[G.R. NO.

147039 - January 27, 2006] The insurance companies maintained that the evidence showed that the fire was caused by
members of the Communist Party of the Philippines/New People's Army (CPP/NPA); and
DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner, v. RADIO consequently, denied the claims. Hence, respondent was constrained to file Civil Case No.
MINDANAO NETWORK, INC., Respondent. 90-602 against petitioner and Provident.

DECISION After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a decision
in favor of respondent. The dispositive portion of the decision reads:
AUSTRIA-MARTINEZ, J.:
IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant Provident Insurance
Corporation is directed to pay plaintiff the amount of P450,000.00 representing the value of
This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking the review
the destroyed property insured under its Fire Insurance Policy plus 12% legal interest from
of the Decision1 dated November 16, 2000 of the Court of Appeals (CA) in CA-G.R. CV No.
March 2, 1990 the date of the filing of the Complaint. Defendant DBP Pool Accredited
56351, the dispositive portion of which reads:
Insurance Companies is likewise ordered to pay plaintiff the sum of P602,600.00 representing
the value of the destroyed property under its Fire Insurance Policy plus 12% legal interest
Wherefore, premises considered, the appealed Decision of the Regional Trial Court of Makati from March 2, 1990.
City, Branch 138 in Civil Case No. 90-602 is hereby AFFIRMED with MODIFICATION in that
the interest rate is hereby reduced to 6% per annum.
SO ORDERED.4
Costs against the defendants-appellants.
Both insurance companies appealed from the trial court's decision but the CA affirmed the
decision, with the modification that the applicable interest rate was reduced to 6% per annum.
SO ORDERED.2 A motion for reconsideration was filed by petitioner DBP which was denied by the CA per its
Resolution dated January 30, 2001.5
The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao
Network, Inc. (respondent) against DBP Pool of Accredited Insurance Companies (petitioner) Hence, herein petition by DBP Pool of Accredited Insurance Companies,6 with the following
and Provident Insurance Corporation (Provident) for recovery of insurance benefits. assignment of errors:
Respondent owns several broasting stations all over the country. Provident covered
respondent's transmitter equipment and generating set for the amount of P13,550,000.00
Assignment of Errors
under Fire Insurance Policy No. 30354, while petitioner covered respondent's transmitter,
furniture, fixture and other transmitter facilities for the amount of P5,883,650.00 under Fire
Insurance Policy No. F-66860. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE
NO SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20)
ARMED MEN WHO CUSED [sic] THE FIRE AT RESPONDENT'S RMN PROPERTY AT
In the evening of July 27, 1988, respondent's radio station located in SSS Building, Bacolod
BACOLOD CITY WERE MEMBERS OF THE CPP-NPA.
City, was razed by fire causing damage in the amount of P1,044,040.00. Respondent sought
recovery under the two insurance policies but the claims were denied on the ground that the
cause of loss was an excepted risk excluded under condition no. 6 (c) and (d), to wit: THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT
RESPONDENT RMN CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEY'S FEES
FOR INSTITUTING THE PRESENT ACTION AGAINST THE PETITIONER UNDER
6. This insurance does not cover any loss or damage occasioned by or through or in
ARTICLES 21, 2208, 2229 AND 2232 OF THE CIVIL CODE OF THE PHILIPPINES.7
consequence, directly or indirectly, of any of the following consequences, namely:

Petitioner assails the factual finding of both the trial court and the CA that its evidence failed
(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be
to support its allegation that the loss was caused by an excepted risk, i.e., members of the
declared or not), civil war.
CPP/NPA caused the fire. In upholding respondent's claim for indemnity, the trial court found
that:
(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped
power.3
The only evidence which the Court can consider to determine if the fire was due to the
intentional act committed by the members of the New People's Army (NPA), are the
testimony [sic] of witnesses Lt. Col. Nicolas Torres and SPO3 Leonardo Rochar who were
admittedly not present when the fire occurred. Their testimony [sic] was [sic] limited to the fact
that an investigation was conducted and in the course of the investigation they were informed
by bystanders that "heavily armed men entered the transmitter house, poured gasoline in
(sic) it and then lighted it. After that, they went out shouting "Mabuhay ang NPA" (TSN, p. 12.,
August 2, 1995). The persons whom they investigated and actually saw the burning of the
station were not presented as witnesses. The documentary evidence particularly Exhibits "5"
and "5-C" do not satisfactorily prove that the author of the burning were members of the NPA.
Exhibit "5-B" which is a letter released by the NPA merely mentions some dissatisfaction with
the activities of some people in the media in Bacolod. There was no mention there of any
threat on media facilities.8
The CA went over the evidence on record and sustained the findings of the trial court, to wit:
To recapitulate, defendants-appellants presented the following to support its claim, to wit:
police blotter of the burning of DYHB, certification of the Negros Occidental Integrated
National Police, Bacolod City regarding the incident, letter of alleged NPA members Celso
Magsilang claiming responsibility for the burning of DYHB, fire investigation report dated July
29, 1988, and the testimonies of Lt. Col. Nicolas Torres and SFO III Leonardo Rochas. We
examined carefully the report on the police blotter of the burning of DYHB, the certification
issued by the Integrated National Police of Bacolod City and the fire investigation report
prepared by SFO III Rochas and there We found that none of them categorically stated that
the twenty (20) armed men which burned DYHB were members of the CPP/NPA. The said
documents simply stated that the said armed men were 'believed' to be or 'suspected' of
being members of the said group. Even SFO III Rochas admitted that he was not sure that
the said armed men were members of the CPP-NPA, thus:
In fact the only person who seems to be so sure that that the CPP-NPA had a hand in the
burning of DYHB was Lt. Col. Nicolas Torres. However, though We found him to be
persuasive in his testimony regarding how he came to arrive at his opinion, We cannot
nevertheless admit his testimony as conclusive proof that the CPP-NPA was really involved in
the incident considering that he admitted that he did not personally see the armed men even
as he tried to pursue them. Note that when Lt. Col. Torres was presented as witness, he was
presented as an ordinary witness only and not an expert witness. Hence, his opinion on the
identity or membership of the armed men with the CPP-NPA is not admissible in evidence.
Anent the letter of a certain Celso Magsilang, who claims to be a member of NPA-NIROC,
being an admission of person which is not a party to the present action, is likewise
inadmissible in evidence under Section 22, Rule 130 of the Rules of Court. The reason being
that an admission is competent only when the declarant, or someone identified in legal
interest with him, is a party to the action.9
The Court will not disturb these factual findings absent compelling or exceptional reasons. It
should be stressed that a review by certiorari under Rule 45 is a matter of discretion. Under
this mode of review, the jurisdiction of the Court is limited to reviewing only errors of law, not
of fact.10
Moreover, when supported by substantial evidence, findings of fact of the trial court as
affirmed by the CA are conclusive and binding on the parties, 11 which this Court will not
review unless there are exceptional circumstances. There are no exceptional circumstances
in this case that would have impelled the Court to depart from the factual findings of both the
trial court and the CA.
WON the loss was caused by an excepted risk? NO
Both the trial court and the CA were correct in ruling that petitioner failed to prove that the
loss was caused by an excepted risk.
Petitioner argues that private respondent is responsible for proving that the cause of the
damage/loss is covered by the insurance policy, as stipulated in the insurance policy, to wit:
Any loss or damage happening during the existence of abnormal conditions (whether physical
or otherwise) which are occasioned by or through in consequence directly or indirectly, of any
of the said occurrences shall be deemed to be loss or damage which is not covered by the
insurance, except to the extent that the Insured shall prove that such loss or damage
happened independently of the existence of such abnormal conditions.
In any action, suit or other proceeding where the Companies allege that by reason of the
provisions of this condition any loss or damage is not covered by this insurance, the burden
of proving that such loss or damage is covered shall be upon the Insured.12
An insurance contract, being a contract of adhesion, should be so interpreted as to carry out
the purpose for which the parties entered into the contract which is to insure against risks of
loss or damage to the goods. Limitations of liability should be regarded with extreme jealousy
and must be construed in such a way as to preclude the insurer from noncompliance with its
obligations.13
The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden
of evidence" (burden of going forward).14 As applied in this case, it refers to the duty of the
insured to show that the loss or damage is covered by the policy. The foregoing clause
notwithstanding, the burden of proof still rests upon petitioner to prove that the damage or
loss was caused by an excepted risk in order to escape any liability under the contract.
Burden of proof is the duty of any party to present evidence to establish his claim or defense
by the amount of evidence required by law, which is preponderance of evidence in civil
cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has
the burden of proof to obtain a favorable judgment. For the plaintiff, the burden of proof never
parts.15 For the defendant, an affirmative defense is one which is not a denial of an essential
ingredient in the plaintiff's cause of action, but one which, if established, will be a good
defense - i.e. an "avoidance" of the claim.16
Particularly, in insurance cases, where a risk is excepted by the terms of a policy which
insures against other perils or hazards, loss from such a risk constitutes a defense which the
insurer may urge, since it has not assumed that risk, and from this it follows that an insurer
seeking to defeat a claim because of an exception or limitation in the policy has the
burden of proving that the loss comes within the purview of the exception or limitation
set up. If a proof is made of a loss apparently within a contract of insurance, the burden is
upon the insurer to prove that the loss arose from a cause of loss which is excepted or for
which it is not liable, or from a cause which limits its liability.17
Consequently, it is sufficient for private respondent to prove the fact of damage or loss. Once
respondent makes out a prima facie case in its favor, the duty or the burden of evidence
shifts to petitioner to controvert respondent's prima facie case.18 In this case, since petitioner
alleged an excepted risk, then the burden of evidence shifted to petitioner to prove such
exception. It is only when petitioner has sufficiently proven that the damage or loss was
caused by an excepted risk does the burden of evidence shift back to respondent who is then
under a duty of producing evidence to show why such excepted risk does not release
petitioner from any liability. Unfortunately for petitioner, it failed to discharge its primordial
burden of proving that the damage or loss was caused by an excepted risk.
Petitioner however, insists that the evidence on record established the identity of the author
of the damage. It argues that the trial court and the CA erred in not appreciating the reports of
witnesses Lt. Col Torres and SFO II Rochar that the bystanders they interviewed claimed that
the perpetrators were members of the CPP/NPA as an exception to the hearsay rule as part
of res gestae.
A witness can testify only to those facts which he knows of his personal knowledge, which
means those facts which are derived from his perception.19 A witness may not testify as to
what he merely learned from others either because he was told or read or heard the same.
Such testimony is considered hearsay and may not be received as proof of the truth of what
he has learned. The hearsay rule is based upon serious concerns about the trustworthiness
and reliability of hearsay evidence inasmuch as such evidence are not given under oath or
solemn affirmation and, more importantly, have not been subjected to cross-examination by
opposing counsel to test the perception, memory, veracity and articulateness of the out-of-
court declarant or actor upon whose reliability on which the worth of the out-of-court
statement depends.20
Res gestae, as an exception to the hearsay rule, refers to those exclamations and statements
made by either the participants, victims, or spectators to a crime immediately before, during,
or after the commission of the crime, when the circumstances are such that the statements
were made as a spontaneous reaction or utterance inspired by the excitement of the
occasion and there was no opportunity for the declarant to deliberate and to fabricate a false
statement. The rule in res gestae applies when the declarant himself did not testify and
provided that the testimony of the witness who heard the declarant complies with the
following requisites: (1) that the principal act, the res gestae, be a startling occurrence; (2) the
statements were made before the declarant had the time to contrive or devise a falsehood;
and (3) that the statements must concern the occurrence in question and its immediate
attending circumstances.21
The Court is not convinced to accept the declarations as part of res gestae. While it may
concede that these statements were made by the bystanders during a startling occurrence, it
cannot be said however, that these utterances were made spontaneously by the bystanders
and before they had the time to contrive or devise a falsehood. Both SFO III Rochar and
Lt. Col. Torres received the bystanders' statements while they were making their
investigations during and after the fire. It is reasonable to assume that when these statements
were noted down, the bystanders already had enough time and opportunity to mill around,
talk to one another and exchange information, not to mention theories and speculations, as is
the usual experience in disquieting situations where hysteria is likely to take place. It cannot
therefore be ascertained whether these utterances were the products of truth. That the
utterances may be mere idle talk is not remote.
At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements were
made may be considered as independently relevant statements gathered in the course of
their investigation, and are admissible not as to the veracity thereof but to the fact that they
had been thus uttered.22
Furthermore, admissibility of evidence should not be equated with its weight and
sufficiency.23 Admissibility of evidence depends on its relevance and competence, while the
weight of evidence pertains to evidence already admitted and its tendency to convince and
persuade.24 Even assuming that the declaration of the bystanders that it was the members of
the CPP/NPA who caused the fire may be admitted as evidence, it does not follow that such
declarations are sufficient proof. These declarations should be calibrated vis - à-vis the other
evidence on record. And the trial court aptly noted that there is a need for additional
convincing proof, viz.:
The Court finds the foregoing to be insufficient to establish that the cause of the fire was the
intentional burning of the radio facilities by the rebels or an act of insurrection, rebellion or
usurped power. Evidence that persons who burned the radio facilities shouted "Mabuhay ang
NPA" does not furnish logical conclusion that they are member [sic] of the NPA or that their
act was an act of rebellion or insurrection. Additional convincing proof need be submitted.
Defendants failed to discharge their responsibility to present adequate proof that the loss was
due to a risk excluded.25
While the documentary evidence presented by petitioner, i.e., (1) the police blotter; (2) the
certification from the Bacolod Police Station; and (3) the Fire Investigation Report may be
considered exceptions to the hearsay rule, being entries in official records, nevertheless, as
noted by the CA, none of these documents categorically stated that the perpetrators were
members of the CPP/NPA.26 Rather, it was stated in the police blotter that: "a group of
persons accompanied by one (1) woman all believed to be CPP/NPA - more or less 20
persons suspected to be CPP/NPA,"27 while the certification from the Bacolod Police station
stated that "' some 20 or more armed men believed to be members of the New People's
Army NPA,"28 and the fire investigation report concluded that "(I)t is therefore believed by this
Investigating Team that the cause of the fire is intentional, and the armed men suspected to
be members of the CPP/NPA where (sic) the ones responsible '"29 All these documents show
that indeed, the "suspected" executor of the fire were believed to be members of the
CPP/NPA. But suspicion alone is not sufficient, preponderance of evidence being the
quantum of proof.
All told, the Court finds no reason to grant the present petition.
WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated November
16, 2000 and Resolution dated January 30, 2001 rendered in CA-G.R. CV No. 56351
are AFFIRMED in toto.
SO ORDERED.
[G.R. NO. 133179 : March 27, 2008]
ALLIED BANKING CORPORATION, Petitioner, v. LIM SIO WAN, METROPOLITAN BANK
AND TRUST CO., and PRODUCERS BANK, Respondents.
DECISION
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times bend over
backwards that they unwittingly expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals'
(CA's) Decision promulgated on March 18, 19981 in CA-G.R. CV No. 46290 entitled Lim Sio
Wan v. Allied Banking Corporation, et al. The CA Decision modified the Decision dated
November 15, 19932 of the Regional Trial Court (RTC), Branch 63 in Makati City rendered in
Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) at its Quintin Paredes Branch in Manila a money market placement of
PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983, 3 as evidenced by
Provisional Receipt No. 1356 dated November 14, 1983.4
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer
of Allied, and instructed the latter to pre-terminate Lim Sio Wan's money market placement, to
issue a manager's check representing the proceeds of the placement, and to give the check
to one Deborah Dee Santos who would pick up the check.5 Lim Sio Wan described the
appearance of Santos so that So could easily identify her.6
Later, Santos arrived at the bank and signed the application form for a manager's check to be
issued.7 The bank issued Manager's Check No. 035669 for PhP 1,158,648.49, representing
the proceeds of Lim Sio Wan's money market placement in the name of Lim Sio Wan, as
payee.8 The check was cross-checked "For Payee's Account Only" and given to Santos.9
Thereafter, the manager's check was deposited in the account of Filipinas Cement
Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank),10 with the
forged signature of Lim Sio Wan as indorser.11
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2
million with respondent Producers Bank. Santos was the money market trader assigned to
handle FCC's account.12 Such deposit is evidenced by Official Receipt No. 31756813 and a
Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledging
receipt of the placement.14 The placement matured on October 25, 1983 and was rolled-over
until December 5, 1983 as evidenced by a Letter dated October 25, 1983. 15 When the
placement matured, FCC demanded the payment of the proceeds of the placement.16 On
December 5, 1983, the same date that So received the phone call instructing her to pre-
terminate Lim Sio Wan's placement, the manager's check in the name of Lim Sio Wan was
deposited in the account of FCC, purportedly representing the proceeds of FCC's money
market placement with Producers Bank.17 In other words, the Allied check was deposited with
Metrobank in the account of FCC as Producers Bank's payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check,
which reads: "All prior endorsements and/or lack of endorsement guaranteed."18
The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied
funded the check even without checking the authenticity of Lim Sio Wan's purported
indorsement. Thus, the amount on the face of the check was credited to the account of
FCC.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement
to mature on January 9, 1984.20
On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio
Wan went to Allied to withdraw it.21 She was then informed that the placement had been pre-
terminated upon her instructions. She denied giving any instructions and receiving the
proceeds thereof. She desisted from further complaints when she was assured by the bank's
manager that her money would be recovered.22
When Lim Sio Wan's second placement matured on January 9, 1984, So called Lim Sio Wan
to ask for the latter's instructions on the second placement. Lim Sio Wan instructed So to roll-
over the placement for another 30 days.23 On January 24, 1984, Lim Sio Wan, realizing that
the promise that her money would be recovered would not materialize, sent a demand letter
to Allied asking for the payment of the first placement.24 Allied refused to pay Lim Sio Wan,
claiming that the latter had authorized the pre-termination of the placement and its
subsequent release to Santos.25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13,
198426 docketed as Civil Case No. 6757 against Allied to recover the proceeds of her first
money market placement. Sometime in February 1984, she withdrew her second placement
from Allied.
Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a
fourth party complaint28 against FCC. FCC for its part filed a fifth party complaint 29 against
Producers Bank. Summonses were duly served upon all the parties except for Santos, who
was no longer connected with Producers Bank.30
On May 15, 1984, or more than six (6) months after funding the check, Allied informed
Metrobank that the signature on the check was forged.31 Thus, Metrobank withheld the
amount represented by the check from FCC. Later on, Metrobank agreed to release the
amount to FCC after the latter executed an Undertaking, promising to indemnify Metrobank in
case it was made to reimburse the amount.32
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-
defendant, along with Allied.33 The RTC admitted the amended complaint despite the
opposition of Metrobank.34 Consequently, Allied's third party complaint against Metrobank
was converted into a cross-claim and the latter's fourth party complaint against FCC was
converted into a third party complaint.35
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way of moral
damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way of
attorney's fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Bank's cross-claim against defendant Metrobank is DISMISSED.
Likewise defendant Metrobank's third-party complaint as against Filipinas Cement
Corporation is DISMISSED.
Filipinas Cement Corporation's fourth-party complaint against Producer's Bank is also
DISMISSED.
SO ORDERED.36
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998,
modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is
rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay
sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty
(40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984
until fully paid. The moral damages, attorney's fees and costs of suit adjudged shall likewise
be paid by defendant-appellant Allied Banking Corporation and defendant-appellee
Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus
modified, the decision appealed from is AFFIRMED.
SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied]
to pre-terminate the initial placement and to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the
reimbursement of amount adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount
adjudged demandable in clear disregard to the ultimate liability of Metrobank as guarantor of
all endorsement on the check, it being the collecting bank.38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied was not authorized
to release the proceeds of Lim Sio Wan's money market placement to Santos. Allied clearly
raises a question of fact. When the CA affirms the findings of fact of the RTC, the factual
findings of both courts are binding on this Court.39
We also agree with the CA when it said that it could not disturb the trial court's findings on the
credibility of witness So inasmuch as it was the trial court that heard the witness and had the
opportunity to observe closely her deportment and manner of testifying. Unless the trial court
had plainly overlooked facts of substance or value, which, if considered, might affect the
result of the case,40 we find it best to defer to the trial court on matters pertaining to credibility
of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual
question.41 Thus, the finding of the RTC, affirmed by the CA, that the respective parties were
negligent in the exercise of their obligations is also conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and
familiar is the doctrine that the relationship between a bank and a client is one of debtor-
creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or
mutuum.42 More succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano,
this Court ruled that a money market placement is a simple loan or mutuum.43 Further, we
defined a money market in Cebu International Finance Corporation v. Court of Appeals, as
follows:
[A] money market is a market dealing in standardized short-term credit instruments (involving
large amounts) where lenders and borrowers do not deal directly with each other but through
a middle man or dealer in open market. In a money market transaction, the investor is a
lender who loans his money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan.44
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment
upon her request, or upon maturity of the placement, or until the bank is released from its
obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains
unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are considered
extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code. (Emphasis
supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize
the release of her money market placement to Santos and the bank had been negligent in so
doing, there is no question that the obligation of Allied to pay Lim Sio Wan had not been
extinguished. Art. 1240 of the Code states that "payment shall be made to the person in
whose favor the obligation has been constituted, or his successor in interest, or any person
authorized to receive it." As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to the
creditor, if there is no fault or negligence which can be imputed to the latter. Even when the
debtor acted in utmost good faith and by mistake as to the person of his creditor, or through
error induced by the fraud of a third person, the payment to one who is not in fact his creditor,
or authorized to receive such payment, is void, except as provided in Article 1241. Such
payment does not prejudice the creditor, and accrual of interest is not suspended by
it.45 (Emphasis supplied.)
Since there was no effective payment of Lim Sio Wan's money market placement, the bank
still has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the
payment thereof.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wan's money. It
points out that Metrobank guaranteed all prior indorsements inscribed on the manager's
check, and without Metrobank's guarantee, the present controversy would never have
occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to
the proper party is, aside from being an efficient intervening cause, also the last negligent act,
x x x contributory to the injury caused in the present case, which thereby leads to the
conclusion that it is the collecting bank, Metrobank that is the proximate cause of the alleged
loss of the plaintiff in the instant case.46 NO
We are not persuaded.
Proximate cause is "that cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury and without which the result would not have
occurred."47 Thus, there is an efficient supervening event if the event breaks the sequence
leading from the cause to the ultimate result. To determine the proximate cause of a
controversy, the question that needs to be asked is: If the event did not happen, would the
injury have resulted? If the answer is NO, then the event is the proximate cause.
In the instant case, Allied avers that even if it had not issued the check payment, the money
represented by the check would still be lost because of Metrobank's negligence in indorsing
the check without verifying the genuineness of the indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser. Every indorser who indorses without qualification,
warrants to all subsequent holders in due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding
section; and
b) That the instrument is at the time of his indorsement valid and subsisting;
And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as
the case may be according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth. Every person negotiating an
instrument by delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the instrument or
render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other
than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating public or
corporation securities, other than bills and notes. (Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects what it purports to be" covers
all the defects in the instrument affecting the validity thereof, including a forged indorsement.
Thus, the last indorser will be liable for the amount indicated in the negotiable instrument
even if a previous indorsement was forged. We held in a line of cases that "a collecting bank
which indorses a check bearing a forged indorsement and presents it to the drawee bank
guarantees all prior indorsements, including the forged indorsement itself, and ultimately
should be held liable therefor."48
However, this general rule is subject to exceptions. One such exception is when the issuance
of the check itself was attended with negligence. Thus, in the cases cited above where the
collecting bank is generally held liable, in two of the cases where the checks were negligently
issued, this Court held the institution issuing the check just as liable as or more liable than the
collecting bank.
In isolated cases where the checks were deposited in an account other than that of the
payees on the strength of forged indorsements, we held the collecting bank solely liable for
the whole amount of the checks involved for having indorsed the same. In Republic Bank v.
Ebrada,49 the check was properly issued by the Bureau of Treasury. While in Banco de Oro
Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation,50 Banco de
Oro admittedly issued the checks in the name of the correct payees. And in Traders Royal
Bank v. Radio Philippines Network, Inc.,51 the checks were issued at the request of Radio
Philippines Network, Inc. from Traders Royal Bank.chanrobles virtual law library
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank
is liable for 60% of the amount on the face of the negotiable instrument and the collecting
bank is liable for 40%. We also noted the relative negligence exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their employees resulting in the
encashment of the forged checks by an impostor. Both banks were not able to overcome the
presumption of negligence in the selection and supervision of their employees. It was the
gross negligence of the employees of both banks which resulted in the fraud and the
subsequent loss. While it is true that petitioner BPI's negligence may have been the
proximate cause of the loss, respondent CBC's negligence contributed  equally to the success
of the impostor in encashing the proceeds of the forged checks. Under these circumstances,
we apply Article 2179 of the Civil Code to the effect that while respondent CBC may recover
its losses, such losses are subject to mitigation by the courts. (See Phoenix Construction Inc.
v. Intermediate Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the demands of
substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the
arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a 60-40 ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the
collecting bank should equally share the liability for the loss of amount represented by the
checks concerned due to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-
50%). Due to the negligence of the Province of Tarlac in releasing the checks to an
unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive
the checks for the payee hospital for a period close to three years and in not properly
ascertaining why the retired hospital cashier was collecting checks for the payee hospital in
addition to the hospital's real cashier, respondent Province contributed to the loss amounting
to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the
Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of
P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by
Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including
that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in
its duty to ascertain the genuineness of the payee's indorsement.53
A reading of the facts of the two immediately preceding cases would reveal that the reason
why the bank or institution which issued the check was held partially liable for the amount of
the check was because of the negligence of these parties which resulted in the issuance of
the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the manager's
check and in transmitting it to Santos without even a written authorization.54 In fact, Allied did
not even ask for the certificate evidencing the money market placement or call up Lim Sio
Wan at her residence or office to confirm her instructions. Both actions could have prevented
the whole fraudulent transaction from unfolding. Allied's negligence must be considered as
the proximate cause of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the check
would not have been issued and no loss of funds would have resulted. In fact, there would
have been no issuance of indorsement had there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the
check. When Metrobank indorsed the check in compliance with the PCHC Rules and
Regulations55 without verifying the authenticity of Lim Sio Wan's indorsement and when it
accepted the check despite the fact that it was cross-checked payable to payee's account
only,56 its negligent and cavalier indorsement contributed to the easier release of Lim Sio
Wan's money and perpetuation of the fraud. Given the relative participation of Allied and
Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the
60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio
Wan's indorsement, can raise the real defense of forgery as against both banks.57
As to Producers Bank, Allied Bank's argument that Producers Bank must be held liable as
employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to the
vicarious liability of an employer for quasi-delicts that an employee has committed. Such
provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal
Code in the instant case. Such liability on the part of the employer for the civil aspect of the
criminal act of the employee is based on the conviction of the employee for a crime. Here,
there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers Bank, the same is
correct. Allied correctly claims in its petition that Producers Bank should reimburse Allied for
whatever judgment that may be rendered against it pursuant to Art. 22 of the Civil Code,
which provides: "Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter without
just cause or legal ground, shall return the same to him."chanrobles virtual law library
The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is
unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice,
equity and good conscience."58
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article
22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and
(2) such benefit is derived at the expense of or with damages to another."59
In the instant case, Lim Sio Wan's money market placement in Allied Bank was pre-
terminated and withdrawn without her consent. Moreover, the proceeds of the placement
were deposited in Producers Bank's account in Metrobank without any justification. In other
words, there is no reason that the proceeds of Lim Sio Wans' placement should be deposited
in FCC's account purportedly as payment for FCC's money market placement and interest in
Producers Bank.ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ
With such payment, Producers Bank's indebtedness to FCC was extinguished, thereby
benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of Lim
Sio Wan. Based on the facts and circumstances of the case, Producers Bank should
reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim
Sio Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be considered as
having been unjustly enriched. It must be remembered that FCC's money market placement
with Producers Bank was already due and demandable; thus, Producers Bank's payment
thereof was justified. FCC was entitled to such payment. As earlier stated, the fact that the
indorsement on the check was forged cannot be raised against FCC which was not a part in
any stage of the negotiation of the check. FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of the entire
controversy. Unfortunately, since summons had not been served on Santos, the courts have
not acquired jurisdiction over her.60 We, therefore, cannot ascribe to her liability in the instant
case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the
check plus 12% interest per annum, moral damages, attorney's fees, and costs of suit which
Allied and Metrobank are adjudged to pay Lim Sio Wan based on a proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-
G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No. 6757 are
AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is
rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay
sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty
(40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984
until fully paid. The moral damages, attorney's fees and costs of suit adjudged shall likewise
be paid by defendant-appellant Allied Banking Corporation and defendant-appellee
Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus
modified, the decision appealed from is AFFIRMED.
SO ORDERED.
G.R. No. L-10126           October 22, 1957
SALUD VILLANUEVA VDA. DE BATACLAN and the minors NORMA, LUZVIMINDA,
ELENITA, OSCAR and ALFREDO BATACLAN, represented by their Natural guardian,
SALUD VILLANUEVA VDA. DE BATACLAN, plaintiffs-appellants,
vs.
MARIANO MEDINA, defendant-appellant.
Lope E. Adriano, Emmanuel Andamo and Jose R. Francisco for plaintiffs-appellants.
Fortunato Jose for defendant and appellant.
MONTEMAYOR, J.:
Shortly after midnight, on September 13, 1952 bus no. 30 of the Medina Transportation,
operated by its owner defendant Mariano Medina under a certificate of public convenience,
left the town of Amadeo, Cavite, on its way to Pasay City, driven by its regular chauffeur,
Conrado Saylon. There were about eighteen passengers, including the driver and conductor.
Among the passengers were Juan Bataclan, seated beside and to the right of the driver,
Felipe Lara, sated to the right of Bataclan, another passenger apparently from the Visayan
Islands whom the witnesses just called Visaya, apparently not knowing his name, seated in
the left side of the driver, and a woman named Natalia Villanueva, seated just behind the four
last mentioned. At about 2:00 o'clock that same morning, while the bus was running within the
jurisdiction of Imus, Cavite, one of the front tires burst and the vehicle began to zig-zag until it
fell into a canal or ditch on the right side of the road and turned turtle. Some of the
passengers managed to leave the bus the best way they could, others had to be helped or
pulled out, while the three passengers seated beside the driver, named Bataclan, Lara and
the Visayan and the woman behind them named Natalia Villanueva, could not get out of the
overturned bus. Some of the passengers, after they had clambered up to the road, heard
groans and moans from inside the bus, particularly, shouts for help from Bataclan and Lara,
who said they could not get out of the bus. There is nothing in the evidence to show whether
or not the passengers already free from the wreck, including the driver and the conductor,
made any attempt to pull out or extricate and rescue the four passengers trapped inside the
vehicle, but calls or shouts for help were made to the houses in the neighborhood. After half
an hour, came about ten men, one of them carrying a lighted torch made of bamboo with a
wick on one end, evidently fueled with petroleum. These men presumably approach the
overturned bus, and almost immediately, a fierce fire started, burning and all but consuming
the bus, including the four passengers trapped inside it. It would appear that as the bus
overturned, gasoline began to leak and escape from the gasoline tank on the side of the
chassis, spreading over and permeating the body of the bus and the ground under and
around it, and that the lighted torch brought by one of the men who answered the call for help
set it on fire.
That same day, the charred bodies of the four deemed passengers inside the bus were
removed and duly identified that of Juan Bataclan. By reason of his death, his widow, Salud
Villanueva, in her name and in behalf of her five minor children, brought the present suit to
recover from Mariano Medina compensatory, moral, and exemplary damages and attorney's
fees in the total amount of P87,150. After trial, the Court of First Instance of Cavite awarded
P1,000 to the plaintiffs plus P600 as attorney's fee, plus P100, the value of the merchandise
being carried by Bataclan to Pasay City for sale and which was lost in the fire. The plaintiffs
and the defendants appealed the decision to the Court of Appeals, but the latter endorsed the
appeal to us because of the value involved in the claim in the complaint.
Our new Civil Code amply provides for the responsibility of common carrier to its passengers
and their goods. For purposes of reference, we are reproducing the pertinent codal
provisions:
ART. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in
articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extra ordinary diligence for
the safety of the passengers is further set forth in articles 1755 and 1756.
ART. 1755. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances.
ART. 1756. In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as prescribed in articles 1733 and 1755
ART. 1759. Common carriers are liable for the death of or injuries to passengers
through the negligence or willful acts of the former's employees, although such
employees may have acted beyond the scope of their authority or in violation of the
order of the common carriers.
This liability of the common carriers does not cease upon proof that they exercised all
the diligence of a good father of a family in the selection and supervision of their
employees.
ART. 1763. A common carrier responsible for injuries suffered by a passenger on
account of the willful acts or negligence of other passengers or of strangers, if the
common carrier's employees through the exercise of the diligence of a good father of
a family could have prevented or stopped the act or omission.
We agree with the trial court that the case involves a breach of contract of transportation for
hire, the Medina Transportation having undertaken to carry Bataclan safely to his destination,
Pasay City. We also agree with the trial court that there was negligence on the part of the
defendant, through his agent, the driver Saylon. There is evidence to show that at the time of
the blow out, the bus was speeding, as testified to by one of the passengers, and as shown
by the fact that according to the testimony of the witnesses, including that of the defense,
from the point where one of the front tires burst up to the canal where the bus overturned
after zig-zaging, there was a distance of about 150 meters. The chauffeur, after the blow-out,
must have applied the brakes in order to stop the bus, but because of the velocity at which
the bus must have been running, its momentum carried it over a distance of 150 meters
before it fell into the canal and turned turtle.
What is the proximate cause of Bataclan’s death? Overturning of the bus
There is no question that under the circumstances, the defendant carrier is liable. The only
question is to what degree. The trial court was of the opinion that the proximate cause of the
death of Bataclan was not the overturning of the bus, but rather, the fire that burned the bus,
including himself and his co-passengers who were unable to leave it; that at the time the fire
started, Bataclan, though he must have suffered physical injuries, perhaps serious, was still
alive, and so damages were awarded, not for his death, but for the physical injuries suffered
by him. We disagree. A satisfactory definition of proximate cause is found in Volume 38,
pages 695-696 of American jurisprudence, cited by plaintiffs-appellants in their brief. It is as
follows:
. . . 'that cause, which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result would not have
occurred.' And more comprehensively, 'the proximate legal cause is that acting first
and producing the injury, either immediately or by setting other events in motion, all
constituting a natural and continuous chain of events, each having a close causal
connection with its immediate predecessor, the final event in the chain immediately
effecting the injury as a natural and probable result of the cause which first acted,
under such circumstances that the person responsible for the first event should, as
an ordinary prudent and intelligent person, have reasonable ground to expect at the
moment of his act or default that an injury to some person might probably result
therefrom.
It may be that ordinarily, when a passenger bus overturns, and pins down a passenger,
merely causing him physical injuries, if through some event, unexpected and extraordinary,
the overturned bus is set on fire, say, by lightning, or if some highwaymen after looting the
vehicle sets it on fire, and the passenger is burned to death, one might still contend that the
proximate cause of his death was the fire and not the overturning of the vehicle. But in the
present case under the circumstances obtaining in the same, we do not hesitate to hold that
the proximate cause was the overturning of the bus, this for the reason that when the vehicle
turned not only on its side but completely on its back, the leaking of the gasoline from the
tank was not unnatural or unexpected; that the coming of the men with a lighted torch was in
response to the call for help, made not only by the passengers, but most probably, by the
driver and the conductor themselves, and that because it was dark (about 2:30 in the
morning), the rescuers had to carry a light with them, and coming as they did from a rural
area where lanterns and flashlights were not available; and what was more natural than that
said rescuers should innocently approach the vehicle to extend the aid and effect the rescue
requested from them. In other words, the coming of the men with a torch was to be expected
and was a natural sequence of the overturning of the bus, the trapping of some of its
passengers and the call for outside help. What is more, the burning of the bus can also in part
be attributed to the negligence of the carrier, through is driver and its conductor. According to
the witness, the driver and the conductor were on the road walking back and forth. They, or at
least, the driver should and must have known that in the position in which the overturned bus
was, gasoline could and must have leaked from the gasoline tank and soaked the area in and
around the bus, this aside from the fact that gasoline when spilled, specially over a large
area, can be smelt and directed even from a distance, and yet neither the driver nor the
conductor would appear to have cautioned or taken steps to warn the rescuers not to bring
the lighted torch too near the bus. Said negligence on the part of the agents of the carrier
come under the codal provisions above-reproduced, particularly, Articles 1733, 1759 and
1763.
As regard the damages to which plaintiffs are entitled, considering the earning capacity of the
deceased, as well as the other elements entering into a damage award, we are satisfied that
the amount of SIX THOUSAND (P6,000) PESOS would constitute satisfactory compensation,
this to include compensatory, moral, and other damages. We also believe that plaintiffs are
entitled to attorney's fees, and assessing the legal services rendered by plaintiffs' attorneys
not only in the trial court, but also in the course of the appeal, and not losing sight of the able
briefs prepared by them, the attorney's fees may well be fixed at EIGHT HUNDRED (P800)
PESOS for the loss of merchandise carried by the deceased in the bus, is adequate and will
not be disturbed.
There is one phase of this case which disturbs if it does not shock us. According to the
evidence, one of the passengers who, because of the injuries suffered by her, was
hospitalized, and while in the hospital, she was visited by the defendant Mariano Medina, and
in the course of his visit, she overheard him speaking to one of his bus inspectors, telling said
inspector to have the tires of the bus changed immediately because they were already old,
and that as a matter of fact, he had been telling the driver to change the said tires, but that
the driver did not follow his instructions. If this be true, it goes to prove that the driver had not
been diligent and had not taken the necessary precautions to insure the safety of his
passengers. Had he changed the tires, specially those in front, with new ones, as he had
been instructed to do, probably, despite his speeding, as we have already stated, the blow
out would not have occurred. All in all, there is reason to believe that the driver operated and
drove his vehicle negligently, resulting in the death of four of his passengers, physical injuries
to others, and the complete loss and destruction of their goods, and yet the criminal case
against him, on motion of the fiscal and with his consent, was provisionally dismissed,
because according to the fiscal, the witnesses on whose testimony he was banking to support
the complaint, either failed or appear or were reluctant to testify. But the record of the case
before us shows the several witnesses, passengers, in that bus, willingly and unhesitatingly
testified in court to the effect of the said driver was negligent. In the public interest the
prosecution of said erring driver should be pursued, this, not only as a matter of justice, but
for the promotion of the safety of passengers on public utility buses. Let a copy of this
decision be furnished the Department of Justice and the Provincial Fiscal of Cavite.
In view of the foregoing, with the modification that the damages awarded by the trial court are
increased from ONE THOUSAND (P1,000) PESOS TO SIX THOUSAND (P6,000) PESOS,
and from SIX HUNDRED PESOS TO EIGHT HUNDRED (P800) PESOS, for the death of
Bataclan and for the attorney's fees, respectively, the decision appealed is from hereby
affirmed, with costs.
G.R. No. 137775. March 31, 2005
FGU INSURANCE CORPORATION, Petitioners,
vs.
THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE OF ANG GUI,
represented by LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO
TO, Respondents.
G.R. No. 140704. March 31, 2005
ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG,
and CO TO, Petitioners,
vs.
THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU INSURANCE
CORP., Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us are two separate Petitions for review assailing the Decision1 of the Court of
Appeals in CA-G.R. CV No. 49624 entitled, "San Miguel Corporation, Plaintiff-Appellee
versus Estate of Ang Gui, represented by Lucio, Julian and Jaime, all surnamed Ang, and Co
To, Defendants-Appellants, Third–Party Plaintiffs versus FGU Insurance Corporation, Third-
Party Defendant-Appellant," which affirmed in toto the decision2 of the Regional Trial Court of
Cebu City, Branch 22. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an interest of 6% per
annum to be reckoned from the filing of this case on October 2, 1990;
2) Ordering defendants to pay plaintiff the sum of P25,000.00 for attorney’s fees and an
additional sum of P10,000.00 as litigation expenses;
3) With cost against defendants.
For the Third-Party Complaint:
1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants
the amount of P632,700.00.3
The Facts
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui
and Co To, was engaged in the shipping business. It owned the M/T ANCO tugboat and the
D/B Lucio barge which were operated as common carriers. Since the D/B Lucio had no
engine of its own, it could not maneuver by itself and had to be towed by a tugboat for it to
move from one place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu,
on board the D/B Lucio, for towage by M/T ANCO, the following cargoes:
Bill of Lading No. Shipment Destination
1 25,000 cases Pale Pilsen Estancia, Iloilo
350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMC’s Beer Marketing
Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the consignee for the
cargoes covered by Bill of Lading No. 2 was SMC’s BMD-San Jose Beer Sales Office, San
Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose,
Antique. The vessels arrived at San Jose, Antique, at about one o’clock in the afternoon of 30
September 1979. The tugboat M/T ANCO left the barge immediately after reaching San Jose,
Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September
1979, the clouds over the area were dark and the waves were already big. The arrastre
workers unloading the cargoes of SMC on board the D/B Lucio began to complain about their
difficulty in unloading the cargoes. SMC’s District Sales Supervisor, Fernando Macabuag,
requested ANCO’s representative to transfer the barge to a safer place because the vessel
might not be able to withstand the big waves.
ANCO’s representative did not heed the request because he was confident that the barge
could withstand the waves. This, notwithstanding the fact that at that time, only the M/T
ANCO was left at the wharf of San Jose, Antique, as all other vessels already left the wharf to
seek shelter. With the waves growing bigger and bigger, only Ten Thousand Seven Hundred
Ninety (10,790) cases of beer were discharged into the custody of the arrastre operator.
At about ten to eleven o’clock in the evening of 01 October 1979, the crew of D/B Lucio
abandoned the vessel because the barge’s rope attached to the wharf was cut off by the big
waves. At around midnight, the barge run aground and was broken and the cargoes of beer
in the barge were swept away.
As a result, ANCO failed to deliver to SMC’s consignee Twenty-Nine Thousand Two Hundred
Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The
value per case of Pale Pilsen was Forty-Five Pesos and Twenty Centavos (P45.20). The
value of a case of Cerveza Negra was Forty-Seven Pesos and Ten Centavos (P47.10),
hence, SMC’s claim against ANCO amounted to One Million Three Hundred Forty-Six
Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00).
As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage
and Damages against ANCO for the amount of One Million Three Hundred Forty-Six
Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00) plus interest, litigation
expenses and Twenty-Five Percent (25%) of the total claim as attorney’s fees.
Upon Ang Gui’s death, ANCO, as a partnership, was dissolved hence, on 26 January 1993,
SMC filed a second amended complaint which was admitted by the Court impleading the
surviving partner, Co To and the Estate of Ang Gui represented by Lucio, Julian and Jaime,
all surnamed Ang. The substituted defendants adopted the original answer with counterclaim
of ANCO "since the substantial allegations of the original complaint and the amended
complaint are practically the same."
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the
complaint were indeed loaded on the vessel belonging to ANCO. It claimed however that it
had an agreement with SMC that ANCO would not be liable for any losses or damages
resulting to the cargoes by reason of fortuitous event. Since the cases of beer Pale Pilsen
and Cerveza Negra were lost by reason of a storm, a fortuitous event which battered and
sunk the vessel in which they were loaded, they should not be held liable. ANCO further
asserted that there was an agreement between them and SMC to insure the cargoes in order
to recover indemnity in case of loss. Pursuant to that agreement, the cargoes to the extent of
Twenty Thousand (20,000) cases was insured with FGU Insurance Corporation (FGU) for the
total amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per
Marine Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging
that before the vessel of ANCO left for San Jose, Antique with the cargoes owned by SMC,
the cargoes, to the extent of Twenty Thousand (20,000) cases, were insured with FGU for a
total amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00)
under Marine Insurance Policy No. 29591. ANCO further alleged that on or about 02 October
1979, by reason of very strong winds and heavy waves brought about by a passing typhoon,
the vessel run aground near the vicinity of San Jose, Antique, as a result of which, the vessel
was totally wrecked and its cargoes owned by SMC were lost and/or destroyed. According to
ANCO, the loss of said cargoes occurred as a result of risks insured against in the insurance
policy and during the existence and lifetime of said insurance policy. ANCO went on to assert
that in the remote possibility that the court will order ANCO to pay SMC’s claim, the third-
party defendant corporation should be held liable to indemnify or reimburse ANCO whatever
amounts, or damages, it may be required to pay to SMC.
In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence
of the Insurance Policy under Marine Cover Note No. 29591 but maintained that the alleged
loss of the cargoes covered by the said insurance policy cannot be attributed directly or
indirectly to any of the risks insured against in the said insurance policy. According to FGU, it
is only liable under the policy to Third-party Plaintiff ANCO and/or Plaintiff SMC in case of any
of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to
exercise ordinary diligence or the diligence of a good father of the family in the care and
supervision of the cargoes insured to prevent its loss and/or destruction.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked
for actual, moral, and exemplary damages and attorney’s fees.
The trial court found that while the cargoes were indeed lost due to fortuitous event, there
was failure on ANCO’s part, through their representatives, to observe the degree of diligence
required that would exonerate them from liability. The trial court thus held the Estate of Ang
Gui and Co To liable to SMC for the amount of the lost shipment. With respect to the Third-
Party complaint, the court a quo found FGU liable to bear Fifty-Three Percent (53%) of the
amount of the lost cargoes. According to the trial court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and
was broken and the beer cargoes on the said barge were swept away. It is the sense of this
Court that the risk insured against was the cause of the loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the
amount of the policy was only for P858,500.00, defendants as assured, therefore, were
considered co-insurers of third-party defendant FGU Insurance Corporation to the extent of
975,405.00 value of the cargo. Consequently, inasmuch as there was partial loss of only
P1,346,197.00, the assured shall bear 53% of the loss…4 [Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the motion for
reconsideration and the supplemental motion for reconsideration.
Hence, the petitions.
The Issues
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into
two: 1) Whether or not respondent Court of Appeals committed grave abuse of discretion in
holding FGU liable under the insurance contract considering the circumstances surrounding
the loss of the cargoes; and 2) Whether or not the Court of Appeals committed an error of law
in holding that the doctrine of res judicata applies in the instant case.
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the
appellate court based on the following assignments of error: 1) The Court of Appeals
committed grave abuse of discretion in affirming the findings of the lower court that the
negligence of the crewmembers of the D/B Lucio was the proximate cause of the loss of the
cargoes; and 2) The respondent court acted with grave abuse of discretion when it ruled that
the appeal was without merit despite the fact that said court had accepted the decision in Civil
Case No. R-19341, as affirmed by the Court of Appeals and the Supreme Court, as res
judicata.
Ruling of the Court
First, we shall endeavor to dispose of the common issue raised by both petitioners in their
respective petitions for review, that is, whether or not the doctrine of res judicata applies in
the instant case.
It is ANCO’s contention that the decision in Civil Case No. R-19341,5 which was decided in its
favor, constitutes res judicata with respect to the issues raised in the case at bar.
The contention is without merit. There can be no res judicata as between Civil Case No. R-
19341 and the case at bar. In order for res judicata to be made applicable in a case, the
following essential requisites must be present: 1) the former judgment must be final; 2) the
former judgment must have been rendered by a court having jurisdiction over the subject
matter and the parties; 3) the former judgment must be a judgment or order on the merits;
and 4) there must be between the first and second action identity of parties, identity of
subject matter, and identity of causes of action. 6
There is no question that the first three elements of res judicata as enumerated above are
indeed satisfied by the decision in Civil Case No. R-19341. However, the doctrine is still
inapplicable due to the absence of the last essential requisite of identity of parties, subject
matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in
the instant case, SMC is the plaintiff and the Estate of Ang Gui represented by Lucio, Julian
and Jaime, all surnamed Ang and Co To as defendants, with the latter merely impleading
FGU as third-party defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into by
ANCO, the owner of the vessel, with FGU covering the vessel D/B Lucio, while in the instant
case, the subject matter of litigation is the loss of the cargoes of SMC, as shipper, loaded in
the D/B Lucio and the resulting failure of ANCO to deliver to SMC’s consignees the lost
cargo. Otherwise stated, the controversy in the first case involved the rights and liabilities of
the shipowner vis-à-vis that of the insurer, while the present case involves the rights and
liabilities of the shipper vis-à-vis that of the shipowner. Specifically, Civil Case No. R-19341
was an action for Specific Performance and Damages based on FGU Marine Hull Insurance
Policy No. VMF-MH-13519 covering the vessel D/B Lucio, while the instant case is an action
for Breach of Contract of Carriage and Damages filed by SMC against ANCO based on Bill of
Lading No. 1 and No. 2, with defendant ANCO seeking reimbursement from FGU under
Insurance Policy No. MA-58486, should the former be held liable to pay SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is different
from that in Civil Case No. R-19341. In the latter, ANCO was suing FGU for the insurance
contract over the vessel while in the former, the third-party complaint arose from the
insurance contract covering the cargoes on board the D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue already
passed upon by a court of competent jurisdiction in a former judgment, in another action
between the same parties based on a different claim or cause of action. The judgment in the
prior action operates as estoppel only as to those matters in issue or points controverted,
upon the determination of which the finding or judgment was rendered.7 If a particular point or
question is in issue in the second action, and the judgment will depend on the determination
of that particular point or question, a former judgment between the same parties or their
privies will be final and conclusive in the second if that same point or question was in issue
and adjudicated in the first suit.8
Since the case at bar arose from the same incident as that involved in Civil Case No. R-
19341, only findings with respect to matters passed upon by the court in the former judgment
are conclusive in the disposition of the instant case. A careful perusal of the decision in Civil
Case No. R-19341 will reveal that the pivotal issues resolved by the lower court, as affirmed
by both the Court of Appeals and the Supreme Court, can be summarized into three legal
conclusions: 1) that the D/B Lucio before and during the voyage was seaworthy; 2) that there
was proper notice of loss made by ANCO within the reglementary period; and 3) that the
vessel D/B Lucio was a constructive total loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent
therein was any discussion regarding the liability of ANCO for the loss of the cargoes. Neither
did the lower court pass upon the issue of the alleged negligence of the crewmembers of the
D/B Lucio being the cause of the loss of the cargoes owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the Court of
Appeals that there is res judicata.
Anent ANCO’s first assignment of error, i.e., the appellate court committed error in concluding
that the negligence of ANCO’s representatives was the proximate cause of the loss, said
issue is a question of fact assailing the lower court’s appreciation of evidence on the
negligence or lack thereof of the crewmembers of the D/B Lucio. As a rule, findings of fact of
lower courts, particularly when affirmed by the appellate court, are deemed final and
conclusive. The Supreme Court cannot review such findings on appeal, especially when they
are borne out by the records or are based on substantial evidence.9 As held in the case
of Donato v. Court of Appeals,10 in this jurisdiction, it is a fundamental and settled rule that
findings of fact by the trial court are entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons because the trial court is in a better position
to examine real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case.11
It is not the function of this Court to analyze or weigh evidence all over again, unless there is
a showing that the findings of the lower court are totally devoid of support or are glaringly
erroneous as to constitute palpable error or grave abuse of discretion.12
A careful study of the records shows no cogent reason to fault the findings of the lower court,
as sustained by the appellate court, that ANCO’s representatives failed to exercise the
extraordinary degree of diligence required by the law to exculpate them from liability for the
loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine
Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550)
cases of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio
had no engine of its own and could not maneuver by itself. Yet, the patron of ANCO’s tugboat
M/T ANCO left it to fend for itself notwithstanding the fact that as the two vessels arrived at
the port of San Jose, Antique, signs of the impending storm were already manifest. As stated
by the lower court, witness Mr. Anastacio Manilag testified that the captain or patron of the
tugboat M/T ANCO left the barge D/B Lucio immediately after it reached San Jose, Antique,
despite the fact that there were already big waves and the area was already dark. This is
corroborated by defendants’ own witness, Mr. Fernando Macabueg.13
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe
extraordinary diligence in the vigilance over the cargo of the plaintiff, the patron or captain of
M/T ANCO, representing the defendant could have placed D/B Lucio in a very safe location
before they left knowing or sensing at that time the coming of a typhoon. The presence of big
waves and dark clouds could have warned the patron or captain of M/T ANCO to insure the
safety of D/B Lucio including its cargo. D/B Lucio being a barge, without its engine, as the
patron or captain of M/T ANCO knew, could not possibly maneuver by itself. Had the patron
or captain of M/T ANCO, the representative of the defendants observed extraordinary
diligence in placing the D/B Lucio in a safe place, the loss to the cargo of the plaintiff could
not have occurred. In short, therefore, defendants through their representatives, failed to
observe the degree of diligence required of them under the provision of Art. 1733 of the Civil
Code of the Philippines.14
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention
of respondents SMC and FGU that "the crewmembers of D/B Lucio should have left port at
the onset of the typhoon is like advising the fish to jump from the frying pan into the fire and
an advice that borders on madness."15
The argument does not persuade. The records show that the D/B Lucio was the only vessel
left at San Jose, Antique, during the time in question. The other vessels were transferred and
temporarily moved to Malandong, 5 kilometers from wharf where the barge
remained.16 Clearly, the transferred vessels were definitely safer in Malandong than at the
port of San Jose, Antique, at that particular time, a fact which petitioners failed to dispute
ANCO’s arguments boil down to the claim that the loss of the cargoes was caused by the
typhoon Sisang, a fortuitous event (caso fortuito), and there was no fault or negligence on
their part. In fact, ANCO claims that their crewmembers exercised due diligence to prevent or
minimize the loss of the cargoes but their efforts proved no match to the forces unleashed by
the typhoon which, in petitioners’ own words was, by any yardstick, a natural calamity, a
fortuitous event, an act of God, the consequences of which petitioners could not be held liable
for.17
The Civil Code provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy
are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each
case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734,
1735, and 1745 Nos. 5, 6, and 7 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
...
Art. 1739. In order that the common carrier may be exempted from responsibility, the
natural disaster must have been the proximate and only cause of the loss. However, the
common carrier must exercise due diligence to prevent or minimize loss before, during and
after the occurrence of flood, storm, or other natural disaster in order that the common carrier
may be exempted from liability for the loss, destruction, or deterioration of the goods . . .
(Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor
from liability)18 by definition, are extraordinary events not foreseeable or avoidable, events
that could not be foreseen, or which though foreseen, were inevitable. It is therefore not
enough that the event should not have been foreseen or anticipated, as is commonly believed
but it must be one impossible to foresee or to avoid.19
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it
unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to transfer
to another place, a circumstance which prompted SMC’s District Sales Supervisor to request
that the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio had no engine and
could not maneuver by itself. Even if ANCO’s representatives wanted to transfer it, they no
longer had any means to do so as the tugboat M/T ANCO had already departed, leaving the
barge to its own devices. The captain of the tugboat should have had the foresight not to
leave the barge alone considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural
disaster, ANCO could not escape liability to respondent SMC. The records clearly show the
failure of petitioners’ representatives to exercise the extraordinary degree of diligence
mandated by law. To be exempted from responsibility, the natural disaster should have been
the proximate and only cause of the loss.20 There must have been no contributory negligence
on the part of the common carrier. As held in the case of Limpangco Sons v. Yangco
Steamship Co.:21
. . . To be exempt from liability because of an act of God, the tug must be free from any
previous negligence or misconduct by which that loss or damage may have been occasioned.
For, although the immediate or proximate cause of the loss in any given instance may have
been what is termed an act of God, yet, if the tug unnecessarily exposed the two to such
accident by any culpable act or omission of its own, it is not excused.22
Therefore, as correctly pointed out by the appellate court, there was blatant negligence on the
part of M/T ANCO’s crewmembers, first in leaving the engine-less barge D/B Lucio at the
mercy of the storm without the assistance of the tugboat, and again in failing to heed the
request of SMC’s representatives to have the barge transferred to a safer place, as was done
by the other vessels in the port; thus, making said blatant negligence the proximate cause of
the loss of the cargoes.
We now come to the issue of whether or not FGU can be held liable under the insurance
policy to reimburse ANCO for the loss of the cargoes despite the findings of the respondent
court that such loss was occasioned by the blatant negligence of the latter’s employees. YES
One of the purposes for taking out insurance is to protect the insured against the
consequences of his own negligence and that of his agents. Thus, it is a basic rule in
insurance that the carelessness and negligence of the insured or his agents constitute no
defense on the part of the insurer.23 This rule however presupposes that the loss has
occurred due to causes which could not have been prevented by the insured, despite the
exercise of due diligence.
The question now is whether there is a certain degree of negligence on the part of the insured
or his agents that will deprive him the right to recover under the insurance contract. We say
there is. However, to what extent such negligence must go in order to exonerate the insurer
from liability must be evaluated in light of the circumstances surrounding each case. When
evidence show that the insured’s negligence or recklessness is so gross as to be sufficient to
constitute a willful act, the insurer must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,24 the United States
Supreme Court held that:
The ordinary negligence of the insured and his agents has long been held as a part of the risk
which the insurer takes upon himself, and the existence of which, where it is the proximate
cause of the loss, does not absolve the insurer from liability. But willful exposure, gross
negligence, negligence amounting to misconduct, etc., have often been held to release the
insurer from such liability.25 [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the
owners of an insured vessel attempted to put her across the bar at Hatteras Inlet. She struck
on the bar and was wrecked. The master knew that the depth of water on the bar was such
as to make the attempted passage dangerous. Judge Clifford held that, under the
circumstances, the loss was not within the protection of the policy, saying:
Authorities to prove that persons insured cannot recover for a loss occasioned by their own
wrongful acts are hardly necessary, as the proposition involves an elementary principle of
universal application. Losses may be recovered by the insured, though remotely occasioned
by the negligence or misconduct of the master or crew, if proximately caused by the perils
insured against, because such mistakes and negligence are incident to navigation and
constitute a part of the perils which those who engage in such adventures are obliged to
incur; but it was never supposed that the insured could recover indemnity for a loss
occasioned by his own wrongful act or by that of any agent for whose conduct he was
responsible.26 [Emphasis ours]
From the above-mentioned decision, the United States Supreme Court has made a
distinction between ordinary negligence and gross negligence or negligence amounting to
misconduct and its effect on the insured’s right to recover under the insurance contract.
According to the Court, while mistake and negligence of the master or crew are incident to
navigation and constitute a part of the perils that the insurer is obliged to incur, such
negligence or recklessness must not be of such gross character as to amount to misconduct
or wrongful acts; otherwise, such negligence shall release the insurer from liability under the
insurance contract.
In the case at bar, both the trial court and the appellate court had concluded from the
evidence that the crewmembers of both the D/B Lucio and the M/T ANCO were blatantly
negligent. To wit:
There was blatant negligence on the part of the employees of defendants-appellants when
the patron (operator) of the tug boat immediately left the barge at the San Jose, Antique
wharf despite the looming bad weather. Negligence was likewise exhibited by the defendants-
appellants’ representative who did not heed Macabuag’s request that the barge be moved to
a more secure place. The prudent thing to do, as was done by the other sea vessels at San
Jose, Antique during the time in question, was to transfer the vessel to a safer wharf. The
negligence of the defendants-appellants is proved by the fact that on 01 October 1979, the
only simple vessel left at the wharf in San Jose was the D/B Lucio.27 [Emphasis ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by
the lower court, as sustained by the Court of Appeals, that ANCO’s representatives had failed
to exercise extraordinary diligence required of common carriers in the shipment of SMC’s
cargoes. Such blatant negligence being the proximate cause of the loss of the cargoes
amounting to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven
Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes that
the blatant negligence of ANCO’s employees is of such gross character that it amounts to a
wrongful act which must exonerate FGU from liability under the insurance contract.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February
1999 is hereby AFFIRMED with MODIFICATION dismissing the third-party complaint.
SO ORDERED.
LINDUS v. NORTHERN INSURANCE
CASE
The appellant, Roger Lindus, a minor, brought an action to recover under insurance policies
issued by Northern Insurance Company of New York and the Travelers Indemnity Company,
both corporations. The plaintiff appeals from a judgment in the lower court in favor of both
defendants.
On May 26, 1960, the plaintiff, then a twelve year old resident student at Orme Ranch School,
was severely burned by ignited gasoline. The accident occurred when Richard Phillippi, a
resident student at Orme Ranch School, was pouring gasoline into the carburetor of a car and
William Nelson, then an 18 year old resident student, turned the ignition switch and engaged
the starter. The engine backfired and the gasoline can which Phillippi was holding caught fire.
He threw the flaming can which struck and seriously burned the plaintiff, a passer-by.
At the time of the accident, William Nelson was not aware that he was insured under either of
the defendants' policies. The defendant Travelers was notified of the occurrence in November
of 1961 by a Phillippi insurer. The defendant Northern was notified in June of 1962 after the
plaintiff had filed a complaint against Orme Ranch School and Phillippi in March of 1962 and
Orme Ranch School had filed and served a third party complaint on William Nelson in May of
1962. Both defendants denied coverage under the policies after investigations.
In February, 1963, the plaintiff gave Royal-Globe Insurance Company and Farmers Insurance
Group a "covenant not to sue" Orme Ranch School for the consideration of $75,000. A
judgment was recovered in March, 1963, against Nelson for $92,500. The plaintiff demanded
payment from the defendant insurance companies and upon their refusal to make payment
the complaint in this action was filed.
Northern Insurance's answer was filed in June, 1963, which answer raised lack of notice as a
defense. Travelers Insurance's answer filed in August contained no reference to notice.
However, Travelers did raise the defense of notice in answers to interrogatories at the end of
August, 1963.
All of the parties stipulated that all issues of fact and law would be submitted to the court for
decision on the basis of depositions, interrogatories and answers thereto, affidavits,
pleadings, stipulations, exhibits admitted, and all other matters of which the court would take
cognizance on motions for summary judgment made by all the parties.
The questions presented in this appeal are:
1. Whether the notice given was "as soon as practicable" as required under both policies as
conditions precedent.
2. If such notice was not given, whether the facts present a reasonable excuse for the failure
thereof.
3. Whether the defendants waived the defense of failure of notice.
NOTICE GENERALLY
The plaintiff argues that timely notice was given or alternatively, that the delay in giving notice
was excused because: (1) it was "unlikely" that Mr. Nelson or any layman would have
recognized the possible liability of William Nelson; (2) the minority of the insured is a
circumstance to be considered; and, (3) there was no awareness of the existence of, or
possible coverage by, an insurance policy.
The purpose of a notice provision is to afford the insurer an opportunity to make a timely and
adequate investigation of all the circumstances. American Southern Insurance Co. v.
England, 260 F. Supp. 55 (D.C. 1966); 18 A.L.R.2d 443, 447. Provisions which require notice
to be given "as soon as practicable" are generally construed to mean within a reasonable
time after the happening of the event insured against, having in view all the facts and
circumstances of the case.
"The true rule * * * must be declared to be that notice is an essential requirement in order to
fix liability on the insurer when there has been such an occurrence or accident as would lead
the ordinary prudent and reasonable man to believe that it might give rise to a claim for
damages."
Nye v. Louis Ostrov Shoe Co., 43 N.E.2d 103 (Ohio App. 1942). See also 13 Couch on
Insurance, 2d ed., § 49:10, pp. 639-640. When a delay in notice is found to be based upon a
reasonable excuse, then the general rule is that "an accepted excuse restores the timeliness
of the notice." 18 A.L.R.2d 443, § 18, p. 470; see also 13 Couch on Insurance, 2d ed., §
49:128, p. 716.
We must determine whether the circumstances are such as to excuse the 17 months delay in
giving notice to Travelers Insurance Company and the two years delay in giving notice to
Northern Insurance Company. NO, not excused
Each policy must be considered as a whole in determining whether the policies put the
insureds on reasonable notice of coverage. Droz v. Paul Revere Life Insurance Co., 1 Ariz.
App. 581, 583, 405 P.2d 833 (1965).
NOTICE AS TO TRAVELERS
The Travelers Insurance policy at the top of the first page of the policy is captioned, "Family
Automobile Policy." We believe that a reasonable man should take notice from the title of the
policy above, that this policy covered any of the family members involved in any accident
connected with an automobile.
The defendant Nelson's involvement in the occurrence is clear. When he turned the ignition
switch the spark ignited the gasoline. He was forewarned by prior experience with a similar
occurrence. Potential liability should have been apparent even to a layman under these
circumstances. Although young Nelson was not aware of liability insurance coverage at the
time of the accident, it is reasonable to expect that he should have communicated
immediately with his parents and particularly concerning insurance. We believe that a
reasonable prudent 18 year old boy under the circumstances in which we find the defendant
Nelson should foresee that some automobile liability insurance could be involved. The
Travelers policy provides:
"The following are insureds under Part I:
******
"B. With respect to a non-owned automobile,
"1. The named insured,
"2. Any relative, but only with respect to a private passenger automobile or trailer provided the
actual use thereof is with the permission of the owner * * *."
We feel that this wording clearly includes the facts presented in this case and put the
defendant on notice that the accident which was a direct result of his operating or attempting
to operate the automobile.
Under the fourth condition of the policy entitled "Notice" the insured was to give notice to the
insurer "as soon as practicable" in the event of an "accident, occurrence or loss." This notice
requirement is made a condition precedent to any actions against the company by condition
No. 27:
"No action shall lie against the company unless as a condition precedent thereto, the insured
shall have fully complied with all the terms of this policy * * *."
The trial judge's decision holding for the defendant, Travelers, was based solely on the
conclusion that the long delay in notice resulted in direct prejudice to the defendant and
therefore precluded its liability. We do not share the trial court's concern with the issue of
prejudice. In this case, When notice is made a condition precedent to an action against the
insurer the issue of prejudice is immaterial. We find this rule to be almost unanimously
followed. In State Farm Mutual Automobile Insurance Co. v. Cassinelli, 67 Nev. 227, 216
P.2d 606 at page 615, 18 A.L.R.2d 431 (1950) the court said:
"But when we come to the consideration of the effect of the inclusion of the clause that the
performance of the conditions is a condition precedent to the right of action against the
insurer, we find the authorities overwhelmingly in favor of giving full recognition to such
provision, in which case the presence or absence of prejudice resulting from a delay in giving
notice becomes immaterial."
We cannot agree with the appellant that this well researched opinion is the result of "sophistry
based on this supposed distinction" between conditions subsequent and conditions
precedent.
The Arizona cases, Massachusetts Bonding and Insurance Co. v. Arizona Concrete Co., 47
Ariz. 420, 56 P.2d 188 (1936) and Watson v. Ocean Accident and Guarantee Corp., 28 Ariz.
573, 238 P. 338 (1925), are not controlling here as claimed by the appellant. In reviewing the
Arizona law on this subject including the above mentioned cases the federal court stated in
State Farm Mutual Automobile Insurance Co. v. Palmer, 237 F.2d 887, 891, 60 A.L.R.2d
1138 (9th Cir. 1956):
"* * * those cases involved conditions in which it was not stated in the policy the effect of
failure to perform the conditions [including lack of notice]. In the instant cases the conditions
are expressly called conditions precedent to the company's liability."
See also State Farm Mutual Automobile Insurance Co. v. Cassinelli, supra, 216 P.2d at page
612 for an excellent discussion of these Arizona cases as not being applicable to cases
where notice is made a specific condition precedent to recovery.
We conclude that the failure of the insured to give notice to the defendant, the Travelers
Insurance Company, is not excused and constituted failure of the express condition
precedent and thereby precluded the defendant's liability under the policy.
NOTICE AS TO NORTHERN
The Northern policy is captioned "Home-owner's Policy." The notice provision, page 4,
paragraph four of the policy, provides:
"When an occurrence takes place written notice shall be given by or on behalf of the insured
to this company or any of its authorized agents as soon as practicable."
The policy also contains the further provision:
"No action shall lie against this company unless, as a condition precedent thereto, the insured
shall have fully complied with all the terms of this policy * * *."
Notice "as soon as practicable" is therefore made a condition precedent to any liability of the
company under this policy. However, as stated above, the requirement that notice be given
"as soon as practicable" is generally construed to mean within a reasonable time after the
happening of the event insured against, having in view all the facts and circumstances of the
case. If the sum of these facts and circumstances can be sufficient to constitute a reasonable
excuse for failure to give notice, then such reasonable excuse will restore the timeliness of
notice. 13 Couch on Insurance, 2d ed., § 49:128; and, Berry v. Acacia Mutual Life
Association, 49 Ariz. 413, 67 P.2d 478 (1937).
In this case, It must here be noted again that Travelers, after an investigation, informed the
insured, Harvey J. Nelson, on January 23, 1962, that there was no coverage afforded under
its policy for the particular accident. No notice was given to the defendant Northern until June
8, 1962, five and one half months after the insureds had actual knowledge that the
occurrence had resulted in their possible liability to the plaintiff.
The third page of the policy is captioned "HOMEOWNER'S POLICY — COMPREHENSIVE
PERSONAL LIABILITY PROVISIONS APPLICABLE TO SECTION TWO." Under this,
paragraph one states:
"COVERAGE E — COMPREHENSIVE PERSONAL LIABILITY:
"a. Liability: To pay on behalf of the Insured all sums which the insured shall become legally
obligated to pay as damages because of bodily injury or property damage, and the company
shall defend any suit against the insured alleging such bodily injury or property damage and
seeking damages which are payable under the terms of this policy * * *."
Paragraph five, definitions, states:
"a. `Bodily injury' means bodily injury, sickness or disease, including death resulting
therefrom, sustained by any person * * *."
Coverage is clearly so broad under the above-quoted provisions that personal injuries
received by another as the result of an insured's operation of an automobile (specifically
defined and included in the provisions) is included.
Under the "general conditions" of the policy in paragraph two, "definitions," the policy reads,
in defining the word "insured":
"The unqualified word `insured' includes (1) the named insured, and (2) if residents of his
household, his spouse, the relatives of either, and any other person under the age of 21 in
the care of an insured * * *."
William Nelson was temporarily living at Orme Ranch School and we conclude that he was a
resident of the named insured's household under the above definition. As to whether the
Orme Ranch School was considered a part of the named insured's or any of the "unqualified
insureds'" "premises," definition C under paragraph five of the supplementary definitions
states:
"For purposes of section two [where comprehensive personal liability is applied], the definition
of `premises' appearing in the Basic Policy is extended to include * * * premises in which an
insured [all unqualified insureds] is temporarily residing, if not owned by an Insured * * *."
We conclude from a reading of the whole policy that all of the insureds thereunder should
reasonably have foreseen possible coverage of the occurrence resulting in injury to the
plaintiff. The insureds received actual notice on January 23, 1962 from the defendant
Travelers that Roger Lindus was seeking recovery against them for his injuries. Nonetheless,
they waited five and one half months before notifying Northern of the incident. The failure of
any of the insureds to give notice to the defendant Northern constituted a failure of the
express condition precedent and thereby precluded the defendant's liability under the policy.
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 equitable to indemnify the insured under Cover Note No. 1010', and advised
loading of the SS Woodlock. early settlement of the said marine loss and salvage claim (Exhibit L).

We will send you an accurate report all the details including values as soon On June 26, 1964, the defendant informed the Insurance Commissioner that,
as same will be reported to us. 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
Thank you for your attention, we wish to remain. (Exhibit M). 4

Very respectfully yours, Petitioner assigned as errors of the Court of Appeals, the following:

PACIFIC TIMBER EXPORT CORPORATION I

(Sgd.) EMMANUEL S. ATILANO Asst. General Manager. 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
Although dated April 4, 1963, the letter was received in the office of the
FACTS THAT PREMIUMS FOR THE COMPREHENSIVE INSURANCE
defendant only on April 15, 1963, as shown by the stamp impression
COVERAGE THAT INCLUDED THE COVER NOTE WAS PAID BY
appearing on the left bottom corner of said letter. The plaintiff subsequently
PETITIONER AND THAT INCLUDED THE COVER NOTE WAS PAID BY
submitted a 'Claim Statement demanding payment of the loss under Policies
PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED
Nos. 53 HO 1032 and 53 HO 1033, in the total amount of P19,286.79 (Exhibit
BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.
G).

II
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 COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE
the adjuster found that 'the loss of 30 pieces of logs is not covered by RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE COVER
Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies covered the NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF LOSS
actual number of logs loaded on board the 'SS Woodlock' However, the loss BECAUSE THE COURT DISREGARDED THE PROVEN FACT THAT
of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note PRIVATE RESPONDENT DID NOT PROMPTLY AND SPECIFICALLY
1010 insured for $70,000.00. 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
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). 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,
On January 13, 1964, the defendant wrote the plaintiff denying the latter's
We uphold petitioner's submission that the Cover Note was not without consideration for
claim, on the ground they defendant's investigation revealed that the entire
which the respondent court held the Cover Note as null and void, and denied recovery
shipment of logs covered by the two marines policies No. 53 110 1032 and
therefrom. The fact that no separate premium was paid on the Cover Note before the loss
713 HO 1033 were received in good order at their point of destination. It was
insured against occurred, does not militate against the validity of petitioner's contention, for
further stated that the said loss may be considered as covered under Cover
no such premium could have been paid, since by the nature of the Cover Note, it did not
Note No. 1010 because the said Note had become 'null and void by virtue of
contain, as all Cover Notes do not contain particulars of the shipment that would serve as
the issuance of Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit J-1). The
basis for the computation of the premiums. As a logical consequence, no separate premiums
denial of the claim by the defendant was brought by the plaintiff to the
are intended or required to be paid on a Cover Note. This is a fact admitted by an official of
attention of the Insurance Commissioner by means of a letter dated March
respondent company, Juan Jose Camacho, in charge of issuing cover notes of the
21, 1964 (Exhibit K). In a reply letter dated March 30, 1964, Insurance
respondent company (p. 33, tsn, September 24, 1965).
Commissioner Francisco Y. Mandanas observed that 'it is only fair and
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
WON the defense of delay in resisting the claim must be sustained. NO
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 In this
case, 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.
G.R. No. 85296 May 14, 1990
ZENITH INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.
Vicente R. Layawen for petitioner.
Lawrence L. Fernandez & Associates for private respondent.
MEDIALDEA, J.:
Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498
entitled, "Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp., defendant-
appellant" which affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX
in Civil Case No. CEB-1215 and the denial of petitioner's Motion for Reconsideration.
The antecedent facts are as follows:
On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own
damage" under private car Policy No. 50459 with petitioner Zenith Insurance Corporation. On
July 6, 1983, the car figured in an accident and suffered actual damages in the amount of
P3,640.00. After allegedly being given a run around by Zenith for two (2) months, Fernandez
filed a complaint with the Regional Trial Court of Cebu for sum of money and damages
resulting from the refusal of Zenith to pay the amount claimed. The complaint was docketed
as Civil Case No. CEB-1215. Aside from actual damages and interests, Fernandez also
prayed for moral damages in the amount of P10,000.00, exemplary damages of P5,000.00,
attorney's fees of P3,000.00 and litigation expenses of P3,000.00.
On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of
Fernandez pursuant to the terms and conditions of the contract which, the private respondent
rejected. After the issues had been joined, the pre-trial was scheduled on October 17, 1983
but the same was moved to November 4, 1983 upon petitioner's motion, allegedly to explore
ways to settle the case although at an amount lower than private respondent's claim. On
November 14, 1983, the trial court terminated the pre-trial. Subsequently, Fernandez
presented his evidence. Petitioner Zenith, however, failed to present its evidence in view of its
failure to appear in court, without justifiable reason, on the day scheduled for the purpose.
The trial court issued an order on August 23, 1984 submitting the case for decision without
Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a petition for certiorari with the Court of
Appeals assailing the order of the trial court submitting the case for decision without
petitioner's evidence. The petition was docketed as C.A.-G.R. No. 04644. However, the
petition was denied due course on April 29, 1986 (p. 56, Rollo).
On June 4, 1986, a decision was rendered by the trial court in favor of private respondent
Fernandez. The dispositive portion of the trial court's decision provides:
WHEREFORE, defendant is hereby ordered to pay to the plaintiff:
1. The amount of P3,640.00 representing the damage incurred plus interest
at the rate of twice the prevailing interest rates;
2. The amount of P20,000.00 by way of moral damages;
3. The amount of P20,000.00 by way of exemplary damages;
4. The amount of P5,000.00 as attorney's fees;
5. The amount of P3,000.00 as litigation expenses; and
6. Costs. (p. 9, Rollo)
Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on
June 20, 1986, ordered the execution of the decision pending appeal. The order was assailed
by petitioner in a petition for certiorari with the Court of Appeals on October 23, 1986 in C.A.
G.R. No. 10420 but which petition was also dismissed on December 24, 1986 (p. 69, Rollo).
On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of
appeal was granted in the same order granting private respondent's motion for execution
pending appeal. The appeal to respondent court assigned the following errors:
I. The lower court erred in denying defendant appellant to adduce evidence in
its behalf.
II. The lower court erred in ordering Zenith Insurance Corporation to pay the
amount of P3,640.00 in its decision.
III. The lower court erred in awarding moral damages, attorneys fees and
exemplary damages, the worst is that, the court awarded damages more
than what are prayed for in the complaint. (p. 12, Rollo)
On August 17, 1988, the Court of Appeals rendered its decision affirming in toto  the decision
of the trial court. It also ruled that the matter of the trial court's denial of Fernandez's right to
adduce evidence is a closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein
Zenith's petition questioning the trial court's order submitting the case for decision without
Zenith's evidence, was dismissed.
The Motion for Reconsideration of the decision of the Court of Appeals dated August 17,
1988 was denied on September 29, 1988, for lack of merit. Hence, the instant petition was
filed by Zenith on October 18, 1988 on the allegation that respondent Court of Appeals'
decision and resolution ran counter to applicable decisions of this Court and that they were
rendered without or in excess of jurisdiction. The issues raised by petitioners in this petition
are:
a) The legal basis of respondent Court of Appeals in awarding moral
damages, exemplary damages and attomey's fees in an amount more than
that prayed for in the complaint.
b) The award of actual damages of P3,460.00 instead of only P1,927.50
which was arrived at after deducting P250.00 and P274.00 as deductible
franchise and 20% depreciation on parts as agreed upon in the contract of
insurance.
Petitioner contends that while the complaint of private respondent prayed for P10,000.00
moral damages, the lower court awarded twice the amount, or P20,000.00 without factual or
legal basis; while private respondent prayed for P5,000.00 exemplary damages, the trial court
awarded P20,000.00; and while private respondent prayed for P3,000.00 attorney's fees, the
trial court awarded P5,000.00.
The propriety of the award of moral damages, exemplary damages and attorney's fees is the
main issue raised herein by petitioner. NO
The award of damages in case of unreasonable delay in the payment of insurance claims is
governed by the Philippine Insurance Code, which provides:
Sec. 244. In case of any litigation for the enforcement of any policy or
contract of insurance, it shall be the duty of the Commissioner or the Court,
as the case may be, to make a finding as to whether the payment of the
claim of the insured has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to pay damages
which shall consist of attomey's fees and other expenses incurred by the
insured person by reason of such unreasonable denial or withholding of
payment plus interest of twice the ceiling prescribed by the Monetary Board
of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-
three, as the case may be, until the claim is fully satisfied; Provided, That the
failure to pay any such claim within the time prescribed in said sections shall
be considered prima facie evidence of unreasonable delay in payment.
It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the
proceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2)
other expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment; 3) interest at twice the ceiling prescribed by the Monetary Board of
the amount of the claim due the injured; and 4) the amount of the claim.
As regards the award of moral and exemplary damages, the rules under the Civil Code of the
Philippines shall govern.
"The purpose of moral damages is essentially indemnity or reparation, not punishment or
correction. Moral damages are emphatically not intended to enrich a complainant at the
expense of a defendant, they are awarded only to enable the injured party to obtain means,
diversions or amusements that will serve to alleviate the moral suffering he has undergone by
reason of the defendant's culpable action." (J. Cezar S. Sangco, Philippine Law on Torts and
Damages, Revised Edition, p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC,
G.R. No. 64515, June 22, 1984; 129 SCRA 745). While it is true that no proof of pecuniary
loss is necessary in order that moral damages may be adjudicated, the assessment of which
is left to the discretion of the court according to the circumstances of each case (Art. 2216,
New Civil Code), it is equally true that in awarding moral damages in case of breach of
contract, there must be a showing that the breach was wanton and deliberately injurious or
the one responsible acted fraudently or in bad faith (Perez v. Court of Appeals, G.R. No. L-
20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L-17022, August 14,
1965; 14 SCRA 887). In the instant case, there was a finding that private respondent was
given a "run-around" for two months, which is the basis for the award of the damages granted
under the Insurance Code for unreasonable delay in the payment of the claim. However, the
act of petitioner of delaying payment for two months cannot be considered as so wanton or
malevolent to justify an award of P20,000.00 as moral damages, taking into consideration
also the fact that the actual damage on the car was only P3,460. In the pre-trial of the case, it
was shown that there was no total disclaimer by respondent. The reason for petitioner's
failure to indemnify private respondent within the two-month period was that the parties could
not come to an agreement as regards the amount of the actual damage on the car. The
amount of P10,000.00 prayed for by private respondent as moral damages is equitable.
On the other hand, exemplary or corrective damages are imposed by way of example or
correction for the public good (Art. 2229, New Civil Code of the Philippines). In the case
of Noda v. Cruz-Arnaldo, G.R. No. 57322, June 22,1987; 151 SCRA 227, exemplary
damages were not awarded as the insurance company had not acted in wanton, oppressive
or malevolent manner. The same is true in the case at bar.
The amount of P5,000.00 awarded as attomey's fees is justified under the circumstances of
this case considering that there were other petitions filed and defended by private respondent
in connection with this case.
As regards the actual damages incurred by private respondent, the amount of P3,640.00 had
been established before the trial court and affirmed by the appellate court. Respondent
appellate court correctly ruled that the deductions of P250.00 and P274.00 as deductible
franchise and 20% depreciation on parts, respectively claimed by petitioners as agreed upon
in the contract, had no basis. Respondent court ruled:
Under its second assigned error, defendant-appellant puts forward two
arguments, both of which are entirely without merit. It is contented that the
amount recoverable under the insurance policy defendant-appellant issued
over the car of plaintiff-appellee is subject to deductible franchise, and . . . .
The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible
franchise, . . . (p. 13, Rollo)
Therefore, the award of moral damages is reduced to P10,000.00 and the award of
exemplary damages is hereby deleted. The awards due to private respondent Fernandez are
as follows:
1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by
the Monetary Board computed from the time of submission of proof of loss;
 2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

4) P3,000.00 as litigation expenses; and

5) Costs.

ACCORDINGLY, the appealed decision is MODIFIED as above stated.

SO ORDERED.