insurance last batch

FIRST DIVISION

G.R. No. L-25317 August 6, 1979

PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY, Plaintiff-Appellee, vs.WOODWORKS, INC., Defendant-Appellant.

Zosimo Rivas for appellant.chanrobles virtual law library

Manuel O. Chan for appellee.

MELENCIO-HERRERA, J.:

This case was certified to this Tribunal by the Court of Appeals in its Resolution of October 4, 1965 on a pure question of law and "because the issues raised are practically the same as those in CA-G.R. No. 32017-R" between the same parties, which case had been forwarded to us on April 1, 1964. The latter case, "Philippine Phoenix Surety & Insurance Inc. vs. Woodworks, Inc.," docketed in this Court as L-22684, was decided on August 31, 1967 and has been reported in 20 SCRA 1270.chanroblesvirtualawlibrary chanrobles virtual law library

Specifically, this action is for recovery of unpaid premium on a fire insurance policy issued by plaintiff, Philippine Phoenix Surety & Insurance Company, in favor of defendant Woodworks, Inc.chanroblesvirtualawlibrary chanrobles virtual law library

The following are the established facts: chanrobles virtual law library

On July 21, 1960, upon defendant's application, plaintiff issued in its favor Fire Insurance Policy No. 9749 for P500,000.00 whereby plaintiff insured defendant's building, machinery and equipment for a term of one year from July 21, 1960 to July 21, 1961 against loss by fire. The premium and other charges including the margin fee surcharge of P590.76 and the documentary stamps in the amount of P156.60 affixed on the Policy, amounted to P10,593.36.chanroblesvirtualawlibrary chanrobles virtual law library

It is undisputed that defendant did not pay the premium stipulated in the Policy when it was issued nor at any time thereafter.chanroblesvirtualawlibrarychanrobles virtual law library

On April 19, 1961, or before the expiration of the one-year term, plaintiff notified defendant, through its Indorsement No. F-6963/61, of the cancellation of the Policy allegedly upon request of defendant. 1 The latter has denied having made such a request. In said Indorsement, plaintiff credited defendant with the amount of P3,110.25 for the unexpired period of 94 days, and claimed the balance of P7,483.11 representing ,learned premium from July 21, 1960 to 18th April 1961 or, say 271 days." On July 6, 1961, plaintiff demanded in writing for the payment of said amount. 2 Defendant, through counsel, disclaimed any liability in its reply- letter of August 15, 1961, contending, in essence, that it need not pay premium "because the Insurer did not stand liable for any indemnity during the period the premiums were not paid." 3 chanrobles virtual law library

On January 30, 1962, plaintiff commenced action in the Court of First Instance of Manila, Branch IV (Civil Case No. 49468), to recover the amount of P7,483.11 as "earned premium." Defendant controverted basically on the theory that its failure "to pay the premium after the issuance of the policy put an end to the insurance contract and rendered the policy unenforceable." 4 chanrobles virtual law library

On September 13, 1962, judgment was rendered in plaintiff's favor "ordering defendant to pay plaintiff the sum of P7,483.11, with interest thereon at the rate of 6%, per annum from January 30, 1962, until the principal shall have been fully paid, plus the sum of P700.00 as attorney's fees of the plaintiff, and the costs of the suit." From this adverse Decision, defendant appealed to the Court of Appeals which, as heretofore stated, certified the case to us on a question of law.chanroblesvirtualawlibrary chanrobles virtual law library

The errors assigned read:

1. The lower court erred in sustaining that Fire Insurance Policy, Exhibit A, was a binding contract even if the premium stated in the policy has not been paid.chanroblesvirtualawlibrary chanrobles virtual law library

2. That the lower court erred in sustaining that the premium in Insurance Policy, Exhibit B, became an obligation which was demandable even after the period in the Policy has expired.chanroblesvirtualawlibrary chanrobles virtual law library

3. The lower court erred in not deciding that a premium not paid is not a debt enforceable by action of the insurer.

We find the appeal meritorious.chanroblesvirtualawlibrary chanrobles virtual law library

Insurance is "a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event." 5 The consideration is the "premium". "The premium must be paid at the time and in the way and manner specified in the policy and, if not so paid, the policy will lapse and be forfeited by its own terms." 6chanrobles virtual law library

The provisions on premium in the subject Policy read:

THIS POLICY OF INSURANCE WITNESSETH, THAT in consideration of - MESSRS. WOODWORKS, INC. - hereinafter called the Insured, paying to the PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., hereinafter called the Company, the sum of - PESOS NINE THOUSAND EIGHT HUNDRED FORTY SIX ONLY - the Premium for the first period hereinafter mentioned. ...chanroblesvirtualawlibrarychanrobles virtual law library

xxx xxx xxxchanrobles virtual law library

THE COMPANY HEREBY AGREES with the Insured ... that if the Property above described, or any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of Premium, at any time between 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One Thousand Nine Hundred

and SIXTY and 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One Thousand Nine Hundred and SIXTY ONE. ... (Emphasis supplied)

Paragraph "2" of the Policy further contained the following condition:

2. No payment in respect of any premium shall be deemed to be payment to the Company unless a printed form of receipt for the same signed by an Official or duly-appointed Agent of the Company shall have been given to the Insured.

Paragraph "10" of the Policy also provided:

10. This insurance may be terminated at any time at the request of the Insured, in which case the Company will retain the customary short period rate for the time the policy has been in force. This insurance may also at any time be terminated at the option of the Company, on notice to that effect being given to the Insured, in which case the Company shall be liable to repay on demand a ratable proportion of the premium for the unexpired term from the date of the cancelment.

Clearly, the Policy provides for pre-payment of premium. Accordingly; "when the policy is tendered the insured must pay the premium unless credit is given or there is a waiver, or some agreement obviating the necessity for prepayment." 7 To constitute an extension of credit there must be a clear and express agreement therefor." 8chanrobles virtual law library

From the Policy provisions, we fail to find any clear agreement that a credit extension was accorded defendant. And even if it were to be presumed that plaintiff had extended credit from the circumstances of the unconditional delivery of the Policy without prepayment of the premium, yet it is obvious that defendant had not accepted the insurer's offer to extend credit, which is essential for the validity of such agreement.

An acceptance of an offer to allow credit, if one was made, is as essential to make a valid agreement for credit, to change a conditional delivery of an insurance policy to an unconditional delivery, as it is to make any other contract. Such an acceptance could not be merely a mental act or state of mind, but would require a promise to pay made known in some manner to defendant. 9

In this respect, the instant case differs from that involving the same parties entitledPhilippine Phoenix Surety & Insurance Inc. vs. Woodworks, Inc., 10 where recovery of the balance of the unpaid premium was allowed inasmuch as in that case "there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned." This is not the situation obtaining here where no partial payment of premiums has been made whatsoever.chanroblesvirtualawlibrary chanrobles virtual law library

Since the premium had not been paid, the policy must be deemed to have lapsed.

The non-payment of premiums does not merely suspend but put, an end to an insurance contract, since the time of the payment is peculiarly of the essence of the contract. 11 chanrobles virtual law library

... the rule is that under policy provisions that upon the failure to make a payment of a premium or assessment at the time provided for, the policy shall become void or forfeited, or the obligation of the insurer shall cease, or words to like effect, because the contract so prescribes and because such a stipulation is a material and essential part of the contract. This is true, for instance, in the case of life, health and accident, fire and hail insurance policies. 12

In fact, if the peril insured against had occurred, plaintiff, as insurer, would have had a valid defense against recovery under the Policy it had issued. Explicit in the Policy itself is plaintiff's agreement to indemnify defendant for loss by fire only "after payment of premium," supra. Compliance by the insured with the terms of the contract is a condition precedent to the right of recovery.

The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to make premium payments. The continuance of the insurer's obligation is conditional upon the payment of premiums, so that no recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased. 13

Moreover, "an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity." 14 chanrobles virtual law library

The foregoing findings are buttressed by section 77 of the Insurance Code (Presidential Decree No. 612, promulgated on December 18, 1974), which now provides that no contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary.chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, the judgment appealed from is reversed, and plaintiff's complaint hereby dismissed.

Teehankee (Chairman), Fernandez, Guerrero and De Castro, JJ., concur.chanroblesvirtualawlibrary chanrobles virtual law library

Makasiar, J., is on leave.

EN BANC

[G.R. No. 137172. April 4, 2001]

UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.

R E S O L U T I O N

DAVIDE, JR., C.J.:

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondent’s properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial court’s declaration that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorney’s fees from 25% to 10% of the total amount due the Respondent.

The material operative facts upon which the appealed judgment was based are summarized by the Court of Appeals in its assailed decision as follows:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies (Exhibits "A" to "E", Record, pp. 158-175) on its properties [in Pasay City and Manila]….

All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiff's properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's Checks in the total amount of P225,753.45 as renewal premium payments for which Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured properties. On the same day, defendant returned the five (5) manager's checks stating in its letter (Exhibit "R"/"8", Record, p. 192) that it was rejecting Masagana's claim on the following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and

c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or before tender of premium payment."

(Record, p. 5)

Hence Masagana filed this case.

http://sc.judiciary.gov.ph/jurisprudence/2001/apr2001/137172.htm#_edn1

The Court of Appeals disagreed with Petitioner’s stand that Respondent’s tender of payment of the premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided under Policy Condition No. 26, which states:

26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails or delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon payment of the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had procured insurance coverage from Petitioner for a number of years, had been granted a 60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to the time the claims were filed. Thus:

Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid more than 90 days later on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for Insurance Risk Coverage from May 22, 1990 to May 22, 1991 was issued by UCPB on May 4, 1990 but premium was collected by UCPB only on July 13, 1990 or more than 60 days later under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy No. 34657 covering risks from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium therefor was paid only on July 19, 1990 under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 covering risks from May 22, 1990 to May 22, 1991 was issued on May 3, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46582 (Exhs. "X' and "X-1"). Fire Insurance Policy No. 34688 for insurance coverage from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to cover insurance risks from May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but premium therefor was collected only on July 25, 1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408 covering risks from January 12, 1989 to January 12, 1990 was issued to Intratrade Phils. (Masagana's sister company) dated December 10, 1988 but premium therefor was paid only on February 15, 1989 under O.R. No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance Policy No. 29128 was issued on May 22, 1989 but premium was paid only on July 25, 1989 under O.R. No. 40800 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued on May 22, 1989 but premium was paid only on July 17, 1989 under O.R. No. 40682 for insurance risk coverage from May 22, 1989 to May 22, 1990 (Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989 but premium was paid only on February 13, 1990 under O.R. No. 39233 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance Policy No. 26303 was issued on November 22, 1988 but premium therefor was collected only on March 15, 1989 under O.R. NO. 38573 for insurance risks coverage from December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1").

Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no timely notice of non-renewal was made by Petitioner:

(1) Defendant-appellant received the confirmation (Exhibit “11”, Record, p. 350) from Ultramar Reinsurance Brokers that plaintiff’s reinsurance facility had been confirmed up to 67.5% only on April 15, 1992 as indicated on Exhibit “11”. Apparently, the notice of non-renewal (Exhibit “7,” Record, p. 320) was sent not earlier than said date, or within 45 days from the expiry dates of the policies as provided under Policy Condition No. 26; (2) Defendant insurer unconditionally accepted, and issued an official receipt for, the premium payment on July 1[3], 1992 which indicates defendant's willingness to assume the risk despite only a 67.5% reinsurance cover[age]; and (3) Defendant insurer appointed Esteban Adjusters and Valuers to investigate plaintiff’s claim as shown by the letter dated July 17, 1992 (Exhibit “11”, Record, p. 254).

In our decision of 15 June 1999, we defined the main issue to be “whether the fire insurance policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992… had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a later date and after the occurrence of the (fire) risk insured against.” We resolved this issue in the negative in view of Section 77 of the Insurance Code and our decisions in Valenzuela v. Court of Appeals[2]; South Sea Surety and Insurance Co., Inc. v. Court of Appeals[3]; and Tibay v. Court of Appeals.[4] Accordingly, we reversed and set aside the decision of the Court of Appeals.

Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that we had made in the decision our own findings of facts, which are not in accord with those of the trial court and the Court of Appeals. The courts below correctly found that no notice of non-renewal was made within 45 days before 22 May 1992, or before the expiration date of the fire insurance policies. Thus, the policies in question were renewed by operation of law and were effective and valid on 30 June 1992 when the fire occurred, since the premiums were paid within the 60- to 90-day credit term.

Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly on the extension of credit or time to pay the premium nor consider a policy binding before actual payment. It urges the Court to take judicial notice of the fact that despite the express provision of Section 77 of the Insurance Code, extension of credit terms in premium payment has been the prevalent practice in the insurance industry. Most insurance companies, including Petitioner, extend credit terms because Section 77 of the Insurance Code is not a prohibitive injunction but is merely designed for the protection of the parties to an insurance contract. The Code itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of premiums.

Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77 Petitioner persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it accepted payments within 60 to 90 days after the due dates. By extending credit and habitually accepting payments 60 to 90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor of the insurance policy and in effect waived the provision therein that it would pay only for the loss or damage in case the same occurred after payment of the premium.




Petitioner filed an opposition to the Respondent’s motion for reconsideration. It argues that both the trial court and the Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal and sent by personal delivery a copy thereof to Respondent’s broker, Zuellig. Both courts likewise ignored the fact that Respondent was fully aware of the notice of non-renewal. A reading of Section 66 of the Insurance Code readily shows that in order for an insured to be entitled to a renewal of a non-life policy, payment of the premium due on the effective date of renewal should first be made. Respondent’s argument that Section 77 is not a prohibitive provision finds no authoritative support.

Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration and the pleadings filed thereafter by the parties, we resolved to grant the motion for reconsideration. The following facts, as found by the trial court and the Court of Appeals, are indeed duly established:

1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually renewed.

2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the renewed policies.

3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail was received by Respondent, and the copy thereof allegedly sent to Zuellig was ever transmitted to Respondent.

4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent within the 60- to 90-day credit term and were duly accepted and received by Petitioner’s cashier.

The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to Petitioner’s advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums.

Section 77 of the Insurance Code of 1978 provides:

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December 1974. In turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No. 3540, approved on 21 June 1963, which read:

SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured against, unless there is clear agreement to grant the insured credit extension of the

premium due. No policy issued by an insurance company is valid and binding unless and until the premium thereof has been paid. (Underscoring supplied)

It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to extend the period to pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,[5] wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss. We said therein, thus:

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that the petitioners and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer’s intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full.

Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying the motion for reconsideration of its decision:

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow


insured to pay premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term.

Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The agreement binds the parties. Article 1306 of the Civil Code provides:

ART. 1306. The contracting parties may establish such stipulations clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth exception to Section 77.

WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one is hereby entered DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error was committed by the Court of Appeals in its challenged decision, which is hereby AFFIRMED in toto.

No pronouncement as to cost.

SO ORDERED.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-22684 August 31, 1967

PHILIPPINE PHOENIX SURETY & INSURANCE, INC., plaintiff-appellee, vs.WOODWORKS, INC., defendant-appellant.

Zosimo Rivas for defendant-appellant.Manuel O. Chan for plaintiff-appellee.

DIZON, J.:

Appeal upon a question of law taken by Woodworks, Inc. from the judgment of the Court of First Instance of Manila in Civil Case No. 50710 "ordering the defendant, Woodworks, Inc. to pay to the plaintiff, Philippine Phoenix Surety & Insurance, Inc., the sum of P3,522.09 with interest thereon at the legal rate of 6% per annum from the date of the filing of the complaint until fully paid, and costs of the suit."

Appellee Philippine Phoenix Surety & Insurance Co., Inc. commenced this action in the Municipal Court of Manila to recover from appellant Woodworks, Inc. the sum of P3,522.09, representing the unpaid balance of the premiums on a fire insurance policy issued by appellee in favor of appellant for a term of one year from April 1, 1960 to April 1, 1961. From an adverse decision of said court, Woodworks, Inc. appealed to the Court of First Instance of Manila (Civil Case No. 50710) where the parties submitted the following stipulation of facts, on the basis of which the appealed decision was rendered:

That plaintiff and defendant are both corporations duly organized and existing under and by virtue of the laws of the Philippines;

That on April 1, 1960, plaintiff issued to defendant Fire Policy No. 9652 for the amount of P300,000.00, under the terms and conditions therein set forth in said policy a copy of which is hereto attached and made a part hereof as Annex "A";

That the premiums of said policy as stated in Annex "A" amounted to P6,051.95; the margin fee pursuant to the adopted plan as an implementation of Republic Act 2609 amounted to P363.72, copy of said adopted plan is hereto attached as Annex "B" and made a part hereof, the documentary stamps attached to the policy was P96.42;

That the defendant paid P3,000.00 on September 22, 1960 under official receipt No. 30245 of plaintiff;

That plaintiff made several demands on defendant to pay the amount of P3,522.09.1äwphï1.ñët

In the present appeal, appellant claims that the court a quo committed the following errors:

I. The lower court erred in stating that in fire insurance policies the risk attached upon the issuance and delivery of the policy to the insured.

II. The lower court erred in deciding that in a perfected contract of insurance non-payment of premium does not cancel the policy.

III. The lower court erred in deciding that the premium in the policy was still collectible when the complaint was filed.

IV. The lower court erred in deciding that a partial payment of the premium made the policy effective during the whole period of the policy.

It is clear from the foregoing that on April 1, 1960 Fire Insurance Policy No. 9652 was issued by appellee and delivered to appellant, and that on September 22 of the same year, the latter paid to the former the sum of P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned. Thereafter the obligation of the insurer to pay the insured the amount for which the policy was issued in case the conditions therefor had been complied with, arose and became binding upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due became demandable.

We can not agree with appellant's theory that non-payment by it of the premium due, produced the cancellation of the contract of insurance. Such theory would place exclusively in the hands of one of the contracting parties the right to decide whether the contract should stand or not. Rather the correct view would seem to be this: as the contract had become perfected, the parties could demand from each other the performance of whatever obligations they had assumed. In the case of the insurer, it is obvious that it had the right to demand from the insured the completion of the payment of the premium due or sue for the rescission of the contract. As it chose to demand specific performance of the insured's obligation to pay the balance of the premium, the latter's duty to pay is indeed indubitable.

Having thus resolved that the fourth and last assignment of error submitted in appellant's brief is without merit, the first three assignments of error must likewise be overruled as lacking in merit.

Wherefore, the appealed decision being in accordance with law and the evidence, the same is hereby affirmed, with costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

FIRST DIVISION

[G.R. No. 119655. May 24, 1996]

SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and ROSABELLA M. RORALDO, petitioners, vs. COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC., respondents.

D E C I S I O N*

BELLOSILLO, J.:

May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?

On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati City, together with all their personal effects therein. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a considerable balance unpaid.

On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the necessary documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the companies or their representatives in investigating the claim made by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of the amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies held by said claimant, nor the rights of either or any of the parties to this agreement, and such action shall not be, or be claimed to be, an admission of liability on the part of said companies or any of them.[1]

In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violeta and the other petitioners sued FORTUNE for damages in the amount of P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per annum, P 100,000.00 moral damages, and attorney’s fees equivalent to 20% of the total claim.

On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the insured building and personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the complaint until full payment, and attorney’s fees equivalent to 20% of the total amount claimed plus costs of suit.[2]

http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/119655.htm#_edn3



On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to plaintiff-appellees therein but ordering defendant-appellant to return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987 until full payment.[3]

Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the appellate court, FORTUNE remains liable under the subject fire insurance policy inspite of the failure of petitioners to pay their premium in full.

We find no merit in the petition; hence, we affirm the Court of Appeals.

Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.[4] The consideration is the premium, which must be paid at the time and in the way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms.[5]

The pertinent provisions in the Policy on premium read –

THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company in accordance with Policy Condition No. 2 of the total premiums by the insured as stipulated above for the period aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property herein described x x x

2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company in the manner provided herein.

Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company official, shall be deemed invalid and of no effect.

xxx xxx xxx

Except only in those specific cases where corresponding rules and regulations which are or may hereafter be in force provide for the payment of the stipulated premiums in periodic installments at fixed percentage, it is hereby declared, agreed and warranted that this policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly acknowledged in a receipt signed by any authorized official or representative/agent of the Company in such manner as provided herein, (Italics supplied).[6]

Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy. This is fully supported by Sec. 77 of the Insurance Code which provides –

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been





paid, except in the case of a life or an industrial life policy whenever the grace period provision applies (Italics supplied).

Apparently the crux of the controversy lies in the phrase “unless and until the premium thereof has been paid.” This leads us to the manner of payment envisioned by the law to make the insurance policy operative and binding. For whatever judicial construction may be accorded the disputed phrase must ultimately yield to the clear mandate of the law. The principle that where the law does not distinguish the court should neither distinguish assumes that the legislature made no qualification on the use of a general word or expression. In Escosura v. San Miguel Brewery, inc.,[7] the Court through Mr. Justice Jesus G. Barrera, interpreting the phrase “with pay” used in connection with leaves of absence with pay granted to employees, ruled -

x x x the legislative practice seems to be that when the intention is to distinguish between full and partial payment, the modifying term is used x x x

Citing C. A. No. 647 governing maternity leaves of married women in government, R. A. No. 679 regulating employment of women and children, R.A. No. 843 granting vacation and sick leaves to judges of municipal courts and justices of the peace, and finally, Art. 1695 of the New Civil Code providing that every househelp shall be allowed four (4) days vacation each month, which laws simply stated “with pay,” the Court concluded that it was undisputed that in all these laws the phrase “with pay” used without any qualifying adjective meant that the employee was entitled to full compensation during his leave of absence.

Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium due and the express stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc.[8] where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial payment of the premium made the policy effective during the whole period of the policy. In that case, the insurance company commenced action against the insured for the unpaid balance on a fire insurance policy. In its defense the insured claimed that nonpayment of premium produced the cancellation of the insurance contract. Ruling otherwise the Court held –

It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and delivered to appellant, and that on September 22 of the same year, the latter paid to the former the sum of P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned. Thereafter the obligation of the insurer to pay the insured the amount, for which the policy was issued in case the conditions therefor had been complied with, arose and became binding upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due became demandable.

The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is different. In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and admitted the existence of an insurance contract with the insured. In the



case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy xxx is not in force until the premium has been fully paid and duly receipted by the Company x x x. Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial payment of the premium since the parties had not otherwise stipulated that prepayment of the premium in full was a condition precedent to the existence of a contract.

In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without any other precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue with the existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance from the insured. This is not so here. By express agreement of the parties, no vinculum juris or bond of law was to be established until full payment was effected prior to the occurrence of the risk insured against.

In Makati Tuscany Condominium Corp. v. Court of Appeals[9] the parties mutually agreed that the premiums could be paid in installments, which in fact they did for three (3) years, hence, this Court refused to invalidate the insurance policy. In giving effect to the policy, the Court quoted with approval the Court of Appeals–

The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premium. Here, the parties x x x agreed to make the premiums payable in installments, and there is no pretense that the parties never envisioned to make the insurance contract binding between them. It was renewed for two succeeding years, the second and third policies being a renewal/replacement for the previous one. And the insured never informed the insurer that it was terminating the policy because the terms were unacceptable.

While it maybe true that under Section 77 of the Insurance Code, the parties may not agree to make the insurance contract valid and binding without payment of premiums, there is nothing in said section which suggests that the parties may not agree to allow payment of the premiums in installment, or to consider the contract as valid and binding upon payment of the first premium. Otherwise we would allow the insurer to renege on its liability under the contract, had a loss incurred (sic) before completion of payment of the entire premium, despite its voluntary acceptance of partial payments, a result eschewed by basic considerations of fairness and equity x x x.

These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or implied, of prepayment in full by the insurer: impliedly, by suing for the balance of the premium as inPhoenix, and expressly, by agreeing to make premiums payable in installments as in Tuscany. But contrary to the stance taken by petitioners, there is no waiver express or implied in the case at bench. Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal thereof and/or any indorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company x x x and that this policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly acknowledged.

Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance Code the payment of partial premium by the assured in this particular instance should not


be considered the payment required by the law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount has been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in force.

Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional payment of premium. The insurance contract itself expressly provided that the policy would be effective only when the premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.

Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the parties as expressed in the policy.[10] Courts have no other function but to enforce the same. The rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the insured.[11] Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole payment.[12]

Applying further the rules of statutory construction, the position maintained by petitioners becomes even more untenable. The case of South Sea Surety and Insurance Company, Inc. v. Court of Appeals,[13] speaks only of two (2) statutory exceptions to the requirement of payment of the entire premium as a prerequisite to the validity of the insurance contract. These exceptions are: (a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace period applies, and (b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being declared by law to, be then conclusive evidence of the premium payment.[14]

A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio firm at regulim in casibus non exceptis. The express mention of exceptions operates to exclude other exceptions; conversely, those which are not within the enumerated exceptions are deemed included in the general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and the law has not expressly excepted partial payments, there is no valid and binding contract. Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy.

In the desire to safeguard the interest of the assured, itmust not be ignored that the contract of insurance is primarily a risk-distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer. From these contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a risk: the insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and the insured, that of parting with the amount required as premium, without receiving anything therefor






in case the contingency does not happen. To ensure payment for these losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming under their policies.[15] It should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat partial offerings of premiums were to be construed as a legal nexus between the applicant and the insurer despite an express agreement to the contrary. For what could prevent the insurance applicant from deliberately or wilfully holding back full premium payment and wait for the risk insured against to transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds of the insurance? Worse, what if the insured makes an initial payment of only 10%, or even 1%, of the required premium, and when the risk occurs simply points to the proceeds from where to source the balance? Can an insurance company then exist and survive upon the payment of 1%, or even 10%, of the premium stipulated in the policy on the basis that, after all, the insurer can deduct from the proceeds of the insurance should the risk insured against occur?

Interpreting the contract of insurance stringently against the insurer but liberally in favor of the insured despite clearly defined obligations of the parties to the policy can be carried out to extremes that there is the danger that we may, so to speak, “kill the goose that lays the golden egg.” We are well aware of insurance companies falling into the despicable habit of collecting premiums promptly yet resorting to all kinds of excuses to deny or delay payment of just insurance claims. But, in this case, the law is manifestly on the side of the insurer. For as long as the current Insurance Code remains unchanged and partial payment of premiums is not mentioned at all as among the exceptions provided in Secs. 77 and 78, no policy of insurance can ever pretend to be efficacious or effective until premium has been fully paid.

And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full satisfaction.[16] It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the strength of the vinculumjuris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured.

The terms of the insurance policy constitute the measure of the insurer’s liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy.[17] The validity of these limitations is by law passed upon by the Insurance Commissioner who is empowered to approve all forms of policies, certificates or contracts of insurance




which insurers intend to issue or deliver. That the policy contract in the case at bench was approved and allowed issuance simply reaffirms the validity of such policy, particularly the provision in question.

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March 1995 is AFFIRMED.

SO ORDERED.

Kapunan, and Hermosisima, Jr., JJ., concur.

Padilla (Chairman), J., joins Mr. Justice Vitug’s dissent.

Vitug, J., see dissenting opinion.


FIRST DIVISION

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner, vs.THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by American International Underwriters (Phils.), Inc., respondent.

BELLOSILLO, J.:

This case involves a purely legal question: whether payment by installment of the premiums due on an insurance policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as amended, which provides:

Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.

Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total premium of

P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by private respondent.

On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-9210596, which replaced and renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984. The premium in the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All payments were likewise accepted by private respondent.

On 20 January 1984, the policy was again renewed and private respondent issued to petitioner Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, petitioner made two installment payments, both accepted by private respondent, the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to pay the balance of the premium.

Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy No. AH-CPP-9210651.

In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-9210651. It explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and the receipts for the installment payments covering the policy for 1984-85, as well as the two (2) previous policies, stated the following reservations:

2. Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy; and

3. Subject to no loss prior to premium payment. If there be any loss such is not covered.

Petitioner further claimed that the policy was never binding and valid, and no risk attached to the policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim, sought the refund of P924,206.10 representing the premium payments for 1982-85.

After some incidents, petitioner and private respondent moved for summary judgment.

On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the following findings:

While it is true that the receipts issued to the defendant contained the aforementioned reservations, it is equally true that payment of the premiums of the three aforementioned policies (being sought to be refunded) were made during the lifetime or term of said policies, hence, it could not be said, inspite of the reservations, that no risk attached under the policies. Consequently, defendant's counterclaim for refund is not justified.

As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of the reservation in the receipts ordinarily issued by the plaintiff on premium payments the only plausible conclusion is that plaintiff has no right to demand their payment after the lapse of the term of said policy on March 1, 1985. Therefore, the defendant was justified in refusing to pay the same. 1

Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a decision 2modifying that of the trial court by ordering herein petitioner to pay the balance of the premiums due on Policy No. AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim. The appellate court thus explained —

The obligation to pay premiums when due is ordinarily as indivisible obligation to pay the entire premium. Here, the parties herein agreed to make the premiums payable in installments, and there is no pretense that the parties never envisioned to make the insurance contract binding between them. It was renewed for two succeeding years, the second and third policies being a renewal/replacement for the previous one. And the insured never informed the insurer that it was terminating the policy because the terms were unacceptable.

While it may be true that under Section 77 of the Insurance Code, the parties may not agree to make the insurance contract valid and binding without payment of premiums, there is nothing in said section which suggests that the parties may not agree to allow payment of the premiums in installment, or to consider the contract as valid and binding upon payment of the first premium. Otherwise, we would allow the insurer to renege on its liability under the contract, had a loss incurred (sic) before completion of payment of the entire premium, despite its voluntary acceptance of partial payments, a result eschewed by a basic considerations of fairness and equity.

To our mind, the insurance contract became valid and binding upon payment of the first premium, and the plaintiff could not have denied liability on the ground that payment was not made in full, for the reason that it agreed to accept installment payment. . . . 3

Petitioner now asserts that its payment by installment of the premiums for the insurance policies for 1982, 1983 and 1984 invalidated said policies because of the provisions of Sec. 77 of the Insurance Code, as amended, and by the conditions stipulated by the insurer in its receipts, disclaiming liability for loss for occurring before payment of premiums.

It argues that where the premiums is not actually paid in full, the policy would only be effective if there is an acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the Insurance Code. The absence of an express acknowledgment in the policies of such receipt of the corresponding premium payments, and petitioner's failure to pay said premiums on or before the effective dates of said policies rendered them invalid. Petitioner thus concludes that there cannot be a perfected contract of insurance upon mere partial payment of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance is valid and binding unless the premium thereof has been paid, notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a refund of all premium payments made on the alleged invalid insurance policies.

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepared in full.

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of the appellate court contained in its Resolution denying the motion to reconsider its Decision —

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer, would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted. 4

The reliance by petitioner on Arce vs. Capital Surety and InsuranceCo. 5 is unavailing because the facts therein are substantially different from those in the case at bar. In Arce, no payment was made by the insured at all despite the grace period given. In the case before Us, petitioner paid the initial installment and thereafter made staggered payments resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments although it refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED. Costs against petitioner.

SO ORDERED.

Cruz, Padilla and Griño-Aquino, JJ., concur.

Medialdea, J., is on leave.


SECOND DIVISION

G.R. No. 165585 November 20, 2013

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner, vs.PRUDENTIAL GUARANTEE AND ASSURANCE, INC., DEVELOPMENT BANK OF THE PHILIPPINES and LAND BANK OF THE PHILIPPINES, Respondents.

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

G.R. No. 176982

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner, vs.PRUDENTIAL GUARANTEE AND ASSURANCE, INC., Respondent.

D E C I S I O N

PERLAS-BERNABE, J.:

Assailed in these consolidated petitions for review on Certiorari1 are separate issuances of the Court of Appeals (CA) in relation to the complaint for sum of money filed by Prudential Guarantee and Assurance, Inc. (PGAI) against the Government Service Insurance System (GSIS) before the Regional Trial Court of Makati City, Branch 149 (RTC), docketed as Civil Case No. 01-1634.

In particular, the petition in G.R. No. 165585 assails the Decision2 dated May 26, 2004 and Resolution3 dated October 6, 2004 of the CA in CA-G.R. SP No. 69289 which affirmed the Order4 dated February 14, 2002, as well as the Order,5 Notices of Garnishment,6 and Writ of Execution,7 all dated February 19, 2002, issued by the RTC authorizing execution pending appeal.

On the other hand, the petition in G.R. No. 176982 assails the Decision8 dated October 30, 2006 and Resolution9dated March 12, 2007 of the CA in CA-G.R. CV No. 73965 which dismissed the appeal filed by GSIS, affirming with modification the Order10 dated January 11, 2002 of the RTC rendering judgment on the pleadings.

The Facts

Sometime in March 1999, the National Electrification Administration (NEA) entered into a Memorandum of Agreement11 (MOA) with GSIS insuring all real and personal properties mortgaged to it by electrical cooperatives under an Industrial All Risks Policy (IAR policy).12 The total sum insured under the IAR policy wasP16,731,141,166.80, out of which, 95% or P15,894,584,108.40 was reinsured by GSIS with PGAI for a

http://www.lawphil.net/judjuris/juri2013/nov2013/gr_165585_2013.html#fnt12












period of one year or from March 5, 1999 to March 5, 2000.13 As reflected in Reinsurance Request Note No. 99-15014(reinsurance cover) and the Reinsurance Binder15 dated April 21, 1999 (reinsurance binder), GSIS agreed to pay PGAI reinsurance premiums in the amount of P32,885,894.52 per quarter or a total of P131,543,578.08.16 While GSIS remitted to PGAI the reinsurance premiums for the first three quarters, it, however, failed to pay the fourth and last reinsurance premium due on December 5, 1999 despite demands. This prompted PGAI to file, on November 15, 2001, a Complaint17 for sum of money (complaint) against GSIS before the RTC, docketed as Civil Case No. 01-1634.

In its complaint, PGAI alleged, among others, that: (a) after it had issued the IAR policy, it further reinsured the risks covered under the said reinsurance with reputable reinsurers worldwide such as Lloyds of London, Copenhagen Re, Cigna Singapore, CCR, Generali, and Arig;18 (b) the first three reinsurance premiums were paid to PGAI by GSIS and, in the same vein, NEA paid the first three reinsurance premiums due to GSIS;19 (c) GSIS failed to pay PGAI the fourth and last reinsurance premium due on December 5, 1999;20 (d) the IAR policy remained in full force and effect for the entire insurable period and, in fact, the losses/damages on various risks reinsured by PGAI were paid and accordingly settled by it;21 (e) PGAI is under continuous pressure from its reinsurers in the international market to settle the matter;22 and (f) GSIS acknowledged its obligation to pay the last reinsurance premium as it, in turn, demanded from NEA the fourth and last reinsurance premium.23

In its Answer,24 GSIS admitted, among others, that: (a) its request for reinsurance cover was accepted by PGAI in a reinsurance binder;25 (b) it remitted to PGAI the first three reinsurance premiums which were paid by NEA;26 and (c) it failed to remit the fourth and last reinsurance premium to PGAI.27 It, however, denied, inter alia, that: (a) it had acknowledged its obligation to pay the last quarter’s reinsurance premium to PGAI;28 and (b) the IAR policy remained in full force and effect for the entire insurable period of March 5, 1999 to March 5, 2000.29 GSIS also proffered the following affirmative defenses: (a) the complaint states no cause of action against GSIS because the non-payment of the last reinsurance premium only renders the reinsurance contract ineffective, and does not give PGAI a right of action to collect;30 (b) pursuant to the regulations issued by the Commission on Audit, GSIS is prohibited from advancing payments to PGAI occasioned by the failure of the principal insured, NEA, to pay the insurance premium;31 and (c) PGAI’s cause of action lies against NEA since GSIS merely acted as a conduit.32 By way of counterclaim, GSIS prayed that PGAI be ordered to pay exemplary damages, including litigation expenses, and costs of suit.33

On December 18, 2001, PGAI filed a Motion for Judgment on the Pleadings34 averring that GSIS essentially admitted the material allegations of the complaint, such as: (a) the existence of the MOA between NEA and GSIS; (b) the existence of the reinsurance binder between GSIS and PGAI; (c) the remittance by GSIS to PGAI of the first three quarterly reinsurance premiums; and (d) the failure/refusal of GSIS to remit the fourth and last reinsurance premium.35 Hence, PGAI prayed that the RTC render a judgment on the pleadings pursuant to Section 1, Rule 34 of the Rules of Court (Rules). GSIS opposed36 the foregoing motion by reiterating the allegations and defenses in its Answer.

On January 11, 2002, the RTC issued an Order37 (January 11, 2002 Order) granting PGAI’s Motion for Judgment on the Pleadings. It observed that the admissions of GSIS that it paid the first three quarterly


























reinsurance premiums to PGAI affirmed the validity of the contract of reinsurance between them. As such, GSIS cannot now renege on its obligation to remit the last and remaining quarterly reinsurance premium.38 It further pointed out that while it is true that the payment of the premium is a requisite for the validity of an insurance contract as provided under Section 77 of Presidential Decree No. (PD) 612,39 otherwise known as "The Insurance Code," it was held in Makati Tuscany Condominium Corp. v. CA40 (Makati Tuscany) that insurance policies are valid even if the premiums were paid in installments, as in this case.41 Thus, in view of the foregoing, the RTC ordered GSIS to pay PGAI the last quarter reinsurance premium in the sum of P32,885,894.52, including interests amounting toP6,519,515.91 as of July 31, 2000 until full payment, attorney’s fees, and costs of suit.42 Dissatisfied, GSIS filed a notice of appeal.43

Meanwhile, PGAI filed a Motion for Execution Pending Appeal44 based on the following reasons: (a) GSIS’ appeal was patently dilatory since it already acknowledged the validity of PGAI’s claim;45 (b) GSIS posted no valid defense as its Answer raised no genuine issues;46 and (c) PGAI would suffer serious and irreparable injury as it may be blacklisted as a consequence of the non-payment of premiums due.47 PGAI also manifested its willingness to post a sufficient surety bond to answer for any resulting damage to GSIS.48 The latter opposed49 the motion asserting that there lies no sufficient ground or urgency to justify execution pending appeal. It also claimed that all its funds and properties are exempted from execution citing Section 39 of Republic Act No. (RA) 8291,50otherwise known as "The Government Service Insurance System Act of 1997."51

On February 14, 2002, the RTC issued an Order52 (February 14, 2002 Order) granting PGAI’s Motion for Execution Pending Appeal, conditioned on the posting of a bond. It further held that only the GSIS Social Insurance Fund is exempt from execution. Accordingly, PGAI duly posted a surety bond which the RTC approved through an Order53 dated February 19, 2002, resulting to the issuance of a writ of execution54 and notices of garnishment55 (February 19, 2002 issuances), all of even date, against GSIS.

The CA Proceedings Antecedent to G.R. No. 165585

Aggrieved by the RTC’s February 14, 2002 Order, as well as the February 19, 2002 issuances, GSIS – without first filing a motion for reconsideration (from the said order of execution) or a sufficient supersedeas bond56 – filed on February 26, 2002 a petition for certiorari57 before the CA, docketed as CA-G.R. SP No. 69289, against the RTC and PGAI. It also impleaded in the said petition the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) as nominal parties so as to render them subject to the writs and processes of the CA.58

In its petition, GSIS argued that: (a) none of the grounds proffered by PGAI justifies the issuance of a writ of execution pending appeal;59 and (b) all funds and assets of GSIS are exempt from execution and levy in accordance with RA 8291.60

On April 4, 2002, the CA issued a temporary restraining order (TRO)61 enjoining the garnishment of GSIS’ funds with LBP and DBP. Nevertheless, since the TRO’s effectivity lapsed, GSIS’ funds with the LBP were eventually garnished.62


























On May 26, 2004, the CA rendered a Decision63 dismissing GSIS’ petition, upholding, among others, the validity of the execution pending appeal pursuant to the RTC’s February 14, 2002 Order as well as the February 19, 2002 issuances. It found that the impending blacklisting of PGAI constitutes a good reason for allowing the execution pending appeal (also known as "discretionary execution") considering that the imposition of international sanctions on any single local insurance company puts in grave and immediate jeopardy not only the viability of that company but also the integrity of the entire local insurance system including that of the state insurance agency. It pointed out that the insurance business thrives on credibility which is maintained by honoring financial commitments.

On the claimed exemption of GSIS funds from execution, the CA held that such exemption only covers funds under the Social Insurance Fund which remains liable for the payment of benefits like retirement, disability and death compensation and not those covered under the General Insurance Fund, as in this case, which are meant for investment in the business of insurance and reinsurance.64

GSIS’ motion for reconsideration65 was denied by the CA in a Resolution66 dated October 6, 2004. Hence, the petition for review on certiorari in G.R. No. 165585.67

The CA Proceedings Antecedent to G.R. No. 176982

Separately, GSIS also assailed the RTC’s January 11, 2002 Order which granted PGAI’s Motion for Judgment on the Pleadings through an appeal68 filed on October 7, 2002, docketed as CA G.R. CV No. 73965.

GSIS averred that the RTC gravely erred in: (a) rendering judgment on the pleadings since it specifically denied the material allegations in PGAI’s complaint; (b) ordering execution pending appeal since there are no justifiable reasons for the same; and (c) effecting execution against funds and assets of GSIS given that RA 8291 exempts the same from levy, execution and garnishment.69

For its part, PGAI maintained that: (a) the judgment on the pleadings was in order given that GSIS never disputed the facts as alleged in its complaint; (b) the discretionary execution was proper in view of the dilatory methods employed by GSIS in order to evade the payment of a valid obligation; and (c) the general insurance fund of GSIS, which was attached and garnished by the RTC, is not exempt from execution.70

In a Decision71 dated October 30, 2006, the CA sustained the RTC’s January 11, 2002 Order but deleted the awards of interest and attorney’s fees for lack of factual and legal basis.72

The CA ruled that judgment on the pleadings was proper since GSIS did not specifically deny the genuineness, due execution, and perfection of its reinsurance contract with PGAI.73 In fact, PGAI even settled reinsurance claims during the covering period rendering the reinsurance contract not only perfected but partially executed as well.74

Passing on the issue of the exemption from execution of GSIS funds, the CA, citing Rubia v. GSIS75 (Rubia), held that the exemption provided for by RA 8291 is not absolute since it only pertains to














the social security benefits of its members; thus, funds used by the GSIS for business investments and commercial ventures, as in this case, may be attached and garnished.76

GSIS’ motion for reconsideration77 was denied by the CA in a Resolution78 dated March 12, 2007. Hence, the present petition for review on certiorari in G.R. No. 176982.79

The Issues Before the Court

In these consolidated petitions, the essential issues are the following: (a) in G.R. No. 165585, whether the CA erred in (1) upholding the RTC’s February 14, 2002 Order authorizing execution pending appeal, and (2) ruling that only the Social Insurance Fund and not the General Fund of the GSIS is exempt from garnishment; and (b) in G.R. No. 176982, whether the CA erred in sustaining the RTC’s January 11, 2002 Order rendering judgment on the pleadings.

The Court’s Ruling

The petitions are partly meritorious.

A. Good reasons to allow execution pending appeal and the nature of the exemption under Section 39 of RA 8291.

The execution of a judgment pending appeal is an exception to the general rule that only a final judgment may be executed.80 In order to grant the same pursuant to Section 2,81 Rule 39 of the Rules, the following requisites must concur: (a) there must be a motion by the prevailing party with notice to the adverse party; (b) there must be a good reason for execution pending appeal; and (c) the good reason must be stated in a special order.82

Good reasons call for the attendance of compelling circumstances warranting immediate execution for fear that favorable judgment may yield to an empty victory. In this regard, the Rules do not categorically and strictly define what constitutes "good reason," and hence, its presence or absence must be determined in view of the peculiar circumstances of each case. As a guide, jurisprudence dictates that the "good reason" yardstick imports a superior circumstance that will outweigh injury or damage to the adverse party.83 Corollarily, the requirement of "good reason" does not necessarily entail unassailable and flawless basis but at the very least, an invocation thereof must be premised on solid footing.84

In the case at bar, the RTC, as affirmed by the CA, granted PGAI’s motion for execution pending appeal on the ground that the impending sanctions against it by foreign underwriters/reinsurers constitute good reasons therefor. It must, however, be observed that PGAI has not proffered any evidence to substantiate its claim, as it merely presented bare allegations thereon. It is hornbook doctrine that mere allegations do not constitute proof. As held in Real v. Belo,85 "it is basic in the rule of evidence that bare allegations, unsubstantiated by evidence, are not equivalent to proof. In short, mere allegations are not evidence."86 Hence, without any sufficient basis to support the existence of its alleged "good reasons," it cannot be said that the second requisite to allow an execution pending appeal exists. To reiterate, the requirement of "good reasons" must be premised on solid footing so as to ensure that the "superior circumstance" which would impel immediate execution is not merely contrived or based on speculation.












This, however, PGAI failed to demonstrate in the present case. In fine, the Court therefore holds that the CA’s affirmance of the RTC’s February 14, 2002 Order authorizing execution pending appeal, as well as the February 19, 2002 issuances related thereto, was improper.

Nevertheless, while an execution pending appeal should not lie in view of the above-discussed reasons, it must be noted that the funds and assets of GSIS may – after the resolution of the appeal and barring any provisional injunction thereto – be subject to execution, attachment, garnishment or levy since the exemption under Section 39 of RA 829187 does not operate to deny private entities from properly enforcing their contractual claims against GSIS.88 This has been established in the case of Rubia wherein the Court held as follows:

The declared policy of the State in Section 39 of the GSIS Charter granting GSIS an exemption from tax, lien, attachment, levy, execution, and other legal processes should be read together with the grant of power to the GSIS to invest its "excess funds" under Section 36 of the same Act. Under Section 36, the GSIS is granted the ancillary power to invest in business and other ventures for the benefit of the employees, by using its excess funds for investment purposes. In the exercise of such function and power, the GSIS is allowed to assume a character similar to a private corporation. Thus, it may sue and be sued, as also explicitly granted by its charter.

Needless to say, where proper, under Section 36, the GSIS may be held liable for the contracts it has entered into in the course of its business investments. For GSIS cannot claim a special immunity from liability in regard to its business ventures under said Section.

Nor can it deny contracting parties, in our view, the right of redress and the enforcement of a claim, particularly as it arises from a purely contractual relationship of a private character between an individual and the GSIS.89(Emphases supplied and citations omitted)

Thus, the petition in G.R. No. 165585 is partly granted.

B. Propriety of judgment on the pleadings.

Judgment on the pleadings is appropriate when an answer fails to tender an issue, or otherwise admits the material allegations of the adverse party’s pleading. The rule is stated in Section 1, Rule 34 of the Rules which reads as follows:

Sec. 1. Judgment on the pleadings. – Where an answer fails to tender an issue, or otherwise admits the material allegations of the adverse party’s pleading, the court may, on motion of that party, direct judgment on such pleading. x x x.

In this relation, jurisprudence dictates that an answer fails to tender an issue if it does not comply with the requirements of a specific denial as set out in Sections 890 and 10,91 Rule 8 of the Rules, resulting in the admission of the material allegations of the adverse party’s pleadings.92

As such, it is a form of judgment that is exclusively based on the submitted pleadings without the introduction of evidence as the factual issues remain uncontroverted.93








In this case, records disclose that in its Answer, GSIS admitted the material allegations of PGAI’s complaint warranting the grant of the relief prayed for. In particular, GSIS admitted that: (a) it made a request for reinsurance cover which PGAI accepted in a reinsurance binder effective for one year;94 (b) it remitted only the first three reinsurance premium payments to PGAI;95 (c) it failed to pay PGAI the fourth and final reinsurance premium installment;96 and (d) it received demand letters from PGAI.97 It also did not refute the allegation of PGAI that it settled reinsurance claims during the reinsured period. On the basis of these admissions, the Court finds that the CA did not err in affirming the propriety of a judgment on the pleadings.

GSIS’ affirmative defense that the non-payment of the last reinsurance premium merely rendered the contract ineffective pursuant to Section 7798 of PD 612 no longer involves any factual issue, but stands solely as a mere question of law in the light of the foregoing admissions hence allowing for a judgment on the pleadings. Besides, in the case of Makati Tuscany, the Court already ruled that the non-payment of subsequent installment premiums would not prevent the insurance contract from taking effect; that the parties intended to make the insurance contract valid and binding is evinced from the fact that the insured paid – and the insurer received – several reinsurance premiums due thereon, although the former refused to pay the remaining balance, viz:

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer’s intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full.

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of the appellate court contained in its Resolution denying the motion to reconsider its Decision —

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer, would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment . Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.






[I]n the case before Us, petitioner paid the initial installment and thereafter made staggered payments resulting in full payment of the 1982 and 1983 insurance policies.1âwphi1 For the 1984 policy, petitioner paid two (2) installments although it refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary.99 (Emphases supplied and citation omitted)

Thus, owing to the identical complexion of Makati Tuscany with the present case, the Court upholds PGAI’s right to be paid by GSIS the amount of the fourth and last reinsurance premium pursuant to the reinsurance contract between them. All told, the petition in G.R. No. 176982 is denied.

WHEREFORE, the petition in G.R. No. 165585 is PARTLY GRANTED. The Decision dated May 26, 2004 and Resolution dated October 6, 2004 of the Court of Appeals in CA-G.R. SP No. 69289 are MODIFIED only insofar as it upheld the validity of Prudential Guarantee and Assurance, Inc.’s execution pending appeal. In this respect, the Order dated February 14, 2002 of the Regional Trial Court of Makati, Branch 149 as well as all other issuances related thereto are set aside.

On the other hand, the petition in G.R. No. 176982 is DENIED. The Decision dated October 30, 2006 and Resolution dated March 12, 2007 in CA-G.R. CV No. 73965 are hereby AFFIRMED.

SO ORDERED.


FIRST DIVISION

G.R. NO. 147039 January 27, 2006

DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner, vs.RADIO MINDANAO NETWORK, INC., Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking the review of the Decision1dated November 16, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 56351, the dispositive portion of which reads:

http://www.lawphil.net/judjuris/juri2006/jan2006/gr_147039_2006.html#fnt1


Wherefore, premises considered, the appealed Decision of the Regional Trial Court of Makati 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.

Costs against the defendants-appellants.

SO ORDERED.2

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) and Provident Insurance Corporation (Provident) for recovery of insurance benefits. Respondent owns several broadcasting stations all over the country. Provident covered respondent’s transmitter equipment and generating set for the amount ofP13,550,000.00 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.

In the evening of July 27, 1988, respondent’s radio station located in SSS Building, Bacolod 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:

6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following consequences, namely:

(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be declared or not), civil war.

(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped power.3

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 consequently, denied the claims. Hence, respondent was constrained to file Civil Case No. 90-602 against petitioner and Provident.

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:

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 the destroyed property insured under its Fire Insurance Policy plus 12% legal interest from March 2, 1990 the date of the filing of the Complaint. Defendant DBP Pool Accredited 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 from March 2, 1990.

SO ORDERED.4




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. A motion for reconsideration was filed by petitioner DBP which was denied by the CA per its Resolution dated January 30, 2001.5

Hence, herein petition by DBP Pool of Accredited Insurance Companies,6 with the following assignment of errors:

Assignment of Errors

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 BACOLOD CITY WERE MEMBERS OF THE CPP-NPA.

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 ARTICLES 21, 2208, 2229 AND 2232 OF THE CIVIL CODE OF THE PHILIPPINES.7

Petitioner assails the factual finding of both the trial court and the CA that its evidence failed to support its allegation that the loss was caused by an excepted risk, i.e., members of the CPP/NPA caused the fire. In upholding respondent’s claim for indemnity, the trial court found that:

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.

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 menbelieved 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 mensuspected 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.


SECOND DIVISION

G.R. No. 198588 July 11, 2012

UNITED MERCHANTS CORPORATION, Petitioner, vs.COUNTRY BANKERS INSURANCE CORPORATION, Respondent.

D E C I S I O N

CARPIO, J.:

The Case






This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals’ Decision2 dated 16 June 2011 and its Resolution3 dated 8 September 2011 in CA-G.R. CV No. 85777. The Court of Appeals reversed the Decision4of the Regional Trial Court (RTC) of Manila, Branch 3, and ruled that the claim on the Insurance Policy is void.

The Facts

The facts, as culled from the records, are as follows:

Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its products.

On 6 September 1995, UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of Christmas lights against fire with defendant Country Bankers Insurance Corporation (CBIC) for P15,000,000.00. The Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No. 12959A, valid until 6 September 1996, states:

AMOUNT OF INSURANCE: FIFTEENMILLION PESOSPHILIPPINECURRENCY

x x x

PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the properties of the Assured or held by them in trust, on commissions, or on joint account with others and/or for which they are responsible in the event of loss and/or damage during the currency of this policy, whilst contained in the building of one lofty storey in height, constructed of concrete and/or hollow blocks with portion of galvanized iron sheets, under galvanized iron rood, occupied as Christmas lights storage.5

On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to form part of the Insurance Policy. Endorsement F/96-154 provides that UMC’s stocks in trade were insured against additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake." The sum insured was also increased toP50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC issued Endorsement F/96-157 where the name of the assured was changed from Alfredo Tan to UMC.

On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment Corporation (CRM) to investigate and evaluate UMC’s loss by reason of the fire. CBIC’s reinsurer, Central Surety, likewise requested the National Bureau of Investigation (NBI) to conduct a parallel investigation. On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs of its loss.

On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from CBIC. On 25 February 1997, UMC received CBIC’s letter, dated 10 January 1997, rejecting UMC’s claim due to breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states:

If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all the benefits under this Policy shall be forfeited.6

On 19 February 1998, UMC filed a Complaint7 against CBIC with the RTC of Manila. UMC anchored its insurance claim on the Insurance Policy, the Sworn Statement of Formal Claim earlier submitted, and the Certification dated 24 July 1996 made by Deputy Fire Chief/Senior Superintendent Bonifacio J. Garcia of the Bureau of Fire Protection. The Certification dated 24 July 1996 provides that:

This is to certify that according to available records of this office, on or about 6:10 P.M. of July 3, 1996, a fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage of Fifty-Five Million Pesos (P55,000,000.00) to the building and contents, while the reported insurance coverage amounted to Fifty Million Pesos (P50,000,000.00) with Country Bankers Insurance Corporation.

The Bureau further certifies that no evidence was gathered to prove that the establishment was willfully, feloniously and intentionally set on fire.

That the investigation of the fire incident is already closed being ACCIDENTAL in nature.8

In its Answer with Compulsory Counterclaim9 dated 4 March 1998, CBIC admitted the issuance of the Insurance Policy to UMC but raised the following defenses: (1) that the Complaint states no cause of action; (2) that UMC’s claim has already prescribed; and (3) that UMC’s fire claim is tainted with fraud. CBIC alleged that UMC’s claim was fraudulent because UMC’s Statement of Inventory showed that it had no stocks in trade as of 31 December 1995, and that UMC’s suspicious purchases for the year 1996 did not even amount to P25,000,000.00. UMC’s GIS and Financial Reports further revealed that it had insufficient capital, which meant UMC could not afford the alleged P50,000,000.00 worth of stocks in trade.

In its Reply10 dated 20 March 1998, UMC denied violation of Condition No. 15 of the Insurance Policy. UMC claimed that it did not make any false declaration because the invoices were genuine and the Statement of Inventory was for internal revenue purposes only, not for its insurance claim.

During trial, UMC presented five witnesses. The first witness was Josie Ebora (Ebora), UMC’s disbursing officer. Ebora testified that UMC’s stocks in trade, at the time of the fire, consisted of: (1) raw materials for its Christmas lights; (2) Christmas lights already assembled; and (3) Christmas lights purchased from local suppliers. These stocks in trade were delivered from August 1995 to May 1996. She stated that Straight Cargo Commercial Forwarders delivered the imported materials to the warehouse, evidenced by delivery receipts. However, for the year 1996, UMC had no importations and only bought from its

local suppliers. Ebora identified the suppliers as Fiber Technology Corporation from which UMC bought stocks worth P1,800,000.00 on 20 May 1996; Fuze Industries Manufacturer Philippines from which UMC bought stocks worth P19,500,000.00 from 20 January 1996 to 23 February 1996; and Tomco Commercial Press from which UMC bought several Christmas boxes. Ebora testified that all these deliveries were not yet paid. Ebora also presented UMC’s Balance Sheet, Income Statement and Statement of Cash Flow. Per her testimony, UMC’s purchases amounted to P608,986.00 in 1994;P827,670.00 in 1995; and P20,000,000.00 in 1996. Ebora also claimed that UMC had sales only from its fruits business but no sales from its Christmas lights for the year 1995.

The next witness, Annie Pabustan (Pabustan), testified that her company provided about 25 workers to assemble and pack Christmas lights for UMC from 28 March 1996 to 3 July 1996. The third witness, Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez, stated that UMC opened letters of credit with MBTC for the year 1995 only. The fourth witness presented was Ernesto Luna (Luna), the delivery checker of Straight Commercial Cargo Forwarders. Luna affirmed the delivery of UMC’s goods to its warehouse on 13 August 1995, 6 September 1995, 8 September 1995, 24 October 1995, 27 October 1995, 9 November 1995, and 19 December 1995. Lastly, CRM’s adjuster Dominador Victorio testified that he inspected UMC’s warehouse and prepared preliminary reports in this connection.

On the other hand, CBIC presented the claims manager Edgar Caguindagan (Caguindagan), a Securities and Exchange Commission (SEC) representative, Atty. Ernesto Cabrera (Cabrera), and NBI Investigator Arnold Lazaro (Lazaro). Caguindagan testified that he inspected the burned warehouse on 5 July 1996, took pictures of it and referred the claim to an independent adjuster. The SEC representative’s testimony was dispensed with, since the parties stipulated on the existence of certain documents, to wit: (1) UMC’s GIS for 1994-1997; (2) UMC’s Financial Report as of 31 December 1996; (3) SEC Certificate that UMC did not file GIS or Financial Reports for certain years; and (4) UMC’s Statement of Inventory as of 31 December 1995 filed with the BIR.

Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMC’s claim. On 19 November 1996, they concluded that arson was committed based from their interview with barangay officials and the pictures showing that blackened surfaces were present at different parts of the warehouse. On cross-examination, Lazaro admitted that they did not conduct a forensic investigation of the warehouse, nor did they file a case for arson.

For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the documents of UCPB General Insurance, the insurer of Perfect Investment Company, Inc., the warehouse owner. When asked to bring documents related to the insurance of Perfect Investment Company, Inc., Batallones brought the papers of Perpetual Investment, Inc.

The Ruling of the Regional Trial Court

On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering defendant to pay plaintiff:

a) the sum of P43,930,230.00 as indemnity with interest thereon at 6% per annum from November 2003 until fully paid;

b) the sum of P100,000.00 for exemplary damages;

c) the sum of P100,000.00 for attorney’s fees; and

d) the costs of suit.

Defendant’s counterclaim is denied for lack of merit.

SO ORDERED.11

The RTC found no dispute as to UMC’s fire insurance contract with CBIC. Thus, the RTC ruled for UMC’s entitlement to the insurance proceeds, as follows:

Fraud is never presumed but must be proved by clear and convincing evidence. (see Alonso v. Cebu Country Club, 417 SCRA 115 [2003]) Defendant failed to establish by clear and convincing evidence that the documents submitted to the SEC and BIR were true. It is common business practice for corporations to have 2 sets of reports/statements for tax purposes. The stipulated documents of plaintiff (Exhs. 2 – 8) may not have been accurate.

The conflicting findings of defendant’s adjuster, CRM Adjustment [with stress] and that made by Atty. Cabrera & Mr. Lazaro for Central Surety shall be resolved in favor of the former. Definitely the former’s finding is more credible as it was made soon after the fire while that of the latter was done 4 months later. Certainly it would be a different situation as the site was no longer the same after the clearing up operation which is normal after a fire incident. The Christmas lights and parts could have been swept away. Hence the finding of the latter appears to be speculative to benefit the reinsurer and which defendant wants to adopt to avoid liability.

The CRM Adjustment report found no arson and confirmed substantial stocks in the burned warehouse (Exhs. QQQ) [underscoring supplied]. This is bolstered by the BFP certification that there was no proof of arson and the fire was accidental (Exhs. PPP). The certification by a government agency like BFP is presumed to be a regular performance of official duty. "Absent convincing evidence to the contrary, the presumption of regularity in the performance of official functions has to be upheld." (People vs. Lapira, 255 SCRA 85) The report of UCPB General Insurance’s adjuster also found no arson so that the burned warehouse owner PIC was indemnified.12

Hence, CBIC filed an appeal with the Court of Appeals (CA).

The Ruling of the Court of Appeals

On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive portion of the Decision reads:

WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and the Decision of the Regional Trial Court, of the National Judicial Capital Region, Branch 3 of the City of Manila dated June 16, 2005 in Civil Case No. 98-87370 is REVERSED and SET ASIDE. The plaintiff-appellee’s claim upon its insurance policy is deemed avoided.

SO ORDERED.13

The CA ruled that UMC’s claim under the Insurance Policy is void. The CA found that the fire was intentional in origin, considering the array of evidence submitted by CBIC, particularly the pictures taken and the reports of Cabrera and Lazaro, as opposed to UMC’s failure to explain the details of the alleged fire accident. In addition, it found that UMC’s claim was overvalued through fraudulent transactions. The CA ruled:

We have meticulously gone over the entirety of the evidence submitted by the parties and have come up with a conclusion that the claim of the plaintiff-appellee was indeed overvalued by transactions which were fraudulently concocted so that the full coverage of the insurance policy will have to be fully awarded to the plaintiff-appellee.

First, We turn to the backdrop of the plaintiff-appellee’s case, thus, [o]n September 6, 1995 its stocks-in-trade were insured for Fifteen Million Pesos and on May 7, 1996 the same was increased to 50 Million Pesos. Two months thereafter, a fire gutted the plaintiff-appellee’s warehouse.

Second, We consider the reported purchases of the plaintiff-appellee as shown in its financial report dated December 31, 1996 vis-à-vis the testimony of Ms. Ebora thus:

1994 - P608,986.00

1995 - P827,670.00

1996 - P20,000,000.00 (more or less) which were purchased for a period of one month.

Third, We shall also direct our attention to the alleged true and complete purchases of the plaintiff-appellee as well as the value of all stock-in-trade it had at the time that the fire occurred. Thus:

Exhibit SourceAmount (pesos)

Dates Covered

Exhs. "P"-"DD",inclusive

Fuze IndustriesManufacturer Phils.

19,550,400.00 January 20, 1996January 31, 1996February 12, 1996February 20,

1996February 23, 1996

Exhs. "EE"-"HH",inclusive

Tomco Commercial Press

1,712,000.00 December 19, 1995January 24, 1996February 21, 1996November 24, 1995

Exhs. "II"-"QQ",inclusive

Precious BelenTrading

2,720,400.00 January 13, 1996January 19, 1996January 26, 1996February 3, 1996February 13, 1996February 20, 1996February 27, 1996

Exhs. "RR"-"EEE", inclusive

Wisdom Manpower Services

361,966.00 April 3, 1996April 12, 1996April 19, 1996April 26, 1996May 3, 1996May 10, 1996May 17, 1996May 24,

1996June 7, 1996June 14, 1996June 21, 1996June 28, 1996July 5, 1996

Exhs. "GGG"-"NNN", inclusive

Costs of Letters ofCredit forimported rawmaterials

15,159,144.71 May 29, 1995June 15, 1995July 5, 1995September 4, 1995October 2, 1995October 27, 1995January 8, 1996March 19, 1996

Exhs. "GGG-11"- "GGG-24","HHH-12", "HHH-22", "III-11", "III-14","JJJ-13", "KKK-11", "LLL-5"

SCCFI statements of account

384,794.38 June 15, 1995June 28, 1995August 1, 1995September 4, 1995September 8, 1995September 11, 1995October 30, 199[5]November

10, 1995December 21, 1995

TOTAL 44,315,024.31

Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly looking through the pieces of evidence that it adduced during the trial. The latter alleged that fraud is present in the case at bar as shown by the discrepancy of the alleged purchases from that of the reported purchases made by plaintiff-appellee. It had also averred that fraud is present when upon verification of the address of Fuze Industries, its office is nowhere to be found. Also, the defendant-appellant expressed grave doubts as to the purchases of the plaintiff-appellee sometime in 1996 when such purchases escalated to a high 19.5 Million Pesos without any contract to back it up.14

On 7 July 2011, UMC filed a Motion for Reconsideration,15 which the CA denied in its Resolution dated 8 September 2011. Hence, this petition.

The Issues

UMC seeks a reversal and raises the following issues for resolution:

I.

WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND EVIDENCE AS TO THE EXISTENCE OF ARSON AND FRAUD IN THE ABSENCE OF "MATERIALLY CONVINCING EVIDENCE."

II.

WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND EVIDENCE WHEN IT FOUND THAT PETITIONER BREACHED ITS WARRANTY.16

The Ruling of the Court

At the outset, CBIC assails this petition as defective since what UMC ultimately wants this Court to review are questions of fact. However, UMC argues that where the findings of the CA are in conflict with those of the trial court, a review of the facts may be made. On this procedural issue, we find UMC’s claim meritorious.

A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of law may be raised. The findings of fact of the CA are final and conclusive and this Court will not review them on appeal,17subject to exceptions as when the findings of the appellate court conflict with the findings of the trial court.18Clearly, the present case falls under the exception. Since UMC properly raised the conflicting findings of the lower courts, it is proper for this Court to resolve such contradiction.

Having settled the procedural issue, we proceed to the primordial issue which boils down to whether UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.

UMC contends that because it had already established a prima facie case against CBIC which failed to prove its defense, UMC is entitled to claim the full coverage under the Insurance Policy. On the other hand, CBIC contends that because arson and fraud attended the claim, UMC is not entitled to recover under Condition No. 15 of the Insurance Policy.

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,19 which is preponderance of evidence in civil cases.20 The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable judgment.21Particularly, in insurance cases, once an insured makes out a prima facie case in its favor, the burden of evidence shifts to the insurer to controvert the insured’s prima facie case.22 In the present case, UMC established a prima facie case against CBIC. CBIC does not dispute that UMC’s stocks in trade were insured against fire under the Insurance Policy and that the warehouse, where UMC’s stocks in trade were stored, was gutted by fire on 3 July 1996, within the duration of the fire insurance. However, since CBIC alleged an excepted risk, then the burden of evidence shifted to CBIC to prove such exception.1âwphi1

An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within the purview of the exception or limitation.23 If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish 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.24 In the present case, CBIC failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a limitation in the policy.

In prosecutions for arson, proof of the crime charged is complete where the evidence establishes: (1) the corpus delicti, that is, a fire caused by a criminal act; and (2) the identity of the defendants as the one responsible for the crime.25 Corpus delicti means the substance of the crime, the fact that a crime has actually been committed.26This is satisfied by proof of the bare occurrence of the fire and of its having been intentionally caused.27

In the present case, CBIC’s evidence did not prove that the fire was intentionally caused by the insured. First, the findings of CBIC’s witnesses, Cabrera and Lazaro, were based on an investigation conducted more than four months after the fire. The testimonies of Cabrera and Lazaro, as to the boxes doused with kerosene as told to them by barangay officials, are hearsay because the barangay officials were not presented in court. Cabrera and Lazaro even admitted that they did not conduct a forensic investigation of the warehouse nor did they file a case for arson.28 Second, the Sworn Statement of Formal Claim submitted by UMC, through CRM, states that the cause of the fire was "faulty electrical wiring/accidental in nature." CBIC is bound by this evidence because in its Answer, it admitted that it designated CRM to evaluate UMC’s loss. Third, the Certification by the Bureau of Fire Protection states that the fire was accidental in origin. This Certification enjoys the presumption of regularity, which CBIC failed to rebut.

Contrary to UMC’s allegation, CBIC’s failure to prove arson does not mean that it also failed to prove fraud. Qua Chee Gan v. Law Union29 does not apply in the present case. In Qua Chee Gan,30 the Court dismissed the allegation of fraud based on the dismissal of the arson case against the insured, because the evidence was identical in both cases, thus:

While the acquittal of the insured in the arson case is not res judicata on the present civil action, the insurer’s evidence, to judge from the decision in the criminal case, is practically identical in both cases and must lead to the same result, since the proof to establish the defense of connivance at the fire in order to defraud the insurer "cannot be materially less convincing than that required in order to convict the insured of the crime of arson" (Bachrach vs. British American Assurance Co., 17 Phil. 536). 31

In the present case, arson and fraud are two separate grounds based on two different sets of evidence, either of which can void the insurance claim of UMC. The absence of one does not necessarily result in the absence of the

other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.

Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be forfeited, if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, to wit:

15. If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all the benefits under this Policy shall be forfeited.

In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that where a fire insurance policy provides that "if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy," and the evidence is conclusive that the proof of claim which the insured submitted was false and fraudulent both as to the kind, quality and amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the insured from recovering on the policy even for the amount of his actual loss.

In the present case, as proof of its loss of stocks in trade amounting to P50,000,000.00, UMC submitted its Sworn Statement of Formal Claim together with the following documents: (1) letters of credit and invoices for raw materials, Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and (3) delivery receipts of the raw materials. However, the charges for assembling the Christmas lights and delivery receipts could not support its insurance claim. The Insurance Policy provides that CBIC agreed to insure UMC’s stocks in trade. UMC defined stock in trade as tangible personal property kept for sale or traffic.33 Applying UMC’s definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons may be considered.

The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for 1996 amounts to P20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases amounting to P30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the Statement of Inventory it submitted to the BIR, which is considered an entry in official records,34 UMC stated that it had no stocks in trade as of 31 December 1995. In its defense, UMC alleged that it did not include as stocks in trade the raw materials to be assembled as Christmas lights, which it had on 31 December 1995. However, as proof of its loss, UMC submitted invoices for raw materials, knowing that the insurance covers only stocks in trade.

Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were suspicious. The purchases, based on the invoices and without any supporting contract, amounted to P19,550,400.00 worth of Christmas lights from 20 January 1996 to 23 February 1996. The uncontroverted testimony of Cabrera revealed that there was no Fuze Industries Manufacturer Phils. located at "55 Mahinhin St., Teacher’s Village, Quezon City," the business address appearing in the invoices and the records of the Department of Trade & Industry. Cabrera testified that:

A: Then we went personally to the address as I stated a while ago appearing in the record furnished by the United Merchants Corporation to the adjuster, and the adjuster in turn now, gave us our basis in conducting investigation, so we went to this place which according to the records, the address of this company but there was no office of this company.

Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover the address indicated by the United Merchants as the place of business of Fuze Industries Manufacturer, Phils. was a residential place, what then did you do after determining that it was a residential place?

A: We went to the owner of the alleged company as appearing in the Department of Trade & Industry record, and as appearing a certain Chinese name Mr. Huang, and the address as appearing there is somewhere in Binondo. We went personally there together with the NBI Agent and I am with them when the subpoena was served to them, but a male person approached us and according to him, there was no Fuze Industries Manufacturer, Phils., company in that building sir.35

In Yu Ban Chuan v. Fieldmen’s Insurance, Co., Inc.,36 the Court ruled that the submission of false invoices to the adjusters establishes a clear case of fraud and misrepresentation which voids the insurer’s liability as per condition of the policy. Their falsity is the best evidence of the fraudulent character of plaintiff’s claim.37 InVerendia v. Court of Appeals,38 where the insured presented a fraudulent lease contract to support his claim for insurance benefits, the Court held that by its false declaration, the insured forfeited all benefits under the policy provision similar to Condition No. 15 of the Insurance Policy in this case.

Furthermore, UMC’s Income Statement indicated that the purchases or costs of sales are P827,670.00 for 1995 and P1,109,190.00 for 1996 or a total of P1,936,860.00.39 To corroborate this fact, Ebora testified that:

Q: Based on your 1995 purchases, how much were the purchases made in 1995?

A: The purchases made by United Merchants Corporation for the last year 1995 is P 827,670.[00] sir

Q: And how about in 1994?

A: In 1994, it’s P608,986.00 sir.

Q: These purchases were made for the entire year of 1995 and 1994 respectively, am I correct?

A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)

In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during the 4 December 2002 hearing, it had P1,050,862.71 as total assets and P167,058.47 as total liabilities.41

Thus, either amount in UMC’s Income Statement or Financial Reports is twenty-five times the claim UMC seeks to enforce. The RTC itself recognized that UMC padded its claim when it only allowed P43,930,230.00 as insurance claim. UMC supported its claim of P50,000,000.00 with the Certification from the Bureau of Fire Protection stating that "x x x a fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage of Fifty- Five Million Pesos (P55,000,000.00) to the building and contents x x x." However, this Certification only proved that the estimated damage of P55,000,000.00 is shared by both the building and the stocks in trade.

It has long been settled that a false and material statement made with an intent to deceive or defraud voids an insurance policy.42 In Yu Cua v. South British Insurance Co.,43 the claim was fourteen times bigger than the real loss; in Go Lu v. Yorkshire Insurance Co,44 eight times; and in Tuason v. North China Insurance Co.,45 six times. In the present case, the claim is twenty five times the actual claim proved.

The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or counting but to a deliberate intent to demand from insurance companies payment for indemnity of goods not existing at the time of the fire.46 This constitutes the so-called "fraudulent claim" which, by express agreement between the insurers and the insured, is a ground for the exemption of insurers from civil liability.47

In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in its statements were not covered by the warranty such that any discrepancy in the declaration in other instruments or documents as to matters that may have some relation to the insurance coverage voids the policy."48

On UMC’s allegation that it did not breach any warranty, it may be argued that the discrepancies do not, by themselves, amount to a breach of warranty. However, the Insurance Code provides that "a policy may declare that a violation of specified provisions thereof shall avoid it."49 Thus, in fire insurance policies, which contain provisions such as Condition No. 15 of the Insurance Policy, a fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will exonerate the insurer.50

Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under the Insurance Policy, including its insurance claim.

While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer company,51 contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used.52 If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made.53

WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and the 8 September 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 85777.

SO ORDERED.

ANTONIO T. CARPIOSenior Associate Justice


SECOND DIVISION

G.R. No. 184300 July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner, vs.PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES, INC., Respondents.

D E C I S I O N

REYES, J.:

Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance Co., lnc. (Malayan) assailing the Decision1 dated February 29, 2008 and Resolution2 dated August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with modification the decision of the Regional Trial Court (RTC), Branch 38 of Manila.

Antecedent Facts

Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter undertook to transport and deliver the former’s products to its customers, dealers or salesmen.3

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its own products. Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and other products usual or incidental to the insured’s business while the same were being transported or shipped in the Philippines. The policy covers all risks of direct physical loss or damage from any external cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned out, however, that the contract was not signed by Wyeth’s representative/s.4 Nevertheless, it was admittedly signed by Reputable’s representatives, the terms thereof faithfully observed by the parties and, as previously stated, the same contract of carriage had been annually executed by the parties every year since 1989.5

Under the contract, Reputable undertook to answer for "all risks with respect to the goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and other force majeure while the goods/products are in transit and until actual delivery to the customers, salesmen, and dealers of the COMPANY".6

http://www.lawphil.net/judjuris/juri2012/jul2012/gr_184300_2012.html#fnt6






The contract also required Reputable to secure an insurance policy on Wyeth’s goods.7 Thus, on February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s products was hijacked by about 10 armed men. They threatened to kill the truck driver and two of his helpers should they refuse to turn over the truck and its contents to the said highway robbers. The hijacked truck was recovered two weeks later without its cargo.

On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the payment. The latter, however, ignored the demand.

Consequently, Philippines First instituted an action for sum of money against Reputable on August 12, 1996.8 In its complaint, Philippines First stated that Reputable is a "private corporation engaged in the business of a common carrier." In its answer,9 Reputable claimed that it is a private carrier. It also claimed that it cannot be made liable under the contract of carriage with Wyeth since the contract was not signed by Wyeth’s representative and that the cause of the loss was force majeure, i.e., the hijacking incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the amount covered in the SR Policy. According to Reputable, "it was validly insured with Malayan for P1,000,000.00 with respect to the lost products under the latter’s Insurance Policy No. SR-0001-02577 effective February 1, 1994 to February 1, 1995" and that the SR Policy covered the risk of robbery or hijacking.10

Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy, the insurance does not cover any loss or damage to property which at the time of the happening of such loss or damage is insured by any marine policy and that the SR Policy expressly excluded third-party liability.

After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines First for the amount of indemnity it paid to Wyeth, among others. In turn, Malayan was found by the RTC to be liable to Reputable to the extent of the policy coverage. The dispositive portion of the RTC decision provides:

WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable] liable for the loss of the Wyeth products and orders it to pay Philippines First the following:

1. the amount of P2,133,257.00 representing the amount paid by Philippines First to Wyeth for the loss of the products in question;

2. the amount of P15,650.00 representing the adjustment fees paid by Philippines First to hired adjusters/surveyors;






3. the amount of P50,000.00 as attorney’s fees; and

4. the costs of suit.

On the third-party Complaint, judgment is hereby rendered finding

Malayan liable to indemnify [Reputable] the following:

1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;

2. the amount of P50,000.00 as attorney’s fees; and

3. the costs of suit.

SO ORDERED.12

Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC decision.

Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was binding despite Wyeth’s failure to sign the same. Reputable further contended that the provisions of the contract are unreasonable, unjust, and contrary to law and public policy.

For its part, Malayan invoked Section 5 of its SR Policy, which provides:

Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or damage to property which at the time of the happening of such loss or damage is insured by or would but for the existence of this policy, be insured by any Fire or Marine policy or policies except in respect of any excess beyond the amount which would have been payable under the Fire or Marine policy or policies had this insurance not been effected.

Malayan argued that inasmuch as there was already a marine policy issued by Philippines First securing the same subject matter against loss and that since the monetary coverage/value of the Marine Policy is more than enough to indemnify the hijacked cargo, Philippines First alone must bear the loss.

Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed that it be held liable for no more than P468,766.70, its alleged pro-rata share of the loss based on the amount covered by the policy, subject to the provision of Section 12 of the SR Policy, which states:

12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any property hereby insured, there be any other subsisting insurance or insurances, whether effected by the insured or by any other person or persons, covering the same property, the company shall not be liable to pay or contribute more than its ratable proportion of such loss or damage.

On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the RTC, the decretal portion of which reads:


WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as modified in the Order dated 21 July 2001, is AFFIRMED with MODIFICATION in that the award of attorney’s fees in favor of Reputable is DELETED.

SO ORDERED.13

The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the contract of carriage on the ground of lack of signature of Wyeth’s representative/s; (2) Reputable is liable under the contract for the value of the goods even if the same was lost due to fortuitous event; and (3) Section 12 of the SR Policy prevails over Section 5, it being the latter provision; however, since the ratable proportion provision of Section 12 applies only in case of double insurance, which is not present, then it should not be applied and Malayan should be held liable for the full amount of the policy coverage, that is, P1,000,000.00.14

On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was denied by the CA in its Resolution dated August 28, 2008.15

Hence, this petition.

Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations on the liability of common carriers" and the "difference between an ‘other insurance clause’ and an ‘over insurance clause’."

Malayan also contends that the CA erred when it held that Reputable is a private carrier and should be bound by the contractual stipulations in the contract of carriage. This argument is based on its assertion that Philippines First judicially admitted in its complaint that Reputable is a common carrier and as such, Reputable should not be held liable pursuant to Article 1745(6) of the Civil Code.16 Necessarily, if Reputable is not liable for the loss, then there is no reason to hold Malayan liable to Reputable.

Further, Malayan posits that there resulted in an impairment of contract when the CA failed to apply the express provisions of Section 5 (referred to by Malayan as over insurance clause) and Section 12 (referred to by Malayan as other insurance clause) of its SR Policy as these provisions could have been read together there being no actual conflict between them.

Reputable, meanwhile, contends that it is exempt from liability for acts committed by thieves/robbers who act with grave or irresistible threat whether it is a common carrier or a private/special carrier. It, however, maintains the correctness of the CA ruling that Malayan is liable to Philippines First for the full amount of its policy coverage and not merely a ratable portion thereof under Section 12 of the SR Policy.

Finally, Philippines First contends that the factual finding that Reputable is a private carrier should be accorded the highest degree of respect and must be considered conclusive between the parties, and that a review of such finding by the Court is not warranted under the circumstances. As to its alleged judicial admission that Reputable is a common carrier, Philippines First proffered the declaration made by Reputable that it is a private carrier. Said declaration was allegedly reiterated by Reputable in its third





party complaint, which in turn was duly admitted by Malayan in its answer to the said third-party complaint. In addition, Reputable even presented evidence to prove that it is a private carrier.

As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the ruling of the CA. Philippines First, however, prayed for a slight modification of the assailed decision, praying that Reputable and Malayan be rendered solidarily liable to it in the amount of P998,000.00, which represents the balance from the P1,000.000.00 coverage of the SR Policy after deducting P2,000.00 under Section 10 of the said SR Policy.17

Issues

The liability of Malayan under the SR Policy hinges on the following issues for resolution:

1) Whether Reputable is a private carrier;

2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with Wyeth, such that it should be liable for any risk of loss or damage, for any cause whatsoever, including that due to theft or robbery and other force majeure;

3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the SR Policy; and

4) Whether Reputable should be held solidarily liable with Malayan for the amount of P998,000.00 due to Philippines First.


On the first issue – Reputable is a private carrier.

The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and considered conclusive between the parties, save for certain exceptional and meritorious circumstances, none of which are present in this case.18

Malayan relies on the alleged judicial admission of Philippines First in its complaint that Reputable is a common carrier.19 Invoking Section 4, Rule 129 of the Rules on Evidence that "an admission verbal or written, made by a party in the course of the proceeding in the same case, does not require proof," it is Malayan’s position that the RTC and CA should have ruled that

Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code, the liability of Reputable for the loss of Wyeth’s goods should be dispensed with, or at least diminished.

It is true that judicial admissions, such as matters alleged in the pleadings do not require proof, and need not be offered to be considered by the court. "The court, for the proper decision of the case, may and should consider, without the introduction of evidence, the facts admitted by the parties."20 The rule on judicial admission, however, also states that such allegation, statement, or admission is conclusive as against the pleader,21 and that the facts alleged in the complaint are deemed admissions of the plaintiff






and binding upon him.22 In this case, the pleader or the plaintiff who alleged that Reputable is a common carrier was Philippines First. It cannot, by any stretch of imagination, be made conclusive as against Reputable whose nature of business is in question.

It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and Reputable; rather, it is a mere subrogee to the right of Wyeth to collect from Reputable under the terms of the contract of carriage. Philippines First is not in any position to make any admission, much more a definitive pronouncement, as to the nature of Reputable’s business and there appears no other connection between Philippines First and Reputable which suggests mutual familiarity between them.

Moreover, records show that the alleged judicial admission of Philippines First was essentially disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its answer that it is actually a private or special carrier.23In addition, Reputable stated in paragraph 2 of its third-party complaint that it is "a private carrier engaged in the carriage of goods."24 Such allegation was, in turn, admitted by Malayan in paragraph 2 of its answer to the third-party complaint.25 There is also nothing in the records which show that Philippines First persistently maintained its stance that Reputable is a common carrier or that it even contested or proved otherwise Reputable’s position that it is a private or special carrier.

Hence, in the face of Reputable’s contrary admission as to the nature of its own business, what was stated by Philippines First in its complaint is reduced to nothing more than mere allegation, which must be proved for it to be given any weight or value. The settled rule is that mere allegation is not proof.26

More importantly, the finding of the RTC and CA that Reputable is a special or private carrier is warranted by the evidence on record, primarily, the unrebutted testimony of Reputable’s Vice President and General Manager, Mr. William Ang Lian Suan, who expressly stated in open court that Reputable serves only one customer, Wyeth.27

Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public. On the other hand, a private carrier is one wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public.28 A common carrier becomes a private carrier when it undertakes to carry a special cargo or chartered to a special person only.29 For all intents and purposes, therefore, Reputable operated as a private/special carrier with regard to its contract of carriage with Wyeth.

On the second issue – Reputable is bound by the terms of the contract of carriage.

The extent of a private carrier’s obligation is dictated by the stipulations of a contract it entered into, provided its stipulations, clauses, terms and conditions are not contrary to law, morals, good customs, public order, or public policy. "The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. Public policy governing common carriers has no force where the public at large is not involved."30










Thus, being a private carrier, the extent of Reputable’s liability is fully governed by the stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the loss of the goods/products due to any and all causes whatsoever, including theft, robbery and other force majeure while the goods/products are in transit and until actual delivery to Wyeth’s customers, salesmen and dealers.31

On the third issue – other insurance vis-à-vis over insurance.

Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as a "modified ‘other insurance’ clause".32 In rendering inapplicable said provisions in the SR Policy, the CA ruled in this wise:

Since Sec. 5 calls for Malayan’s complete absolution in case the other insurance would be sufficient to cover the entire amount of the loss, it is in direct conflict with Sec. 12 which provides only for a pro-rated contribution between the two insurers. Being the later provision, and pursuant to the rules on interpretation of contracts, Sec. 12 should therefore prevail.

x x x x

x x x The intention of both Reputable and Malayan should be given effect as against the wordings of Sec. 12 of their contract, as it was intended by the parties to operate only in case of double insurance, or where the benefits of the policies of both plaintiff-appellee and Malayan should pertain to Reputable alone. But since the court a quo correctly ruled that there is no double insurance in this case inasmuch as Reputable was not privy thereto, and therefore did not stand to benefit from the policy issued by plaintiff-appellee in favor of Wyeth, then Malayan’s stand should be rejected.

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same property is covered by another insurance policy, a policy to which it was not a party to and much less, from which it did not stand to benefit. Plainly, this unfair situation could not have been the intention of both Reputable and Malayan in signing the insurance contract in question.33

In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions applicable under distinct circumstances. Malayan argues that "it will not be completely absolved under Section 5 of its policy if it were the assured itself who obtained additional insurance coverage on the same property and the loss incurred by Wyeth’s cargo was more than that insured by Philippines First’s marine policy. On the other hand, Section 12 will not completely absolve Malayan if additional insurance coverage on the same cargo were obtained by someone besides Reputable, in which case Malayan’s SR policy will contribute or share ratable proportion of a covered cargo loss."34

Malayan’s position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance" and "double insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA,35 which validity was upheld by the Court as a warranty that no other insurance exists. The Court ruled that Condition No. 336 is a condition







which is not proscribed by law as its incorporation in the policy is allowed by Section 75 of the Insurance Code. It was also the Court’s finding that unlike the other insurance clauses, Condition No. 3 does not absolutely declare void any violation thereof but expressly provides that the condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00."

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR Policy but simply limits the liability of Malayan only up to the excess of the amount that was not covered by the other insurance policy. In interpreting the "other insurance clause" in Geagonia, the Court ruled that the prohibition applies only in case of double insurance. The Court ruled that in order to constitute a violation of the clause, the other insurance must be upon same subject matter, the same interest therein, and the same risk. Thus, even though the multiple insurance policies involved were all issued in the name of the same assured, over the same subject matter and covering the same risk, it was ruled that there was no violation of the "other insurance clause" since there was no double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation where there is over insurance due to double insurance. In such case, Section 15 provides that Malayan shall "not be liable to pay or contribute more than its ratable proportion of such loss or damage." This is in accord with the principle of contribution provided under Section 94(e) of the Insurance Code,37 which states that "where the insured is over insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question that now arises is whether there is double insurance in this case such that either Section 5 or Section 12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. The requisites in order for double insurance to arise are as follows:38

1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;

4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same subject matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it is, however, beyond cavil that the said policies were issued to two different persons or entities. It is undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while



Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under its contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is also different and distinct from that of Reputable’s. The policy issued by Philippines First was in consideration of the legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan to Reputable was over the latter’s insurable interest over the safety of the goods, which may become the basis of the latter’s liability in case of loss or damage to the property and falls within the contemplation of Section 15 of the Insurance Code.39

Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same risk, there arises no double insurance since they were issued to two different persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of the SR Policy against Malayan.1âwphi1 This is in keeping with the rule that:

"Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations."40

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same property is covered by another insurance policy, a policy to which it was not a party to and much less, from which it did not stand to benefit. x x x41

On the fourth issue – Reputable is not solidarily liable with Malayan.

There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 the Court ruled that:

Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct and such third persons can directly sue the insurer. The direct liability of the insurer





under indemnity contracts against third party[- ]liability does not mean, however, that the insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they are being held liable under different obligations. The liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the insurer arises from contract, particularly, the insurance policy:43 (Citation omitted and emphasis supplied)

Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations- Malayan's is based on the SR Policy while Reputable's is based on the contract of carriage.

All told, the Court finds no reversible error in the judgment sought to be reviewed.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29, 2008 and Resolution dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No. 71204 are hereby AFFIRMED.

Cost against petitioner Malayan Insurance Co., Inc.

SO ORDERED.

BIENVENIDO L. REYESAssociate justice


FIRST DIVISION

G.R. No. 85624 June 5, 1989

CATHAY INSURANCE CO., INC., EMPIRE INSURANCE CO., UNION INSURANCE SOCIETY OF CANTON, LTD., PARAMOUNT INSURANCE CORP., PHILIPPINE BRITISH INSURANCE CO., & PHILIPPINE FIRST INSURANCE CO., petitioners, vs.HON. COURT OF APPEALS & EMILIA CHAN LUGAY, respondents.

Guzman, Lasam & Associates and F. S. Sumulong & Associates Law offices for petitioners.

Garcia & Pepito Law Offices for private respondent.

GRIÑO-AQUINO, J.:

It has been the sad experience of many who sought protection from disaster or tragedy through insurance, to realize that insurance is quite easy to buy but difficult to collect. Insurance companies are


prone to invent excuses to avoid their just obligations (American Home Ins. Co. vs. Court of Appeals, 109 SCRA 180). This case is one such instance.

Eight (8) years after Emilia Chan Lugay's Cebu Filipina Press was destroyed by fire in broad daylight, she is still waiting to collect the proceeds of seven (7) fire policies which the petitioners sold to her.

The petitioners are the six (6) insurance companies that issued fire insurance policies for the total sum of P4,000,000 to the Cebu Filipino Press of Cebu City, as follows:

1. Cathay Insurance Company for P1,000,000 under Fire Insurance Policy No. F-31056 dated June 10, 1981 renewing Policy No. F27942 (Exh-B-5), covering the period from June 20, 1981 to June 20, 1982 (Exh-B);

2. Empire Insurance Company for P500,000 under Fire Insurance Policy No. YASCO/F-1101 dated March 7, 1981, renewing Policy No. F-1095 (Exh. C-5), covering the period from March 19, 1981 to March 19, 1982 (Exh. C);

3. Union Insurance Society of Canton, Ltd, for P500,000 under Fire Insurance Policy No. NU-0530 dated May 5, 1981, renewing Policy No. MU-223903 (Exh. D-5), covering the period from May 21, 1981 to May 21, 1982 (Exh. D);

4. Paramount Insurance Corp. for P500,000 under Fire Insurance Policy No. 25311 dated July 1, 1981, covering the period from July 15, 1981 to July 15, 1982 (Exh. E);

5. Philippine British Insurance Company for P500,000 under Fire Insurance Policy No. PB-107861 dated July 6, 1981, renewing Policy No. PB-933 11 (Exh. F-5), covering the period from July 10, 1981 to July 10, 1982 (Exh. F).

6. Philippine British Insurance Company for P500,000 under another Fire Insurance Policy No. PB-107848 dated July 1, 1981, renewing Policy No. PB-102653 (Exh G-5), covering the period from July 5, 1981 to July 5, 1982 (Exh. G); and

7. Philippine First Insurance Company for P500,000 under Fire Insurance Policy No. CEB-G-0515 dated January 28, 1981, covering the period from February 15, 1981 to February 15, 1982 (Exh. H). (p. 76, Rollo.)

The fire policies described the insured property as "stocks of printing materials, papers and general merchandise usual to the Assured's trade" (p. 53, Rollo) stored in a one-storey building of strong materials housing the Cebu Filipina Press located at UNNO Pres. Quirino cor. Don V. Sotto Sts., Mabolo, Cebu City. The co-insurers were indicated in each of the policies. All, except one policy (Paramount's), were renewals of earlier policies issued for the same property.

On December 18, 1981, at around ten o'clock in the morning, the Cebu Filipina Press was razed by electrical fire together with all the stocks and merchandise stored in the premises.

On January 15, 1982, Mrs. Lugay, owner and operator of the printing press, submitted sworn Statements of Loss Formal Claims to the insurers, through their djusters. She claimed a total loss of P4,595,00.

She submitted proofs of loss required by the adjusters. After nearly ten (10) months of wating for the insurers to pay his claim, she sued to collect on December 15, 1982. The insurance companies denied liability, alleging violation of certain conditions of the policy, misdeclaration, and even arson which was not seriously pressed for, come the pre-trial, the petitioners offered to pay 50% of her claim, but she insisted in full recovery.

After the trial on the merits, the court rendered judgment in her favor, as follows:

... directing payment by Cathay Insurance Company, Inc., the amount of P1,000,000, by Empire the amount of P5,000,000.00, by Insurance Society of Canton Limited the amount P5,000,000.00, by Paramount Insurance Company, the amount P5,000,000.00, by Philippine British Insurance Company Inc., the amount of P5,000,000.00 by Philippine First Insurance Company, Inc., the amount of P5,000,000.00; for all the defendants jointly and severaly to pay P48,000.00 representing expenses of the plaintiff, and a separate amount of 20% of the P4,000,000.00 representing fees of councel; and interests at the rate of twice the ceiling being prescribe by the Monetary Board starting from the time when the case was filed; and finally, with costs. (Decision Court of Appeal, pp. 1-3.) (p. 77, Rollo.)

On appeal to the Court of Appeals, the decision was affirmed in toto (pp. 52-67, Rollo). Hence, this petition for review under Rule 45 of the Rules of Court wherein the petitioners allege that the Court of Appeals erred:

1. in holding that the private respondent's cause of action had already acrued when the complaint was filed on December 15, 1982 and in not holding that the action is premature;

2. in finding that sufficient proofs of loss had been presented by the private respondent;

3. in not holding that the private respondent's claim for loss was infrated;

4. in awarding damages to the private respondent in the form of interests equivalent to double the interest ceiling set by the Monetary Board despite absence of a finding of unreasonable withholding or refusal to pay the claim; and

5. in awarding exorbitant attorney's fees.

It is plain to see that all these grounds of the petition for review present factual issues which, in view of the provision in Section 2, Rule 45 of the Rules of Court that "only questions of law may be raised" this Court may not inquire into by conducting a tedious reassessment of the "maze of testimonial and documentary evidence" (p. 57, Rollo) of the parties. Referring to the evidence presented at the trial of this case, the Court of Appeals said:

We are impressed indeed with the patience, diligence and perseverance of the trial judge in wading through the voluminous documents, making an exhaustive examination and detailed evaluation of the

evidence, and thus emerging from the maze of testimonial and documentary evidence with accuracy of perception in determining the merits of the respective claims of the litigants. Accordingly, We are constrained to honor and stamp our imprimatur to the findings of fact and conclusions of the trial court since, admittedly, it was in a better position than We are to examine the real evidence, as well as to observe the demeanor of the witnesses while testifying in the case (Chase vs. Buencamino, Sr., 136 SCRA 365). (p. 57, Rollo.)

The finding of the trial court and the Court of Appeals that the insured's cause of action had already accrued before she filed her complaint is supported by Section 243 of the Insurance Code which fixes a maximum period of 90 days after receipt of the proofs of loss by the insurer for the latter to pay the insured s claim.

Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than the insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainiment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninetydays after such receipt. ... (Insurance Code.)

As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981 and the proofs of loss were submitted from January 15, 1982 through June 21, 1982 in compliance with the adjusters' numerous requests for various documents, payment should have been made within 90 days thereafter, or on or before September 21, 1982. Hence, when the assured file her complaint on December 15, 1982, her cause of action had a ready accrued.

There is no merit in the petitioners' contention that the proof of loss were insufficient because respondent Emilia Chan Luga failed to comply with the adjuster's request for the submission of her bank statements. Condition No. 13 of the insurance policy on proofs of loss, provides:

13. The insured shall give immediate written notice to th company of any loss, protect the property from further damage, forth with separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed damaged and undamaged property, showing in detail quantities, costs, actual cash value and the amount of loss claimed; AN WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS signed and sworn to by the insured, stating the knowledge and belief of th insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy, by whom and for what purpose any buildings herein described and the several parts thereof were occupied at the time of the loss and whether or not they stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies and, if required, verified plans and specifications of any building, fixtures or machine destroyed or damaged.

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

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

Condition No. 13, as the Court of Appeals observed, does not require the insured to produce her bank statements. Therefore, the insured was not obligated to produce them and the insurers had no right to ask for them. Condition No. 13 was prepared by the insurers themselves, hence, it "should be taken most strongly" (p. 58, Rollo) against them.

The Court of Appeals found that the insured "fully complied with the requirements of Condition No. 13" (p. 58, Rollo). The adjuster's demand for the assured's bank statements (which under the law on the secrecy of bank deposits, she need not disclose) would add more requirements to Condition No. 13 of the insurance contract, and, as pointed out by the Appellate Court, "would amount to giving the insurers limitless latitude in making unreasonable demands if only to evade and avoid liability" (p. 58, Rollo).

Nor was the claim inflated. Both the trial court and the Court of Appeals noted that the proofs were ample and "more than enough ... for defendants (insurers) to do a just assessment supporting the 1981 fire claim for an amount exceeding four million pesos" (p. 60, Rollo).

The trial court's award (which was affirmed by the Court of Appeals) of double interest on the private respondent's claim is lawful and justified under Sections 243 and 244 of the Insurance Code which provide:

Sec. 243. ... Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, ...

Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist attorney's fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of claim due the insured, ... (Emphasis supplied; p. 66, Rollo.)

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

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

As provided in Section 244 also, by reason of the delay and consequent filing of this suit by the insured, the insurers "shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured." In view of the not insubstantial value of the private respondent's claims and the considerable time and effort expended by them and their counsel in prosecuting these claims for the past eight (8) years, We hold that attorney's fees were properly awarded to the private respondents. However, an award equivalent to (10%) percent of the proceeds of the policies would be more reasonable than the 20% awarded by the trial court and th Appellate Court.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. CV-12100 is affirmed, except the award of attorney's fees to the private respondents which is hereby reduced to ten (10%) percent of the proceeds of the insurance policies sued upon. Costs against the petitioners.

SO ORDERED.

Narvasa, Cruz and Gancayco, JJ., concur.

Medialdea, J., is on leave.


FIRST DIVISION

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

ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber Enterprises and ONG CHIONG, petitioners, vs.HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY CORPORATION,respondent.

GUTIERREZ, JR., J.:

This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court which absolved the respondent insurance company from liability on the grounds that the vessel carrying the

insured cargo was unseaworthy and the loss of said cargo was caused not by the perils of the sea but by the perils of the ship.

On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier, entered into a contract with the petitioners whereby the former would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with respondent Pioneer Insurance and Surety Corporation (Pioneer).

On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. As alleged by the petitioners in their complaint and as found by both the trial and appellate courts, the barge where the logs were loaded was not seaworthy such that it developed a leak. The appellate court further found that one of the hatches was left open causing water to enter the barge and because the barge was not provided with the necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside the barge.

On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to respondent Pioneer claiming the full amount of P100,000.00 under the insurance policy but respondent refused to pay on the ground that its hability depended upon the "Total loss by Total Loss of Vessel only". Hence, petitioners commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer.

After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision reads:

FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:

(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance and Surety Corporation to pay plaintiffs, jointly and severally, the sum of P100,000.00;

(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the former as down payment for transporting the logs in question;

(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for lack of merit, but as to its cross-claim against its co-defendant Manila Bay Lighterage Corporation, the latter is ordered to reimburse the former for whatever amount it may pay the plaintiffs as such surety;

(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for lack of merit;

(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's fees in the sum of P10,000.00 is hereby granted, against both defendants, who are, moreover ordered to pay the costs; and

(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%) from March 25, 1975, until amount is fully paid.

Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal. According to the petitioners, the transportation company is no longer doing business and is without funds.

During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part of the logs. The court ordered them to be sold to the highest bidder with the funds to be deposited in a bank in the name of Civil Case No. 86599.

On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer from liability after finding that there was a breach of implied warranty of seaworthiness on the part of the petitioners and that the loss of the insured cargo was caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy.

After the appellate court denied their motion for reconsideration, the petitioners filed this petition with the following assignments of errors:

I

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF MARINE CARGO INSURANCE, THERE IS A WARRANTY OF SEAWORTHINESS BY THE CARGO OWNER.

II

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS OF THE CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND NOT BY "PERILS OF THE SEA."

III

THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE RETURN TO PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT WERE RECOVERED.

In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness provided for in the Insurance Code refers only to the responsibility of the shipowner who must see to it that his ship is reasonably fit to make in safety the contemplated voyage.

The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its seaworthiness. They argue that a cargo owner has no control over the structure of the ship, its cables, anchors, fuel and provisions, the manner of loading his cargo and the cargo of other shippers,

and the hiring of a sufficient number of competent officers and seamen. The petitioners' arguments have no merit.

There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to appeal the questioned decision. However, the petitioners state that Manila Bay has ceased operating as a firm and nothing may be recovered from it. They are, therefore, trying to recover their losses from the insurer.

The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides:

In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship is seaworthy.

Section 99 of the same Code also provides in part.

Marine insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...

From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be the shipowner or not.

As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40):

The same conclusion must be reached if the question be discussed with reference to the seaworthiness of the ship. It is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...

Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance and may not be used by him as a defense in order to recover on the marine insurance policy.

As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):

There was no look-out, and both that and the rate of speed were contrary to the Canadian Statute. The exception of losses occasioned by unseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether the fact of unseaworthiness were known or unknown would be immaterial.

Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel but he has full control in the choice of the common carrier that will transport his goods. Or the cargo owner may

enter into a contract of insurance which specifically provides that the insurer answers not only for the perils of the sea but also provides for coverage of perils of the ship.

We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by the private respondents:

In marine cases, the risks insured against are "perils of the sea" (Chute v. North River Ins. Co., Minn—214 NW 472, 55 ALR 933). The purpose of such insurance is protection against contingencies and against possible damages and such a policy does not cover a loss or injury which must inevitably take place in the ordinary course of things. There is no doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or by the violence of the elements, and does not embrace all losses happening at sea. They insure against losses from extraordinary occurrences only, such as stress of weather, winds and waves, lightning, tempests, rocks and the like. These are understood to be the "perils of the sea" referred in the policy, and not those ordinary perils which every vessel must encounter. "Perils of the sea" has been said to include only such losses as are of extraordinarynature, or arise from some overwhelming power, which cannot be guarded against by the ordinary exertion of human skill and prudence. Damage done to a vessel by perils of the sea includes every species of damages done to a vessel at sea, as distinguished from the ordinary wear and tear of the voyage, and distinct from injuries suffered by the vessel in consequence of her not being seaworthy at the outset of her voyage (as in this case). It is also the general rule that everything which happens thru the inherent vice of the thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not otherwise borne in the policy. (14 RCL on Insurance, Sec. 384, pp. 1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459).

With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was caused by the perils of the sea, not by the perils of the ship because as found by the trial court, the barge was turned loose from the tugboat east of Cabuli Point "where it was buffeted by storm and waves." Moreover, petitioners also maintain that barratry, against which the cargo was also insured, existed when the personnel of the tugboat and the barge committed a mistake by turning loose the barge from the tugboat east of Cabuli Point. The trial court also found that the stranding and foundering of Mable 10 was due to improper loading of the logs as well as to a leak in the barge which constituted negligence.

On the contention of the petitioners that the trial court found that the loss was occasioned by the perils of the sea characterized by the "storm and waves" which buffeted the vessel, the records show that the court ruled otherwise. It stated:

xxx xxx xxx

... The other affirmative defense of defendant Lighterage, 'That the supposed loss of the logs was occasioned by force majeure... "was not supported by the evidence. At the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a condition which is natural and normal in the open sea. The evidence shows that the sinking of Mable 10 was due to improper loading of the logs on one side so that the barge was tilting on one side and for that it did not navigate on even keel; that it

was no longer seaworthy that was why it developed leak; that the personnel of the tugboat and the barge committed a mistake when it turned loose the barge from the tugboat east of Cabuli point where it was buffeted by storm and waves, while the tugboat proceeded to west of Cabuli point where it was protected by the mountain side from the storm and waves coming from the east direction. ..."

In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier developed a leak which allowed water to come in and that one of the hatches of said barge was negligently left open by the person in charge thereof causing more water to come in and that "the loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of defendant carrier and/or defendant carrier's representatives on barge Mable 10."

It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. The facts clearly negate the petitioners' claim under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, supra, we had occasion to elaborate on the term "perils of the ship." We ruled:

It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the "peril of the ship." The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the insurer liable, be some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen.

In the present case the entrance of the sea water into the ship's hold through the defective pipe already described was not due to any accident which happened during the voyage, but to the failure of the ship's owner properly to repair a defect of the existence of which he was apprised. The loss was therefore more analogous to that which directly results from simple unseaworthiness than to that which result from the perils of the sea.

xxx xxx xxx

Suffice it to say that upon the authority of those cases there is no room to doubt the liability of the shipowner for such a loss as occurred in this case. By parity of reasoning the insurer is not liable; for generally speaking, the shipowner excepts the perils of the sea from his engagement under the bill of lading, while this is the very perils against which the insurer intends to give protection. As applied to the present case it results that the owners of the damaged rice must look to the shipowner for redress and not to the insurer.

Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of the vessel's crew.

Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to the prejudice of the owner's interest." (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1951, p. 929.)

Barratry necessarily requires a willful and intentional act in its commission. No honest error of judgment or mere negligence, unless criminally gross, can be barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)

In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the vessel's crew. There was only simple negligence or lack of skill. Hence, the second assignment of error must likewise be dismissed.

Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00 representing the amount of the salvaged logs should have been awarded to them. However, this should be deducted from the amounts which have been adjudicated against Manila Bay Lighterage Corporation by the trial court.

WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of P8,000.00 representing the value of the salvaged logs which was ordered to be deposited in the Manila Banking Corporation in the name of Civil Case No. 86599 is hereby awarded and ordered paid to the petitioners. The liability adjudged against Manila Bay Lighterage Corporation in the decision of the trial court is accordingly reduced by the same amount.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.

Relova, J., is on leave.


SECOND DIVISION

G.R. No. 94052 August 9, 1991

ORIENTAL ASSURANCE CORPORATION, petitioner, vs.COURT OF APPEALS AND PANAMA SAW MILL CO., INC., respondents.

Alejandro P. Ruiz, Jr. for petitioner.

Federico R. Reyes for private respondent.

MELENCIO-HERRERA, J:p

An action to recover on a marine insurance policy, issued by petitioner in favor of private respondent, arising from the loss of a shipment of apitong logs from Palawan to Manila.

The facts relevant to the present review disclose that sometime in January 1986, private respondent Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it against loss for P1-M with petitioner Oriental Assurance Corporation (Oriental Assurance). There is a claim by Panama, however, that the insurance coverage should have been for P3-M were it not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted the amount of P6,000.00 for the payment of the premium for a P3-M policy.

Oriental Assurance issued Marine Insurance Policy No. OACM 86/002, which stipulated, among others:

Name of Insured: Panama Sawmill, Inc.Karuhatan, Valenzuela Metro Manila

Vessel:

MT. 'Seminole' Barge PCT 7,000-1,000 cubic meter apitong Logs Barge Transpac 1,000-1,000 cubic meter apitong Logs Voyage or Period of Insurance:

From Palawan-ETD January 16, 1986 To: Manila

Subject matter Insured:

2,000 cubic meters apitong Logs Agreed Value

Amount Insured Hereunder:

Pesos: One Million Only (P1,000,000.00) Philippine Currency

Premium — P2,500.00 rate — 0.250%

Doc. stamps 187.60 Invoice No. 157862

l % P/tax 25.00

TOTAL P2,712.50

CLAUSES, ENDORSEMENTS, SPECIAL CONDITIONS and WARRANTIES

Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:

— Civil Code Article 1250 Waiver clause

— Typhoon warranty clause

— Omnibus clause.

The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces of logs with a volume of 1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic meters.

On 28 January 1986, the two barges were towed by one tug-boat, the MT 'Seminole' But, as fate would have it, during the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon.

Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its contracted liability was for "TOTAL LOSS ONLY." The rejection was upon the recommendation of the Tan Gatue Adjustment Company.

Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the Regional Trial Court, Kalookan, Branch 123, docketed as Civil Case No. C-12601.

After trial on the merit, the RTC 1 rendered its Decision, with the following dispositive portion:

WHEREFORE, upon all the foregoing premises, judgment is hereby rendered:

1. Ordering the defendant Oriental Assurance Corporation to pay plaintiff Panama Saw Mill Inc. the amount of P415,000.00 as insurance indemnity with interest at the rate of 12% per annum computed from the date of the filing of the complaint;

2. Ordering Panama Saw Mill to pay defendant Ever Insurance Agency or Antonio Sy Lee Yong, owner thereof, (Ever being a single proprietorship) for the amount of P20,000.00 as attorney's fee and another amount of P20,000.00 as moral damages.

3. Dismissing the complaint against defendant Benito Sy Lee Yong.

SO ORDERED.

On appeal by both parties, respondent Appellate Court 2 affirmed the lower Court judgment in all respects except for the rate of interest, which was reduce from twelve (12%) to six (6%) per annum.

Both Courts shared the view that the insurance contract should be liberally construed in order to avoid a denial of substantial justice; and that the logs loaded in the two barges should be treated separately such that the loss sustained by the shipment in one of them may be considered as "constructive total loss" and correspondingly compensable.

In this Petition for Review on Certiorari, Oriental Assurance challenges the aforesaid dispositions. In its Comment, Panama, in turn, maintains that the constructive total loss should be based on a policy value of P3-M and not P1-M, and prays that the award to Ever Insurance Agency or Antonio Sy Lee Yong of damages and attorney's fees be set aside.

The question for determination is whether or not Oriental Assurance can be held liable under its marine insurance policy based on the theory of a divisible contract of insurance and, consequently, a constructive total loss.

Our considered opinion is that no liability attaches.

The terms of the contract constitute the measure of the insurer liability and compliance therewith is a condition precedent to the insured's right to recovery from the insurer (Perla Compania de Seguros, Inc. v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741). Whether a contract is entire or severable is a question of intention to be determined by the language employed by the parties. The policy in question shows that the subject matter insured was the entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges did not make the contract several and divisible as to the items insured. The logs on the two barges were not separately valued or separately insured. Only one premium was paid for the entire shipment, making for only one cause or consideration. The insurance contract must, therefore, be considered indivisible.

More importantly, the insurer's liability was for "total loss only." A total loss may be either actual or constructive (Sec. 129, Insurance Code). An actual total loss is caused by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;

(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or

(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured. (Section 130, Insurance Code).

A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of the Insurance Code. This provision reads:

SECTION 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril injured against,

(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths;

xxx xxx xxx

(Emphasis supplied)

Respondent Appellate Court treated the loss as a constructive total loss, and for the purpose of computing the more than three-fourths value of the logs actually lost, considered the cargo in one barge as separate from the logs in the other. Thus, it concluded that the loss of 497 pieces of logs from barge TPAC-1000, mathematically speaking, is more than three-fourths (¾) of the 598 pieces of logs loaded in that barge and may, therefore, be considered as constructive total loss.

The basis thus used is, in our opinion, reversible error. The requirements for the application of Section 139 of the Insurance Code, quoted above, have not been met. The logs involved, although placed in two barges, were not separately valued by the policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on the same barge can not be made the basis for determining constructive total loss. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment can not be said to have sustained a constructive total loss under Section 139(a) of the Insurance Code.

In the absence of either actual or constructive total loss, there can be no recovery by the insured Panama against the insurer, Oriental Assurance.

By reason of the conclusions arrived at, Panama's asseverations in its Comment need no longer be passed upon, besides the fact that no review, in proper form, has been sought by it.

WHEREFORE, the judgment under review is hereby SET ASIDE and petitioner, Oriental Assurance Corporation, is hereby ABSOLVED from liability under its marine insurance policy No. OAC-M-86/002. No costs.

SO ORDERED.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.


THIRD DIVISION

G.R. No. 200784 August 7, 2013

MALAYAN INSURANCE COMPANY, INC., PETITIONER, vs.PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.

D E C I S I O N

MENDOZA, J.:

Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the October 27, 2011 Decision1 of the Court of Appeals (CA), which affirmed with modification the September 17, 2009 Decision2 of the Regional Trial Court, Branch 15, Manila (RTC), and its February 24, 2012 Resolution3 denying the motion for reconsideration filed by petitioner Malayan Insurance Company., Inc. (Malayan).

The Facts

The undisputed factual antecedents were succinctly summarized by the CA as follows:

On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The insurance, which was for Fifteen Million Pesos (?15,000,000.00) and effective for a period of one (1) year, was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the mortgagee of the insured machineries and equipment.

After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the policy on an "as is" basis. Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998.

On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the amount insured.

In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of the loss, the insured machineries and equipment were transferred by PAP Co. to a location different from that indicated in the policy. Specifically, that the insured machineries were transferred in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party duty-bound to relay such information. However, Malayan reiterated its denial of PAP Co.’s claim. Distraught, PAP Co. filed the complaint below against Malayan.4

Ruling of the RTC

http://www.lawphil.net/judjuris/juri2013/aug2013/gr_200784_2013.html#fnt4




On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP Company Ltd (PAP) an indemnity for the loss under the fire insurance policy as well as for attorney’s fees. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff. Defendant is hereby ordered:

a)

To pay plaintiff the sum of FIFTEEN MILLION PESOS (P15,000,000.00) as and for indemnity for the loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum from the time of loss on October 12, 1997 until fully paid;

b)

To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (PhP500,000.00) as and by way of attorney’s fees; [and,]

c)

To pay the costs of suit.

SO ORDERED.5

The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire insurance policy because, although there was a change in the condition of the thing insured as a result of the transfer of the subject machineries to another location, said insurance company failed to show proof that such transfer resulted in the increase of the risk insured against. In the absence of proof that the alteration of the thing insured increased the risk, the contract of fire insurance is not affected per Article 169 of the Insurance Code.

The RTC further stated that PAP’s notice to Rizal Commercial Banking Corporation (RCBC) sufficiently complied with the notice requirement under the policy considering that it was RCBC which procured the insurance. PAP acted in good faith in notifying RCBC about the transfer and the latter even conducted an inspection of the machinery in its new location.

Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial court erred in ordering it to indemnify PAP for the loss of the subject machineries since the latter, without notice and/or consent, transferred the same to a location different from that indicated in the fire insurance policy.

Ruling of the CA

On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision but deleted the attorney’s fees. The decretal portion of the CA decision reads:


WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance Company must indemnify PAP Co. Ltd the amount of Fifteen Million Pesos (PhP15,000,000.00) for the loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum from the time of loss on October 12, 1997 until fully paid. However, the Five Hundred Thousand Pesos (PhP500,000.00) awarded to PAP Co., Ltd. as attorney’s fees is DELETED. With costs.

SO ORDERED.6

The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of the insured properties during the efficacy of the insurance policy. Malayan also failed to show that its contractual consent was needed before carrying out a transfer of the insured properties. Despite its bare claim that the original and the renewed insurance policies contained provisions on transfer limitations of the insured properties, Malayan never cited the specific provisions.

The CA further stated that even if there was such a provision on transfer restrictions of the insured properties, still Malayan could not escape liability because the transfer was made during the subsistence of the original policy, not the renewal policy. PAP transferred the insured properties from the Sanyo Factory to the Pace Pacific Building (Pace Factory) sometime in September 1996. Therefore, Malayan was aware or should have been aware of such transfer when it issued the renewal policy on May 14, 1997. The CA opined that since an insurance policy was a contract of adhesion, any ambiguity must be resolved against the party that prepared the contract, which, in this case, was Malayan.

Finally, the CA added that Malayan failed to show that the transfer of the insured properties increased the risk of the loss. It, thus, could not use such transfer as an excuse for not paying the indemnity to PAP. Although the insurance proceeds were payable to RCBC, PAP could still sue Malayan to enforce its rights on the policy because it remained a party to the insurance contract.

Not in conformity with the CA decision, Malayan filed this petition for review anchored on the following

GROUNDS

I

THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING IN THE QUESTIONED DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE INSURANCE CONTRACT BECAUSE:

CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED, THAT ON THE FACE OF THE RENEWAL POLICY ISSUED TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR A REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT THE SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN THE RENEWAL POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED PROPERTIES WERE NOT AT THE SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS DIFFERENT LOCATION WHEN THE LOSS INSURED AGAINST OCCURRED. THESE SET OF


UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF THE INSURANCE CODE, RESPECTIVELY.

RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT CONCEALMENT, MISREPRESENTATION OR BREACH OF AN AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE INSURED PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM WHAT WAS INDICATED IN THE INSURANCE POLICY.

IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE CONDITIONS AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE THE REASONS WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE INSURANCE POLICY.

MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN INCREASE IN RISK BECAUSE OF THE UNILATERAL TRANSFER OF THE INSURED PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY RESPONDENT PAP CO.

II

THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT IMPOSED INTEREST AT THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL FULLY PAID.

JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A LOAN OR FORBEARANCE OF MONEY FROM WHICH A BREACH ENTITLES A PLAINTIFF TO AN AWARD OF INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.

MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD NOT HAVE BEEN APPLIED BY THE COURT OF APPEALS BECAUSE THERE WAS NEVER ANY FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER RESPONDENT PAP CO. COMMITTED CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED.

III

THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED DECISION THAT THE PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE

TO RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE INSURANCE POLICY.

IV

THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED DECISION AND RESOLUTION THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE ADOPTED.7

Malayan basically argues that it cannot be held liable under the insurance contract because PAP committed concealment, misrepresentation and breach of an affirmative warranty under the renewal policy when it transferred the location of the insured properties without informing it. Such transfer affected the correct estimation of the risk which should have enabled Malayan to decide whether it was willing to assume such risk and, if so, at what rate of premium. The transfer also affected Malayan’s ability to control the risk by guarding against the increase of the risk brought about by the change in conditions, specifically the change in the location of the risk.

Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance Code8 when it did not inform Malayan of the actual and new location of the insured properties. In fact, before the issuance of the renewal policy on May 14, 1997, PAP even informed it that there would be no changes in the renewal policy. Malayan also argues that PAP is guilty of breach of warranty under the renewal policy in violation of Section 74 of the Insurance Code9 when, contrary to its affirmation in the renewal policy that the insured properties were located at the Sanyo Factory, these were already transferred to the Pace Factory. Malayan adds that PAP is guilty of misrepresentation upon a material fact in violation of Section 45 of the Insurance Code10 when it informed Malayan that there would be no changes in the original policy, and that the original policy would be renewed on an "as is" basis.

Malayan further argues that PAP failed to discharge the burden of proving that the transfer of the insured properties under the insurance policy was with its knowledge and consent. Granting that PAP informed RCBC of the transfer or change of location of the insured properties, the same is irrelevant and does not bind Malayan considering that RCBC is a corporation vested with separate and distinct juridical personality. Malayan did not consent to be the principal of RCBC. RCBC did not also act as Malayan’s representative.

With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase in risk as a result of the unilateral transfer of the insured properties. According to Malayan, the Sanyo Factory was occupied as a factory of automotive/computer parts by the assured and factory of zinc & aluminum die cast and plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A, while Pace Factory was occupied as factory that repacked silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.

PAP’s position





On the other hand, PAP counters that there is no evidence of any misrepresentation, concealment or deception on its part and that its claim is not fraudulent. It insists that it can still sue to protect its rights and interest on the policy notwithstanding the fact that the proceeds of the same was payable to RCBC, and that it can collect interest at the rate of 12% per annum on the proceeds of the policy because its claim for indemnity was unduly delayed without legal justification.


The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured properties under the fire insurance policy.

As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a ?15,000,000.00 fire insurance policy from Malayan covering its machineries and equipment effective for one (1) year or until May 13, 1997; that the policy expressly stated that the insured properties were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite"; that before its expiration, the policy was renewed11 on an "as is" basis for another year or until May 13, 1998; that the subject properties were later transferred to the Pace Factory also in PEZA; and that on October 12, 1997, during the effectivity of the renewal policy, a fire broke out at the Pace Factory which totally burned the insured properties.

The policy forbade the removal of the insured properties unless sanctioned by Malayan

Condition No. 9(c) of the renewal policy provides:

9. Under any of the following circumstances the insurance ceases to attach as regards the property affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of the company signified by endorsement upon the policy, by or on behalf of the Company:

x x x x x x x x x

(c) If property insured be removed to any building or place other than in that which is herein stated to be insured.12

Evidently, by the clear and express condition in the renewal policy, the removal of the insured property to any building or place required the consent of Malayan. Any transfer effected by the insured, without the insurer’s consent, would free the latter from any liability.

The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal

The records are bereft of any convincing and concrete evidence that Malayan was notified of the transfer of the insured properties from the Sanyo factory to the Pace factory. The Court has combed the records and found nothing that would show that Malayan was duly notified of the transfer of the insured properties.

What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the entity which made the referral and the named beneficiary in the policy. Malayan and RCBC



might have been sister companies, but such fact did not make one an agent of the other. The fact that RCBC referred PAP to Malayan did not clothe it with authority to represent and bind the said insurance company. After the referral, PAP dealt directly with Malayan.

The respondent overlooked the fact that during the November 9, 2006 hearing,13 its counsel stipulated in open court that it was Malayan’s authorized insurance agent, Rodolfo Talusan, who procured the original policy from Malayan, not RCBC. This was the reason why Talusan’s testimony was dispensed with.

Moreover, in the previous hearing held on November 17, 2005,14 PAP’s hostile witness, Alexander Barrera, Administrative Assistant of Malayan, testified that he was the one who procured Malayan’s renewal policy, not RCBC, and that RCBC merely referred fire insurance clients to Malayan. He stressed, however, that no written referral agreement exists between RCBC and Malayan. He also denied that PAP notified Malayan about the transfer before the renewal policy was issued. He added that PAP, through Maricar Jardiniano (Jardiniano), informed him that the fire insurance would be renewed on an "as is basis."15

Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it notified RCBC and Malayan was not indubitably established. At best, PAP could only come up with the hearsay testimony of its principal witness, Branch Manager Katsumi Yoneda (Mr. Yoneda), who testified as follows:

Q

What did you do as Branch Manager of Pap Co. Ltd.?

A

What I did I instructed my Secretary, because these equipment was bank loan and because of the insurance I told my secretary to notify.

Q

To notify whom?

A

I told my Secretary to inform the bank.

Q

You are referring to RCBC?

A

Yes, sir.

x x x x




Q

After the RCBC was informed in the manner you stated, what did you do regarding the new location of these properties at Pace Pacific Bldg. insofar as Malayan Insurance Company is concerned?

A

After that transfer, we informed the RCBC about the transfer of the equipment and also Malayan Insurance but we were not able to contact Malayan Insurance so I instructed again my secretary to inform Malayan about the transfer.

Q

Who was the secretary you instructed to contact Malayan Insurance, the defendant in this case?

A

Dory Ramos.

Q

How many secretaries do you have at that time in your office?

A

Only one, sir.

Q

Do you know a certain Maricar Jardiniano?

A

Yes, sir.

Q

Why do you know her?

A

Because she is my secretary.

Q

So how many secretaries did you have at that time?

A

Two, sir.

Q

What happened with the instruction that you gave to your secretary Dory Ramos about the matter of informing the defendant Malayan Insurance Co of the new location of the insured properties?

A

She informed me that the notification was already given to Malayan Insurance.

Q

Aside from what she told you how did you know that the information was properly relayed by the said secretary, Dory Ramos, to Malayan Insurance?

A

I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.

Q

Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan Insurance Company about the transfer of the properties insured to the new location, do you know what happened insofar this information was given to the defendant Malayan Insurance?

A

I heard that someone from Malayan Insurance came over to our company.

Q

Did you come to know who was that person who came to your place at Pace Pacific?

A

I do not know, sir.

Q

How did you know that this person from Malayan Insurance came to your place?

A

It is according to the report given to me.

Q

Who gave that report to you?

A

Dory Ramos.

Q

Was that report in writing or verbally done?

A

Verbal.16 [Emphases supplied]

The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal knowledge of the notice to either Malayan or RCBC. PAP should have presented his secretaries, Dory Ramos and Maricar Jardiniano, at the witness stand. His testimony alone was unreliable.

Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties were transferred to a different location only after the renewal of the fire insurance policy.

COURT

Q

When did you transfer the machineries and equipments before the renewal or after the renewal of the insurance?

A

After the renewal.

COURT

Q

You understand my question?

A

Yes, Your Honor.17 [Emphasis supplied]

This enfeebles PAP’s position that the subject properties were already transferred to the Pace factory before the policy was renewed.

The transfer from the Sanyo Factory to the PACE Factory increased the risk.

The courts below held that even if Malayan was not notified thereof, the transfer of the insured properties to the Pace Factory was insignificant as it did not increase the risk.

Malayan argues that the change of location of the subject properties from the Sanyo Factory to the Pace Factory increased the hazard to which the insured properties were exposed. Malayan wrote:



With regards to the exposure of the risk under the old location, this was occupied as factory of automotive/computer parts by the assured, and factory of zinc & aluminum die cast, plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But under Pace Pacific Mfg. Corporation this was occupied as factory that repacks silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A. Hence, there was an increase in the hazard as indicated by the increase in rate.18

The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a hazardous environment and negatively affected the fire rating stated in the renewal policy. The increase in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk of loss. Such increase in risk would necessarily entail an increase in the premium payment on the fire policy.

Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the importance of the issue, PAP failed to refute Malayan’s argument on the increased risk.

Malayan is entitled to rescind the insurance contract

Considering that the original policy was renewed on an "as is basis," it follows that the renewal policy carried with it the same stipulations and limitations. The terms and conditions in the renewal policy provided, among others, that the location of the risk insured against is at the Sanyo factory in PEZA. The subject insured properties, however, were totally burned at the Pace Factory. Although it was also located in PEZA, Pace Factory was not the location stipulated in the renewal policy. There being an unconsented removal, the transfer was at PAP’s own risk. Consequently, it must suffer the consequences of the fire. Thus, the Court agrees with the report of Cunningham Toplis Philippines, Inc., an international loss adjuster which investigated the fire incident at the Pace Factory, which opined that "[g]iven that the location of risk covered under the policy is not the location affected, the policy will, therefore, not respond to this loss/claim."19

It can also be said that with the transfer of the location of the subject properties, without notice and without Malayan’s consent, after the renewal of the policy, PAP clearly committed concealment, misrepresentation and a breach of a material warranty. Section 26 of the Insurance Code provides:

Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance."

Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of an alteration in the use or condition of the thing insured. Section 168 of the Insurance Code provides, as follows:

Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.



Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:

1) the policy limits the use or condition of the thing insured;

2) there is an alteration in said use or condition;

3) the alteration is without the consent of the insurer;

4) the alteration is made by means within the insured’s control; and

5) the alteration increases the risk of loss.20

In the case at bench, all these circumstances are present. It was clearly established that the renewal policy stipulated that the insured properties were located at the Sanyo factory; that PAP removed the properties without the consent of Malayan; and that the alteration of the location increased the risk of loss.

WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable for the loss of the insured machineries and equipment suffered by PAP Co., Ltd.

SO ORDERED.

JOSE CATRAL MENDOZAAssociate Justice


FIRST DIVISION

G.R. No. L-36480 May 31, 1988

ANDREW PALERMO, plaintiff-appellee, vs.PYRAMID INSURANCE CO., INC., defendant- appellant.

GRIÑO-AQUINO, J:

The Court of Appeals certified this case to Us for proper disposition as the only question involved is the interpretation of the provision of the insurance contract regarding the "authorized driver" of the insured motor vehicle.


On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the Court of First Instance of Negros Occidental against Pyramid Insurance Co., Inc., for payment of his claim under a Private Car Comprehensive Policy MV-1251 issued by the defendant (Exh. A).

In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed the claim because at the time of the accident, the insured was driving his car with an expired driver's license.

After the trial, the court a quo rendered judgment on October 29, 1969 ordering the defendant "to pay the plaintiff the sum of P20,000.00, value of the insurance of the motor vehicle in question and to pay the costs."

On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution Pending Appeal." It was opposed by the defendant, but was granted by the trial court on December 15, 1969.

The trial court found the following facts to be undisputed:

On October 12,1968, after having purchased a brand new Nissan Cedric de Luxe Sedan car bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod City, plaintiff insured the same with the defendant insurance company against any loss or damage for P 20,000.00 and against third party liability for P 10,000.00. Plaintiff paid the defendant P 361.34 premium for one year, March 12, 1968 to March 12, 1969, for which defendant issued Private Car Comprehensive Policy No. MV-1251, marked Exhibit "A."

The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam Bok Motors Co., to secure the payment of the balance of the purchase price, which explains why the registration certificate in the name of the plaintiff remains in the hands of the mortgagee, Ng Sam Bok Motors Co.

On April 17, 1968, while driving the automobile in question, the plaintiff met a violent accident. The La Carlota City fire engine crashed head on, and as a consequence, the plaintiff sustained physical injuries, his father, Cesar Palermo, who was with am in the car at the time was likewise seriously injured and died shortly thereafter, and the car in question was totally wrecked.

The defendant was immediately notified of the occurrence, and upon its orders, the damaged car was towed from the scene of the accident to the compound of Ng Sam Bok Motors in Bacolod City where it remains deposited up to the present time.

The insurance policy, Exhibit "A," grants an option unto the defendant, in case of accident either to indemnify the plaintiff for loss or damage to the car in cash or to replace the damaged car. The defendant, however, refused to take either of the above-mentioned alternatives for the reason as alleged, that the insured himself had violated the terms of the policy when he drove the car in question with an expired driver's license. (Decision, Oct. 29, 1969, p. 68, Record on Appeal.)

Appellant alleges that the trial court erred in interpreting the following provision of the Private Car Comprehensive Policy MV-1251:

AUTHORIZED DRIVER:

Any of the following:

(a) The Insured.

(b) Any person driving on the Insured's order or with his permission. Provided that the person driving is permitted in accordance with the licensing or other laws or regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order of a Court of law or by reason of any enactment or regulation in that behalf. (Exh. "A.")

There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the insured motor vehicle because his driver's license had expired. The driver of the insured motor vehicle at the time of the accident was, the insured himself, hence an "authorized driver" under the policy.

While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway without a license or with an expired license, an infraction of the Motor Vehicle Law on the part of the insured, is not a bar to recovery under the insurance contract. It however renders him subject to the penal sanctions of the Motor Vehicle Law.

The requirement that the driver be "permitted in accordance with the licensing or other laws or regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order of a Court of Law or by reason of any enactment or regulation in that behalf," applies only when the driver" is driving on the insured's order or with his permission." It does not apply when the person driving is the insured himself.

This view may be inferred from the decision of this Court in Villacorta vs. Insurance Commission, 100 SCRA 467, where it was held that:

The main purpose of the "authorized driver" clause, as may be seen from its text, is that a person other than the insured owner, who drives the car on the insured's order, such as his regular driver, or with his permission, such as a friend or member of the family or the employees of a car service or repair shop, must be duly licensed drivers and have no disqualification to drive a motor vehicle.

In an American case, where the insured herself was personally operating her automobile but without a license to operate it, her license having expired prior to the issuance of the policy, the Supreme Court of Massachusetts was more explicit:

... Operating an automobile on a public highway without a license, which act is a statutory crime is not precluded by public policy from enforcing a policy indemnifying her against liability for bodily injuries The inflicted by use of the automobile." (Drew C. Drewfield McMahon vs. Hannah Pearlman, et al., 242 Mass. 367, 136 N.E. 154, 23 A.L.R. 1467.)

WHEREFORE, the appealed decision is affirmed with costs against the defendant-appellant.

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.


FIRST DIVISION

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

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

TEEHANKEE, Acting C.J.:

The Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint and holds that where the insured's car is wrongfully taken without the insured's consent from the car service and repair shop to whom it had been entrusted for check-up and repairs (assuming that such taking was for a joy ride, in the course of which it was totally smashed in an accident), respondent insurer is liable and must pay insured for the total loss of the insured vehicle under the theft clause of the policy.

The undisputed facts of the case as found in the appealed decision of April 14, 1980 of respondent insurance commission are as follows:

Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00 — Own Damage; P30,000.00 — Theft; and P30,000.00 — Third Party Liability, effective May 16, 1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978, while it was in the custody of the Sunday Machine Works, the car was allegedly taken by six (6) persons and driven out to Montalban, Rizal. While travelling along Mabini St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car figured in an accident, hitting and bumping a gravel and sand truck parked at the right side of the road going south. As a consequence, the gravel and sand truck veered to the right side of the pavement going south and the car veered to the right side of the pavement going north. The driver, Benito Mabasa, and one of the passengers died and the other four sustained physical injuries. The car, as well, suffered extensive damage. Complainant, thereafter, filed a claim for total loss with the respondent company but claim was denied. Hence, complainant, was compelled to institute the present action.

The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire Insurance Company admittedly undertook to indemnify the petitioner-insured against loss or damage to the car (a) by accidental collision or overturning, or collision or overturning consequent upon mechanical

breakdown or consequent upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act.

Respondent insurance commission, however, dismissed petitioner's complaint for recovery of the total loss of the vehicle against private respondent, sustaining respondent insurer's contention that the accident did not fall within the provisions of the policy either for the Own Damage or Theft coverage, invoking the policy provision on "Authorized Driver" clause. 1

Respondent commission upheld private respondent's contention on the "Authorized Driver" clause in this wise: "It must be observed that under the above-quoted provisions, the policy limits the use of the insured vehicle to two (2) persons only, namely: the insured himself or any person on his (insured's) permission. Under the second category, it is to be noted that the words "any person' is qualified by the phrase

... on the insured's order or with his permission.' It is therefore clear that if the person driving is other than the insured, he must have been duly authorized by the insured, to drive the vehicle to make the insurance company liable for the driver's negligence. Complainant admitted that she did not know the person who drove her vehicle at the time of the accident, much less consented to the use of the same (par. 5 of the complaint). Her husband likewise admitted that he neither knew this driver Benito Mabasa (Exhibit '4'). With these declarations of complainant and her husband, we hold that the person who drove the vehicle, in the person of Benito Mabasa, is not an authorized driver of the complainant. Apparently, this is a violation of the 'Authorized Driver' clause of the policy.

Respondent commission likewise upheld private respondent's assertion that the car was not stolen and therefore not covered by the Theft clause, ruling that "The element of 'taking' in Article 308 of the Revised Penal Code means that the act of depriving another of the possession and dominion of a movable thing is coupled ... with the intention. at the time of the 'taking', of withholding it with the character of permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In other words, there must have been shown a felonious intent upon the part of the taker of the car, and the intent must be an intent permanently to deprive the insured of his car," and that "Such was not the case in this instance. The fact that the car was taken by one of the residents of the Sunday Machine Works, and the withholding of the same, for a joy ride should not be construed to mean 'taking' under Art. 308 of the Revised Penal Code. If at all there was a 'taking', the same was merely temporary in nature. A temporary taking is held not a taking insured against (48 A LR 2d., page 15)."

The Court finds respondent commission's dismissal of the complaint to be contrary to the evidence and the law.

First, respondent commission's ruling that the person who drove the vehicle in the person of Benito Mabasa, who, according to its finding, was one of the residents of the Sunday Machine Works, Inc. to whom the car had been entrusted for general check-up and repairs was not an "authorized driver" of petitioner-complainant is too restrictive and contrary to the established principle that insurance contracts, being contracts of adhesion where the only participation of the other party is the signing of his signature or his "adhesion" thereto, "obviously call for greater strictness and vigilance on the part of

courts of justice with a view of protecting the weaker party from abuse and imposition, and prevent their becoming traps for the unwary. 2

The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is that a person other than the insured owner, who drives the car on the insured's order, such as his regular driver, or with his permission, such as a friend or member of the family or the employees of a car service or repair shop must be duly licensed drivers and have no disqualification to drive a motor vehicle.

A car owner who entrusts his car to an established car service and repair shop necessarily entrusts his car key to the shop owner and employees who are presumed to have the insured's permission to drive the car for legitimate purposes of checking or road-testing the car. The mere happenstance that the employee(s) of the shop owner diverts the use of the car to his own illicit or unauthorized purpose in violation of the trust reposed in the shop by the insured car owner does not mean that the "authorized driver" clause has been violated such as to bar recovery, provided that such employee is duly qualified to drive under a valid driver's license.

The situation is no different from the regular or family driver, who instead of carrying out the owner's order to fetch the children from school takes out his girl friend instead for a joy ride and instead wrecks the car. There is no question of his being an "authorized driver" which allows recovery of the loss although his trip was for a personal or illicit purpose without the owner's authorization.

Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft clause, not the "authorized driver" clause, that applies), where a car is admittedly as in this case unlawfully and wrongfully taken by some people, be they employees of the car shop or not to whom it had been entrusted, and taken on a long trip to Montalban without the owner's consent or knowledge, such taking constitutes or partakes of the nature of theft as defined in Article 308 of the Revised Penal Code, viz. "Who are liable for theft. — Theft is committed by any person who, with intent to gain but without violence against or intimidation of persons nor force upon things, shall take personal property of another without the latter's consent," for purposes of recovering the loss under the policy in question.

The Court rejects respondent commission's premise that there must be an intent on the part of the taker of the car "permanently to deprive the insured of his car" and that since the taking here was for a "joy ride" and "merely temporary in nature," a "temporary taking is held not a taking insured against."

The evidence does not warrant respondent commission's findings that it was a mere "joy ride". From the very investigator's report cited in its comment, 3 the police found from the waist of the car driver Benito Mabasa Bartolome who smashed the car and was found dead right after the incident "one cal. 45 Colt. and one apple type grenade," hardly the materials one would bring along on a "joy ride". Then, again, it is equally evident that the taking proved to be quite permanent rather than temporary, for the car was totally smashed in the fatal accident and was never returned in serviceable and useful condition to petitioner-owner.

Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a "joy ride", the Court sustains as the better view that which holds that when a person, either with the object of

going to a certain place, or learning how to drive, or enjoying a free ride, takes possession of a vehicle belonging to another, without the consent of its owner, he is guilty of theft because by taking possession of the personal property belonging to another and using it, his intent to gain is evident since he derives therefrom utility, satisfaction, enjoyment and pleasure. Justice Ramon C. Aquino cites in his work Groizard who holds that the use of a thing constitutes gain and Cuello Calon who calls it "hurt de uso. " 4

The insurer must therefore indemnify the petitioner-owner for the total loss of the insured car in the sum of P35,000.00 under the theft clause of the policy, subject to the filing of such claim for reimbursement or payment as it may have as subrogee against the Sunday Machine Works, Inc.

ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing private respondent to pay petitioner the sum of P35,000.00 with legal interest from the filing of the complaint until full payment is made and to pay the costs of suit.

SO ORDERED.

Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.

FIRST DIVISION

FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME INSURANCE CORPORATION), Petitioner,

- versus -

G.R. No. 177839

Present:

CORONA, C.J.,

Chairperson,

LEONARDO-DE CASTRO,

BERSAMIN,

DEL CASTILLO, and

VILLARAMA, JR., JJ.

CHEVRON PHILIPPINES, INC. (formerly known as CALTEX [PHILIPPINES], INC.), Respondent.

Promulgated:

January 18, 2012

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

DECISION

VILLARAMA, JR., J.:

Before this Court is a Rule 45 Petition assailing the Decision[1] dated November 20, 2006 and Resolution[2] dated May 8, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86623, which reversed the Decision[3] dated August 5, 2005 of the Regional Trial Court (RTC) of Makati City, Branch 59 in Civil Case No 02-857.

Respondent Chevron Philippines, Inc., formerly Caltex Philippines, Inc., sued petitioner First Lepanto-Taisho Insurance Corporation (now known as FLT Prime Insurance Corporation) for the payment of unpaid oil and petroleum purchases made by its distributor Fumitechniks Corporation (Fumitechniks).

Fumitechniks, represented by Ma. Lourdes Apostol, had applied for and was issued Surety Bond FLTICG (16) No. 01012 by petitioner for the amount of P15,700,000.00. As stated in the attached rider, the bond was in compliance with the requirement for the grant of a credit line with the respondent “to guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated time in accordance with the terms and conditions of the agreement.” The surety bond was executed on October 15, 2001 and will expire on October 15, 2002.[4]

Fumitechniks defaulted on its obligation. The check dated December 14, 2001 it issued to respondent in the amount of P11,461,773.10, when presented for payment, was dishonored for reason of “Account Closed.” In a letter dated February 6, 2002, respondent notified petitioner of Fumitechniks’ unpaid purchases in the total amount ofP15,084,030.30. In its letter-reply dated February 13, 2002, petitioner through its counsel, requested that it be furnished copies of the documents such as delivery receipts.[5]Respondent complied by sending copies of invoices showing deliveries of fuel and petroleum products between November 11, 2001 and December 1, 2001.

Simultaneously, a letter[6] was sent to Fumitechniks demanding that the latter submit to petitioner the following: (1) its comment on respondent’s February 6, 2002 letter; (2) copy of the agreement secured by the Bond, together with copies of documents such as delivery receipts; and (3) information on the particulars, including “the terms and conditions, of any arrangement that [Fumitechniks] might have made or any ongoing negotiation with Caltex in connection with the settlement of the obligations subject of the Caltex letter.”

In its letter dated March 1, 2002, Fumitechniks through its counsel wrote petitioner’s counsel informing that it cannot submit the requested agreement since no such agreement was executed between Fumitechniks and respondent. Fumitechniks also enclosed a copy of another surety bond issued by CICI General Insurance Corporation in favor of respondent to secure the obligation of Fumitechniks and/or Prime Asia Sales and Services, Inc. in the amount of P15,000,000.00.[7] Consequently, petitioner advised respondent of the non-existence of the principal agreement as confirmed by Fumitechniks. Petitioner explained that being an accessory contract, the bond cannot exist without a principal agreement as it is essential that the copy of the basic contract be submitted to the proposed surety for the appreciation of the extent of the obligation to be covered by the bond applied for.[8]

On April 9, 2002, respondent formally demanded from petitioner the payment of its claim under the surety bond. However, petitioner reiterated its position that without the basic contract subject of the bond, it cannot act on respondent’s claim; petitioner also contested the amount of Fumitechniks’ supposed obligation.[9]

Alleging that petitioner unjustifiably refused to heed its demand for payment, respondent prayed for judgment ordering petitioner to pay the sum of P15,080,030.30, plus interest, costs and attorney’s fees equivalent to ten percent of the total obligation.[10]

Petitioner, in its Answer with Counterclaim,[11] asserted that the Surety Bond was issued for the purpose of securing the performance of the obligations embodied in the Principal Agreement stated therein, which contract should have been attached and made part thereof.

After trial, the RTC rendered judgment dismissing the complaint as well as petitioner’s counterclaim. Said court found that the terms and conditions of the oral credit line agreement between respondent and Fumitechniks have not been relayed to petitioner and neither were the same conveyed even during trial. Since the surety bond is a mere accessory contract, the RTC concluded that the bond cannot stand in the absence of the written agreement secured thereby. In holding that petitioner cannot be held liable under the bond it issued to Fumitechniks, the RTC noted the practice of petitioner, as testified on by its witnesses, to attach a copy of the written agreement (principal contract) whenever it issues a surety bond, or to be submitted later if not yet in the possession of the assured, and in case of failure to submit the said written agreement, the surety contract will not be binding despite payment of the premium.

Respondent filed a motion for reconsideration while petitioner filed a motion for partial reconsideration as to the dismissal of its counterclaim. With the denial of their motions, both parties filed their respective notice of appeal.

The CA ruled in favor of respondent, the dispositive portion of its decision reads:

WHEREFORE, the appealed Decision is REVERSED and SET ASIDE. A new judgment is hereby entered ORDERING defendant-appellant First Lepanto-Taisho Insurance Corporation to pay plaintiff-appellant Caltex (Philippines) Inc. now Chevron Philippines, Inc. the sum of P15,084,030.00.

SO ORDERED.[12]

According to the appellate court, petitioner cannot insist on the submission of a written agreement to be attached to the surety bond considering that respondent was not aware of such requirement and unwritten company policy. It also declared that petitioner is estopped from assailing the oral credit line agreement, having consented to the same upon presentation by Fumitechniks of the surety bond it issued. Considering that such oral contract between Fumitechniks and respondent has been partially executed, the CA ruled that the provisions of the Statute of Frauds do not apply.

With the denial of its motion for reconsideration, petitioner appealed to this Court raising the following issues:

I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF THE PROVISIONS OF THE SURETY BOND WHEN IT HELD THAT THE SURETY BOND SECURED AN ORAL CREDIT LINE AGREEMENT NOTWITHSTANDING THE STIPULATIONS THEREIN CLEARLY SHOWING BEYOND DOUBT THAT WHAT WAS BEING SECURED WAS A WRITTEN AGREEMENT, PARTICULARLY, THE WRITTEN AGREEMENT A COPY OF WHICH WAS EVEN REQUIRED TO BE ATTACHED TO THE SURETY BOND AND MADE A PART THEREOF.

II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE QUESTIONED RESPONDENT’S EVIDENCE FOR BEING CONTRARY TO THE PAROL EVIDENCE RULE, IMMATERIAL AND IRRELEVANT AND CONTRARY TO THE STATUTE OF FRAUDS.

III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE RESPONDENT’S MOTION FOR RECONSIDERATION OF THE RTC DECISION FOR BEING A MERE SCRAP OF PAPER AND PRO FORMA AND, CONSEQUENTLY, IN NOT DECLARING THE RTC DECISION AS FINAL AND EXECUTORY IN SO FAR AS IT DISMISSED THE COMPLAINT.

IV. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE RTC DECISION AND IN NOT GRANTING PETITIONER’S COUNTERCLAIM.[13]

The main issue to be resolved is one of first impression: whether a surety is liable to the creditor in the absence of a written contract with the principal.

Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued under Act 536,[14] as amended. Suretyship arises upon the solidary binding of a person – deemed the surety – with the principal debtor, for the purpose of fulfilling an obligation.[15] Such undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. And

notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.[16]

The extent of a surety’s liability is determined by the language of the suretyship contract or bond itself. It cannot be extended by implication, beyond the terms of the contract.[17] Thus, to determine whether petitioner is liable to respondent under the surety bond, it becomes necessary to examine the terms of the contract itself.

Surety Bond FLTICG (16) No. 01012 is a standard form used by petitioner, which states:

That we, FUMITECHNIKS CORP. OF THE PHILS. of #154 Anahaw St., Project 7, Quezon City as principal and First Lepanto-Taisho Insurance Corporation a corporation duly organized and existing under and by virtue of the laws of the Philippines as Surety, are held firmly bound unto CALTEX PHILIPPINES, INC. of ______ in the sum of FIFTEEN MILLION SEVEN HUNDRED THOUSAND ONLY PESOS (P15,700,000.00), Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and assigns, jointly and severally, firmly by these presents:

The conditions of this obligation are as follows:

WHEREAS, the above-bounden principal, on 15 th day of October, 2001 entered into [an] agreement with CALTEX PHILIPPINES, INC. of ________________ to fully and faithfully

a copy of which is attached hereto and made a part hereof:

WHEREAS, said Obligee__ requires said principal to give a good and sufficient bond in the above stated sum to secure the full and faithful performance on his part of said agreement__ .

NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements stipulated in said agreement__ then this obligation shall be null and void; otherwise it shall remain in full force and effect.

The liability of First Lepanto-Taisho Insurance Corporation under this bond will expire on October 15, 2002__.

x x x x[18] (Emphasis supplied.)

The rider attached to the bond sets forth the following:

WHEREAS, the Principal has applied for a Credit Line in the amount of PESOS: Fifteen Million Seven Hundred thousand only ( P 15,700,000.00) , Philippine Currency with the Obligee for the purchase of Fuel Products;

WHEREAS, the obligee requires the Principal to post a bond to guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated time in accordance with terms and conditions of the agreement;

IN NO CASE, however, shall the liability of the Surety hereunder exceed the sum of PESOS: Fifteen million seven hundred thousand only ( P 15,700,000.00) , Philippine Currency.

NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms and conditions and agreements stipulated in said undertakings, then this obligation shall be null and void; otherwise, it shall remain in full force and effect.

The liability of FIRST LEPANTO-TAISHO INSURANCE CORPORATION, under this Bond will expire on 10.15.01_ . Furthermore, it is hereby understood that FIRST LEPANTO-TAISHO INSURANCE CORPORATION will not be liable for any claim not presented to it in writing within fifteen (15) days from the expiration of this bond, and that the Obligee hereby waives its right to claim or file any court action against the Surety after the termination of fifteen (15) days from the time its cause of action accrues.[19]

Petitioner posits that non-compliance with the submission of the written agreement, which by the express terms of the surety bond, should be attached and made part thereof, rendered the bond ineffective. Since all stipulations and provisions of the surety contract should be taken and interpreted together, in this case, the unmistakable intention of the parties was to secure only those terms and conditions of the written agreement. Thus, by deleting the required submission and attachment of the written agreement to the surety bond and replacing it with the oral credit agreement, the obligations of the surety have been extended beyond the limits of the surety contract.

On the other hand, respondent contends that the surety bond had been delivered by petitioner to Fumitechniks which paid the premiums and delivered the bond to respondent, who in turn, opened the credit line which Fumitechniks availed of to purchase its merchandise from respondent on credit. Respondent points out that a careful reading of the surety contract shows that there is no such requirement of submission of the written credit agreement for the bond’s effectivity. Moreover, respondent’s witnesses had already explained that distributorship accounts are not covered by written distribution agreements. Supplying the details of these agreements is allowed as an exception to the parol evidence rule even if it is proof of an oral agreement. Respondent argues that by introducing documents that petitioner sought to exclude, it never intended to change or modify the contents of the surety bond but merely to establish the actual terms of the distribution agreement between Fumitechniks and respondent, a separate agreement that was executed shortly after the issuance of the surety bond. Because petitioner still issued the bond and allowed it to be delivered to respondent despite the fact that a copy of the written distribution agreement was never attached thereto, respondent avers that clearly, such attaching of the copy of the principal agreement, was for evidentiary purposes only. The real intention of the bond was to secure the payment of all the purchases of Fumitechniks from respondent up to the maximum amount allowed under the bond.

A reading of Surety Bond FLTICG (16) No. 01012 shows that it secures the payment of purchases on credit by Fumitechniks in accordance with the terms and conditions of the “agreement” it entered into with respondent. The word “agreement” has reference to the distributorship agreement, the principal contract and by implication included the credit agreement mentioned in the rider. However, it turned out that respondent has executed written agreements only with its direct customers but not distributors

like Fumitechniks and it also never relayed the terms and conditions of its distributorship agreement to the petitioner after the delivery of the bond. This was clearly admitted by respondent’s Marketing Coordinator, Alden Casas Fajardo, who testified as follows:

Atty. Selim:

Q : Mr. Fajardo[,] you mentioned during your cross-examination that the surety bond as part of the requirements of [Fumitechniks] before the Distributorship Agreement was approved?

A : Yes Sir.

x x x x

Q : Is it the practice or procedure at Caltex to reduce distributorship account into writing?

x x x x

A : No, its not a practice to make an agreement.

x x x x

Atty. Quiroz:

Q : What was the reason why you are not reducing your agreement with your client into writing?

A : Well, of course as I said, there is no fix pricing in terms of distributorship agreement, its usually with regards to direct service to the customers which have direct fixed price.

x x x x

Q : These supposed terms and conditions that you agreed with [Fumitechniks], did you relay to the defendant…

A : Yes Sir.

x x x x

Q : How did you relay that, how did you relay the terms and conditions to the defendant?

A : I don’t know, it was during the time for collection because I collected them and explain the terms and conditions.

Q : You testified awhile ago that you did not talk to the defendant First Lepanto-Taisho Insurance Corporation?

A : I was confused with the question. I’m talking about Malou Apostol.

Q : So, in your answer, you have not relayed those terms and conditions to the defendant First Lepanto, you have not?

A : Yes Sir.

Q : And as of this present, you have not yet relayed the terms and conditions?

A : Yes Sir.

x x x x [20]

Respondent, however, maintains that the delivery of the bond and acceptance of premium payment by petitioner binds the latter as surety, notwithstanding the non-submission of the oral distributorship and credit agreement which understandably cannot be attached to the bond.

The contention has no merit.

The law is clear that a surety contract should be read and interpreted together with the contract entered into between the creditor and the principal. Section 176 of theInsurance Code states:

Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (Emphasis supplied.)

A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it secures.[21] Necessarily, the stipulations in such principal agreement must at least be communicated or made known to the surety particularly in this case where the bond expressly guarantees the payment of respondent’s fuel products withdrawn by Fumitechniks in accordance with the terms and conditions of their agreement. The bond specifically makes reference to a written agreement. It is basic that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.[22] Moreover, being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in favor of the solidary debtor.[23] Having accepted the bond, respondent as creditor must be held bound by the recital in the surety bond that the terms and conditions of its distributorship contract be reduced in writing or at the very least communicated in writing to the surety. Such non-compliance by the creditor (respondent) impacts not on the validity or legality of the surety contract but on the creditor’s right to demand performance.

It bears stressing that the contract of suretyship imports entire good faith and confidence between the parties in regard to the whole transaction, although it has been said that the creditor does not stand as a fiduciary in his relation to the surety. The creditor is generally held bound to a faithful observance of the rights of the surety and to the performance of every duty necessary for the protection of those rights.[24] Moreover, in this jurisdiction, obligations arising from contracts have the force of law between the parties and should be complied with in good faith.[25] Respondent is charged with notice of the specified form of the agreement or at least the disclosure of basic terms and conditions of its distributorship and credit agreements with its client Fumitechniks after its acceptance of the bond delivered by the latter. However, it never made any effort to relay those terms and conditions of its contract with Fumitechniks upon the commencement of its transactions with said client, which

obligations are covered by the surety bond issued by petitioner. Contrary to respondent’s assertion, there is no indication in the records that petitioner had actual knowledge of its alleged business practice of not havingwritten contracts with distributors; and even assuming petitioner was aware of such practice, the bond issued to Fumitechniks and accepted by respondent specifically referred to a “written agreement.”

As to the contention of petitioner that respondent’s motion for reconsideration filed before the trial court should have been deemed not filed for being pro forma, the Court finds it to be without merit. The mere fact that a motion for reconsideration reiterates issues already passed upon by the court does not, by itself, make it a pro forma motion. Among the ends to which a motion for reconsideration is addressed is precisely to convince the court that its ruling is erroneous and improper, contrary to the law or evidence; the movant has to dwell of necessity on issues already passed upon.[26]

Finally, we hold that the trial court correctly dismissed petitioner’s counterclaim for moral damages and attorney’s fees. The filing alone of a civil action should not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral damages.[27] Besides, a juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.[28] Although in some recent cases we have held that the Court may allow the grant of moral damages to corporations, it is not automatically granted; there must still be proof of the existence of the factual basis of the damage and its causal relation to the defendant’s acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.[29] There is no evidence presented to establish the factual basis of petitioner’s claim for moral damages.

Petitioner is likewise not entitled to attorney’s fees. The settled rule is that no premium should be placed on the right to litigate and that not every winning party is entitled to an automatic grant of attorney’s fees.[30] In pursuing its claim on the surety bond, respondent was acting on the belief that it can collect on the obligation of Fumitechniks notwithstanding the non-submission of the written principal contract.

WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The Decision dated November 20, 2006 and Resolution dated May 8, 2007 of the Court of Appeals in CA-G.R. CV No. 86623, are REVERSED and SET ASIDE. The Decision dated August 5, 2005 of the Regional Trial Court of Makati City, Branch 59 in Civil Case No. 02-857 dismissing respondent’s complaint as well as petitioner’s counterclaim, is hereby REINSTATED and UPHELD.

No pronouncement as to costs.

SO ORDERED.


FIRST DIVISION

G.R. Nos. 152505-06 September 13, 2007

PRUDENTIAL GUARANTEE and ASSURANCE, INC., petitioner, vs.EQUINOX LAND CORPORATION, respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us for resolution is the instant Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57335.

The undisputed facts of the case, as established by the Construction Industry Arbitration Commission (CIAC) and affirmed by the Court of Appeals, are:

Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to construct five (5) additional floors to its existing building, the Eastgate Centre, located at 169 EDSA, Mandaluyong City. It then sent invitations to bid to various building contractors. Four (4) building contractors, including J’Marc Construction & Development Corporation (J’Marc), responded.

Finding the bid of J’Marc to be the most advantageous, Equinox offered the construction project to it. On February 22, 1997, J’Marc accepted the offer. Two days later, Equinox formally awarded to J’Marc the contract to build the extension for a consideration of P37,000,000.00.

On February 24, 1997, J’Marc submitted to Equinox two (2) bonds, namely: (1) a surety bond issued by Prudential Guarantee and Assurance, Inc. (Prudential), herein petitioner, in the amount of P9,250,000.00 to guarantee the unliquidated portion of the advance payment payable to J’Marc; and (2) a performance bond likewise issued by Prudential in the amount of P7,400,000.00 to guarantee J’Marc’s faithful performance of its obligations under the construction agreement.

On March 17, 1997, Equinox and J’Marc signed the contract and related documents. Under the terms of the contract, J’Marc would supply all the labor, materials, tools, equipment, and supervision required to complete the project.

In accordance with the terms of the contract, Equinox paid J’Marc a downpayment of P9,250,000.00 equivalent to 25% of the contract price.

http://www.lawphil.net/judjuris/juri2007/sep2007/gr_152505_2007.html#fnt1

J’Marc did not adhere to the terms of the contract. It failed to submit the required monthly progress billings for the months of March and April 1997. Its workers neglected to cover the drainpipes, hence, they were clogged by wet cement. This delayed the work on the project.

On May 23, 1997, J’Marc requested an unscheduled cash advance of P300,000.00 from Equinox, explaining it had encountered cash problems. Equinox granted J’Marc’s request to prevent delay.

On May 31, 1997, J’Marc submitted its first progress billing showing that it had accomplished only 7.3825% of the construction work estimated at P2,731,535.00. After deducting the advanced payments, the net amount payable to J’Marc was only P1,285,959.12. Of this amount, Equinox paid J’Marc only P697,005.12 because the former paid EXAN P588,954.00 for concrete mix.

Shortly after Equinox paid J’Marc based on its first progress billing, the latter again requested an advanced payment of P150,000.00. Again Equinox paid J’Marc this amount. Eventually, Equinox found that the amount owing to J’Marc’s laborers was only P121,000.00, not P150,000.00.

In June 1997, EXAN refused to deliver concrete mix to the project site due to J’Marc’s recurring failure to pay on time. Faced with a looming delay in the project schedule, Equinox acceded to EXAN’s request that payments for the concrete mix should be remitted to it directly.

On June 30, 1997, J’Marc submitted its second progress billing showing that it accomplished only 16.0435% of the project after 4 months of construction work. Based on the contract and its own schedule, J’Marc should have accomplished at least 37.70%.

Faced with the problem of delay, Equinox formally gave J’Marc one final chance to take remedial steps in order to finish the project on time. However, J’Marc failed to undertake any corrective measure. Consequently, on July 10, 1997, Equinox terminated its contract with J’Marc and took over the project. On the same date, Equinox sent Prudential a letter claiming relief from J’Marc’s violations of the contract.

On July 11, 1997, the work on the project stopped. The personnel of both Equinox and J’Marc jointly conducted an inventory of all materials, tools, equipment, and supplies at the construction site. They also measured and recorded the amount of work actually accomplished. As of July 11, 1997, J’Marc accomplished only 19.0573% of the work or a shortage of 21.565% in violation of the contract.

The cost of J’Marc’s accomplishment was only P7,051,201.00. In other words, Equinox overpaid J’Marc in the sum of P3,974,300.25 inclusive of the 10% retention on the first progress billing amounting to P273,152.50. In addition, Equinox also paid the wages of J’Marc’s laborers, the billings for unpaid supplies, and the amounts owing to subcontractors of J’Marc in the total sum of P664,998.09.

On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch 214, Mandaluyong City a complaint for sum of money and damages against J’Marc and Prudential. Equinox prayed that J’Marc be ordered to reimburse the amounts corresponding to its (Equinox) advanced payments and unliquidated portion of its downpayment; and to pay damages. Equinox also prayed that Prudential be ordered to pay its liability under the bonds.

In its answer, J’Marc alleged that Equinox has no valid ground for terminating their contract. For its part, Prudential denied Equinox’s claims and instituted a cross-claim against J’Marc for any judgment that might be rendered against its bonds.

During the hearing, Prudential filed a motion to dismiss the complaint on the ground that pursuant to Executive Order No. 1008, it is the CIAC which has jurisdiction over it.

On February 12, 1999, the trial court granted Prudential’s motion and dismissed the case.

On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed as CIAC Case No. 17-99. Prudential submitted a position paper contending that the CIAC has no jurisdiction over it since it is not a privy to the construction contract between Equinox and J’Marc; and that its surety and performance bonds are not construction agreements, thus, any action thereon lies exclusively with the proper court.

On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and against J’Marc and Prudential, thus:

AWARD

After considering the evidence and the arguments of the parties, we find that:

1. J’Marc has been duly notified of the filing and pendency of the arbitration proceeding commenced by Equinox against J’Marc and that CIAC has acquired jurisdiction over J’Marc;

2. The construction Contract was validly terminated by Equinox due to J’Marc’s failure to provide a timely supply of adequate labor, materials, tools, equipment, and technical services and to remedy its inability to comply with the construction schedule;

3. Equinox is not entitled to claim liquidated damages, although under the circumstances, in the absence of adequate proof of actual and compensatory damages, we award to Equinox nominal or temperate damages in the amount of P500,000.00;

4. The percentage of accomplishment of J’Marc at the time of the termination of the Contract was 19.0573% of the work valued at P7,051,201.00. This amount should be credited to J’Marc. On the other hand, Equinox [i] had paid J’Marc 25% of the contract price as down or advance payment, [ii] had paid J’Marc its first progress billing, [iii] had made advances for payroll of the workers, and for unpaid supplies and the works of J’Marc’s subcontractors, all in the total sum of P11,690,483.34. Deducting the value of J’Marc’s accomplishment from these advances and payment, there is due from J’Marc to Equinox the amount of P4,639,285.34. We hold J’Marc liable to pay Equinox this amount of P4,639,285.34.

5. If J’Marc had billed Equinox for its accomplishment as of July 11, 1997, 25% of the P7,051,201.00 would have been recouped as partial payment of the advanced or down payment. This would have resulted in reducing Prudential’s liability on the Surety Bond from P8,250,000.00 to P7,487,199.80. We, therefore, find that Prudential is liable to Equinox on its Surety Bond the amount of P7,487,199.80;

6. Prudential is furthermore liable on its Performance Bond for the following amounts: the advances made by Equinox on behalf of J’Marc to the workers, suppliers, and subcontractors amounting to P664,985.09, the nominal damages of P500,000.00 and attorney’s fees of P100,000.00 or a total amount ofP1,264,985.00;

7. All other claims and counterclaims are denied;

8. J’Marc shall pay the cost of arbitration and shall indemnify Equinox the total amount paid by Equinox as expenses of arbitration;

9. The total liability of J’Marc to Equinox is determined to be P5,139,285.34 plus attorney’s fees ofP100,000.00. The surety’s liability cannot exceed that of the principal debtor [Art. 2054, Civil Code}. We hold that, notwithstanding our finding in Nos. 5 and 6 of this Award, Prudential is liable to Equinox on the Surety Bond and Performance Bond an amount not to exceed P5,239,285.34. The cost of arbitration shall be paid by J’Marc alone.

The amount of P5,239,285.34 shall be paid by respondent J’Marc and respondent Prudential, jointly and severally, with interest at six percent [6%] per annum from promulgation of this award. This amount, including accrued interest, shall earn interest at the rate of 12% per annum from the time this decision becomes final and executory until the entire amount is fully paid or judgment fully satisfied. The expenses of arbitration, which shall be paid by J’Marc alone, shall likewise earn interest at 6% per annum from the date of promulgation of the award, and 12% from the date the award becomes final until this amount including accrued interest is fully paid.

SO ORDERED.

Thereupon, Prudential filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 56491. Prudential alleged that the CIAC erred in ruling that it is bound by the terms of the construction contract between Equinox and J’Marc and that it is solidarily liable with J’Marc under its bonds.

Equinox filed a motion for reconsideration on the ground that there is an error in the computation of its claim for unliquidated damages; and that it is entitled to an award of liquidated damages.

On February 2, 2000, the CIAC amended its Award by reducing the total liability of J’Marc to Equinox toP4,060,780.21, plus attorney’s fees of P100,000 or P4,160,780.21, and holding that Prudential’s liability to Equinox on the surety and performance bonds should not exceed the said amount of P4,160,780.21, payable by J’Marc and Prudential jointly and severally.

Dissatisfied, Equinox filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 57335. This case was consolidated with CA-G.R. SP No. 56491 filed by Prudential.

On November 23, 2001, the Court of Appeals rendered its Decision in CA-G.R. SP No. 57335 and CA-G.R. SP No. 56491, the dispositive portion of which reads:

WHEREFORE, the Amended Decision dated February 2, 2000 is AFFIRMED with MODIFICATION in paragraph 4 in the Award by holding J’Marc liable for unliquidated damages to Equinox in the amount ofP5,358,167.09 and in paragraph 9 thereof by increasing the total liability of J’Marc to Equinox toP5,958,167.09 (in view of the additional award of P500,000.00 as nominal and temperate damages andP100,000.00 in attorney’s fees), and AFFIRMED in all other respects.

SO ORDERED.

Prudential seasonably filed a motion for reconsideration but it was denied by the Court of Appeals.

The issue raised before us is whether the Court of Appeals erred in (1) upholding the jurisdiction of the CIAC over the case; and (2) finding Prudential solidarily liable with J’Marc for damages.

On the first issue, basic is the rule that administrative agencies are tribunals of limited jurisdiction and as such, can only wield such powers as are specifically granted to them by their enabling statutes.2

Section 4 of Executive Order No. 1008,3 provides:

SEC. 4. Jurisdiction. – The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship, violation of the terms of agreement, interpretation and/or application of contractual time and delays, maintenance and defects, payment, default of employer or contractor and changes in contract cost.

Excluded from the coverage of the law are disputes arising from employer-employee relationships which continue to be covered by the Labor Code of the Philippines.

In David v. Construction Industry and Arbitration Commission,4 we ruled that Section 4 vests upon the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties who have agreed to submit their case for voluntary arbitration.

As earlier mentioned, when Equinox lodged with the RTC its complaint for a sum of money against J’Marc and Prudential, the latter filed a motion to dismiss on the ground of lack of jurisdiction, contending that since the case involves a construction dispute, jurisdiction lies with CIAC. Prudential’s motion was granted. However, after the CIAC assumed jurisdiction over the case, Prudential again moved for its dismissal, alleging that it is not a party to the construction contract between Equinox and J’Marc; and that the surety and performance bonds it issued are not construction agreements.

After having voluntarily invoked before the RTC the jurisdiction of CIAC, Prudential is estopped to question its jurisdiction. As we held in Lapanday Agricultural & Development Corporation v. Estita,5 the





active participation of a party in a case pending against him before a court or a quasi-judicial body is tantamount to a recognition of that court’s or quasi-judicial body’s jurisdiction and a willingness to abide by the resolution of the case and will bar said party from later on impugning the court’s or quasi-judicial body’s jurisdiction.

Moreover, in its Reply to Equinox’s Opposition to the Motion to Dismiss before the RTC, Prudential, citingPhilippine National Bank v. Pineda6 and Finman General Assurance Corporation v. Salik,7 argued that as a surety, it is considered under the law to be the same party as the obligor in relation to whatever is adjudged regarding the latter’s obligation. Therefore, it is the CIAC which has jurisdiction over the case involving a construction contract between Equinox and J’Marc. Such an admission by Prudential binds it and it cannot now claim otherwise.

Anent the second issue, it is not disputed that Prudential entered into a suretyship contract with J’Marc. Section 175 of the Insurance Code defines a suretyship as "a contract or agreement whereby a party, called the suretyship, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds, or undertakings issued under Act 5368, as amended." Corollarily, Article 2047 of the Civil Code provides that suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for the purpose of fulfilling an obligation.

In Castellvi de Higgins and Higgins v. Seliner,9 we held that while a surety and a guarantor are alike in that each promises to answer for the debt or default of another, the surety assumes liability as a regular party to the undertaking and hence its obligation is primary.

In Security Pacific Assurance Corporation v. Tria-Infante,10 we reiterated the rule that while a contract of surety is secondary only to a valid principal obligation, the surety’s liability to the creditor is said to be direct, primary, and absolute. In other words, the surety is directly and equally bound with the principal. Thus, Prudential is barred from disclaiming that its liability with J’Marc is solidary.

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57355 is AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

SECOND DIVISION

AFP GENERAL INSURANCE CORPORATION,

Petitioner,

G.R. No. 151133

Present:






- versus -

QUISUMBING, J., Chairperson,

CARPIO MORALES,

TINGA,

VELASCO, JR., and

BRION, JJ.

NOEL MOLINA, JUANITO ARQUEZA, LEODY VENANCIO, JOSE OLAT, ANGEL CORTEZ, PANCRASIO SIMPAO, CONRADO CALAPON AND NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION),

Respondents.

Promulgated:

June 30, 2008

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

DECISION

QUISUMBING, J.:

This is a petition for review on certiorari of the Decision[1] dated August 20, 2001 of the Court of Appeals in CA-G.R. SP No. 58763 which dismissed herein petitioner’s special civil action for certiorari. Before the appellate court, petitioner AFP General Insurance Corporation (AFPGIC) sought to reverse the Resolution[2] dated October 5, 1999of the National Labor Relations Commission (NLRC) in NLRC NCR CA-011705-96 for having been issued with grave abuse of discretion. The NLRC affirmed the Order[3]dated March 30, 1999 of Labor Arbiter Edgardo Madriaga in NLRC NCR Case No. 02-00672-90 which had denied AFPGIC’s Omnibus Motion to Quash Notice/Writ of Garnishment and Discharge AFPGIC’s appeal bond for failure of Radon Security & Allied Services Agency (Radon Security) to pay the premiums on said bond. Equally challenged is the Resolution[4] dated December 14, 2001 of the appellate court in CA-G.R. SP No. 58763 which denied herein petitioner’s motion for reconsideration.

The facts of this case are not disputed.

The private respondents are the complainants in a case for illegal dismissal, docketed as NLRC NCR Case No. 02-00672-90, filed against Radon Security & Allied Services Agency and/or Raquel Aquias and Ever Emporium, Inc. In his Decision dated August 20, 1996, the Labor Arbiter ruled that the private respondents were illegally dismissed and ordered Radon Security to pay them separation pay, backwages, and other monetary claims.

Radon Security appealed the Labor Arbiter’s decision to public respondent NLRC and posted a supersedeas bond, issued by herein petitioner AFPGIC as surety. The appeal was docketed as NLRC NCR CA-011705-96.

On April 6, 1998, the NLRC affirmed with modification the decision of the Labor Arbiter. The NLRC found the herein private respondents constructively dismissed and ordered Radon Security to pay them their separation pay, in lieu of reinstatement with backwages, as well as their monetary benefits limited to three years, plus attorney’s fees equivalent to 10% of the entire amount, with Radon Security and Ever Emporium, Inc. adjudged jointly and severally liable.

Radon Security duly moved for reconsideration, but this was denied by the NLRC in its Resolution dated June 22, 1998.

Radon Security then filed a Petition for Certiorari docketed as G.R. No. 134891 with this Court, but we dismissed this petition in our Resolution of August 31, 1998.

When the Decision dated April 6, 1998 of the NLRC became final and executory, private respondents filed an Urgent Motion for Execution. As a result, the NLRC Research and Information Unit submitted a Computation of the Monetary Awards in accordance with the NLRC decision. Radon Security opposed said computation in its Motion for Recomputation.

On February 5, 1999, the Labor Arbiter issued a Writ of Execution[5] incorporating the computation of the NLRC Research and Information Unit. That same date, the Labor Arbiter dismissed the Motion for Recomputation filed by Radon Security. By virtue of the writ of execution, the NLRC Sheriff issued a Notice of Garnishment[6] against the supersedeas bond.

Both Ever Emporium, Inc. and Radon Security moved to quash the writ of execution.

On March 30, 1999, the Labor Arbiter denied both motions, and Radon Security appealed to the NLRC.

On April 14, 1999, AFPGIC entered the fray by filing before the Labor Arbiter an Omnibus Motion to Quash Notice/Writ of Garnishment and to Discharge AFPGIC’s Appeal Bond on the ground that said bond “has been cancelled and thus non-existent in view of the failure of Radon Security to pay the yearly premiums.”[7]

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

The petitioner then appealed the Labor Arbiter’s order to the NLRC. The appeals of Radon Security and AFPGIC were jointly heard as NLRC NCR CA-011705-96.

On October 5, 1999, the NLRC disposed of NLRC NCR CA-011705-96 in this wise:

WHEREFORE, premises considered, the appeals under consideration are hereby DISMISSED for lack of merit.

SO ORDERED.[9]

In dismissing the appeal of AFPGIC, the NLRC pointed out that AFPGIC’s theory that the bond cannot anymore be proceeded against for failure of Radon Security to pay the premium is untenable, considering that the bond is effective until the finality of the decision.[10] The NLRC stressed that a contrary ruling would allow respondents to simply stop paying the premium to frustrate satisfaction of the money judgment.[11]

AFPGIC then moved for reconsideration, but the NLRC denied the motion in its Resolution[12] dated February 29, 2000.

AFPGIC then filed a special civil action for certiorari, docketed as CA-G.R. SP No. 58763, with the Court of Appeals, on the ground that the NLRC committed a grave abuse of discretion in affirming the Order dated March 30, 1999 of the Labor Arbiter.

On August 20, 2001, the appellate court dismissed CA-G.R. SP No. 58763, disposing as follows:

WHEREFORE, the foregoing considered, the petition is denied due course and accordingly DISMISSED.

SO ORDERED.[13]

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

Hence, the instant case anchored on the lone assignment of error that:

THE COURT OF APPEALS SERIOUSLY ERRED IN SUSTAINING THE PUBLIC RESPONDENT NLRC ALTHOUGH THE LATTER GRAVELY ABUSED ITS DISCRETION WHEN IT ARBITRARILY IGNORED THE FACT THAT SUBJECT APPEAL BOND WAS ALREADY CANCELLED FOR NON-PAYMENT OF PREMIUM AND THUS IT COULD NOT BE SUBJECT OF EXECUTION OR GARNISHMENT.[15]

The petitioner contends that under Section 64[16] of the Insurance Code, which is deemed written into every insurance contract or contract of surety, an insurer may cancel a policy upon non-payment of the premium. Said cancellation is binding upon the beneficiary as the right of a beneficiary is subordinate to that of the insured. Petitioner points out that in South Sea Surety & Insurance Co., Inc. v. CA,[17] this Court held that payment of premium is a condition precedent to and essential for the efficaciousness of a contract of insurance.[18] Hence, following UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc.,[19] no insurance policy, other than life, issued originally or on renewal is valid and binding until actual payment of the premium.[20] The petitioner also points to Malayan Insurance Co., Inc. v. Cruz Arnaldo,[21] which reiterated that an insurer may cancel an insurance policy for non-payment of

premium.[22] Hence, according to petitioner, the Court of Appeals committed a reversible error in not holding that under Section 77[23] of the Insurance Code, the surety bond between it and Radon Security was not valid and binding for non-payment of premiums, even as against a third person who was intended to benefit therefrom.

The private respondents adopted in toto the ratiocinations of the Court of Appeals that inasmuch as a supersedeas bond was posted for the benefit of a third person to guarantee that the money judgment will be satisfied in case it is affirmed on appeal, the third person who stands to benefit from said bond is entitled to notice of its cancellation for any reason. Likewise, the NLRC should have been notified to enable it to take the proper action under the circumstances. The respondents submit that from its very nature, a supersedeas bond remains effective and the surety liable thereon until formally discharged from said liability. To hold otherwise would enable a losing party to frustrate a money judgment by the simple expedient of ceasing to pay premiums.

We find merit in the submissions of the private respondents.

The controversy before the Court involves more than just the mere application of the provisions of the Insurance Code to the factual circumstances. This instant case, after all, traces its roots to a labor controversy involving illegally dismissed workers. It thus entails the application of labor laws and regulations. Recall that the heart of the dispute is not an ordinary contract of property or life insurance, but an appeal bond required by both substantive and adjective law in appeals in labor disputes, specifically Article 223[24]of the Labor Code, as amended by Republic Act No. 6715,[25] and Rule VI, Section 6[26] of the Revised NLRC Rules of Procedure. Said provisions mandate that in labor cases where the judgment appealed from involves a monetary award, the appeal may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company accredited by the NLRC.[27] The perfection of an appeal by an employer “only” upon the posting of a cash or surety bond clearly and categorically shows the intent of the lawmakers to make the posting of a cash or surety bond by the employer to be the exclusive means by which an employer’s appeal may be perfected.[28] Additionally, the filing of a cash or surety bond is a jurisdictional requirement in an appeal involving a money judgment to the NLRC.[29] In addition, Rule VI, Section 6 of the Revised NLRC Rules of Procedure is a contemporaneous construction of Article 223 by the NLRC. As an interpretation of a law by the implementing administrative agency, it is accorded great respect by this Court.[30] Note that Rule VI, Section 6 categorically states that the cash or surety bond posted in appeals involving monetary awards in labor disputes “shall be in effect until final disposition of the case.” This could only be construed to mean that the surety bond shall remain valid and in force until finality and execution of judgment, with the resultant discharge of the surety company only thereafter, if we are to give teeth to the labor protection clause of the Constitution. To construe the provision any other way would open the floodgates to unscrupulous and heartless employers who would simply forego paying premiums on their surety bond in order to evade payment of the monetary judgment. The Court cannot be a party to any such iniquity.

Moreover, the Insurance Code supports the private respondents’ arguments. The petitioner’s reliance on Sections 64 and 77 of the Insurance Code is misplaced. The said provisions refer to insurance

contracts in general. The instant case pertains to a surety bond; thus, the applicable provision of the Insurance Code is Section 177,[31] which specifically governs suretyship. It provides that a surety bond, once accepted by the obligee becomes valid and enforceable, irrespective of whether or not the premium has been paid by the obligor. The private respondents, the obligees here, accepted the bond posted by Radon Security and issued by the petitioner. Hence, the bond is both valid and enforceable. A verbis legis non est recedendum (from the language of the law there must be no departure).[32]

When petitioner surety company cancelled the surety bond because Radon Security failed to pay the premiums, it gave due notice to the latter but not to the NLRC. By its failure to give notice to the NLRC, AFPGIC failed to acknowledge that the NLRC had jurisdiction not only over the appealed case, but also over the appeal bond. This oversight amounts to disrespect and contempt for a quasi-judicial agency tasked by law with resolving labor disputes. Until the surety is formally discharged, it remains subject to the jurisdiction of the NLRC.

Our ruling, anchored on concern for the employee, however, does not in any way seek to derogate the rights and interests of the petitioner as against Radon Security. The former is not devoid of remedies against the latter. Under Section 176[33] of the Insurance Code, the liability of petitioner and Radon Security is solidary in nature. There is solidary liability only when the obligation expressly so states, or when the law so provides, or when the nature of the obligation so requires.[34] Since the law provides that the liability of the surety company and the obligor or principal is joint and several, then either or both of them may be proceeded against for the money award.

The Labor Arbiter directed the NLRC Sheriff to garnish the surety bond issued by the petitioner. The latter, as surety, is mandated to comply with the writ of garnishment, for as earlier pointed out, the bond remains enforceable and under the jurisdiction of the NLRC until it is discharged. In turn, the petitioner may proceed to collect the amount it paid on the bond, plus the premiums due and demandable, plus any interest owing from Radon Security. This is pursuant to the principle of subrogation enunciated in Article 2067[35] of the Civil Code which we apply to the suretyship agreement between AFPGIC and Radon Security, in accordance with Section 178[36] of the Insurance Code. Finding no reversible error committed by the Court of Appeals in CA-G.R. SP No. 58763, we sustain the challenged decision.

WHEREFORE, the instant petition is DENIED for lack of merit. The assailed Decision dated August 20, 2001 of the Court of Appeals in CA-G.R. SP No. 58763 and the Resolution dated December 14, 2001, of the appellate court denying the herein petitioner’s motion for reconsideration are AFFIRMED. Costs against the petitioner.

SO ORDERED.


FIRST DIVISION

G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner, vs.THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that there was no suicide. It argued, however that there was no accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim was in a happy mood (but not drunk) and was playing with his handgun, from which he had previously removed the magazine. As she watched television, he stood in front of her and pointed the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He was dead before he fell. 1

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing the face value of the policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages; P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the costs of the suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. 3 The petitioner then came to this Court to fault the Court of Appeals for approving the payment of the claim and the award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an insurance contract are to be construed and considered according to the ordinary understanding and common usage and speech of people generally. In-substance, the courts are practically agreed that the words "accident" and "accidental" mean that which happens by chance or

fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The definition that has usually been adopted by the courts is that an accident is an event that takes place without one's foresight or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not expected. 4

An accident is an event which happens without any human agency or, if happening through human agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has also been defined as an injury which happens by reason of some violence or casualty to the injured without his design, consent, or voluntary co-operation. 5

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that "there is no accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs which produces or brings about their injury or death." There was such a happening. This was the firing of the gun, which was the additional unexpected and independent and unforeseen occurrence that led to the insured person's death.

The petitioner also cites one of the four exceptions provided for in the insurance contract and contends that the private petitioner's claim is barred by such provision. It is there stated:

Exceptions —

The company shall not be liable in respect of

1. Bodily injury

xxx xxx xxx

b. consequent upon

i) The insured person attempting to commit suicide or willfully exposing himself to needless peril except in an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy.

It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they both signify a disregard for one's life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand meters above the ground and without any safety device may not actually be intending to commit suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing himself to needless peril" within the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully exposed himself to needless peril and so came under the exception. The theory is that a gun is per se dangerous and should therefore be handled cautiously in every case.

That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from the gun and believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed harmless.

The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intended to reward the insured for his tendency to show off or for his miscalculations. They were intended to provide for contingencies. Hence, when I miscalculate and jump from the Quezon Bridge into the Pasig River in the belief that I can overcome the current, I have wilfully exposed myself to peril and must accept the consequences of my act. If I drown I cannot go to the insurance company to ask them to compensate me for my failure to swim as well as I thought I could. The insured in the case at bar deliberately put the gun to his head and pulled the trigger. He wilfully exposed himself to peril.

The Court certainly agrees that a drowned man cannot go to the insurance company to ask for compensation. That might frighten the insurance people to death. We also agree that under the circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is clear that when he braved the currents below, he deliberately exposed himself to a known peril.

The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below were dangerous. By contrast, Lim did not know that the gun he put to his head was loaded.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There are only four exceptions expressly made in the contract to relieve the insurer from liability, and none of these exceptions is applicable in the case at bar. **

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no reason to deviate from this rule, especially in view of the circumstances of this case as above analyzed.

On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue raised in this case is, as the petitioner correctly observed, one of first impression. It is evident that the petitioner was acting in good faith then it resisted the private respondent's claim on the ground that the death of the insured was covered by the exception. The issue was indeed debatable and was clearly not

raised only for the purpose of evading a legitimate obligation. We hold therefore that the award of moral and exemplary damages and of attorney's fees is unjust and so must be disapproved.

In order that a person may be made liable to the payment of moral damages, the law requires that his act be wrongful. The adverse result of an action does not per se make the act wrongful and subject the act or to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously. For these the law taxes costs. 7

The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing the action wrongful because in most cases one party will lose; we would be imposing an unjust condition or limitation on the right to litigate. We hold that the award of moral damages in the case at bar is not justified by the facts had circumstances as well as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not the fact of winning alone that entitles him to recover such damages of the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a defendant wins, automatically the plaintiff must pay attorney's fees thereby putting a premium on the right to litigate which should not be so. For those expenses, the law deems the award of costs as sufficient. 8

WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the petitioner liable to the private respondent in the sum of P200,000.00 representing the face value of the insurance contract, with interest at the legal rate from the date of the filing of the complaint until the full amount is paid, but MODIFIED with the deletion of all awards for damages, including attorney's fees, except the costs of the suit.

SO ORDERED.

Griño-Aquino, Medialdea and Bellosillo, JJ., concur.


SECOND DIVISION

G.R. No. 175773 June 17, 2013

MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION (MMPSEU), Petitioner, vs.MITSUBISHI MOTORS PHILIPPINES CORPORATION, Respondent.

D E C I S I O N

DEL CASTILLO, J.:

The Collective Bargaining Agreement (CBA) of the parties in this case provides that the company shoulder the hospitalization expenses of the dependents of covered employees subject to certain limitations and restrictions. Accordingly, covered employees pay part of the hospitalization insurance premium through monthly salary deduction while the company, upon hospitalization of the covered employees' dependents, shall pay the hospitalization expenses incurred for the same. The conflict arose when a portion of the hospitalization expenses of the covered employees' dependents were paid/shouldered by the dependent's own health insurance. While the company refused to pay the portion of the hospital expenses already shouldered by the dependents' own health insurance, the union insists that the covered employees are entitled to the whole and undiminished amount of said hospital expenses.

By this Petition for Review on Certiorari,1 petitioner Mitsubishi Motors Philippines Salaried Employees Union (MMPSEU) assails the March 31, 2006 Decision2 and December 5, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 75630, which reversed and set aside the Voluntary Arbitrator’s December 3, 2002 Decision4 and declared respondent Mitsubishi Motors Philippines Corporation (MMPC) to be under no legal obligation to pay its covered employees’ dependents’ hospitalization expenses which were already shouldered by other health insurance companies.

Factual Antecedents

The parties’ CBA5 covering the period August 1, 1996 to July 31, 1999 provides for the hospitalization insurance benefits for the covered dependents, thus:

SECTION 4. DEPENDENTS’ GROUP HOSPITALIZATION INSURANCE – The COMPANY shall obtain group hospitalization insurance coverage or assume under a self-insurance basis hospitalization for the dependents of regular employees up to a maximum amount of forty thousand pesos (P40,000.00) per confinement subject to the following:

a. The room and board must not exceed three hundred pesos (P300.00) per day up to a maximum of thirty-one (31) days. Similarly, Doctor’s Call fees must not exceed three hundred pesos (P300.00) per day for a maximum of thirty-one (31) days. Any excess of this amount shall be borne by the employee.

b. Confinement must be in a hospital designated by the COMPANY. For this purpose, the COMPANY shall designate hospitals in different convenient places to be availed of by the dependents of employees. In cases of emergency where the dependent is confined without the recommendation of the company doctor or in a hospital not designated by the COMPANY, the COMPANY shall look into the circumstances of such confinement and arrange for the payment of the amount to the extent of the hospitalization benefit.

c. The limitations and restrictions listed in Annex "B" must be observed.

d. Payment shall be direct to the hospital and doctor and must be covered by actual billings.

Each employee shall pay one hundred pesos (P100.00) per month through salary deduction as his share in the payment of the insurance premium for the above coverage with the balance of the premium to be

http://www.lawphil.net/judjuris/juri2013/jun2013/gr_175773_2013.html#fnt5





paid by the COMPANY. If the COMPANY is self-insured the one hundred pesos (P100.00) per employee monthly contribution shall be given to the COMPANY which shall shoulder the expenses subject to the above level of benefits and subject to the same limitations and restrictions provided for in Annex "B" hereof.

The hospitalization expenses must be covered by actual hospital and doctor’s bills and any amount in excess of the above mentioned level of benefits will be for the account of the employee.

For purposes of this provision, eligible dependents are the covered employees’ natural parents, legal spouse and legitimate or legally adopted or step children who are unmarried, unemployed who have not attained twenty-one (21) years of age and wholly dependent upon the employee for support.

This provision applies only in cases of actual confinement in the hospital for at least six (6) hours.

Maternity cases are not covered by this section but will be under the next succeeding section on maternity benefits.6

When the CBA expired on July 31, 1999, the parties executed another CBA7 effective August 1, 1999 to July 31, 2002 incorporating the same provisions on dependents’ hospitalization insurance benefits but in the increased amount of P50,000.00. The room and board expenses, as well as the doctor’s call fees, were also increased toP375.00.

On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida), Hermie Juan Oabel (Oabel) and Jocelyn Martin (Martin), filed claims for reimbursement of hospitalization expenses of their dependents.

MMPC paid only a portion of their hospitalization insurance claims, not the full amount. In the case of Calida, his wife, Lanie, was confined at Sto. Tomas University Hospital from September 4 to 9, 1998 due to Thyroidectomy. The medical expenses incurred totalled P29,967.10. Of this amount, P9,000.00 representing professional fees was paid by MEDICard Philippines, Inc. (MEDICard) which provides health maintenance to Lanie.8 MMPC only paid P12,148.63.9 It did not pay the P9,000.00 already paid by MEDICard and the P6,278.47 not covered by official receipts. It refused to give to Calida the difference between the amount of medical expenses ofP27,427.1010 which he claimed to be entitled to under the CBA and the P12,148.63 which MMPC directly paid to the hospital.

In the case of Martin, his father, Jose, was admitted at The Medical City from March 26 to 27, 2000 due to Acid Peptic Disease and incurred medical expenses amounting to P9,101.30.14 MEDICard paid P8,496.00.15Consequently, MMPC only paid P288.40,16 after deducting from the total medical expenses the amount paid by MEDICard and the P316.90 discount given by the hospital.

Claiming that under the CBA, they are entitled to hospital benefits amounting to P27,427.10, P6,769.35 andP8,123.80, respectively, which should not be reduced by the amounts paid by MEDICard and by Prosper, Calida, Oabel and Martin asked for reimbursement from MMPC. However, MMPC denied the claims contending that double insurance would result if the said employees would receive from the









company the full amount of hospitalization expenses despite having already received payment of portions thereof from other health insurance providers.

This prompted the MMPSEU President to write the MMPC President17 demanding full payment of the hospitalization benefits. Alleging discrimination against MMPSEU union members, she pointed out that full reimbursement was given in a similar claim filed by Luisito Cruz (Cruz), a member of the Hourly Union. In a letter-reply,18 MMPC, through its Vice-President for Industrial Relations Division, clarified that the claims of the said MMPSEU members have already been paid on the basis of official receipts submitted. It also denied the charge of discrimination and explained that the case of Cruz involved an entirely different matter since it concerned the admissibility of certified true copies of documents for reimbursement purposes, which case had been settled through voluntary arbitration.

On August 28, 2000, MMPSEU referred the dispute to the National Conciliation and Mediation Board and requested for preventive mediation.19

Proceedings before the Voluntary Arbitrator

On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando Capocyan for resolution of the issue involving the interpretation of the subject CBA provision.20

MMPSEU alleged that there is nothing in the CBA which prohibits an employee from obtaining other insurance or declares that medical expenses can be reimbursed only upon presentation of original official receipts. It stressed that the hospitalization benefits should be computed based on the formula indicated in the CBA without deducting the benefits derived from other insurance providers. Besides, if reduction is permitted, MMPC would be unjustly benefited from the monthly premium contributed by the employees through salary deduction. MMPSEU added that its members had legitimate claims under the CBA and that any doubt as to any of its provisions should be resolved in favor of its members. Moreover, any ambiguity should be resolved in favor of labor.21

On the other hand, MMPC argued that the reimbursement of the entire amounts being claimed by the covered employees, including those already paid by other insurance companies, would constitute double indemnity or double insurance, which is circumscribed under the Insurance Code. Moreover, a contract of insurance is a contract of indemnity and the employees cannot be allowed to profit from their dependents’ loss.22

Meanwhile, the parties separately sought for a legal opinion from the Insurance Commission relative to the issue at hand. In its letter23 to the Insurance Commission, MMPC requested for confirmation of its position that the covered employees cannot claim insurance benefits for a loss that had already been covered or paid by another insurance company. However, the Office of the Insurance Commission opted not to render an opinion on the matter as the same may become the subject of a formal complaint before it.24 On the other hand, when queried by MMPSEU,25 the Insurance Commission, through Atty. Richard David C. Funk II (Atty. Funk) of the Claims Adjudication Division, rendered an opinion contained in a letter,26 viz:











Ms. Cecilia L. ParasPresidentMitsubishi Motors Phils.

[Salaried] Employees UnionOrtigas Avenue Extension,Cainta, Rizal

Madam:

We acknowledge receipt of your letter which, to our impression, basically poses the question of whether or not recovery of medical expenses from a Health Maintenance Organization bars recovery of the same reimbursable amount of medical expenses under a contract of health or medical insurance.

We wish to opine that in cases of claims for reimbursement of medical expenses where there are two contracts providing benefits to that effect, recovery may be had on both simultaneously. In the absence of an Other Insurance provision in these coverages, the courts have uniformly held that an insured is entitled to receive the insurance benefits without regard to the amount of total benefits provided by other insurance. (INSURANCE LAW, A Guide to Fundamental Principles, Legal Doctrines, and Commercial Practices; Robert E. Keeton, Alau I. Widiss, p. 261). The result is consistent with the public policy underlying the collateral source rule – that is, x x x the courts have usually concluded that the liability of a health or accident insurer is not reduced by other possible sources of indemnification or compensation. (ibid).

Very truly yours,

RICHARD DAVID C. FUNK IIOfficer-in-ChargeClaims Adjudication Division

(SGD.)Attorney IV

On December 3, 2002, the Voluntary Arbitrator rendered a Decision27 finding MMPC liable to pay or reimburse the amount of hospitalization expenses already paid by other health insurance companies. The Voluntary Arbitrator held that the employees may demand simultaneous payment from both the CBA and their dependents’ separate health insurance without resulting to double insurance, since separate premiums were paid for each contract. He also noted that the CBA does not prohibit reimbursement in case there are other health insurers.

Proceedings before the Court of Appeals

MMPC filed a Petition for Review with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction28 before the CA. It claimed that the Voluntary Arbitrator committed grave abuse of discretion in not finding that recovery under both insurance policies constitutes double insurance as both had the same subject matter, interest insured and risk or peril insured against; in



relying solely on the unauthorized legal opinion of Atty. Funk; and in not finding that the employees will be benefited twice for the same loss. In its Comment,29 MMPSEU countered that MMPC will unjustly enrich itself and profit from the monthly premiums paid if full reimbursement is not made.

On March 31, 2006, the CA found merit in MMPC’s Petition. It ruled that despite the lack of a provision which bars recovery in case of payment by other insurers, the wordings of the subject provision of the CBA showed that the parties intended to make MMPC liable only for expenses actually incurred by an employee’s qualified dependent. In particular, the provision stipulates that payment should be made directly to the hospital and that the claim should be supported by actual hospital and doctor’s bills. These mean that the employees shall only be paid amounts not covered by other health insurance and is more in keeping with the principle of indemnity in insurance contracts. Besides, a contrary interpretation would "allow unscrupulous employees to unduly profit from the x x x benefits" and shall "open the floodgates to questionable claims x x x."30

The dispositive portion of the CA Decision31 reads:

WHEREFORE, the instant petition is GRANTED. The decision of the voluntary arbitrator dated December 3, 2002 is REVERSED and SET ASIDE and judgment is rendered declaring that under Art. XI, Sec. 4 of the Collective Bargaining Agreement between petitioner and respondent effective August 1, 1999 to July 31, 2002, the former’s obligation to reimburse the Union members for the hospitalization expenses incurred by their dependents is exclusive of those paid by the Union members to the hospital.

SO ORDERED.32

In its Motion for Reconsideration,33 MMPSEU pointed out that the alleged oppression that may be committed by abusive employees is a mere possibility whereas the resulting losses to the employees are real. MMPSEU cited Samsel v. Allstate Insurance Co.,34 wherein the Arizona Supreme Court explicitly ruled that an insured may recover from separate health insurance providers, regardless of whether one of them has already paid the medical expenses incurred. On the other hand, MMPC argued in its Comment35 that the cited foreign case involves a different set of facts.

The CA, in its Resolution36 dated December 5, 2006, denied MMPSEU’s motion.

Hence, this Petition.

Issues

MMPSEU presented the following grounds in support of its Petition:

A.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION DATED 03 [DECEMBER] 2002 OF THE VOLUNTARY ARBITRATOR BELOW WHEN THE SAME WAS SUPPORTED BY SUBSTANTIAL EVIDENCE, INCLUDING THE OPINION OF THE INSURANCE COMMISSION THAT RECOVERY FROM BOTH









THE CBA AND SEPARATE HEALTH CARDS IS NOT PROHIBITED IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE CBA.

B.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN OVERTURNING THE DECISION OF THE VOLUNTARY ARBITRATOR WITHOUT EVEN GIVING ANY LEGAL OR JUSTIFIABLE BASIS FOR SUCH REVERSAL.

C.

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO CONSIDER OR EVEN MENTION ANYTHING ABOUT THE AMERICAN AUTHORITIES CITED IN THE RECORDS THAT DO NOT PROHIBIT, BUT IN FACT ALLOW, RECOVERY FROM TWO SEPARATE HEALTH PLANS.

D.

THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE TO A POSSIBLE, HENCE MERELY SPECULATIVE, ABUSE BY EMPLOYEES OF THE BENEFITS IF DOUBLE RECOVERY WERE ALLOWED INSTEAD OF THE REAL INJURY TO THE EMPLOYEES WHO ARE PAYING FOR THE CBA HOSPITALIZATION BENEFITS THROUGH MONTHLY SALARY DEDUCTIONS BUT WHO MAY NOT BE ABLE TO AVAIL OF THE SAME IF THEY OR THEIR DEPENDENTS HAVE OTHER HEALTH INSURANCE.37

MMPSEU avers that the Decision of the Voluntary Arbitrator deserves utmost respect and finality because it is supported by substantial evidence and is in accordance with the opinion rendered by the Insurance Commission, an agency equipped with vast knowledge concerning insurance contracts. It maintains that under the CBA, member-employees are entitled to full reimbursement of medical expenses incurred by their dependents regardless of any amounts paid by the latter’s health insurance provider. Otherwise, non-recovery will constitute unjust enrichment on the part of MMPC. It avers that recovery from both the CBA and other insurance companies is allowed under their CBA and not prohibited by law nor by jurisprudence.

Our Ruling

The Petition has no merit.

Atty. Funk erred in applying thecollateral source rule.

The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the employees may recover benefits from different insurance providers without regard to the amount of benefits paid by each. According to him, this view is consistent with the theory of the collateral source rule.

As part of American personal injury law, the collateral source rule was originally applied to tort cases wherein the defendant is prevented from benefiting from the plaintiff’s receipt of money from other sources.38 Under this rule, if an injured person receives compensation for his injuries from a source



wholly independent of the tortfeasor, the payment should not be deducted from the damages which he would otherwise collect from the tortfeasor.39 In a recent Decision40 by the Illinois Supreme Court, the rule has been described as "an established exception to the general rule that damages in negligence actions must be compensatory." The Court went on to explain that although the rule appears to allow a double recovery, the collateral source will have a lien or subrogation right to prevent such a double recovery.41 In Mitchell v. Haldar,42 the collateral source rule was rationalized by the Supreme Court of Delaware:

The collateral source rule is ‘predicated on the theory that a tortfeasor has no interest in, and therefore no right to benefit from monies received by the injured person from sources unconnected with the defendant’. According to the collateral source rule, ‘a tortfeasor has no right to any mitigation of damages because of payments or compensation received by the injured person from an independent source.’ The rationale for the collateral source rule is based upon the quasi-punitive nature of tort law liability. It has been explained as follows:

The collateral source rule is designed to strike a balance between two competing principles of tort law: (1) a plaintiff is entitled to compensation sufficient to make him whole, but no more; and (2) a defendant is liable for all damages that proximately result from his wrong. A plaintiff who receives a double recovery for a single tort enjoys a windfall; a defendant who escapes, in whole or in part, liability for his wrong enjoys a windfall. Because the law must sanction one windfall and deny the other, it favors the victim of the wrong rather than the wrongdoer.

Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even if it results in a windfall for the innocent plaintiff. (Citations omitted)

As seen, the collateral source rule applies in order to place the responsibility for losses on the party causing them.43 Its application is justified so that "'the wrongdoer should not benefit from the expenditures made by the injured party or take advantage of contracts or other relations that may exist between the injured party and third persons."44 Thus, it finds no application to cases involving no-fault insurances under which the insured is indemnified for losses by insurance companies, regardless of who was at fault in the incident generating the losses.45 Here, it is clear that MMPC is a no-fault insurer. Hence, it cannot be obliged to pay the hospitalization expenses of the dependents of its employees which had already been paid by separate health insurance providers of said dependents.

The Voluntary Arbitrator therefore erred in adopting Atty. Funk’s view that the covered employees are entitled to full payment of the hospital expenses incurred by their dependents, including the amounts already paid by other health insurance companies based on the theory of collateral source rule.

The conditions set forth in the CBA provision indicate an intention to limit MMPC’s liability only to actual expenses incurred by the employees’ dependents, that is, excluding the amounts paid by dependents’ other health insurance providers.

The Voluntary Arbitrator ruled that the CBA has no express provision barring claims for hospitalization expenses already paid by other insurers. Hence, the covered employees can recover from both. The CA








did not agree, saying that the conditions set forth in the CBA implied an intention of the parties to limit MMPC’s liability only to the extent of the expenses actually incurred by their dependents which excludes the amounts shouldered by other health insurance companies.

We agree with the CA. The condition that payment should be direct to the hospital and doctor implies that MMPC is only liable to pay medical expenses actually shouldered by the employees’ dependents. It follows that MMPC’s liability is limited, that is, it does not include the amounts paid by other health insurance providers. This condition is obviously intended to thwart not only fraudulent claims but also double claims for the same loss of the dependents of covered employees.

It is well to note at this point that the CBA constitutes a contract between the parties and as such, it should be strictly construed for the purpose of limiting the amount of the employer’s liability.46 The terms of the subject provision are clear and provide no room for any other interpretation. As there is no ambiguity, the terms must be taken in their plain, ordinary and popular sense.47 Consequently, MMPSEU cannot rely on the rule that a contract of insurance is to be liberally construed in favor of the insured. Neither can it rely on the theory that any doubt must be resolved in favor of labor.

Samsel v. Allstate Insurance Co. is noton all fours with the case at bar.

MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court of Arizona allowed the insured to enjoy medical benefits under an automobile policy insurance despite being able to also recover from a separate health insurer. In that case, the Allstate automobile policy does not contain any clause restricting medical payment coverage to expenses actually paid by the insured nor does it specifically provide for reduction of medical payments benefits by a coordination of benefits.48 However, in the case before us, the dependents’ group hospitalization insurance provision in the CBA specifically contains a condition which limits MMPC’s liability only up to the extent of the expenses that should be paid by the covered employee’s dependent to the hospital and doctor. This is evident from the portion which states that "payment by MMPC shall be direct to the hospital and doctor."49 In contrast, the Allstate automobile policy expressly gives Allstate the authority to pay directly to the insured person or on the latter’s behalf all reasonable expenses actually incurred. Therefore, reliance on Samsel is unavailing because the facts therein are different and not decisive of the issues in the present case.

To allow reimbursement of amounts paidunder other insurance policies shallconstitute double recovery which is notsanctioned by law.

MMPSEU insists that MMPC is also liable for the amounts covered under other insurance policies; otherwise, MMPC will unjustly profit from the premiums the employees contribute through monthly salary deductions.

This contention is unmeritorious.





To constitute unjust enrichment, it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.50 A claim for unjust enrichment fails when the person who will benefit has a valid claim to such benefit.51

The CBA has provided for MMPC’s limited liability which extends only up to the amount to be paid to the hospital and doctor by the employees’ dependents, excluding those paid by other insurers. Consequently, the covered employees will not receive more than what is due them; neither is MMPC under any obligation to give more than what is due under the CBA.

Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the parties must be determined in accordance with the general principles of insurance law.52 Being in the nature of a non-life insurance contract and essentially a contract of indemnity, the CBA provision obligates MMPC to indemnify the covered employees’ medical expenses incurred by their dependents but only up to the extent of the expenses actually incurred.53 This is consistent with the principle of indemnity which proscribes the insured from recovering greater than the loss.54 Indeed, to profit from a loss will lead to unjust enrichment and therefore should not be countenanced. As aptly ruled by the CA, to grant the claims of MMPSEU will permit possible abuse by employees.

WHEREFORE, the Petition is DENIED. The Decision dated March 31, 2006 and Resolution dated December 5, 2006 of the Court of Appeals in CA-G.R. SP No. 75630, are AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLOAssociate Justice






insurance last batch

Documents