C.

INSURABLE INTEREST
Sec. 18 and 25, IC Violeta returned the letter dated 10 March 1999 and the check
enclosed therein to the Cabanatuan District Office of Insular Life.
1. LALICAN, vs. THE INSULAR LIFE ASSURANCE COMPANY Violeta’s counsel subsequently sent a letter14 dated 8 July 1999 to
LIMITED Insular Life, demanding payment of the full proceeds of Policy No.
G.R. No. 183526               August 25, 2009 9011992. On 11 August 1999, Insular Life responded to the said
demand letter by agreeing to conduct a re-evaluation of Violeta’s
The factual and procedural antecedents of the case, as culled from claim.
the records, are as follows:
Without waiting for the result of the re-evaluation by Insular Life,
Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio). Violeta filed with the RTC, on 11 October 1999, a Complaint for
During his lifetime, Eulogio applied for an insurance policy with Death Claim Benefit,15 which was docketed as Civil Case No. 2177.
Insular Life. On 24 April 1997, Insular Life, through Josephine Violeta alleged that Insular Life engaged in unfair claim settlement
Malaluan (Malaluan), its agent in Gapan City, issued in favor of practice and deliberately failed to act with reasonable promptness on
Eulogio Policy No. 9011992,5 which contained a 20-Year her insurance claim. Violeta prayed that Insular Life be ordered to
Endowment Variable Income Package Flexi Plan worth pay her death claim benefits on Policy No. 9011992, in the amount
₱500,000.00,6 with two riders valued at ₱500,000.00 each.7 Thus, of ₱1,500,000.00, plus interests, attorney’s fees, and cost of suit.
the value of the policy amounted to ₱1,500,000.00. Violeta was
named as the primary beneficiary. Insular Life filed with the RTC an Answer with
Counterclaim,16 asserting that Violeta’s Complaint had no legal or
Under the terms of Policy No. 9011992, Eulogio was to pay the factual bases. Insular Life maintained that Policy No. 9011992, on
premiums on a quarterly basis in the amount of ₱8,062.00, payable which Violeta sought to recover, was rendered void by the non-
every 24 April, 24 July, 24 October and 24 January of each year, payment of the 24 January 1998 premium and non-compliance with
until the end of the 20-year period of the policy. According to the the requirements for the reinstatement of the same. By way of
Policy Contract, there was a grace period of 31 days for the payment counterclaim, Insular Life prayed that Violeta be ordered to pay
of each premium subsequent to the first. If any premium was not attorney’s fees and expenses of litigation incurred by the former.
paid on or before the due date, the policy would be in default, and if
the premium remained unpaid until the end of the grace period, the Violeta, in her Reply and Answer to Counterclaim, asserted that the
policy would automatically lapse and become void.8 requirements for the reinstatement of Policy No. 9011992 had been
complied with and the defenses put up by Insular Life were purely
Eulogio paid the premiums due on 24 July 1997 and 24 October invented and illusory.
1997. However, he failed to pay the premium due on 24 January
1998, even after the lapse of the grace period of 31 days. Policy No. After trial, the RTC rendered, on 30 August 2007, a Decision in favor
9011992, therefore, lapsed and became void. of Insular Life.

Eulogio submitted to the Cabanatuan District Office of Insular Life, The RTC found that Policy No. 9011992 had indeed lapsed and
through Malaluan, on 26 May 1998, an Application for Eulogio needed to have the same reinstated:
Reinstatement9 of Policy No. 9011992, together with the amount of
₱8,062.00 to pay for the premium due on 24 January 1998. In a [The] arguments [of Insular Life] are not without basis. When the
letter10 dated 17 July 1998, Insular Life notified Eulogio that his premiums for April 24 and July 24, 1998 were not paid by [Eulogio]
Application for Reinstatement could not be fully processed because, even after the lapse of the 31-day grace period, his insurance policy
although he already deposited ₱8,062.00 as payment for the 24 necessarily lapsed. This is clear from the terms and conditions of the
January 1998 premium, he left unpaid the overdue interest thereon contract between [Insular Life] and [Eulogio] which are written in
amounting to ₱322.48. Thus, Insular Life instructed Eulogio to pay [the] Policy provisions of Policy No. 9011992 x x x.17
the amount of interest and to file another application for
reinstatement. Eulogio was likewise advised by Malaluan to pay the The RTC, taking into account the clear provisions of the Policy
premiums that subsequently became due on 24 April 1998 and 24 Contract between Eulogio and Insular Life and the Application for
July 1998, plus interest. Reinstatement Eulogio subsequently signed and submitted to Insular
Life, held that Eulogio was not able to fully comply with the
On 17 September 1998, Eulogio went to Malaluan’s house and requirements for the reinstatement of Policy No. 9011992:
submitted a second Application for Reinstatement 11 of Policy No.
9011992, including the amount of ₱17,500.00, representing The well-settled rule is that a contract has the force of law between
payments for the overdue interest on the premium for 24 January the parties. In the instant case, the terms of the insurance contract
1998, and the premiums which became due on 24 April 1998 and 24 between [Eulogio] and [Insular Life] were spelled out in the policy
July 1998. As Malaluan was away on a business errand, her provisions of Insurance Policy No. 9011992. There is likewise no
husband received Eulogio’s second Application for Reinstatement dispute that said insurance contract is by nature a contract of
and issued a receipt for the amount Eulogio deposited. adhesion[,] which is defined as "one in which one of the contracting
parties imposes a ready-made form of contract which the other party
A while later, on the same day, 17 September 1998, Eulogio died of may accept or reject but cannot modify." (Polotan, Sr. vs. CA, 296
cardio-respiratory arrest secondary to electrocution. SCRA 247).

Without knowing of Eulogio’s death, Malaluan forwarded to the xxxx

Insular Life Regional Office in the City of San Fernando, on 18
September 1998, Eulogio’s second Application for Reinstatement of The New Lexicon Webster’s Dictionary defines ambiguity as the
Policy No. 9011992 and ₱17,500.00 deposit. However, Insular Life "quality of having more than one meaning" and "an idea, statement
no longer acted upon Eulogio’s second Application for or expression capable of being understood in more than one sense."
Reinstatement, as the former was informed on 21 September 1998 In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme
that Eulogio had already passed away. Court stated that[:]

On 28 September 1998, Violeta filed with Insular Life a claim for "Any ambiguity in a contract, whose terms are susceptible of
payment of the full proceeds of Policy No. 9011992. different interpretations as a result thereby, must be read and
construed against the party who drafted it on the assumption that it
In a letter12 dated 14 January 1999, Insular Life informed Violeta that could have been avoided by the exercise of a little care."
her claim could not be granted since, at the time of Eulogio’s death,
Policy No. 9011992 had already lapsed, and Eulogio failed to In the instant case, the dispute arises from the afore-quoted
reinstate the same. According to the Application for Reinstatement, provisions written on the face of the second application for
the policy would only be considered reinstated upon approval of the reinstatement. Examining the said provisions, the court finds the
application by Insular Life during the applicant’s "lifetime and good same clearly written in terms that are simple enough to admit of only
health," and whatever amount the applicant paid in connection one interpretation. They are clearly not ambiguous, equivocal or
thereto was considered to be a deposit only until approval of said uncertain that would need further construction. The same are written
application. Enclosed with the 14 January 1999 letter of Insular Life on the very face of the application just above the space where
to Violeta was DBP Check No. 0000309734, for the amount of [Eulogio] signed his name. It is inconceivable that he signed it
₱25,417.00, drawn in Violeta’s favor, representing the full refund of without reading and understanding its import.1avv
the payments made by Eulogio on Policy No. 9011992. phi1
Similarly, the provisions of the policy provisions (sic) earlier
On 12 February 1998, Violeta requested a reconsideration of the mentioned are written in simple and clear layman’s language,
disallowance of her claim. In a letter13 dated 10 March 1999, Insular rendering it free from any ambiguity that would require a legal
Life stated that it could not find any reason to reconsider its decision interpretation or construction. Thus, the court believes that [Eulogio]
rejecting Violeta’s claim. Insular Life again tendered to Violeta the was well aware that when he filed the said application for
above-mentioned check in the amount of ₱25,417.00. reinstatement, his lapsed policy was not automatically reinstated and
1
that its approval was subject to certain conditions. Nowhere in the In an Order27 dated 3 July 2008, the RTC denied Violeta’s Notice of
policy or in the application for reinstatement was it ever mentioned Appeal with Motion given that the Decision dated 30 August 2007
that the payment of premiums would have the effect of an automatic had long since attained finality.
and immediate renewal of the lapsed policy. Instead, what was
clearly stated in the application for reinstatement is that pending Violeta directly elevated her case to this Court via the instant Petition
approval thereof, the premiums paid would be treated as a "deposit for Review on Certiorari, raising the following issues for
only and shall not bind the company until this application is finally consideration:
approved during my/our" lifetime and good health[.]" 1. Whether or not the Decision of the court a quo dated
Again, the court finds nothing in the aforesaid provisions that would August 30, 2007, can still be reviewed despite having
even suggest an ambiguity either in the words used or in the manner allegedly attained finality and despite the fact that the mode
they were written. [Violeta] did not present any proof that [Eulogio] of appeal that has been availed of by Violeta is erroneous?
was not conversant with the English language. Hence, his having 2. Whether or not the Regional Trial Court in its original
personally signed the application for reinstatement[,] which jurisdiction has decided the case on a question of law not in
consisted only of one page, could only mean that he has read its accord with law and applicable decisions of the Supreme
contents and that he understood them. x x x Court?

Therefore, consistent with the above Supreme Court ruling and Violeta insists that her former counsel committed an honest mistake
finding no ambiguity both in the policy provisions of Policy No. in filing a Reply, instead of a Notice of Appeal of the RTC Decision
9011992 and in the application for reinstatement subject of this dated 30 August 2007; and in the computation of the reglementary
case, the court finds no merit in [Violeta’s] contention that the policy period for appealing the said judgment. Violeta claims that her
provision stating that [the lapsed policy of Eulogio] should be former counsel suffered from poor health, which rapidly deteriorated
reinstated during his lifetime is ambiguous and should be construed from the first week of July 2008 until the latter’s death just shortly
in his favor. It is true that [Eulogio] submitted his application for after the filing of the instant Petition on 8 August 2008. In light of
reinstatement, together with his premium and interest payments, to these circumstances, Violeta entreats this Court to admit and give
[Insular Life] through its agent Josephine Malaluan in the morning of due course to her appeal even if the same was filed out of time.
September 17, 1998. Unfortunately, he died in the afternoon of that
same day. It was only on the following day, September 18, 1998 that Violeta further posits that the Court should address the question of
Ms. Malaluan brought the said document to [the regional office of law arising in this case involving the interpretation of the second
Insular Life] in San Fernando, Pampanga for approval. As correctly sentence of Section 19 of the Insurance Code, which provides:
pointed out by [Insular Life] there was no more application to
approve because the applicant was already dead and no insurance Section. 19. x x x [I]nterest in the life or health of a person insured
company would issue an insurance policy to a dead must exist when the insurance takes effect, but need not exist
person.18 (Emphases ours.) thereafter or when the loss occurs.

The RTC, in the end, explained that: On the basis thereof, Violeta argues that Eulogio still had insurable
interest in his own life when he reinstated Policy No. 9011992 just
While the court truly empathizes with the [Violeta] for the loss of her before he passed away on 17 September 1998. The RTC should
husband, it cannot express the same by interpreting the insurance have construed the provisions of the Policy Contract and Application
agreement in her favor where there is no need for such for Reinstatement in favor of the insured Eulogio and against the
interpretation. It is conceded that [Eulogio’s] payment of overdue insurer Insular Life, and considered the special circumstances of the
premiums and interest was received by [Insular Life] through its case, to rule that Eulogio had complied with the requisites for the
agent Ms. Malaluan. It is also true that [the] application for reinstatement of Policy No. 9011992 prior to his death, and that
reinstatement was filed by [Eulogio] a day before his death. Violeta is entitled to claim the proceeds of said policy as the primary
However, there is nothing that would justify a conclusion that such beneficiary thereof.
receipt amounted to an automatic reinstatement of the policy that
has already lapsed. The evidence suggests clearly that no such The Petition lacks merit.
automatic renewal was contemplated in the contract between
[Eulogio] and [Insular Life]. Neither was it shown that Ms. Malaluan At the outset, the Court notes that the elevation of the case to us via
was the officer authorized to approve the application for the instant Petition for Review on Certiorari is not justified. Rule 41,
reinstatement and that her receipt of the documents submitted by Section 1 of the Rules of Court,28 provides that no appeal may be
[Eulogio] amounted to its approval.19 (Emphasis ours.) taken from an order disallowing or dismissing an appeal. In such a
The fallo of the RTC Decision thus reads: case, the aggrieved party may file a Petition for Certiorari under Rule
WHEREFORE, all the foregoing premises considered and finding 65 of the Rules of Court.29
that [Violeta] has failed to establish by preponderance of evidence
her cause of action against the defendant, let this case be, as it is Furthermore, the RTC Decision dated 30 August 2007, assailed in
hereby DISMISSED.20 this Petition, had long become final and executory. Violeta filed a
On 14 September 2007, Violeta filed a Motion for Motion for Reconsideration thereof, but the RTC denied the same in
Reconsideration21 of the afore-mentioned RTC Decision. Insular Life an Order dated 8 November 2007. The records of the case reveal
opposed22 the said motion, averring that the arguments raised that Violeta received a copy of the 8 November 2007 Order on 3
therein were merely a rehash of the issues already considered and December 2007. Thus, Violeta had 15 days30 from said date of
addressed by the RTC. In an Order23 dated 8 November 2007, the receipt, or until 18 December 2007, to file a Notice of Appeal. Violeta
RTC denied Violeta’s Motion for Reconsideration, finding no cogent filed a Notice of Appeal only on 20 May 2008, more than five months
and compelling reason to disturb its earlier findings. Per the Registry after receipt of the RTC Order dated 8 November 2007 denying her
Return Receipt on record, the 8 November 2007 Order of the RTC Motion for Reconsideration.
was received by Violeta on 3 December 2007.
Violeta’s claim that her former counsel’s failure to file the proper
In the interim, on 22 November 2007, Violeta filed with the RTC a remedy within the reglementary period was an honest mistake,
Reply24 to the Motion for Reconsideration, wherein she reiterated the attributable to the latter’s deteriorating health, is unpersuasive.
prayer in her Motion for Reconsideration for the setting aside of the
Decision dated 30 August 2007. Despite already receiving on 3 Violeta merely made a general averment of her former counsel’s
December 2007, a copy of the RTC Order dated 8 November 2007, poor health, lacking relevant details and supporting evidence. By
which denied her Motion for Reconsideration, Violeta still filed with Violeta’s own admission, her former counsel’s health rapidly
the RTC, on 26 February 2008, a Reply Extended Discussion deteriorated only by the first week of July 2008. The events pertinent
elaborating on the arguments she had previously made in her to Violeta’s Notice of Appeal took place months before July 2008,
Motion for i.e., a copy of the RTC Order dated 8 November 2007, denying
Violeta’s Motion for Reconsideration of the Decision dated 30
Reconsideration and Reply. August 2007, was received on 3 December 2007; and Violeta’s
Notice of Appeal was filed on 20 May 2008. There is utter lack of
On 10 April 2008, the RTC issued an Order,25 declaring that the proof to show that Violeta’s former counsel was already suffering
Decision dated 30 August 2007 in Civil Case No. 2177 had already from ill health during these times; or that the illness of Violeta’s
attained finality in view of Violeta’s failure to file the appropriate former counsel would have affected his judgment and competence
notice of appeal within the reglementary period. Thus, any further as a lawyer.
discussions on the issues raised by Violeta in her Reply and Reply
Extended Discussion would be moot and academic. Moreover, the failure of her former counsel to file a Notice of Appeal
within the reglementary period binds Violeta, which failure the latter
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with cannot now disown on the basis of her bare allegation and self-
Motion,26 praying that the Order dated 10 April 2008 be set aside serving pronouncement that the former was ill. A client is bound by
and that she be allowed to file an appeal with the Court of Appeals. his counsel’s mistakes and negligence.31

2
The Court, therefore, finds no reversible error on the part of the RTC You may reinstate this policy at any time within three years after it
in denying Violeta’s Notice of Appeal for being filed beyond the lapsed if the following conditions are met: (1) the policy has not been
reglementary period. Without an appeal having been timely filed, the surrendered for its cash value or the period of extension as a term
RTC Decision dated 30 August 2007 in Civil Case No. 2177 already insurance has not expired; (2) evidence of insurability satisfactory to
became final and executory. [Insular Life] is furnished; (3) overdue premiums are paid with
compound interest at a rate not exceeding that which would have
A judgment becomes "final and executory" by operation of law. been applicable to said premium and indebtedness in the policy
Finality becomes a fact when the reglementary period to appeal years prior to reinstatement; and (4) indebtedness which existed at
lapses and no appeal is perfected within such period. As a the time of lapsation is paid or renewed.40
consequence, no court (not even this Court) can exercise appellate
jurisdiction to review a case or modify a decision that has become Additional conditions for reinstatement of a lapsed policy were stated
final.32 When a final judgment is executory, it becomes immutable in the Application for Reinstatement which Eulogio signed and
and unalterable. It may no longer be modified in any respect either submitted, to wit:
by the court, which rendered it or even by this Court. The doctrine is
founded on considerations of public policy and sound practice that, I/We agree that said Policy shall not be considered
at the risk of occasional errors, judgments must become final at reinstated until this application is approved by the Company
some definite point in time.33 during my/our lifetime and good health and until all other
Company requirements for the reinstatement of said Policy
The only recognized exceptions to the doctrine of immutability and are fully satisfied.
unalterability are the correction of clerical errors, the so-called nunc
pro tunc entries, which cause no prejudice to any party, and void I/We further agree that any payment made or to be made in
judgments.34 The instant case does not fall under any of these connection with this application shall be considered as
exceptions. deposit only and shall not bind the Company until this
Even if the Court ignores the procedural lapses committed herein, application is finally approved by the Company during
and proceeds to resolve the substantive issues raised, the Petition my/our lifetime and good health. If this application is
must still fail. disapproved, I/We also agree to accept the refund of all
payments made in connection herewith, without interest,
Violeta makes it appear that her present Petition involves a question and to surrender the receipts for such
of law, particularly, whether Eulogio had an existing insurable payment.41 (Emphases ours.)
interest in his own life until the day of his death.
In the instant case, Eulogio’s death rendered impossible full
An insurable interest is one of the most basic and essential compliance with the conditions for reinstatement of Policy No.
requirements in an insurance contract. In general, an insurable 9011992. True, Eulogio, before his death, managed to file his
interest is that interest which a person is deemed to have in the Application for Reinstatement and deposit the amount for payment
subject matter insured, where he has a relation or connection with or of his overdue premiums and interests thereon with Malaluan; but
concern in it, such that the person will derive pecuniary benefit or Policy No. 9011992 could only be considered reinstated after the
advantage from the preservation of the subject matter insured and Application for Reinstatement had been processed and approved by
will suffer pecuniary loss or damage from its destruction, termination, Insular Life during Eulogio’s lifetime and good health.
or injury by the happening of the event insured against.35 The
existence of an insurable interest gives a person the legal right to Relevant herein is the following pronouncement of the Court in
insure the subject matter of the policy of insurance.36 Section 10 of Andres v. The Crown Life Insurance Company,42 citing McGuire v.
the Insurance Code indeed provides that every person has an The Manufacturer's Life Insurance Co.43:
insurable interest in his own life.37 Section 19 of the same code also
states that an interest in the life or health of a person insured must "The stipulation in a life insurance policy giving the insured the
exist when the insurance takes effect, but need not exist thereafter privilege to reinstate it upon written application does not give the
or when the loss occurs.38 insured absolute right to such reinstatement by the mere filing of an
Upon more extensive study of the Petition, it becomes evident that application. The insurer has the right to deny the reinstatement if it is
the matter of insurable interest is entirely irrelevant in the case at not satisfied as to the insurability of the insured and if the latter does
bar. It is actually beyond question that while Eulogio was still alive, not pay all overdue premium and all other indebtedness to the
he had an insurable interest in his own life, which he did insure insurer. After the death of the insured the insurance Company
under Policy No. 9011992. The real point of contention herein is cannot be compelled to entertain an application for reinstatement of
whether Eulogio was able to reinstate the lapsed insurance policy on the policy because the conditions precedent to reinstatement can no
his life before his death on 17 September 1998. longer be determined and satisfied." (Emphases ours.)

The Court rules in the negative. It does not matter that when he died, Eulogio’s Application for
Reinstatement and deposits for the overdue premiums and interests
Before proceeding, the Court must correct the erroneous declaration were already with Malaluan. Insular Life, through the Policy
of the RTC in its 30 August 2007 Decision that Policy No. 9011992 Contract, expressly limits the power or authority of its insurance
lapsed because of Eulogio’s non-payment of the premiums which agents, thus:
became due on 24 April 1998 and 24 July 1998. Policy No. 9011992 Our agents have no authority to make or modify this contract, to
had lapsed and become void earlier, on 24 February 1998, upon the extend the time limit for payment of premiums, to waive any
expiration of the 31-day grace period for payment of the premium, lapsation, forfeiture or any of our rights or requirements, such
which fell due on 24 January 1998, without any payment having powers being limited to our president, vice-president or persons
been made. authorized by the Board of Trustees and only in writing. 44 (Emphasis
ours.)
That Policy No. 9011992 had already lapsed is a fact beyond
dispute. Eulogio’s filing of his first Application for Reinstatement with Malaluan did not have the authority to approve Eulogio’s Application
Insular Life, through Malaluan, on 26 May 1998, constitutes an for Reinstatement. Malaluan still had to turn over to Insular Life
admission that Policy No. 9011992 had lapsed by then. Insular Life Eulogio’s Application for Reinstatement and accompanying deposits,
did not act on Eulogio’s first Application for Reinstatement, since the for processing and approval by the latter.
amount Eulogio simultaneously deposited was sufficient to cover
only the ₱8,062.00 overdue premium for 24 January 1998, but not The Court agrees with the RTC that the conditions for reinstatement
the ₱322.48 overdue interests thereon. On 17 September 1998, under the Policy Contract and Application for Reinstatement were
Eulogio submitted a second Application for Reinstatement to Insular written in clear and simple language, which could not admit of any
Life, again through Malaluan, depositing at the same time meaning or interpretation other than those that they so obviously
₱17,500.00, to cover payment for the overdue interest on the embody. A construction in favor of the insured is not called for, as
premium for 24 January 1998, and the premiums that had also there is no ambiguity in the said provisions in the first place. The
become due on 24 April 1998 and 24 July 1998. On the very same words thereof are clear, unequivocal, and simple enough so as to
day, Eulogio passed away. preclude any mistake in the appreciation of the same.

To reinstate a policy means to restore the same to premium-paying Violeta did not adduce any evidence that Eulogio might have failed
status after it has been permitted to lapse.39 Both the Policy Contract to fully understand the import and meaning of the provisions of his
and the Application for Reinstatement provide for specific conditions Policy Contract and/or Application for Reinstatement, both of which
for the reinstatement of a lapsed policy. he voluntarily signed. While it is a cardinal principle of insurance law
that a policy or contract of insurance is to be construed liberally in
The Policy Contract between Eulogio and Insular Life identified the favor of the insured and strictly as against the insurer company, yet,
following conditions for reinstatement should the policy lapse: contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms, which the parties
10. REINSTATEMENT themselves have used. If such terms are clear and unambiguous,

3
they must be taken and understood in their plain, ordinary and
popular sense.45
7. That upon the death of said A. Velhagen in the year 1929,
Eulogio’s death, just hours after filing his Application for the plaintiff received all the proceeds of the said life
Reinstatement and depositing his payment for overdue premiums insurance policy, together with the interests and the
and interests with Malaluan, does not constitute a special dividends accruing thereon, aggregating P104,957.88.
circumstance that can persuade this Court to already consider Policy
No. 9011992 reinstated. Said circumstance cannot override the clear
and express provisions of the Policy Contract and Application for 8. That over the protest of the plaintiff, which claimed
Reinstatement, and operate to remove the prerogative of Insular Life exemption under section 4 of the Income Tax Law, the
thereunder to approve or disapprove the Application for defendant Collector of Internal Revenue assessed and
Reinstatement. Even though the Court commiserates with Violeta, levied the sum of P3,148.74 as income tax on the proceeds
as the tragic and fateful turn of events leaves her practically empty- of the insurance policy mentioned in the preceding
handed, the Court cannot arbitrarily burden Insular Life with the paragraph, which tax the plaintiff paid under instant protest
payment of proceeds on a lapsed insurance policy. Justice and on July 2, 1930; and that defendant overruled said protest
fairness must equally apply to all parties to a case. Courts are not on July 9, 1930.
permitted to make contracts for the parties. The function and duty of
the courts consist simply in enforcing and carrying out the contracts Thereupon, a decision was handed down which absolved the
actually made.46 defendant from the complaint, with costs against the plaintiff. From
this judgment, the plaintiff appealed, and its counsel now allege that:
Policy No. 9011992 remained lapsed and void, not having been
reinstated in accordance with the Policy Contract and Application for 1. That trial court erred in holding that section 4 of the Income Tax
Reinstatement before Eulogio’s death. Violeta, therefore, cannot Law (Act No. 2833) is not applicable to the present case.
claim any death benefits from Insular Life on the basis of Policy No.
9011992; but she is entitled to receive the full refund of the 2. The trial court erred in reading into the law certain exceptions and
payments made by Eulogio thereon. distinctions not warranted by its clear and unequivocal provisions.

WHEREFORE, premises considered, the Court DENIES the instant 3. The trial court erred in assuming that the proceeds of the life
Petition for Review on Certiorari under Rule 45 of the Rules of Court. insurance policy in question represented a net profit to the plaintiff
The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 when, as a matter of fact, it merely represented an indemnity, for the
of the RTC of Gapan City, Branch 34, in Civil Case No. 2177, loss suffered by it thru the death of its manager, the insured.
denying petitioner Violeta R. Lalican’s Notice of Appeal, on the
ground that the Decision dated 30 August 2007 subject thereof, was 4. The trial court erred in refusing to hold that the proceeds of the life
already final and executory. No costs. SO ORDERED. insurance policy in question is not taxable income, and in absolving
the defendant from the complaint.

The Income Tax Law for the Philippines is Act No. 2833, as
amended. It is divided into four chapters: Chapter I On Individuals,
2. EL ORIENTE FABRICA DE TABACOS, INC. vs. Chapter II On Corporations, Chapter III General Administrative
JUAN POSADAS Provisions, and Chapter IV General Provisions. In chapter I On
G.R. No. 34774           September 21, 1931 Individuals, is to be found section 4 which provides that, "The
following incomes shall be exempt from the provisions of this law: (a)
MALCOLM, J.: The proceeds of life insurance policies paid to beneficiaries upon the
death of the insured ... ." Section 10, as amended, in Chapter II On
The issue in this case is whether the proceeds of insurance taken by Corporations, provides that, There shall be levied, assessed,
a corporation on the life of an important official to indemnify it collected, and paid annually upon the total net income received in
against loss in case of his death, are taxable as income under the the preceding calendar year from all sources by every corporation ...
Philippine Income Tax Law. a tax of three per centum upon such income ... ." Section 11 in the
same chapter, provides the exemptions under the law, but neither
The parties submitted the case to the Court of First Instance of here nor in any other section is reference made to the provisions of
Manila for decision upon the following agreed statement of facts: section 4 in Chapter I.

1. That the plaintiff is a domestic corporation duly organized Under the view we take of the case, it is sufficient for our purposes
and existing under and by virtue of the laws of the to direct attention to the anomalous and vague condition of the law.
Philippine Islands, having its principal office at No. 732 It is certain that the proceeds of life insurance policies are exempt. It
Calle Evangelista, Manila, P.I.; and that the defendant is is not so certain that the proceeds of life insurance policies paid to
the duly appointed, qualified and acting Collector of Internal corporate beneficiaries upon the death of the insured are likewise
Revenue of the Philippine Islands. exempt. But at least, it may be said that the law is indefinite in
phraseology and does not permit us unequivocally to hold that the
2. That on March 18, 1925, plaintiff, in order to protect itself proceeds of life insurance policies received by corporations
against the loss that it might suffer by reason of the death constitute income which is taxable.
of its manager, A. Velhagen, who had had more than thirty-
five (35) years of experience in the manufacture of cigars in The situation will be better elucidated by a brief reference to laws on
the Philippine Islands, and whose death would be a serious the same subject in the United States. The Income Tax Law of 1916
loss to the plaintiff, procured from the Manufacturers Life extended to the Philippine Legislature, when it came to enact Act
Insurance Co., of Toronto, Canada, thru its local agent E.E. No. 2833, to copy the American statute. Subsequently, the Congress
Elser, an insurance policy on the life of the said A. of the United States enacted its Income Tax Law of 1919, in which
Velhagen for the sum of $50,000, United States currency. certain doubtful subjects were clarified. Thus, as to the point before
us, it was made clear, when not only in the part of the law
concerning individuals were exemptions provided for beneficiaries,
3. That the plaintiff, El Oriente, Fabrica de Tabacos, Inc., but also in the part concerning corporations, specific reference was
designated itself as the sole beneficiary of said policy on made to the exemptions in favor of individuals, thereby making the
the life of its said manager. same applicable to corporations. This was authoritatively pointed out
and decided by the United States Supreme Court in the case of
United States vs. Supplee-Biddle Hardware Co. ( [1924], 265 U.S.,
4. That during the time the life insurance policy hereinbefore 189), which involved facts quite similar to those before us. We do
referred to was in force and effect plaintiff paid from its not think the decision of the higher court in this case is necessarily
funds all the insurance premiums due thereon. controlling on account of the divergences noted in the federal statute
and the local statute, but we find in the decision certain language of
a general nature which appears to furnish the clue to the correct
5. That the plaintiff charged as expenses of its business all disposition of the instant appeal. Conceding, therefore, without
the said premiums and deducted the same from its gross necessarily having to decide, the assignments of error Nos. 1 and 2
incomes as reported in its annual income tax returns, which are not well taken, we would turn to the third assignment of error.
deductions were allowed by the defendant upon a showing
made by the plaintiff that such premiums were legitimate It will be recalled that El Oriente, Fabrica de Tabacos, Inc., took out
expenses of its (plaintiff's) business. the insurance on the life of its manager, who had had more than
thirty-five years' experience in the manufacture of cigars in the
Philippines, to protect itself against the loss it might suffer by reason
6. That the said A. Velhagen, the insured, had no interest or of the death of its manager. We do not believe that this fact signifies
participation in the proceeds of said life insurance policy. that when the plaintiff received P104,957.88 from the insurance on
4
the life of its manager, it thereby realized a net profit in this amount. After the issues have been joined, a pre-trial conference was held on
It is true that the Income Tax Law, in exempting individual July 8, 1972, after which, a pre-trial order was entered reading as
beneficiaries, speaks of the proceeds of life insurance policies as follows:
income, but this is a very slight indication of legislative intention. In
reality, what the plaintiff received was in the nature of an indemnity During the pre-trial conference, the parties manifested to
for the loss which it actually suffered because of the death of its the court. that there is no possibility of amicable settlement.
manager. Hence, the Court proceeded to have the parties submit
their evidence for the purpose of the pre-trial and make
To quote the exact words in the cited case of Chief Justice Taft admissions for the purpose of pretrial. During this
delivering the opinion of the court: conference, parties Carponia T. Ebrado and Pascuala
Ebrado agreed and stipulated: 1) that the deceased
It is earnestly pressed upon us that proceeds of life Buenaventura Ebrado was married to Pascuala Ebrado
insurance paid on the death of the insured are in fact with whom she has six — (legitimate) namely; Hernando,
capital, and cannot be taxed as income under the Sixteenth Cresencio, Elsa, Erlinda, Felizardo and Helen, all
Amendment. Eisner vs. Macomber, 252 U.S., 189, 207; surnamed Ebrado; 2) that during the lifetime of the
Merchants' Loan & Trust Co. vs. Smietanka, 255 U.S., 509, deceased, he was insured with Insular Life Assurance Co.
518. We are not required to meet this question. It is enough Under Policy No. 009929 whole life plan, dated September
to sustain our construction of the act to say that proceeds 1, 1968 for the sum of P5,882.00 with the rider for
of a life insurance policy paid on the death of the insured accidental death benefit as evidenced by Exhibits A for
are not usually classed as income. plaintiffs and Exhibit 1 for the defendant Pascuala and
Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of
. . . Life insurance in such a case is like that of fire and Buenaventura Ebrado, he was living with his common-wife,
marine insurance, — a contract of indemnity. Central Nat. Carponia Ebrado, with whom she had 2 children although
Bank vs. Hume, 128 U.S., 195. The benefit to be gained by he was not legally separated from his legal wife; 4) that
death has no periodicity. It is a substitution of money value Buenaventura in accident on October 21, 1969 as
for something permanently lost, either in a house, a ship, or evidenced by the death Exhibit 3 and affidavit of the police
a life. Assuming, without deciding, that Congress could call report of his death Exhibit 5; 5) that complainant Carponia
the proceeds of such indemnity income, and validly tax it as Ebrado filed claim with the Insular Life Assurance Co.
such, we think that, in view of the popular conception of the which was contested by Pascuala Ebrado who also filed
life insurance as resulting in a single addition of a total sum claim for the proceeds of said policy 6) that in view ofthe
to the resources of the beneficiary, and not in a periodical adverse claims the insurance company filed this action
return, such a purpose on its part should be express, as it against the two herein claimants Carponia and Pascuala
certainly is not here. Ebrado; 7) that there is now due from the Insular Life
Considering, therefore, the purport of the stipulated facts, Assurance Co. as proceeds of the policy P11,745.73; 8)
considering the uncertainty of Philippine law, and that the beneficiary designated by the insured in the policy
considering the lack of express legislative intention to tax is Carponia Ebrado and the insured made reservation to
the proceeds of life insurance policies paid to corporate change the beneficiary but although the insured made the
beneficiaries, particularly when in the exemption in favor of option to change the beneficiary, same was never changed
individual beneficiaries in the chapter on this subject, the up to the time of his death and the wife did not have any
clause is inserted "exempt from the provisions of this law," opportunity to write the company that there was reservation
we deem it reasonable to hold the proceeds of the life to change the designation of the parties agreed that a
insurance policy in question as representing an indemnity decision be rendered based on and stipulation of facts as to
and not taxable income. who among the two claimants is entitled to the policy.

The foregoing pronouncement will result in the judgment being Upon motion of the parties, they are given ten (10) days to
reversed and in another judgment being rendered in favor of the file their simultaneous memoranda from the receipt of this
plaintiff and against the defendant for the sum of P3,148.74. So order.
ordered, without costs in either instance.
SO ORDERED.
2. Beneficiaries
On September 25, 1972, the trial court rendered judgment declaring
1. THE INSULAR LIFE ASSURANCE COMPANY, LTD vs. among others, Carponia T. Ebrado disqualified from becoming
CARPONIA T. EBRADO beneficiary of the insured Buenaventura Cristor Ebrado and directing
G.R. No. L-44059 October 28, 1977 the payment of the insurance proceeds to the estate of the
MARTIN, J.: deceased insured. The trial court held: 
This is a novel question in insurance law: Can a common-law wife
named as beneficiary in the life insurance policy of a legally married It is patent from the last paragraph of Art. 739 of the Civil Code that
man claim the proceeds thereof in case of death of the latter? a criminal conviction for adultery or concubinage is not essential in
order to establish the disqualification mentioned therein. Neither is it
On September 1, 1968, Buenaventura Cristor Ebrado was issued by also necessary that a finding of such guilt or commission of those
The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for acts be made in a separate independent action brought for the
P5,882.00 with a, rider for Accidental Death for the same amount purpose. The guilt of the donee (beneficiary) may be proved by
Buenaventura C. Ebrado designated T. Ebrado as the revocable preponderance of evidence in the same proceeding (the action
beneficiary in his policy. He to her as his wife. brought to declare the nullity of the donation).

On October 21, 1969, Buenaventura C. Ebrado died as a result of It is, however, essential that such adultery or concubinage exists at
an t when he was hit by a failing branch of a tree. As the policy was the time defendant Carponia T. Ebrado was made beneficiary in the
in force, The Insular Life Assurance Co., Ltd. liable to pay the policy in question for the disqualification and incapacity to exist and
coverage in the total amount of P11,745.73, representing the face that it is only necessary that such fact be established by
value of the policy in the amount of P5,882.00 plus the additional preponderance of evidence in the trial. Since it is agreed in their
benefits for accidental death also in the amount of P5,882.00 and stipulation above-quoted that the deceased insured and defendant
the refund of P18.00 paid for the premium due November, 1969, Carponia T. Ebrado were living together as husband and wife
minus the unpaid premiums and interest thereon due for January without being legally married and that the marriage of the insured
and February, 1969, in the sum of P36.27. with the other defendant Pascuala Vda. de Ebrado was valid and still
existing at the time the insurance in question was purchased there is
Carponia T. Ebrado filed with the insurer a claim for the proceeds of no question that defendant Carponia T. Ebrado is disqualified from
the Policy as the designated beneficiary therein, although she becoming the beneficiary of the policy in question and as such she is
admits that she and the insured Buenaventura C. Ebrado were not entitled to the proceeds of the insurance upon the death of the
merely living as husband and wife without the benefit of marriage. insured.

Pascuala Vda. de Ebrado also filed her claim as the widow of the From this judgment, Carponia T. Ebrado appealed to the Court of
deceased insured. She asserts that she is the one entitled to the Appeals, but on July 11, 1976, the Appellate Court certified the case
insurance proceeds, not the common-law wife, Carponia T. Ebrado. to Us as involving only questions of law.

In doubt as to whom the insurance proceeds shall be paid, the We affirm the judgment of the lower court.
insurer, The Insular Life Assurance Co., Ltd. commenced an action
for Interpleader before the Court of First Instance of Rizal on April 1. It is quite unfortunate that the Insurance Act (RA 2327, as
29, 1970. amended) or even the new Insurance Code (PD No. 612,
as amended) does not contain any specific provision
grossly resolutory of the prime question at hand. Section 50
5
 of the Insurance Act which provides that "(t)he insurance donations should subsist, lest the condition 6f those who incurred
shag be applied exclusively to the proper interest of the guilt should turn out to be better.' So long as marriage remains the
person in whose name it is made" 1 cannot be validly cornerstone of our family law, reason and morality alike demand that
seized upon to hold that the mm includes the beneficiary. the disabilities attached to marriage should likewise attach to
The word "interest" highly suggests that the provision refers concubinage.
only to the "insured" and not to the beneficiary, since a
contract of insurance is personal in character. 2 Otherwise, It is hardly necessary to add that even in the absence of the above
the prohibitory laws against illicit relationships especially on pronouncement, any other conclusion cannot stand the test of
property and descent will be rendered nugatory, as the scrutiny. It would be to indict the frame of the Civil Code for a failure
same could easily be circumvented by modes of insurance. to apply a laudable rule to a situation which in its essentials cannot
Rather, the general rules of civil law should be applied to be distinguished. Moreover, if it is at all to be differentiated the policy
resolve this void in the Insurance Law. Article 2011 of the of the law which embodies a deeply rooted notion of what is just and
New Civil Code states: "The contract of insurance is what is right would be nullified if such irregular relationship instead of
governed by special laws. Matters not expressly provided being visited with disabilities would be attended with benefits.
for in such special laws shall be regulated by this Code." Certainly a legal norm should not be susceptible to such a reproach.
When not otherwise specifically provided for by the If there is every any occasion where the principle of statutory
Insurance Law, the contract of life insurance is governed by construction that what is within the spirit of the law is as much a part
the general rules of the civil law regulating contracts. 3 And of it as what is written, this is it. Otherwise the basic purpose
under Article 2012 of the same Code, "any person who is discernible in such codal provision would not be attained. Whatever
forbidden from receiving any donation under Article 739 omission may be apparent in an interpretation purely literal of the
cannot be named beneficiary of a fife insurance policy by language used must be remedied by an adherence to its avowed
the person who cannot make a donation to him. 4 Common- objective.
law spouses are, definitely, barred from receiving donations
from each other. Article 739 of the new Civil Code 4. We do not think that a conviction for adultery or concubinage is
provides:  exacted before the disabilities mentioned in Article 739 may
effectuate. More specifically, with record to the disability on "persons
The following donations shall be void: who were guilty of adultery or concubinage at the time of the
1. Those made between persons who were guilty of adultery or donation," Article 739 itself provides: 
concubinage at the time of donation;
In the case referred to in No. 1, the action for declaration of nullity
2. Those made between persons found guilty of the same criminal may be brought by the spouse of the donor or donee; and the guilty
offense, in consideration thereof; of the donee may be proved by preponderance of evidence in the
same action.
3. Those made to a public officer or his wife, descendants or
ascendants by reason of his office. The underscored clause neatly conveys that no criminal conviction
for the offense is a condition precedent. In fact, it cannot even be
In the case referred to in No. 1, the action for declaration of nullity from the aforequoted provision that a prosecution is needed. On the
may be brought by the spouse of the donor or donee; and the guilt contrary, the law plainly states that the guilt of the party may be
of the donee may be proved by preponderance of evidence in the proved "in the same acting for declaration of nullity of donation. And,
same action. it would be sufficient if evidence preponderates upon the guilt of the
consort for the offense indicated. The quantum of proof in criminal
2. In essence, a life insurance policy is no different from a civil cases is not demanded.
donation insofar as the beneficiary is concerned. Both are founded
upon the same consideration: liberality. A beneficiary is like a donee, In the caw before Us, the requisite proof of common-law relationship
because from the premiums of the policy which the insured pays out between the insured and the beneficiary has been conveniently
of liberality, the beneficiary will receive the proceeds or profits of supplied by the stipulations between the parties in the pre-trial
said insurance. As a consequence, the proscription in Article 739 of conference of the case. It case agreed upon and stipulated therein
the new Civil Code should equally operate in life insurance that the deceased insured Buenaventura C. Ebrado was married to
contracts. The mandate of Article 2012 cannot be laid aside: any Pascuala Ebrado with whom she has six legitimate children; that
person who cannot receive a donation cannot be named as during his lifetime, the deceased insured was living with his
beneficiary in the life insurance policy of the person who cannot common-law wife, Carponia Ebrado, with whom he has two children.
make the donation. 5 Under American law, a policy of life insurance These stipulations are nothing less than judicial admissions which,
is considered as a testament and in construing it, the courts will, so as a consequence, no longer require proof and cannot be
far as possible treat it as a will and determine the effect of a clause contradicted. 8 A fortiori, on the basis of these admissions, a
designating the beneficiary by rules under which wins are judgment may be validly rendered without going through the rigors of
interpreted. 6 a trial for the sole purpose of proving the illicit liaison between the
insured and the beneficiary. In fact, in that pretrial, the parties even
3. Policy considerations and dictates of morality rightly justify the agreed "that a decision be rendered based on this agreement and
institution of a barrier between common law spouses in record to stipulation of facts as to who among the two claimants is entitled to
Property relations since such hip ultimately encroaches upon the the policy."
nuptial and filial rights of the legitimate family There is every reason ACCORDINGLY, the appealed judgment of the lower court is hereby
to hold that the bar in donations between legitimate spouses and affirmed. Carponia T. Ebrado is hereby declared disqualified to be
those between illegitimate ones should be enforced in life insurance the beneficiary of the late Buenaventura C. Ebrado in his life
policies since the same are based on similar consideration As above insurance policy. As a consequence, the proceeds of the policy are
pointed out, a beneficiary in a fife insurance policy is no different hereby held payable to the estate of the deceased insured. Costs
from a donee. Both are recipients of pure beneficence. So long as against Carponia T. Ebrado. SO ORDERED.
manage remains the threshold of family laws, reason and morality 2. SOUTHERN LUZON EMPLOYEES' ASSOCIATION, vs.
dictate that the impediments imposed upon married couple should JUANITA GOLPEO, ET AL.
likewise be imposed upon extra-marital relationship. If legitimate
relationship is circumscribed by these legal disabilities, with more PARAS, C.J.:
reason should an illicit relationship be restricted by these disabilities. The plaintiff, Southern Luzon Employees' Association is composed
Thus, in Matabuena v. Cervantes, 7 this Court, through Justice of laborers and employees of Laguna tayabas Bus Co., and
Fernando, said:  Batangas Transportation Company, and one of its purposes is
mutual aid of its members and their defendants in case of death.
If the policy of the law is, in the language of the opinion of the then Roman A. Concepcion was a member until his death on December
Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit 13, 1950.
donations in favor of the other consort and his descendants because
of and undue and improper pressure and influence upon the donor, The association adopted on September 17, 1949 the following
a prejudice deeply rooted in our ancient law;" por-que no se resolution:
enganen desponjandose el uno al otro por amor que han de
consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV), RESOLVED: That a family record card of each member be printed
reiterating the rationale 'No Mutuato amore invicem spoliarentur' the wherein the members will put down his dependents and/or
Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then beneficiaries.
there is very reason to apply the same prohibitive policy to persons
living together as husband and wife without the benefit of nuptials. BE IT RESOLVED, FURTHER, that a member may, if he chooses,
For it is not to be doubted that assent to such irregular connection put down his common-law wife as his beneficiary and/or children
for thirty years bespeaks greater influence of one party over the had with her as the case may be; that in case of a widower, he may
other, so that the danger that the law seeks to avoid is put down his legitimate children with the first marriage who are
correspondingly increased. Moreover, as already pointed out by below 21 years of age, single, and may at the same time, also name
Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such
6
his common-law wife, if he has any, as dependents and/or a mutual benefit association as one, among others, "providing for
beneficiaries; and any method of accident or life insurance among its members out of
dues or assessments collected from the membership." The
BE IT RESOLVED: That such person so named by the member will comparison made in the appealed decision is, therefore, well taken.
be sole persons to be recognized by the Association regarding
claims for condolence contributions. Appellant also contend that the stipulation between the plaintiff and
the deceased Roman A. Concepcion regarding the specification of
In the form required by the association to be accomplished by its the latter's beneficiaries, and the resolution of September 17, 1949,
members, with reference to the death benefit, Roman A. Concepcion are void for the being contrary to law, moral or public policy.
listed as his beneficiaries Aquilina Maloles, Roman M. Concepcion, Specifically, the appellants cite article 2012 of the new Civil Code
Jr., Estela M. Concepcion, Rolando M. Concepcion and Robin M. providing that "Any person who is forbidden from receiving any
Concepcion. After the death of Roman A. Concepcion, the donation under article 739 cannot be named beneficiary of a life
association was able to collect voluntary contributions from its insurance policy and by the person who cannot make any donation
members amounting to P2,5055. Three sets of claimants presented to him, according to said article." Inasmuch as, according to article
themselves, namely, (1) Juanita Golpeo, legal wife of Roman A. 739 of the new Civil Code, a donation is valid when made "between
Concepcion, and her children, named beneficiaries by the deceased; persons who are guilty or adultery or concubinage at the time of the
and (3) Elsie Hicban, another common law wife of Roman A. donation," it is alleged that the defendant-appellee Aquilina Maloles,
Concepcion, and her child. The plaintiff association was accordingly cannot be named a beneficiary, every assuming that the insurance
constrained to institute in the Court of First Instance of Laguna the law is applicable. Without considering the intimation in the brief for
present action for interpleading against the three conflicting the defendant appellees that appellant Juanita Golpeo, by her
claimants as defendants. Marcelino and Josefina Concepcion, silence and actions, had acquiesced in the illicit relations between
children of the deceased Roman A. Concepcion with Juanita her husband and appellee Aquilina Maloles, appellant argument
Golpeo, intervened in their own rights, aligning themselves with the would certainly not apply to the children of Aquilina likewise named
defendants, Juanita Golpeo and her minor children. After hearing, beneficiaries by the deceased Roman A. Concepcion. As a matter of
the court rendered a decision, declaring the defendants Aquilina a fact the new Civil Code recognized certain successional rights of
Maloles and her children the sole beneficiaries of the sum of illegitimate children. (Article 287.)
P2,505.00, and ordering the plaintiff to deliver said amount to them.
From this decision only the defendants Juanita Golpeo and her The other contention advanced rather exhaustively by counsel for
minor children and the intervenors Marcelino and Josefina appellants, and the citations in support there of are either negative
Concepcion have appealed to this court. or rendered inapplicable by the decisive considerations already
stated. In this connection it is noteworthy that the estate of the
The decision is based mainly on the theory that the contract deceased Roman A. Concepcion was not entirely left without
between the plaintiff and the deceased Roman A. Concepcion anything legally due it since it is an admitted fact that the sum of
partook of the nature of an insurance and that, therefore, the amount P2,500 was paid by Laguna Tayabas Bus Co., employer of the
in question belonged exclusively to the beneficiaries, invoking the deceased to the appellants under the Workmen's Compensation Act.
following pronouncements of this Court in the case of Del Val vs. Del Wherefore, the appealed decision is affirmed, and it is so ordered
Val, 29 Phil., 534: without costs.

With the finding of the trial court that the proceeds of the life-
insurance policy belongs exclusively to the defendant as his
individual and separate property, we agree. That the proceeds of an
insurance policy belong exclusively to the beneficiary and not to the
estate of the person whose life was insured, and that such proceeds
are the separate and individual property of the beneficiary, and not
of the heirs of the person whose life was insured, is the doctrine in
America. We believe that the same doctrine obtains in these Islands
by virtue of section 428 of the Code of Commerce, which reads:

"The amounts which the underwriter must deliver to the person

insured, in fulfillment of the contract, shall be the property creditors
of any kind whatsoever of the person who effected the insurance in
favor of the formers."

It is claimed by the attorney for the plaintiffs that the section just
quoted in subordinated to the provisions of the civil code as found in
article 10035. This article reads:

"An heir by force of law surviving with others of the same character
to a succession must bring into the hereditary estate the property or
securities he may bring into the hereditary estate the property or
securities he may have been received from the deceased during the
life of the same, by way of dowry, gift, or for any good consideration,
in order to compute it in fixing the legal portions and in the amount of
the division."

Counsel also claims that the proceed of the insurance policy were
donation or gift made by the father during his lifetime to the
defendant and that, as such, its ultimate destination is determined by
those provisions of the Civil Code which relate to donations,
especially article 819. This article provides that "gifts made to
children which are not betterments shall be considered as part of
their legal portion."

We cannot agree with these contention. The contract of life

insurance is a special contract and the destination of the proceeds
thereof is determined by special laws which deal exclusively with
that subject. The Civil Code has no provisions which relate directly
and specifically to life-insurance contract or to the destination of life-
insurance proceeds. That subject is regulate exclusively by the Code 3. HEIRS OF LORETO C. MARAMAG, vs.
of Commerce which provides for the terms of the contract, the EVA VERNA DE GUZMAN MARAMAG, et.al.
relations of the parties and the destination of the proceeds of the G.R. No. 181132               June 5, 2009
policy. (Supra, pp. 540-541.)
NACHURA, J.:
It is argued for the appellants, however, that the Insurance Law is
not applicable because the plaintiff is a mutual benefit association as The case stems from a petition 3 filed against respondents with the
defined in section 1628 of the Revised Administrative Code. This Regional Trial Court, Branch 29, for revocation and/or reduction of
argument evidently ignore the fact that the trial court has no insurance proceeds for being void and/or inofficious, with prayer for
considered the plaintiff as a regular insurance company but merely a temporary restraining order (TRO) and a writ of preliminary
ruled that the death benefit in question is analogous to an insurance. injunction.
Moreover, section 1628 of the Revised Administrative Code defines
7
The petition alleged that: (1) petitioners were the legitimate wife and Art. 2011 of the Civil Code provides that the contract of
children of Loreto Maramag (Loreto), while respondents were insurance is governed by the (sic) special laws. Matters not
Loreto’s illegitimate family; (2) Eva de Guzman Maramag (Eva) was expressly provided for in such special laws shall be
a concubine of Loreto and a suspect in the killing of the latter, thus, regulated by this Code. The principal law on insurance is
she is disqualified to receive any proceeds from his insurance the Insurance Code, as amended. Only in case of
policies from Insular Life Assurance Company, Ltd. (Insular) 4 and deficiency in the Insurance Code that the Civil Code may
Great Pacific Life Assurance Corporation (Grepalife); 5 (3) the be resorted to. (Enriquez v. Sun Life Assurance Co., 41
illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Phil. 269.)
Angelie—were entitled only to one-half of the legitime of the
legitimate children, thus, the proceeds released to Odessa and The Insurance Code, as amended, contains a provision regarding to
those to be released to Karl Brian and Trisha Angelie were whom the insurance proceeds shall be paid. It is very clear under
inofficious and should be reduced; and (4) petitioners could not be Sec. 53 thereof that the insurance proceeds shall be applied
deprived of their legitimes, which should be satisfied first. exclusively to the proper interest of the person in whose name or for
whose benefit it is made, unless otherwise specified in the policy.
In support of the prayer for TRO and writ of preliminary injunction, Since the defendants are the ones named as the primary beneficiary
petitioners alleged, among others, that part of the insurance (sic) in the insurances (sic) taken by the deceased Loreto C.
proceeds had already been released in favor of Odessa, while the Maramag and there is no showing that herein plaintiffs were also
rest of the proceeds are to be released in favor of Karl Brian and included as beneficiary (sic) therein the insurance proceeds shall
Trisha Angelie, both minors, upon the appointment of their legal exclusively be paid to them. This is because the beneficiary has a
guardian. Petitioners also prayed for the total amount of vested right to the indemnity, unless the insured reserves the right to
₱320,000.00 as actual litigation expenses and attorney’s fees. change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada,
48 Phil. [sic] 63).
In answer,6 Insular admitted that Loreto misrepresented Eva as his
legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his Neither could the plaintiffs invoked (sic) the law on donations or the
legitimate children, and that they filed their claims for the insurance rules on testamentary succession in order to defeat the right of
proceeds of the insurance policies; that when it ascertained that Eva herein defendants to collect the insurance indemnity. The
was not the legal wife of Loreto, it disqualified her as a beneficiary beneficiary in a contract of insurance is not the donee spoken in the
and divided the proceeds among Odessa, Karl Brian, and Trisha law of donation. The rules on testamentary succession cannot apply
Angelie, as the remaining designated beneficiaries; and that it here, for the insurance indemnity does not partake of a donation. As
released Odessa’s share as she was of age, but withheld the such, the insurance indemnity cannot be considered as an advance
release of the shares of minors Karl Brian and Trisha Angelie of the inheritance which can be subject to collation (Del Val v. Del
pending submission of letters of guardianship. Insular alleged that Val, 29 Phil. 534). In the case of Southern Luzon Employees’
the complaint or petition failed to state a cause of action insofar as it Association v. Juanita Golpeo, et al., the Honorable Supreme Court
sought to declare as void the designation of Eva as beneficiary, made the following pronouncements[:]
because Loreto revoked her designation as such in Policy No.
A001544070 and it disqualified her in Policy No. A001693029; and "With the finding of the trial court that the proceeds to the
insofar as it sought to declare as inofficious the shares of Odessa, Life Insurance Policy belongs exclusively to the defendant
Karl Brian, and Trisha Angelie, considering that no settlement of as his individual and separate property, we agree that the
Loreto’s estate had been filed nor had the respective shares of the proceeds of an insurance policy belong exclusively to the
heirs been determined. Insular further claimed that it was bound to beneficiary and not to the estate of the person whose life
honor the insurance policies designating the children of Loreto with was insured, and that such proceeds are the separate and
Eva as beneficiaries pursuant to Section 53 of the Insurance Code. individual property of the beneficiary and not of the heirs of
the person whose life was insured, is the doctrine in
In its own answer7 with compulsory counterclaim, Grepalife alleged America. We believe that the same doctrine obtains in
that Eva was not designated as an insurance policy beneficiary; that these Islands by virtue of Section 428 of the Code of
the claims filed by Odessa, Karl Brian, and Trisha Angelie were Commerce x x x."
denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on In [the] light of the above pronouncements, it is very clear that the
December 10, 1936 and, thus, not more than 65 years old when he plaintiffs has (sic) no sufficient cause of action against defendants
signed it in September 2001; that the case was premature, there Odessa, Karl Brian and Trisha Angelie Maramag for the reduction
being no claim filed by the legitimate family of Loreto; and that the and/or declaration of inofficiousness of donation as primary
law on succession does not apply where the designation of beneficiary (sic) in the insurances (sic) of the late Loreto C.
insurance beneficiaries is clear. Maramag.
However, herein plaintiffs are not totally bereft of any cause of
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie action. One of the named beneficiary (sic) in the insurances (sic)
were not known to petitioners, summons by publication was resorted taken by the late Loreto C. Maramag is his concubine Eva Verna De
to. Still, the illegitimate family of Loreto failed to file their answer. Guzman. Any person who is forbidden from receiving any donation
Hence, the trial court, upon motion of petitioners, declared them in under Article 739 cannot be named beneficiary of a life insurance
default in its Order dated May 7, 2004. policy of the person who cannot make any donation to him,
according to said article (Art. 2012, Civil Code). If a concubine is
During the pre-trial on July 28, 2004, both Insular and Grepalife made the beneficiary, it is believed that the insurance contract will
moved that the issues raised in their respective answers be resolved still remain valid, but the indemnity must go to the legal heirs and not
first. The trial court ordered petitioners to comment within 15 days. to the concubine, for evidently, what is prohibited under Art. 2012 is
In their comment, petitioners alleged that the issue raised by Insular the naming of the improper beneficiary. In such case, the action for
and Grepalife was purely legal – whether the complaint itself was the declaration of nullity may be brought by the spouse of the donor
proper or not – and that the designation of a beneficiary is an act of or donee, and the guilt of the donor and donee may be proved by
liberality or a donation and, therefore, subject to the provisions of preponderance of evidence in the same action (Comment of
Articles 7528 and 7729 of the Civil Code. Edgardo L. Paras, Civil Code of the Philippines, page 897). Since
the designation of defendant Eva Verna de Guzman as one of the
In reply, both Insular and Grepalife countered that the insurance primary beneficiary (sic) in the insurances (sic) taken by the late
proceeds belong exclusively to the designated beneficiaries in the Loreto C. Maramag is void under Art. 739 of the Civil Code, the
policies, not to the estate or to the heirs of the insured. Grepalife insurance indemnity that should be paid to her must go to the legal
also reiterated that it had disqualified Eva as a beneficiary when it heirs of the deceased which this court may properly take cognizance
ascertained that Loreto was legally married to Vicenta Pangilinan as the action for the declaration for the nullity of a void donation falls
Maramag. within the general jurisdiction of this Court.11

On September 21, 2004, the trial court issued a Resolution, the Insular12 and Grepalife13 filed their respective motions for
dispositive portion of which reads – reconsideration, arguing, in the main, that the petition failed to state
a cause of action. Insular further averred that the proceeds were
WHEREFORE, the motion to dismiss incorporated in the divided among the three children as the remaining named
answer of defendants Insular Life and Grepalife is granted beneficiaries. Grepalife, for its part, also alleged that the premiums
with respect to defendants Odessa, Karl Brian and Trisha paid had already been refunded.
Maramag. The action shall proceed with respect to the
other defendants Eva Verna de Guzman, Insular Life and Petitioners, in their comment, reiterated their earlier arguments and
Grepalife. posited that whether the complaint may be dismissed for failure to
SO ORDERED.10 state a cause of action must be determined solely on the basis of the
allegations in the complaint, such that the defenses of Insular and
In so ruling, the trial court ratiocinated thus – Grepalife would be better threshed out during trial.

8
On June 16, 2005, the trial court issued a Resolution, disposing, as (g) That the pleading asserting the claim states no cause of
follows: action.

WHEREFORE, in view of the foregoing disquisitions, the A cause of action is the act or omission by which a party
Motions for Reconsideration filed by defendants Grepalife violates a right of another.16 A complaint states a cause of
and Insular Life are hereby GRANTED. Accordingly, the action when it contains the three (3) elements of a cause of
portion of the Resolution of this Court dated 21 September action—(1) the legal right of the plaintiff; (2) the correlative
2004 which ordered the prosecution of the case against obligation of the defendant; and (3) the act or omission of
defendant Eva Verna De Guzman, Grepalife and Insular the defendant in violation of the legal right. If any of these
Life is hereby SET ASIDE, and the case against them is elements is absent, the complaint becomes vulnerable to a
hereby ordered DISMISSED. motion to dismiss on the ground of failure to state a cause
of action.17
SO ORDERED.14
When a motion to dismiss is premised on this ground, the ruling
In granting the motions for reconsideration of Insular and Grepalife, thereon should be based only on the facts alleged in the complaint.
the trial court considered the allegations of Insular that Loreto The court must resolve the issue on the strength of such allegations,
revoked the designation of Eva in one policy and that Insular assuming them to be true. The test of sufficiency of a cause of
disqualified her as a beneficiary in the other policy such that the action rests on whether, hypothetically admitting the facts alleged in
entire proceeds would be paid to the illegitimate children of Loreto the complaint to be true, the court can render a valid judgment upon
with Eva pursuant to Section 53 of the Insurance Code. It ruled that the same, in accordance with the prayer in the complaint. This is the
it is only in cases where there are no beneficiaries designated, or general rule.
when the only designated beneficiary is disqualified, that the
proceeds should be paid to the estate of the insured. As to the claim However, this rule is subject to well-recognized exceptions, such
that the proceeds to be paid to Loreto’s illegitimate children should that there is no hypothetical admission of the veracity of the
be reduced based on the rules on legitime, the trial court held that allegations if:
the distribution of the insurance proceeds is governed primarily by 1. the falsity of the allegations is subject to judicial notice;
the Insurance Code, and the provisions of the Civil Code are 2. such allegations are legally impossible;
irrelevant and inapplicable. With respect to the Grepalife policy, the 3. the allegations refer to facts which are inadmissible in
trial court noted that Eva was never designated as a beneficiary, but evidence;
only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the 4. by the record or document in the pleading, the allegations
dismissal of the case as to the illegitimate children. It further held appear unfounded; or
that the matter of Loreto’s misrepresentation was premature; the 5. there is evidence which has been presented to the court by
appropriate action may be filed only upon denial of the claim of the stipulation of the parties or in the course of the hearings
named beneficiaries for the insurance proceeds by Grepalife. related to the case.18

Petitioners appealed the June 16, 2005 Resolution to the CA, but it In this case, it is clear from the petition filed before the trial court
dismissed the appeal for lack of jurisdiction, holding that the decision that, although petitioners are the legitimate heirs of Loreto, they
of the trial court dismissing the complaint for failure to state a cause were not named as beneficiaries in the insurance policies issued by
of action involved a pure question of law. The appellate court also Insular and Grepalife. The basis of petitioners’ claim is that Eva,
noted that petitioners did not file within the reglementary period a being a concubine of Loreto and a suspect in his murder, is
motion for reconsideration of the trial court’s Resolution, dated disqualified from being designated as beneficiary of the insurance
September 21, 2004, dismissing the complaint as against Odessa, policies, and that Eva’s children with Loreto, being illegitimate
Karl Brian, and Trisha Angelie; thus, the said Resolution had already children, are entitled to a lesser share of the proceeds of the
attained finality. policies. They also argued that pursuant to Section 12 of the
Insurance Code,19 Eva’s share in the proceeds should be forfeited in
Hence, this petition raising the following issues: their favor, the former having brought about the death of Loreto.
Thus, they prayed that the share of Eva and portions of the shares
a. In determining the merits of a motion to dismiss for failure of Loreto’s illegitimate children should be awarded to them, being
to state a cause of action, may the Court consider matters the legitimate heirs of Loreto entitled to their respective legitimes.
which were not alleged in the Complaint, particularly the
defenses put up by the defendants in their Answer? It is evident from the face of the complaint that petitioners are not
entitled to a favorable judgment in light of Article 2011 of the Civil
b. In granting a motion for reconsideration of a motion to Code which expressly provides that insurance contracts shall be
dismiss for failure to state a cause of action, did not the governed by special laws, i.e., the Insurance Code. Section 53 of the
Regional Trial Court engage in the examination and Insurance Code states—
determination of what were the facts and their probative
value, or the truth thereof, when it premised the dismissal SECTION 53. The insurance proceeds shall be applied
on allegations of the defendants in their answer – which exclusively to the proper interest of the person in whose
had not been proven? name or for whose benefit it is made unless otherwise
c. x x x (A)re the members of the legitimate family entitled to specified in the policy.
the proceeds of the insurance for the concubine?15
Pursuant thereto, it is obvious that the only persons entitled to claim
In essence, petitioners posit that their petition before the trial court the insurance proceeds are either the insured, if still alive; or the
should not have been dismissed for failure to state a cause of action beneficiary, if the insured is already deceased, upon the maturation
because the finding that Eva was either disqualified as a beneficiary of the policy.20 The exception to this rule is a situation where the
by the insurance companies or that her designation was revoked by insurance contract was intended to benefit third persons who are not
Loreto, hypothetically admitted as true, was raised only in the parties to the same in the form of favorable stipulations or indemnity.
answers and motions for reconsideration of both Insular and In such a case, third parties may directly sue and claim from the
Grepalife. They argue that for a motion to dismiss to prosper on that insurer.21
ground, only the allegations in the complaint should be considered.
They further contend that, even assuming Insular disqualified Eva as Petitioners are third parties to the insurance contracts with Insular
a beneficiary, her share should not have been distributed to her and Grepalife and, thus, are not entitled to the proceeds thereof.
children with Loreto but, instead, awarded to them, being the Accordingly, respondents Insular and Grepalife have no legal
legitimate heirs of the insured deceased, in accordance with law and obligation to turn over the insurance proceeds to petitioners. The
jurisprudence. revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment considering
The petition should be denied. that the designation of the illegitimate children as beneficiaries in
Loreto’s insurance policies remains valid. Because no legal
The grant of the motion to dismiss was based on the trial court’s proscription exists in naming as beneficiaries the children of illicit
finding that the petition failed to state a cause of action, as provided relationships by the insured,22 the shares of Eva in the insurance
in Rule 16, Section 1(g), of the Rules of Court, which reads – proceeds, whether forfeited by the court in view of the prohibition on
donations under Article 739 of the Civil Code or by the insurers
SECTION 1. Grounds. – Within the time for but before filing themselves for reasons based on the insurance contracts, must be
the answer to the complaint or pleading asserting a claim, a awarded to the said illegitimate children, the designated
motion to dismiss may be made on any of the following beneficiaries, to the exclusion of petitioners. It is only in cases where
grounds: the insured has not designated any beneficiary,23 or when the
designated beneficiary is disqualified by law to receive the
xxxx proceeds,24 that the insurance policy proceeds shall redound to the
benefit of the estate of the insured.

9
In this regard, the assailed June 16, 2005 Resolution of the trial
court should be upheld. In the same light, the Decision of the CA Petitioner argues that the agreement grants "living benefits," such as
dated January 8, 2008 should be sustained. Indeed, the appellate medical check-ups and hospitalization which a member may
court had no jurisdiction to take cognizance of the appeal; the issue immediately enjoy so long as he is alive upon effectivity of the
of failure to state a cause of action is a question of law and not of agreement until its expiration one-year thereafter. Petitioner also
fact, there being no findings of fact in the first place.25 points out that only medical and hospitalization benefits are given
under the agreement without any indemnification, unlike in an
WHEREFORE, the petition is DENIED for lack of merit. Costs insurance contract where the insured is indemnified for his loss.
against petitioners. SO ORDERED. Moreover, since Health Care Agreements are only for a period of
one year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause does not
apply, as the same requires an effectivity period of at least two
years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of
4. PHILAMCARE HEALTH SYSTEMS, INC., v. CA Health.
G.R. No. 125678      March 18, 2002
Section 2 (1) of the Insurance Code defines a contract of insurance
YNARES-SANTIAGO, J.: as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
Ernani Trinos, deceased husband of respondent Julita Trinos, unknown or contingent event. An insurance contract exists where
applied for a health care coverage with petitioner Philamcare Health the following elements concur:
Systems, Inc. In the standard application form, he answered no to
the following question: 1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening
Have you or any of your family members ever consulted or been of the designated peril;
treated for high blood pressure, heart trouble, diabetes, cancer, liver 3. The insurer assumes the risk;
disease, asthma or peptic ulcer? (If Yes, give details).1 4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
The application was approved for a period of one year from March 1, bearing a similar risk; and
1988 to March 1, 1989. Accordingly, he was issued Health Care 5. In consideration of the insurer’s promise, the insured
Agreement No. P010194. Under the agreement, respondent’s pays a premium.8
husband was entitled to avail of hospitalization benefits, whether
ordinary or emergency, listed therein. He was also entitled to avail of Section 3 of the Insurance Code states that any contingent or
"out-patient benefits" such as annual physical examinations, unknown event, whether past or future, which may damnify a person
preventive health care and other out-patient services. having an insurable interest against him, may be insured against.
Every person has an insurable interest in the life and health of
Upon the termination of the agreement, the same was extended for himself. Section 10 provides:
another year from March 1, 1989 to March 1, 1990, then from March
1, 1990 to June 1, 1990. The amount of coverage was increased to Every person has an insurable interest in the life and
a maximum sum of P75,000.00 per disability.2 health:
(1) of himself, of his spouse and of his children;
During the period of his coverage, Ernani suffered a heart attack and (2) of any person on whom he depends wholly or in part for
was confined at the Manila Medical Center (MMC) for one month education or support, or in whom he has a pecuniary
beginning March 9, 1990. While her husband was in the hospital, interest;
respondent tried to claim the benefits under the health care (3) of any person under a legal obligation to him for the
agreement. However, petitioner denied her claim saying that the payment of money, respecting property or service, of which
Health Care Agreement was void. According to petitioner, there was death or illness might delay or prevent the performance;
a concealment regarding Ernani’s medical history. Doctors at the and
MMC allegedly discovered at the time of Ernani’s confinement that (4) of any person upon whose life any estate or interest
he was hypertensive, diabetic and asthmatic, contrary to his answer vested in him depends.
in the application form. Thus, respondent paid the hospitalization
expenses herself, amounting to about P76,000.00. In the case at bar, the insurable interest of respondent’s husband in
obtaining the health care agreement was his own health. The health
After her husband was discharged from the MMC, he was attended care agreement was in the nature of non-life insurance, which is
by a physical therapist at home. Later, he was admitted at the primarily a contract of indemnity.9 Once the member incurs hospital,
Chinese General Hospital. Due to financial difficulties, however, medical or any other expense arising from sickness, injury or other
respondent brought her husband home again. In the morning of April stipulated contingent, the health care provider must pay for the same
13, 1990, Ernani had fever and was feeling very weak. Respondent to the extent agreed upon under the contract.
was constrained to bring him back to the Chinese General Hospital
where he died on the same day. Petitioner argues that respondent’s husband concealed a material
fact in his application. It appears that in the application for health
On July 24, 1990, respondent instituted with the Regional Trial Court coverage, petitioners required respondent’s husband to sign an
of Manila, Branch 44, an action for damages against petitioner and express authorization for any person, organization or entity that has
its president, Dr. Benito Reverente, which was docketed as Civil any record or knowledge of his health to furnish any and all
Case No. 90-53795. She asked for reimbursement of her expenses information relative to any hospitalization, consultation, treatment or
plus moral damages and attorney’s fees. After trial, the lower court any other medical advice or examination.10 Specifically, the Health
ruled against petitioners, viz: Care Agreement signed by respondent’s husband states:

WHEREFORE, in view of the forgoing, the Court renders We hereby declare and agree that all statement and
judgment in favor of the plaintiff Julita Trinos, ordering: answers contained herein and in any addendum annexed
1. Defendants to pay and reimburse the medical and to this application are full, complete and true and bind all
hospital coverage of the late Ernani Trinos in the amount of parties in interest under the Agreement herein applied for,
P76,000.00 plus interest, until the amount is fully paid to that there shall be no contract of health care coverage
plaintiff who paid the same; unless and until an Agreement is issued on this application
2. Defendants to pay the reduced amount of moral and the full Membership Fee according to the mode of
damages of P10,000.00 to plaintiff; payment applied for is actually paid during the lifetime and
3. Defendants to pay the reduced amount of P10,000.00 as good health of proposed Members; that no information
exemplary damages to plaintiff; acquired by any Representative of PhilamCare shall be
4. Defendants to pay attorney’s fees of P20,000.00, plus binding upon PhilamCare unless set out in writing in the
costs of suit. application; that any physician is, by these presents,
SO ORDERED.3 expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his
On appeal, the Court of Appeals affirmed the decision of the trial professional capacity upon any question affecting the
court but deleted all awards for damages and absolved petitioner eligibility for health care coverage of the Proposed
Reverente.4 Petitioner’s motion for reconsideration was Members and that the acceptance of any Agreement
denied.5 Hence, petitioner brought the instant petition for review, issued on this application shall be a ratification of any
raising the primary argument that a health care agreement is not an correction in or addition to this application as stated in the
insurance contract; hence the "incontestability clause" under the space for Home Office Endorsement.11 (Underscoring ours)
Insurance Code6 does not apply.
10
In addition to the above condition, petitioner additionally required the susceptible of two interpretations the construction conferring
applicant for authorization to inquire about the applicant’s medical coverage is to be adopted, and exclusionary clauses of doubtful
history, thus: import should be strictly construed against the provider.22

I hereby authorize any person, organization, or entity that Anent the incontestability of the membership of respondent’s
has any record or knowledge of my health and/or that of husband, we quote with approval the following findings of the trial
__________ to give to the PhilamCare Health Systems, court:
Inc. any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or (U)nder the title Claim procedures of expenses, the defendant
examination. This authorization is in connection with the Philamcare Health Systems Inc. had twelve months from the date of
application for health care coverage only. A photographic issuance of the Agreement within which to contest the membership
copy of this authorization shall be as valid as the of the patient if he had previous ailment of asthma, and six months
original.12 (Underscoring ours) from the issuance of the agreement if the patient was sick of
diabetes or hypertension. The periods having expired, the defense
Petitioner cannot rely on the stipulation regarding "Invalidation of of concealment or misrepresentation no longer lie.23
agreement" which reads:
Finally, petitioner alleges that respondent was not the legal wife of
Failure to disclose or misrepresentation of any material the deceased member considering that at the time of their marriage,
information by the member in the application or medical the deceased was previously married to another woman who was
examination, whether intentional or unintentional, shall still alive. The health care agreement is in the nature of a contract of
automatically invalidate the Agreement from the very indemnity. Hence, payment should be made to the party who
beginning and liability of Philamcare shall be limited to incurred the expenses. It is not controverted that respondent paid all
return of all Membership Fees paid. An undisclosed or the hospital and medical expenses. She is therefore entitled to
misrepresented information is deemed material if its reimbursement. The records adequately prove the expenses
revelation would have resulted in the declination of the incurred by respondent for the deceased’s hospitalization,
applicant by Philamcare or the assessment of a higher medication and the professional fees of the attending physicians.24
Membership Fee for the benefit or benefits applied for.13
The answer assailed by petitioner was in response to the question WHEREFORE, in view of the foregoing, the petition is DENIED. The
relating to the medical history of the applicant. This largely depends assailed decision of the Court of Appeals dated December 14, 1995
on opinion rather than fact, especially coming from respondent’s is AFFIRMED. SO ORDERED.
husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are
untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, 5. DELFIN NARIO, and ALEJANDRA SANTOS-NARIO vs.
belief, opinion, or judgment of the insured will not avoid the policy if THE PHILIPPINE AMERICAN LIFE INSURANCE
there is no actual fraud in inducing the acceptance of the risk, or its COMPANY
acceptance at a lower rate of premium, and this is likewise the rule G.R. No. L-22796             June 26, 1967
although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer REYES, J.B.L., J.:
is not justified in relying upon such statement, but is obligated to
make further inquiry. There is a clear distinction between such a The facts of this case may be stated briefly as follows:
case and one in which the insured is fraudulently and intentionally
states to be true, as a matter of expectation or belief, that which he Mrs. Alejandra Santos-Mario was, upon application, issued, on June
then knows, to be actually untrue, or the impossibility of which is 12, 1959, by the Philippine American Life Insurance Co., a life
shown by the facts within his knowledge, since in such case the insurance policy (No. 503617) under a 20-year endowment plan,
intent to deceive the insurer is obvious and amounts to actual with a face value of P5,000.00. She designated thereon her
fraud.15 (Underscoring ours) husband, Delfin Nario, and their unemancipated minor son, Ernesto
The fraudulent intent on the part of the insured must be established Nario, as her irrevocable beneficiaries.
to warrant rescission of the insurance contract. 16 Concealment as a
defense for the health care provider or insurer to avoid liability is an About the middle of June, 1963, Mrs. Nario applied for a loan on the
affirmative defense and the duty to establish such defense by above stated policy with the Insurance Company, which loan she, as
satisfactory and convincing evidence rests upon the provider or policy-holder, has been entitled to avail of under one of the
insurer. In any case, with or without the authority to investigate, provisions of said policy after the same has been in force for three
petitioner is liable for claims made under the contract. Having (3) years, for the purpose of using the proceeds thereof for the
assumed a responsibility under the agreement, petitioner is bound to school expenses of her minor son, Ernesto Nario. Said application
answer the same to the extent agreed upon. In the end, the liability bore the written signature and consent of Delfin Nario in two
of the health care provider attaches once the member is hospitalized capacities: first, as one of the irrevocable beneficiaries of the policy;
for the disease or injury covered by the agreement or whenever he and the other, as the father-guardian of said minor son and
avails of the covered benefits which he has prepaid. irrevocable beneficiary, Ernesto Nario, and as the legal administrator
of the minor's properties, pursuant to Article 320 of the Civil Code of
Under Section 27 of the Insurance Code, "a concealment entitles the the Philippines.
injured party to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of an action on The Insurance Company denied said application, manifesting to the
the contract.17 In this case, no rescission was made. Besides, the policy holder that the written consent for the minor son must not only
cancellation of health care agreements as in insurance policies be given by his father as legal guardian but it must also be
require the concurrence of the following conditions: authorized by the court in a competent guardianship proceeding.

1. Prior notice of cancellation to insured; After the denial of said policy loan application, Mrs. Nario signified
2. Notice must be based on the occurrence after effective her decision to surrender her policy to the Insurance Company,
date of the policy of one or more of the grounds mentioned; which she was also entitled to avail of under one of the provisions of
3. Must be in writing, mailed or delivered to the insured at the same policy, and demanded its cash value which then amounted
the address shown in the policy; to P520.00.
4. Must state the grounds relied upon provided in Section
64 of the Insurance Code and upon request of insured, to The Insurance Company also denied the surrender of the policy, on
furnish facts on which cancellation is based.18 the same ground as that given in disapproving the policy loan
application; hence, on September 10, 1963, Mrs. Alejandra Santos-
None of the above pre-conditions was fulfilled in this case. When the Nario and her husband, Delfin Nario, brought suit against the
terms of insurance contract contain limitations on liability, courts Philippine American Life Insurance Co. in the above mentioned court
should construe them in such a way as to preclude the insurer from of first instance, seeking to compel the latter (defendant) to grant
non-compliance with his obligation.19 Being a contract of adhesion, their policy loan application and/or to accept the surrender of said
the terms of an insurance contract are to be construed strictly policy in exchange for its cash value.
against the party which prepared the contract – the insurer. 20 By
reason of the exclusive control of the insurance company over the Defendant Insurance Company answered the complaint, virtually
terms and phraseology of the insurance contract, ambiguity must be admitting its material allegations, but it set up the affirmative defense
strictly interpreted against the insurer and liberally in favor of the that inasmuch as the policy loan application and the surrender of the
insured, especially to avoid forfeiture. 21 This is equally applicable to policy involved acts of disposition and alienation of the property
Health Care Agreements. The phraseology used in medical or rights of the minor, said acts are not within the powers of the legal
hospital service contracts, such as the one at bar, must be liberally administrator, under article 320 in relation to article 326 of the Civil
construed in favor of the subscriber, and if doubtful or reasonably Code; hence, mere written consent given by the father-guardian, for
11
and in behalf of the minor son, without any court authority therefor, court appointment, shall be his legal guardian. When the
was not a sufficient compliance of the law, and it (defendant property of the child is worth more than two thousand
Insurance Company) was, therefore, justified in refusing to grant and pesos, the father or the mother shall be considered
in disapproving the proposed transactions in question. guardian of the child's property, with the duties and
obligations of guardians under these rules, and shall file the
There having been no substantial disagreement or dispute as to any petition required by Section 2 hereof. For good reasons the
material fact, the parties, upon joint motion which the lower court court may, however, appoint another suitable person. (Rule
granted, dispensed with the presentation of evidence and submitted 93).
their respective memoranda, after which the case was considered
submitted for decision. It appearing that the minor beneficiary's vested interest or right on
the policy exceeds two thousand pesos (P2,000.00); that plaintiffs
The lower court found and opined that since the parties expressly did not file any guardianship bond to be approved by the court; and
stipulated in the endorsement attached to the policy and which as later implemented in the abovequoted Section 7, Rule 93 of the
formed part thereof that — Revised Rules of Court, plaintiffs should have, but, had not, filed a
formal application or petition for guardianship, plaintiffs-parents
It is hereby understood and agreed that, notwithstanding cannot possibly exercise the powers vested on them, as legal
the provisions of this Policy to the contrary, inasmuch as administrators of their child's property, under articles 320 and 326 of
the designation of the beneficiaries have been made by the the Civil Code. As there was no such petition and bond, the consent
Insured without reserving the right to change said given by the father-guardian, for and in behalf of the minor son,
beneficiaries, the Insured may not designate a new without prior court authorization, to the policy loan application and
beneficiary or assign, release or surrender this Policy to the the surrender of said policy, was insufficient and ineffective, and
Company and exercise any and all other rights and defendant-appellee was justified in disapproving the proposed
privileges hereunder or agree with the Company to any transactions in question.
change in or amendment to this Policy, without the consent
of the beneficiaries originally designated; The American cases cited by appellants are not applicable to the
case at bar for lack of analogy. In those cases, there were pending
that under the above quoted provision, the minor son, as one of the guardianship proceedings and the guardians therein were covered
designated irrevocable beneficiaries, "acquired a vested right to all by bonds to protect the wards' interests, which circumstances are
benefits accruing to the policy, including that of obtaining a policy wanting in this case.
loan to the extent stated in the schedule of values attached to the
policy (Gercio vs. Sun Life Assurance of Canada, 48 Phil. 53, 58)"; The result would be the same even if we regarded the interest of the
that the proposed transactions in question (policy loan and surrender ward to be worth less than P2,000.00. While the father or mother
of policy) involved acts of disposition or alienation of the minor's would in such event be exempt from the duty of filing a bond, and
properties for which the consent given by the father-guardian for and securing judicial appointment, still the parent's authority over the
in behalf of the minor son, must be with the requisite court authority estate of the ward as a legal-guardian would not extend to acts of
(U.S.V.A. vs. Bustos, 92 Phil. 327; Visaya vs. Suguitan, G.R. No. L- encumbrance or disposition, as distinguished from acts of
8300, November 18, 1955; 99 Phil. 1004 [unrep] and in the case at management or administration. The distinction between one and the
bar, such consent was given by the father-guardian without any other kind of power is too basic in our law to be ignored. Thus, under
judicial authority; said court, agreeing with defendant's contention, Article 1877 of the Civil Code of the Philippines, an agency in
sustained defendant's affirmative defense, and rendered, on January general terms does not include power to encumber or dispose of the
28, 1964, its decision dismissing plaintiffs' complaint. property of the principal; and the Code explicitly requires
a special power or authority for the agent "to loan or borrow money,
Unable to secure reconsideration of the trial Court's ruling, petitioner unless the latter act be urgent or indispensable for the preservation
appealed directly to this Court, contending that the minor's interest of the thing under administration" (Art. 1878 no. 7). Similarly, special
amounted to only one-half of the policy's cash surrender value of powers are required to required to effect novations, to waive any
P520.00; that under Rule 96, Section 2 of the Revised Rules of obligation gratuitously or obligate the principal as a guarantor or
Court, payment of the ward's debts is within the powers of the surety (Do., nos. 2, 4 and 11). By analogy, since the law merely
guardian, where no realty is involved; hence, there is no reason why constitutes the parent as legal administrator of the child's property
the father may not validly agree to the proposed transaction on (which is a general power), the parent requires special authority for
behalf of the minor without need of court authority. the acts above specified, and this authority can be given only by a
court. This restricted interpretation of the parent's authority becomes
The appeal is unmeritorious. We agree with the lower court that the all the more necessary where as in the case before us, there is no
vested interest or right of the beneficiaries in the policy should be bond to guarantee the ward against eventual losses.
measured on its full face value and not on its cash surrender value,
for in case of death of the insured, said beneficiaries are paid on the Appellants seek to bolster their petition by invoking the parental
basis of its face value and in case the insured should discontinue power (patria potestas) under the Civil Code of 1889, which they
paying premiums, the beneficiaries may continue paying it and are claim to have been revived by the Civil Code of the Philippines (Rep.
entitled to automatic extended term or paid-up insurance options, Act 386). The appeal profits them nothing. For the new Civil Code
etc. and that said vested right under the policy cannot be divisible at has not effected a restitutio in integrum of the Spanish  patria
any given time. We likewise agree with the conclusion of the lower potestas; the revival has been only in part. And, significantly, the
court that the proposed transactions in question (policy loan and Civil Code now in force did not reenact Article 164 of the Civil Code
surrender of policy) constitute acts of disposition or alienation of of 1889, that prohibited the alienation by the parents of the real
property rights and not merely of management or administration property owned by the child without court authority and led the
because they involve the incurring or termination of contractual commentators and interpreters of said Code to infer that the parents
obligations. could by themselves alienate the child's movable property. The
omission of any equivalent precept in the Civil Code now in force
As above noted, the full face value of the policy is P5,000.00 and the proves the absence of any authority in the parents to carry out now
minor's vested interest therein, as one of the two (2) irrevocable acts of disposition or alienation of the child's goods without court
beneficiaries, consists of one-half (½) of said amount or P2,500.00. approval, as contended by the appellee and the court below.
Article 320 of the Civil Code of the Philippines provides —
Wherefore, the decision appealed from is affirmed. Costs against
The father, or in his absence the mother, is the legal administrator of appellants Nario. So ordered.
the property pertaining to the child under parental authority. If the
property is worth more than two thousand pesos, the father or
mother shall give a bond subject to the approval of the Court of First
Instance.
and article 326 of the same Code reads —

When the property of the child is worth more than two thousand
pesos, the father or mother shall be considered a guardian of the
child's property, subject to the duties and obligations of guardians
under the Rules of Court.

The above quoted provisions of the Civil Code have already been
implemented and clarified in our Revised Rules of Court which
provides —

SEC. 7. Parents as guardians. — When the property of the

child under parental authority is worth two thousand pesos
or less, the father or the mother, without the necessity of
12
 II
WHETHER OR NOT THE IRREVOCABLE
BENEFICIARIES HEREIN, ONE OF WHOM IS ALREADY
DECEASED WHILE THE OTHERS ARE ALL MINORS,
COULD VALIDLY GIVE CONSENT TO THE CHANGE OR
AMENDMENT IN THE DESIGNATION OF THE
IRREVOCABLE BENEFICIARIES.

We are of the opinion that his Honor, the respondent Judge, was in
error in issuing the questioned Orders.

Needless to say, the applicable law in the instant case is the

Insurance Act, otherwise known as Act No. 2427 as amended, the
policy having been procured in 1968. Under the said law, the
beneficiary designated in a life insurance contract cannot be
changed without the consent of the beneficiary because he has a
vested interest in the policy (Gercio v. Sun Life Ins. Co. of Canada,
48 Phil. 53; Go v. Redfern and the International Assurance Co., Ltd.,
72 Phil. 71).

In this regard, it is worth noting that the Beneficiary Designation

Indorsement in the policy which forms part of Policy Number
0794461 in the name of Rodolfo Cailles Dimayuga states that the
designation of the beneficiaries is irrevocable (Annex "A" of Petition
in Sp. Proc. No. 9210, Annex "C" of the Petition for Review
on Certiorari), to wit:
It is hereby understood and agreed that, notwithstanding the
provisions of this policy to the contrary, inasmuch as the designation
of the primary/contingent beneficiary/beneficiaries in this Policy has
been made without reserving the right to change said beneficiary/
beneficiaries, such designation may not be surrendered to the
Company, released or assigned; and no right or privilege under the
Policy may be exercised, or agreement made with the Company to
any change in or amendment to the Policy, without the consent of
the said beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72,
Rollo)

Be it noted that the foregoing is a fact which the private respondent

did not bother to disprove.

Inevitably therefore, based on the aforequoted provision of the

contract, not to mention the law then applicable, it is only with the
consent of all the beneficiaries that any change or amendment in the
policy concerning the irrevocable beneficiaries may be legally and
validly effected. Both the law and the policy do not provide for any
other exception, thus, abrogating the contention of the private
respondent that said designation can be amended if the Court finds
a just, reasonable ground to do so.

Similarly, the alleged acquiescence of the six (6) children

6. THE PHILIPPINE AMERICAN INSURANCE beneficiaries of the policy (the beneficiary-wife predeceased the
COMPANY, vs. HONORABLE GREGORIO G. PINEDA in insured) cannot be considered an effective ratification to the change
his capacity as Judge of the Court of First Instance of of the beneficiaries from irrevocable to revocable. Indubitable is the
Rizal, and RODOLFO C. DIMAYUGA fact that all the six (6) children named as beneficiaries were minors
G.R. No. L-54216 July 19, 1989 at the time,** for which reason, they could not validly give their
consent. Neither could they act through their father insured since
PARAS, J.: their interests are quite divergent from one another. In point is an
excerpt from the Notes and Cases on Insurance Law by Campos
The undisputed facts are as follows: and Campos, 1960, reading-

On January 15, 1968, private respondent procured an ordinary life The insured ... can do nothing to divest the beneficiary of
insurance policy from the petitioner company and designated his his rights without his consent. He cannot assign his policy,
wife and children as irrevocable beneficiaries of said policy. nor even take its cash surrender value without the consent
of the beneficiary. Neither can the insured's creditors seize
Under date February 22, 1980 private respondent filed a petition the policy or any right thereunder. The insured may not
which was docketed as Civil Case No. 9210 of the then Court of even add another beneficiary because by doing so, he
First Instance of Rizal to amend the designation of the beneficiaries diminishes the amount which the beneficiary may recover
in his life policy from irrevocable to revocable. and this he cannot do without the beneficiary's consent.
Therefore, the parent-insured cannot exercise rights and/or
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset privileges pertaining to the insurance contract, for otherwise, the
Hearing. Also on the same date, petitioner filed its Comment and/or vested rights of the irrevocable beneficiaries would be rendered
Opposition to Petition. inconsequential.

When the petition was called for hearing on March 19, 1980, the Of equal importance is the well-settled rule that the contract between
respondent Judge Gregorio G. Pineda, presiding Judge of the then the parties is the law binding on both of them and for so many times,
Court of First Instance of Rizal, Pasig Branch XXI, denied this court has consistently issued pronouncements upholding the
petitioner's Urgent Motion, thus allowing the private respondent to validity and effectivity of contracts. Where there is nothing in the
adduce evidence, the consequence of which was the issuance of the contract which is contrary to law, good morals, good customs, public
questioned Order granting the petition. policy or public order the validity of the contract must be sustained.
Likewise, contracts which are the private laws of the contracting
Petitioner promptly filed a Motion for Reconsideration but the same parties should be fulfilled according to the literal sense of their
was denied in an Order June 10, 1980. Hence, this petition raising stipulations, if their terms are clear and leave no room for doubt as
the following issues for resolution: to the intention of the contracting parties, for contracts are
obligatory, no matter in what form they may be, whenever the
I essential requisites for their validity are present (Phoenix Assurance
WHETHER OR NOT THE DESIGNATION OF THE Co., Ltd. vs. United States Lines, 22 SCRA 675, Phil. American
IRREVOCABLE BENEFICIARIES COULD BE CHANGED General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.)
OR AMENDED WITHOUT THE CONSENT OF ALL THE
IRREVOCABLE BENEFICIARIES. In the recent case of Francisco Herrera vs. Petrophil
Corporation, 146 SCRA 385, this Court ruled that:
13
 the estate of the insured is entitled to the insurance proceeds, to the
... it is settled that the parties may establish such exclusion of the beneficiary, Mariano J. Villanueva, the latter has
stipulations, clauses, terms, and conditions as they may interposed the present appeal.
want to include; and as long as such agreements are not
contrary to law, good morals, good customs, public policy The lower court committed no error. Under the policies, the insurer
or public order, they shall have the force of law between obligated itself to pay the insurance proceeds (1) to the insured if the
them. latter lived on the dates of maturity or (2) to the beneficiary if the
insured died during the continuance of the policies. The first
Undeniably, the contract in the case at bar, contains the contingency of course excludes the second, and vice versa. In other
indispensable elements for its validity and does not in any way words, as the insured Esperanza J. Villanueva was living on April 1,
violate the law, morals, customs, orders, etc. leaving no reason for and March 31, 1943, the proceeds are payable exclusively to her
Us to deny sanction thereto. estate unless she had before her death otherwise assigned the
matured policies. (It is not here pretended and much less proven,
Finally, the fact that the contract of insurance does not contain a that there was such assignment.) The beneficiary, Mariano J.
contingency when the change in the designation of beneficiaries Villanueva, could be entitled to said proceeds only in default of the
could be validly effected means that it was never within the first contingency. To sustain the beneficiary's claim would be
contemplation of the parties. The lower court, in gratuitously altogether eliminate from the policies the condition that the insurer
providing for such contingency, made a new contract for them, a "agrees to pay . . . to the insured hereunder, if living".
proceeding which we cannot tolerate. Ergo, We cannot help but
conclude that the lower court acted in excess of its authority when it There is nothing there in the Insurance Law (Act No. 2427) that
issued the Order dated March 19, 1980 amending the designation of militates against the construction placed by the lower court on the
the beneficiaries from "irrevocable" to "revocable" over the disputed condition appearing in the two policies now under
disapprobation of the petitioner insurance company. advisement. On the contrary, said law provides that "an insurance
upon life may be made payable on the death of the death of the
WHEREFORE, premises considered, the questioned Orders of the person, or on his surviving a specified period, or otherwise,
respondent Judge are hereby nullified and set aside. SO contingently on the continuance or cessation of life" (section 165),
ORDERED. and that "a policy of insurance upon life or health mat pass by
transfer, will, or succession, to any person, whether he has an
insurable interest or not, and such person may recover upon it
whatever the insured might have recovered" (section 166).

Counsel for the beneficiary invokes the decision in Del Val vs. Del
Val, 29 Phil., 534, 540, in which it was held that "the proceeds of an
insurance policy belong exclusively to the beneficiary and not to the
estate of the person whose life was insured, and that such proceeds
are the separate and individual property of the beneficiary, and not
of the heirs of the person whose life was insured." This citation is
clearly not controlling, first, because it does not appear therein that
the insurance contract contained the stipulation appearing in the
policies issued on the life of Esperanza J. Villanueva and on which
the appealed order in the case at bar is based; and, secondly,
because the Del Val doctrine was made upon the authority of the
provisions of the Code of Commerce relating to insurance
(particularly section 428) which had been expressly repealed by the
present Insurance Act No. 2427.

Our pronouncement is not novel, since it tallies with the following

typical American authorities: "If a policy of insurance provides that
the proceeds shall be payable to the assured, if he lives to a certain
date, and, in case of his death before that date, then they shall be
payable to the beneficiary designated, the interest of the beneficiary
is a contingent one, and the benefit of the policy will only inure to
such beneficiary in case the assured dies before the end of the
period designated in the policy." (Couch, Cyclopedia of Insurance
Law, Vol. 2, sec. 343. p. 1023.) "Under endowment of tontine
policies payable to the insured at the expiration of a certain period, if
alive, but providing for the payment of a stated sum to a designated
beneficiary in case of the insured death during the period mentioned,
the insured and the beneficiary take contingent interests.

The interest of the insured in the proceeds of the insurance depends

upon his survival of the expiration of endowment period. Upon the
insured's death, within the period, the beneficiary will take, as
7. Intestate estate of the late Esperanza J. Villanueva. against the personal representative or the assignee of the insured.
MARIANO J. VILLANUEVA,  vs. PABLO ORO Upon the other hand, if the insured survives the endowment period,
G.R. No. L-2227             August 31, 1948 (PARAS, J.:) the benefits are payable to him or to his assignee, notwithstanding a
The West Coast Life Insurance Company issued two policies of beneficiary is designated in the policy." (29 Am. Jur., section 1277,
insurance on the life of Esperanza J. Villanueva, one for two pp. 952, 953.).
thousand pesos and maturing on April 1, 1943, and the other for The appealed order is, therefore, hereby affirmed, and it is so
three thousand pesos and maturing on March 31, 1943. In both ordered with costs against the appellant.
policies (with corresponding variation in amount and date of 3. Insurable interest in property insurance
maturity) the insurer agreed "to pay two thousand pesos, at the
home office of the Company, in San Francisco, California, to the Sections 13 to 18, IC; Section 25, IC
insured hereunder, if living, on the 1st day of April 1943, or to the
beneficiary Bartolome Villanueva, father of the insured, immediately 1. Harvardian College v Country Bankers (CA), CA CV
upon receipt of due proof of the prior death of the insured, 03771, Jan. 6, 1986, 1 CARA 1
Esperanza J. Villanueva, of La Paz, Philippine Islands, during the Facts:
continuance of this policy, with right on the part of the insured to
change the beneficiary. Petitioner Yap was president of the Philippine Harvardian College,
an educational institution, of which he, his wife, and his children
After the death of Bartolome Villanueva in 1940, the latter was duly were all the stockholders. In 1979, a sales agent of respondent
substituted as beneficiary under the policies by Mariano J. Country Bankers proposed that Harvardian insure its primary school
Villanueva, a brother of the insured. Esperanza J. Villanueva building, which Harvardian agreed to.
survived the insurance period, for she died only on October 15,
1944, without, however, collecting the insurance proceeds. Adverse
claims for said proceeds were presented by the estate of Esperanza After inspection, the school building was insured for PhP
J. Villanueva on the one hand and by Mariano J. Villanueva on the 500,000.00. Harvardian contracted itself to pay an annual premium
other, which conflict was squarely submitted in the intestate of PhP 2,500.00. County Bankers therefore issued the fire insurance
proceedings of Esperanza J. Villanueva pending in the Court of First policy to Harvardian. In 1980, during the effectivity of the
Instance of Iloilo. From an order, dated February 26, 1947, holding abovementioned insurance policy, the school building was totally
14
burned, rendering it a total loss. Harvardian therefore made a claim
on Country Bankers under its insurance policy. 1. Warranted that the Company shall not be liable for any
unpaid account in respect of the merchandise sold and
Thereafter, Country Bankers denied the claim, contending that delivered by the Insured which are outstanding at the
plaintiff had no insurable interest over the building, since it had been date of loss for a period in excess of six (6) months
constructed on the piece of land in the name of the late Yap. Neither from the date of the covering invoice or actual delivery
party contended that the lot and the building were both in the name of the merchandise whichever shall first occur.
of Yap, nor that the policy was in the name of Harvardian.
Issue: 2. Warranted that the Insured shall submit to the Company
within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as
Whether or not Harvardian colleges has a right to the proceeds. unpaid and thus become receivable item from their
Held: customers and dealers. x x x4
xxxx
Harvardian has a right to the proceeds.
Petitioner is a customer and dealer of the products of IMC and LSPI.
Regardless of the nature of the title of the insured or even if he did On February 25, 1991, the Gaisano Superstore Complex in
not have title to the property insured, the contract of fire insurance Cagayan de Oro City, owned by petitioner, was consumed by fire.
should still be upheld if his interest in or his relation to the property is Included in the items lost or destroyed in the fire were stocks of
such that he will be benefited in its continued existence or suffer a ready-made clothing materials sold and delivered by IMC and LSPI.
direct pecuniary loss from its destruction or injury.  The test in
determining insurable interest in property is whether one will derive On February 4, 1992, respondent filed a complaint for damages
pecuniary benefit or advantage from its preservation, or will suffer against petitioner. It alleges that IMC and LSPI filed with respondent
pecuniary loss or damage from its destruction, termination or injury their claims under their respective fire insurance policies with book
by the happening of the event insured against. Harvardian was not debt endorsements; that as of February 25, 1991, the unpaid
only in possession of the building, but in fact had been using the accounts of petitioner on the sale and delivery of ready-made
same for several years with the knowledge and consent of Yap. clothing materials with IMC was P2,119,205.00 while with LSPI it
was P535,613.00; that respondent paid the claims of IMC and LSPI
and, by virtue thereof, respondent was subrogated to their rights
Thus, it is reasonable to assume that, had the building not been against petitioner; that respondent made several demands for
burned, Harvardian would have been allowed the continued use of payment upon petitioner but these went unheeded.5
the site for its operations. Harvardian is therefore directly affected by
the loss thereof. In its Answer with Counter Claim dated July 4, 1995, petitioner
contends that it could not be held liable because the property
Here Harvardian was not only in possession of the building but was covered by the insurance policies were destroyed due to fortuities
in fact using the same for several years with the knowledge and event or force majeure; that respondent's right of subrogation has no
consent of Ildefonso Yap.  It is reasonably fair to assume that had basis inasmuch as there was no breach of contract committed by it
the building not been burned, Harvardian would have been allowed since the loss was due to fire which it could not prevent or foresee;
the continued use of the same as the site of its operation as an that IMC and LSPI never communicated to it that they insured their
educational institution.  Harvardian therefore would have been properties; that it never consented to paying the claim of the
directly benefited by the preservation of the property, and certainly insured.6
suffered a pecuniary loss by its being burned.
At the pre-trial conference the parties failed to arrive at an amicable
settlement.7 Thus, trial on the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing

respondent's complaint.8 It held that the fire was purely accidental;
that the cause of the fire was not attributable to the negligence of the
petitioner; that it has not been established that petitioner is the
debtor of IMC and LSPI; that since the sales invoices state that "it is
further agreed that merely for purpose of securing the payment of
purchase price, the above-described merchandise remains the
property of the vendor until the purchase price is fully paid", IMC and
LSPI retained ownership of the delivered goods and must bear the
loss.

Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000,

the CA rendered its decision setting aside the decision of the RTC.
The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed

decision is REVERSED and SET ASIDE and a new one is
entered ordering defendant-appellee Gaisano Cagayan,
Inc. to pay:

1. the amount of P2,119,205.60 representing the amount

paid by the plaintiff-appellant to the insured Inter Capitol
Marketing Corporation, plus legal interest from the time of
demand until fully paid;
2. GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF 2. the amount of P535,613.00 representing the amount
NORTH AMERICA paid by the plaintiff-appellant to the insured Levi Strauss
G.R. No. 147839             June 8, 2006 Phil., Inc., plus legal interest from the time of demand until
fully paid.
AUSTRIA-MARTINEZ, J.:
With costs against the defendant-appellee. SO
The factual background of the case is as follows: ORDERED.10
The CA held that the sales invoices are proofs of sale, being
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler detailed statements of the nature, quantity and cost of the thing sold;
Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of that loss of the goods in the fire must be borne by petitioner since
products bearing trademarks owned by Levi Strauss & Co.. IMC and the proviso contained in the sales invoices is an exception under
LSPI separately obtained from respondent fire insurance policies Article 1504 (1) of the Civil Code, to the general rule that if the thing
with book debt endorsements. The insurance policies provide for is lost by a fortuitous event, the risk is borne by the owner of the
coverage on "book debts in connection with ready-made clothing thing at the time the loss under the principle of res perit domino; that
materials which have been sold or delivered to various customers petitioner's obligation to IMC and LSPI is not the delivery of the lost
and dealers of the Insured anywhere in the Philippines."2 The goods but the payment of its unpaid account and as such the
policies defined book debts as the "unpaid account still appearing in obligation to pay is not extinguished, even if the fire is considered a
the Book of Account of the Insured 45 days after the time of the loss fortuitous event; that by subrogation, the insurer has the right to go
covered under this Policy."3 The policies also provide for the against petitioner; that, being a fire insurance with book debt
following conditions: endorsements, what was insured was the vendor's interest as a
creditor.11
15
 certain relevant facts not disputed by the parties, which, if properly
Petitioner filed a motion for reconsideration12 but it was denied by the considered, would justify a different conclusion.21 Exceptions (4), (5),
CA in its Resolution dated April 11, 2001.13 (7), and (11) apply to the present petition.

Hence, the present petition for review on certiorari anchored on the At issue is the proper interpretation of the questioned insurance
following Assignment of Errors: policy. Petitioner claims that the CA erred in construing a fire
insurance policy on book debts as one covering the unpaid accounts
THE COURT OF APPEALS ERRED IN HOLDING THAT of IMC and LSPI since such insurance applies to loss of the ready-
THE INSURANCE IN THE INSTANT CASE WAS ONE made clothing materials sold and delivered to petitioner.
OVER CREDIT.
The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and

THE COURT OF APPEALS ERRED IN HOLDING THAT readily understood, there is no room for construction. 22 In this case,
ALL RISK OVER THE SUBJECT GOODS IN THE the questioned insurance policies provide coverage for "book debts
INSTANT CASE HAD TRANSFERRED TO PETITIONER in connection with ready-made clothing materials which have been
UPON DELIVERY THEREOF. sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines."23 ; and defined book debts as the
THE COURT OF APPEALS ERRED IN HOLDING THAT "unpaid account still appearing in the Book of Account of the Insured
THERE WAS AUTOMATIC SUBROGATION UNDER ART. 45 days after the time of the loss covered under this
2207 OF THE CIVIL CODE IN FAVOR OF Policy."24 Nowhere is it provided in the questioned insurance policies
RESPONDENT.14 that the subject of the insurance is the goods sold and delivered to
the customers and dealers of the insured.
Anent the first error, petitioner contends that the insurance in the
present case cannot be deemed to be over credit since an insurance Indeed, when the terms of the agreement are clear and explicit that
"on credit" belies not only the nature of fire insurance but the they do not justify an attempt to read into it any alleged intention of
express terms of the policies; that it was not credit that was insured the parties, the terms are to be understood literally just as they
since respondent paid on the occasion of the loss of the insured appear on the face of the contract.25 Thus, what were insured
goods to fire and not because of the non-payment by petitioner of against were the accounts of IMC and LSPI with petitioner which
any obligation; that, even if the insurance is deemed as one over remained unpaid 45 days after the loss through fire, and not the loss
credit, there was no loss as the accounts were not yet due since no or destruction of the goods delivered.
prior demands were made by IMC and LSPI against petitioner for
payment of the debt and such demands came from respondent only Petitioner argues that IMC bears the risk of loss because it expressly
after it had already paid IMC and LSPI under the fire insurance reserved ownership of the goods by stipulating in the sales invoices
policies.15 that "[i]t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise
As to the second error, petitioner avers that despite delivery of the remains the property of the vendor until the purchase price thereof is
goods, petitioner-buyer IMC and LSPI assumed the risk of loss when fully paid."26
they secured fire insurance policies over the goods.
The Court is not persuaded.
Concerning the third ground, petitioner submits that there is no
subrogation in favor of respondent as no valid insurance could be The present case clearly falls under paragraph (1), Article 1504 of
maintained thereon by IMC and LSPI since all risk had transferred to the Civil Code:
petitioner upon delivery of the goods; that petitioner was not privy to
the insurance contract or the payment between respondent and its ART. 1504. Unless otherwise agreed, the goods remain at
insured nor was its consent or approval ever secured; that this lack the seller's risk until the ownership therein is transferred to
of privity forecloses any real interest on the part of respondent in the the buyer, but when the ownership therein is transferred to
obligation to pay, limiting its interest to keeping the insured goods the buyer the goods are at the buyer's risk whether actual
safe from fire. delivery has been made or not, except that:
For its part, respondent counters that while ownership over the (1) Where delivery of the goods has been made to the
ready- made clothing materials was transferred upon delivery to buyer or to a bailee for the buyer, in pursuance of the
petitioner, IMC and LSPI have insurable interest over said goods as contract and the ownership in the goods has been retained
creditors who stand to suffer direct pecuniary loss from its by the seller merely to secure performance by the buyer of
destruction by fire; that petitioner is liable for loss of the ready-made his obligations under the contract, the goods are at the
clothing materials since it failed to overcome the presumption of buyer's risk from the time of such delivery; (Emphasis
liability under Article 126516 of the Civil Code; that the fire was supplied)
caused through petitioner's negligence in failing to provide stringent
measures of caution, care and maintenance on its property because xxxx
electric wires do not usually short circuit unless there are defects in
their installation or when there is lack of proper maintenance and Thus, when the seller retains ownership only to insure that the buyer
supervision of the property; that petitioner is guilty of gross and will pay its debt, the risk of loss is borne by the buyer. 27 Accordingly,
evident bad faith in refusing to pay respondent's valid claim and petitioner bears the risk of loss of the goods delivered.
should be liable to respondent for contracted lawyer's fees, litigation
expenses and cost of suit.17 IMC and LSPI did not lose complete interest over the goods. They
have an insurable interest until full payment of the value of the
As a general rule, in petitions for review, the jurisdiction of this Court delivered goods. Unlike the civil law concept of res perit domino,
in cases brought before it from the CA is limited to reviewing where ownership is the basis for consideration of who bears the risk
questions of law which involves no examination of the probative of loss, in property insurance, one's interest is not determined by
value of the evidence presented by the litigants or any of them.18 The concept of title, but whether insured has substantial economic
Supreme Court is not a trier of facts; it is not its function to analyze interest in the property.28
or weigh evidence all over again.19 Accordingly, findings of fact of the
appellate court are generally conclusive on the Supreme Court.20 Section 13 of our Insurance Code defines insurable interest as
"every interest in property, whether real or personal, or any relation
Nevertheless, jurisprudence has recognized several exceptions in thereto, or liability in respect thereof, of such nature that a
which factual issues may be resolved by this Court, such as: (1) contemplated peril might directly damnify the insured."
when the findings are grounded entirely on speculation, surmises or Parenthetically, under Section 14 of the same Code, an insurable
conjectures; (2) when the inference made is manifestly mistaken, interest in property may consist in: (a) an existing interest; (b) an
absurd or impossible; (3) when there is grave abuse of discretion; inchoate interest founded on existing interest; or (c) an expectancy,
(4) when the judgment is based on a misapprehension of facts; (5) coupled with an existing interest in that out of which the expectancy
when the findings of facts are conflicting; (6) when in making its arises.
findings the CA went beyond the issues of the case, or its findings
are contrary to the admissions of both the appellant and the Therefore, an insurable interest in property does not necessarily
appellee; (7) when the findings are contrary to the trial court; (8) imply a property interest in, or a lien upon, or possession of, the
when the findings are conclusions without citation of specific subject matter of the insurance, and neither the title nor a beneficial
evidence on which they are based; (9) when the facts set forth in the interest is requisite to the existence of such an interest, it is sufficient
petition as well as in the petitioner's main and reply briefs are not that the insured is so situated with reference to the property that he
disputed by the respondent; (10) when the findings of fact are would be liable to loss should it be injured or destroyed by the peril
premised on the supposed absence of evidence and contradicted by against which it is insured.29 Anyone has an insurable interest in
the evidence on record; and (11) when the CA manifestly overlooked property who derives a benefit from its existence or would suffer loss
16
from its destruction.30 Indeed, a vendor or seller retains an insurable amount of P535,613.00 to respondent is DELETED for lack of
interest in the property sold so long as he has any interest therein, in factual basis.
other words, so long as he would suffer by its destruction, as where
he has a vendor's lien.31 In this case, the insurable interest of IMC No pronouncement as to costs. SO ORDERED.
and LSPI pertain to the unpaid accounts appearing in their Books of
Account 45 days after the time of the loss covered by the policies.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a 3. COMMERCIAL UNION ASSURANCE COMPANY LIMITED and
fortuitous event under Article 117432 of the Civil Code is misplaced. NORTH BRITISH & MERCANTILE INSURANCE CO., LTD.,  v.
As held earlier, petitioner bears the loss under Article 1504 (1) of the LEPANTO CONSOLIDATED MINING COMPANY and COURT OF
Civil Code. APPEALS, 
Moreover, it must be stressed that the insurance in this case is not
for loss of goods by fire but for petitioner's accounts with IMC and [G.R. No. L-52027. April 27, 1982.]
LSPI that remained unpaid 45 days after the fire. Accordingly, SYNOPSIS
petitioner's obligation is for the payment of money. As correctly
stated by the CA, where the obligation consists in the payment of Respondent company shipped to a consignee in the United States
money, the failure of the debtor to make the payment even by certain cargoes covered by two "all risks" marine insurance policies
reason of a fortuitous event shall not relieve him of his liability. 33 The issued by petitioners containing express stipulations that respondent
rationale for this is that the rule that an obligor should be held company has an interest therein. The shipments, which were
exempt from liability when the loss occurs thru a fortuitous event undertaken in accordance with the instructions of the insurer’s
only holds true when the obligation consists in the delivery of a surveyor, sustained damage in transit prompting private respondent
determinate thing and there is no stipulation holding him liable even to file the corresponding insurance claims which were rejected.
in case of fortuitous event. It does not apply when the obligation is Consequently, respondent company filed with the Court of First
pecuniary in nature.34 Instance a complaint for recovery of damages which was dismissed
for lack of cause of action. On appeal, the Court of Appeals reversed
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a the Commercial Union Assurance Company Limited, Et. Al. v.
generic thing, the loss or destruction of anything of the same kind Lepanto Consolidated Mining Company, Et. Al. trial court’s order of
does not extinguish the obligation." If the obligation is generic in the dismissal. Hence, this petition for certiorari (herein treated as an
sense that the object thereof is designated merely by its class or appeal) wherein petitioners contend, among others, that respondent
genus without any particular designation or physical segregation company is not the real party in interest and has no personality to
from all others of the same class, the loss or destruction of anything sue and that respondent’s complaint has no cause of action against
of the same kind even without the debtor's fault and before he has the insurers.
incurred in delay will not have the effect of extinguishing the
obligation.35 This rule is based on the principle that the genus of a On review, the Supreme Court, without prejudging the merits of
thing can never perish. Genus nunquan perit. 36 An obligation to pay respondent’s case and petitioner’s affirmative defenses, held that
money is generic; therefore, it is not excused by fortuitous loss of there is prima facie showing in respondent’s complaint and
any specific property of the debtor.37 pleadings that it is a real party in interest under the policies and that
it has a cause of action against petitioners as insurers.
Thus, whether fire is a fortuitous event or petitioner was negligent
are matters immaterial to this case. What is relevant here is whether Judgment of the Court of Appeals, affirmed.
it has been established that petitioner has outstanding accounts with
IMC and LSPI. SYLLABUS
With respect to IMC, the respondent has adequately established its
claim. Exhibits "C" to "C-22"38 show that petitioner has an REMEDIAL LAW; ACTIONS; PARTIES; RESPONDENT IN CASE
outstanding account with IMC in the amount of P2,119,205.00. AT BAR PRIMA FACIE SHOWN A REAL PARTY IN INTEREST. —
Exhibit "E"39 is the check voucher evidencing payment to IMC. Where, based (1) on express stipulation in the two subject marine
Exhibit "F"40 is the subrogation receipt executed by IMC in favor of insurance policies that respondent company has an interest therein
respondent upon receipt of the insurance proceeds. All these and (2) on the facts that it was the shipper (and presumably the
documents have been properly identified, presented and marked as owner) of the insured cargoes, that the shipments were undertaken
exhibits in court. The subrogation receipt, by itself, is sufficient to in accordance with the instructions of the insurer’s marine surveyor
establish not only the relationship of respondent as insurer and IMC and that it was respondent company that filed the corresponding
as the insured, but also the amount paid to settle the insurance claim with the adjuster when the cargoes were damaged, the
claim. The right of subrogation accrues simply upon payment by the Supreme Court, without prejudging the merits of respondent
insurance company of the insurance claim.41 Respondent's action company’s case and petitioners’ affirmative defenses, ruled that
against petitioner is squarely sanctioned by Article 2207 of the Civil there is prima facie showing in respondent’s complaint and
Code which provides: pleadings that it is a real party in interest under the policies and that
it has a cause of action against
Art. 2207. If the plaintiff's property has been insured, and
he has received indemnity from the insurance company for AQUINO, J.:
the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
This is a marine insurance case. Lepanto Consolidated Mining
wrongdoer or the person who has violated the contract. x x
Company alleged in its complaint of February 7, 1974 that on
x
November 8 and 23, 1971 it shipped (for smelting) copper ore
concentrates on board the vessels M/S Hermosa and M/S General
Petitioner failed to refute respondent's evidence.
Aguinaldo from Poro Point, San Fernando, La Union to Tacoma,
Washington, U.S.A.
As to LSPI, respondent failed to present sufficient evidence to prove
its cause of action. No evidentiary weight can be given to Exhibit "F
Levi Strauss",42 a letter dated April 23, 1991 from petitioner's The first shipment is known as No. 167 and the other shipment as
General Manager, Stephen S. Gaisano, Jr., since it is not an Nos. 168 and 168-A. The copper ore concentrates were stored on
admission of petitioner's unpaid account with LSPI. It only confirms board the carrying vessels under the supervision and approval of a
the loss of Levi's products in the amount of P535,613.00 in the fire marine surveying firm designated by the insurer (pp. 8-9, Record on
that razed petitioner's building on February 25, 1991. Appeal). American Smelting and Refining Co., Ltd. (Asarco) was the
consignee. The ore was to be discharged at the wharf of Asarco’s
Moreover, there is no proof of full settlement of the insurance claim smelter at Tacoma (pp. 75-76, 98-9, Record on Appeal).
of LSPI; no subrogation receipt was offered in evidence. Thus, there
is no evidence that respondent has been subrogated to any right The shipments were covered by two "all risks" marine insurance
which LSPI may have against petitioner. Failure to substantiate the policies issued to Asarco by North British & Mercantile Insurance
claim of subrogation is fatal to petitioner's case for recovery of the Company Limited, a subsidiary of Commercial Union Assurance
amount of P535,613.00. Company Limited. The first policy was for US$4,509,014 or 80% of
the agreed total value of US$5,636,268 while the second policy was
WHEREFORE, the petition is partly GRANTED. The assailed for US$6,230,591.03 or 80% of the agreed total value of
Decision dated October 11, 2000 and Resolution dated April 11, US$7,788,233.79. The 20% balance was covered by insurance
2001 of the Court of Appeals in CA-G.R. CV No. 61848 policies issued by Malayan Insurance Co., Inc.
are AFFIRMED with the MODIFICATION that the order to pay the
17
Both policies contain this stipulation: "It is hereby noted and agreed To say that Lepanto has no interest under the policies would render
that Lepanto Consolidated Mining Co. have (has) an interest on this meaningless the said stipulation in its favor. To say that Lepanto as
Policy" (pp. 22 and 58, Record on Appeal). From the opening clause shipper of the insured property had no proprietary interest therein
of the policies (couched in Chaucerian English), it may be inferred before its delivery at Asarco’s wharf in Tacoma is to imply that the
that Asarco and all persons having an interest in the shipments were insured property was res nullius. These conclusions are
covered by the insurance (pp. 20-21, 45-46, Record on Appeal). preposterous.

Because the two shipments were damaged in transit, Lepanto filed

claims under the policies. Commercial Union Assurance and North Hence, the trial court erred in dismissing the complaint. Whether
British denied the claims.chanrobles law library : red after hearing the parties it would appear that Lepanto’s claims for
damages are justified or not is an issue on which we make no
On February 8, 1974, Lepanto filed a complaint in the Court of First anticipatory and premature finding.
Instance of Rizal, Pasig Branch 22, against Commercial Union
Assurance and North British wherein it prayed that they be ordered
to pay Lepanto the sums of US$523,139.20 and US$553,564.80, WHEREFORE, the decision of the Court of Appeals is affirmed.
representing 80% of the damages suffered by Lepanto plus interest, Costs against the petitioners. SO ORDERED.
litigation expenses and attorney’s fees.

On motion to dismiss filed by the defendants, the lower court

dismissed the complaint for lack of cause of action. Lepanto
appealed to the Court of Appeals which in its decision dated
September 27, 1979 reversed the order of dismissal (CA-G.R. No. 4. MRS. HENRY E. HARDING, and her husband vs.
55948-R). COMMERCIAL UNION ASSURANCE COMPANY

In a resolution dated November 12, 1979, it denied the motion for G.R. No. L-12707            August 10, 1918
reconsideration filed by Commercial Union Assurance and North
British. A copy of that resolution was received by their lawyers on
November 19. Twelve days later, or on December 1, they filed a FISHER, J.:
special civil action of certiorari in this Court wherein they alleged that
the Court of Appeals acted without jurisdiction in entertaining This was an action by plaintiffs to recover from defendant the sum of
Lepanto’s appeal. The certiorari petition was treated as an appeal. P3,000 and interest, alleged to be due under the terms of a policy of
As directed, the parties filed their briefs. insurance. The trial court gave plaintiffs judgment for the amount
demanded, with interest and costs, and from that decision the
The petitioners contend in their first assignment of error that the defendant appeals.
Court of Appeals had no jurisdiction over Lepanto’s appeal because
it raised only a pure question of law. The court below stated the issues made by the pleadings in this
case, and its finding of fact, as follows:
That contention is devoid of merit because Lepanto in its notice of
appeal expressly stated that it was appealing on questions of fact It is alleged by plaintiffs and admitted by defendant that plaintiffs are
and law and because in its assignment of errors it contended that husband and wife and residents of the city of Manila; that the
the trial court erred in finding that the marine policies were issued defendant is a foreign corporation organized and existing under and
solely in favor of Asarco, in not finding that Lepanto was insured by virtue of the laws of Great Britain and duly registered in the
under the said policies and in not finding that the insurers were Philippine Islands, and Smith, Bell & Co. (limited), a corporation
estopped to deny that Lepanto was an insured party. organized and existing under the laws of the Philippine Islands, with
its principal domicile in the city of Manila, is the agent in the
The ventilation of those factual issues would explain why the Court Philippine Islands of said defendant.
of Appeals did not certify the case to this Court as a case involving a
pure question of law. The plaintiffs alleged that on February 16, 1916, the plaintiff Mrs.
Henry E. Harding was the owner of a Studebaker automobile,
The petitioners in their other assignments of error argue that the registered number 2063, in the city of Manila; that on said date; in
Court of Appeals gravely abused its discretion in taking into account consideration of the payment to the defendant of the premium of
Lepanto’s manifestation which is not a part of its complaint; in finding P150, by said plaintiff, Mrs. Henry E. Harding, with the consent of
that Lepanto claimed ownership of the cargo covered by the marine her husband, the defendant by its duly authorized agent, Smith, Bell
insurance policies; in not finding that Lepanto is not the real party in & Company (limited), made its policy of insurance in writing upon
interest and has no personality to sue and in not finding that under said automobile was set forth in said policy to be P3,000 that the
the ultimate facts alleged in Lepanto’s complaint Lepanto has no value of said automobile was set forth in said policy (Exhibit A) to be
cause of action against the insurers. P3,000; that on March 24, 1916, said automobile was totally
destroyed by fire; that the loss thereby to plaintiffs was the sum of
P3,000; that thereafter, within the period mentioned in the said policy
The issue is the correctness of the trial court’s conclusion that of insurance, the plaintiff, Mrs. Henry E. Harding, furnished the
Lepanto has no right to sue the insurers since it has no cause of defendant the proofs of her said loss and interest, and otherwise
action against them (p. 119, Record on Appeal), or, as stated by the performed all the conditions of said policy on her part, and that the
Appellate Court, whether Lepanto can legally sue on the marine defendant has not paid said loss nor any part thereof, although due
insurance policies. demand was made upon defendant therefor.
We hold, without prejudging the merits of Lepanto’s case and
petitioners’ affirmative defenses, that there is a prima facie showing The defendant, by its answer, admitted the allegations of the
in Lepanto’s complaint and pleadings that it is a real party in interest residence and status of the parties and denied all the other
under the policies and that it has a cause of action against the allegation of the said complaint, and for a separate and affirmative
petitioners as insurers. defense alleged (1) that on February 17, 1916, at the city of Manila,
P.I. the defendant upon request of plaintiff, Mrs. Henry E. Harding,
issued to the said plaintiff the policy of insurance on an automobile
This holding is based (1) on the stipulation (already quoted) in the alleged by the said plaintiff to be her property; that the said request
two policies that it has an interest therein and (2) on the facts that it for the issuance of said policy of insurance was made by means of a
was the shipper (and presumably the owner) of the insured cargoes, proposal in writing signed and delivered by said plaintiff to the
that the shipments were undertaken in accordance with the defendant, guaranteeing the truth of the statements contained
instructions of the insurer’s marine surveyor and that it was Lepanto therein which said proposal is referred to in the said policy of
that filed the corresponding claim with the adjuster when the cargoes insurance made a part thereof; (2) that certain of the statements and
were damaged (pp. 34-37, Record on Appeal). representations contained in said proposal and warranted by said
plaintiff to be true, to wit: (a) the price paid by the proposer for the
It is noteworthy that when Commercial Union Assurance Company said automobile; (b) the value of said automobile at the time of the
Limited rejected Lepanto’s claims it did not question Lepanto’s right execution and delivery of the said proposal and (c) the ownership of
and personality to file the claims nor did it state that Lepanto had no said automobile, were false and known to be false by the said
interest in the marine policies and that it was not an insured party. plaintiff at the time of signing and delivering the said proposal and
Commercial Union rejected the claims, not on those grounds, but were made for the purpose of misleading and deceiving the
because "both cargoes were inherently vicious" (pp. 37-45, Record defendant, and inducing the defendant, relying upon the warranties,
on Appeal). statements, and representations contained in the said proposal and
believing the same to be true, issued the said policy of insurance.

18
The defendant prays that judgment be entered declaring the said It merely tended to show the alleged actual value of the automobile,
policy of insurance to be null and void, and that plaintiffs take and in the view we take of the case such evidence was irrelevant.
nothing by this action; and for such further relief as to the court may
seem just and equitable. Appellant contends that Mrs. Harding was not the owner of the
automobile at the time of the issuance of the policy, and, therefore,
The evidence in this case shows that some time in the year 1913 had no insurable interest in it. The court below found that the
Levy Hermanos, the Manila agents for the Studebaker automobile, automobile was given to plaintiff by her husband shortly after the
sold the automobile No. 2063 to John Canson for P3,200 (testimony issuance of the policy here in question. Appellant does not dispute
of Mr. Diehl); that under date of October 14, 1914, John Canson sold the correctness of this finding, but contends that the gift was void,
the said automobile to Henry Harding for the sum of P1,500 (Exhibit citing article 1334 of the Civil Code which provides that "All gifts
2); that under date of November 19, 1914, the said Henry Harding between spouses during the marriage shall be void. Moderate gifts
sold the said automobile No. 2063 to J. Brannigan, of Los Baños, which the spouses bestow on each other on festive days of the
Province of Laguna, P.I., for the sum of P2,000 (Exhibit 3); that family are not included in this rule."
under date of December 20, 1915, J. C. Graham of Los Baños,
Province of Laguna, P.I., sold the said automobile No. 2063 to Henry We are of the opinion that this contention is without merit. In the
Harding of the city of Manila for the sum of P2,800 (Exhibit 4 and case of Cook vs. McMicking 27 Phil. Rep., 10), this court said:
testimony of J. C. Graham); that on or about January 1, 1916, the
said Henry Harding gave the said automobile to his wife; Mrs. Henry
E. Harding, one of the plaintiffs, as a present; that said automobile It is claimed by the appellants that the so-called transfer from
was repaired and repainted at the Luneta Garage at a cost of some plaintiff's husband to her was completely void under article 1458 of
P900 (testimony of Mr. Server); that while the said automobile was the Civil Code and that, therefore, the property still remains the
at the Luneta Garage; the said Luneta Garage, acting as agent for property of Edward Cook and subject to levy under execution
Smith, Bell & Company, (limited), solicited of the plaintiff Mrs. against him.
Harding the insurance of said automobile by the defendant
Company (testimony of Mrs. Henry Harding and Mr. Server); that a In our opinion the position taken by appellants is untenable. They
proposal was filled out by the said agent and signed by the plaintiff are not in a position to challenge the validity of the transfer, if it may
Mrs. Henry E. Harding, and in said proposal under the heading be called such. They bore absolutely no relation to the parties to the
"Price paid by proposer," is the amount of "3,500" and under another transfer at the time it occurred and had no rights or interests
heading "Present value" is the amount of "3,000" (Exhibit 1). inchoate, present, remote, or otherwise, in the property in question
at the time the transfer occurred. Although certain transfers from
The evidence tends to show that after the said proposal was made a husband to wife or from wife to husband are prohibited in the article
representative of the Manila agent of defendant went to the Luneta referred to, such prohibition can be taken advantage of only by
Garage and examined said automobile No. 2063 and Mr. Server, the persons who bear such a relation to the parties making the transfer
General Manager of the Luneta Garage, an experienced automobile or to the property itself that such transfer interferes with their rights
mechanic, testified that at the time this automobile was insured it or interests. Unless such a relationship appears the transfer cannot
was worth about P3,000, and the defendant, by and through its said be attacked.
agent Smith, Bell & Company (limited), thereafter issued a policy of
insurance upon proposal in which policy the said automobile was Even assuming that defendant might have invoked article 1334 as a
described as of the "present value" of P3,000 and the said defense, the burden would be upon it to show that the gift in
defendant charged the said plaintiff Mrs. Henry E. Harding as question does not fall within the exception therein established. We
premium on said policy the sum of P150, or 5 per cent of the then cannot say, as a matter of law, that the gift of an automobile by a
estimated value of P3,000. (Exhibit A.) husband to his wife is not a moderate one. Whether it is or is not
would depend upon the circumstances of the parties, as to which
The "Schedule" in said policy of insurance describes the automobile nothing is disclosed by the record.
here in question, and provides in part of follows:
Defendant contends that the statement regarding the cost of the
"Now it is hereby agreed as follows: automobile was a warranty, that the statement was false, and that,
therefore, the policy never attached to the risk. We are of the opinion
that it has not been shown by the evidence that the statement was
"That during the period above set forth and during any period for false  — on the contrary we believe that it shows that the automobile
which the company may agree to renew this policy the company will had in fact cost more than the amount mentioned.
subject to the exception and conditions contained herein or
endorsed hereon indemnify the insured against loss of or damage to
any motor car described in the schedule hereto (including The court below found, and the evidence shows, that the automobile
accessories) by whatever cause such loss or damage may be was bought by plaintiff's husband a few weeks before the issuance
occasioned and will further indemnify the insured up to the value of of the policy in question for the sum of P2,800, and that between
the car or P3,000 whichever is the greater against any claim at that time and the issuance of the policy some P900 was spent upon
common law made by any person (not being a person in the said it in repairs and repainting. The witness Server, an expert
motor car nor in the insured's service) for loss of life or for accidental automobile mechanic, testified that the automobile was practically as
bodily injury or damage to property caused by the said motor car good as new at the time the insurance was effected. The form of
including law costs payable in connection with such claim when proposal upon which the policy was issued does not call for a
incurred with the consent of the company." statement regarding the value of the automobile at the time of its
acquisition by the applicant for the insurance, but merely a
statement of its cost. The amount stated was less than the actual
The evidence further shows that on March 24, 1916, the said outlay which the automobile represented to Mr. Harding, including
automobile was totally destroyed by fire, and that the iron and steel repairs, when the insurance policy was issued. It is true that the
portions of said automobile which did not burn were taken into the printed form calls for a statement of the "price paid by the proposer,"
possession of the defendant by and through its agent Smith, Bell & but we are of the opinion that it would be unfair to hold the policy
Company (limited), and sold by it for a small sum, which had never void simply because the outlay represented by the automobile was
been tendered to the plaintiff prior to the trial of this case, but in made by the plaintiff's husband and not by his wife, to whom he had
open court during the trial the sum of P10 as the proceeds of such given the automobile. It cannot be assumed that defendant should
sale was tendered to plaintiff and refused. not have issued the policy unless it were strictly true that the price
representing the cost of the machine had been paid by the insured
Upon the facts so found, which we hold are supported by the and by no other person —  that it would no event insure an
evidence, the trial judge decided that there was no proof of fraud on automobile acquired by gift, inheritance, exchange, or any other title
the part of plaintiff in her statement of the value of the automobile, or not requiring the owner to make a specific cash outlay for its
with respect to its ownership; that she had an insurable interest acquisition.
therein; and that defendant, having agreed to the estimated value,
P3,000, and having insured the automobile for that amount, upon Furthermore, the court below found and the evidence shows, without
the basis of which the premium was paid, is bound by it and must dispute, that the proposal upon which the policy in question was
pay the loss in accordance with the stipulated insured value. The issued was made out by defendant's agent by whom the insurance
assignments of error made on behalf of appellant put in issue the was solicited, and that appellee simply signed the same. It also
correctness of those conclusions of law, and some others of minor appears that an examiner employed by the defendant made an
importance relating to the exclusion of evidence. Disposing of the inspection of the automobile before the acceptance of the risk, and
minor objections first, as we have reached the conclusion that the that the sum after this examination. The trial court found that Mrs.
trial court was right in holding that the defendant is bound by the Harding, in fixing the value of the automobile at P3,000, acted upon
estimated value of the automobile upon which policy was issued, information given her by her husband and by Mr. Server, the
and that the plaintiff was not guilty of fraud in regard thereto, the manager of the Luneta Garage. The Luneta Garage, it will be
exclusion of the testimony of the witness Diehl is without importance. remembered, was the agent of the defendant corporation in the
19
solicitation of the insurance. Mrs. Harding did not state of her own though nominally proceeding from the insured, be regarded as the
knowledge that the automobile originally cost P3,000, or that its act of the insurers." (Rowley vs. Empire Ins. Co., 36 N.Y., 550.)
value at the time of the insurance was P3,000. She merely repeated
the information which had been given her by her husband, and at The modern decisions fully sustain this proposition, and they seem
the same time disclosed to defendant's agent the source of her to us founded on reason and justice, and meet our entire approval.
information. This principle does not admit oral testimony to vary or contradict that
which is in writing, but it goes upon the idea that the writing offered
There is no evidence to sustain the contention that this in evidence was not the instrument of the party whose name is
communication was made in bad faith. It appears that the signed to it; that it was procured under such circumstances by the
statements in the proposal as to the price paid for the automobile other side as estops that side from using it or relying on its contents;
and as to its value were written by Mr. Quimby who solicited the not that it may be contradicted by oral testimony, but that it may be
insurance on behalf of defendant, in his capacity as an employee of shown by such testimony that it cannot be lawfully used against the
the Luneta Garage, and wrote out the proposal for Mrs. Harding to party whose name is signed to it. (See also  Am. Life Ins.
sign. Under these circumstances, we do not think that the facts Co. vs. Mahone, 21 Wallace, 152.)
stated in the proposal can be held as a warranty of the insured, even
if it should have been shown that they were incorrect in the absence The defendant, upon the information given by plaintiff, and after an
of proof of willful misstatement. Under such circumstance, the inspection of the automobile by its examiner, having agreed that it
proposal is to be regarded as the act of the insurer and not of the was worth P3,000, is bound by this valuation in the absence of fraud
insured. This question was considered in the case of the Union on the part of the insured. All statements of value are, of necessity,
Insurance Company vs. Wilkinson (13 Wall., 222; 20 L. ed., 617), in to a large extent matters of opinion, and it would be outrageous to
which the Supreme Court of the United States said: hold that the validity of all valued policies must depend upon the
absolute correctness of such estimated value. As was said by the
This question has been decided differently by courts of the highest Supreme Court of the United States in the case of the First National
respectability in cases precisely analogous to the present. It is not to Bank vs. Hartford Fire Insurance Co. (5 Otto, 673; 24 L. ed., 563),
be denied that the application logically considered, is the work of the at. p. 565 of the Lawyers Edition:
assured, and if left to himself or to such assistance as he might
select, the person so selected would be his agent, and he alone The ordinary test of the value of property is the price it will commend
would be responsible. On the other hand, it is well-known, so well in the market if offered for sale. But that test cannot, in the very
that no court would be justified in shutting its eyes to it, that nature of the case, be applied at the time application is made for
insurance companies organized under the laws of one State, and insurance. Men may honestly differ about the value of property, or
having in that State their principal business office, send these agents as to what it will bring in the market; and such differences are often
all over the land, with directions to solicit and procure applications very marked among those whose special business it is to buy and
for policies furnishing them with printed arguments in favor of the sell property of all kinds. The assured could do no more than
value and necessity of life insurance, and of the special advantages estimate such value; and that, it seems, was all that he was required
of the corporation which the agent represents. They pay these to do in this case. His duty was to deal fairly with the Company in
agents large commissions on the premiums thus obtained, and the making such estimate. The special finding shows that he discharged
policies are delivered at their hands to the assured. The agents are that duty and observed good faith.
stimulated by letters and instructions to activity in procuring
contracts, and the party who is in this manner induced to take out a
policy, rarely sees or knows anything about the company or its We shall not presume that the Company, after requiring the assured
officers by whom it is issued, but looks to and relies upon the agent in his application to give the "estimated value," and then to covenant
who has persuaded him to effect insurance as the full and complete that he had stated all material facts in regard to such value, so far as
representative of the company, in all that is said or done in making known to him, and after carrying that covenant, by express words,
the contract. Has he not a right to so regard him? It is quite true that into the written contract, intended to abandon the theory upon which
the reports of judicial decisions are filled with the efforts of these it sought the contract, and make the absolute correctness of such
companies, by their counsel, to establish the doctrine for the acts of estimated value a condition precedent to any insurance whatever.
these agents to the simple receipt of the premium and delivery of the The application, with its covenant and stipulations, having been
policy, the argument being that, as to all other acts of the agent, he made a part of the policy, that presumption cannot be indulged
is the agent of the assured. without imputing to the Company a purpose, by studied intricacy or
an ingenious framing of the policy, to entrap the assured into
incurring obligations which, perhaps, he had no thought of
This proposition is not without support in some of the earlier decision assuming.
on the subject; and, at a time when insurance companies waited for
parties to come to them to seek assurance, or to forward
applications on their own motion, the doctrine had a reasonable Section 163 of the Insurance Law (Act No. 2427) provides that "the
foundation to rest upon. But to apply such a doctrine, in its full force, effect of a valuation in a policy of fire insurance is the same as in a
to the system of selling policies through agents, which we have policy of marine insurance."
described, would be a snare and a delusion, leading, as it has done
in numerous instances, to the grossest frauds, of which the By the terms of section 149 of the Act cited, the valuation in a policy
insurance corporations receive the benefits, and the parties of marine insurance is conclusive if the insured had an insurable
supposing themselves insured are the victims. The tendency of the interest and was not guilty of fraud.
modern decisions in this country is steadily in the opposite direction.
The powers of the agent are, prima facie, co-extensive with the We are, therefore, of the opinion and hold that plaintiff was the
business intrusted to his care, and will not be narrowed by limitations owner of the automobile in question and had an insurable interest
not communicated to the person with whom he deals. therein; that there was no fraud on her part in procuring the
(Bebee vs. Ins. Co., 25 Conn., 51; Lycoming Ins. insurance; that the valuation of the automobile, for the purposes of
Co. vs. Schoolenberger, 44 Pa., 259; Beal vs. Ins. Co., 16 Wis., 241; the insurance, is binding upon the defendant corporation, and that
Davenport vs. Ins. Co., 17 Iowa, 276.) the judgment of the court below is, therefore, correct and must be
affirmed, with interest, the costs of this appeal to be paid by the
An insurance company, establishing a local agency, must be held appellant. So ordered.
responsible to the parties with whom they transact business, for the
acts and declarations of the agent, within the scope of his
employment, as if they proceeded from the principal. (Sav.
Bk. vs. Ins. Co., 31 Conn., 517; Hortwitz vs. Ins. Co., 40 Mo., 557;
Ayres vs. Ins. Co., 17 Iowa, 176; Howard Ins. Co. vs. Bruner, 23 Pa.,
50.)

In the fifth edition of American Leading Cases, 917, after a full

consideration of the authorities, it is said:

"By the interested or officious zeal of the agents employed by the

insurance companies in the wish to outbid each other and procure
customers, they not unfrequently mislead the insured, by a false or
erroneous statement of what the application should contain; or,
taking the preparation of it into their own hands, procure his
signature by an assurance that it is properly drawn, and will meet the
requirements of the policy. The better opinion seems to be that,
when this course is pursued, the description of the risk should,

20
 before the sale of the house to the plaintiff; (b) that Barretto did this
because he had constructed the house and she was owing him
therefor; and (c) that the insurance was entirely for the personal
account and in the exclusive interest of Barretto. In her cross-
complaint she asked for judgment against the plaintiff for the sum of
P2,000, the balance due on the purchase price. Barretto answered,
reciting the facts giving rise to his taking out the insurance on the
house and denying any obligation to the plaintiff in connection
therewith.

Judgment was entered against Barretto and in favor of Placida A.

Jose for the sum of P1,298.50, being the difference between the
amount collected by Barretto on the insurance and the amount yet
due him for the construction of the house, including the premiums
paid. Judgment was also entered in favor of the defendant, Placida
A. Jose, against the plaintiff for the sum of P2,000, being the
balance of the purchase price of the house. The plaintiff was
authorized to offset this judgment against her for P2,000 by the
P2,000 which the court declared had been paid the defendant,
Placida A. Jose, by Barretto out of the insurance money. A final
judgment was entered in favor of the plaintiff against the defendant,
Placida A. Jose, for the sum of P1,298.50, being the amount of the
judgment against Barretto. From this judgment Barretto alone
appealed.

The court found that there was no privity of contract between the
plaintiff and the defendant Barretto. In consequence, no judgment
was entered in favor of the plaintiff against the defendant. The court
decided the respective rights of the two defendants to the insurance
money and entered judgment against Barretto and in favor of
Placida A. Jose for the sum of P1,298.50. This was done upon the
theory that the insurance policy was held in trust for Placida A. Jose,
and that any balance, resulting after deducting the amount owing
upon the construction contract and paid for premiums, belonged to
her. Neither by the pleading nor upon the trial was there any claim
made by Placida A. Jose against Barretto for the insurance money,
nor for any participation therein. Placida A. Jose's answer
specifically alleged that such insurance was for Barretto's personal
account and in his exclusive rights. Her testimony is equally positive
upon this point. She says:

Q.       Was the house insured when you sold it to Antonina

Lampano? —
A.       It was insured by Mariano Barretto because he is the
one constructed that house.
Q.       Did you have any interest in that insurance? —
A.       I was indebted to him and he insured the house in
his own name from 1911.
Q.       Did you have any right, interest or participation in
that insurance? —
A.       I have none.
5. ANTONINA LAMPANO vs. PLACIDA A. JOSE, ET AL Q.       Who was paying the premiums on that insurance?
—
G.R. No. L-9401             March 30, 1915 A.       M. Barretto.

TRENT, J.: The result is that there was no controversy between the defendants
concerning this insurance, nor was any issue presented which
The defendant, Mariano R. Barretto, constructed a house for the required an adjudication of their respective rights thereto. So far as
other defendant, Placida A. Jose, on land described as No. 72, plot Barretto was concerned, the only issue raised, either by the
F. Estate of Nagtahan, district of Sampaloc, city of Manila, for the pleadings or at the trial, was, Has the plaintiff any right to recover
agreed price of P6,000. Subsequent thereto and on November 12, from Barretto any portion of the insurance money?
1912, Placida A. Jose sold the house to the plaintiff, Antonina
Lampano, for the sum of P6,000. The plaintiff sought to recover from Barretto all of the P3,600, but
she is now contented with a judgment against Placida A. Jose for
On March 22, 1913, the house was destroyed by fire. At the time of P1,298.50. Her right to recover this amount of the insurance rests
the fire Antonina Lampano still owed Placida A. Jose the sum of upon an alleged verbal agreement between herself and Placida A.
P2,000, evidenced by a promissory note, and Placida A. Jose still Jose to the effect that the latter agreed, at the time of the purchase
owed Mariano R. Barretto on the cost of the construction the sum of and sale of the house, to transfer to her the insurance policy, the
P2,000. After the completion of the house and sometime before it policy being held in trust by Barretto for the benefit of the Jose
was destroyed, Mariano R. Barretto took out an insurance policy woman. The plaintiff does not contend that Barretto participated in
upon it in his own name, with the consent of Placida A. Jose, for the this sale, or even had any knowledge of it, until sometime after it
sum of P4,000. After its destruction, he collected P3,600 from the was consummated. Placida A. Jose denies that she agreed to
insurance company, having paid in premiums the sum of P301.50. transfer the policy to the plaintiff, and the deed of purchase and sale
makes no mention of such an agreement.

The plaintiff alleged in her complaint that there was a verbal

agreement between her and Placida A. Jose, at the time of the The policy is not mentioned in this document, although it was agreed
purchase and sale of the house, to the effect that the latter agreed to that the vendor would transfer to the vendee all of the former's right,
deliver to her the insurance policy on the building; that she did not title, and interest in the leasehold to the land upon which the house
learn that the policy was in the name of Barretto until after the fire; was built. It would seem that if the vendor agreed to transfer the
and the neither Placida A. Jose nor Mariano R. Barretto has any policy, this agreement would have been inserted in the document of
right to the insurance or to the money received therefrom. She purchase and sale, the same as that with reference to the lease. The
prayed for judgment against each of them for the sum of P3,600, the trial court did not find that such an agreement existed and we think
amount of the insurance collected. the plaintiff has failed to establish this verbal agreement.

To this complaint the defendant, Placida A. Jose, answered, denying If Barretto had an insurable interest in the house, he could insure
that she agreed to transfer the policy of insurance to the plaintiff and this interest for his sole protection. The policy was in the name of
alleging (a) that the insurance was taken out and paid for by Barretto
21
Barretto alone. It was, therefore, a personal contract between him
and the company and not a contract which ran with the property.

According to this personal contract the insurance policy was payable

to the insured without regard to the nature and extent of his interest
in the property, provided that he had, as we have said, an insurable
interest at the time of the making of the contract, and also at the time
of the fire. Where different persons have different interests in the
same property, the insurance taken by one in his own right and in
his own interest does not in any way insure to the benefit of another.
This is the general rule prevailing in the United States and we find
nothing different in this jurisdiction. (19 Cyc., 883.)

In the case of Shadgett vs. Phillips and Crew Co., reported in 56 L.

R. A., 461, Mrs. Shagett received a piano as a gift from her husband
and insured it. She knew that it was the obligation of her husband to
insure he piano for the benefit of the vendor. The court held,
however, that the vendor (mortgagee) was not entitled to the
proceeds of the insurance as "there was no undertaking on the part
of Mrs. Shadgett to either insure for complainant's benefit, or to
assume her husband's obligation to so insure, and mere knowledge
of that obligation did not impose it upon her."

The court further said: "The contract of insurance was wholly

between the defendant and the insurance company, and was
personal, in the sense that the money agreed to be paid in case of
loss was not to stand in the place of the piano itself, but was a mere
indemnity against the loss of defendant's interest therein. If her
interest was small, on account of incumbrances existing in favor of
the complainant, that fact was for the consideration only of the
insurer and defendant, for complaint has no concern with the
adjustment of the loss between them. We know of no principle,
either of law or equity, which would bind defendant to carry out her
donor's contract to insure, in the absence of any agreement on her
part to do so, even though the property in her hands was subject to
complainant's rights therein as a conditional vendor."

The court further says: "A contract of insurance made for the
insurer's (insured) indemnity only, as where there is no agreement,
express or implied, that it shall be for the benefit of a third person,
does not attach to or run with the title to the insured property on a
transfer thereof personal as between the insurer and the insured. In
such case strangers to the contract cannot require in their own right
any interest in the insurance money, except through an assignment
or some contract with which they are connected."

In  Vandergraf vs. Medlock (3 Porter, 389; 29 Am. Dec., 256), it was
held that the mortgage is not entitled to the proceeds of an
insurance policy procured by the mortgages, there being no
agreement that such insurance should be effected by the latter for
the benefit of the former. The court says: "It is well settled that a
policy of insurance is a distinct independent contract between the
insured and insurers, and third person have no right either in a court
of equity, or in a court of law, to the proceeds of it, unless there be
some contract or trust, expressed or implied, between the insured
and third persons."

In Burlingane vs. Goodspeed  (10 L. R. A., 495), the court says that
where a mortgage at his own expense and without any agreement or
understanding with he mortgagor obtains insurance upon his interest
as a mortgage and collects the money from the insurer after a loss,
he is not bound to account for it to the mortgagor.

In the case at bar Barretto assumed the responsibility for the

insurance. The premiums, as we have indicated, were paid by him
without any agreement or right to recoup the amount paid therefor
should no loss result to the property. It would not, therefore, be in
accordance with t he law and his contractual obligations to compel
him to account for the insurance money, or any par thereof, to the 6. VICENTE ONG LIM SING, JR v. FEB LEASING & FINANCE
plaintiff, who assumed no risk whatever. CORPORATION, [G.R. NO. 168115  : June 8, 2007]
NACHURA, J.:
That Barretto had an insurable interest in the house, we think there
can be no question. He construed the building, furnishing all the The facts are as follows:
materials and supplies, and insured it after it had been completed
(pars. 3 and 5, art. 1923, Civil Code; Manresa, Vol. 12, pp. 692-695;
On March 9, 1995, FEB Leasing and Finance Corporation (FEB)
citing decision of the supreme court of Spain of December 30,
entered into a lease3 of equipment and motor vehicles with JVL
1896).
Food Products (JVL). On the same date, Vicente Ong Lim Sing, Jr.
(Lim) executed an Individual Guaranty Agreement4 with FEB to
For the foregoing reasons the judgment appealed from, in so far as it guarantee the prompt and faithful performance of the terms and
affects the appellant, is reversed and he is absolved. Without costs. conditions of the aforesaid lease agreement. Corresponding Lease
So ordered. Schedules with Delivery and Acceptance Certificates 5 over the
equipment and motor vehicles formed part of the agreement. Under
the contract, JVL was obliged to pay FEB an aggregate gross
monthly rental of One Hundred Seventy Thousand Four Hundred
Ninety-Four Pesos (P170,494.00).

22
JVL defaulted in the payment of the monthly rentals. As of July 31, execute the corresponding Deed after the defendants have paid in
2000, the amount in arrears, including penalty charges and full and as heretofore discussed and for the sake of emphasis the
insurance premiums, amounted to Three Million Four Hundred obscurity in the written contract cannot favor the party who caused
Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos the obscurity.
(P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL
demanding payment of the said amount. However, JVL failed to Based on substantive Rules on Interpretation, if the terms are clear
pay.6 and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control. If the words appear to
On December 6, 2000, FEB filed a Complaint 7 with the Regional be contrary to the evident intention of the parties, their
Trial Court of Manila, docketed as Civil Case No. 00-99451, for sum contemporaneous and subsequent acts shall be principally
of money, damages, and replevin against JVL, Lim, and John Doe. considered. If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what may have been
In the Amended Answer,8 JVL and Lim admitted the existence of the the intention or will of the parties, the contract shall be null and
lease agreement but asserted that it is in reality a sale of equipment void.10
on installment basis, with FEB acting as the financier. JVL and Lim
claimed that this intention was apparent from the fact that they were Thus, the court concluded with the following disposition:
made to believe that when full payment was effected, a Deed of Sale
will be executed by FEB as vendor in favor of JVL and Lim as In this case, which is held by this Court as a sale on installment
vendees.9 FEB purportedly assured them that documenting the there is no chattel mortgage on the thing sold, but it appears
transaction as a lease agreement is just an industry practice and amongst the Complaint's prayer, that the plaintiff elected to exact
that the proper documentation would be effected as soon as full fulfillment of the obligation. For the vehicles returned, the plaintiff
payment for every item was made. They also contended that the can only recover the unpaid balance of the price because of the
lease agreement is a contract of adhesion and should, therefore, be previous payments made by the defendants for the reasonable use
construed against the party who prepared it, i.e., FEB. of the units, specially so, as it appears, these returned vehicles were
sold at auction and that the plaintiff can apply the proceeds to the
In upholding JVL and Lim's stance, the trial court stressed the balance. However, with respect to the unreturned units and
contradictory terms it found in the lease agreement. The pertinent machineries still in the possession of the defendants, it is this Court's
portions of the Decision dated November 22, 2002 read: view and so hold that the defendants are liable therefore and
accordingly are ordered jointly and severally to pay the price thereof
A profound scrutiny of the provisions of the contract which is a to the plaintiff together with attorney's fee and the costs of suit in the
contract of adhesion at once exposed the use of several sum of Php25,000.00.
contradictory terms. To name a few, in Section 9 of the said contract
- disclaiming warranty, it is stated that the lessor is not the SO ORDERED.11
manufacturer nor the latter's agent and therefore does not guarantee
any feature or aspect of the object of the contract as to its On December 27, 2002, FEB filed its Notice of
merchantability. Merchantability is a term applied in a contract of Appeal.12 Accordingly, on January 17, 2003, the court issued an
sale of goods where conditions and warranties are made to apply. Order13 elevating the entire records of the case to the CA. FEB
Article 1547 of the Civil Code provides that unless a contrary averred that the trial court erred:
intention appears an implied warranty on the part of the seller that
he has the right to sell and to pass ownership of the object is
furnished by law together with an implied warranty that the thing A. When it ruled that the agreement between the Parties-
shall be free from hidden faults or defects or any charge or Litigants is one of sale of personal properties on installment
encumbrance not known to the buyer. and not of lease;

In an adhesion contract which is drafted and printed in advance and B. When it ruled that the applicable law on the case is
parties are not given a real arms' length opportunity to transact, the Article 1484 (of the Civil Code) and not R.A. No. 8556;
Courts treat this kind of contract strictly against their architects for
the reason that the party entering into this kind of contract has no C. When it ruled that the Plaintiff-Appellant can no longer
choice but to accept the terms and conditions found therein even if recover the unpaid balance of the price because of the
he is not in accord therewith and for that matter may not have previous payments made by the defendants for the
understood all the terms and stipulations prescribed thereat. reasonable use of the units;
Contracts of this character are prepared unilaterally by the stronger
party with the best legal talents at its disposal. It is upon that thought D. When it failed to make a ruling or judgment on the Joint
that the Courts are called upon to analyze closely said contracts so and Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-
that the weaker party could be fully protected. Appellant.14

Another instance is when the alleged lessee was required to insure On March 15, 2005, the CA issued its Decision 15 declaring
the thing against loss, damage or destruction. the transaction between the parties as a financial lease
agreement under Republic Act (R.A.) No.
In property insurance against loss or other accidental causes, the 8556.16 The fallo of the assailed Decision reads:
assured must have an insurable interest, 32 Corpus Juris 1059.
WHEREFORE, the instant appeal is GRANTED and the
xxx assailed Decision dated 22 November 2002 rendered by
the Regional Trial Court of Manila, Branch 49 in Civil Case
It has also been held that the test of insurable interest in property is No. 00-99451 is REVERSED and SET ASIDE, and a new
whether the assured has a right, title or interest therein that he will judgment is hereby ENTERED ordering appellees JVL
be benefited by its preservation and continued existence or suffer a Food Products and Vicente Ong Lim, Jr. to solidarily pay
direct pecuniary loss from its destruction or injury by the peril insured appellant FEB Leasing and Finance Corporation the
against. If the defendants were to be regarded as only a lessee, amount of Three Million Four Hundred Fourteen
logically the lessor who asserts ownership will be the one directly Thousand Four Hundred Sixty Eight Pesos and 75/100
benefited or injured and therefore the lessee is not supposed to be (Php3,414,468.75), with interest at the rate of twelve
the assured as he has no insurable interest. percent (12%) per annum starting from the date of judicial
demand on 06 December 2000, until full payment thereof.
Costs against appellees. SO ORDERED.17
There is also an observation from the records that the actual value
of each object of the contract would be the result after computing the
monthly rentals by multiplying the said rentals by the number of Lim filed the instant Petition for Review on Certiorari under Rule 45
months specified when the rentals ought to be paid. contending that:

Still another observation is the existence in the records of a Deed of

Absolute Sale by and between the same parties, plaintiff and
defendants which was an exhibit of the defendant where the plaintiff
sold to the same defendants one unit 1995 Mitsubishi L-200
STRADA DC PICK UP and in said Deed, The Court noticed that the I
same terms as in the alleged lease were used in respect to
warranty, as well as liability in case of loss and other conditions. This
action of the plaintiff unequivocally exhibited their real intention to
23
The Honorable Court of Appeals erred when it failed to consider that duels are not to be won by a rapier's thrust. Technicality, when it
the undated complaint was filed by Saturnino J. Galang, Jr., without deserts its proper office as an aid to justice and becomes its great
any authority from respondent's Board of Directors and/or hindrance and chief enemy, deserves scant consideration from
Secretary's Certificate. courts." Litigations must be decided on their merits and not on
technicality.
II
Every party litigant must be afforded the amplest opportunity for the
The Honorable Court of Appeals erred when it failed to strictly apply proper and just determination of his cause, free from the
Section 7, Rule 18 of the 1997 Rules of Civil Procedure and now unacceptable plea of technicalities. Thus, dismissal of appeals
Item 1, A(8) of A.M. No. 03-1-09 SC (June 8, 2004). purely on technical grounds is frowned upon where the policy of the
court is to encourage hearings of appeals on their merits and the
rules of procedure ought not to be applied in a very rigid, technical
III sense; rules of procedure are used only to help secure, not override
substantial justice. It is a far better and more prudent course of
The Honorable Court of Appeals erred in not dismissing the appeal action for the court to excuse a technical lapse and afford the parties
for failure of the respondent to file on time its appellant's brief and to a review of the case on appeal to attain the ends of justice rather
separately rule on the petitioner's motion to dismiss. than dispose of the case on technicality and cause a grave injustice
to the parties, giving a false impression of speedy disposal of cases
IV while actually resulting in more delay, if not a miscarriage of justice.21

The Honorable Court of Appeals erred in finding that the contract Third, while we affirm that the subject lease agreement is a contract
between the parties is one of a financial lease and not of a contract of adhesion, such a contract is not void per se. It is as binding as
of sale. any ordinary contract. A party who enters into an adhesion contract
is free to reject the stipulations entirely.22 If the terms thereof are
accepted without objection, then the contract serves as the law
V between the parties.

The Honorable Court of Appeals ERRED IN ruling that the payments In Section 23 of the lease contract, it was expressly stated that:
paid by the petitioner to the respondent are "rentals" and not
installments paid for the purchase price of the subject motor
vehicles, heavy machines and equipment. SECTION 23. ENTIRE AGREEMENT; SEVERABILITY
CLAUSE

VI
23.1. The LESSOR and the LESSEE agree this instrument
constitute the entire agreement between them, and that no
The Honorable Court of Appeals erred in ruling that the previous representations have been made other than as set forth
contract of sale involving the pick-up vehicle is of no consequence. herein. This Agreement shall not be amended or altered in
any manner, unless such amendment be made in writing
VII and signed by the parties hereto.

The Honorable Court of Appeals failed to take into consideration that Petitioner's claim that the real intention of the parties was a contract
the contract of lease, a contract of adhesion, concealed the true of sale of personal property on installment basis is more likely a
intention of the parties, which is a contract of sale. mere afterthought in order to defeat the rights of the respondent.
The Lease Contract with corresponding Lease Schedules with
Delivery and Acceptance Certificates is, in point of fact, a financial
VIII
lease within the purview of R.A. No. 8556. Section 3(d) thereof
defines "financial leasing" as:
The Honorable Court of Appeals erred in ruling that the petitioner is
a lessee with insurable interest over the subject personal properties.
[A] mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires, at the
IX instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable or
The Honorable Court of Appeals erred in construing the intentions of immovable property in consideration of the periodic payment by the
the Court a quo in its usage of the term merchantability.18 lessee of a fixed amount of money sufficient to amortize at least
seventy (70%) of the purchase price or acquisition cost, including
any incidental expenses and a margin of profit over an obligatory
We affirm the ruling of the appellate court.
period of not less than two (2) years during which the lessee has the
right to hold and use the leased property with the right to expense
First, Lim can no longer question Galang's authority as FEB's the lease rentals paid to the lessor and bears the cost of repairs,
authorized representative in filing the suit against Lim. Galang was maintenance, insurance and preservation thereof, but with no
the representative of FEB in the proceedings before the trial court up obligation or option on his part to purchase the leased property from
to the appellate court. Petitioner never placed in issue the validity of the owner-lessor at the end of the lease contract.
Galang's representation before the trial and appellate courts. Issues
raised for the first time on appeal are barred by estoppel. Arguments
FEB leased the subject equipment and motor vehicles to JVL in
not raised in the original proceedings cannot be considered on
consideration of a monthly periodic payment of P170,494.00. The
review; otherwise, it would violate basic principles of fair play.19
periodic payment by petitioner is sufficient to amortize at least 70%
of the purchase price or acquisition cost of the said movables in
Second, there is no legal basis for Lim to question the authority of accordance with the Lease Schedules with Delivery and Acceptance
the CA to go beyond the matters agreed upon during the pre-trial Certificates. "The basic purpose of a financial leasing transaction is
conference, or in not dismissing the appeal for failure of FEB to file to enable the prospective buyer of equipment, who is unable to pay
its brief on time, or in not ruling separately on the petitioner's motion for such equipment in cash in one lump sum, to lease such
to dismiss. Courts have the prerogative to relax procedural rules of equipment in the meantime for his use, at a fixed rental sufficient to
even the most mandatory character, mindful of the duty to reconcile amortize at least 70% of the acquisition cost (including the expenses
both the need to speedily put an end to litigation and the parties' and a margin of profit for the financial lessor) with the expectation
right to due process. In numerous cases, this Court has allowed that at the end of the lease period the buyer/financial lessee will be
liberal construction of the rules when to do so would serve the able to pay any remaining balance of the purchase price."23
demands of substantial justice and equity.20 In Aguam v. Court of
Appeals, the Court explained:
The allegation of petitioner that the rent for the use of each movable
constitutes the value of the vehicle or equipment leased is of no
The court has the discretion to dismiss or not to dismiss an moment. The law on financial lease does not prohibit such a
appellant's appeal. It is a power conferred on the court, not a duty. circumstance and this alone does not make the transaction between
The "discretion must be a sound one, to be exercised in accordance the parties a sale of personal property on installment. In fact, the
with the tenets of justice and fair play, having in mind the value of the lease, usually constituting the value or amount of the
circumstances obtaining in each case." Technicalities, however, property involved, is a benefit allowed by law to the lessor for the
must be avoided. The law abhors technicalities that impede the use of the property by the lessee for the duration of the lease. It is
cause of justice. The court's primary duty is to render or dispense recognized that the value of these movables depreciates through
justice. "A litigation is not a game of technicalities." "Lawsuits unlike

24
wear and tear upon use by the lessee. In Beltran v. PAIC Finance Fifth, petitioner further proffers the view that the real intention of the
Corporation,24 we stated that: parties was to enter into a contract of sale on installment in the same
manner that a previous transaction between the parties over a 1995
Generally speaking, a financing company is not a buyer or seller of Mitsubishi L-200 Strada DC-Pick-Up was initially covered by an
goods; it is not a trading company. Neither is it an ordinary leasing agreement denominated as a lease and eventually became the
company; it does not make its profit by buying equipment and subject of a Deed of Absolute Sale.
repeatedly leasing out such equipment to different users thereof. But
a financial lease must be preceded by a purchase and sale contract We join the CA in rejecting this view because to allow the
covering the equipment which becomes the subject matter of the transaction involving the pick-up to be read into the terms of the
financial lease. The financial lessor takes the role of the buyer of the lease agreement would expand the coverage of the agreement, in
equipment leased. And so the formal or documentary tie between violation of Article 1372 of the New Civil Code. 31 The lease contract
the seller and the real buyer of the equipment, i.e., the financial subject of the complaint speaks only of a lease. Any agreement
lessee, is apparently severed. In economic reality, however, that between the parties after the lease contract has ended is a different
relationship remains. transaction altogether and should not be included as part of the
lease. Furthermore, it is a cardinal rule in the interpretation of
The sale of the equipment by the supplier thereof to the financial contracts that if the terms of a contract are clear and leave no doubt
lessor and the latter's legal ownership thereof are intended to secure as to the intention of the contracting parties, the literal meaning of its
the repayment over time of the purchase price of the equipment, stipulations shall control. No amount of extrinsic aid is necessary in
plus financing charges, through the payment of lease rentals; that order to determine the parties' intent. 32 WHEREFORE, in the light of
legal title is the upfront security held by the financial lessor, a all the foregoing, the petition is DENIED.
security probably superior in some instances to a chattel
mortgagee's lien.25
7. TRADERS INSURANCE & SURETY CO., v. JUAN GOLANGCO
Fourth, the validity of Lease No. 27:95:20 between FEB and JVL Y OTRA, [G.R. No. L-6442. September 21, 1954.]
should be upheld. JVL entered into the lease contract with full
knowledge of its terms and conditions. The contract was in force for SYLLABUS
more than four years. Since its inception on March 9, 1995, JVL and
Lim never questioned its provisions. They only attacked the validity 1. APELACION; RELACION DE ERRORES; ESTA OBLIGADO EL
of the contract after they were judicially made to answer for their TRIBUNAL DE APELACION A CONSIDERAR TODOS LOS
default in the payment of the agreed rentals. ERRORES SEÑALADOS EN LA RELACION DE ERRORES, PERO
NO TODAS QUE SE SUSCITEN EN EL CURSO DE LOS
It is settled that the parties are free to agree to such stipulations, ARGUMENTOS. — La Ley No. 296 se discutio y se aprobo en
clauses, terms, and conditions as they may want to include in a ingles; tenemos que adoptar el texto ingles y no la traduccion al
contract. As long as such agreements are not contrary to law, castellano. El artivulo 22 de dicha ley, hablar de cuestiones que se
morals, good customs, public policy, or public order, they shall have susciten debidamente ante el Tribunal de Apelacion no quire decir
the force of law between the parties.26 Contracting parties may este tiene que resolver todas las cuestiones que de los argumentos.
stipulate on terms and conditions as they may see fit and these have No es ese el lugar apropriado; hay que suscitarlo en la relacion de
the force of law between them.27 errores. Notese que emplea las plabras "properly raised" y no raised
solamente. No basta suscitar la cuestion: es necesario suscitarla en
The stipulation in Section 1428 of the lease contract, that the el lugar y tiempo opurtunos. Es una bien establecida practica
equipment shall be insured at the cost and expense of the lessee forense la de que no se considerara ninguna cuestion que no se
against loss, damage, or destruction from fire, theft, accident, or haya suscitado debidamente en la relacion de errores, a menos que
other insurable risk for the full term of the lease, is a binding and se trate de falta de jurisdiccion, que se puede suscitar en cuaquier
valid stipulation. Petitioner, as a lessee, has an insurable interest in estado del asunto.
the equipment and motor vehicles leased. Section 17 of the
Insurance Code provides that the measure of an insurable interest in PABLO, M.  :
property is the extent to which the insured might be damnified by
loss or injury thereof. It cannot be denied that JVL will be directly Se trata del cobro de una poliza de seguro contra incendio porvalor
damnified in case of loss, damage, or destruction of any of the de P10,000. El demandante tenia derecho a recibir P1,100
properties leased. mensuales de Melitona Estrella en concepto de alquileres del
edificio No. 34 Plaza Sta. Cruz, Manila, por espacio de cinco años.
Likewise, the stipulation in Section 9.1 of the lease contract that the El demandante aseguro este derecho, pago la prima y la
lessor does not warrant the merchantability of the equipment is a demandada expidio la poliza correspondiente. Dos meses despues
valid stipulation. Section 9.1 of the lease contract is stated as: de haberse incendiado el edificio, el demandante requirio a la
Traders Insurance & Surety Co. el pago del importe del seguro.
9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE Como la demandada rehusaba pagarlo, el demandante acudio al
LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF THE Juzgado de Primera Instancia de Manila, el cual dicto sentencia a
EQUIPMENT NOR THE AGENT OF THE MANUFACTURER OR favor de este. El Tribunal de Apelacion confirmo la sentencia.
SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES
THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER En recurso de certiorari, la Traders Insurance & Surety Co. acude a
THEREOF AND THAT THERE ARE NO WARRANTIES, este Tribunal, alegando que el Tribunal de Apelacion cometio dos
CONDITIONS, TERMS, REPRESENTATION OR INDUCEMENTS, errores: 1 (a) al dictar sentencia sin una completa conclusion de
EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE hechos de todas las cuestiones suscitadas, como requiere el
BY OR ON BEHALF OF THE LESSOR AS TO ANY FEATURE OR articulo 33 de la Ley No. 296, y 1 (b) al no hacer conclusiones de
ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS hecho en cuanto a la aplicacion de la regla de prueba oral; y (2) al
TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR dictar sentencia sin conclusiones de hecho en cuanto a los Exhibits
MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT 10-H y 10-I.
WILL MEET THE REQUIREMENTS OF ANY LAW, RULE,
SPECIFICATIONS OR CONTRACT WHICH PROVIDE FOR Cuanto al error 1 (a). ¿Cuales son las cuestiones que habian sido
SPECIFIC MACHINERY OR APPARATUS OR SPECIAL propiamente suscitadas ante el Tribunal de Apelacion? La mejor
METHODS.29 contestacion es la primera pagina del alegato de la apelante (hoy
recurrente) que dice asi:
In the financial lease agreement, FEB did not assume responsibility
as to the quality, merchantability, or capacity of the equipment. This BRIEF FOR THE APPELLANT "ASSIGNMENT OF ERRORS
stipulation provides that, in case of defect of any kind that will be
found by the lessee in any of the equipment, recourse should be I
made to the manufacturer. "The financial lessor, being a financing "THE LOWER COURT ERRED IN HOLDING THAT THE FIRE
company, i.e., an extender of credit rather than an ordinary INSURANCE POLICY EXHIBIT ’A’ COVERS ALL APPELLEE’S
equipment rental company, does not extend a warranty of the fitness INTERESTS IN THE PREMISES NO. 34 PLAZA STA. CRUZ,
of the equipment for any particular use. Thus, the financial lessee MANILA, ESPECIALLY HIS RIGHT TO COLLECT RENTALS
was precisely in a position to enforce such warranty directly against THEREFROM,
the supplier of the equipment and not against the financial lessor.
We find nothing contra legem or contrary to public policy in such a II
contractual arrangement."30 "THE LOWER COURT ERRED IN HOLDING THAT THE
APPELLEE HAD INSURABLE INTEREST CONSISTING OF A
RIGHT TO RECEIVE RENTALS BOTH AT THE TIME WHEN THE

25
 INSURANCE TOOK EFFECT AND WHEN THE LOSS (Exhibit D) and plaintiff Golangco (Exhibit C) did not
OCCURRED." transfer such rights; and hence no written consent thereto
was necessary. At worst, the contract would be voidable,
but not a void contract, at the option of the Archbishop; but
Al resolver estas cuestiones el Tribunal de Apelacion, despues de this would not deprive Golangco of his insurable interest
transcribir toda la decision del Juzgado de Primera Instancia, dijo lo until such option were exercised; and it does not appear
siguiente en su decision: that it was ever exercised.

"As stated by the lower court, the basic facts on which both "The ejectment case filed by the Archbishop against Lianco
parties base their respective contentions are not disputed, did not remove nor destroy plaintiff’s insurable interest: first,
and we have quoted the decision appealed from in full because plaintiff was not a party thereto and cannot be
because we find that the facts established in the case bound thereby; and second, because the judgment of the
cannot lead to other conclusions than those arrived at by Municipal Court, at least as late as February 14, 1950, had
the trial judge. There is no doubt in our mind that both at not been executed so far as possession of the premises
the time of the execution of the fire policy (Exhibit A) on were concerned (Exhibit G-10). In fact, not even
April 7, 1949, and on June 5, 1949, when the destruction by garnishments were issued against Melitona Estrella, So
fire of the property for which the said policy was issued took Eng Si (her husband) or plaintiff Golangco, the actual and
place, plaintiff Juan Golangco had an insurable interest on legal possessors of the premises (Exhibit F); so that, as far
the property insured which included the rents of premises as plaintiff Golangco was concerned, his right to the
No. 34 Plaza Sta. Cruz, Manila, Philippines, District 4, premises and to the rentals thereon continued to exist on
Block No. 47; and it is particularly so because the policy June 5, 1949 when the fire took place."
prepared and issued by the very defendant specifically
states that all insurance covered under said policy, includes Las conclusiones de hecho adoptadas por el Tribunal de
the ’rent or other subject matter of insurance in respect of Apelacion establecen que el demandante aseguro su
or in connection with any building or any property contained interes en el edificio No. 34 Plaza Sta. Cruz, consistente en
in any building’. Under the evidence on record We cannot el derecho de cobrar alquileres y que dicho interés
alter in the least the decision aforequoted which is hereby asegurable existia al tiempo del seguro y al ocurrir el
adopted by this Court." incendio.

Las conclusiones de hecho del Juzgado de Primera Instancia (sin Carece de base, por tanto, la contencion de la recurrente
incluir la relacion de hechos) que fueron adoptadas por el Tribunal de que la decision del Tribunal de Apelacion no contiene
de Apelacion son las siguientes: conclusiones de hecho de las cuestiones debidamente
suscitadas. Error 1 (b). La contencion de la recurrente de
que el Tribunal de Apelacion debio de haber hecho constar
"After considering the manner of testifying of these en su decision las conclusiones de hecho relativas a la
witnesses, the evasiveness of the witness Limpe, the aplicacion de la regla sobre prueba oral tampoco tiene
improbability of his testimony, and the failure of defendant fundamento. Si la apelante queria suscitar la indebida
to present Antonio Paredes, the clerk who admittedly admision del testimonio oral del demandante, o si queria
investigated the premises in question, the Court finds that pedir el descarte de dicho testimonio, debio de haberlo
plaintiff’s version is more credible; that, before the policy señalado en la relacion de errores, diciendo que el juez
(Exhibit A) was issued, plaintiff made full and clear exposal erro al admitir el testimonio oral del demandante, o que el
of his interests in the premises; and that the said fire policy, Juez erro al no descartar el testimonio oral del demandante
(Exhibit A) covers all of plaintiff’s interests in the premises a pesar de la peticion debidamente presentada.
No. 34 Plaza Sta. Cruz, Manila, especially his right to
collect rentals therefrom under the decision of this Court in En el parrafo 3 de los argumentos en apoyo del primer
Civil Case No. 6306 (Exhibit C). This finding is further error, bajo el titulo de Argument, (pag. 13 del alegato
strengthened by the fact that paragraph 4 of the said fire presentado en el Tribunal de Apelacion), es cuando tal
policy (Exhibit A), above quoted, includes insurance ’on cuestion se planteo por primera vez, en vez de suscitarla
rent’; and accords with rule that a policy is to be interpreted en la relacion de errores: no se planteo, pues, en su debido
in favor of the assured. lugar y en el tiempo oportuno. (Regla 48, art. 17). El
Tribunal de Apelacion no es un buzo que tiene que buscar
"The argument of the defendant that, under section 49 of en los argumentos del alegato cuales son los errores
the Insurance Law, a policy of insurance must specify the cometidos.
interest of the insured in the property insured, if he is not
the absolute owner thereof, is not meritorious because it En cuanto al segundo error, o sea, que el Tribunal de
was the defendant, not plaintiff, who prepared that policy, Apelacion no ha establecido conclusiones de hecho sobre
and it cannot take advantage of its own acts to plaintiff’s los Exhibits 10-H y 10- I, opinamos que esta despojado de
detriment; and, in any case, this provision was substantially merito, por dos razones: 1. ª porque no se suscito en la
complied with by plaintiff when he made a full and clear relacion de errores, y 2.a porque en la decision existen
statement of his interests to defendant’s manager. tales conclusiones, aunque no son del agrado de la
recurrente. Ella dice en su alegato, pagina 31:
"Having found that the policy covered all of plaintiff’s
interests in the premises described therein, including his "The Court of Appeals adopted the finding of the trial court
right to receive rentals, we must next determine whether he that ’not even garnishment was issued against Melitona
had any insurable interest therein when the policy was Estrella, So Eng Si (her husband), or plaintiff Golangco’.
issued and when the fire occurred. We find that he did so The decision of the Court of Appeals should therefore
have. By virtue of the contract between Tomas B. Lianco contain the following finding of fact:
and the Archbishop, Lianco erected the building of which
the premises in question form part and became owner (a) That Exhibits ’10-H’ and ’10-I’ clearly prove that notice
thereof (Exhibit 4-D). He transferred the ownership of the of garnishment was served on No. 34 Plaza Sta. Cruz
premises in question to kaw Eng Si (Exhibit D), who in turn (the property in question) and the occupants of No. 34
transferred it to plaintiff Juan Golangco (Exhibit E). Lianco Plaza Sta. Cruz made return to the said garnishment."
and the actual occupant of the premises acknowledged
plaintiff’s right to collect rentals thereon in a compromise
agreement which was incorporated in a judicial judgment
(Exhibit C). Both at the time of the issuance of the policy Por lo visto, la recurrente desea que este Tribunal
and at the time of the fire, plaintiff Golangco was in legal enmiende las conclusiones de hecho del Tribunal de
possession of the premises, collecting rentals from its Apelacion sobre los Exhibits 10- H y 10-I, cosa que no
occupant (tr., Nov. 7, 1950, pp. 8, 10). It seems plain that if podemos hacer. No revisamos las pruebas. De si ha errado
the premises were destroyed — as they were — by fire, o no el Tribunal de Apelacion en dichas conclusiones, no
Golangco would be, as he was, directly damnified thereby; esta en nosotros el enderezarlas. No debemos
and hence he had an insurable interest therein (section 12, inmiscuirnos en las funciones que, por disposicion de la
Insurance Law). ley, corresponden a dicho tribunal.

"Defendant’s contrary contentions are without merit. The La ley citada por la recurrente dice asi:
contract between Lianco and the Archbishop only forbade
Lianco from transferring ’his rights as LESSEE’ (Exhibit. 4-
D); but the contracts Lianco made in favor of Kaw Eng Si

26
 "Every decision of the Court of Appeals shall contain
complete findings of fact on all issues properly raised
before it."

Pero en español dice asi:jgc:chanrobles.com.ph

"Toda decision del Tribunal de Apelaciones contendra una

relacion completa de los hechos de todas las cuestiones
que se susciten ante el mismo."

La traduccion al castellano no es exacta. Si nos

atuviesemos a la traduccion al español, la decision del
Tribunal de Apelacion no deberia contener mas que una
"relacion completa de los hechos de todas las cuestiones"
que se hubieren suscitado en el mismo. Faltaria algo, a
saber: las conclusiones de hecho del tribunal. La "relacion
completa de los hechos" no es equivalente a "la relacion
completa de las conclusiones de hecho." La relacion de
hechos "statement of facts" viene a ser la narracion de los
hechos del asunto para que se sepa en que consiste. La
ley en ingles habla de complete findings of fact o
conclusiones completas de hecho. Las conclusiones de
hecho (findings of fact) son las que el tribunal adopta
despues de estudiar, discutir y considerar las pruebas
contradictorias presentadas en juicio. Como la Ley No. 296
se discutio y se aprobo en ingles, tenemos que adoptar el
texto ingles y no la deficiente traduccion al castellano.

El articulo 33 de dicha ley, al hablar de cuestiones que se

susciten debidamente ante el Tribunal de Apelacion, no
quiere decir que este tiene que resolver todas las
cuestiones que se susciten en cualquier estado de la causa
o en el curso de los argumentos. No es ese el lugar
apropiado: hay que suscitarlo en la relacion de errores.
Notese que emplea las palabras "properly raised" y no
raised solamente. No basta suscitar la cuestion: es
necesario suscitarla en el lugar y tiempo oportunos. Es una
bien establecida practica forense la de que no se
considerara ninguna cuestion que no se haya suscitado
debidamente en la relacion de errores, a menos que se
trate de falta de jurisdiccion, que se puede suscitar en
cualquier estado del asunto. (Enriquez y otros contra
Enriquez y otra, 8 Jur. Fil., 574; Capellania de Tambobong
contra Antonio, 8 Jur. Fil., 693; Paterno contra Ciudad de
Manila, 17 Jur. Fil., 26; Santiago contra Felix, 24 Jur. Fil.,
391; Tan Me Nio contra Administrador de Aduanas, 34 Jur.
Fil., 992; Granados y Granados contra Bandelaria, 45 Jur.
Fil., 530; Gemora contra Concejo Municipal de Ilog, 58 Jur.
Fil., 377; Sanchez contra Director de Terrenos, 63 Jur. Fil., 8. FROILAN LOPEZ,  vs. SALVADOR V. DEL ROSARIO
403; Tan Si Kiok, Et. Al. v. Macario Tiacho, 45 Off. Gaz., and BENITA QUIOGUE DE V. DEL ROSARIO, 
2466, 79 Phil., 696; y Villareal v. The People of the
Philippines, 47 Off. Gaz., 191, 84 Phil., 264.)
G.R. No. L-19189             November 27, 1922
"Where an appeal is taken to this court from any court, the
appellant shall file with the clerk of the court below, with his MALCOLM, J.:
petition for appeal, an assignment of errors, which shall set
out separately and particularly each error asserted. No STATEMENT OF THE FACTS
appeal shall be allowed unless such an assignment of
errors shall accompany the petition." (Rule 9, Revised
Rules of the Supreme Court of the United States, 11 U. S. On and prior to June 6, 1920, Benita Quiogue de V. del Rosario,
Supreme Court Report Digest.) whom we will hereafter call Mrs. Del Rosario, was the owner of a
bonded warehouse situated in the City of Manila. She was engaged
in the business of a warehouse keeper, and stored copra and other
"The Supreme Court of the United States will not consider a merchandise in the said building. Among the persons who had copra
question not raised below, not discussed by the lower deposited in the Del Rosario warehouse was Froilan Lopez, the
court, and not included in the assignment of errors." (Pacific holder of fourteen warehouse receipts in his own name, and the
States Box & Basket Co. v. S. T. White, Et Al., 80 L ed., name of Elias T. Zamora. (Exhibits C, D, and R.)
138.)

The warehouse receipts, or negotiable warrants, or quedans (as

Podriamos enumerar una larga lista de decisiones de los they are variously termed) of Lopez named a declared value of
Tribunales Supremos de los estados de la Union P107,990.40 (Exhibits L-1 to L-13). The warehouse receipts
Americana que tienen reglamento similar al nuestro; pero provided: (1) For insurance at the rate of 1 per cent per month on
los casos citados bastan. the declared value; (2) the company reserves to itself the right to
raise and/or lower the rates of storage and/or of insurance on giving
"Error no apuntado en la relacion de errores en una causa one calendar month's notice in writing; (3) this warrant carries no
civil se considera error consentido por la parte interesada." insurance unless so noted on the face hereof, cost of which is in
(Vitug v. Montemayor, 49 Off. Gaz., 5350.) addition to storage; (4) the time for which storage and/or insurance
is charged is thirty (30) days; (5) payment for storage and/or
Declaramos que una cuestion no especificada en la insurance, etc., shall be made in advance, and/or within five (5) days
relacion de errores no esta debidamente planteada, y el after presentation of bill. It is admitted that insurance was paid by
Tribunal de Apelacion no esta obligado a resolverla. Lopez to May 18, 1920, but not thereafter.

Se deniega la peticion con costas contra la recurrente. Mrs. Del Rosario secured insurance on the warehouse and its
contents with the National Insurance Co., Inc., the Commercial
Union Insurance Company, the Alliance Insurance Company, the
South British Insurance Co., Ltd., and the British Traders Insurance
Co., Ltd., in the amount of P404,800. All the policies were in the
name of Sra. Benita Quiogue de V. del Rosario, with the exception
27
of one of the National Insurance Company, Inc., for P40,000, in proportionately to the benefit of all the owners of the property
favor of the Compañia Coprera de Tayabas. (Exhibits N, O, P, R-1 insured. Even if one secured insurance covering his own goods and
to R-4.) goods stored with him, and even if the owner of the stored goods did
not request or know of the insurance, and did not ratify it before the
The warehouse of Mrs. Del Rosario and its contents were destroyed payment of the loss, yet it has been held by a reputable court that
by fire on June 6, 1920. The warehouse was a total loss, while of the the warehouseman is liable to the owner of such stored goods for
copra stored therein, only an amount equal to P49,985 was his share. (Snow vs. Carr [1878], 61 Ala., 363; 32 Am. Rep., 3;
salvaged. Broussard vs. South Texas Rice Co., [1910], 103 Tex., 535; Ann.
Cas., 1913-A, 142, and note; Home Insurance Co. of New
York vs. Baltimore Warehouse Co. [1876], 93 U. S., 527.)
Following an unsuccessful attempt by Henry Hunter Bayne, Fire
Loss Adjuster, to effect a settlement between the insurance
companies and Mrs. Del Rosario, the latter, on August 24, 1920, Moreover, it has not escaped our notice that in two documents, one
authorized Attorney F. C. Fisher to negotiate with the various the agreement for arbitration, and the other the statement of claim of
insurance companies. (Exhibit A.) As a result, an agreement Mrs. Del Rosario, against the insurance companies, she
between Mrs. Del Rosario and the insurance companies to submit acknowledged her responsibility to the owners of the stored
the matter to administration was executed in September, 1920. merchandise, against risk of loss by fire. (Exhibits B and C-3.) The
(Exhibit B.) Mrs. Del Rosario laid claim before the arbitrators, award of the arbitrators covered not alone Mrs. Del Rosario's
Messrs. Muir and Campbell, to P419,683.95, and the proceeds of warehouse but the products stored in the warehouse by Lopez and
the salvage sale. The arbitrators in their report allowed Mrs. Del others.
Rosario P363,610, which, with the addition of the money received
from the salvaged copra amounting to P49,985, and interest, made Plaintiff's rights to the insurance money have not been forfeited by
a total of P414,258, collected by her from the companies. (Exhibits failure to pay the insurance provided for in the warehouse receipts.
E, F, G, H, and Q.) A preponderance of the proof does not demonstrate that the plaintiff
ever ordered the cancellation of his insurance with the defendant.
Mrs. Del Rosario seems to have satisfied all of the persons who had Nor is it shown that the plaintiff ever refused to pay the insurance
copra stored in her warehouse, including the stockholders in the when the bills were presented to him, and that notice of an intention
Compañia Coprera de Tayabas (whose stock she took over), with to cancel the insurance was ever given the plaintiff.
the exception of Froilan Lopez, the plaintiff. Ineffectual attempts by
Mrs. Del Rosario to effect a compromise with Lopez first for The record of the proceedings before the board of arbitrators, and its
P71,994, later raised to P72,724, and finally reduced to P17,000, report and findings, were properly taken into consideration by the
were made. (Exhibits Y, 1, 3, 4, 6, 7, 8, 12.) But Lopez stubbornly trial court as a basis for the determination of the amount due from
contended, or, at least, his attorney contended for him, that he the defendant to the plaintiff. In a case of contributing policies,
should receive not a centavo less than P88,595.43. (Exhibits 4, 5.) adjustments of loss made by an expert or by a board of arbitrators
may be submitted to the court not as evidence of the facts stated
PLAINTIFF'S APPEAL therein, or as obligatory, but for the purpose of assisting the court in
calculating the amount of liability. (Home Insurance
Co. vs. Baltimore Warehouse Co.,  supra.)
Plaintiff, by means of his assignment of error, lays claim to
P88,595.43 in lieu of P88,495.21 allowed by the trial court. The
slight difference of P100.22 is asked for so that plaintiff can Counsel for the defendant have dwelt at length on the phraseology
participate in the interest money which accrued on the amount of the policies of the National Insurance Company, Inc. Special
received for the salvaged copra. (Exhibits EE and FF.) Defendant emphasis has been laid upon one policy (Exhibit 9) in the name of
makes no specific denial of this claim. We think the additional sum the Compañia Coprera de Tayabas. In this connection it may be said
should accrue to the plaintiff. that three members of the court, including the writer of this opinion,
have been favorable impressed by this argument, and would have
preferred at least to eliminate the policy for which premiums were
Plaintiff's second and third assignment of error present the point that paid, not by Mrs. Del Rosario on behalf of Lopez and others, but by
the defendant has fraudulently — and even criminally — refrained Compañia Coprera de Tayabas. A majority of the court, however,
from paying the plaintiff, and that the plaintiff should recover interest believe that all the assets should be marshalled and that the plaintiff
at the rate of 12 per cent per annum. We fail to grasp plaintiff's point should receive the benefit accruing from the gross amount realized
of view. The defendant has not sought to elude her moral and legal from all the policies. Consequently, no deduction for this claim can
obligations. The controversy is merely one which unfortunately all be made.
too often arises between litigious persons. Plaintiff has exactly the
rights of any litigant, equally situated, and no more.
The remaining contention of the defendant that the plaintiff cannot
claim the benefits of the agency without sharing in the expenses, is
It has been the constant practice of the court to make article 1108 of well taken. Although the plaintiff did not expressly authorize the
the Civil Code the basis for the calculation of interest. Damages in agreement to submit the matter to arbitration, yet on his own theory
the form of interest at the rate of 12 per cent, as claimed by the of the case, Mrs. Del Rosario was acting as his agent in securing
plaintiff, are too remote and speculative to be allowed. The insurance, while he benefits from the amicable adjustment of the
deprivation of an opportunity for making money which might have insurance claims. As no intimation is made that the expenses were
proved beneficial or might have been ruinous is of too uncertain exorbitant, we necessarily accept the statement of the same
character to be weighed in the even balances of the law. (Civil Code, appearing in Exhibits Q and 8.
art. 1108; Gonzales Quiros vs. Palanca Tan-Guinlay [1906], 5 Phil.,
675; Tin Fian vs. Tan [1909], 14 Phil., 126; Sun Life Insurance Co. of
Canada vs. Rueda Hermanos & Co. and Delgado [1918], 37 Phil., Of the insurance money, totalling P414,258, P382,558 was for copra
844; Scævola, Codigo Civil, vol. 19, p. 576; 8 R. C. L., 463; 17 C. J., and the remainder for buildings, corn, etc. The expenses for
864.) collecting the P414,258 totalled P33,600. 382,558/414,258 of 33,600
equals P31,028.85, the proportionate part of the expenses with
reference to the copra. Of the expenses amounting, as we have
DEFENDANT'S APPEAL said, to P31,028.85, plaintiff would be liable for his proportionate
share or 88,595.43/382,558.00 of P31,028.85 or P7,185.875.
Counsel for defendant have adroitly and ingeniously attempted to
avoid all liability. However, we remain unimpressed by many of The parties finally agree that the plaintiff at the time of the fire was
these arguments.lawph!l.net indebted to the defendant for storage and insurance in the sum of
P315.90.
Much time has been spent by counsel for both parties in discussing
the question, of whether the defendant acted as the agent of the JUDGMENT
plaintiff, in taking out insurance on the contents of the bodega, or
whether the defendant acted as a reinsurer of the copra. Giving a
natural expression to the terms of the warehouse receipts, the first In resume, the result is to sustain plaintiff's first assignment of error
hypothesis is the correct one. The agency can be deduced from the and to overrule his second and third assignments of error, to
warehouse receipts, the insurance policies, and the circumstances overrule defendant's assignment of error 1, 2, 3, and 4 in toto and to
surrounding the transaction. accede to defendant's assignments of error, 5, 6, and 7 in part. If our
mathematics are correct, and the amounts can be figured in several
different ways, plaintiff is entitled to P88,595.43 minus P7,185.88,
After all, however, this is not so vitally important, for it might well be his share of the expenses, minus P315.90, due for insurance and
— although we do not have to decide — that under any aspect of storage, or approximately a net amount of P81,093.65, with legal
the case, the defendant would be liable. The law is that a policy interest. This sum the defendant must disgorge.
effected by bailee and covering by its terms his own property and
property held in trust; inures, in the event of a loss, equally and
28
Wherefore, judgment is modified and the plaintiff shall have and Harding was made a defendant, as a person interested in the
recover from the defendants the sum of P81,093.65, with interest at subject of the litigation.
6 per cent per annum from May 13, 1921, until paid. Without special
finding as to costs in either instance, it is so ordered. The prayer of the complaint is that judgment be entered in favor of
the plaintiff against the two companies named for the sum of
P15,000, with interest and costs, and further that upon satisfaction of
the balance of P4,505.30 due to the plaintiff upon the mortgage
debt, and upon the cancellation of the mortgage, the plaintiff be
absolved from liability to the defendants or any of them. The peculiar
form of the latter part of the prayer is evidently due to the design of
the plaintiff to lay a foundation for Harding to recover the difference
between the plaintiff's credit and the amount for which the property
was insured. Accordingly, as was to be expected, Harding
answered, admitting the material allegations of the complaint and
claiming for himself the right to recover the difference between the
plaintiff's mortgage credit and the face value of the policies. The two
insurance companies also answered, admitting in effect their liability
to the San Miguel Brewery to the extent of its mortgage credit, but
denying liability to Harding on the ground that under the contracts of
insurance the liability of the insurance companies was limited to the
insurable interest of the plaintiff therein. Soon after the action was
begun the insurance companies effected a settlement with the San
Miguel Brewery by paying the full amount of the credit claimed by it,
with the result that the litigation as between the original plaintiff and
the two insurance companies came to an end, leaving the action to
be prosecuted to final judgement by the defendant Harding with
respect to the balance claimed to be due to him upon the policies.

Upon hearing the evidence the trial judge came to the conclusion
that Harding had no right of action whatever against the companies
and absolved them from liability without special finding as to costs.
From this decision the said Henry Harding has appealed.

The two insurance companies who are named as defendants do not

dispute their liability to the San Miguel Brewery, to the extent already
stated, and the only question here under discussion is that of the
liability of the insurance companies to Harding. It is therefore
necessary to take account of such facts only as bear upon this
aspect of the case.

In this connection it appears that on January 12, 1916, D. P. Dunn,

then the owner of the property to which the insurance relates,
mortgaged the same to the San Miguel Brewery to secure a debt of
P10,000. In the contract of mortgage Dunn agreed to keep the
property insured at his expense to the full amount of its value in
companies to be selected by the Brewery Company and authorized
the latter in case of loss to receive the proceeds of the insurance
and to retain such part as might be necessary to cover the mortgage
debt. At the same time, in order more conveniently to accomplish the
end in view, Dunn authorized and requested the Brewery Company
to effect said insurance itself. Accordingly on the same date Antonio
Brias, general manager of the Brewery, made a verbal application to
the Law Union and Rock Insurance Company for insurance to the
extent of P15,000 upon said property. In reply to a question of the
company's agent as to whether the Brewery was the owner of the
property, he stated that the company was interested only as a
mortgagee. No information was asked as to who was the owner of
the property, and no information upon this point was given.

It seems that the insurance company to whom this application was

directed did not want to carry more than one-half the risk. It therefore
issued its own policy for P7,500 and procured a policy in a like
amount to be issued by the "Filipinas" Compania de Seguros. Both
policies were issued in the name of the San Miguel Brewery as the
assured, and contained no reference to any other interest in the
property. Both policies contain the usual clause requiring
assignments to be approved and noted on the policy. The premiums
9. SAN MIGUEL BREWERY, ETC, vs. LAW UNION AND ROCK were paid by the Brewery and charged to Dunn. A year later the
INSURANCE CO., (LTD.) ET AL policies were renewed, without change, the renewal premiums being
paid by the Brewery, supposedly for the account of the owner. In the
month of March of the year 1917 Dunn sold the insured property to
G.R. No. L-14300             January 19, 1920
the defendant Henry Harding, but not assignment of the insurance,
or of the insurance policies, was at any time made to him.
STREET, J.:
We agree with the trial court that no cause of action in Henry
This action was begun on October 8, 1917, in the Court of First Harding against the insurance companies is show. He is not a party
Instance of the city of Manila by the plaintiff, the San Miguel to the contracts of insurance and cannot directly maintain an action
Brewery, for the purpose of recovering upon two policies of thereon. (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) His
insurance underwritten respectively by Law Union and Rock claim is merely of an equitable and subsidiary nature and must be
Insurance Company (Ltd.), and the "Filipinas" Compania de made effective, if at all, through the San Miguel Brewery in whose
Seguros, for the sum of P7,500 each, insuring certain property which name the contracts are written. Now the Brewery, as mortgagee of
has been destroyed by fire. The plaintiff, the San Miguel Brewery, is the insured property, undoubtedly had an insurable interest therein;
named as the party assured in the two policies referred to, but it is but it could not, in any event, recover upon these policies an amount
alleged in the complaint that said company was in reality interested in excess of its mortgage credit. In this connection it will be
in the property which was the subject of insurance in the character of remembered that Antonio Brias, upon making application for the
a mortgage creditor only, and that the owner of said property upon insurance, informed the company with which the insurance was
the date the policies were issued was one D. P. Dunn who was later placed that the Brewery was interested only as a mortgagee. It
succeeded as owner by one Henry Harding. Accordingly said
29
would, therefore, be impossible for the Brewery mortgage on the Said the court: "If the applicant correctly states his interest and
insured property. distinctly asks for an insurance thereon, and the agent of the insurer
agrees to comply with his request, and assumes to decide upon the
This conclusion is not only deducible from the principles governing form of the policy to be written for that purpose, and by mistake of
the operation and effect of insurance contracts in general but the law adopts the wrong form, a court of equity will reform the
point is clearly covered by the express provisions of sections 16 and instrument so as to make it insurance upon the interest named."
50 of the Insurance Act (Act No. 2427). In the first of the sections (See also Fink vs. Queens Insurance Co., 24 Fed., 318;
cited, it is declared that "the measure of an insurable interest in Esch vs. Home Insurance Co., 78 Iowa, 334; 16 Am. St. Rep., 443;
property is the extent to which the insured might be damnified by Woodbury Savings etc., Co., vs. Charter Oak Insurance Co., 31
loss or injury thereof" (sec. 16); while in the other it is stated that "the Conn., 517; Balen vs. Hanover Fire Insurance Co., 67 Mich., 179.)
insurance shall be applied exclusively to the proper interest of the
person in whose name it is made unless otherwise specified in the Similarly, in cases where the mortgage is by mistake described as
policy" (sec. 50). owner, the court may grant reformation and permit a recovery by the
mortgage in his character as such. (Dalton vs. Milwaukee etc.
These provisions would have been fatal to any attempt at recovery Insurance Co., 126 Iowa, 377; Spare vs. Home Mutual Insurance
even by D. P. Dunn, if the ownership of the property had continued Co., 17 Fed., 568.) In Thompson vs. Phoenix Insurance Co. (136
in him up to the time of the loss; and as regards Harding, an U.S., 287; 34 L. 3d., 408), it appeared that one Kearney made
additional insuperable obstacle is found in the fact that the application to an insurance company for insurance on certain
ownership of the property had been charged, prior to the loss, property in his hands as receiver and it was understood between
without any corresponding change having been effected in the policy him and the company's agent that, in case of loss, the proceeds of
of insurance. In section 19 of the Insurance Act we find it stated that the policy should accrue to him and his successors as receiver and
"a change of interest in any part of a thing insured unaccompanied to others whom it might concern. However, the policy, as issued,
by a corresponding change of interest in the insurance, suspends was so worded as to be payable only to him as receiver. In an action
the insurance to an equivalent extent, until the interest in the thing brought on the policy by a successor of Kearney, it was alleged that
and the interest in the insurance are vested in the same person." the making of the contract in this form was due to inadvertence,
Again in section 55 it is declared that "the mere transfer of a thing accident, and mistake upon the part of both Kearney and the
insured does not transfer the policy, but suspends it until the same company.
person becomes the owner of both the policy and the thing insured."
Said the court:
Undoubtedly these policies of insurance might have been so framed
as to have been "payable to the Sane Miguel Brewery, mortgagee, If by inadvertence, accident, or mistake the terms of the contract
as its interest may appear, remainder to whomsoever, during the were not fully set forth in the policy, the plaintiff is entitled to have it
continuance of the risk, may become the owner of the interest reformed.
insured." (Sec 54, Act No. 2427.) Such a clause would have proved
an intention to insure the entire interest in the property, not merely In another case the same court said:
the insurable interest of the San Miguel Brewery, and would have
shown exactly to whom the money, in case of loss, should be paid.
But the policies are not so written. We have before us a contract from which by mistake, material
stipulations have been omitted, whereby the true intent and meaning
of the parties are not fully or accurately expressed. There was a
It is easy to collect from the facts stated in the decision of the trial definite concluded agreement as to insurance, which, in point of
judge, no less than from the testimony of Brias, the manager of the time, preceded the preparation and delivery of the policy, and this is
San Miguel Brewery, that, as the insurance was written up, the demonstrated by legal and exact evidence, which removes all doubt
obligation of the insurance companies was different from that as to the sense and undertaking of the parties. In the agreement
contemplated by Dunn, at whose request the insurance was written, there has been a mutual mistake, caused chiefly by that contracting
and Brias. In the contract of mortgage Dunn had agreed, at his own party who now seeks to limit the insurance to an interest in the
expense, to insure the mortgaged property for its full value and to property less than that agreed to be insured. The written agreement
indorse the policies in such manner as to authorize the Brewery did not effect that which the parties intended. That a court of equity
Company to receive the proceeds in case of loss and to retain such can afford relief in such a case, is, we think, well settled by the
part thereof as might be necessary to satisfy the remainder then due authorities. (Smell vs. Atlantic, etc., Ins. Co., 98 U.S., 85, 89; 25 L.
upon the mortgage debt. Instead, however, of effecting the ed., 52.)
insurance himself Dunn authorized and requested the Brewery
Company to procure insurance on the property in the amount of
P15,000 at Dunn's expense. The Brewery Company undertook to But to justify the reformation of a contract, the proof must be of the
carry this mandate into effect, and it of course became its duty to most satisfactory character, and it must clearly appear that the
procure insurance of the character contemplated, that is, to have the contract failed to express the real agreement between the parties.
policies so written as to protect not only the insurable interest of the (Philippine Sugar Estates Development Company vs. Government of
Brewery, but also the owner. Brias seems to have supposed that the the Philippine Islands, 62 L. ed., 1177, reversing Government of
policies as written had this effect, but in this he was mistaken. It was Philippine Island vs. Philippine Sugar Estates Development Co., 30
certainly a hardship on the owner to be required to pay the Phil. Rep., 27.)
premiums upon P15,000 of insurance when he was receiving no
benefit whatever except in protection to the extent of his In the case now before us the proof is entirely insufficient to
indebtedness to the Brewery. The blame for the situation thus authorize the application of the doctrine state in the foregoing cases,
created rests, however, with the Brewery rather than with the for it is by means clear from the testimony of Brias — and none
insurance companies, and there is nothing in the record to indicate other was offered — that the parties intended for the policy to cover
that the insurance companies were requested to write insurance the risk of the owner in addition to that of the mortgagee. It results
upon the insurable interest of the owner or intended to make that the defendant Harding is not entitled to relief in any aspect of
themselves liable to that extent. the case.

If during the negotiations which resulted in the writing of this The judgment is therefore affirmed, with costs against the appellant.
insurance, it had been agreed between the contracting parties that So ordered.
the insurance should be so written as to protect not only the interest
of the mortgagee but also the residuary interest of the owner, and
the policies had been, by inadvertence, ignorance, or mistake written
in the form in which they were issued, a court would have the power
to reform the contracts and give effect to them in the sense in which
the parties intended to be bound. But in order to justify this, it must
be made clearly to appear that the minds of the contracting parties
did actually meet in agreement and that they labored under some
mutual error or mistake in respect to the expression of their purpose.
Thus, in Bailey vs. American Central Insurance Co. (13 Fed., 250), it
appeared that a mortgage desiring to insure his own insurable
interest only, correctly stated his interest, and asked that the same
be insured. The insurance company agreed to accept the risk, but
the policy was issued in the name of the owner, because of the
mistaken belief of the company's agent that the law required it to be
so drawn. It was held that a court of equity had the power, at the suit
of the mortgage, to reform the instrument and give judgment in his
favor for the loss thereunder, although it had been exactly as it was.
30
9. Spouses NILO CHA and STELLA UY CHA, and UNITED IV
INSURANCE CO., INC vs. COURT OF APPEALS and CKS
DEVELOPMENT CORPORATION THE HONORABLE COURT OF APPEALS ERRED IN AWARDING
PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A
G.R. No. 124520 August 18, 1997 STIPULATION WHICH IS VOID FOR BEING WITHOUT
CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON
PADILLA, J.: THE WILL OF THE RESPONDENT CORPORATION.2

The undisputed facts of the case are as follows: The core issue to be resolved in this case is whether or not the
aforequoted paragraph 18 of the lease contract entered into
between CKS and the Cha spouses is valid insofar as it provides
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, that any fire insurance policy obtained by the lessee (Cha spouses)
entered into a lease contract with private respondent CKS over their merchandise inside the leased premises is deemed
Development Corporation (hereinafter CKS), as lessor, on 5 October assigned or transferred to the lessor (CKS) if said policy is obtained
1988. without the prior written consent of the latter.

2. One of the stipulations of the one (1) year lease contract states: It is, of course, basic in the law on contracts that the stipulations
contained in a contract cannot be contrary to law, morals, good
18. . .The LESSEE shall not insure against fire the chattels, customs, public order or public policy.3
merchandise, textiles, goods and effects placed at any stall or store
or space in the leased premises without first obtaining the written Sec. 18 of the Insurance Code provides:
consent and approval of the LESSOR. If the LESSEE obtain(s) the
insurance thereof without the consent of the LESSOR then the
policy is deemed assigned and transferred to the LESSOR for its Sec. 18. No contract or policy of insurance on property shall be
own benefit; . . .1 enforceable except for the benefit of some person having an
insurable interest in the property insured.
3. Notwithstanding the above stipulation in the lease contract, the
Cha spouses insured against loss by fire the merchandise inside the A non-life insurance policy such as the fire insurance policy taken by
leased premises for Five Hundred Thousand (P500,000.00) with the petitioner-spouses over their merchandise is primarily a contract of
United Insurance Co., Inc. (hereinafter United) without the written indemnity. Insurable interest in the property insured must exist at the
consent of private respondent CKS. time the insurance takes effect and at the time the loss occurs. 4 The
basis of such requirement of insurable interest in property insured is
based on sound public policy: to prevent a person from taking out an
4. On the day that the lease contract was to expire, fire broke out insurance policy on property upon which he has no insurable interest
inside the leased premises. and collecting the proceeds of said policy in case of loss of the
property. In such a case, the contract of insurance is a mere wager
5. When CKS learned of the insurance earlier procured by the Cha which is void under Section 25 of the Insurance Code, which
spouses (without its consent), it wrote the insurer (United) a demand provides:
letter asking that the proceeds of the insurance contract (between
the Cha spouses and United) be paid directly to CKS, based on its Sec. 25. Every stipulation in a policy of Insurance for the payment of
lease contract with the Cha spouses. loss, whether the person insured has or has not any interest in the
property insured, or that the policy shall be received as proof of such
6. United refused to pay CKS. Hence, the latter filed a complaint interest, and every policy executed by way of gaming or wagering, is
against the Cha spouses and United. void.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, In the present case, it cannot be denied that CKS has no insurable
rendered a decision * ordering therein defendant United to pay CKS interest in the goods and merchandise inside the leased premises
the amount of P335,063.11 and defendant Cha spouses to pay under the provisions of Section 17 of the Insurance Code which
P50,000.00 as exemplary damages, P20,000.00 as attorney's fees provide:
and costs of suit.
Sec. 17. The measure of an insurable interest in property is the
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 extent to which the insured might be damnified by loss of injury
rendered a decision ** dated 11 January 1996, affirming the trial thereof.
court decision, deleting however the awards for exemplary damages
and attorney's fees. A motion for reconsideration by United was Therefore, respondent CKS cannot, under the Insurance Code — a
denied on 29 March 1996. special law — be validly a beneficiary of the fire insurance policy
taken by the petitioner-spouses over their merchandise. This
In the present petition, the following errors are assigned by insurable interest over said merchandise remains with the insured,
petitioners to the Court of Appeals: the Cha spouses. The automatic assignment of the policy to CKS
under the provision of the lease contract previously quoted is void
I for being contrary to law and/or public policy. The proceeds of the
fire insurance policy thus rightfully belong to the spouses Nilo Cha
and Stella Uy-Cha (herein co-petitioners). The insurer (United)
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO cannot be compelled to pay the proceeds of the fire insurance policy
DECLARE THAT THE STIPULATION IN THE CONTRACT OF to a person (CKS) who has no insurable interest in the property
LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE insured.
TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY
TO LAW, MORALS AND PUBLIC POLICY
The liability of the Cha spouses to CKS for violating their lease
contract in that the Cha spouses obtained a fire insurance policy
II over their own merchandise, without the consent of CKS, is a
separate and distinct issue which we do not resolve in this case.
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO
DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV
CONTRACT OF ADHESION AND THEREFORE THE No. 39328 is SET ASIDE and a new decision is hereby entered,
QUESTIONABLE PROVISION THEREIN TRANSFERRING THE awarding the proceeds of the fire insurance policy to petitioners Nilo
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE Cha and Stella Uy-Cha.
RULED OUT IN FAVOR OF PETITIONER
SO ORDERED.
III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH
IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF
THE INSURANCE LAW

31
 Policy No. Company Risk Insures

FIC-15381 SSSAccre    

  dited Group    

  of Insurers Building P25,000

    Totals P195,000

We are showing hereunder another apportionment of the loss which

includes the Travellers Multi-Indemnity policy for reference
purposes.

Policy No. Company Risk Injures

4. When insurable interest must exist
MIRO/ Zenith    

Sections 19, 20, 21, 22, 23, 24, 25, IC F-02500 Insurance    

  Corp. Building P50,000

1. TAI TONG CHUACHE & CO vs. THE INSURANCE
COMMISSION and TRAVELLERS MULTI-INDEMNITY F-84590 Phil.    
CORPORATION
  British    
G.R. No. L-55397 February 29, 1988
  Assco. Co. I-Building 70,000

GANCAYCO, J.:       II-Building

    FFF & PE 50,000

This petition for review on certiorari seeks the reversal of the
decision of the Insurance Commission in IC Case #367 1 dismissing PVC-15181 SSS Accredited  
the complaint 2 for recovery of the alleged unpaid balance of the
proceeds of the Fire Insurance Policies issued by herein respondent   Group of    
insurance company in favor of petitioner-intervenor.
  Insurers Building 25,000
The facts of the case as found by respondent Insurance F-599 DV Insurers I-Ref 30,000
Commission are as follows:
  Multi II-Building 70,000
Complainants acquired from a certain Rolando Gonzales a parcel of
land and a building located at San Rafael Village, Davao City.     Totals P295.000
Complainants assumed the mortgage of the building in favor of
S.S.S., which building was insured with respondent S.S.S. Based on the computation of the loss, including the Travellers Multi-
Accredited Group of Insurers for P25,000.00. Indemnity, respondents, Zenith Insurance, Phil. British Assurance
and S.S.S. Accredited Group of Insurers, paid their corresponding
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong shares of the loss. Complainants were paid the following:
Chuache Inc. in the amount of P100,000.00. To secure the payment P41,546.79 by Philippine British Assurance Co., P11,877.14 by
of the loan, a mortgage was executed over the land and the building Zenith Insurance Corporation, and P5,936.57 by S.S.S. Group of
in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April Accredited Insurers (Par. 6. Amended Complaint). Demand was
25, 1975, Arsenio Chua, representative of Thai Tong Chuache & made from respondent Travellers Multi-Indemnity for its share in the
Co.  insured the latter's interest with Travellers Multi-Indemnity loss but the same was refused. Hence, complainants demanded
Corporation for P100,000.00 (P70,000.00 for the building and from the other three (3) respondents the balance of each share in
P30,000.00 for the contents thereof) (Exhibit "A-a," contents thereof) the loss based on the computation of the Adjustment Standards
(Exhibit "A-a"). Report excluding Travellers Multi-Indemnity in the amount of
P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil. British:
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy and P2,866.90, SSS Accredited) but the same was refused, hence,
No. F- 02500 (Exhibit "A"), covering the building for P50,000.00 with this action.
respondent Zenith Insurance Corporation. On July 16, 1975, another
Fire Insurance Policy No. 8459 (Exhibit "B") was procured from In their answers, Philippine British Assurance and Zenith Insurance
respondent Philippine British Assurance Company, covering the Corporation admitted the material allegations in the complaint, but
same building for P50,000.00 and the contents thereof for denied liability on the ground that the claim of the complainants had
P70,000.00. already been waived, extinguished or paid. Both companies set up
counterclaim in the total amount of P 91,546.79.
On July 31, 1975, the building and the contents were totally razed by
fire. Instead of filing an answer, SSS Accredited Group of Insurers
informed the Commission in its letter of July 22, 1977 that the herein
Adjustment Standard Corporation submitted a report as follow claim of complainants for the balance had been paid in the amount
of P 5,938.57 in full, based on the Adjustment Standards
Corporation Report of September 22, 1975.
xxx xxx xxx
Travellers Insurance, on its part, admitted the issuance of the
... Thus the apportioned share of each company is as follows: Policy No. 599 DV and alleged as its special and affirmative
defenses the following, to wit: that Fire Policy No. 599 DV, covering
the furniture and building of complainants was secured by a
Policy No.. Company Risk Insures
certain Arsenio Chua, mortgage creditor, for the purpose of
MIRO Zenith Building P50,000 protecting his mortgage credit against the complainants; that the
said policy was issued in the name of Azucena Palomo, only to
F-02500 Insurance     indicate that she owns the insured premises; that the policy contains
an endorsement in favor of Arsenio Chua as his mortgage interest
  Corp.     may appear to indicate that insured was Arsenio Chua and the
complainants; that the premium due on said fire policy was paid by
F-84590 Phil. Household 70,000 Arsenio Chua; that respondent Travellers is not liable to pay
complainants.
  British    

  Assco. Co.     On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in
intervention claiming the proceeds of the fire Insurance Policy No. F-
  Inc. FFF & F5 50,000 559 DV, issued by respondent Travellers Multi-Indemnity.
32
Travellers Insurance, in answer to the complaint in intervention, However, as adverted to earlier, respondent Insurance Commission
alleged that the Intervenor is not entitled to indemnity under its Fire absolved respondent insurance company from liability on the basis
Insurance Policy for lack of insurable interest before the loss of the of the certification issued by the then Court of First Instance of
insured premises and that the complainants, spouses Pedro and Davao, Branch II, that in a certain civil action against the Palomos,
Azucena Palomo, had already paid in full their mortgage Arsenio Lopez Chua stands as the complainant and not Tai Tong
indebtedness to the intervenor. 3 Chuache. From said evidence respondent commission inferred that
the credit extended by herein petitioner to the Palomos secured by
As adverted to above respondent Insurance Commission dismissed the insured property must have been paid. Such is a glaring error
spouses Palomos' complaint on the ground that the insurance policy which this Court cannot sanction. Respondent Commission's
subject of the complaint was taken out by Tai Tong Chuache & findings are based upon a mere inference.
Company, petitioner herein, for its own interest only as mortgagee of
the insured property and thus complainant as mortgagors of the The record of the case shows that the petitioner to support its claim
insured property have no right of action against herein respondent. It for the insurance proceeds offered as evidence the contract of
likewise dismissed petitioner's complaint in intervention in the mortgage (Exh. 1) which has not been cancelled nor released. It has
following words: been held in a long line of cases that when the creditor is in
possession of the document of credit, he need not prove non-
We move on the issue of liability of respondent Travellers Multi- payment for it is presumed. 8 The validity of the insurance policy
Indemnity to the Intervenor-mortgagee. The complainant testified taken b petitioner was not assailed by private respondent. Moreover,
that she was still indebted to Intervenor in the amount of petitioner's claim that the loan extended to the Palomos has not yet
P100,000.00. Such allegation has not however, been sufficiently been paid was corroborated by Azucena Palomo who testified that
proven by documentary evidence. The certification (Exhibit 'E-e') they are still indebted to herein petitioner. 9
issued by the Court of First Instance of Davao, Branch 11, indicate
that the complainant was Antonio Lopez Chua and not Tai Tong Public respondent argues however, that if the civil case really
Chuache & Company. 4 stemmed from the loan granted to Azucena Palomo by petitioner the
same should have been brought by Tai Tong Chuache or by its
From the above decision, only intervenor Tai Tong Chuache filed a representative in its own behalf. From the above premise
motion for reconsideration but it was likewise denied hence, the respondent concluded that the obligation secured by the insured
present petition. property must have been paid.

It is the contention of the petitioner that respondent Insurance The premise is correct but the conclusion is wrong. Citing Rule 3,
Commission decided an issue not raised in the pleadings of the Sec. 2 10 respondent pointed out that the action must be brought in
parties in that it ruled that a certain Arsenio Lopez Chua is the one the name of the real party in interest. We agree. However, it should
entitled to the insurance proceeds and not Tai Tong Chuache & be borne in mind that petitioner being a partnership may sue and be
Company. sued in its name or by its duly authorized representative. The fact
that Arsenio Lopez Chua is the representative of petitioner is not
questioned. Petitioner's declaration that Arsenio Lopez Chua acts as
This Court cannot fault petitioner for the above erroneous the managing partner of the partnership was corroborated by
interpretation of the decision appealed from considering the manner respondent insurance company. 11 
it was written. 5 As correctly pointed out by respondent insurance
commission in their comment, the decision did not pronounce that it
was Arsenio Lopez Chua who has insurable interest over the Thus Chua as the managing partner of the partnership may execute
insured property. Perusal of the decision reveals however that it all acts of administration 12 including the right to sue debtors of the
readily absolved respondent insurance company from liability on the partnership in case of their failure to pay their obligations when it
basis of the commissioner's conclusion that at the time of the became due and demandable. Or at the very least, Chua being a
occurrence of the peril insured against petitioner as mortgagee had partner of petitioner Tai Tong Chuache & Company is an agent of
no more insurable interest over the insured property. It was based the partnership. Being an agent, it is understood that he acted for
on the inference that the credit secured by the mortgaged property and in behalf of the firm.13 Public respondent's allegation that the
was already paid by the Palomos before the said property was civil case flied by Arsenio Chua was in his capacity as personal
gutted down by fire. creditor of spouses Palomo has no basis.

The foregoing conclusion was arrived at on the basis of the The respondent insurance company having issued a policy in favor
certification issued by the then Court of First Instance of Davao, of herein petitioner which policy was of legal force and effect at the
Branch II that in a certain civil action against the Palomos, Antonio time of the fire, it is bound by its terms and conditions. Upon its
Lopez Chua stands as the complainant and not petitioner Tai Tong failure to prove the allegation of lack of insurable interest on the part
Chuache & Company. of the petitioner, respondent insurance company is and must be held
liable.
We find the petition to be impressed with merit. It is a well known
postulate that the case of a party is constituted by his own IN VIEW OF THE FOREGOING, the decision appealed from is
affirmative allegations. Under Section 1, Rule 131 6 each party must hereby SET ASIDE and ANOTHER judgment is rendered order
prove his own affirmative allegations by the amount of evidence private respondent Travellers Multi-Indemnity Corporation to pay
required by law which in civil cases as in the present case is petitioner the face value of Insurance Policy No. 599-DV in the
preponderance of evidence. The party, whether plaintiff or amount of P100,000.00. Costs against said private respondent.
defendant, who asserts the affirmative of the issue has the burden of
presenting at the trial such amount of evidence as required by law to SO ORDERED.
obtain favorable judgment.7 Thus, petitioner who is claiming a right
over the insurance must prove its case. Likewise, respondent
insurance company to avoid liability under the policy by setting up an
affirmative defense of lack of insurable interest on the part of the
petitioner must prove its own affirmative allegations.

It will be recalled that respondent insurance company did not assail

the validity of the insurance policy taken out by petitioner over the
mortgaged property. Neither did it deny that the said property was
totally razed by fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an affirmative defense
of lack of insurable interest on the part of the petitioner that before
the occurrence of the peril insured against the Palomos had already
paid their credit due the petitioner. Respondent having admitted the
material allegations in the complaint, has the burden of proof to
show that petitioner has no insurable interest over the insured
property at the time the contingency took place. Upon that point,
there is a failure of proof. Respondent, it will be noted, exerted no
effort to present any evidence to substantiate its claim, while
petitioner did. For said respondent's failure, the decision must be
adverse to it.

33
 exceeding in the whole the sum of ten thousand pesos, and also not
exceeding, in any case, the amount of the insurable interest therein
of the insured at the time of the happening of such fire.

In witness whereof, the British American Assurance Company has

accused these presents to be signed this 21st day of February, in
the year of our Lord 1908.

For the company.

W. F. STEVENSON & Co. LTD.,

"By...............................................,
"Manager Agents."

And indorsed on the back the following:

The within policy and includes a "Calalac" automobile to the

extent of (P1,250) twelve hundred and fifty pesos Philippine
currency.

Memo: Permission is hereby granted for the use of gasoline

not to exceed 10 gallons for the above automobile, but only
whilst contained in the reservoir of the car. It is further
warranted that the car be neither filled nor emptied in the
within-described building or this policy be null and void.

Manila, 27th February, 1908.

"W. F. STEVENSON & Co. LTD.,

"By.......................................................,
"Manager Agents."

2. E. M. BACHRACH, vs. BRITISH AMERICAN ASSURANCE The defendant answered the complaint, admitting some of the facts
COMPANY, a corporation alleged by the plaintiff and denying others. The defendant also
alleged certain facts under which it claimed that it was released from
G.R. No. L-5715 December 20, 1910 all obligations whatever under said policy. These special facts are as
follows:
JOHNSON, J.:
First. That the plaintiff maintained a paint and varnish shop in the
said building where the goods which were insured were stored.
On the 13th of July, 1908, the plaintiff commenced an action against
the defendant to recover the sum of P9,841.50, the amount due,
deducting the salvage, upon the following fire insurance policy Second. That the plaintiff transferred his interest in and to the
issued by the defendant to the plaintiff: property covered by the policy to H. W. Peabody & Co. to secure
certain indebtedness due and owing to said company, and also that
the plaintiff had transferred his interest in certain of the goods
[Fire policy No. 3007499.]
covered by the said policy to one Macke, to secure certain
obligations assumed by the said Macke for and on behalf of the
This policy of insurance witnesseth, that E. M. Bachrach, esq., insured. That the sanction of the said defendant had not been
Manila (hereinafter called the insured), having paid to the obtained by the plaintiff, as required by the said policy.
undersigned, as authorized agent of the British American Assurance
Company (hereinafter called the company), the sum of two thousand
Third. That the plaintiff, on the 18th of April, 1908, and immediately
pesos Philippine currency, for insuring against loss or damage by
preceding the outbreak of the alleged fire, willfully placed a gasoline
fire, as hereinafter mentioned, the property hereinafter described, in
can containing 10 gallons of gasoline in the upper story of said
the sum of several sums following, viz:
building in close proximity to a portion of said goods, wares, and
merchandise, which can was so placed by the plaintiff as to permit
Ten thousand pesos Philippine currency, on goods, belonging to a the gasoline to run on the floor of said second story, and after so
general furniture store, such as iron and brass bedsteads, toilet placing said gasoline, he, the plaintiff, placed in close proximity to
tables, chairs, ice boxes, bureaus, washstands, mirrors, and sea- said escaping gasoline a lighted lamp containing alcohol, thereby
grass furniture (in accordance with warranty "D" of the tariff attached greatly increasing the risk of fire.
hereto) the property of the assured, in trust, on commission or for
which he is responsible, whilst stored in the ground floor and first
Fourth. That the plaintiff made no proof of the loss within the time
story of house and dwelling No. 16 Calle Martinez, district 3, block
required by condition five of said policy, nor did the insured file a
70, Manila, built, ground floor of stone and or brick, first story of hard
statement with he municipal or any other judge or court of the goods
wood and roofed with galvanized iron — bounded in the front by the
alleged to have been in said building at the time of the alleged fire,
said calle, on one side by Calle David and on the other two sides by
nor of the goods saved, nor the loss suffered.
buildings of similar construction and occupation.

The plaintiff, after denying nearly all of the facts set out in the special
Co-insurance allowed, particulars of which to be declared in the
answer of the defendant, alleged:
event of loss or claim. The company hereby agrees with the insured
(but subject to the conditions on the back hereof, which are to be
taken as a part of this policy) that if the property above described, or First. That he had been acquitted in a criminal action against him,
any part thereof, shall be destroyed or damaged by fire, at any time after a trial duly and regularly had, upon a charge of arson, based
between the 21st day of February, 1908, and 4 o'clock in the upon the same alleged facts set out in the answer of the defendant.
afternoon of the 21st day of February, 1909, or (in case of the
renewal of this policy) at any time afterwards, so long as, and during Second. That her had made no proof of the loss set up in his
the period in respect of which the insured shall have paid to the complaint for the reason that immediately after he had, on the 20th
company, and they shall have accepted, the sum required for the of April, 1908, given the defendant due notice in writing of said loss,
renewal of this policy, the company will, out of their capital stock, the defendant, on the 21st of April, 1908, and thereafter on other
and funds, pay or make good to the insured the value of the property occasions, had waived all right to require proof of said loss by
so destroyed, or the amount of such damage thereto, to any amount denying all liability under the policy and by declaring said policy to
not exceeding, in respect of each or any of the several matters be null and void.
above specified, the sum set opposite thereto, respectively, and not

34
After hearing the evidence adduced during the trial of the cause, the insured property was stored. If the company intended to rely upon a
lower court found that the defendant was liable to the plaintiff and condition of that character, it ought to have been plainly expressed
rendered a judgment against the defendant for the sum of in the policy.
P9,841.50, with interest for a period of one year at 6 per cent,
making a total of P10,431.99, with costs. With reference to the second above assignment of error, the
defendant and appellant contends that the lower court erred in failing
From that decision the defendant appealed and made the following to hold that the execution of the said chattel mortgage, without the
assignments of error: knowledge and consent of the insurance company and without
receiving the sanction of said company, annulled the said policy of
1. The court erred in failing to hold that the use of the building, No. insurance.
16 Calle Martinez, as a paint and varnish shop annulled the policy of
insurance. With reference to this assignment of error, upon reading the policy of
insurance issued by the defendant to the plaintiff, it will be noted that
2. The court erred in failing to hold the execution of the chattel there is no provision in said policy prohibiting the plaintiff from
mortgages without the knowledge and consent of the insurance placing a mortgage upon the property insured, but, admitting that
company annulled the policy of insurance. such a provision was intended, we think the lower court has
completely answered this contention of the defendant. He said, in
passing upon this question as it was presented:
3. The court erred in holding that the keeping of gasoline and alcohol
not in bottles in the building No. 16 Calle Martinez was not such a
violation of the conditions of the policy as to render the same null It is claimed that the execution of a chattel mortgage on the
and void. insured property violated what is known as the "alienation
clause," which is now found in most policies, and which is
expressed in the policies involved in cases 6496 and 6497
4. The court erred in failing to find as a fact that E. M. Bachrach, the by a purchase imposing forfeiture if the interest in the
insured, willfully placed a gasoline can containing about 10 gallons property pass from the insured. (Cases 6496 and 6497, in
of gasoline in the upper story of said building, No. 16 Calle Martinez, which are involved other action against other insurance
in close proximity to a portion of the goods, wares, and merchandise companies for the same loss as in the present action.)
stored therein, and that said can was so placed by said Bachrach as
to permit the gasoline to run on the floor of said second story.
This clause has been the subject of a vast number of judicial
decisions (13 Am. & Eng. Encyc. of Law, 2d ed., pp. 239 et seq.),
5. The court erred in failing to find as a fact that E. M. Bachrach, and it is held by the great weight of authority that the interest in
after placing said gasoline can in close proximity to the goods, property insured does not pass by the mere execution of a chattel
wares, and merchandise covered by the policy of insurance, the he mortgage and that while a chattel mortgage is a conditional sale,
(Bachrach) placed in close proximity to said escaping gasoline a there is no alienation within the meaning of the insurance law until
lighted lamp containing alcohol, thereby greatly increasing the risk of the mortgage acquires a right to take possession by default under
fire. the terms of the mortgage. No such right is claimed to have accrued
in the case at bar, and the alienation clause is therefore inapplicable.
6. The court erred in holding that the policy of insurance was in force
at the time of said fire, and that the acts or omissions on the part of With reference to the third assignment of error above noted, upon a
the insured which cause, or tended to cause, the forfeiture of the reading of the decision of the lower court it will be found that there is
policy, were waived by the defendant. nothing in the decision of the lower court relating to the facts stated
in this assignment of error, neither is there any provision in the policy
7. The court erred in holding the defendant liable for the loss under relating to the facts alleged in said assignment of error.
the policy.lawphil.net
Assignment of error numbers 4 and 5 above noted may be
8. The court erred in refusing to deduct from the loss sustained by considered together.
Bachrach the value of the automobile, which was saved without
damage. The record discloses that some time prior to the commencement of
this present action, a criminal action was commenced against the
9. The court erred in refusing to grant the motion for a new trial. plaintiff herein in the Court of First Instance of the city of Manila, in
which he was charged with willfully and maliciously burning the
10. The court erred in refusing to enter judgment in favor of the property covered by the policy in the present case. At the conclusion
defendant and against the plaintiff. of the criminal action and after hearing the evidence adduced during
the trial, the lower court, with the assistance of two assessors, found
that the evidence was insufficient to show beyond peradventure of
With reference to the first above assignment of error, the lower court doubt that the defendant was guilty of the crime. The evidence
in its decision said: adduced during the trial of the criminal cause was introduced as
evidence in the present cause. While the evidence shows some very
It is claimed that either gasoline or alcohol was kept in violation of peculiar and suspicious circumstances concerning the burning of the
the policy in the bodega containing the insured property. The goods covered by the said policy, yet, nevertheless, in view of the
testimony on this point is somewhat conflicting, but conceding all of findings of the lower court and in view of the apparent conflict in the
the defendant's claims, the construction given to this claim by testimony, we can not find that there is a preponderance of evidence
American courts would not justify the forfeiture of the policy on that showing that the plaintiff did actually set fire or cause fire to be set to
ground. The property insured consisted mainly of household the goods in question. The lower court, in discussing this question,
furniture kept for the purpose of sale. The preservation of the said:
furniture in a salable condition by retouching or otherwise was
incidental to the business. The evidence offered by the plaintiff is to As to the claim that the loss occurred through the voluntary act of
the effect that alcohol was used in preparing varnish for the purpose the insured, we consider it unnecessary to review the evidence in
of retouching, though he also says that the alcohol was kept in store detail. That was done by another branch of this court in disposing of
and not in the bodega where the furniture was. It is well settled that the criminal prosecution brought against the insured, on the same
the keeping of inflammable oils on the premises, though prohibited ground, based mainly on the same evidence. And regardless of
by the policy, does not void it if such keeping is incidental to the whether or not the judgment in that proceeding is res adjudicata as
business. Thus, where a furniture factory keeps benzine for the to anything here, we are at least of the opinion that the evidence to
purposes of operation (Davis vs. Pioneer Furniture Company, 78 N. establish this defense should not be materially less convincing than
W. Rep., 596; Faust vs. American Fire Insurance Company, 91 Wis., that required in order to convict the insured of the crime of arson.
158), or where it is used for the cleaning machinery (Mears vs. (Turtell vs. Beamount, 25 Rev. Rep., 644.) In order to find that the
Humboldt Insurance Company, 92 Pa. St., 15; 37 Am. Rep., 647), defense of incendiarism was established here, we would be obliged,
the insurer can not on that ground avoid payment of loss, though the therefore, in effect to set aside the findings of the judge and
keeping of the benzine on the premises is expressly prohibited. assessors in the criminal cause, and this we would be loath to do
These authorities also appear sufficient to answer the objection that even though the evidence now produced were much stronger than it
the insured automobile contained gasoline and that the plaintiff on is.
one occasion was seen in the bodega with a lighted lamp. The first
was incidental to the use of the insured article and the second being
a single instance falls within the doctrine of the case last cited. With reference to the sixth assignment of error above noted, to
wit:itc@alf That the court erred in holding that the policy of insurance
was in force at the time of said fire and that the acts or omissions on
It may be added that there was no provision in the policy prohibiting the part of the insured which caused or tended to cause a forfeiture
the keeping of paints and varnishes upon the premises where the
35
of the policy were waived by the defendant, the lower court, in
discussing this question, said:

Regardless of the question whether the plaintiff's letter of April 20

(Exhibit B) was a sufficient compliance with the requirement that he
furnish notice of loss, the fact remains that on the following day the
insurers replied by a letter (Exhibit C) declaring that the "policies
were null and void," and in effect denying liability. It is well settled by
a preponderance of authorities that such a denial is a waiver of
notice of loss, because if the "policies are null and void," the
furnishing of such notice would be vain and useless. (13 Am. & Eng.
Encyc. of Law, 347, 348, 349.) Besides, "immediate notice" is
construed to mean only within a reasonable time.

Much the same may be said as to the objection that the insured
failed to furnish to the insurers his books and papers or to present a
detailed statement to the "juez municipal," in accordance with article
404 of the Code of Commerce. The last-named provision is similar
to one appearing in many American policies requiring a certificate
from a magistrate nearest the loss regarding the circumstance
thereof. A denial of liability on other grounds waives this requirement
(O'Niel vs. Buffalo Fire Insurance Company, 3 N. Y., 122; Peoria
Marine Ins. Co. vs. Whitehill, 25 Ill., 382), as well as that relating to
the production of books and papers (Ga. Home Ins. Co. vs. Goode &
Co., 95 Va., 751; 66 Jur. Civ., 16). Besides, the insured might have
had difficulty in attempting to comply with this clause, for there is no
longer an official here with the title of "juez municipal."

Besides the foregoing reasons, it may be added that there was no

requirement in the policy in question that such notice be given. With
reference to the assignments of error numbers 7, 9, and 10, they are
too general in their character to merit consideration. With reference
to the eight assignment of error above noted, the defendant and
appellant contends that he was entitled to have the amount of his
responsibility reduced by the full value (P1,250) of the said
automobile.

It does not positively appear of record that the automobile in

question was not included in the other policies. It does appear that
the automobile was saved and was considered as a part of the
salvaged. It is alleged that the salvage amounted to P4,000,
including the automobile. This amount (P4,000) was distributed
among the different insurers and the amount of their responsibility
was proportionately reduced. The defendant and appellant in the
present case made no objection at any time in the lower court to that
distribution of the salvage. The claim is now made for the first time.
No reason is given why the objection was not made at the time of
the distribution of the salvage, including the automobile, among all of
the insurers. The lower court had no opportunity to pass upon the
question now presented for the first time. The defendant stood by
and allowed the other insurers to share in the salvage, which he
claims now wholly belonged to him. We think it is now too late to
raise the question.

For all the foregoing reasons, we are of the opinion that the
judgment of the lower court should be affirmed.

36