrant and he arrested
the accused-appellant based on series of circumstantial evidence. He had no personal
knowledge of Yip Wai Ming having committed the crime. Accused-appellant stated that
five police officers at the police station beat him up. They asked him to undress, forced
him to lie down on a bench, sat on his stomach, placed a handkerchief over his face, and
poured water and beer over his face. When he could no longer bear the pain, he admitted
the crime charged, participated in a re-enactment, and signed an extrajudicial
statement. All the while, he was not informed of his right to remain silent nor did he have
counsel of his choice to assist him in confessing the crime.
desire of a police officer to solve a high profile crime which could mean a promotion or
additional medals and commendations is admirable. However, an investigator must
pursue various leads and hypotheses instead of singlemindedly pursuing one suspect
and limiting his investigation to that one possibility, excluding various other
probabilities. The killing of a tourist is a blot on the peace and order situation in the
Philippines and must be solved. Still, concentrating on pinning down an alien companion
of the victim and not pursuing the possibilities that other persons could have killed the
victim for her money and valuables does not speak well of our crime detection system. It
is not enough to solve a crime. The truth is more important and justice must be rendered.
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accused-
appellant Yip Wai Ming is acquitted of the charge of murder on grounds of reasonable
doubt and his immediate release from custody is ordered unless he is being held on
other legal grounds.
SO ORDERED.

The custodial interrogation of accused-appellant was violative of Section 12, Article III of
the Constitution. The Constitution provides that (3) Any confession or admission
obtained in violation of this section or Section 17 hereof shall be inadmissible against
him. Section 17, Article III provides: No person shall be compelled to be a witness against
himself. Any confession, including a re-enactment without admonition of the right to
silence and to counsel, and without counsel chosen by the accused is inadmissible in
evidence (People vs. Duero, 104 SCRA379 [1981]).

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

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

Most of the circumstantial evidence in this case came from the investigation conducted
by Officer Alejandro Yanquiling or from the prodding by him of various witnesses. The
G.R. No. 114427 February 6, 1995
ARMANDO GEAGONIA, petitioner,
vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE
CORPORATION, respondents.
DAVIDE, JR., J.:
Four our review under Rule 45 of the Rules of Court is the decision 1 of the Court of
Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation
versus Armando Geagonia," reversing the decision of the Insurance Commission in I.C.
Case No. 3340 which awarded the claim of petitioner Armando Geagonia against private
respondent Country Bankers Insurance Corporation.
The petitioner is the owner of Norman's Mart located in the public market of San
Francisco, Agusan del Sur. On 22 December 1989, he obtained from the private
respondent fire insurance policy No. F-146222 for P100,000.00. The period of the policy
was from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-
trade consisting principally of dry goods such as RTW's for men and women wear and
other usual to assured's business."
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that
Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the
petitioner had in his inventory stocks amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc. P55,698.00
F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
—————
P392,130.50
The policy contained the following condition:
3. The insured shall give notice to the Company of any insurance or insurances already
affected, or which may subsequently be effected, covering any of the property or
properties consisting of stocks in trade, goods in process and/or inventories only hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated therein or endorsed in this policy pursuant to Section 50 of the
Insurance Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided however, that
this condition shall not apply when the total insurance or insurances in force at the time
of the loss or damage is not more than P200,000.00.
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public
market of San Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were
completely destroyed prompting him to file with the private respondent a claim under
the policy. On 28 December 1990, the private respondent denied the claim because it
found that at the time of the loss the petitioner's stocks-in-trade were likewise covered
by fire insurance policies No. GA-28146 and No. GA-28144, for P100,000.00 each, issued
by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These
policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia,
Prop.)" with a mortgage clause reading:
MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as
their interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED:
P100,000. — Phils. First CEB/F 24758.4
The basis of the private respondent's denial was the petitioner's alleged violation of
Condition 3 of the policy.
The petitioner then filed a complaint 5 against the private respondent with the Insurance
Commission (Case No. 3340) for the recovery of P100,000.00 under fire insurance policy
No. F-14622 and for attorney's fees and costs of litigation. He attached as Annex
"AM"6 thereof his letter of 18 January 1991 which asked for the reconsideration of the
denial. He admitted in the said letter that at the time he obtained the private
respondent's fire insurance policy he knew that the two policies issued by the PFIC were
already in existence; however, he had no knowledge of the provision in the private
respondent's policy requiring him to inform it of the prior policies; this requirement was
not mentioned to him by the private respondent's agent; and had it been mentioned, he
would not have withheld such information. He further asserted that the total of the
amounts claimed under the three policies was below the actual value of his stocks at the
time of loss, which was P1,000,000.00.
In its answer,7 the private respondent specifically denied the allegations in the complaint
and set up as its principal defense the violation of Condition 3 of the policy.
In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did
not violate Condition 3 as he had no knowledge of the existence of the two fire insurance
policies obtained from the PFIC; that it was Cebu Tesing Textiles which procured the
PFIC policies without informing him or securing his consent; and that Cebu Tesing
Textile, as his creditor, had insurable interest on the stocks. These findings were based
on the petitioner's testimony that he came to know of the PFIC policies only when he
filed his claim with the private respondent and that Cebu Tesing Textile obtained them
and paid for their premiums without informing him thereof. The Insurance Commission
then decreed:
WHEREFORE, judgment is hereby rendered ordering the respondent company to pay
complainant the sum of P100,000.00 with legal interest from the time the complaint was
filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. The
compulsory counterclaim of respondent is hereby dismissed.
Its motion for the reconsideration of the decision 9 having been denied by the Insurance
Commission in its resolution of 20 August 1993, 10 the private respondent appealed to
the Court of Appeals by way of a petition for review. The petition was docketed as CA-
G.R. SP No. 31916.
In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the
Insurance Commission because it found that the petitioner knew of the existence of the
two other policies issued by the PFIC. It said:
It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the
insurance was taken in the name of private respondent [petitioner herein]. The policy
states that "DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)" was the assured and
that "TESING TEXTILES" [was] only the mortgagee of the goods.
In addition, the premiums on both policies were paid for by private respondent, not by
the Tesing Textiles which is alleged to have taken out the other insurance without the
knowledge of private respondent. This is shown by Premium Invoices nos. 46632 and
46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be only the
mortgagee of the goods insured but the party to which they were issued were the
"DISCOUNT MART (MR. ARMANDO GEAGONIA)."
In is clear that it was the private respondent [petitioner herein] who took out the policies
on the same property subject of the insurance with petitioner. Hence, in failing to
disclose the existence of these insurances private respondent violated Condition No. 3 of
Fire Policy No. 1462. . . .
Indeed private respondent's allegation of lack of knowledge of the provisions insurances
is belied by his letter to petitioner [of 18 January 1991. The body of the letter reads as
follows;]
xxx xxx xxx
Please be informed that I have no knowledge of the provision requiring me to inform
your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative did not
mention about said requirement at the time he was convincing me to insure with you. If
he only die or even inquired if I had other existing policies covering my establishment, I
would have told him so. You will note that at the time he talked to me until I decided to
insure with your company the two policies aforementioned were already in effect.
Therefore I would have no reason to withhold such information and I would have
desisted to part with my hard earned peso to pay the insurance premiums [if] I know I
could not recover anything.
Sir, I am only an ordinary businessman interested in protecting my investments. The
actual value of my stocks damaged by the fire was estimated by the Police Department to
be P1,000,000.00 (Please see xerox copy of Police Report Annex "A"). My Income
Statement as of December 31, 1989 or five months before the fire, shows my
merchandise inventory was already some P595,455.75. . . . These will support my claim
that the amount claimed under the three policies are much below the value of my stocks
lost.
xxx xxx xxx
The letter contradicts private respondent's pretension that he did not know that there
were other insurances taken on the stock-in-trade and seriously puts in question his
credibility.
His motion to reconsider the adverse decision having been denied, the petitioner filed
the instant petition. He contends therein that the Court of Appeals acted with grave
abuse of discretion amounting to lack or excess of jurisdiction:
A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE
COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING
INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN
FINALITY BY THE COURTS;
B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT
PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND
C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE
PRIVATE RESPONDENT.
The chief issues that crop up from the first and third grounds are (a) whether the
petitioner had prior knowledge of the two insurance policies issued by the PFIC when he
obtained the fire insurance policy from the private respondent, thereby, for not
disclosing such fact, violating Condition 3 of the policy, and (b) if he had, whether he is
precluded from recovering therefrom.
The second ground, which is based on the Court of Appeals' reliance on the petitioner's
letter of reconsideration of 18 January 1991, is without merit. The petitioner claims that
the said letter was not offered in evidence and thus should not have been considered in
deciding the case. However, as correctly pointed out by the Court of Appeals, a copy of
this letter was attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M"
thereof and made integral part of the complaint. 12 It has attained the status of a judicial
admission and since its due execution and authenticity was not denied by the other
party, the petitioner is bound by it even if it were not introduced as an independent
evidence. 13
As to the first issue, the Insurance Commission found that the petitioner had no
knowledge of the previous two policies. The Court of Appeals disagreed and found
otherwise in view of the explicit admission by the petitioner in his letter to the private
respondent of 18 January 1991, which was quoted in the challenged decision of the Court
of Appeals. These divergent findings of fact constitute an exception to the general rule
that in petitions for review under Rule 45, only questions of law are involved and
findings of fact by the Court of Appeals are conclusive and binding upon this Court. 14
We agree with the Court of Appeals that the petitioner knew of the prior policies issued
by the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves
this knowledge. His testimony to the contrary before the Insurance Commissioner and
which the latter relied upon cannot prevail over a written admission made ante litem
motam. It was, indeed, incredible that he did not know about the prior policies since
these policies were not new or original. Policy No. GA-28144 was a renewal of Policy No.
F-24758, while Policy No. GA-28146 had been renewed twice, the previous policy being
F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not
proscribed by law. Its incorporation in the policy is allowed by Section 75 of the
Insurance Code 15 which provides that "[a] policy may declare that a violation of
specified provisions thereof shall avoid it, otherwise the breach of an immaterial
provision does not avoid the policy." Such a condition is a provision which invariably
appears in fire insurance policies and is intended to prevent an increase in the moral
hazard. It is commonly known as the additional or "other insurance" clause and has been
upheld as valid and as a warranty that no other insurance exists. Its violation would thus
avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon
same subject matter, the same interest therein, and the same risk.17
As to a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be one policy, or each may take out a
separate policy covering his interest, either at the same or at separate times. 18 The
mortgagor's insurable interest covers the full value of the mortgaged property, even
though the mortgage debt is equivalent to the full value of the property.19 The
mortgagee's insurable interest is to the extent of the debt, since the property is relied
upon as security thereof, and in insuring he is not insuring the property but his interest
or lien thereon. His insurable interest is prima facie the value mortgaged and extends
only to the amount of the debt, not exceeding the value of the mortgaged
property. 20 Thus, separate insurances covering different insurable interests may be
obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is
the usual practice. The mortgagee may be made the beneficial payee in several ways. He
may become the assignee of the policy with the consent of the insurer; or the mere
pledgee without such consent; or the original policy may contain a mortgage clause; or a
rider making the policy payable to the mortgagee "as his interest may appear" may be
attached; or a "standard mortgage clause," containing a collateral independent contract
between the mortgagee and insurer, may be attached; or the policy, though by its terms
payable absolutely to the mortgagor, may have been procured by a mortgagor under a
contract duty to insure for the mortgagee's benefit, in which case the mortgagee acquires
an equitable lien upon the proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in favor of the
mortgagee as his interest may appear, the mortgagee is only a beneficiary under the
contract, and recognized as such by the insurer but not made a party to the contract
himself. Hence, any act of the mortgagor which defeats his right will also defeat the right
of the mortgagee. 22 This kind of policy covers only such interest as the mortgagee has at
the issuing of the policy.23
On the other hand, a mortgagee may also procure a policy as a contracting party in
accordance with the terms of an agreement by which the mortgagor is to pay the
premiums upon such insurance. 24 It has been noted, however, that although the
mortgagee is himself the insured, as where he applies for a policy, fully informs the
authorized agent of his interest, pays the premiums, and obtains on the assurance that it
insures him, the policy is in fact in the form used to insure a mortgagor with loss payable
clause. 25
The fire insurance policies issued by the PFIC name the petitioner as the assured and
contain a mortgage clause which reads:
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest
may appear subject to the terms of this policy.
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved
in General Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety
Corp. vs. Yap, 27 which read:
The insured shall give notice to the company of any insurance or insurances already
effected, or which may subsequently be effected covering any of the property hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated in or endorsed on this Policy by or on behalf of the Company before
the occurrence of any loss or damage, all benefits under this Policy shall be forfeited.
or in the 1930 case of Santa Ana vs. Commercial Union Assurance
Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the
objects thereby assured must be declared by the insured in writing and he must cause
the company to add or insert it in the policy, without which such policy shall be null and
void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in the
private respondent's policy No. F-14622 does not absolutely declare void any violation
thereof. It expressly provides that the condition "shall not apply when the total insurance
or insurances in force at the time of the loss or damage is not more than P200,000.00."
It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted
liberally in favor of the insured and strictly against the company, the reason being,
undoubtedly, to afford the greatest protection which the insured was endeavoring to
secure when he applied for insurance. It is also a cardinal principle of law that forfeitures
are not favored and that any construction which would result in the forfeiture of the
policy benefits for the person claiming thereunder, will be avoided, if it is possible to
construe the policy in a manner which would permit recovery, as, for example, by finding
a waiver for such forfeiture. 29 Stated differently, provisions, conditions or exceptions in
policies which tend to work a forfeiture of insurance policies should be construed most
strictly against those for whose benefits they are inserted, and most favorably toward
those against whom they are intended to operate. 30 The reason for this is that, except for
riders which may later be inserted, the insured sees the contract already in its final form
and has had no voice in the selection or arrangement of the words employed therein. On
the other hand, the language of the contract was carefully chosen and deliberated upon
by experts and legal advisers who had acted exclusively in the interest of the insurers
and the technical language employed therein is rarely understood by ordinary laymen. 31

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

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

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

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

Costs against private respondent Country Bankers Insurance Corporation.

SO ORDERED.

Padilla, Bellosillo, Quiason and Kapunan, JJ., concur.

G.R. No. 84628 November 16, 1989
HEIRS OF ILDEFONSO COSCOLLUELA, SR., INC., petitioner,
vs.
RICO GENERAL INSURANCE CORPORATION, COURT OF APPEALS (11th Division),
and HON. ENRIQUE T. JOCSON, Judge, Regional Trial Court of Negros Occidental
Branch, respondents.
Ildefonso S. Villanueva and Rolando N. Medalla for petitioner.
Limbaga, Bana-ag, Bana-ag & Associates for private respondent.
GUTIERREZ, JR., J.:
The main issues raised in this petition for review on certiorari are whether the Court of
Appeals erred in: (1) affirming the dismissal by the trial court of the complaint for
damages on the ground of lack of cause of action, and in (2) denying due course to a
petition for certiorari on the ground that the remedy of the petitioner to assail said order
is appeal.
Petitioner, Heirs of Ildefonso Coscoluella, Inc. is a domestic corporation and the
registered owner of an Isuzu KBD Pick-up truck bearing Motor No. 663296 and Plate No.
LTV-FAW-189. The vehicle was insured with the private respondent Rico General
Insurance Corporation for a consideration of P100,000.00 excluding third party liability
under Commercial Vehicle Policy No. CV-122415 per Renewal Certificate No. 02189. The
premiums and other expenses for insurance paid covered the period from October 1,
1986 to October 1, 1987.
On August 28, 1987 and within the period covered by the insurance, the insured vehicle
was severely damaged and rendered unserviceable when fired upon by a group of
unidentified armed persons at Hacienda Puyas, Barangay Blumentritt, Murcia, Negros
Occidental. In the same incident, four persons died.
Petitioner filed its claim of P80,000.00 for the repair of the vehicle but private
respondent, in a letter dated October 8, 1987, refused to grant it. As a consequence, the
petitioner was prompted to file a complaint with the Regional Trial Court, 6th Judicial
Region, Branch 47 at Bacolod City, docketed as Civil Case No. 4707, to recover the claim
of P80,000.00 plus interest and attorney's fees.
The private respondent filed a motion to dismiss alleging that the complaint lacks a
cause of action because the firing by armed men is a risk excepted under the following
provisions in the insurance policy:
The Company shall not be liable under any Section of the Policy in respect of:—
1. x x x x x
2. x x x x x
3. Except in respect of claims arising under Sections I and II of the policy, any accident,
loss, damage or liability directly or indirectly, proximately or remotely occasioned by,
contributed to by or traceable to, or arising out of, or in connection with flood, typhoon,
hurricane, volcanic eruption, earthquake or other convulsion of nature, invasion, the act
of foreign enemies, hostilities or warlike operations (whether war be declared or
not), civil commotion, mutiny, rebellion, insurrection, military or usurped power, or by any
direct or indirect consequences of any of the said occurrences and in the event of any
claim hereunder, the insured shall prove that the accident, loss or damage or liability
arose independently of, and was in no way connected with, or occasioned by, or
contributed to, any of the said occurrences, or any consequence thereof, and in default of
such proof, the Company shall not be liable to make any payment in respect of such
claim. (Emphasis supplied; see Rollo, p. 33,71)
The private respondent alleged that the firing was "an indirect consequence of rebellion,
insurrection or civil commotion." The petitioner opposed the motion, saying that the
quoted provision does not apply in the absence of an official governmental proclamation
of any of the above-enumerated conditions.
The trial court ordered the dismissal of the complaint for lack of cause of action stating
that the damage arose from a civil commotion or was a direct result thereof. (Rollo, p.
37)
A motion for reconsideration filed by the petitioner was denied by the trial court which
further noted that "Courts can take effective cognizance of the general civil disturbance
in the country akin to civil war without any executive proclamation of the existence of
such unsettling condition." (Rollo, p. 38)
A second motion for reconsideration was filed but was later withdrawn.
Petitioner filed a notice of appeal which was given due course. However, the trial court,
stated in its order that "the records of the case will not be transmitted to the Court of
Appeals, the appropriate remedy being (a) petition for review by way of certiorari." In
that same order, the trial court took cognizance of the withdrawal of the second motion
for reconsideration but noted the police blotter appended to said motion which showed
that "other than M-16 Armalite Rifles (the number of which were not specified for
unknown reasons), nothing else was taken by the attackers." (Rollo, p. 40)
Thereafter, the petitioner filed a petition for certiorari with the Court of Appeals. The
appellate court denied the petition, affirmed the trial court's dismissal order, and also
ruled that an appeal in the ordinary course of law, not a special civil action
of certiorari, is the proper remedy for the petitioner in assailing the dismissal order.
Hence, this petition to review the respondent appellate court's decision.
Petitioner asserts that its complaint states a cause of action since ultimate facts were
alleged as follows:
3.— That, on August 28, 1987, the ISUZU KBD PICK-UP referred to in the preceding
paragraph was damaged as a result of an incident at Hda. Puyas, Barangay Blumentritt,
Murcia, Negros Occidental, when it was fired upon by a group of unidentified armed
persons causing even the death of four (4) persons and rendering the said vehicle almost
totally damaged and unserviceable;
4.— That when the said incident occurred on August 28, 1987, the said ISUZU KBD PICK-
UP was insured by the defendant for P100,000.00 excluding third-party liability under
Commercial Vehicle Policy No. CV/122415 per Renewal Certificate No. 02189 a copy of
which is herewith attached as Annex "B"; and with the premiums and other expenses
thereon duly paid for under Official Receipt No. 691, dated September 8, 1986, covering
the period from October 1, 1986 to October 1, 1987, a copy of the same being attached
hereto as Annex "C";
5.— That, the damage on said motor vehicle being a "fait accompli" and that it was
insured by the defendant at the time it was damaged, it is the obligation of the defendant
to restore the said vehicle to its former physical and running condition when it was
insured however defendant refused and still refuses and fails, despite demands in
writing made by plaintiff and its counsel to that effect, copies of said letters attached
hereto as Annexes "D" & "E";
6.— That, for purposes of restoring the ISUZU KBD PICK-UP insured by the defendant to
its former physical and running condition when it was insured, as mentioned above,
would cost P80,000.00, which will include repair, repainting, replacement of spare parts,
labor, etc., the said amount having arrived at upon inspection and appraisal of the said
motor vehicle by knowledgeable and technical people;
7.— That, as a consequence of defendant's refusal to settle or pay the just claim of
plaintiff, plaintiff has been compelled to hire the legal services of counsel for the
protection of its rights and interest at the agreed fee of P15,000.00, for and as attorney's
fees, which sum plaintiff is claiming from the defendant. (At pp. 29-30, Rollo)
Petitioner further maintains that the order of dismissal was erroneous in that: it
overlooked the principle that a motion to dismiss a complaint on the ground of failure to
state a cause of action hypothetically admits the allegations in the complaint; no trial was
held for the reception of proof that the firing incident was a direct or indirect result of a
civil commotion, mutiny, insurrection or rebellion; private respondent had the burden of
proof to show that the cause was really an excepted risk; and in any case, the nature of
the incident as a "civil disturbance" must first be officially proclaimed by the executive
branch of the government. Private respondent, on the other hand, argues that the
accident was really a result of a civil commotion, one of the fatalities being a military
officer. (Rollo, p. 59)
After a review of the records, the Court finds that the allegations set forth in the
complaint sufficiently establish a cause of action. The following are the requisites for the
existence of a cause of action: (1) a right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an obligation on the part of the named
defendant to respect, or not to violate such right; and (3) an act or omission on the part
of the said defendant constituting a violation of the plaintiff's right or a breach of the
obligation of the defendant to the plaintiff. (Cole v. Vda. de Gregoria, 116 SCRA 670
[1982]; Baliwag Transit, Inc. v. Ople, G. R. No. 57642, March 16, 1989)
The facts as alleged clearly define the existence of a right of the petitioner to a just claim
against the insurer for the payment of the indemnity for a loss due to an event against
which the petitioner's vehicle was insured. The insurance contract mentioned therein
manifests a right to pursue a claim and a duty on the part of the insurer or private
respondent to compensate the insured in case of a risk insured against. The refusal of the
insurer to satisfy the claim and the consequent loss to the petitioner in incurring the cost
of acquiring legal assistance on the matter constitutes a violation or an injury brought to
the petitioner.
There is, therefore, a sufficient cause of action upon which the trial court can render a
valid judgment. (Tañedo v. Bernad, et al; G. R. No. 66520, August 30, 1988).
The Court is very much cognizant of the principle that a motion to dismiss on the ground
of failure to state a cause of action stated in the complaint hypothetically admits the truth
of the facts therein. The Court notes the following limitations on the hypothetical
admission:
The hypothetical admission is however limited to the relevant and material facts well
pleaded in the complaint and inferences fairly deducible therefrom. The admission does
not extend to conclusions or interpretations of law: nor does it cover allegations of fact
the falsity of which is subject to judicial notice. (U. Bañez Electric Light Co. v. Abra
Electric Cooperative, Inc., 119 SCRA 90 [1982])
Applying the above principle, we hold that the private respondent's motion to dismiss
hypothetically admits the facts alleged in the complaint. We do not find anything in the
complaint which does not deserve admission by the motion since there are no
"conclusions or interpretations of law" nor "allegations of fact the falsity of which is
subject to judicial notice." It is clear that the complaint does no more and no less than
state simply that the van was damaged due to the firing by unidentified armed men.
Since the complaint does not explicitly state nor intimate civil strife which private
respondent insists to be the cause of the damage, the motion to dismiss cannot go
beyond the admission of the facts stated and inferences reasonably deducible from them.
Any other assertion by the private respondent is subject to proof. Meanwhile, the
sufficiency of the petitioner's cause of action has been shown since, admitting the facts
alleged, a valid judgment can be rendered.
The private respondent's invocation of the exceptions clause in the insurance policy as
the basis for its non-liability and the consequent dismissal of the complaint is without
merit. We also reiterate the established rule that when the terms of an insurance
contract contain limitations on liability, the court "should construe them in such a way as
to preclude the insurer from non-compliance with his obligations." (Taurus Taxi Co. Inc.
v. Capital Insurance and Surety Company, Inc., 24 SCRA 454 [l968]) A policy of insurance
with a narration of exceptions tending to work a forfeiture of the policy shall be
interpreted liberally in favor of the insured and strictly against the insurance company or
the party for whose benefit they are inserted. (Eagle Star Insurance, Ltd. v. Chia Yu, 96
Phil. 696 [1955]; Trinidad v. Orient Protective Asso., 67 Phil. 181 [1939]; Serrano v.
Court of Appeals, 130 SCRA 327 [1984]; and National Power Corp. v. Court of Appeals,
145 SCRA 533 [1986]).
The facts alleged in the complaint do not give a complete scenario of the real nature of
the firing incident. Hence, it was incumbent upon the trial judge to have made a deeper
scrutiny into the circumstances of the case by receiving evidence instead of summarily
disposing of the case. Contrary to what the respondent appellate court says, this case
does not present a pure question of law but demands a factual determination of whether
the incident was a result of events falling under the exceptions to the liability of private
respondent contained in the policy of insurance.
We agree with the petitioner's claim that the burden of proof to show that the insured is
not liable because of an excepted risk is on the private respondent. The Rules of Court in
its Section 1, Rule 131 provides that "each party must prove his affirmative allegations."
(Summit Guaranty and Insurance Co., Inc. vs. Court of Appeals, 110 SCRA 241 [1981]; Tai
Tong Chuache & Co. v. Insurance Commissioner, 158 SCRA 366 [1988]; Paris-Manila
Perfume Co. v. Phoenix Assurance Co., 49 Phil. 753 [1926]). Where the insurer denies
liability for a loss alleged to be due to a risk not insured against, but fails to establish the
truth of such fact by concrete proofs, the Court rules that the insurer is liable under the
terms and conditions of the policy by which it has bound itself. In this case, the dismissal
order without hearing and reception of evidence to prove that the firing incident was
indeed a result of a civil commotion, rebellion or insurrection constitutes reversible
error on the part of the trial court.
The Court stresses that it would be a grave and dangerous procedure for the courts to
permit insurance companies to escape liability through a motion to dismiss without the
benefit of hearing and evidence every time someone is killed, or as in this case,. property
is damaged in an ambush. The question on the nature of the firing incident for the
purpose of determining whether or not the insurer is liable must first be threshed out
and resolved in a full-blown trial.
The evidence to be received does not even have to relate to the existence of an official
government proclamation of the nature of the incident because the latter is not an
explicit requirement in the exception clause resolved in a mere motion to dismiss and is,
for purposes of this petition for review on certiorari, immaterial. This particular issue on
when to take cognizance of a rebellion for purposes of the law on contracts and
obligations should have been developed during the trial on the merits or may have to
await remedial legislation in Insurance Law or a decision in a more appropriate case.
The petitioner also questions the reasoning of the Court of Appeals in denying due
course to the petition for certiorari. The appellate court said that even assuming for the
sake of argument that the dismissal order by the trial court was not procedurally correct
for lack of hearing, there was only an "error of judgment or procedure" correctible only
by appeal then available in the ordinary course of law and not by a special civil action
of certiorari which cannot be a substitute for appeal.
The records show that the remedy of appeal was actually intended to be pursued by
petitioner. However, the appeal was rendered unfeasible when the trial judge refused to
transmit the records to the appellate court. (see Rollo, p. 40) The judge, in effect, ruled
out the remedy of appeal which was supposed to be availed of as a matter of right. In
filing a petition for certiorari, the petitioner was acting upon the instructions of the
judge. Under a situation where there was no more plain, speedy and adequate remedy in
the ordinary course of law, the only available recourse was to file a special civil action
of certiorari to determine whether or not the dismissal order was issued with grave
abuse of discretion.
It is apparent, moreover, that the respondent appellate court failed to appreciation the
petitioner's predicament. The trial judge, aside from dismissing the complaint which we
now rule to have a sufficient cause of action, likewise prevented an ordinary appeal to
prosper in contravention of what is provided for by the rules of procedure.
The April 6, 1988 order of the trial judge stating that the appropriate remedy was
a petition for review by way of certiorari is deplorable. The lower court cannot even
distinguish between an original petition for certiorari and a petition for review by way of
certiorari. A petition for review before the Court of Appeals could have been availed of if
what is challenged is an adverse decision of the Regional Trial Court in its appellate
capacity affirming, modifying or reversing a decision of a municipal trial court or lower
tribunal. (Section 22, Batas Pambansa Blg. 129 and Section 22 (6) of the Interim Rules).
In this case, the petitioner assailed the dismissal order of the Regional Trial Court of a
complaint originally filed with it. This adverse order which had the effect of a judgment
on the merits, may be appealed to the Court of Appeals by filing a notice of appeal within
fifteen (15) days from receipt of notice of the order both on questions of law and of fact.
(Section 39, Batas Pambansa Blg. 129 and Section 19 (a) of the Interim Rules). This was
exactly what petitioner did after its motion for reconsideration was denied.
Unfortunately, the trial judge failed to see the propriety of this recourse. And the Court of
Appeals compounded the problem when it denied the petitioner any remedy arising
from the Judge's wrong instructions.
The filing of the petition for certiorari was proper. Petitioner has satisfactorily shown
before the respondent appellate court that the trial judge "acted whimsically in total
disregard of evidence material to and even decisive of the controversy". (Pure Foods
Corp. v. National Labor Relations Commission, G. R. No. 78591, March 21, 1989).
The extraordinary writ of certiorari is always available where there is no appeal or any
other plain, speedy and adequate remedy in the ordinary course of law. (Tropical Homes,
Inc. v. National Housing Authority, 152 SCRA 540 [1987]; Pure Foods Corp. v.
NLRC, supra)
Since the petitioner was denied the remedy of appeal, the Court deems that
a certiorari petition was in order.
WHEREFORE, considering the foregoing, the petition is hereby GRANTED. The decision
of the respondent Court of Appeals affirming the dismissal order by the Regional Trial
Court is hereby REVERSED and SET ASIDE. Let the case be remanded to the lower court
for trial on the merits.
SO ORDERED.
Fernan, (C.J., Chairman), Feliciano, Bidin and Cortes, JJ., concur.
G.R. No. L-38613 February 25, 1982
PACIFIC TIMBER EXPORT CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY,
INC., respondents.
DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals reversing the
decision of the Court of First Instance of Manila in favor of petitioner and against private
respondent which ordered the latter to pay the sum of Pll,042.04 with interest at the rate
of 12% interest from receipt of notice of loss on April 15, 1963 up to the complete
payment, the sum of P3,000.00 as attorney's fees and the costs 1 thereby dismissing
petitioner s complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are generally binding upon this
Court, Except as shall be indicated in the discussion of the opinion of this Court the
substantial correctness of still particular finding having been disputed, thereby raising a
question of law reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the defendant for its
exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped
from the Diapitan. Bay, Quezon Province to Okinawa and Tokyo, Japan. The defendant
issued on said date Cover Note No. 1010, insuring the said cargo of the plaintiff "Subject
to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY, INC. printed
Marine Policy form as filed with and approved by the Office of the Insurance
Commissioner (Exhibit A).
The regular marine cargo policies were issued by the defendant in favor of the plaintiff
on April 2, 1963. The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033
(Exhibits B and C, respectively). Policy No. 53 H0 1033 (Exhibit B) was for 542 pieces of
logs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for 853 pieces of logs
equivalent to 695,548 board feet (Exhibit C). The total cargo insured under the two
marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the two
marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be
exported were lost during loading operations in the Diapitan Bay. The logs were to be
loaded on the 'SS Woodlock' which docked about 500 meters from the shoreline of the
Diapitan Bay. The logs were taken from the log pond of the plaintiff and from which they
were towed in rafts to the vessel. At about 10:00 o'clock a. m. on March 29, 1963, while
the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs
which were rafted together co break loose from each other. 45 pieces of logs were
salvaged, but 30 pieces were verified to have been lost or washed away as a result of the
accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of
'appropriately 32 pieces of log's during loading of the 'SS Woodlock'. The said letter
(Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd. ft.
Philippine Lauan and Apitong Logs. We would like to inform you that we have received
advance preliminary report from our Office in Diapitan, Quezon that we have lost
approximately 32 pieces of logs during loading of the SS Woodlock.
We will send you an accurate report all the details including values as soon as same will
be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of the defendant only
on April 15, 1963, as shown by the stamp impression appearing on the left bottom
corner of said letter. The plaintiff subsequently submitted a 'Claim Statement demanding
payment of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033, in the total amount
of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First Philippine Adjustment Corporation
to inspect the loss and assess the damage. The adjustment company submitted its
'Report on August 23, 1963 (Exhibit H). In said report, the adjuster found that 'the loss of
30 pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said
policies covered the actual number of logs loaded on board the 'SS Woodlock' However,
the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note 1010
insured for $70,000.00.
On September 14, 1963, the adjustment company submitted a computation of the
defendant's probable liability on the loss sustained by the shipment, in the total amount
of Pl1,042.04 (Exhibit 4).
On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on the
ground they defendant's investigation revealed that the entire shipment of logs covered
by the two marines policies No. 53 110 1032 and 713 HO 1033 were received in good
order at their point of destination. It was further stated that the said loss may be
considered as covered under Cover Note No. 1010 because the said Note had become
'null and void by virtue of the issuance of Marine Policy Nos. 53 HO 1032 and
1033'(Exhibit J-1). The denial of the claim by the defendant was brought by the plaintiff
to the attention of the Insurance Commissioner by means of a letter dated March 21,
1964 (Exhibit K). In a reply letter dated March 30, 1964, Insurance Commissioner
Francisco Y. Mandanas observed that 'it is only fair and equitable to indemnify the
insured under Cover Note No. 1010', and advised early settlement of the said marine loss
and salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance Commissioner that, on advice of
their attorneys, the claim of the plaintiff is being denied on the ground that the cover
note is null and void for lack of valuable consideration (Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS NULL AND
VOID FOR LACK OF VALUABLE CONSIDERATION BECAUSE THE COURT DISREGARDED
THE PROVEN FACTS THAT PREMIUMS FOR THE COMPREHENSIVE INSURANCE
COVERAGE THAT INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT
INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT NO SEPARATE
PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT WAS
RELEASED FROM LIABILITY UNDER THE COVER NOTE DUE TO UNREASONABLE DELAY
IN GIVING NOTICE OF LOSS BECAUSE THE COURT DISREGARDED THE PROVEN FACT
THAT PRIVATE RESPONDENT DID NOT PROMPTLY AND SPECIFICALLY OBJECT TO THE
CLAIM ON THE GROUND OF DELAY IN GIVING NOTICE OF LOSS AND, CONSEQUENTLY,
OBJECTIONS ON THAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE
ACT. 5
1. Petitioner contends that the Cover Note was issued with a consideration when, by
express stipulation, the cover note is made subject to the terms and conditions of the
marine policies, and the payment of premiums is one of the terms of the policies. From
this undisputed fact, We uphold petitioner's submission that the Cover Note was not
without consideration for which the respondent court held the Cover Note as null and
void, and denied recovery therefrom. The fact that no separate premium was paid on the
Cover Note before the loss insured against occurred, does not militate against the
validity of petitioner's contention, for no such premium could have been paid, since by
the nature of the Cover Note, it did not contain, as all Cover Notes do not contain
particulars of the shipment that would serve as basis for the computation of the
premiums. As a logical consequence, no separate premiums are intended or required to
be paid on a Cover Note. This is a fact admitted by an official of respondent company,
Juan Jose Camacho, in charge of issuing cover notes of the respondent company (p. 33,
tsn, September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by
the statement issued by private respondent after the issuance of the two regular marine
insurance policies, thereby leaving no account unpaid by petitioner due on the insurance
coverage, which must be deemed to include the Cover Note. If the Note is to be treated as
a separate policy instead of integrating it to the regular policies subsequently issued, the
purpose and function of the Cover Note would be set at naught or rendered meaningless,
for it is in a real sense a contract, not a mere application for insurance which is a mere
offer. 6
It may be true that the marine insurance policies issued were for logs no longer including
those which had been lost during loading operations. This had to be so because the risk
insured against is not for loss during operations anymore, but for loss during transit, the
logs having already been safely placed aboard. This would make no difference, however,
insofar as the liability on the cover note is concerned, for the number or volume of logs
lost can be determined independently as in fact it had been so ascertained at the instance
of private respondent itself when it sent its own adjuster to investigate and assess the
loss, after the issuance of the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as well as its
computation of respondent's liability on the insurance coverage. This coverage could not
have been no other than what was stipulated in the Cover Note, for no loss or damage
had to be assessed on the coverage arising from the marine insurance policies. For
obvious reasons, it was not necessary to ask petitioner to pay premium on the Cover
Note, for the loss insured against having already occurred, the more practical procedure
is simply to deduct the premium from the amount due the petitioner on the Cover Note.
The non-payment of premium on the Cover Note is, therefore, no cause for the petitioner
to lose what is due it as if there had been payment of premium, for non-payment by it
was not chargeable against its fault. Had all the logs been lost during the loading
operations, but after the issuance of the Cover Note, liability on the note would have
already arisen even before payment of premium. This is how the cover note as a "binder"
should legally operate otherwise, it would serve no practical purpose in the realm of
commerce, and is supported by the doctrine that where a policy is delivered without
requiring payment of the premium, the presumption is that a credit was intended and
policy is valid. 7
2. The defense of delay as raised by private respondent in resisting the claim cannot be
sustained. The law requires this ground of delay to be promptly and specifically asserted
when a claim on the insurance agreement is made. The undisputed facts show that
instead of invoking the ground of delay in objecting to petitioner's claim of recovery on
the cover note, it took steps clearly indicative that this particular ground for objection to
the claim was never in its mind. The nature of this specific ground for resisting a claim
places the insurer on duty to inquire when the loss took place, so that it could determine
whether delay would be a valid ground upon which to object to a claim against it.
As already stated earlier, private respondent's reaction upon receipt of the notice of loss,
which was on April 15, 1963, was to set in motion from July 1963 what would be
necessary to determine the cause and extent of the loss, with a view to the payment
thereof on the insurance agreement. Thus it sent its adjuster to investigate and assess
the loss in July, 1963. The adjuster submitted his report on August 23, 1963 and its
computation of respondent's liability on September 14, 1963. From April 1963 to July,
1963, enough time was available for private respondent to determine if petitioner was
guilty of delay in communicating the loss to respondent company. In the proceedings
that took place later in the Office of the Insurance Commissioner, private respondent
should then have raised this ground of delay to avoid liability. It did not do so. It must be
because it did not find any delay, as this Court fails to find a real and substantial sign
thereof. But even on the assumption that there was delay, this Court is satisfied and
convinced that as expressly provided by law, waiver can successfully be raised against
private respondent. Thus Section 84 of the Insurance Act provides:

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

caused by any act of his or if he omits to take objection promptly and specifically upon
that ground.

From what has been said, We find duly substantiated petitioner's assignments of error.

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

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez Guerrero, Melencio-Herrera and Plana, JJ.,

concur.
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner
Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court
dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases
seek similar relief, through these petitions for certiorari by way of appeal, from the
amended decision of respondent Court of Appeals which affirmed in toto the decision of
the Court of First Instance of Cebu, ordering "the defendants (herein petitioners Great
Pacific Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff
(herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6%
from the date of the filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with
the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a
twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year
old daughter Helen Go. Said respondent supplied the essential data which petitioner
Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote
the data on the application form which was signed by private respondent Ngo Hing. The
latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he
reatined the amount of P1,317.00 as his commission for being a duly authorized agebt of
Pacific Life. Upon the payment of the insurance premuim, the binding deposit receipt
(Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon
handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Then on April 30, 1957,
Mondragon received a letter from Pacific Life disapproving the insurance application
(Exhibit 3-M). The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Pacific Life can
consider the same under the Juvenile Triple Action Plan, and advised that if the offer is
acceptable, the Juvenile Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing. Instead, on
May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the
approval of the 20-year endowment insurance plan to children, pointing out that since
1954 the customers, especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza
with complication of bronchopneumonia. Thereupon, private respondent sought the
payment of the proceeds of the insurance, but having failed in his effort, he filed the
action for the recovery of the same before the Court of First Instance of Cebu, which
rendered the adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E)
constituted a temporary contract of the life insurance in question; and (2) whether
private respondent Ngo Hing concealed the state of health and physical condition of
Helen Go, which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is
considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ... and the
insurance application, ON or PRIOR to the date of medical examination ... said insurance
shan be in force and in effect from the date of such medical examination, for such period
as is covered by the deposit ..., PROVIDED the company shall be satisfied that on said date
the applicant was insurable on standard rates under its rule for the amount of insurance
and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the amount of
insurance and/or the kind of policy requested in the application but issue, or offers to
issue a policy for a different plan and/or amount ..., the insurance shall not be in force and
in effect until the applicant shall have accepted the policy as issued or offered by the
Company and shall have paid the full premium thereof. If the applicant does not accept the
policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the Company
declines to approve the application the insurance applied for shall not have been in force at
any time and the sum paid be returned to the applicant upon the surrender of this
receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall
not be binding until the applicant accepts the policy offered; otherwise, the deposit shall
be reftmded; and (3) that if the applicant is not ble according to the standard rates, and
the company disapproves the application, the insurance applied for shall not be in force
at any time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in
question is merely an acknowledgment, on behalf of the company, that the latter's
branch office had received from the applicant the insurance premium and had accepted
the application subject for processing by the insurance company; and that the latter will
either approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely
conditional and does not insure outright. As held by this Court, where an agreement is
made between the applicant and the agent, no liability shall attach until the principal
approves the risk and a receipt is given by the agent. The acceptance is merely
conditional and is subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure
by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957
(Exhibit 3-M), Pacific Life disapproved the insurance application in question on the
ground that it is not offering the twenty-year endowment insurance policy to children
less than seven years of age. What it offered instead is another plan known as the
Juvenile Triple Action, which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing
over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the
latter's one-year old daughter, and with the non-compliance of the abovequoted
conditions stated in the disputed binding deposit receipt, there could have been no
insurance contract duly perfected between thenl Accordingly, the deposit paid by private
respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
insurance, like other contracts, must be assented to by both parties either in person or by
their agents ... The contract, to be binding from the date of the application, must have
been a completed contract, one that leaves nothing to be dione, nothing to be completed,
nothing to be passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in agreement."
We are not impressed with private respondent's contention that failure of petitioner
Mondragon to communicate to him the rejection of the insurance application would not
have any adverse effect on the allegedly perfected temporary contract (Respondent's
Brief, pp. 13-14). In this first place, there was no contract perfected between the parties
who had no meeting of their minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably aware that said company does
not offer the life insurance applied for. When he filed the insurance application in
dispute, private respondent was, therefore, only taking the chance that Pacific Life will
approve the recommendation of Mondragon for the acceptance and approval of the
application in question along with his proposal that the insurance company starts to
offer the 20-year endowment insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had rejected the proposal and
recommendation. Secondly, having an insurable interest on the life of his one-year old
daughter, aside from being an insurance agent and an offense associate of petitioner
Mondragon, private respondent Ngo Hing must have known and followed the progress
on the processing of such application and could not pretend ignorance of the Company's
rejection of the 20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then
Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his
dissenting opinion to the amended decision of the respondent court which completely
reversed the original decision, the following:
Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-
M) nor the reply thereto of appellant Mondragon reiterating the desire for applicant's
father to have the application considered as one for a 20-year endowment plan was ever
duly communicated to Ngo; Hing, father of the minor applicant. I am not quite conninced
that this was so. Ngo Hing, as father of the applicant herself, was precisely the
"underwriter who wrote this case" (Exhibit H-1). The unchallenged statement of
appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that
said Ngo Hing was "our associate" and that it was the latter who "insisted that the plan
be placed on the 20-year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the application was not brought
home to his knowledge. He must have been duly apprised of the rejection of the
application for a 20-year endowment plan otherwise Mondragon would not have
asserted that it was Ngo Hing himself who insisted on the application as originally filed,
thereby implictly declining the offer to consider the application under the Juvenile Triple
Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing should only be
presumed to know what kind of policies are available in the company for minors below 7
years old. What he and Mondragon were apparently trying to do in the premises was
merely to prod the company into going into the business of issuing endowment policies
for minors just as other insurance companies allegedly do. Until such a definite policy is
however, adopted by the company, it can hardly be said that it could have been bound at
all under the binding slip for a plan of insurance that it could not have, by then issued at
all. (Amended Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of the firm belief that
private respondent had deliberately concealed the state of health and piysical condition
of his daughter Helen Go. Wher private regpondeit supplied the required essential data
for the insurance application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could never be ensconced
nor disguished. Nonetheless, private respondent, in apparent bad faith, withheld the fact
materal to the risk to be assumed by the insurance compary. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known. his duty and responsibility
to such a material fact. Had he diamond said significant fact in the insurance application
fom Pacific Life would have verified the same and would have had no choice but to
disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good faith,
absolute and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but
equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY knows aDd Ought to
communicate (Section 25, Act No. 2427). Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.: Yu
Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American
Life Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.

We are thus constrained to hold that no insurance contract was perfected between the
parties with the noncompliance of the conditions provided in the binding receipt, and
concealment, as legally defined, having been comraitted by herein private respondent.

WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is
hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life
Assurance Company from their civil liabilities as found by respondent Court and
ordering the aforesaid insurance company to reimburse the amount of P1,077.75,
without interest, to private respondent, Ngo Hing. Costs against private respondent.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur.

Fernandez, J., took no part.

[G.R. Nos. 128833. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.
LAO, petitioners, vs. COURT OF APPEALS and GOYU & SONS, INC.,respondents.
[G.R. No. 128834. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, petitioners, vs. COURT OF APPEALS,
ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP, SPOUSES GO TENG
KOK and BETTY CHIU SUK YING alias BETTY GO, respondents.
[G.R. No. 128866. April 20, 1998]
MALAYAN INSURANCE INC., petitioner, vs. GOYU & SONS, INC. respondent.
D EC I S I O N
MELO, J.:
The issues relevant to the herein three consolidated petitions revolve around the fire
loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance
Company, Inc. (MICO) in connection with the mortgage contracts entered into by and
between Rizal Commercial Banking Corporation (RCBC) and GOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of
P74,040,518.58, plus 37% interest per annum commencing July 27, 1992. RCBC was
ordered to pay actual and compensatory damages in the amount of P5,000,000.00. MICO
and RCBC were held solidarily liable to pay GOYU P1,500,000.00 as exemplary damages
and P1,500,000.00 for attorneys fees. GOYUs obligation to RCBC was fixed at
P68,785,069.04 as of April 1992, without any interest, surcharges, and penalties. RCBC
and MICO appealed separately but, in view of the common facts and issues involved,
their individual petitions were consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at its Binondo
Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners
Uy Chun Bing and Eli D. Lao, recommended GOYUs application for approval by RCBCs
executive committee. A credit facility in the amount of P30 million was initially
granted. Upon GOYUs application and Uys and Laos recommendation, RCBCs executive
committee increased GOYUs credit facility to P50 million, then to P90 million, and finally
to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real estate mortgages
and two chattel mortgages in favor of RCBC, which were registered with the Registry of
Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, GOYU
committed itself to insure the mortgaged property with an insurance company approved
by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. In February 1992,
Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan
insurance policies, issued nine endorsements in favor of RCBC seemingly upon
instructions of GOYU (Exhibits 1-Malayan to 9-Malayan).
On April 27, 1992, one of GOYUs factory buildings in Valenzuela was gutted by
fire. Consequently, GOYU submitted its claim for indemnity on account of the loss
insured against. MICO denied the claim on the ground that the insurance policies were
either attached pursuant to writs of attachments/garnishments issued by various courts
or that the insurance proceeds were also claimed by other creditors of GOYU alleging
better rights to the proceeds than the insured. GOYU filed a complaint for specific
performance and damages which was docketed at the Regional Trial Court of the
National Capital Judicial Region (Manila, Branch 3) as Civil Case No. 93-65442, now
subject of the present G.R. No. 128833 and 128866.
RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds of
the insurance policies, but said claims were also denied for the same reasons that MICO
denied GOYUs claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional
Trial Court of Manila (Branch 3), confirmed that GOYUs other creditors, namely, Urban
Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective writs of
attachments from various courts, covering an aggregate amount of P14,938,080.23, and
ordered that the proceeds of the ten insurance policies be deposited with the said court
minus the aforementioned P14,938,080.23. Accordingly, on January 7, 1994, MICO
deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC.
In the meantime, another notice of garnishment was handed down by another Manila
RTC sala (Branch 28) for the amount of P8,696,838.75 (Exhibit 22-Malayan).
After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, Malayan Insurance Company, Inc. and Rizal Commercial Banking Corporation,
ordering the latter as follows:
1. For defendant Malayan Insurance Co., Inc.:
a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the
amount of P50,000,000.00 which is deposited with this Court;
b. To pay the plaintiff damages by way of interest for the duration of the delay since July
27, 1992 (ninety days after defendant insurers receipt of the required proof of loss and
notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the
following amounts:
1) P50,000,000.00 from July 27, 1992 up to the time said amount was deposited with this
Court on January 7, 1994;
2) P24,040,518.58 from July 27, 1992 up to the time when the writs of attachments were
received by defendant Malayan;
2. For defendant Rizal Commercial Banking Corporation:
a. To pay the plaintiff actual and compensatory damages in the amount of P2,000,000.00;
3. For both defendants Malayan and RCBC:
a. To pay the plaintiff, jointly and severally, the following amounts:
1) P1,000,000.00 as exemplary damages;
2) P1,000,000.00 as, and for, attorneys fees;
3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan
obligations with defendant RCBC in the amount of P68,785,069.04, as of April 27, 1992,
with interest thereon at the rate stipulated in the respective promissory notes (without
surcharges and penalties) per computation, pp. 14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to
release immediately to the plaintiff the amount of P50,000,000.00 deposited with the
Court by defendant Malayan, together with all the interests earned thereon.
(Record, pp. 478-479.)
From this judgment, all parties interposed their respective appeals. GOYU was
unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial
courts findings of liability on their part. The Court of Appeals partly granted GOYUs
appeal, but sustained the findings of the trial court with respect to MICO and RCBCs
liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as
follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the
amount of P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and damages
by way of interest commencing July 27, 1992 until the time Goyu receives the said
amount at the rate of thirty-seven (37%) percent per annum which is twice the ceiling
prescribed by the Monetary Board.
2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:
a) To pay the plaintiff actual and compensatory damages in the amount of P5,000,000.00.
3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING
CORPORATION, UY CHUN BING AND ELI D. LAO:
a) To pay the plaintiff jointly and severally the following amounts:
1. P1,500,000.00 as exemplary damages;
2. P1,500,000.00 as and for attorneys fees.
4. And on RCBCs Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan
obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any
interest, surcharges and penalties.
The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to
immediately release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No.
3649285) deposited with it by Malayan Insurance Co., Inc., together with all the interests
thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking
review and consequent reversal of the above dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376,
which case, by virtue of the Court of Appeals resolution dated August 7, 1996, was
consolidated with C.A. G.R. No. CV-46162 (subject of herein G.R. No. 128833). At issue in
said petition is RCBCs right to intervene in the action between Alfredo C. Sebastian (the
creditor) and GOYU (the debtor), where the subject insurance policies were attached in
favor of Sebastian.
After a careful review of the material facts as found by the two courts below in relation to
the pertinent and applicable laws, we find merit in the submissions of RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to several related issues
which are now submitted in the petitions before us. This Court, however, discerns one
primary and central issue, and this is, whether or not RCBC, as mortgagee, has any right
over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of
loss.
As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU, the
latter executed several mortgage contracts in favor of RCBC. It was expressly stipulated
in these mortgage contracts that GOYU shall insure the mortgaged property with any of
the insurance companies acceptable to RCBC. GOYU indeed insured the mortgaged
property with MICO, an insurance company acceptable to RCBC. Based on their
stipulations in the mortgage contracts, GOYU was supposed to endorse these insurance
policies in favor of, and deliver them, to RCBC. Alchester Insurance Agency, Inc., MICOs
underwriter from whom GOYU obtained the subject insurance policies, prepared the
nine endorsements (see Exh. 1-Malayan to 9-Malayan; also Exh. 51-RCBC to 59-RCBC),
copies of which were delivered to GOYU, RCBC, and MICO. However, because these
endorsements do not bear the signature of any officer of GOYU, the trial court, as well as
the Court of Appeals, concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may insure the
same property for his own sole benefit. There is no question that GOYU could insure the
mortgaged property for its own exclusive benefit. In the present case, although it appears
that GOYU obtained the subject insurance policies naming itself as the sole payee, the
intentions of the parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by Alchester in favor
of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing
any specific insurance policy in favor of any particular beneficiary or payee other than
the insured had not such named payee or beneficiary been specifically disclosed by the
insured itself. It is also significant that GOYU voluntarily and purposely took the
insurance policies from MICO, a sister company of RCBC, and not just from any other
insurance company. Alchester would not have found out that the subject pieces of
property were mortgaged to RCBC had not such information been voluntarily disclosed
by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYUs
intention of obtaining insurance coverage in compliance with its undertaking in the
mortgage contracts with RCBC, and verily, Alchester would not have endorsed the
policies to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained
to rule in favor of mortgagor RCBC. The basis and purpose of the doctrine was explained
in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good
faith and justice, and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they were directed and
who reasonably relied thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed to aid the law in the administration
of justice where without its aid injustice might result. It has been applied by this Court
wherever and whenever special circumstances of a case so demand.
(p. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain
Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement
documents for GOYUs nine insurance policies in favor of RCBC. The original copies of
each of these nine endorsement documents were sent to GOYU, and the others were sent
to RCBC and MICO, while the fourth copies were retained for Alchesters file (tsn,
February 23, pp. 7-8). GOYU has not denied having received from Alchester the originals
of these endorsements.
RCBC, in good faith, relied upon the endorsement documents sent to it as this was only
pursuant to the stipulation in the mortgage contracts. We find such reliance to be
justified under the circumstances of the case. GOYU failed to seasonably repudiate the
authority of the person or persons who prepared such endorsements. Over and above
this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities
extended to it by RCBC. After the occurrence of the loss insured against, it was too late
for GOYU to disown the endorsements for any imagined or contrived lack of authority of
Alchester to prepare and issue said endorsements. If there had not been actually an
implied ratification of said endorsements by virtue of GOYUs inaction in this case, GOYU
is at the very least estopped from assailing their operative effects. To permit GOYU to
capitalize on its non-confirmation of these endorsements while it continued to enjoy the
benefits of the credit facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance grave
contravention of public policy, fair dealing, good faith, and justice. Such an unjust
situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this
case, the Court is bound to recognize RCBCs right to the proceeds of the insurance
policies if not for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the
proceeds of insurance shall exclusively apply to the interest of the person in whose name
or for whose benefit it is made. The peculiarity of the circumstances obtaining in the
instant case presents a justification to take exception to the strict application of said
provision, it having been sufficiently established that it was the intention of the parties to
designate RCBC as the party for whose benefit the insurance policies were taken
out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of mortgage
contracts entered into between RCBC and GOYU in consideration of and for securing
GOYUs credit facilities from RCBC. The mortgage contracts contained common
provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property
properly covered against any loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property
from MICO, no less than a sister company of RCBC and definitely an acceptable insurance
company to RCBC.
3. Endorsement documents were prepared by MICOs underwriter, Alchester Insurance
Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not assail,
until of late, the validity of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
facilities extended by RCBC which was conditioned upon the endorsement of the
insurance policies to be taken by GOYU to cover the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU, despite the absence of its written conformity
thereto, obviously considered said endorsement to be sufficient compliance with its
obligation under the mortgage contracts since RCBC accordingly continued to extend the
benefits of its credit facilities and GOYU continued to benefit therefrom. Just as plain too
is the intention of the parties to constitute RCBC as the beneficiary of the various
insurance policies obtained by GOYU.The intention of the parties will have to be given
full force and effect in this particular case. The insurance proceeds may, therefore, be
exclusively applied to RCBC, which under the factual circumstances of the case, is truly
the person or entity for whose benefit the policies were clearly intended.
Moreover, the laws evident intention to protect the interests of the mortgagee upon the
mortgaged property is expressed in Article 2127 of the Civil Code which states:
ART. 2127. The mortgage extends to the natural accessions, to the improvements, Issue Date : January 18, 1992
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the Expiry Date : February 9, 1993
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
Amount : P9,457,972.76
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third person.

Significantly, the Court notes that out of the 10 insurance policies subject of this case, f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan
only 8 of them appear to have been subject of the endorsements prepared and delivered
by Alchester for and upon instructions of GOYU as shown below: Issue Date : January 13, 1992

INSURANCE POLICY PARTICULARS ENDORSEMENT Expiry Date : January 13, 1993

a. Policy Number : F-114-07795 None Amount : P24,750,000.00

Issue Date : March 18, 1992

Expiry Date : April 5, 1993 g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan

Amount : P9,646,224.92 Issue Date : May 29, 1991

Expiry Date : June 27, 1992

b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan Amount : P6,000,000.00

Issue Date : January 18, 1992

Expiry Date : February 9, 1993 h. Policy Number : CI/F-128-03341 None

Amount : P4,307,217.54 Issue Date : May 3, 1991

Expiry Date : May 3, 1992

Amount : P10,000,000.00

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

Issue Date : January 18, 1992 i. Policy Number : F-114-07402 Exhibit 8-Malayan

Expiry Date : February 15, 1993 Issue Date : September 16, 1991

Amount : P6,603,586.43 Expiry Date : October 19, 1992

Amount : P32,252,125.20

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

Issue Date : January 18, 1992 j. Policy Number : F-114-07525 Exhibit 9-Malayan

Expiry Date : (not legible) Issue Date : November 20, 1991

Amount : P6,603,586.43 Expiry Date : December 5, 1992

e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan Amount : P6,603,586.43


(pp. 456-457, Record; Folder of Exhibits for MICO.)
Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted
by MICOs witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record
shows no endorsement for Policy Number CI/F-128-03341 [(h) above]. Also, one of the
endorsement documents, Exhibit 5-Malayan, refers to a certain insurance policy number
ACIA-F-07066, which is not among the insurance policies involved in the complaint.
The proceeds of the 8 insurance policies endorsed to RCBC aggregate to
P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by
Alchester to RCBC, which we already ruled to have the force and effect of an
endorsement by GOYU itself, these 8 policies can not be attached by GOYUs other
creditors up to the extent of the GOYUs outstanding obligation in RCBCs favor. Section 53
of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall
be applied exclusively to the proper interest of the person for whose benefit it was
made. In this case, to the extent of GOYUs obligation with RCBC, the interest of GOYU in
the subject policies had been transferred to RCBC effective as of the time of the
endorsement. These policies may no longer be attached by the other creditors of GOYU,
like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless forthwith
be dismissed for being moot and academic in view of the results reached herein. Only the
two other policies amounting to P19,646,224.92 may be validly attached, garnished, and
levied upon by GOYUs other creditors. To the extent of GOYUs outstanding obligation
with RCBC, all the rest of the other insurance policies above-listed which were endorsed
to RCBC, are, therefore, to be released from attachment, garnishment, and levy by the
other creditors of GOYU.
This brings us to the next relevant issue to be resolved, which is, the extent of GOYUs
outstanding obligation with RCBC which the proceeds of the 8 insurance policies will
discharge and liquidate, or put differently, the actual amount of GOYUs liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial court finding that GOYUS
total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning
the trial courts exclusion of Promissory Note No. 421-92 (renewal of Promissory Note
No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91)
on the ground that their execution is highly questionable for not only are these dated
after the fire, but also because the signatures of either GOYU or any its representative are
conspicuously absent.Accordingly, the Court of Appeals speculated thusly:
Hence, this Court is inclined to conclude that said promissory notes were pre-signed by
plaintiff in blank terms, as averred by plaintiff, in contemplation of the speedy grant of
future loans, for the same practice of procedure has always been adopted in its previous
dealings with the bank.
(Rollo, pp. 181-182.)
The fact that the promissory notes bear dates posterior to the fire does not necessarily
mean that the documents are spurious, for it is presumed that the ordinary course of
business had been followed (Metropolitan Bank and Trust Company vs. Quilts and All, Inc.,
222 SCRA 486 [1993]). The obligor and not the holder of the negotiable instrument has
the burden of proof of showing that he no longer owes the obligee any amount (Travel-
On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).
Even casting aside the presumption of regularity of private transactions, receipt of the
loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as
indicated in the testimony of Go Song Hiap when he answered the queries of the trial
court:
ATTY. NATIVIDAD
Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the
amounts stated therein?
A: Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?
WITNESS:
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
A. The promissory Notes they did not give to me but the amount I asked which is correct,
Your Honor.
COURT
Q: You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct?
A: Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)
Furthermore, aside from its judicial admission of having received all the proceeds of the
29 promissory notes as hereinabove quoted, GOYU also offered and admitted to RCBC
that its obligation be fixed at P116,301,992.60 as shown in its letter dated March 9, 1993,
which pertinently reads:
We wish to inform you, therefore that we are ready and willing to pay the current past
due account of this company in the amount of P116,301,992.60 as of 21 January 1993,
specified in pars. 15, p. 10, and 18, p. 13 of your affidavits of Third Party Claims in the
Urban case at Makati, Metro Manila and in the Zamboanga case at Zamboanga city,
respectively, less the total of P8,851,519.71 paid from the Seaboard and Equitable
insurance companies and other legitimate deductions. We accept and confirm this
amount of P116,301,992.60 as stated as true and correct.
(Exhibit BB.)
The Court of Appeals erred in placing much significance on the fact that the excluded
promissory notes are dated after the fire. It failed to consider that said notes had for
their origin transactions consummated prior to the fire. Thus, careful attention must be
paid to the fact that Promissory Notes No. 420-92 and 421-92 are mere renewals of
Promissory Notes No. 908-91 and 952-91, loans already availed of by GOYU.
The two courts below erred in failing to see that the promissory notes which they ruled
should be excluded for bearing dates which are after that of the fire, are mere renewals of
previous ones. The proceeds of the loan represented by these promissory notes were
admittedly received by GOYU. There is ample factual and legal basis for giving GOYUs
judicial admission of liability in the amount of P116,301,992.60 full force and effect
It should, however, be quickly added that whatever amount RCBC may have recovered
from the other insurers of the mortgaged property will, nonetheless, have to be applied
as payment against GOYUs obligation. But, contrary to the lower courts findings,
payments effected by GOYU prior to January 21, 1993 should no longer be
deducted. Such payments had obviously been duly considered by GOYU, in its
aforequoted letter dated March 9, 1993, wherein it admitted that its past due account
totaled P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of
January 21, 1993, to wit:
Total Obligation as admitted by GOYU as of January 21, 1993: P116,301,992.60
Broken down as follows
Principal[1] Interest
Regular 80,535,946.32
FDU 7,548,025.17
____________ _____________
Total: 108,083,971.49 8,218,021.11[2]
LESS:
1) Proceeds from
Seaboard Eastern
Insurance Company: 6,095,145.81
2) Proceeds from
Equitable Insurance
Company: 2,756,373.00
3) Payment from
foreign department
negotiation: 203,584.89
9,055,104.70[3]
NET AMOUNT as of January 21, 1993: P 107,246,887.90
The need for the payment of interest due upon the principal amount of the obligation,
which is the cost of money to RCBC, the primary end and the ultimate reason for RCBCs
existence and being, was duly recognized by the trial court when it ruled favorably on
RCBCs counterclaim, ordering GOYU to pay its loan obligation with RCBC in the amount
of P68,785,069.04, as of April 27,1992, with interest thereon at the rate stipulated in the
respective promissory notes (without surcharges and penalties) per computation, pp.
14-A, 14-B, 14-C (Record, p. 479).Inexplicably, the Court of Appeals, without even laying
down the factual or legal justification for its ruling, modified the trial courts ruling and
ordered GOYU to pay the principal amount of P68,785,069.04 without any interest,
surcharges and penalties (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with much
uncertainty deleted the payment of additional interest, penalties, and charges, in this
manner:
Regarding defendant RCBCs commitment not to charge additional interest, penalties
and surcharges, the same does not require that it be embodied in a document or some
form of writing to be binding and enforceable. The principle is well known that generally
a verbal agreement or contract is no less binding and effective than a written one. And
the existence of such a verbal agreement has been amply established by the evidence in
this case. In any event, regardless of the existence of such verbal agreement, it would still
be unjust and inequitable for defendant RCBC to charge the plaintiff with surcharges and
penalties considering the latters pitiful situation. (Emphasis supplied.)
(Record, p. 476)
The essence or rationale for the payment of interest or cost of money is separate and
distinct from that of surcharges and penalties. What may justify a court in not allowing
the creditor to charge surcharges and penalties despite express stipulation therefor in a
valid agreement, may not equally justify non-payment of interest. The charging of
interest for loans forms a very essential and fundamental element of the banking
business, which may truly be considered to be at the very core of its existence or being. It
is inconceivable for a bank to grant loans for which it will not charge any interest at
all. We fail to find justification for the Court of Appeals outright deletion of the payment
of interest as agreed upon in the respective promissory notes.This constitutes gross
error.
For the computation of the interest due to be paid to RCBC, the following rules of thumb
laid down by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals (234 SCRA 78
[1994]), shall apply, to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts
or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on Damages of the Civil Code govern in determining the
measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date of the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
(pp. 95-97.)
There being written stipulations as to the rate of interest owing on each specific
promissory note as summarized and tabulated by the trial court in its decision (pp.470
and 471, Record) such agreed interest rates must be followed. This is very clear from
paragraph II, sub-paragraph 1 quoted above.
On the issue of payment of surcharges and penalties, we partly agree that GOYUs pitiful
situation must be taken into account. We do not agree, however, that payment of any
amount as surcharges and penalties should altogether be deleted. Even assuming that
RCBC, through its responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may
have relayed its assurance for assistance to GOYU immediately after the occurrence of
the fire, we cannot accept the lower courts finding that RCBC had thereby ipso
facto effectively waived collection of any additional interests, surcharges, and penalties
from GOYU. Assurances of assistance are one thing, but waiver of additional interests,
surcharges, and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of default partake of the
nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil
Code.Article 2227 thereof provides:
ART. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be
equitably reduced if they are iniquitous and unconscionable.
In exercising this vested power to determine what is iniquitous and unconscionable, the
Court must consider the circumstances of each case. It should be stressed that the Court
will not make any sweeping ruling that surcharges and penalties imposed by banks for
non-payment of the loans extended by them are generally iniquitous and
unconscionable. What may be iniquitous and unconscionable in one case, may be totally
just and equitable in another. This provision of law will have to be applied to the
established facts of any given case. Given the circumstances under which GOYU found
itself after the occurrence of the fire, the Court rules the surcharges rates ranging
anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous
and unconscionable. The Court tempers these rates to 2% and 3%,
respectively. Furthermore, in the light of GOYUs offer to pay the amount of
P116,301,992.60 to RCBC as March 1993 (See: Exhibit BB), which RCBC refused, we find
it more in keeping with justice and equity for RCBC not to charge additional interest,
surcharges, and penalties from that time onward.
Given the factual milieu spread hereover, we rule that it was error to hold MICO liable in
damages for denying or withholding the proceeds of the insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance
policies, RCBC has the right to claim the insurance proceeds, in substitution of the
property lost in the fire. Having assigned its rights, GOYU lost its standing as the
beneficiary of the said insurance policies.
Secondly, for an insurance company to be held liable for unreasonably delaying and
withholding payment of insurance proceeds, the delay must be wanton, oppressive, or
malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403 [1990]). It is generally
agreed, however, that an insurer may in good faith and honesty entertain a difference of
opinion as to its liability.Accordingly, the statutory penalty for vexatious refusal of an
insurer to pay a claim should not be inflicted unless the evidence and circumstances
show that such refusal was willful and without reasonable cause as the facts appear to a
reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70
ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep 307; Kusnetsky
vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not show
that MICO wantonly and in bad faith delayed the release of the proceeds. The problem in
the determination of who is the actual beneficiary of the insurance policies, aggravated
by the claim of various creditors who wanted to partake of the insurance proceeds, not
to mention the importance of the endorsement to RCBC, to our mind, and as now borne report of adjuster Toplis & Harding (Far East), Inc., Exhibits 2 and 2-1), less the amount
out by the outcome herein, justified MICO in withholding payment to GOYU. of P50,505,594.60 (per O.R. No. 3649285);

In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC
cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid
creditor, one for specific performance and the other for foreclosure. In doing so, said the
appellate court, the second action is deemed barred, RCBC having split a single cause of
action (Rollo, pp. 195-199). The Court of Appeals was too accommodating in giving due
consideration to this argument of GOYU, for the foreclosure suit is still pending appeal
before the same Court of Appeals in CA G.R CV No. 46247, the case having been elevated
by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of
Appeals pre-empted the resolution of said foreclosure case which is not before it. This is
plain reversible error if not grave abuse of discretion.
As held in Pea vs. Court of Appeals (245 SCRA 691[1995]):
It should have been enough, nonetheless, for the appellate court to merely set aside the
questioned orders of the trial court for having been issued by the latter with grave abuse
of discretion. In likewise enjoining permanently herein petitioner from entering in and
interfering with the use or occupation and enjoyment of petitioners (now private
respondent) residential house and compound, the appellate court in effect, precipitately
resolved with finality the case for injunction that was yet to be heard on the merits by
the lower court. Elevated to the appellate court, it might be stressed, were mere
incidents of the principal case still pending with the trial court. In Municipality of Bian,
Laguna vs. Court of Appeals, 219 SCRA 69, we ruled that the Court of Appeals would have
no jurisdiction in a certiorari proceeding involving an incident in a case to rule on the
merits of the main case itself which was not on appeal before it.
3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the
interests earned to Rizal Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking
Corporation in the principal amount of P107,246,887.90, with interest at the respective
rates stipulated in each promissory note from January 21, 1993 until finality of this
judgment, and surcharges at 2% and penalties at 3% from January 21, 1993 to March 9,
1993, minus payments made by Malayan Insurance Company, Inc. and the proceeds of
the amount deposited with the trial court and its earned interest. The total amount due
RCBC at the time of the finality of this judgment shall earn interest at the legal rate of
12% in lieu of all other stipulated interests and charges until fully paid.
The petition of Rizal Commercial Banking Corporation against the respondent Court in
CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results herein
arrived at. Respondent Sebastians right as attaching creditor must yield to the
preferential rights of Rizal Commercial Banking Corporation over the Malayan insurance
policies as first mortgagee.
SO ORDERED.
Regalado, (Chairman), Puno, Mendoza, and Martinez, JJ., concur.

(pp. 701-702.)

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

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

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

2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking

Corporation the proceeds of the insurance policies in the amount of P51,862,390.94 (per
G.R. No. 77530 October 5, 1989 Phil-Am then filed a complaint in the Regional Trial Court (RTC) of Manila against Aboitiz
for the recovery of the same amount alleging that it has been subrogated to the rights of
ABOITIZ SHIPPING CORPORATION, petitioner, Marinduque.
vs.
PHILIPPINE AMERICAN GENERAL INSURANCE CO., respondent. In a decision rendered on January 11, 1984, the complaint was dismissed with costs
against the plaintiff. A motion for reconsideration of this decision was denied in an order
Cinco, Sarmiento, Ridad & Salinas for petitioner. dated March 19,1984.
Fajardo Law Offices for private respondent. Hence the Phil-Am appealed to the Court of Appeals wherein in due course a decision
was rendered on December 17, 1986 reversing the appealed order of dismissal of the
complaint and ordering defendant Aboitiz to pay plaintiff Phil-Am the sum of
GANCAYCO, J.: P246,430,80 plus P15,000.00 as attorney's fees. 12 A motion for reconsideration thereof
was denied in a resolution of the appellate court dated February 27, 1987.
Marinduque Mining Industrial Corporation (Marinduque for short) shipped on board SS
Arthur Maersk from Boston, U.S.A. a shipment of one (1) skid carton parts for valves as Hence the herein petition for review for certiorari filed by Aboitiz predicated on five
evidenced by bill of lading No. BOSF-45607 issued by the Maersk Lines dated April 25, assignments of errors, the resolution of which revolves on the singular issue of whether
1980. 1 petitioner was properly held liable to the private respondent by the appellate court.

The shipment was ordered from Jamesbury, Singapore PTE, LTD., which issued the The petition is devoid of merit.
cargo's packing list 2 and Invoice number 3 showing the contents of the carton. The
The main thrust of the petition is that the findings of the trial court that the insurance
consular invoice was issued by the Philippine Consulate in Singapore for the shipment
policy covering the cargo was issued at the time when the cargo was already pilfered and
showing the contents and its total price amounting to $39,419.60 as well as the freight
that the coverage under Marine Policy No. 100105 PAG never began and that Marine
and other charges amounting to $2,791.73. 4 When the cargo arrived in Manila, it was
Policy No. 100184 did not attach to the shipment because the shipment was never
received and deposited in the office of Aboitiz Shipping Corporation (Aboitiz for short) at
loaded on any vessel of the defendant should be entitled to considerable weight.
Pier 4, North Harbor, Manila for transhipment to Nonoc Island for which it issued bill of
lading No. 23. 5 The records of this case show that private respondent executed a continuous and open
insurance coverage covering goods of Marinduque imported into and exported from the
On July 7,1980 Marinduque, as consignee of the cargo, made a report to the effect that
Philippines which took effect after September 1, 1975, as contained in Marine Open
said cargo was pilfered on the night of July 3, 1980 while there was heavy rain at the
Policy No. 100184.13 A similar insurance coverage was also executed by petitioner in
Aboitiz terminal and that of the total value of the cargo of $42,209.33, only $7,412.00
favor of Marinduque for all its goods shipped or moved within the territorial limits of the
worth remains of the cargo with the recommendation that the claim be made against
Philippines also effective after September 1, 1975 and contained in Marine Open Policy
Aboitiz. 6
No. 100185. 14
The services of the Manila Adjusters and Surveyors Co. (Manila Adjusters for brevity)
The questioned shipment is covered by this continuing open insurance coverage from
were engaged by the Phil-American General Insurance Co., Inc. (Phil Am for short) which
the time it was loaded aboard the SS Arthur Maersk in Boston, U.S.A. to the time it was
came out with the report that the cargo in question was delivered at Pier 4, North Harbor
delivered to the possession of petitioner at its offices at Pier 4 in Manila until it was
on July 3, 1980 which cargo, when inspected on July 5, 1980 showed that it was pilfered.
pilfered when the great majority of the cargo was lost on July 3, 1980.
The list of the remaining contents was in the report. 7 A confirmatory report was
submitted by the Manila Adjusters dated November 8,1980. 8 The trial court in dismissing the complaint apparently relied on Marine Risk Note No.
017545 which was issued by private respondent only on July 28, 1980 15 after the
On August 11, 1980, Marinduque filed a claim against Aboitiz in the amount of
shipment in question was already pilfered .16 Obviously the trial court mistook said
P246,430.80 representing the value of the pilfered cargo. 9 On the same day Marinduque
Marine Risk Note as an insurance policy when it is not. It is only an acknowledgment or
filed a claim for the same amount against the Phil-Am on the latter's policy MRN-01754
declaration of the private respondent confirming the specific shipment covered by its
PAG. 10
Marine Open Policy, the evaluation of the cargo and the chargeable premium. 17
On August 25, 1981 Phil-Am paid Marinduque the sum of P246,430.80 as insurer of the
The contention of the petitioner that it could not be liable for the pilferage of the cargo as
cargo. 11
it was stolen even before it was loaded on its vessel is untenable. Petitioner received the
cargo when it arrived in Manila at its offices at Pier 4, North Harbor and it was while in
its possession and before loading it in its vessel that the cargo was pilfered. Its liability is
clear.

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

WHEREFORE, the petition is DISMISSED with costs against petitioner.

SO ORDERED.

Narvasa, Cruz, Griño-Aquino and Medialdea, JJ.,concur