However, on December 11, 1989, the cargo was sold in Durban, South
MALAYAN INSURANCE CORPORATION, petitioner, vs. THE HON. COURT OF
APPEALS and TKC MARKETING CORPORATION, respondents.
DECISION
ROMERO, J.:
Assailed in this petition for review on certiorari is the decision of the
Court of Appeals in CA-G.R. No. 43023[1] which affirmed, with slight
modification, the decision of the Regional Trial Court of Cebu, Branch 15.
Private respondent TKC Marketing Corp. was the owner/consignee of
some 3,189.171 metric tons of soya bean meal which was loaded on board
the ship MV Al Kaziemah on or about September 8, 1989 for carriage from
the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was
insured against the risk of loss by petitioner Malayan Insurance Corporation
for which it issued two (2) Marine Cargo Policy Nos. M/LP 97800305
amounting to P18,986,902.45 and M/LP 97800306 amounting
to P1,195,005.45, both dated September 1989.
While the vessel was docked in Durban, South Africa on September 11,
1989 enroute to Manila, the civil authorities arrested and detained it
because of a lawsuit on a question of ownership and possession. As a
result, private respondent notified petitioner on October 4, 1989 of the
arrest of the vessel and made a formal claim for the amount of
US$916,886.66, representing the dollar equivalent on the policies, for non-
delivery of the cargo. Private respondent likewise sought the assistance of
petitioner on what to do with the cargo.
Petitioner replied that the arrest of the vessel by civil authority was
not a peril covered by the policies. Private respondent, accordingly, advised
petitioner that it might tranship the cargo and requested an extension of
the insurance coverage until actual transhipment, which extension was
approved upon payment of additional premium. The insurance coverage
was extended under the same terms and conditions embodied in the
original policies while in the process of making arrangements for the
transhipment of the cargo from Durban to Manila, covering the period
October 4-December 19, 1989.
Africa, for US$154.40 per metric ton or a total of P10,304,231.75 due to its
perishable nature which could no longer stand a voyage of twenty days to
Manila and another twenty days for the discharge thereof. On January 5,
1990, private respondent forthwith reduced its claim to US$448,806.09 (or
its peso equivalent of P9,879,928.89 at the exchange rate of P22.0138 per
$1.00) representing private respondent's loss after the proceeds of the sale
were deducted from the original claim of $916,886.66 or P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by civil
authorities on a question of ownership was an excepted risk under the
marine insurance policies. This prompted private respondent to file a
complaint for damages praying that aside from its claim, it be reimbursed
the amount of P128,770.88 as legal expenses and the interest it paid for the
loan it obtained to finance the shipment totalling P942,269.30. In addition,
private respondent asked for moral damages amounting to P200,000.00,
exemplary damages amounting to P200,000.00 and attorney's fees
equivalent to 30% of what will be awarded by the court.
The lower court decided in favor of private respondent and required
petitioner to pay, aside from the insurance claim, consequential and
liquidated damages amounting to P1,024,233.88, exemplary damages
amounting to P100,000.00, reimbursement in the amount equivalent to
10% of whatever is recovered as attorney's fees as well as the costs of the
suit. On private respondent's motion for reconsideration, petitioner was
also required to further pay interest at the rate of 12% per annum on all
amounts due and owing to the private respondent by virtue of the lower
court decision counted from the inception of this case until the same is
paid.
On appeal, the Court of Appeals affirmed the decision of the lower
court stating that with the deletion of Clause 12 of the policies issued to
private respondent, the same became automatically covered under
subsection 1.1 of Section 1 of the Institute War Clauses. The arrests,
restraints or detainments contemplated in the former clause were those
effected by political or executive acts. Losses occasioned by riot or ordinary
judicial processes were not covered therein. In other words, arrest,
restraint or detainment within the meaning of Clause 12 (or F.C. & S.
Clause) rules out detention by ordinary legal processes. Hence, arrests by
civil authorities, such as what happened in the instant case, is an excepted
risk under Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause.
However, with the deletion of Clause 12 of the Institute Cargo Clause and
the consequent adoption or institution of the Institute War Clauses (Cargo),
the arrest and seizure by judicial processes which were excluded under the
former policy became one of the covered risks.
The appellate court added that the failure to deliver the consigned
goods in the port of destination is a loss compensable, not only under the
Institute War Clause but also under the Theft, Pilferage, and Non-delivery
Clause (TNPD) of the insurance policies, as read in relation to Section 130 of
the Insurance Code and as held in Williams v. Cole.[2]
Furthermore, the appellate court contended that since the vessel was
prevented at an intermediate port from completing the voyage due to its
seizure by civil authorities, a peril insured against, the liability of petitioner
continued until the goods could have been transhipped. But due to the
perishable nature of the goods, it had to be promptly sold to minimize loss.
Accordingly, the sale of the goods being reasonable and justified, it should
not operate to discharge petitioner from its contractual liability.
Hence this petition, claiming that the Court of Appeals erred:
1. In ruling that the arrest of the vessel was a risk covered under the subject
insurance policies.
2. In ruling that there was constructive total loss over the cargo.
3. In ruling that petitioner was in bad faith in declining private respondent's
claim.
4. In giving undue reliance to the doctrine that insurance policies are strictly
construed against the insurer.
In assigning the first error, petitioner submits the following: (a) an
arrest by civil authority is not compensable since the term "arrest" refers to
"political or executive acts" and does not include a loss caused by riot or by
ordinary judicial process as in this case; (b) the deletion of the Free from
Capture or Seizure Clause would leave the assured covered solely for the
perils specified by the wording of the policy itself; (c) the rationale for the
exclusion of an arrest pursuant to judicial authorities is to eliminate
collusion between unscrupulous assured and civil authorities.
As to the second assigned error, petitioner submits that any loss which
private respondent may have incurred was in the nature and form of
unrecovered acquisition value brought about by a voluntary sacrifice sale
and not by arrest, detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the
claim was a result of its honest belief that the arrest of the vessel was not a
compensable risk under the policies issued. In fact, petitioner supported
private respondent by accommodating the latter's request for an extension
of the insurance coverage, notwithstanding that it was then under no legal
obligation to do so.
Private respondent, on the other hand, argued that when it appealed
its case to the Court of Appeals, petitioner did not raise as an issue the
award of exemplary damages. It cannot now, for the first time, raise the
same before this Court. Likewise, petitioner cannot submit for the first time
on appeal its argument that it was wrong for the Court of Appeals to have
ruled the way it did based on facts that would need inquiry into the
evidence. Even if inquiry into the facts were possible, such was not
necessary because the coverage as ruled upon by the Court of Appeals is
evident from the very terms of the policies.
It also argued that petitioner, being the sole author of the policies,
"arrests" should be strictly interpreted against it because the rule is that
any ambiguity is to be taken contra proferentum. Risk policies should be
construed reasonably and in a manner as to make effective the intentions
and expectations of the parties. It added that the policies clearly stipulate
that they cover the risks of non-delivery of an entire package and that it
was petitioner itself that invited and granted the extensions and collected
premiums thereon.
The resolution of this controversy hinges on the interpretation of the
"Perils" clause of the subject policies in relation to the excluded risks or
warranty specifically stated therein.
By way of a historical background, marine insurance developed as an
all-risk coverage, using the phrase "perils of the sea" to encompass the
wide and varied range of risks that were covered.[3] The subject policies
contain the "Perils" clause which is a standard form in any marine insurance
policy. Said clause reads:
"Touching the adventures which the said MALAYAN INSURANCE CO., are
content to bear, and to take upon them in this voyage; they are of the Seas;
Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons, Letters of
Mart and Counter Mart, Suprisals, Takings of the Sea, Arrests, Restraints
and Detainments of all Kings, Princess and Peoples, of what Nation,
condition, or quality soever, Barratry of the Master and Mariners, and of all
other Perils, Losses, and Misfortunes, that have come to hurt, detriment, or
damage of the said goods and merchandise or any part thereof . AND in
case of any loss or misfortune it shall be lawful to the ASSURED, their
factors, servants and assigns, to sue, labour, and travel for, in and about the
defence, safeguards, and recovery of the said goods and merchandises, and
ship, & c., or any part thereof, without prejudice to this INSURANCE; to the
charges whereof the said COMPANY, will contribute according to the rate
and quantity of the sum herein INSURED. AND it is expressly declared and
agreed that no acts of the Insurer or Insured in recovering, saving, or
preserving the Property insured shall be considered as a Waiver, or
Acceptance of Abandonment. And it is agreed by the said COMPANY, that
this writing or Policy of INSURANCE shall be of as much Force and Effect as
the surest Writing or Policy of INSURANCE made in LONDON. And so the
said MALAYAN INSURANCE COMPANY, INC., are contented, and do hereby
promise and bind themselves, their Heirs, Executors, Goods and Chattel, to
the ASSURED, his or their Executors, Administrators, or Assigns, for the true
Performance of the Premises; confessing themselves paid the
Consideration due unto them for this INSURANCE at and after the rate
arranged." (Underscoring supplied)
The exception or limitation to the "Perils" clause and the "All other
perils" clause in the subject policies is specifically referred to as Clause 12
called the "Free from Capture & Seizure Clause" or the F.C. & S. Clause
which reads, thus:
"Warranted free of capture, seizure, arrest, restraint or detainment, and
the consequences thereof or of any attempt thereat; also from the
consequences of hostilities and warlike operations, whether there be a
declaration of war or not; but this warranty shall not exclude collision,
contact with any fixed or floating object (other than a mine or torpedo),
stranding, heavy weather or fire unless caused directly (and independently
of the nature of the voyage or service which the vessel concerned or, in the
case of a collision, any other vessel involved therein is performing) by a
hostile act by or against a belligerent power and for the purpose of this
warranty 'power' includes any authorities maintaining naval, military or air
forces in association with power.
Further warranted free from the consequences of civil war, revolution,
insurrection, or civil strike arising therefrom or piracy.
Should Clause 12 be deleted, the relevant current institute war clauses shall
be deemed to form part of this insurance." (Underscoring supplied)
However, the F. C. & S. Clause was deleted from the policies.
Consequently, the Institute War Clauses (Cargo) was deemed incorporated
which, in subsection 1.1 of Section 1, provides:
"1. This insurance covers:
1.1 The risks excluded from the standard form of English Marine Policy by
the clause warranted free of capture, seizure, arrest, restraint or
detainment, and the consequences thereof of hostilities or warlike
operations, whether there be a declaration of war or not; but this warranty
shall not exclude collision, contact with any fixed or floating object (other
than a mine or torpedo), stranding, heavy weather or fire unless caused
directly (and independently of the nature on voyage or service which the
vessel concerned or, in the case of a collision any other vessel involved
therein is performing) by a hostile act by or against a belligerent power; and
for the purpose of this warranty 'power' includes any authority maintaining
naval, military or air forces in association with a power. Further warranted
free from the consequences of civil war, revolution, rebellion, insurrection,
or civil strike arising therefrom, or piracy."
According to petitioner, the automatic incorporation of subsection 1.1
of section 1 of the Institute War Clauses (Cargo), among others, means that
any "capture, arrest, detention, etc." pertained exclusively to warlike
operations if this Court strictly construes the heading of the said Clauses.
However, it also claims that the parties intended to include arrests, etc.
even if it were not the result of hostilities or warlike operations. It further
claims that on the strength of jurisprudence on the matter, the term
"arrests" would only cover those arising from political or executive acts,
concluding that whether private respondent's claim is anchored on
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) or the F.C.
& S. Clause, the arrest of the vessel by judicial authorities is an excluded
risk.[4]
This Court cannot agree with petitioner's assertions, particularly when
it alleges that in the "Perils" Clause, it assumed the risk of arrest caused
solely by executive or political acts of the government of the seizing state
and thereby excludes "arrests" caused by ordinary legal processes, such as
in the instant case.
With the incorporation of subsection 1.1 of Section 1 of the Institute
War Clauses, however, this Court agrees with the Court of Appeals and the
private respondent that "arrest" caused by ordinary judicial process is
deemed included among the covered risks. This interpretation becomes
inevitable when subsection 1.1 of Section 1 of the Institute War Clauses
provided that "this insurance covers the risks excluded from the Standard
Form of English Marine Policy by the clause 'Warranted free of capture,
seizure, arrest, etc. x x x'" or the F.C. & S. Clause. Jurisprudentially, "arrests"
caused by ordinary judicial process is also a risk excluded from the Standard
Form of English Marine Policy by the F.C. & S. Clause.
Petitioner cannot adopt the argument that the "arrest" caused by
ordinary judicial process is not included in the covered risk simply because
the F.C. & S. Clause under the Institute War Clauses can only be operative in
case of hostilities or warlike operations on account of its heading "Institute
War Clauses." This Court agrees with the Court of Appeals when it held that
". . . Although the F.C. & S. Clause may have originally been inserted in
marine policies to protect against risks of war, (see generally G. Gilmore &
C. Black, The Law of Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its
interpretation in recent years to include seizure or detention by civil
authorities seems consistent with the general purposes of the clause, x x
x"[5] In fact, petitioner itself averred that subsection 1.1 of Section 1 of the
Institute War Clauses included "arrest" even if it were not a result of
hostilities or warlike operations.[6] In this regard, since what was also
excluded in the deleted F.C. & S. Clause was "arrest" occasioned by
ordinary judicial process, logically, such "arrest" would now become a
covered risk under subsection 1.1 of Section 1 of the Institute War Clauses,
regardless of whether or not said "arrest" by civil authorities occurred in a
state of war.
Petitioner itself seems to be confused about the application of the F.C.
& S. Clause as well as that of subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo). It stated that "the F.C. & S. Clause was "originally
incorporated in insurance policies to eliminate the risks of warlike
operations". It also averred that the F.C. & S. Clause applies even if there be
no war or warlike operations x x x"[7] In the same vein, it contended that
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo)
"pertained exclusively to warlike operations" and yet it also stated that "the
deletion of the F.C. & S. Clause and the consequent incorporation of
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) was to
include "arrest, etc. even if it were not a result of hostilities or warlike
operations."[8]
This Court cannot help the impression that petitioner is overly
straining its interpretation of the provisions of the policy in order to avoid
being liable for private respondent's claim.
This Court finds it pointless for petitioner to maintain its position that
it only insures risks of "arrest" occasioned by executive or political acts of
government which is interpreted as not referring to those caused by
ordinary legal processes as contained in the "Perils" Clause; deletes the F.C.
& S. Clause which excludes risks of arrest occasioned by executive or
political acts of the government and naturally, also those caused by
ordinary legal processes; and, thereafter incorporates subsection 1.1 of
Section 1 of the Institute War Clauses which now includes in the coverage
risks of arrest due to executive or political acts of a government but then
still excludes "arrests" occasioned by ordinary legal processes when
subsection 1.1 of Section 1 of said Clauses should also have included
"arrests" previously excluded from the coverage of the F.C. & S. Clause.
It has been held that a strained interpretation which is unnatural and
forced, as to lead to an absurd conclusion or to render the policy
nonsensical, should, by all means, be avoided.[9]Likewise, it must be borne
in mind that such contracts are invariably prepared by the companies and In view of the foregoing, this Court sees no need to discuss the other
must be accepted by the insured in the form in which they are issues presented.
written.[10] Any construction of a marine policy rendering it void should be
WHEREFORE, the petition for review is DENIED and the decision of the
avoided.[11] Such policies will, therefore, be construed strictly against the
Court of Appeals is AFFIRMED.
company in order to avoid a forfeiture, unless no other result is possible
from the language used.[12] SO ORDERED.
If a marine insurance company desires to limit or restrict the operation
of the general provisions of its contract by special proviso, exception, or
exemption, it should express such limitation in clear and unmistakable
language.[13] Obviously, the deletion of the F.C. & S. Clause and the
consequent incorporation of subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo) gave rise to ambiguity. If the risk of arrest occasioned
by ordinary judicial process was expressly indicated as an exception in the
subject policies, there would have been no controversy with respect to the
interpretation of the subject clauses.
Be that as it may, exceptions to the general coverage are construed
most strongly against the company.[14] Even an express exception in a policy
is to be construed against the underwriters by whom the policy is framed,
and for whose benefit the exception is introduced.[15]
An insurance contract should be so interpreted as to carry out the
purpose for which the parties entered into the contract which is, to insure
against risks of loss or damage to the goods. Such interpretation should
result from the natural and reasonable meaning of language in the
policy.[16] Where restrictive provisions are open to two interpretations, that
which is most favorable to the insured is adopted.[17]
Indemnity and liability insurance policies are construed in accordance
with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer.[18] A
contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly against the
insurer. Limitations of liability should be regarded with extreme jealousy
and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.[19]
SIMEON DEL ROSARIO, plaintiff-appellee,
vs.
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-
appellant.
Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.
K. V. Faylona for defendant-appellant.
PAREDES, J.:
On February 7, 1957, the defendant Equitable Insurance and Casualty Co.,
Inc., issued Personal Accident Policy No. 7136 on the life of Francisco del
Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself
to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of the
insured. The pertinent provisions of the Policy, recite:
Part I. Indemnity For Death
If the insured sustains any bodily injury which is effected solely
through violent, external, visible and accidental means, and which
shall result, independently of all other causes and within sixty (60)
days from the occurrence thereof, in the Death of the Insured, the
Company shall pay the amount set opposite such injury:
Section 1. Injury sustained other than those specified below
unless excepted hereinafter. . . . . . . . P1,000.00
Section 2. Injury sustained by the wrecking or disablement of
a railroad passenger car or street railway car in or on which
the Insured is travelling as a farepaying passenger. . . . . . . . P1,500.00
Section 3. Injury sustained by the burning of a church,
theatre, public library or municipal administration building
while the Insured is therein at the commencement of the
fire. . . . . . . . P2,000.00
Section 4. Injury sustained by the wrecking or disablement of
a regular passenger elevator car in which the Insured is
being conveyed as a passenger (Elevator in mines excluded)
P2,500.00
Section 5. Injury sustained by a stroke of lightning or by a
cyclone. . . . . . . . P3,000.00
xxx xxx xxx
Part VI. Exceptions
This policy shall not cover disappearance of the Insured nor shall it
cover Death, Disability, Hospital fees, or Loss of Time, caused to the
insured:
. . . (h) By drowning except as a consequence of the wrecking or
disablement in the Philippine waters of a passenger steam or motor
vessel in which the Insured is travelling as a farepaying passenger; .
...
A rider to the Policy contained the following:
IV. DROWNING
It is hereby declared and agreed that exemption clause Letter (h) embodied
in PART VI of the policy is hereby waived by the company, and to form a
part of the provision covered by the policy.
On February 24, 1957, the insured Francisco del Rosario, alias Paquito
Bolero, while on board the motor launch "ISLAMA" together with 33 others,
including his beneficiary in the Policy, Remedios Jayme, were forced to
jump off said launch on account of fire which broke out on said vessel,
resulting in the death of drowning, of the insured and beneficiary in the
waters of Jolo. 1äwphï1.ñët
On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole
heir, filed a claim for payment with defendant company, and on September
13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00,
pursuant to Section 1 of Part I of the policy. The receipt signed by plaintiff
reads —
RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO.,
INC., the sum of PESOS — ONE THOUSAND (P1,000.00)
Philippine Currency, being settlement in full for all claims
and demands against said Company as a result of an
accident which occurred on February 26, 1957, insured
under out ACCIDENT Policy No. 7136, causing the death of
the Assured.
In view of the foregoing, this policy is hereby surrendered
and CANCELLED.
LOSS COMPUTATION
Amount of Insurance P1,000.00
__________
vvvvv
On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote
defendant company acknowledging receipt by his client (plaintiff herein), of
the P1,000.00, but informing said company that said amount was not the
correct one. Atty. Francisco claimed —
The amount payable under the policy, I believe should be P1,500.00
under the provision of Section 2, part 1 of the policy, based on the
rule of pari materia as the death of the insured occurred under the
circumstances similar to that provided under the aforecited section.
Defendant company, upon receipt of the letter, referred the matter to the
Insurance Commissioner, who rendered an opinion that the liability of the
company was only P1,000.00, pursuant to Section 1, Part I of the Provisions
of the policy (Exh. F, or 3). Because of the above opinion, defendant
insurance company refused to pay more than P1,000.00. In the meantime,
Atty. Vicente Francisco, in a subsequent letter to the insurance company,
asked for P3,000.00 which the Company refused, to pay. Hence, a
complaint for the recovery of the balance of P2,000.00 more was instituted
with the Court of First Instance of Rizal (Pasay City, Branch VII), praying for
it further sum of P10,000.00 as attorney's fees, expenses of litigation and
costs.
Defendant Insurance Company presented a Motion to Dismiss, alleging that
the demand or claim is set forth in the complaint had already been
released, plaintiff having received the full amount due as appearing in
policy and as per opinion of the Insurance Commissioner. An opposition to
the motion to dismiss, was presented by plaintiff, and other pleadings were
subsequently file by the parties. On December 28, 1957, the trial court
deferred action on the motion to dismiss until termination of the trial of the
case, it appearing that the ground thereof was not indubitable. In the
Answer to the complaint, defendant company practically admitted all the
allegations therein, denying only those which stated that under the policy
its liability was P3,000.00.
On September 1, 1958, the trial court promulgated an Amended Decision,
the pertinent portions of which read —
xxx xxx xxx
Since the contemporaneous and subsequent acts of the parties
show that it was not their intention that the payment of P1,000.00
to the plaintiff and the signing of the loss receipt exhibit "1" would
be considered as releasing the defendant completely from its
liability on the policy in question, said intention of the parties
should prevail over the contents of the loss receipt "1" (Articles
1370 and 1371, New Civil Code).
". . . . Under the terms of this policy, defendant company agreed to
pay P1,000.00 to P3,000.00 as indemnity for the death of the
insured. The insured died of drowning. Death by drowning is
covered by the policy the pertinent provisions of which reads as
follows:
xxx xxx xxx
 "Part I of the policy fixes specific amounts as indemnities in
case of death resulting from "bodily injury which is effected
solely thru violence, external, visible and accidental means"
but, Part I of the Policy is not applicable in case of death by
drowning because death by drowning is not one resulting
from "bodily injury which is affected solely thru violent,
external, visible and accidental means" as "Bodily Injury"
means a cut, a bruise, or a wound and drowning is death
due to suffocation and not to any cut, bruise or wound."
xxx xxx xxx
Besides, on the face of the policy Exhibit "A" itself, death by
drowning is a ground for recovery apart from the bodily injury
because death by bodily injury is covered by Part I of the policy
while death by drowning is covered by Part VI thereof. But while
the policy mentions specific amounts that may be recovered for
death for bodily injury, yet, there is not specific amount mentioned
in the policy for death thru drowning although the latter is, under
Part VI of the policy, a ground for recovery thereunder. Since the
defendant has bound itself to pay P1000.00 to P3,000.00 as
indemnity for the death of the insured but the policy does not
positively state any definite amount that may be recovered in case
of death by drowning, there is an ambiguity in this respect in the
policy, which ambiguity must be interpreted in favor of the insured
and strictly against the insurer so as to allow greater indemnity.
xxx xxx xxx
. . . plaintiff is therefore entitled to recover P3,000.00. The
defendant had already paid the amount of P1,000.00 to the plaintiff
so that there still remains a balance of P2,000.00 of the amount to
which plaintiff is entitled to recover under the policy Exhibit "A".
The plaintiff asks for an award of P10,000.00 as attorney's fees and
expenses of litigation. However, since it is evident that the
defendant had not acted in bad faith in refusing to pay plaintiff's
claim, the Court cannot award plaintiff's claim for attorney's fees
and expenses of litigation.
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and
sets aside its decision dated July 21, 1958 and hereby renders
judgment, ordering the defendant to pay plaintiff the sum of Two
Thousand (P2,000.00) Pesos and to pay the costs.
The above judgment was appealed to the Court of Appeals on three (3)
counts. Said Court, in a Resolution dated September 29, 1959, elevated the
case to this Court, stating that the genuine issue is purely legal in nature.
All the parties agree that indemnity has to be paid. The conflict centers on
how much should the indemnity be. We believe that under the proven facts
and circumstances, the findings and conclusions of the trial court, are well
taken, for they are supported by the generally accepted principles or rulings
on insurance, which enunciate that where there is an ambiguity with
respect to the terms and conditions of the policy, the same will be resolved
against the one responsible thereof. It should be recalled in this connection,
that generally, the insured, has little, if any, participation in the preparation
of the policy, together with the drafting of its terms and Conditions. The
interpretation of obscure stipulations in a contract should not favor the
party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar,
is the insurance company.
. . . . And so it has been generally held that the "terms in an
insurance policy, which are ambiguous, equivocal or uncertain . . .
are to be construed strictly against, the insurer, and liberally in
favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where a forfeiture
is involved," (29 Am. Jur. 181) and the reason for this rule is that
the "insured usually has no voice in the selection or arrangement of
the words employed and that the language of the contract is
selected with great care and deliberation by expert and legal
advisers employed by, and acting exclusively in the interest of, the
insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals,
et al., G.R. No. L-8151, Dec. 16, 1955.
 . . . . Where two interpretations, equally fair, of languages used in
an insurance policy may be made, that which allows the greater
indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48
Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas.
749).

At any event, the policy under consideration, covers death or disability by

accidental means, and the appellant insurance company agreed to pay
P1,000.00 to P3,000.00. is indemnity for death of the insured.

In view of the conclusions reached, it would seem unnecessary to discuss

the other issues raised in the appeal.

The judgment appealed from is hereby affirmed. Without costs.

FORTUNE INSURANCE AND SURETY CO., INC., petitioner, teller, Maribeth Alampay, from its Pasay
vs. Branch to its Head Office at 8737 Paseo de
COURT OF APPEALS and PRODUCERS BANK OF THE Roxas, Makati, Metro Manila on June 29,
PHILIPPINES, respondents. 1987, was robbed of the said cash. The
robbery took place while the armored car
was traveling along Taft Avenue in Pasay
City;

DAVIDE, JR., J.: 3. The said armored car was driven by

Benjamin Magalong Y de Vera, escorted by
The fundamental legal issue raised in this petition for review on certiorari is Security Guard Saturnino Atiga Y Rosete.
whether the petitioner is liable under the Money, Security, and Payroll Driver Magalong was assigned by PRC
Robbery policy it issued to the private respondent or whether recovery Management Systems with the plaintiff by
thereunder is precluded under the general exceptions clause thereof. Both virtue of an Agreement executed on August
the trial court and the Court of Appeals held that there should be recovery. 7, 1983, a duplicate original copy of which
The petitioner contends otherwise. is hereto attached as Exhibit "B";

This case began with the filing with the Regional Trial Court (RTC) of Makati, 4. The Security Guard Atiga was assigned
Metro Manila, by private respondent Producers Bank of the Philippines by Unicorn Security Services, Inc. with the
(hereinafter Producers) against petitioner Fortune Insurance and Surety plaintiff by virtue of a contract of Security
Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of Service executed on October 25, 1982, a
P725,000.00 under the policy issued by Fortune. The sum was allegedly lost duplicate original copy of which is hereto
during a robbery of Producer's armored vehicle while it was in transit to attached as Exhibit "C";
transfer the money from its Pasay City Branch to its head office in Makati.
The case was docketed as Civil Case No. 1817 and assigned to Branch 146 5. After an investigation conducted by the
thereof. Pasay police authorities, the driver
Magalong and guard Atiga were charged,
After joinder of issues, the parties asked the trial court to render judgment together with Edelmer Bantigue Y Eulalio,
based on the following stipulation of facts: Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway
1. The plaintiff was insured by the Robbery Law) before the Fiscal of Pasay
defendants and an insurance policy was City. A copy of the complaint is hereto
issued, the duplicate original of which is attached as Exhibit "D";
hereto attached as Exhibit "A";
6. The Fiscal of Pasay City then filed an
2. An armored car of the plaintiff, while in information charging the aforesaid persons
the process of transferring cash in the sum with the said crime before Branch 112 of
of P725,000.00 under the custody of its the Regional Trial Court of Pasay City. A
copy of the said information is hereto
attached as Exhibit "E." The case is still
being tried as of this date;
7. Demands were made by the plaintiff
upon the defendant to pay the amount of
the loss of P725,000.00, but the latter
refused to pay as the loss is excluded from
the coverage of the insurance policy,
attached hereto as Exhibit "A," specifically
under page 1 thereof, "General Exceptions"
Section (b), which is marked as Exhibit "A-
1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this
policy in report of
xxx xxx xxx
(b) any loss caused by any
dishonest, fraudulent or
criminal act of the insured
or any officer, employee,
partner, director, trustee or
authorized
representative of the
Insured whether acting
alone or in conjunction
with others. . . .
8. The plaintiff opposes the contention of
the defendant and contends that Atiga and
Magalong are not its "officer, employee, . .
. trustee or authorized representative . . . at
the time of the robbery.1
On 26 April 1990, the trial court rendered its decision in favor of Producers.
The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for
plaintiff and against defendant, and
(a) orders defendant to pay
plaintiff the net amount of
P540,000.00 as liability
under Policy No. 0207 (as
mitigated by the
P40,000.00 special clause
deduction and by the
recovered sum of
P145,000.00), with interest
thereon at the legal rate,
until fully paid;
(b) orders defendant to pay
plaintiff the sum of
P30,000.00 as and for
attorney's fees; and
(c) orders defendant to pay
costs of suit.
All other claims and counterclaims are accordingly
dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have
selected and engaged Magalong and Atiga, their services as
armored car driver and as security guard having been
merely offered by PRC Management and by Unicorn
 Security and which latter firms assigned them to plaintiff.
The wages and salaries of both Magalong and Atiga are
presumably paid by their respective firms, which alone
wields the power to dismiss them. Magalong and Atiga are
assigned to plaintiff in fulfillment of agreements to provide
driving services and property protection as such — in a
context which does not impress the Court as translating
into plaintiff's power to control the conduct of any assigned
driver or security guard, beyond perhaps entitling plaintiff
to request are replacement for such driver guard. The
finding is accordingly compelled that neither Magalong nor
Atiga were plaintiff's "employees" in avoidance of
defendant's liability under the policy, particularly the
general exceptions therein embodied.
Neither is the Court prepared to accept the proposition
that driver Magalong and guard Atiga were the "authorized
representatives" of plaintiff. They were merely an assigned
armored car driver and security guard, respectively, for the
June 29, 1987 money transfer from plaintiff's Pasay Branch
to its Makati Head Office. Quite plainly — it was teller
Maribeth Alampay who had "custody" of the P725,000.00
cash being transferred along a specified money route, and
hence plaintiff's then designated "messenger" adverted to
in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the
case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994,
it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized
representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally
in favor of the insured and strictly against the insurance
company (New Life Enterprises vs. Court of Appeals, 207
SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals,
211 SCRA 554). Contracts of insurance, like other contracts,
are to be construed according to the sense and meaning of
the terms which the parties themselves have used. If such
terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense (New
Life Enterprises Case, supra, p. 676; Sun Insurance Office,
Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above
quoted stipulation is plain, ordinary and simple. No other
interpretation is necessary. The word "employee" must be
taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and
specifically designed to protect labor and therefore its
definition as to employer-employee relationships insofar as
the application/enforcement of said Code is concerned
must necessarily be inapplicable to an insurance contract
which defendant-appellant itself had formulated. Had it
intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated
expressly in the insurance policy.
Said driver and security guard cannot be considered as
employees of plaintiff-appellee bank because it has no
power to hire or to dismiss said driver and security guard
under the contracts (Exhs. 8 and C) except only to ask for
their replacements from the contractors.5
On 20 June 1994, Fortune filed this petition for review on certiorari. It
alleges that the trial court and the Court of Appeals erred in holding it liable
under the insurance policy because the loss falls within the general
exceptions clause considering that driver Magalong and security guard
Atiga were Producers' authorized representatives or employees in the
transfer of the money and payroll from its branch office in Pasay City to its
head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver
to transfer its funds from one branch to another, they effectively and
necessarily became its authorized representatives in the care and custody
of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It
asserts that the existence of an employer-employee relationship "is
determined by law and being such, it cannot be the subject of agreement."
Thus, if there was in reality an employer-employee relationship between
Producers, on the one hand, and Magalong and Atiga, on the other, the
provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is absolved from any liability as
an employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon
four standards: (1) the manner of selection and engagement of the putative
employee; (2) the mode of payment of wages; (3) the presence or absence
of a power to dismiss; and (4) the presence and absence of a power to
control the putative employee's conduct. Of the four, the right-of-control
test has been held to be the decisive factor. 6 It asserts that the power of
control over Magalong and Atiga was vested in and exercised by Producers.
Fortune further insists that PRC Management System and Unicorn Security
Services are but "labor-only" contractors under Article 106 of the Labor
Code which provides:
Art. 106. Contractor or subcontractor. — There is "labor-
only" contracting where the person supplying workers to
an employer does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited
and placed by such persons are performing activities which
are directly related to the principal business of such
employer. In such cases, the person or intermediary shall
be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber Corp. vs. NLRC 7 that
a finding that a contractor is a "labor-only" contractor is equivalent to a
finding that there is an employer-employee relationship between the
owner of the project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not
its employees since it had nothing to do with their selection and
engagement, the payment of their wages, their dismissal, and the control of
their conduct. Producers argued that the rule in International Timber Corp.
is not applicable to all cases but only when it becomes necessary to prevent
any violation or circumvention of the Labor Code, a social legislation whose
provisions may set aside contracts entered into by parties in order to give
protection to the working man.
Producers further asseverates that what should be applied is the rule
in American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee
relationship, the following elements are generally
considered, namely: (1) the selection and engagement of
the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's
conduct.
Since under Producers' contract with PRC Management Systems it is the
latter which assigned Magalong as the driver of Producers' armored car and
was responsible for his faithful discharge of his duties and responsibilities,
and since Producers paid the monthly compensation of P1,400.00 per
driver to PRC Management Systems and not to Magalong, it is clear that
Magalong was not Producers' employee. As to Atiga, Producers relies on
the provision of its contract with Unicorn Security Services which provides
that the guards of the latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or
liability arising from accident or mishap, excluding certain
types of loss which by law or custom are considered as
falling exclusively within the scope of insurance such as fire
or marine. It includes, but is not limited to, employer's
liability insurance, public liability insurance, motor vehicle
liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as
written by non-life insurance companies, and other
substantially similar kinds of insurance. (emphases
supplied)
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties must
be determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of insurance
law. 9
It has been aptly observed that in burglary, robbery, and theft insurance,
"the opportunity to defraud the insurer — the moral hazard — is so great
that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons
frequently excluded under such provisions are those in the insured's service
and employment. 11 The purpose of the exception is to guard against
liability should the theft be committed by one having unrestricted access to
the property. 12 In such cases, the terms specifying the excluded classes are
to be given their meaning as understood in common speech. 13 The terms
"service" and "employment" are generally associated with the idea of
selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity
therein should be resolved against the insurer, 15 or it should be construed
liberally in favor of the insured and strictly against the insurer. 16 Limitations
of liability should be regarded with extreme jealousy and must be
construed
in such a way, as to preclude the insurer from non-compliance with its
obligation. 17 It goes without saying then that if the terms of the contract
are clear and unambiguous, there is no room for construction and such
terms cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. 19 It is settled that the terms of the policy
constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same
rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with
public policy.
With the foregoing principles in mind, it may now be asked whether
Magalong and Atiga qualify as employees or authorized representatives of
Producers under paragraph (b) of the general exceptions clause of the
policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect
of
xxx xxx xxx
(b) any loss caused by any dishonest,
fraudulent or criminal act of the insured or
any officer, employee, partner,
director, trustee or authorized
representative of the Insured whether
acting alone or in conjunction with others. .
. . (emphases supplied)
There is marked disagreement between the parties on the correct meaning
of the terms "employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to
exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then the
term "employee," it must have had in mind any person who qualifies as
such as generally and universally understood, or jurisprudentially
established in the light of the four standards in the determination of the
employer-employee relationship, 21 or as statutorily declared even in a
limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of the
party employing them and not of the party who supplied them to the
employer. 22
Fortune claims that Producers' contracts with PRC Management Systems
and Unicorn Security Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is
not the employer of Magalong. Notwithstanding such express
assumption of PRC Management Systems and Unicorn Security
Services that the drivers and the security guards each shall supply
to Producers are not the latter's employees, it may, in fact, be that
it is because the contracts are, indeed, "labor-only" contracts.
Whether they are is, in the light of the criteria provided for in
Article 106 of the Labor Code, a question of fact. Since the parties
opted to submit the case for judgment on the basis of their
stipulation of facts which are strictly limited to the insurance policy,
the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the
information therefor filed by the City Fiscal of Pasay City, there is a
paucity of evidence as to whether the contracts between Producers
and PRC Management Systems and Unicorn Security Services are
"labor-only" contracts.
Services were truly independent contractors, we are satisfied that
Magalong and Atiga were, in respect of the transfer of Producer's money
from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to
safely transfer the money to its head office, with Alampay to be responsible
for its custody in transit; Magalong to drive the armored vehicle which
would carry the money; and Atiga to provide the needed security for the
money, the vehicle, and his two other companions. In short, for these
particular tasks, the three acted as agents of Producers. A "representative"
is defined as one who represents or stands in the place of another; one who
represents others or another in a special capacity, as an agent, and is
interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that
of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817
are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is
DISMISSED.
No pronouncement as to costs.
SO ORDERED.

But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn Security
RAFAEL (REX) VERENDIA, petitioner,
vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE
PHILIPPINES, respondents.
G.R. No. 76399 January 22, 1993
FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,
vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.
B.L. Padilla for petitioner.
Sabino Padilla, Jr. for Fidelity & Surety, Co.
MELO, J.:
The two consolidated cases involved herein stemmed from the issuance
by Fidelity and Surety Insurance Company of the Philippines (Fidelity for
short) of its Fire Insurance Policy No. F-18876 effective between June 23,
1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential
building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount
of P385,000.00. Designated as beneficiary was the Monte de Piedad &
Savings Bank. Verendia also insured the same building with two other
companies, namely, The Country Bankers Insurance for P56,000.00 under
Policy No. PDB-80-1913 expiring on May 12, 1981, and The Development
Insurance for P400,000.00 under Policy No. F-48867 expiring on June 30,
198l.
While the three fire insurance policies were in force, the insured property
was completely destroyed by fire on the early morning of December 28,
1980. Fidelity was accordingly informed of the loss and despite demands,
refused payment under its policy, thus prompting Verendia to file a
complaint with the then Court of First Instance of Quezon City, praying for
payment of P385,000.00, legal interest thereon, plus attorney's fees and
litigation expenses. The complaint was later amended to include Monte
de Piedad as an "unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the
policy was avoided by reason of over-insurance; that Verendia maliciously
represented that the building at the time of the fire was leased under a
contract executed on June 25, 1980 to a certain Roberto Garcia, when
actually it was a Marcelo Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A.
Ortiz, ruling in favor of Fidelity. In sustaining the defenses set up by
Fidelity, the trial court ruled that Paragraph 3 of the policy was also
violated by Verendia in that the insured failed to inform Fidelity of his
other insurance coverages with Country Bankers Insurance and
Development Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a
decision promulgated on March 31, 1986, (CA-G.R. No. CV No. 02895,
Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court
reversed for the following reasons: (a) there was no misrepresentation
concerning the lease for the contract was signed by Marcelo Garcia in the
name of Roberto Garcia; and (b) Paragraph 3 of the policy contract
requiring Verendia to give notice to Fidelity of other contracts of
insurance was waived by Fidelity as shown by its conduct in attempting to
settle the claim of Verendia (pp. 32-33, Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on April 4, 1986,
but instead of directly filing a motion for reconsideration within 15 days
therefrom, Fidelity filed on April 21, 1986, a motion for extension of 3
days within which to file a motion for reconsideration. The motion for
extension was not filed on April 19, 1986 which was the 15th day after
receipt of the decision because said 15th day was a Saturday and of
course, the following day was a Sunday (p. 14., Rollo of G.R. No. 75605).
The motion for extension was granted by the appellate court on April 30,
1986 (p. 15. ibid.), but Fidelity had in the meantime filed its motion for
reconsideration on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion for
reconsideration on the ground that the motion for extension was filed out
of time because the 15th day from receipt of the decision which fell on a
Saturday was ignored by Fidelity, for indeed, so Verendia contended, the
Intermediate Appellate Court has personnel receiving pleadings even on
Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and
after a motion for reconsideration was similarly brushed aside on July 22,
1986 (p. 30, ibid .), the petition herein docketed as G.R. No. 75605 was
initiated. Subsequently, or more specifically on October 21, 1986, the
appellate court denied Fidelity's motion for reconsideration and account
thereof. Fidelity filed on March 31, 1986, the petition for review
on certiorari now docketed as G.R. No. 76399. The two petitions, inter-
related as they are, were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case which is
the petition for review on certiorari, we must first determine whether the
decision of the appellate court may still be reviewed, or whether the
same is beyond further judicial scrutiny. Stated otherwise, before
anything else, inquiry must be made into the issue of whether Fidelity
could have legally asked for an extension of the 15-day reglementary
period for appealing or for moving for reconsideration.
As early as 1944, this Court through Justice Ozaeta already pronounced
the doctrine that the pendency of a motion for extension of time to
perfect an appeal does not suspend the running of the period sought to
be extended (Garcia vs. Buenaventura 74 Phil. 611 [1944]). To the same
effect were the rulings in Gibbs vs. CFI of Manila (80 Phil. 160 [1948]) Bello
vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King (20 SCRA 1120 [1967]).
The above cases notwithstanding and because the Rules of Court do not
expressly prohibit the filing of a motion for extension of time to file a
motion for reconsideration in regard to a final order or judgment,
magistrates, including those in the Court of Appeals, held sharply divided
opinions on whether the period for appealing which also includes the
period for moving to reconsider may be extended. The matter was not
definitely settled until this Court issued its Resolution in Habaluyas
Enterprises, Inc. vs. Japson (142 SCRA [1986]), declaring that beginning
one month from the promulgation of the resolution on May 30, 1986 —
. . . the rule shall be strictly enforced that no motion for
extension of time to file a motion for new trial or
reconsideration shall be filed . . . (at p. 212.)
In the instant case, the motion for extension was filed and granted before
June 30, 1986, although, of course, Verendia's motion to expunge the
motion for reconsideration was not finally disposed until July 22, 1986, or
after the dictum in Habaluyas had taken effect. Seemingly, therefore, the
filing of the motion for extension came before its formal proscription
under Habaluyas, for which reason we now turn our attention to G.R. No.
76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a)
whether or not the contract of lease submitted by Verendia to support his
claim on the fire insurance policy constitutes a false declaration which
would forfeit his benefits under Section 13 of the policy and (b) whether
or not, in submitting the subrogation receipt in evidence, Fidelity had in
effect agreed to settle Verendia's claim in the amount stated in said
receipt.1
Verging on the factual, the issue of the veracity or falsity of the lease
contract could have been better resolved by the appellate court for, in a
petition for review on certiorari under Rule 45, the jurisdiction of this Court
is limited to the review of errors of law. The appellate court's findings of
fact are, therefore, conclusive upon this Court except in the following cases:
(1) when the conclusion is a finding grounded entirely on speculation,
surmises, or conjectures; (2) when the inference made is manifestly absurd,
mistaken, or impossible; (3) when there is grave abuse of discretion in the
appreciation of facts; (4) when the judgment is premised on a
misapprehension of facts; (5) when the findings of fact are conflicting; and
(6) when the Court of Appeals in making its findings went beyond the issues
of the case and the same are contrary to the admissions of both appellant
and appellee (Ronquillo v. Court of Appeals, 195 SCRA 433 [1991]). In view
of the conflicting findings of the trial court and the appellate court on
important issues in these consolidated cases and it appearing that the
appellate court judgment is based on a misapprehension of facts, this Court
shall review the evidence on record.
The contract of lease upon which Verendia relies to support his claim for
insurance benefits, was entered into between him and one Robert Garcia,
married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple of days
after the effectivity of the insurance policy. When the rented residential
building was razed to the ground on December 28, 1980, it appears that
Robert Garcia (or Roberto Garcia) was still within the premises. However,
according to the investigation report prepared by Pat. Eleuterio M.
Buenviaje of the Antipolo police, the building appeared to have "no
occupant" and that Mr. Roberto Garcia was "renting on the otherside (sic)
portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated
testimony that Marcelo Garcia, whom he considered as the real lessee, was
occupying the building when it was burned (TSN, July 27, 1982, p.10).
Robert Garcia disappeared after the fire. It was only on October 9, 1981
that an adjuster was able to locate him. Robert Garcia then executed an
affidavit before the National Intelligence and Security Authority (NISA) to
the effect that he was not the lessee of Verendia's house and that his
signature on the contract of lease was a complete forgery. Thus, on the
strength of these facts, the adjuster submitted a report dated December 4,
1981 recommending the denial of Verendia's claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert Garcia
who signed the lease contract. According to Verendia, it was signed by
Marcelo Garcia, cousin of Robert, who had been paying the rentals all the
while. Verendia, however, failed to explain why Marcelo had to sign his
cousin's name when he in fact was paying for the rent and why he
(Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on
these proven facts appear, therefore, to have sufficient bases; Verendia
concocted the lease contract to deflect responsibility for the fire towards
an alleged "lessee", inflated the value of the property by the alleged
monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had
assessed the property's fair market value to be only P40,300.00, insured the
same property with two other insurance companies for a total coverage of
around P900,000, and created a dead-end for the adjuster by the
disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between
the parties (Pacific Banking Corporation vs. Court of Appeals 168 SCRA 1
[1988]). Its terms and conditions constitute the measure of the insurer's
liability and compliance therewith is a condition precedent to the insured's
right to recovery from the insurer (Oriental Assurance Corporation vs. Court
of Appeals, 200 SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs.
Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion,
an insurance contract should be liberally construed in favor of the insured
and strictly against the insurer company which usually prepares it (Western
Guaranty Corporation vs. Court of Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that
Verendia used a false lease contract to support his claim under Fire
Insurance Policy No. F-18876, the terms of the policy should be strictly
construed against the insured. Verendia failed to live by the terms of the
policy, specifically Section 13 thereof which is expressed in terms that are
clear and unambiguous, that all benefits under the policy shall be forfeited
"If the claim be in any respect fraudulent, or if any false declaration be
made or used in support thereof, or if any fraudulent means or devises are
used by the Insured or anyone acting in his behalf to obtain any benefit
under the policy". Verendia, having presented a false declaration to support
his claim for benefits in the form of a fraudulent lease contract, he forfeited
all benefits therein by virtue of Section 13 of the policy in the absence of
proof that Fidelity waived such provision (Pacific Banking Corporation vs.
Court of Appeals, supra). Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded the principle that insurance contracts
are uberrimae fidae and demand the most abundant good faith (Velasco vs.
Apostol, 173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the subrogation
receipt as evidence in court, Fidelity bound itself to a "mutual agreement"
to settle Verendia's claims in consideration of the amount of P142,685.77.
While the said receipt appears to have been a filled-up form of Fidelity, no
representative of Fidelity had signed it. It is even incomplete as the blank
spaces for a witness and his address are not filled up. More significantly,
the same receipt states that Verendia had received the aforesaid amount.
However, that Verendia had not received the amount stated therein, is
proven by the fact that Verendia himself filed the complaint for the full
amount of P385,000.00 stated in the policy. It might be that there had been
efforts to settle Verendia's claims, but surely, the subrogation receipt by
itself does not prove that a settlement had been arrived at and enforced.
Thus, to interpret Fidelity's presentation of the subrogation receipt in
evidence as indicative of its accession to its "terms" is not only wanting in
rational basis but would be substituting the will of the Court for that of the
parties.

WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in

G.R. No. 76399 is GRANTED and the decision of the then Intermediate
Appellate Court under review is REVERSED and SET ASIDE and that of the
trial court is hereby REINSTATED and UPHELD.

SO ORDERED.
NEW LIFE ENTERPRISES and JULIAN SY, petitioners,
vs.
HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION,
RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN GUARANTY
CORPORATION, respondents.
REGALADO, J.:
This appeal by certiorari seeks the nullification of the
decision 1 of respondent Court of Appeals in CA-G.R. CV No. 13866 which
reversed the decision of the Regional Trial Court, Branch LVII at Lucena City,
jointly deciding Civil Cases Nos. 6-84, 7-84 and 8-84 thereof and
consequently ordered the dismissal of the aforesaid actions filed by herein
petitioners.
The undisputed background of this case as found by the court a quo and
adopted by respondent court, being sustained by the evidence on record,
we hereby reproduce the same with approval. 2
The antecedents of this case show that Julian Sy and Jose
Sy Bang have formed a business partnership in the City
of Lucena. Under the business name of New Life
Enterprises, the partnership engaged in the sale
of construction materials at its place of business, a two
storey building situated at Iyam, Lucena City. The facts
show that Julian Sy insured the stocks in trade of New Life
Enterpriseswith Western Guaranty Corporation, Reliance
Surety and Insurance. Co., Inc., and Equitable Insurance
Corporation.
On May 15, 1981, Western Guaranty Corporation
issued Fire Insurance Policy No. 37201 in the amount
of P350,000.00. This policy was renewed on May, 13, 1982.
On July 30,1981, Reliance Surety and Insurance Co., Inc.
issued Fire Insurance Policy No. 69135 inthe amount of
P300,000.00 (Renewed under Renewal
Certificate No. 41997) An additional
insurancewas issued by the same company on
November 12, 1981 under Fire Insurance Policy No. 71547
in the amount of P700,000.00.
On February 8, 1982, Equitable Insurance
Corporation issued Fire Insurance Policy No. 39328 in the
amount of P200,000.00.
Thus when the building occupied by the New Life
Enterprises was gutted by fire at about 2:00
o'clock inthe morning of October 19, 1982, the stocks in the
trade inside said building were insured against
fire inthe total amount of P1,550,000.00.
According to the certification issued by the
Headquarters, Philippine Constabulary /Integrated National
Police, Camp Crame, the cause of fire was
electrical in nature.According to the plaintiffs,
the building and the stocks inside were burned.
After the fire, Julian Sy wentto the agent of
Reliance Insurance whom he asked to accompany him to
the office of the company sothat he can file
his claim. He averred that in support of his claim, he
submitted the fire clearance, the insurance policies and
inventory of stocks. He further testified that the three
insurance companies are sister
companies, and as a matter of fact when he was following-
up his claim with Equitable Insurance, the
Claims Manager told him to go first to Reliance
Insurance and if said company agrees to pay, they would
also pay. The same treatment was given him
by the other insurance
companies. Ultimately, thethree insurance companies
denied plaintiffs' claim for payment.
 In its letter of denial dated March 9, 1983, (Exhibit "C"
No. 8-
84) Western Guaranty Corporationthrough Claims Manager
Bernard S. Razon told the plaintiff that his claim "is
denied for breach of policyconditions." Reliance Insurance
purveyed the same message in its letter dated November
23, 1982and signed by Executive Vice-President Mary Dee
Co (Exhibit "C" No. 7-84) which said that "plaintiff's
claim is denied for breach of policy conditions."
The letter of denial received by the
plaintiff fromEquitable Insurance Corporation (Exhibit "C"
No. 6-84) was of the same tenor, as said letter dated
February 22, 1983, and signed by Vice-President
Elma R. Bondad, said "we find that certain
policyconditions were violated, therefore, we regret,
we have to deny your claim, as it is hereby denied in its
entirety."
In relation to the case against Reliance
Surety and Insurance Company, a certain Atty. Serafin
D.Dator, acting in behalf of the
plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-
l" No 7-84) toExecutive Vice-President Mary Dee Co
asking that he be informed as to the specific policy
conditions allegedly violated by the plaintiff. In her reply-
letter dated March 30, 1983, Executive Vice-PresidentMary
Dee Co informed Atty. Dator that Julian Sy violated Policy
Condition No. "3" which requires theinsured
to give notice of any insurance or insurances already
effected covering the stocks in trade. 3
Because of the denial of their claims for payment by the three (3) insurance
companies, petitioner filed separate
civilactions against the former before the Regional Trial
Court of Lucena City, which cases were consolidated for trial,
and thereafter the court below rendered its decision on December 19, l986
with the following disposition:
WHEREFORE, judgment in the above-entitled cases is
rendered in the following manner, viz:
1. In Civil Case No. 6-84, judgment is rendered for the
plaintiff New Life Enterprises and against the defendant
Equitable Insurance Corporation
ordering the latter to pay the former the sum of
TwoHundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insured hasbe
en unreasonably denied, pursuant to Sec. 244 of the Insura
nce Code, defendant is further ordered topay the plaintiff a
ttorney's fees in the amount of Twenty Thousand
(P20,000.00) Pesos. All sums ofmoney to be paid by virtue
hereof shall bear interest at 12% per annum (pursuant
to Sec. 244 of theInsurance Code) from
February 14, 1983, (91st day from November 16,
1982, when Sworn Statementof Fire Claim
was received from the insured) until they are fully paid;
2. In Civil Case No. 7-
84, judgment is rendered for the plaintiff Julian Sy and agai
nst the defendantReliance Surety and Insurance Co.,
Inc., ordering the latter to pay the former the sum
of P1,000,000.00(P300,000.00 under Policy
No. 69135 and P700,000.00 under Policy No. 71547)
and considering thatpayment of the claim of the
insured has been unreasonably denied, pursuant to
Sec. 244 of theInsurance Code, defendant is further
ordered to pay the plaintiff the amount of P100,000.00 as
attorney's fees.
All sums of money to be paid by virtue hereof shall
bear interest at 12% per annum (pursuant to Sec.
244 of the Insurance Code) from February 14, 1983,
(91st day from November 16,
1982 when SwornStatement of Fire Claim was received fro
m the insured) until they are fully paid;
 3. In Civil Case No. 8-84, judgment is rendered for
the plaintiff New Life Enterprises and against thedefendant
Western Guaranty Corporation ordering
the latter to pay the sum of P350,000.00
to theConsolidated Bank and Trust Corporation,
Lucena Branch, Lucena City, as stipulated on the
face ofPolicy No. 37201, and considering that payment of
the aforementioned sum of money has been
unreasonably denied, pursuant to Sec. 244 of the Insurance
Code, defendant is further ordered to pay the
plaintiff attorney's fees in the amount of P35,000.00.
All sums of money to be paid by virtue hereof shall bear
interest at 12% per annum (pursuant to Sec. 244 of the
Insurance Code) from February 5, 1982, (91st day from 1st
week of November 1983 when
insured filed formal claim for full indemnity according to
adjuster Vetremar Dela Merced) until they are fully paid. 4
As aforestated, respondent Court of Appeals reversed said judgment of the
trial court, hence this petition the cruxwherein is whether or not Conditions
Nos. 3 and 27 of
the insurance contracts were violated by petitioners thereby resulting in
their forfeiture of all the benefits thereunder.
Condition No. 3 of said insurance policies, otherwise known as
the "Other Insurance Clause," is uniformly contained in all the aforestated
insurance contracts of herein petitioners, as follows:
3. The insured shall give notice to the Company
of any insurance or insurances already effected, orwhich
may subsequently be effected, covering any of the property
or properties consisting of stocks intrade, goods in process
and/or inventories only hereby insured, and unless
such notice be given andthe particulars of such
insurance or insurances be stated therein or endorsed on
this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company
before the occurrence of any loss ordamage, all benefits
under this policy shall be deemed
forfeited, provided however, that this condition
shall not apply when the total insurance or insurances in
force at the time of loss or damage not morethan
P200,000.00. 5
Petitioners admit that the respective insurance policies
issued by private respondents did not state or endorse thereon
the other insurance coverage obtained or subsequently effected on the
same stocks in trade for the loss of which compensation is claimed by
petitioners. 6 The policy
issued by respondent Western Guaranty Corporation(Western) did not
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and
respondent Equitable Insurance Corporation (Equitable) as co-
insurers on the same stocks,
while Reliance's Policies covering the samestocks did not
likewise declare Western and Equitable as such co-insurers. It is
further admitted by petitioners thatEquitable's policy stated "nil" in the
space thereon requiring indication of any co-insurance although
there were three (3) policies subsisting on the same stocks in trade
at the time of the loss, namely, that of Western in
the amount ofP350,000.00 and two (2) policies of Reliance in the total
amount of P1,000,000.00. 7
In other words, the coverage by other insurance or co-insurance effected
or subsequently arranged by petitioners were
neither stated nor endorsed in the policies of the three (3) private
respondents, warranting forfeiture of all benefits
thereunder if we are to follow the express stipulation in the aforequoted
Policy Condition No. 3.
Petitioners contend that they are not to be blamed for the omissions,
alleging that insurance agent Leon Alvarez (for Western) and Yap Kam
Chuan (for Reliance and Equitable) knew about the existence of the
additional insurancecoverage and that they were not
informed about the requirement that such other or additional insurance
should bestated in the policy, as they have not even read policies.8 These
contentions cannot pass judicial muster.
The terms of the contract are clear and unambiguous.
The insured is specifically required to disclose to the insurer any other
insurance and its particulars which he may have effected on the
same subject matter. The knowledge of such insurance
by the insurer's agents, even assuming the acquisition thereof by the
former, is not the "notice" that would estop the insurers from denying
the claim. Besides, the so-called theory of imputed knowledge, that is,
knowledge of the agent is knowledge of the principal, aside from being
of dubious applicability here has likewisebeen roundly
refuted by respondent court whose factual findings we find acceptable.
Thus, it points out that while petitioner Julian Sy
claimed that he had informed insurance agent Alvarez regarding the co-
insurance on the property, he contradicted
himself by inexplicably claiming that he had not read the terms of the
policies; that Yap Dam Chuan could not likewise have obtained such
knowledge for the same reason, aside from the fact that
the insurance with Western was obtained before those of
Reliance and Equitable; and that theconclusion of
the trial court that Reliance and Equitable are "sister
companies" is an unfounded conjecture drawnfrom the mere fact that Yap
Kam Chuan was an agent for both companies which also had the
same insuranceclaims adjuster. Availment of the
services of the same agents and adjusters by different companies is a
commonpractice in the insurance business and such facts
do not warrant the speculative conclusion of the trial court.
Furthermore, when the words and language of documents are clear and
plain or readily understandable by an ordinary reader thereof, there is
absolutely no room for interpretation or construction
anymore.9 Courts are not allowed to make contracts
for the parties; rather, they will intervene
only when the terms of the policy areambiguous, equivocal,
or uncertain. 10 The parties must abide by the
terms of the contract because such termsconstitute the
measure of the insurer's liability and compliance therewith is a
condition precedent to the insured'sright of recovery from the insurer. 11
While it is a cardinal principle of insurance law that a policy or contract
of insurance is to be construed liberally
infavor of the insured and strictly against the insurer
company, yet contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms which
the parties themselves have used. If suchterms are clear and
unambiguous, they must be taken and understood in their plain, ordinary
and popular sense. 12Moreover,
obligations arising from contracts have the force of law between
the contracting parties and should becomplied with in good faith. 13
Petitioners should be aware of the fact that a party is not relieved of the
duty to exercise the ordinary care and
prudence that would be exacted in relation to other contracts. The
conformity of the insured to the terms of the
policy is implied from his failure to express any disagreement with
what is provided for.14 It may be true that themajority rule, as cited
by petitioners, is that injured
persons may accept policies without reading them, and that this is not
negligence per se. 15 But, this is not without any exception. It is and was
incumbent upon petitioner Sy to read the insurance contracts, and this can
be reasonably expected of him considering that he has been a businessman
since 196516 and the contract concerns indemnity in case
of loss in his money-making trade of which important
consideration he could not have been unaware as it was pre-in case of loss
in his money-making trade of which important consideration he could not
have been unaware as it was precisely the reason for his procuring the
same.
We reiterate our pronouncement in Pioneer Insurance and Surety
Corporation vs. Yap: 17
...
And considering the terms of the policy which required the
insured to declare other insurances, thestatement in questi
 on must be deemed to be a statement (warranty) binding
on both insurer and insured, that there were no other
insurance on the property. . . .
The annotation then, must be deemed
to be a warranty that the property was not insured by any
other policy. Violation thereof entitled the insurer to
rescind (Sec. 69, Insurance Act). Such misrepresentation is
fatal in the light of our views in Santa Ana vs. Commercial
Union Assurance Company, Ltd., 55 Phil. 329.
The materiality of non-disclosure of other insurance
policies is not open to doubt.
xxx xxx xxx
The obvious purpose of the aforesaid
requirement in the policy is to prevent over-insurance and
thus avert the perpetration of fraud. The public, as well as
the insurer, is interested in preventing the situation
in which a fire would be profitable to
the insured. According to Justice Story: "The insured has
no right to complain, for he assents to comply
with all the stipulations on
his side, in order to entitlehimself to the
benefit of the contract, which, upon reason or principle, he
has no right to ask the court to dispense with the
performance of his own part of the agreement, and yet to
bind the other party to
obligations, which, but for those stipulations, would not
have been entered into."
Subsequently, in the case of Pacific Banking Corporation vs. Court of
Appeals, et al., 18 we held:
It is not disputed that the insured failed to reveal before
the loss three other insurances. As found by the Court
of Appeals, by reason of said unrevealed insurances, the
insured had been guilty of a
falsedeclaration; a clear misrepresentation and a vital one
because where the insured had been asked to reveal
but did not, that was deception. Otherwise stated, had the
insurer known that there were many co-insurances, it could
have hesitated or plainly desisted from
entering into such contract.
Hence, theinsured was guilty of clear fraud (Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but
a mere inference or suspicion is untenable. In fact,
concrete evidence of fraud or false declaration by
the insured was furnished by the petitioner itself when the
facts alleged in the policy under clauses "Co-
Insurances Declared" and
"Other InsuranceClause" are materially different from the
actual number of co-insurances taken over
the subjectproperty. Consequently, "the whole foundation
of the contract fails, the
risk does not attach and thepolicy never becomes a contrac
t between the parties." Representations of facts are the
foundation ofthe contract and if the foundation does not
exist, the superstructure does
not arise. Falsehood in suchrepresentations is not shown to
vary or add to the contract, or to terminate a contract
which has oncebeen made, but to
show that no contract has ever
existed (Tolentino, Commercial Laws of thePhilippines, p.
991, Vol. II, 8th Ed.,) A void or inexistent contract is one
which has no force and effectfrom the very beginning, as if
it had never been entered into, and which cannot be
validated either bytime or by ratification
(Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145
SCRA, 1986).
As the insurance policy against fire expressly required that
notice should be given by
the insured ofother insurance upon the same property,
the total absence of such notice nullifies the policy.
To further warrant and justify the forfeiture of the
benefits under the insurance contracts involved, we need
merely toturn to Policy Condition No. 15 thereof, which reads in part:
15. . . . if any false declaration be made or used
in support thereof, . . . all benefits under this Policy shall be
forfeited . . . . 19
Additionally, insofar as the liability of respondent
Reliance is concerned, it is not denied that the complaint for recovery was
filed in court by petitioners only on
January 31, 1984, or after more than one (1) year had
elapsedfrom petitioners' receipt of the insurers' letter of
denial on November 29, 1982. Policy Condition No. 27 of their insurance
contract with Reliance provides:
27. Action or suit clause. —
If a claim be made and rejected and an action or suit be no
t commenced
either in the Insurance Commission or any court of compet
ent jurisdiction of notice of such
rejection, orin case of arbitration taking place
as provided herein, within twelve (12) months after due
notice of theaward made by the arbitrator or arbitrators
or umpire, then the claim shall for all purposes be
deemedto have been abandoned and shall not thereafter
be recoverable hereunder. 20
On this point, the trial court ruled:
. . . However, because of the peculiar circumstances
of this case, we hesitate
in concluding thatplaintiff's right to ventilate his claim in co
urt has been barred by reason of the time constraint provid
ed in the insurance contract. It is
evident that after the plaintiff had received
the letter of denial, he stillfound it necessary to be informe
d of the specific causes or reasons for
the denial of his claim, reasonfor which his lawyer, Atty.
Dator deemed it wise to send a
letter of inquiry to the defendant which wasanswered by
defendant's Executive Vice-President in a letter
dated March 30, 1983, . . .
. Assuming,gratuitously, that the letter of Executive Vice-
President Mary Dee Co dated March 30, 1983, was
received by plaintiff on the same date, the period
of limitation should start to run only from said date in the
spirit of fair play and equity. . . . 21
We have perforce to reject this theory of the court below for being contrary
to what we have heretofore declared:
It is important to note the principle laid down
by this Court in the case of Ang vs. Fulton Fire Insurance
Co. (2 SCRA 945 [1961]) to wit:
The condition contained in an insurance pol
icy that claims must be presented within
one year
after rejection is not merely a procedural re
quirement but an important matter
essential to a prompt settlement of claims
against insurance companies as it
demandsthat insurance suits be brought by
the insured while the evidence as to the
origin andcause of destruction have not yet
disappeared.
In enunciating the above-cited principle, this
Court had definitely settled the rationale for the
necessityof bringing suits against the Insurer
within one year from the rejection of the claim. The
contention ofthe respondents that the one-
year prescriptive period does
not start to run until the petition forreconsideration had be
en resolved by the insurer, runs counter to the declared pur
 pose for requiringthat an action or suit be filed in the SO ORDERED.
Insurance Commission or in a court of competent
jurisdiction fromthe denial of the claim. To uphold
respondents' contention would contradict and defeat the
very principle which this Court had laid down. Moreover,
it can easily be used by insured persons as a scheme or
device to waste time
until any evidence which may be considered against them is
destroyed.

xxx xxx xxx

While in the Eagle Star case (96 Phil. 701),

this Court uses the phrase "final rejection", the
samecannot be taken to mean the rejection of a petition
for reconsideration as insisted by respondents.
Suchwas clearly not the meaning contemplated by this Cou
rt. The insurance policy in said
case providesthat the insured should file his claim first,
with the carrier and then with the insurer.
The "final rejection"being referred to in said case is the
rejection by the insurance company. 22

Furthermore, assuming arguendo that petitioners felt the

legitimate need to be clarified as to the policy condition violated, there was
a considerable lapse of time from their receipt of the insurer's clarificatory
letter dated March 30, 1983, up to the time the complaint was filed in court
on January 31, 1984. The one-year prescriptive period was yet
to expire on November 29, 1983, or about eight (8) months from the
receipt of the clarificatory letter, but petitioners let the
period lapse without bringing their action in court.
We accordingly find no "peculiar circumstances" sufficient to
relax the enforcement of the one-year prescriptive period and
we, therefore, hold that petitioners' claim was definitely filed out of time.

WHEREFORE, finding no cogent reason to disturb the judgment

of respondent Court of Appeals, the same ishereby AFFIRMED.
NATIONAL POWER CORPORATION, petitioner,
vs.
COURT OF APPEALS and PHILIPPINE AMERICAN GENERAL INSURANCE CO.,
INC., respondents.
Conrado Q. Crucillo for petitioner.
Gregorio D. David for private respondent.
in correlation with the provisions of the construction contract between
Petitioner and Far Eastern Electric, Inc. particularly the following provisions
of the Specifications. to wit:
PARAS, J.:
This is a petition for review on certiorari seeking to set aside: (a) the
judgment of respondent Court of Appeals dated March 25, 1976 in CA-G.R.
No. 50112-R, entitled National Power Corporation, Plaintiff-Appellee vs. The
Philippine American Insurance Company, Inc. Defendant-Appellant, which
reversed the decision of the Court of First Instance of Manila in Civil Case
No. 70811 entitled "National Power Corporation v. Far Eastern Electric, Inc.,
et al." and (b) respondent's Court's resolution dated April 19, 1976 denying
petitioner National Power Corporation's Motion for Reconsideration
(Petition, p. 13, Rollo).
The undisputed facts of this case are as follows:
The National Power Corporation (NPC) entered into a contract with the Far
Eastern Electric, Inc. (FFEI) on December 26, 1962 for the erection of the
Angat Balintawak 115-KW-3-Phase transmission lines for the Angat
Hydroelectric Project. FEEI agreed to complete the work within 120 days
from the signing of the contract, otherwise it would pay NPC P200.00 per
calendar day as liquidated damages, while NPC agreed to pay the sum of
P97,829.00 as consideration. On the other hand, Philippine American
General Insurance Co., Inc. (Philamgen) issued a surety bond in the amount
of P30,672.00 for the faithful performance of the undertaking by FEEI, as
required.
The condition of the bond reads:
The liability of the PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY, INC. under this bond will expire
One (1) year from final Completion and Acceptance and
said bond will be cancelled 30 days after its expiration,
unless surety is notified of any existing obligation
thereunder. (Exhibit 1-a)
1. Par. 1B-2l Release of Bond
1B-21 Release of Bond
The Contractor's performance bond will be released by the
National Power Corporation at the expiration of one (1)
year from the completion and final acceptance of the work,
pursuant to the provisions of Act No. 3959, and subject to
the General Conditions of this contract. (Page 49, Printed
Record on Appeal); and
2. GP-19 of Specifications, which reads:
(a) Should the Contractor fail to complete the construction
of the work as herein specified and agreed upon, or if the
work is abandoned, ... the Corporation shall have the
power to take over the work by giving notice in writing to
that effect to the Contractor and his sureties of its intention
to take over the construction work.
(b) ... It is expressly agreed that in the event the
corporation takes over the work from the Contractor, the
latter and his bondsmen shall continue to be liable under
this contract for any expense in the completion of the work
in excess of the contract price and the bond filed by the
 Contractor shall be answerable for the same and for any
and all damages that the Corporation may suffer as a result
thereof. (pp. 76-78, Printed Record on Appeal)
FEEI started construction on December 26, 1962 but on May 30, 1963, both
FEEI and Philamgen wrote NPC requesting the assistance of the latter to
complete the project due to unavailability of the equipment of FEEI. The
work was abandoned on June 26, 1963, leaving the construction unfinished.
On July 19, 1963, in a joint letter, Philamgen and FEEI informed NPC that
FEEI was giving up the construction due to financial difficulties. On the
same date, NPC wrote Philamgen informing it of the withdrawal of FEEI
from the work and formally holding both FEEI and Philamgen liable for the
cost of the work to be completed as of July 20, 1962 plus damages.
The work was completed by NPC on September 30, 1963. On January 30,
1967 NPC notified Philamgen that FEEI had an outstanding obligation in the
amount of P75,019.85, exclusive of interest and damages, and demanded
the remittance of the amount of the surety bond the answer for the cost of
completion of the work. In reply, Philamgen requested for a detailed
statement of account, but after receipt of the same, Philamgen did not pay
as demanded but contended instead that its liability under the bond has
expired on September 20, 1964 and claimed that no notice of any
obligation of the surety was made within 30 days after its expiration.
(Record on Appeal, pp. 191-194; Rollo, pp. 62-64).
NPC filed Civil Case No. 70811 for collection of the amount of P75,019.89
spent to complete the work abandoned; P144,000.00 as liquidated
damages and P20,000.00 as attorney's fees. Only Philamgen answered
while FEEI was declared in default.
The trial court rendered judgment in favor of NPC, the dispositive portion of
which reads:
WHEREFORE, the defendant Far Eastern Electric, Inc., is
ordered to pay the plaintiff the sum of P75,019.86 plus
interest at the legal rate from September 21, 1967 until
fully paid. Out of said amount, both defendants, Far Eastern
Electric, Inc., and the Philippine American Insurance
Company, Inc., are ordered to pay, jointly and severally, the
amount of P30,672.00 covered by Surety Bond No. 26268,
dated December 26, 1962, plus interest at the legal rate
from September 21, 1967 until fully paid,
Both defendants are also ordered to pay plaintiff the sum
of P3,000.00 as attorney's fees and costs.
On appeal by Philamgen, the Court of Appeals reversed the lower court's
decision and dismissed the complaint.
Hence this petition.
Respondent Philamgen filed its comment on the petition on August 6, 1978
(Rollo, p. 62) in compliance with the resolution dated June 16, 1976 of the
First Division of this Court (Rollo, p. 52) while petitioner NPC filed its Reply
to the comment of respondent (Rollo, p. 76) as required in the resolution of
this Court of August 16, 1976, (Rollo, p. 70). In the resolution of September
20, 1976, the petition for certiorari was given due course (Rollo, p. 85).
Petitioner's brief was filed on November 27, 1976 (Rollo, p. 97) while
Philamgen failed to file brief within the required period and this case was
submitted for decision without respondent's brief in the resolution of this
Court of February 25. 1977) Rollo, p. 103).
In its brief, petitioner raised the following assignment of errors:
I
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER SHOULD HAVE GIVEN NOTICE TO PRIVATE
RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION
WITHIN 30 DAYS FROM EXPIRATION OF THE BOND TO
HOLD SAID SURETY LIABLE THEREUNDER, DESPITE
PETITIONER'S TAKING OVER OF THE WORK ABANDONED BY
THE CONTRACTOR BEFORE ITS COMPLETION.
II
 ASSUMING ARGUENDO THAT PETITIONER SHOULD STILL
NOTIFY PRIVATE RESPONDENT PHILAMGEN OF ANY
EXISTING OBLIGATION UNDER THE BOND DESPITE THE
TAKE-OVER OF WORK BY PETITIONER, RESPONDENT COURT
OF APPEALS NONETHELESS ERRED IN HOLDING THAT
PETITIONER'S LETTER DATED JULY 19, 1963 (EXH. E) TO
PRIVATE RESPONDENT WAS NOT SUFFICIENT COMPLIANCE
WITH THE CONDITION OF THE BOND.
III
RESPONDENT COURT OF APPEALS ERRED IN ABSOLVING
PRIVATE RESPONDENT PHILAMGEN FROM ITS LIABILITY
UNDER THE BOND.
The decisive issue in this case is the correct interpretation and/or
application of the condition of the bond relative to its expiration, in
correlation with the provisions of the construction contract, the faithful
performance of which, said bond was issued to secure.
The bone of contention in this case is the compliance with the notice
requirement as a condition in order to hold the surety liable under the
bond.
Petitioner claims that it has already complied with such requirement by
virtue of its notice dated July 19, 1963 of abandonment of work by FEEI and
of its takeover to finish the construction, at the same time formally holding
both FEEI and Philamgen liable for the uncompleted work and damages. It
further argued that the notice required in the bond within 30 days after its
expiration of any existing obligation, is applicable only in case the
contractor itself had completed the contract and not when the contractor
failed to complete the work, from which arises the continued liability of the
surety under its bond as expressly provided for in the contract. Petitioner's
contention was sustained by the trial court.
On the other hand, private respondent insists that petitioner's notice dated
July 19, 1983 is not sufficient despite previous events that it had knowledge
of FEEI's failure to comply with the contract and claims that it cannot be
held liable under the bond without notice within thirty days from the
expiration of the bond, that there is a subsisting obligation. Private
respondent's contention is sustained by the Court of Appeals.
The petition is impressed with merit.
As correctly assessed by the trial court, the evidence on record shows that
as early as May 30, 1963, Philamgen was duly informed of the failure of its
principal to comply with its undertaking. In fact, said notice of failure was
also signed by its Assistant Vice President. On July 19, 1963, when FEEI
informed NPC that it was abandoning the construction job, the latter
forthwith informed Philamgen of the fact on the same date. Moreover, on
August 1, 1963, the fact that Philamgen was seasonably notified, was even
bolstered by its request from NPC for information of the percentage
completed by the bond principal prior to the relinquishment of the job to
the latter and the reason for said relinquishment. (Record on Appeal, pp.
193-195). The 30-day notice adverted to in the surety bond applies to the
completion of the work by the contractor. This completion by the
contractor never materialized.
The surety bond must be read in its entirety and together with the contract
between NPC and the contractors. The provisions must be construed
together to arrive at their true meaning. Certain stipulations cannot be
segregated and then made to control.
Furthermore, it is well settled that contracts of insurance are to be
construed liberally in favor of the insured and strictly against the insurer.
Thus ambiguity in the words of an insurance contract should be interpreted
in favor of its beneficiary. (Serrano v. Court of Appeals, 130 SCRA 327, July
16, 1984).
In the case at bar, it cannot be denied that the breach of contract in this
case, that is, the abandonment of the unfinished work of the transmission
line of the petitioner by the contractor Far Eastern Electric, Inc. was within
the effective date of the contract and the surety bond. Such abandonment
gave rise to the continuing liability of the bond as provided for in the
contract which is deemed incorporated in the surety bond executed for its
completion. To rule therefore that private respondent was not properly
notified would be gross error.

PREMISES CONSIDERED, the decision dated March 25, 1976 and the
resolution dated April 19, 1976 of the Court of Appeals are hereby SET
ASIDE, and a new one is hereby rendered reinstating the decision of the
Court of First Instance of Manila in Civil Case No. 70811 entitled "National
Power Corporation v. Far Eastern Electric, Inc., et al."

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

The contract of insurance is one of perfect good faith uberrima fides

meaning good faith, absolute and perfect candor or openness and honesty;
the absence of any concealment or demotion, however slight [Black's Law
Dictionary, 2nd Edition], not for the alone but equally so for the insurer
(Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY knows aDd
Ought to communicate (Section 25, Act No. 2427). Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract
of insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105
Phil 930; Satumino vs. Philippine American Life Insurance Company, 7 SCRA
316). Private respondent appears guilty thereof.

We are thus constrained to hold that no insurance contract was perfected

between the parties with the noncompliance of the conditions provided in
the binding receipt, and concealment, as legally defined, having been
comraitted by herein private respondent.

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

SO ORDERED.
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT
SUPPLIES DEPARTMENT, petitioners, vs. COURT OF APPEALS,
SOUTH SEA SURETY AND INSURANCE CO., INC
DECISION
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the
Decision of respondent Court of Appeals dated December 14, 1995[1] and its
Resolution dated February 22, 1996[2] in CA-G.R. CV No. 45805 entitled
Mayer Steel Pipe Corporation and Hongkong Government Supplies
Department v. South Sea Surety Insurance Co., Inc. and The Charter
Insurance Corporation.[3]In 1983, petitioner Hongkong Government
Supplies Department (Hongkong) contracted petitioner Mayer Steel Pipe
Corporation (Mayer) to manufacture and supply various steel pipes and
fittings. From August to October, 1983, Mayer shipped the pipes and
fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014, MSPC-1015,
MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022.[4]
Prior to the shipping, petitioner Mayer insured the pipes and fittings
against all risks with private respondents South Sea Surety and Insurance
Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The pipes and
fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total
amount of US$212,772.09 were insured with respondent South Sea, while
those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial
Inspection (International) Inc. as third-party inspector to examine whether
the pipes and fittings are manufactured in accordance with the
specifications in the contract. Industrial Inspection certified all the pipes
and fittings to be in good order condition before they were loaded in the
vessel. Nonetheless, when the goods reached Hongkong, it was discovered
that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity
under the insurance contract. Respondent Charter paid petitioner
Hongkong the amount of HK$64,904.75. Petitioners demanded payment of
the balance of HK$299,345.30 representing the cost of repair of the
damaged pipes. Private respondents refused to pay because the insurance
surveyor's report allegedly showed that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private
respondents to recover the sum of HK$299,345.30. For their defense,
private respondents averred that they have no obligation to pay the
amount claimed by petitioners because the damage to the goods is due to
factory defects which are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to
the goods is not due to manufacturing defects. It also noted that the
insurance contracts executed by petitioner Mayer and private respondents
are "all risks" policies which insure against all causes of conceivable loss or
damage. The only exceptions are those excluded in the policy, or those
sustained due to fraud or intentional misconduct on the part of the
insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the
defendants jointly and severally, to pay the plaintiffs the
following:
1. the sum equivalent in Philippine currency of
HK$299,345.30 with legal rate of interest as of the filing
of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.[5]
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the
damage is not due to factory defect and that it was covered by the "all
risks" insurance policies issued by private respondents to petitioner
Mayer. However, it set aside the decision of the trial court and dismissed
the complaint on the ground of prescription. It held that the action is
barred under Section 3(6) of the Carriage of Goods by Sea Act since it was
filed only on April 17, 1986, more than two years from the time the goods
were unloaded from the vessel. Section 3(6) of the Carriage of Goods by
Sea Act provides that "the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within one year
after delivery of the goods or the date when the goods should have been
delivered." Respondent court ruled that this provision applies not only to
the carrier but also to the insurer, citing Filipino Merchants Insurance Co.,
Inc. vs. Alejandro.[6]
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that
petitioners' cause of action had already prescribed on the
mistaken application of the Carriage of Goods by Sea Act and
the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145
SCRA 42); and
2. The respondent Court of Appeals committed an error in
dismissing the complaint.[7]
The petition is impressed with merit. Respondent court erred in
applying Section 3(6) of the Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier
and the ship shall be discharged from all liability for loss or damage to the
goods if no suit is filed within one year after delivery of the goods or the
date when they should have been delivered. Under this provision, only the
carrier's liability is extinguished if no suit is brought within one year. But the
liability of the insurer is not extinguished because the insurer's liability is
based not on the contract of carriage but on the contract of insurance. A
close reading of the law reveals that the Carriage of Goods by Sea Act
governs the relationship between the carrier on the one hand and the
shipper, the consignee and/or the insurer on the other hand. It defines the
obligations of the carrier under the contract of carriage. It does not,
however, affect the relationship between the shipper and the insurer. The
latter case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro[8] and
the other cases[9] cited therein does not support respondent court's view
that the insurer's liability prescribes after one year if no action for
indemnity is filed against the carrier or the insurer. In that case, the shipper
filed a complaint against the insurer for recovery of a sum of money as
indemnity for the loss and damage sustained by the insured goods. The
insurer, in turn, filed a third-party complaint against the carrier for
reimbursement of the amount it paid to the shipper. The insurer filed the
third-party complaint on January 9, 1978, more than one year after delivery
of the goods on December 17, 1977. The court held that the Insurer was
already barred from filing a claim against the carrier because under the
Carriage of Goods by Sea Act, the suit against the carrier must be filed
within one year after delivery of the goods or the date when the goods
should have been delivered. The court said that "the coverage of the Act
includes the insurer of the goods."[10]
The Filipino Merchants case is different from the case at bar. In Filipino
Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at bar, it
was the shipper which filed a claim against the insurer. The basis of the
shipper's claim is the "all risks" insurance policies issued by private
respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the
carrier filed either by the shipper, the consignee or the insurer. When the
court said in Filipino Merchants that Section 3(6) of the Carriage of Goods
by Sea Act applies to the insurer, it meant that the insurer, like the shipper,
may no longer file a claim against the carrier beyond the one-year period
provided in the law. But it does not mean that the shipper may no longer
file a claim against the insurer because the basis of the insurer's liability is
the insurance contract. An insurance contract is a contract whereby one
party, for a consideration known as the premium, agrees to indemnify
another for loss or damage which he may suffer from a specified peril.[11] An
"all risks" insurance policy covers all kinds of loss other than those due to
willful and fraudulent act of the insured.[12] Thus, when private respondents
issued the "all risks" policies to petitioner Mayer, they bound themselves to
indemnify the latter in case of loss or damage to the goods insured. Such
obligation prescribes in ten years, in accordance with Article 1144 of the
New Civil Code.[13]
IN VIEW WHEREOF, the petition is GRANTED. The Decision of
respondent Court of Appeals dated December 14, 1995 and its Resolution
dated February 22, 1996 are hereby SET ASIDE and the Decision of the
Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
SPOUSES ALFREDO AND MELINDA MUNAR, GLORIA PALISOC-RUGA,
PACITA PALISOC, LYDIA PALISOC-ROSALES AND ILUMINADO
PALISOC, petitioners,
vs.
COURT OF APPEALS AND SPOUSES RAMON AND REBECCA
NIEVES, respondents.
Robles, Ricafrente & Aguirre Law Firm for petitioners.
Vidal M. De la Vega for private respondents.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules
of Court of the Decision of the Court of Appeals in CA-G.R. SP
No. 23177.
I On November 5, 1985, the Nieveses filed a Complaint for Ejectment
Petitioners Gloria, Pacita, Lydia and Iluminado, all surnamed Palisoc
(Palisocs), are the registered co-owners of a parcel of land with a six-door
apartment situated at No. 27 Yakal Street, Project 3, Quezon City and
covered by Transfer Certificate of Title No. 297768 (Records, p. 198).
On January 9, 1976, the Palisocs executed a notarized Conditional Deed of
Sale over the aforementioned property in favor of private respondents
Ramon and Rebecca Nieves (Nieveses) for and in consideration of
P60,000.00 (Rollo, p. 62). Only the amount of P35,000.00 was paid by the
Nieveses to the Palisocs upon the execution of the deed. The balance of
P25,000.00 was to be paid on May 16, 1977.
On the same date as the execution of the Conditional Deed of Sale, the
Palisocs also executed a special power of attorney in favor of the Nieveses,
authorizing them to collect the rentals on the apartments beginning
February 1976 (Rollo, p. 64).
Subsequently, petitioner Pacita Palisoc in a letter dated February 3, 1976
(Exh. "E"), gave notice to all occupants of the building that the Nieveses
were the administrators of the said building with whom they could make
arrangements for their continued stay thereat (Records, p. 229).
In a letter dated September 27, 1977, petitioner Pacita Palisoc, who was
then in the United States of America and in need of money, asked the
Nieveses that the balance of the purchase price be converted into dollars
and be sent to her (Exh. "F"). The Nieveses dutifully accommodated the said
request (Records, p. 229).
On March 25, 1983, the Nieveses filed a Complaint for Specific Performance
with Damages docketed as Civil Case No. Q-37735 against the Palisocs with
the Regional Trial Court, Branch 91, Quezon City, alleging that the Palisocs
refused to execute the Deed of Absolute Sale even after the Nieveses had
paid the balance of P25,000.00 to petitioner Pacita Palisoc (Rollo, p. 67).
The Regional Trial Court rendered a decision in favor of the Nieveses, which
was affirmed by the Court of Appeals. On appeal by the Palisocs, the
Supreme Court dismissed their petition on July 8, 1992 (G.R. No. 104369).
docketed as Civil Case No. 0048766 with the Metropolitan Trial Court of
Quezon City, Branch 33, against petitioners Alfredo and Melinda Munar
(Munars) and some of the tenants in the apartment for non-payment of
rentals since June 10, 1985 (Rollo, p. 86).
In their answer with compulsory counterclaim, the Munars averred that the
Nieveses were no longer authorized to collect the rentals because the
power of attorney given them had been revoked by the Palisocs on June 30,
1985. They also contended that the conditional deed of sale had been
revoked by the Palisocs for failure of the Nieveses to pay the balance of the
purchase price, and that the ejectment case was prematurely filed there
being an on-going litigation between the Palisocs and the Nieveses for
specific performance (Rollo, pp. 84 and 92).
The Munars filed a Motion to Apply the Rule on Regular Procedure alleging
that a question of ownership was involved which made inapplicable the
Rule on Summary Procedure in ordinary ejectment cases. The motion was
denied by the trial court in its Order dated January 3, 1986 (Rollo, p. 97).
The Palisocs filed a Motion for Leave to Allow and Admit Answer In
Intervention, praying that they be allowed to intervene in the ejectment
case inasmuch as they had a legal interest in the matter in litigation as the
registered owners and the lessors of the premises (Rollo, p. 98).
In an Order dated January 21, 1986, the trial court denied the motion to
intervene, considering that in ejectment cases, such a motion is a
prohibited pleading not allowed by the Rule on Summary Procedure (Rollo,
p. 105).
On February 18, 1986, the Munars filed a Motion to Include Necessary
Parties for the purpose of including the Palisocs (Rollo, p. 106).
In an Order dated February 28, 1986, the trial court granted the
aforementioned motion and ordered the Palisocs to appear before it for
preliminary conference (Rollo, p. 110).
On May 5, 1986, the Palisocs filed a manifestation informing the trial court
that the Munars have vacated the premises and that they are now the ones
occupying the premises in question as they are the rightful owners and
possessors of the same (Rollo, p. 111).
On June 5, 1986, the Nieveses filed a Motion to Declare Gloria Palisoc-Ruga
and Family In Contempt of Court for entering and occupying the premises in
question by means of stealth, strategy and force (Records, p. 326).
On August 1, 1986, the Palisocs filed their Answer/Comment to the Motion
for Contempt (Records, p. 329).
On May 15, 1990, the trial court rendered its decision in favor of the
Nieveses, disposing as follows:
Wherefore, premises considered, judgment is hereby
rendered in favor of the plaintiffs and against the
defendants as follows:
1. Declaring the ejectment of the defendants Munars on
the subject premises as moot and academic;
2. Ordering the defendants Alfredo and Melinda Munar to
pay the plaintiffs the amount of P4,400.00 representing
their rental arrearages from July 1985 up to October 1985
and every month thereafter at the rate of P880.00 a month
until the date they vacated (sic) the leased premises;
3. Ordering the Palisoc family, more particularly Gloria
Palisoc Ruga, who actually occupied the premises in
question identified as No. 27 Yakal Street, Quezon City, to
immediately vacate and surrender the peaceful possession
of the said premises to the plaintiff;
4. Ordering Gloria Palisoc Ruga to pay the plaintiffs a
monthly amount of P1,000.00 effective May 19, 1986, as
the fair and reasonable value of her use and enjoyment of
the subject premises, until she finally vacates and
surrenders the peaceful possession of the same to the
plaintiffs;
5. Ordering the defendants to pay plaintiffs the sum of
P5,000.00 as and by way of attorney's fees;
6. Ordering the defendants to pay the costs of suit.
Defendants' counterclaim is dismissed for lack of merit
(Records,
p. 232).
On June 1, 1990, the trial court amended its decision with the following
dispositive portion:
Wherefore, premises considered, judgment is hereby
rendered in favor of the plaintiffs and against the
defendants as follows:
 1. Declaring the physical ejectment of the defendants
Munars on the subject premises as moot and
academic, having vacated the premises identified as No. 27
Yakal Street, Quezon City, MM., but ordering all persons
presently occupying the same without any authority from
the plaintiffs, including the necessary parties-defendants in
this case to vacate and to surrender the peaceful possession
of the subject property to the plaintiffs;
2. Ordering the defendants Alfredo and Melinda Munar to
pay the plaintiffs the amount of P4,400.00 representing
their rental arrearages from July 1985 up to October 1985
and every month thereafter at the rate of P880.00 a month
until the date they vacated (sic) the subject premises;
3. Ordering the Palisoc family, particularly Gloria Palisoc
Ruga, who is joined as necessary party to this case, to pay
the plaintiffs a monthly amount of P1,000.00 effective May
19, 1986, as the fair and reasonable value of her use and
enjoyment of the subject premises, until she finally vacates
and surrenders the peaceful possession of the same to the
plaintiff ;
4. Ordering the defendants to pay plaintiffs the sum of
P5,000.00 as and by way of attorney's fees; and
5. Ordering the defendant to pay the costs of suit.
Defendants' counterclaim is dismissed for lack of merit
(Records,
p. 251).
Aggrieved by the decision of the trial court, both the Munars and the
Palisocs appealed to the Regional Trial Court of Quezon City. The Palisocs
filed a Notice of Appeal En Abundante Cautela questioning the inferior
court's jurisdiction over their persons (Records, p. 128; See also Records, p.
72). Subsequently, the Palisocs filed an Amended Notice of Appeal En
Abundante Cautela dated June 28, 1990, also questioning the jurisdiction of
the inferior court over their persons when it rendered its Decision dated
May 15, 1990 and its Order dated June 1, 1990 (Records, p. 257).
On August 22, 1990, the Regional Trial Court, Branch 89, Quezon City,
affirmed the inferior court's decision except that it ordered all persons
presently occupying the premises without authority from the Nieveses to
vacate the same. It clarified that only those who derived title from the
Palisocs or were made parties to the case were bound by the judgment
(Records, p. 104).
On October 10, 1990, the motion for reconsideration filed by the Palisocs
was denied for lack of merit (Records, p. 105).
On November 20, 1990, the Palisocs filed a Petition with Prayer for
Preliminary Injunction and Restraining Order questioning the court's
jurisdiction over their persons (Records, p. 74).
On February 28, 1991, the Court of Appeals rendered its decision, the
dispositive portion of which reads as follows:
Wherefore, the petition for certiorari is ordered DISMISSED
for lack of merit. No costs (Rollo, p. 185).
In a resolution dated July 9, 1991, the Motion for Reconsideration filed by
the Palisocs and Munars was denied for lack of merit (Records, p. 360).
Hence this petition.
II
The issues to be resolved are the following:
(1) Whether or not the court a quo acquired jurisdiction over the person of
the Palisocs;
(2) Who has prior physical possession of the property in question; and
(3) Whether or not the trial court erred in not consolidating the specific
performance case and the ejectment case.
The Palisocs contend that the trial court did not acquire jurisdiction over
their persons because the complaint was not amended to include them as
party defendants and no summons were issued and served on their persons
(Rollo,
pp. 23-25).
We do not agree.
III
Jurisdiction over the person of the defendant in civil cases is acquired either
by his voluntary appearance in court and his submission to its authority or
by service of summons. The service of summons is intended to give notice
to the defendant or respondent that an action has been commenced
against it (Quiason, Philippine Courts and Their Jurisdictions 120-121, 134
[1992]). The defendant or respondent is thus put on guard as to the
demands of the plaintiff as stated in the complaint (Paramount Insurance
Corporation v. Japson, 211 SCRA 879 [1992]).
In the case at bench, the Palisocs cannot feign ignorance of the complaint
for ejectment filed by the Nieveses against the Munars. The Palisocs, whose
counsel is the same as that of the Munars, filed a Motion For Leave to Allow
and Admit Answer in Intervention alleging that they have an interest on the
subject matter in litigation (Rollo, p. 98). This was denied because said
motion was a prohibited pleading. Undaunted, the Munars filed a Motion
to Include the Palisocs as Necessary Parties (Rollo, p. 106) which was
granted by the court a quo and made known in open court in the presence
of the counsel of both the Palisocs and Munars (Rollo, p. 110).
We also agree with the Court of Appeals that there was voluntary
appearance on the part of the Palisocs.
A voluntary appearance is a waiver of the necessity of formal notice. Thus it
has been held that when the appearance is by motion for the purpose of
objecting to the jurisdiction of the court over the person it must be for the
sole and separate purpose of objecting to the jurisdiction of the court. If the
appearance is for any other purpose, the defendant is deemed to have
submitted himself to the jurisdiction of the court. Such an appearance gives
the court jurisdiction over the person (Wang Laboratories, Inc. v. Mendoza,
156 SCRA 44 [1987]).
The Palisocs have voluntarily submitted to the jurisdiction of the trial court.
It is too late in the day for them to question the court's jurisdiction over
their person after receiving an unfavorable judgment.
The Munars next contend that the Nieveses cannot anymore collect the
rentals because the special power of attorney executed in their favor was
revoked by the Palisocs (Rollo, p. 49).
Siding with the Munars, the Palisocs claim that since the Nieveses failed to
pay the balance of the purchase price, the contract of sale was deemed
rescinded; hence, ownership of the questioned property reverted to them.
Furthermore, they argue that the right of the Nieveses to collect rentals
emanated from the special power of attorney, which was revoked by them
(Rollo, p. 49).
The contention of the Munars is without merit. The trial court found that
the contract of lease was between the Munars and Nieveses. The Palisocs
were not parties to the said lease contract; hence, the Munars cannot raise
the defense that the special power of attorney given to the Nieveses to
collect rentals was revoked by the Palisocs.
We have ruled that a tenant cannot, in an action involving the possession of
the leased premises, controvert the title of his landlord or assert any rights
adverse to that title. Neither can he set up any inconsistent right to change
the relation existing between himself and his landlord (Manuel v. Court of
Appeals, 199 SCRA 603 [1991]).
The issues raised by the Palisocs on the legal effects of the failure of the
Nieveses to pay the balance of the purchase price and the revocation of the
special power of attorney must be resolved in the case for specific
performance filed by the Nieveses against them.
Well-settled is the rule that the mere allegation of ownership of the WHEREFORE, the Decision of the Court of Appeals is AFFIRMED in toto.
property in dispute by the defendant in an ejectment suit or the pendency
of an action for reconveyance of title over the same property does not SO ORDERED.
divest the inferior court of its jurisdiction over the ejectment suit (Drilon v.
Gaurana, 149 SCRA 342 [1987]; De la Cruz v. Court of Appeals, 133 SCRA
520 [1984]; Alilaya v. Española, 107 SCRA 564 [1981]). The only exception to
this rule is where the question of de facto possession cannot be determined
properly without settling that of ownership because the latter is
inseparably linked with the former (Guzman v. Court of Appeals, 177 SCRA
604 [1989]).

The exception does not apply to the instant case. The Nieveses, by virtue of
the notarized Conditional Deed of Sale executed in their favor by the
Palisocs, transferred possession of the questioned property to the former.
The execution of a sale, thru a public instrument, shall be equivalent to the
delivery of the thing, unless there is stipulation to the contrary (Wong v.
Carpio, 203 SCRA 118 [1991]).

An action for ejectment is merely a quieting process and actual title to the
property is never determined. A party who can prove prior possession can
recover such possession even against the owner himself. Whatever may be
the character of his prior possession, if he has in his favor priority of time,
he has the right to remain on the property until he is lawfully ejected by a
person having a better right by accion publiciana or accion
reinvindicatoria (Reynante v. Court of Appeals, 207 SCRA 794 [1992]).

Possession of the property in question was transferred to the Nieveses

when the Palisocs executed the Conditional Deed of Sale on January 9, 1976
(Rollo, p. 62). The possession of the Palisocs began only when the Munars
vacated the property in question as shown by the Manifestation dated May
5, 1986 filed by the former. Hence, the Nieveses have prior physical
possession of the property in question.

Lastly, the issue on the consolidation of the specific performance case and
this ejectment case is rendered moot and academic by this Court's
Resolution dated July 8, 1992 in G.R. No. 104369, which in effect sustained
the decision of the Regional Trial Court ordering the Palisocs to perform
specifically the Conditional Deed of Sale in favor of the Nieveses.
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC., petitioner, vs. COURT OF APPEALS and FELMAN
SHIPPING LINES, respondents.
DECISION
BELLOSILLO, J.:
This case deals with the liability, if any, of a shipowner for loss of cargo
due to its failure to observe the extraordinary diligence required by Art.
1733 of the Civil Code as well as the right of the insurer to be subrogated to
the rights of the insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on
board MV Asilda, a vessel owned and operated by respondent Felman
Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola
softdrink bottles to be transported from Zamboanga City to
Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.[1] The
shipment was insured with petitioner Philippine American General
Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No.
100367-PAG.
MV Asilda left the port of Zamboanga in fine weather at eight oclock in
the evening of the same day. At around eight forty-five the following
morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte
bringing down her entire cargo with her including the subject 7,500 cases of
1-liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc.,
Cebu plant, filed a claim with respondent FELMAN for recovery of damages
it sustained as a result of the loss of its softdrink bottles that sank with MV
Asilda. Respondent denied the claim thus prompting the consignee to file
an insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against
respondent FELMAN which disclaimed any liability for the
loss. Consequently, on 29 November 1983 PHILAMGEN sued the shipowner
for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss
of MV Asilda and its cargo were due to the vessels unseaworthiness as she
was put to sea in an unstable condition.It further alleged
that the vessel was improperly manned and that its officers were grossly
negligent in failing to take appropriate measures to proceed to a nearby
port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the
affirmative defense that no right of subrogation in favor of PHILAMGEN was
transmitted by the shipper, and that, in any event, FELMAN had abandoned
all its rights, interests and ownership over MV Asilda together with her
freight and appurtenances for the purpose of limiting and extinguishing its
liability under Art. 587 of the Code of Commerce.[2]
On 17 February 1986 the trial court dismissed the complaint of
PHILAMGEN. On appeal the Court of Appeals set aside the dismissal and
remanded the case to the lower court for trial on the merits. FELMAN filed
a petition for certiorari with this Court but it was subsequently denied on
13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor of
FELMAN.[3] It ruled that MV Asilda was seaworthy when it left the port of
Zamboanga as confirmed by certificates issued by the Philippine Coast
Guard and the shipowners surveyor attesting to its seaworthiness. Thus the
loss of the vessel and its entire shipment could only be attributed to either
a fortuitous event, in which case, no liability should attach unless there was
a stipulation to the contrary, or to the negligence of the captain and his
crew, in which case, Art. 587 of the Code of Commerce should apply.
The lower court further ruled that assuming MV Asilda was
unseaworthy, still PHILAMGEN could not recover from FELMAN since the
assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied
warranty on the vessels seaworthiness. Resultantly, the payment made by
PHILAMGEN to the assured was an undue, wrong and mistaken
payment. Since it was not legally owing, it did not give PHILAMGEN the
right of subrogation so as to permit it to bring an action in court as a
subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of
Appeals. On 29 August 1994 respondent appellate court rendered
judgment finding MV Asilda unseaworthy for being top- heavy as 2,500
cases of Coca-Cola softdrink bottles were improperly stowed on deck. In
other words, while the vessel possessed the necessary Coast Guard
certification indicating its seaworthiness with respect to the structure of
the ship itself, it was not seaworthy with respect to the cargo. Nonetheless,
the appellate court denied the claim of PHILAMGEN on the ground that the
assureds implied warranty of seaworthiness was not complied
with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights
and interests of the shipper.Furthermore, respondent court held that the
filing of notice of abandonment had absolved the shipowner/agent from
liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether MV
Asilda was seaworthy when it left the port of Zamboanga; (b) whether the
limited liability under Art. 587 of the Code ofCommerce should apply; and,
(c) whether PHILAMGEN was properly subrogated to the rights and legal
actions which the shipper had against FELMAN, the shipowner.
MV Asilda was unseaworthy when it left the port of Zamboanga. In a
joint statement, the captain as well as the chief mate of the vessel
confirmed that the weather was fine when they left the port of
Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-
liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2
cylinders and an undetermined quantity of empty boxes for fresh
eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-
Cola bottles on deck.[4] The ship captain stated that around four oclock in
the morning of 7 July 1983 he was awakened by the officer on duty to
inform him that the vessel had hit a floating log. At that time he noticed
that the weather had deteriorated with strong southeast winds inducing big
waves. After thirty minutes he observed that the vessel was listing slightly
to starboard and would not correct itself despite the heavy rolling and
pitching. He then ordered his crew to shift the cargo from starboard to
portside until the vessel was balanced. At about seven oclock in the
morning, the master of the vessel stopped the engine because the vessel
was listing dangerously to portside. He ordered his crew to shift the cargo
back to starboard. The shifting of cargo took about an hour afterwhich he
rang the engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside and
before the captain could decide on his next move, some of the
cargo on deck were thrown overboard and seawaterentered the engine
room and cargo holds of the vessel. At that instance, the master of the
vessel ordered his crew to abandon ship. Shortly thereafter, MV
Asilda capsized and sank. He ascribed the sinking to the entry of seawater
through a hole in the hull caused by the vessels collision with a partially
submerged log.[5]
The Elite Adjusters, Inc., submitted a report regarding the sinking
of MV Asilda. The report, which was adopted by the Court of Appeals, reads
-
We found in the course of our investigation that a reasonable explanation
for the series of lists experienced by the vessel that eventually led to her
capsizing and sinking, was that the vessel was top-heavywhich is to say that
while the vessel may not have been overloaded, yet the distribution or
stowage of the cargo on board was done in such a manner that the vessel
was in top-heavy condition at the time of her departure and which
condition rendered her unstable and unseaworthy for that particular
voyage.
In this connection, we wish to call attention to the fact that this vessel was
designed as a fishing vessel x x x x and it was not designed to carry a
substantial amount or quantity of cargo on deck. Therefore, we believe
strongly that had her cargo been confined to those that could have been
accommodated under deck, her stability would not have been affected and
the vessel would not have been in any danger of capsizing, even given the
prevailing weather conditions at that time of sinking.
But from the moment that the vessel was utilized to load heavy cargo on its
deck, the vessel was rendered unseaworthy for the purpose of carrying the
type of cargo because the weight of the deck cargo so decreased the
vessels metacentric height as to cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves,
it must be pointed out that ships are precisely designed to be able to
navigate safely even during heavy weather and frequently we hear of ships
safely and successfully weathering encounters with typhoons and although
they may sustain some amount of damage, the sinking of ship during heavy
weather is not a frequent occurrence and is not likely to occur unless they
are inherently unstable and unseaworthy x x x x
We believe, therefore, and so hold that the proximate cause of the sinking
of the M/V Asilda was her condition of unseaworthiness arising from her
having been top-heavy when she departed from the Port of
Zamboanga. Her having capsized and eventually sunk was bound to happen
and was therefore in the category of an inevitable occurrence (underscoring
supplied).[6]
We subscribe to the findings of the Elite Adjusters, Inc., and the Court
of Appeals that the proximate cause of the sinking of MV Asilda was its
being top-heavy. Contrary to the ship captains allegations, evidence shows
that approximately 2,500 cases of softdrink bottles were stowed on
deck. Several days after MV Asilda sank, an estimated 2,500 empty Coca-
Cola plastic cases were recovered near the vicinity of the
sinking. Considering that the ships hatches were properly secured, the
empty Coca-Cola cases recovered could have come only from the vessels
deck cargo. It is settled that carrying a deck cargo raises the presumption of
unseaworthiness unless it can be shown that the deck cargo will not
interfere with the proper management of the ship. However, in this case it
was established that MV Asilda was not designed to carry substantial
amount of cargo on deck. The inordinate loading of cargo deck resulted in
the decrease of the vessels metacentric height[7] thus making it
unstable. The strong winds and waves encountered by the vessel are but
the ordinary vicissitudes of a sea voyage and as such merely contributed to
its already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not
applicable to the case at bar.[8] Simply put, the ship agent is liable for the
negligent acts of the captain in the care of goods loaded on the vessel. This
liability however can be limited through abandonment of the vessel, its
equipment and freightage as provided in Art. 587. Nonetheless, there are
exceptional circumstances wherein the ship agent could still be held
answerable despite the abandonment, as where the loss or injury was due
to the fault of the shipowner and the captain.[9] The international rule is to
the effect that the right of abandonment of vessels, as a legal limitation of a
shipowners liability, does not apply to cases where the injury or average
was occasioned by the shipowners own fault.[10] It must be stressed at this
point that Art. 587 speaks only of situations where the fault or negligence is
committed solely by the captain. Where the shipowner is likewise to be
blamed, Art. 587 will not apply, and such situation will be covered by the
provisions of the Civil Code on common carrier.[11]
It was already established at the outset that the sinking of MV
Asilda was due to its unseaworthiness even at the time of its departure
from the port of Zamboanga. It was top-heavy as an excessive amount of
cargo was loaded on deck. Closer supervision on the part of the shipowner
could have prevented this fatal miscalculation. As such, FELMAN was
equally negligent.It cannot therefore escape liability through the expedient
of filing a notice of abandonment of the vessel by virtue of Art. 587 of the
Code of Commerce.
Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature
of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of
each case x x x x" In the event of loss of goods, common carriers are
presumed to have acted negligently. FELMAN, the shipowner, was not able
to rebut this presumption.
In relation to the question of subrogation, respondent appellate court
found MV Asilda unseaworthy with reference to the cargo and therefore
ruled that there was breach of warranty of seaworthiness that rendered the
assured not entitled to the payment of is claim under the policy. Hence,
when PHILAMGEN paid the claim of the bottling firm there was in effect a
voluntary payment and no right of subrogation accrued in its favor. In other
words, when PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured
impliedly warrants to the assurer that the vessel is seaworthy and such
warranty is as much a term of the contract as if expressly written on the
face of the policy.[12] Thus Sec. 113 of the Insurance Code provides that (i)n
every marine insurance upon a ship or freight, or freightage, or upon
anything which is the subject of marine insurance, a warranty is implied
that the ship is seaworthy. Under Sec. 114, a ship is seaworthy when
reasonably fit to perform the service, and to
encounterthe ordinary perils of the voyage, contemplated by the parties to
the policy. Thus it becomes the obligation of the cargo owner to look for a
reliable common carrier which keeps its vessels in seaworthy condition. He
may have no control over the vessel but he has full control in the selection
of the common carrier that will transport his goods. He also has full
discretion in the choice of assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness
by the assured as painstakingly pointed out by FELMAN to stress that
subrogation will not work in this case. In policies where the law will
generally imply a warranty of seaworthiness, it can only be excluded by
terms in writing in the policy in the clearest language.[13] And where the
policy stipulates that the seaworthiness of the vessel as between the
assured and the assurer is admitted, the question of seaworthiness cannot
be raised by the assurer without showing concealment or
misrepresentation by the assured.[14]
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm
in at least two (2) instances has dispensed with the usual warranty of
worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads
(t)he liberties as per Contract of Affreightment the presence of the
Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or
Charter Party and/or Contract of Affreightment as between the Assured
and the Company shall not prejudice the insurance. The seaworthiness of
the vessel as between the Assured and the Assurers is hereby admitted.[15]
The same clause is present in par. 8 of the Institute Cargo
Clauses (F.P.A.) of the policy which states (t)he seaworthiness of the vessel
as between the Assured and Underwriters in hereby admitted x x x x"[16]
The result of the admission of seaworthiness by the assurer
PHILAMGEN may mean one or two things: (a) that the warranty of the
seaworthiness is to be taken as fulfilled; or, (b) that the risk of
unseaworthiness is assumed by the insurance company.[17] The insertion of
such waiver clauses in cargo policies is in recognition of the realistic fact
that cargo owners cannot control the state of the vessel. Thus it can be said
that with such categorical waiver, PHILAMGEN has accepted the risk of
unseaworthiness so that if the ship should sink by unseaworthiness, as
what occurred in this case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for
subrogation. PHILAMGENs action against FELMAN is squarely sanctioned by
Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for 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 wrongdoer or
the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the
loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we said
that payment by the assurer to the assured operates as an equitable
assignment to the assurer of all the remedies which the assured may have
against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out
of any privity of contract or upon payment by the insurance company of the
insurance claim. It accrues simply upon payment by the insurance company
of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to
promote and to accomplish justice and is the mode which equity adopts to
compel the ultimate payment of a debt by one who in justice, equity and
good conscience ought to pay.[19] Therefore, the payment made by
PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the
right to bring an action as subrogee against FELMAN. Having failed to rebut
the presumption of fault, the liability of FELMAN for the loss of the 7,500
cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING
LINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERAL
INSURANCE CO., INC., Seven Hundred Fifty-five Thousand
Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon
counted from 29 November 1983, the date of judicial demand, pursuant to
Arts. 2212 and 2213 of the Civil Code.[20]
SO ORDERED.
IREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND
RUBBER COMPANY OF THE PHILIPPINES, plaintiffs-appellants,
vs.
JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE CO.,
INC., defendants-appellees.
Conrado R. Ayuyao for plaintiffs-appellees.
Ponciano U. Pitargue for defendant-appellee First quezon City Insurance Co.,
Inc.
Fernando B. Zamora for defendant-appellee Jamila & Company, Inc.
AQUINO, J.:
Fireman's Fund and Insurance Company (Fireman's Fund for short) and
Firestone Tire and Rubber Company of the Philippines appealed from the
order dated October 18, 1966 of the Court of First Instance of Manila,
dismissing their complaint against Jamila & Co., Inc. (hereinafter called
Jamila) for the recovery of the sum of P11,925.00 plus interest, damages
and attorney's fees (Civil Case No. 65658).
The gist of the complaint is that Jamila or the Veterans Philippine Scouts
Security Agency contracted to supply security guards to Firestone; that
Jamila assumed responsibility for the acts of its security guards; that First
Quezon City Insurance Co., Inc. executed a bond in the sum of P20,000.00
to guarantee Jamila's obligations under that contract; that on May 18, 1963
properties of Firestone valued at P11,925.00 were lost allegedly due to the
acts of its employees who connived with Jamila's security guard; that
Fireman's Fund, as insurer, paid to Firestone the amount of the loss; that
Fireman's Fund was subrogated to Firestone's right to get reimbursement
from Jamila, and that Jamila and its surety, First Quezon City Insurance Co.,
Inc., failed to pay the amount of the loss in spite of repeated demands.
Upon defendants' motions, the lower court in its order of July 22, 1966
dismissed the complaint as to Jamila on the ground that there was no
allegation that it had consented to the subrogation and, therefore,
Fireman's Fund had no cause of action against it.
In the same order the lower court dismissed the complaint as to First
Quezon City Insurance Co., Inc. on the ground of res judicata. It appears
that the same action was previously filed in Civil Case No. 56311 which was
dismiss because of the failure of the same plaintiffs and their counsel to
appear at the pre trial.
Firestone and Fireman's Fund moved for the reconsideration of the order of
dismissal. The lower court on September 3, 1966 set aside its order of
dismissal. It sustained plaintiffs' contention that there was no res judicataas
to First Quezon City Insurance Co., Inc. because Civil Case No. 56311 was
dismissed without prejudice. Later, First Quezon City Insurance Co., Inc.
filed its answer to the complaint.
However, due to inadvertence, the lower court did not state in its order of
September 3, 1966 why it set aside its prior order dismissing the
complaint with respect to Jamila.
What is now to be recounted shows the lack of due care on the part of the
lower court and the opposing lawyers in their management of the case.
Such lack of due care has given the case a farcical ambiance and might
partially explain the long delay in its adjudication.
Jamila, upon noticing that the order of September 3, 1966 had obliterated
its victory without any reason therefor, filed a motion for reconsideration.
It had originally moved for the dismissal of the complaint on the ground of
lack of cause of action. Its contention was based on two grounds, to wit: (1)
that the complaint did not allege that Firestone, pursuant to the
contractual stipulation quoted in the complaint, had investigated the loss
and that Jamila was represented in the investigation and (2) that Jamila did
not consent to the subrogation of Fireman's Fund to Firestone's right to get
reimbursement from Jamila and its surety. The lower court in its order of
dismissal had sustained the second ground.
Jamila in its motion for the reconsideration of the order of September 3,
1966 invoked the first ground which had never been passed upon by the
lower court. Firestone and Fireman's Fund in their opposition joined battle,
in a manner of speaking, on that first ground.
But the lower court in its order of October 18, 1966, granting Jamila's
motion for reconsideration, completely ignored that first ground. It
reverted to the second ground which was relied upon in its order of
September 3, 1966. The lower court reiterated its order of July 22, 1966
that Fireman's Fund had no cause of action against Jamila because Jamila
did not consent to the subrogation. The court did not mention Firestone,
the co-plaintiff of Fireman's Fund.
At this juncture, it may be noted that motions for reconsideration become
interminable when the court's orders follow a seesaw pattern. That
phenomenon took place in this case.
Firestone and Fireman's Fund filed a motion for the reconsideration of the
lower court's order of October 18, 1966 on the ground that Fireman's Fund
Insurance Company was suing on the basis of legal subrogation whereas
the lower court erroneously predicated its dismissal order on the theory
that there was no conventional subrogation because the debtor's consent
was lacking.
The plaintiffs cited article 2207 of the Civil Code which provides that "if the
plaintiff's property has been insured, and he has received indemnity from
the insurance company for 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 wrongdoer or the person
who has violated the contract".
The lower court denied plaintiffs' motion. They filed a second motion for
reconsideration. In that motion they sensibly called the lower court's
attention to the fact that the issue of subrogation was of no moment
because Firestone, the subrogor, is a party-plaintiff and could sue directly
Jamila in its own right. Without resolving that contention, the lower court
denied plaintiffs' second motion for reconsideration.
In this appeal Firestone and Fireman's Fund contend that the trial court's
dismissal of their complaint is contrary to the aforementioned article 2207
which provides for legal subrogation.
Jamila, in reply, stubbornly argues that legal subrogation under article 2207
requires the debtor's consent; that legal subrogation takes place in the
cases mentioned in article 1302 of the Civil Code and the instant case is not
among the three cases enumerated in that article, and that there could be
no subrogation in this case because according to the plaintiffs the contract
between. Jamila and Firestone was entered into on June 1, 1965 but the
loss complained of occurred on May 18, 1963.
With respect to the factual point raised by Jamila, it should be stated that
plaintiffs' counsel gratuitously alleged in their brief that Firestone and
Jamila entered into a "contract of guard services" on June 1, 1965. That
allegation, which was uncalled for because it is not found in the complaint,
created confusion which heretofore did not exist. No copy of the contract
was annexed to the complaint.
That confusing statement was an obvious error since it was expressly
alleged in the complaint that the loss occurred on May 18, 1963. The fact
that such an error was committed is another instance substantiating our
previous observation that plaintiffs' counsel had not exercised due care in
the presentation of his case.
The issue is whether the complaint of Firestone and Fireman's Fund states a
cause of action against Jamila.
We hold that Firestone is really a nominal, party in this case. It had already
been indemnified for the loss which it had sustained. Obviously, it joined as
a party-plaintiff in order to help Fireman's Fund to recover the amount of
the loss from Jamila and First Quezon City Insurance Co., Inc. Firestone had
tacitly assigned to Fireman's Fund its cause of action against Jamila for
breach of contract. Sufficient ultimate facts are alleged in the complaint to
sustain that cause of action.
On the other hand, Fireman's Fund's action against Jamila is squarely
sanctioned by article 2207. As the insurer, Fireman's Fund is entitled to go
after the person or entity that violated its contractual commitment to
answer for the loss insured against (Cf. Philippine Air Lines, Inc. vs. Heald
Lumber Co., 101 Phil. 1032; Rizal Surety & Insurance Co. vs. Manila Railroad
Company, L-24043, April 25, 1968, 23 SCRA 205).
The trial court erred in applying to this case the rules on novation. The
plaintiffs in alleging in their complaint that Fireman's Fund "became a party
in interest in this case by virtue of a subrogation right given in its favor by"
Firestone, were not relying on the novation by change of creditors as
contemplated in articles 1291 and 1300 to 1303 of the Civil Code but rather
on article 2207.
Article 2207 is a restatement of a settled principle of American
jurisprudence. Subrogation has been referred to as the doctrine of
substitution. It "is an arm of equity that may guide or even force one to pay
a debt for which an obligation was incurred but which was in whole or in
part paid by another" (83 C.J.S. 576, 678, note 16, citing Fireman's Fund
Indemnity Co. vs. State Compensation Insurance Fund, 209 Pac. 2d 55).
"Although many policies including policies in the standard form, now
provide for subrogation, and thus determine the rights of the insurer in this
respect, the equitable right of subrogation as the legal effect of payment
inures to the insurer without any formal assignment or any express
stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated
otherwise, when the insurance company pays for the loss, such payment
operates as an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That right is
not dependent upon, nor does it grow out of, any privity of contract, or
upon written assignment of claim, and payment to the insured makes the
insurer an assignee in equity (Shambley v. Jobe-Blackley Plumbing and
Heating Co., 264 N. C. 456,142 SE 2d 18).
Whether the plaintiffs would be able to prove their cause of action against
Jamila is another question.
Finding the trial court's order of dismissal to be legally untenable, the same
is set aside with costs against defendant-appellee Jamila & Co., Inc.

"Subrogation is founded on principles of justice and equity, and its SO ORDERED.

operation is governed by principles of equity. It rests on the principle that
substantial justice should be attained regardless of form, that is, its basis is
the doing of complete, essential, and perfect justice between all the parties
without regard to form"(83 C.J.S. 579- 80)

Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs

Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer
is entitled to be subrogated pro tanto to any right of action which the
insured may have against the third person whose. negligence or wrongful
act caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs.
Scottish Metropolitan Assurance Co., 283 U. S. 294, 75 L. ed. 1037).

The right of subrogation is of the highest equity. The loss in the first
instance is that of the insured but after reimbursement or compensation, it
becomes the loss of the insurer (44 Am. Jur. 2d 746, note 16, citing
Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).
FILIPINAS COMPAÑIA DE SEGUROS, petitioner,
vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, &
Co., Inc., after payment of corresponding premium, obtained from the
petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of
P1000,000, covering merchandise contained in a building located at No. 711
Roman Street, Binondo Manila. On February 27, 1942, or during the
Japanese military occupation, the building and insured merchandise were
burned. In due time the respondent submitted to the petitioner its claim
under the policy. The salvage goods were sold at public auction and, after
deducting their value, the total loss suffered by the respondent was fixed at
P92,650. The petitioner refused to pay the claim on the ground that the
policy in favor of the respondent had ceased to be in force on the date the
United States declared war against Germany, the respondent Corporation
(though organized under and by virtue of the laws of the Philippines) being
controlled by the German subjects and the petitioner being a company
under American jurisdiction when said policy was issued on October 1,
1941. The petitioner, however, in pursuance of the order of the Director of
Bureau of Financing, Philippine Executive Commission, dated April 9, 1943,
paid to the respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First
Instance of Manila for the purpose of recovering from the respondent the
sum of P92,650 above mentioned. The theory of the petitioner is that the
insured merchandise were burned up after the policy issued in 1941 in
favor of the respondent corporation has ceased to be effective because of
the outbreak of the war between the United States and Germany on
December 10, 1941, and that the payment made by the petitioner to the
respondent corporation during the Japanese military occupation was under
pressure. After trial, the Court of First Instance of Manila dismissed the
action without pronouncement as to costs. Upon appeal to the Court of
Appeals, the judgment of the Court of First Instance of Manila was
affirmed, with costs. The case is now before us on appeal by certiorari from
the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the
respondent corporation became an enemy when the United States
declared war against Germany, relying on English and American cases
which held that a corporation is a citizen of the country or state by and
under the laws of which it was created or organized. It rejected the theory
that nationality of private corporation is determine by the character or
citizenship of its controlling stockholders.
There is no question that majority of the stockholders of the respondent
corporation were German subjects. This being so, we have to rule that said
respondent became an enemy corporation upon the outbreak of the war
between the United States and Germany. The English and American cases
relied upon by the Court of Appeals have lost their force in view of the
latest decision of the Supreme Court of the United States in
Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92
Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the controls test
has been adopted. In "Enemy Corporation" by Martin Domke, a paper
presented to the Second International Conference of the Legal Profession
held at the Hague (Netherlands) in August. 1948 the following enlightening
passages appear:
Since World War I, the determination of enemy nationality of
corporations has been discussion in many countries, belligerent and
neutral. A corporation was subject to enemy legislation when it was
controlled by enemies, namely managed under the influence of
individuals or corporations, themselves considered as enemies. It
was the English courts which first the Daimler case applied this new
concept of "piercing the corporate veil," which was adopted by the
peace of Treaties of 1919 and the Mixed Arbitral established after
the First World War.
The United States of America did not adopt the control test during
the First World War. Courts refused to recognized the concept
whereby American-registered corporations could be considered as
enemies and thus subject to domestic legislation and administrative
measures regarding enemy property.
World War II revived the problem again. It was known that German
and other enemy interests were cloaked by domestic corporation
structure. It was not only by legal ownership of shares that a
material influence could be exercised on the management of the
corporation but also by long term loans and other factual
situations. For that reason, legislation on enemy property enacted
in various countries during World War II adopted by statutory
provisions to the control test and determined, to various degrees,
the incidents of control. Court decisions were rendered on the basis
of such newly enacted statutory provisions in determining enemy
character of domestic corporation.
The United States did not, in the amendments of the Trading with
the Enemy Act during the last war, include as did other legislations
the applications of the control test and again, as in World War I,
courts refused to apply this concept whereby the enemy character
of an American or neutral-registered corporation is determined by
the enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing
regulations, and other administrative practice in the treatment of
foreign-owned property in the United States allowed to large
degree the determination of enemy interest in domestic
corporations and thus the application of the control test. Court
decisions sanctioned such administrative practice enacted under
the First War Powers Act of 1941, and more recently, on December
8, 1947, the Supreme Court of the United States definitely
approved of the control theory. In Clark vs. Uebersee Finanz
Korporation, A. G., dealing with a Swiss corporation allegedly
controlled by German interest, the Court: "The property of all
foreign interest was placed within the reach of the vesting power
(of the Alien Property Custodian) not to appropriate friendly or
neutral assets but to reach enemy interest which masqueraded
under those innocent fronts. . . . The power of seizure and vesting
was extended to all property of any foreign country or national so
that no innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities
cited in support of the appealed decision. However, we may add that,
in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we
already held that China Banking Corporation came within the meaning of
the word "enemy" as used in the Trading with the Enemy Acts of civilized
countries not only because it was incorporated under the laws of an enemy
country but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8,
provides that "anyone except a public enemy may be insured." It stands to
reason that an insurance policy ceases to be allowable as soon as an
insured becomes a public enemy.
Effect of war, generally. — All intercourse between citizens of
belligerent powers which is inconsistent with a state of war is
prohibited by the law of nations. Such prohibition includes all
negotiations, commerce, or trading with the enemy; all acts which
will increase, or tend to increase, its income or resources; all acts of
voluntary submission to it; or receiving its protection; also all acts
concerning the transmission of money or goods; and all contracts
relating thereto are thereby nullified. It further prohibits insurance
upon trade with or by the enemy, upon the life or lives of aliens
engaged in service with the enemy; this for the reason that the
subjects of one country cannot be permitted to lend their
assistance to protect by insurance the commerce or property of
belligerent, alien subjects, or to do anything detrimental too their
country's interest. The purpose of war is to cripple the power and
exhaust the resources of the enemy, and it is inconsistent that one
country should destroy its enemy's property and repay in insurance
the value of what has been so destroyed, or that it should in such
manner increase the resources of the enemy, or render it aid, and
the commencement of war determines, for like reasons, all trading
intercourse with the enemy, which prior thereto may have been
lawful. All individuals therefore, who compose the belligerent
 powers, exist, as to each other, in a state of utter exclusion, and are
public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only
from year, or for some other specified term it is plain that when the
parties become alien enemies, the contractual tie is broken and the
contractual rights of the parties, so far as not vested. lost. (Vance,
the Law on Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10,
1941, the insurance policy issued in its favor on October 1, 1941, by the
petitioner (a Philippine corporation) had ceased to be valid and enforcible,
and since the insured goods were burned after December 10, 1941, and
during the war, the respondent was not entitled to any indemnity under
said policy from the petitioner. However, elementary rules of justice (in the
absence of specific provision in the Insurance Law) require that the
premium paid by the respondent for the period covered by its policy from
December 11, 1941, should be returned by the petitioner.
Financial Department of the Japanese Military Administration,
and following the instruction of said authority, you are hereby ordered to
pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of
said claim, however, should be made by means of crossed check."
(Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the
respondent under the circumstances on this case. However, the petitioner
will be entitled to recover only the equivalent, in actual Philippines currency
of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the
Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent
corporation is ordered to pay to the petitioner the sum of P77,208.33,
Philippine currency, less the amount of the premium, in Philippine
currency, that should be returned by the petitioner for the unexpired term
of the policy in question, beginning December 11, 1941. Without costs. So
ordered.

The Court of Appeals, in deciding the case, stated that the main issue Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo,
hinges on the question of whether the policy in question became null and JJ., concur.
void upon the declaration of war between the United States and Germany
on December 10, 1941, and its judgment in favor of the respondent
corporation was predicated on its conclusion that the policy did not cease
to be in force. The Court of Appeals necessarily assumed that, even if the
payment by the petitioner to the respondent was involuntary, its action is
not tenable in view of the ruling on the validity of the policy. As a matter of
fact, the Court of Appeals held that "any intimidation resorted to by the
appellee was not unjust but the exercise of its lawful right to claim for and
received the payment of the insurance policy," and that the ruling of the
Bureau of Financing to the effect that "the appellee was entitled to
payment from the appellant was, well founded." Factually, there can be no
doubt that the Director of the Bureau of Financing, in ordering the
petitioner to pay the claim of the respondent, merely obeyed the
instruction of the Japanese Military Administration, as may be seen from
the following: "In view of the findings and conclusion of this office
contained in its decision on Administrative Case dated February 9, 1943
copy of which was sent to your office and the concurrence therein of the
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. YIP WAI
MING, accused-appellant.
DECISION
MELO, J.:
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both
Hongkong nationals, came to Manila on vacation on July 10, 1993. The two
were engaged to be married. Hardly a day had passed when Lam Po Chun
was brutally beaten up and strangled to death in their hotel room. On the
day of the killing, July 11, 1993, Yip Wai Ming, was touring Metro Manila
with Filipino welcomers while Lam Po Chun was left in the hotel room
allegedly because she had a headache and was not feeling well enough to
do the sights.
For the slaying, an Information was lodged against Yip Wai Ming
on July 19, 1991, which averred:
That on or about July 11, 1993, in the City of Manila, Philippines,
the said accused did then and there wilfully, unlawfully and
feloniously with intent to kill with treachery and evident
premeditation, did then and there attack, assault and use
personal violence upon one Lam Po Chun by then and there
mauling and strangling the latter, thereby inflicting upon her
mortal and fatal wounds which were the direct and immediate
cause of her death thereafter.
On May 15, 1995, Branch 44 of the Regional Trial Court of the National
Capital Judicial Region stationed in Manila and presided over by the
Honorable Lolita O. Gal-lang rendered a decision in essence finding that Yip
Wai Ming killed his fiancee before he left for the Metro Manila
tour. Disposed thus the trial court:
WHEREFORE, in view of the foregoing established evidence,
judgment is hereby rendered convicting the accused Yip Wai Ming
beyond reasonable doubt of the crime of Murder as charged in
the information and as defined in Article 248, paragraph 5 of the
Revised Penal Code, and in accordance therewith the aggravating
circumstance of evident premeditation which attended the
commission of the offense, the said accused Yip Wai Ming is
hereby sentenced to suffer the penalty of Reclusion Perpetua with
all the accessory penalties provided for by law.
Accused is likewise ordered to pay the heirs of the deceased Lam
Po Chun of Hongkong the death indemnity for damages at Fifty
Thousand (P50,000.00) Pesos; Moral and compensatory damages
of Fifty Thousand (P50,000.00) Pesos each or a total of One
Hundred Thousand Pesos (P100,000.00); plus costs of suit.
The accused being detained, he is credited with the full extent of
the period under which he was under detention, in accordance
with the rules governing convicted prisoners.
SO ORDERED.
There was no eyewitness to the actual killing of Lam Po Chun. All the
evidence about the killing is circumstantial. The key issue in the instant
appeal is, therefore, whether or not the circumstantial evidence linking
accused-appellant to the killing is sufficient to sustain a judgment of
conviction beyond reasonable doubt.
The evidence upon which the prosecution convinced the trial court of
accused-appellants guilt beyond reasonable doubt is summarized in the
Solicitor-Generals brief as follows:
On or about 7 oclock in the evening of July 10, 1993, appellant
and his fiancee Lam Po Chun who are both Hongkong nationals,
checked in at Park Hotel located at No. 1032-34 Belen St.,
Paco, Manila. They were billeted at Room 210. Angel Gonzaga,
the roomboy on duty, assisted the couple in going up to their
room located at the second floor of the hotel (p. 14, tsn, October
13, 1993, p. 66, tsn, September 1, 1993). When they reached
Room 210, appellant got the key from Angel Gonzaga and
informed the latter that they do not need any room service,
particularly the bringing of foods and other orders to their room
(pp. 67-69, tsn, September 1, 1993).
After staying for about an hour inside Room 210, the couple went
down to the lobby of the hotel. Appellant asked the front desk
receptionist on duty to call a certain Gwen delos Santos and to
instruct her to pick them up the following day, July 11, 1993, a
Sunday at 10 oclock in the morning (pp. 21-25, tsn, September
8,1993).
At about past 8 oclock in the same evening of July 10, 1993, Cariza
Destreza, occupant of Room 211 which is adjacent to Room 210,
heard a noise which sounds like a heated argument between a
man and a woman coming from the room occupied by appellant
and Lam Po Chun. The heated discussions lasted for thirty (30)
minutes and thereafter subsided.
In the following morning, that is, July 11, 1993, at around 9:15,
the same Cariza Destresa again heard a banging which sounds like
somebody was thrown and stomped on the floor inside Room
210.Cariza, who became curious, went near the wall dividing her
room and Room 210. She heard a cry of a woman as if she cannot
breathe (pp. 23-24, tsn, August 30, 1993).
At about 10 oclock a.m., Gwen delos Santos, together with two
lady companions, arrived at the lobby of the Park Hotel. The
receptionist informed appellant by telephone of her arrival. In
response, appellant came down without his fiancee
Lam Po Chun. After a while he together with Gwen
delos Santos and the latters companions, left the hotel. Before
leaving, he gave instruction to the front desk receptionist not to
disturb his fiancee at Room 210. He also ordered not to accept
any telephone calls, no room cleaning and no room service (pp.
37-43, tsn, October 18, 1993).
When appellant left, the front desk receptionist, Enriqueta Patria,
noticed him to be in a hurry, perspiring and looking very scared
(p. 32, tsn, September 22, 1993).
During the whole morning of July 11, 1993, after appellant left the
hotel until his return at 11 oclock in the evening, he did not call
his fiancee Lam Po Chun to verify her physical condition (p. 44 tsn,
October 18, 1993, p. 18, tsn, November 23, 1993).
When appellant arrived at 11 oclock p.m. on that day, he asked
the receptionist for the key of his room. Then together with
Fortunato Villa, the roomboy, proceeded to Room 210. When the
lock was opened and the door was pushed, Lam Po Chun was
found dead lying face down on the bed covered with a
blanket. Appellant removed the blanket and pretended to exclaim
My God, she is dead but did not even embrace his
fiancee. Instead, appellant asked the room boy to go down the
hotel to inform the front desk, the security guard and other hotel
employees to call the police (pp. 8-27, tsn, October 18, 1993).
When the police arrived, they conducted an examination of the
condition of the doors and windows of the room as well as the
body of the victim and the other surroundings. They found no
signs of forcible entry and they observed that no one can enter
from the outside except the one who has the key. The police also
saw the victim wrapped in a colored blanket lying face
down. When they removed the blanket and tried to change the
position of her body, the latter was already in state of rigor
mortis, which indicates that the victim has been dead for ten (10)
to twelve (12) hours. The police calculated that Lam Po Chun must
have died between 9 to 10 in the morning of July 11, 1993 (pp. 2-
29), tsn, September 22, 1993).
Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted
an autopsy of the body of the victim. His examination (Exh. V)
revealed that the cause of death was asphyxia by strangulation.
Dr. Lagonera explained that asphyxia is caused by lack of oxygen
entering the body when the entrance of air going to the
respiratory system is blocked (pp. 6-19, tsn, December 14, 1993).
Prior to the death of the victim, her brother, Lam Chi Keung,
learned that her life was insured with the Insurance Company
of New Zealand in Causeway Bay, Hongkong, with appellant as
the beneficiary. The premium paid for the insurance was more
than the monthly salary of the deceased as an insurance
underwriter in Hongkong (Exh. X).
It was on the bases of the foregoing facts that appellant was
charged before the Regional Trial Court in Manila for the crime of
murder committed against the person of Lam Po Chun.
(pp. 3-7, Appellees Brief, ff. p. 176, Rollo.)
 In his brief, accused-appellant offers explanatory facts and argues that
the findings of fact of the trial court are based mainly on the prosecution
evidence displaying bias against accused-appellant. He contends that the
court made unwarranted and unfounded conclusions on the basis of self-
contradictory and conflicting evidence.
Accused-appellant, at the time of the commission of the crime, was a
customer relations officer of Well Motors Company in Kowloon,
Hongkong. He met Lam Po Chun at a party in 1991. Both were
sportsminded and after a short courtship, the two began to have a
relationship, living together in the same apartment. The two
toured China and Macao together in 1992.In April, 1993 the two decided to
get married. In May 1993, they registered with the Hongkong Marriage
Registry. The wedding was set for August 29,1993.
An office-mate of accused-appellant named Tessie Amay Ticar
encouraged him and Lam Po Chun to tour the Philippines in celebration of
their engagement. After finishing the travel arrangements, the two were
given by Ticar the names (Toots, Monique, and Gwen) of her cousins in
Manila and their telephone number. Photos of their Manila contacts were
shown to them. In addition to his Citibank credit card, accused-appellant
brought P24,000.00 secured at a Hongkong money exchange and
HK$4,000.00. Lam Po Chun had HK$3,000.00.
The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on board
Cathay Pacific Flight CX 903. They arrived at Park Hotel around 7 P.M. From
their hotel room, accused-appellant called their contact, Gwen delos
Santos, by telephone informing her of their arrival. The two ate outside at
McDonalds restaurant
Accused-appellant woke up the following morning - Sunday, July 11,
1993 - at around 8 oclock. After the usual amenities, including a shower,
the two had breakfast in the hotel restaurant, then they went back to their
room. At around 10 oclock that same morning, accused-appellant received
a phone call from the hotel staff telling him that their visitors had arrived.
He then went to the lobby ahead of Lam Po Chun, introduced himself
to the delos Santos sisters, Gwen and Monique, and their mother. A few
minutes later, Lam Po Chun joined them.Two bottles of perfume were given
to the sisters as arrival gifts.
Gwen delos Santos invited the couple to tour the city but Lam Po Chun
decided to stay behind as it was very hot and she had a headache. She
excused herself and went up to her room, followed later by accused-
appellant to get another bottle of perfume.
Accused-appellant claims that before leaving, he instructed the clerk at
the front desk to give Lam Po Chun some medicine for headache and, as
much as possible, not to disturb her.
Accused-appellant, Gwen, Monique, and the sisters mother took a
taxicab to Landmark Department Store where they window
shopped. Accused-appellant states that from a telephone booth in the
store, he called Lam Po Chun but no one answered his call. From Landmark
where they had lunch, the four went to Shoemart Department Store in
Makati. Accused-appellant bought a Giordano T-shirt at Landmark and
chocolates at Shoemart. Gwen delos Santos brought the group to the house
of her aunt, Edna Bayona, at Roces, Quezon City. From Roces St., Gwen
delos Santos brought the group to her home in Balut, Tondo. Using the
delos Santos telephone, accused-appellant called his office in Hongkong.
The PLDT receipt showed that the call was made at 6:44 P.M. on July 11,
1993. Accused-appellant claims that, afterwards, he called up Lam Po Chun
at their hotel room but the phone just kept on ringing with nobody
answering it. The group had dinner at the delos Santos house in
Tondo. After dinner, Gwen delos Santos brother and sister-in-law
arrived. They insisted in bringing their guest to a restaurant near Manila
Bay for coffee, but it was full so they proceeded to Tia Maria, a Mexican
restaurant in Makati.
Finally, the delos Santos family brought Andy Yip back to the Park
Hotel, arriving there at around 10:30 PM. Before the delos Santos group
left, there was an agreement that the following morning accused-appellant
and Lam Po Chun would join them in another city tour.
After accused-appellants knocks at the door of their room remained
unanswered, he went back to the hotel front desk and asked the hotel staff
to open the door for him. The room was dark. Accused-appellant put on the
light switch. He wanted to give the roomboy who accompanied him a P20
or P30 tip but his smallest bill was P100. He went to a side table to get
some smaller change. It was then when he noticed the disordered room, a
glass case and wallet on the floor, and Lam Po Chun lying face down on one
of the beds.
Accused-appellant tried to wake Lam Po Chun up by calling her name
but when she did not respond, he lifted up her face, moving her body
sidewards. He saw blood. Shocked, he shouted at the roomboy to call a
doctor.
Several people rushed to Room 210. A foreigner looked at Lam Po
Chun and said she was dead. The foreigner placed his arms around accused-
appellant who was slumped on the floor and motioned for him to leave the
room. Accused-appellant refused, but he was made to move out and to go
to the lobby, at which place, dazed and crying, he called up Gwen delos
Santos to inform her of what happened. Gwen could not believe what she
heard, but she assured accused-appellant that they were going to the
hotel. Policemen then arrived.
In the instant appeal, accused-appellant, through his new counsel,
former Justice Ramon C. Fernandez, assigns the following alleged errors:
I THE TRIAL COURT ERRED IN FINDING THAT THE PROSECUTION
THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSED-
APPELLANT WAS ARRESTED WITHOUT WARRANT, WAS
TORTURED AND WAS NOT INFORMED THAT HE HAD THE RIGHT
TO REMAIN SILENT AND BE ASSISTED BY INDEPENDENT AND
COMPETENT COUNSEL DURING CUSTODIAL INVESTIGATION.
II
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-
APPELLANT HAD THE VICTIM APPLE INSURED AND LATER KILLED
HER FOR THE INSURANCE PROCEEDS.
III
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-
APPELLANT COMMITTED A CRIME OF MURDER AGGRAVATED BY
EVIDENT PREMEDITATION.
IV
THE TRIAL COURT ERRED IN GIVING CREDENCE TO THE
TESTIMONY OF OFFICER ALEJANDRO YANQUILING, JR.
V
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONY OF
CARISA DESTREZA WHO INCURRED SERIOUS CONTRADICTIONS
ON MATERIAL POINTS.
VI
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONIES OF
THE OTHER PROSECUTION WITNESSES THAT CONTRADICTED
EACH OTHER ON MATERIAL POINTS.
VII
THE TRIAL COURT ERRED IN HOLDING THAT THE TESTIMONIES OF
THE WITNESSES OF THE ACCUSED ARE INCREDIBLE.
VIII
HAS ESTABLISHED THE GUILT OF THE ACCUSED-APPELLANT BY
PROOF BEYOND REASONABLE DOUBT.
IX
THE TRIAL COURT ERRED IN NOT COMPLETELY ACQUITTING THE
ACCUSED-APPELLANT OF THE CRIME CHARGED IN THE
INFORMATION.
The trial court, in arriving at its conclusions, took the various facts
presented by the prosecution, tied them up together like parts of a jig-saw
puzzle, and came up with a complete picture of circumstantial evidence
depicting not only the commission of the crime itself but also the motive
behind it.
Our review of the record, however, discloses that certain key
elements, without which the picture of the crime would be faulty and
unsound, are not based on reliable evidence. They appear to be mere
surmises and assumptions rather than hard facts or well-grounded
conclusions.
 A key element in the web of circumstantial evidence is motive which
the prosecution tried to establish. Accused-appellant and Lam Po Chun
were engaged to be married. They had toured China and Macao
together. They were living together in one apartment. They were registered
with the Hongkong Marriage Registry in May 1993. Marriage date was set
for August 29, 1993. This date was only a month and a half away from the
date of death of Lam Po Chun. In the absence of direct evidence indubitably
showing that accused-appellant was the perpetrator of the killing, motive
becomes important. The theory developed by the prosecution was not only
of a cold-blooded crime but a well-planned one, including its timing up to
the half hour. It is not the kind of crime that a man would commit against
his wife-to-be unless a strong motive for it existed.
The trial court would have been justified in finding that there was
evident premeditation of murder if the story is proved that Lam Po Chun
insured herself for the amounts of US $498,750.00 and US $249,375.00
naming accused-appellant as the beneficiary.
There is, however, no evidence that the victim secured an insurance
policy for a big amount in US dollars and indicated accused-appellant as the
beneficiary. The prosecution presented Exhibit X, a mere xerox copy of a
document captioned Proposal for Life Insurance as proof of the alleged
insurance. It is not a certified copy, nor was the original first identified.
The authenticity of the document has thus not been duly
established. Exhibit X was secured in Hongkong when Lam Chi Keung, the
brother of the victim, learned that his sister was murdered in Manila. It is
not shown how and from whom the information about any alleged
insurance having been secured came. There is no signature indicating that
the victim herself applied for the insurance. There is no marking in Exhibit X
of any entry which purports to be the victims signature. There is a signature
of Apple Lam which is most unusual for an insurance application because
the victims name is Lam Po Chun. To be sure nobody insures himself or
herself under a nickname. The entries in the form are in block letters
uniformly written by one hand. Below the printed name Lam Po Chun are
Chinese characters which presumably are the Chinese translation of her
name. Nobody was presented to identify the author of the block
handwriting. Neither the prosecution nor the trial court made any
comparisons, such as the signature of Lam Po Chun on her passport (Exh.
C), with her purported signature or any other entry in the form.
It needs not much emphasis to say that an application form does not
prove that insurance was secured. Anybody can get an application form for
insurance, fill it up at home before filing it with the insurance company. In
fact, the very first sentence of the form states that it merely forms the basis
of a contract between you and NZI Life. There was no contract yet.
There is evidence in the record that the family of Lam Po Chun did not
like her relationship with accused-appellant. After all the trouble that her
brother went through to gather evidence to pin down accused-appellant,
the fact that all he could come up with is an unsigned insurance application
form shows there was no insurance money forthcoming for accused-
appellant if Lam Po Chun died. There is no proof that the insurance
company approved the proposal, no proof that any premium payments
were made, and no proof from the record of exhibits as to the date it was
accomplished. It appearing that no insurance was issued to Lam Po Chun
with accused-appellant as the beneficiary, the motive capitalized upon by
the trial court vanishes.Thus, the picture changes to one of the alleged
perpetrator killing his fiancee under cold-blooded circumstances for
nothing.
There are other suspicious circumstances about the insurance angle.
Lam Po Chun was working for the National Insurance Company. Why then
should she insure her life with the New Zealand Insurance Company? Lams
monthly salary was only HK $5,000.00. The premiums for the insurance
were HK $5,400.00 or US $702.00 per month. Why should Lam insure
herself with the monthly premiums exceeding her monthly salary? And why
should any insurance company approve insurance, the premiums of which
the supposed insured obviously can not afford to pay, in the absence of any
showing that somebody else is paying for said premiums. It is not even
indicated whether or not there are rules in Hongkong allowing a big
amount of insurance to be secured where the beneficiary is not a spouse, a
parent, a sibling, a child, or other close relative.
Accused-appellant points out an apparent lapse of the trial court
related to the matter of insurance. At page 33 of the decision, the trial
court stated:
 Indeed, Yip Wai Ming testified that he met Andy Kwong in a
restaurant in Hongkong and told Yip and Lam Po Chun should be
married and there must be an insurance for her life . . .
(p. 33, RTC Decision; p.
66, Rollo.)
The source of the above finding is stated by the court as tsn hearing
Sept. 22, 1992. But accused-appellant Yip Wai Ming did not testify on
September 22, 1992. The entire 112 pages of the testimony on that date
came from SPO2 Yanquiling. The next hearing was on September 29,
1993. All the 100 pages of the testimony on that date came from
Yanquiling. The next hearing on October 13, 1993 resulted in 105 pages of
testimony, also from Yanquiling. This Court is at a complete loss as to the
reason of the trial court sourcing its statement to accused-appellants
alleged testimony.
Lam Po Chun must have been unbelievably trusting or stupid to follow
the alleged advice of Andy Kwong. It is usually the man who insures himself
with the wife or future wife as beneficiary instead of the other way
around. Why should Lam Po Chun, with her relatively small salary which is
not even enough to pay for the monthly premiums, insure herself for such a
big amount. This is another reason why doubts arise as to the truth of the
insurance angle.
Another key factor which we believe was not satisfactorily established
is the time of death. This element is material because from 10 A.M. of July
11, 1993 up to the time the body was discovered late that evening,
accused-appellant was in the company of Gwen delos Santos, her sister
Monique, and their mother, touring Metro Manila and going from place to
place. This much is established.
To go around this problem of accused-appellant being away from the
scene of the crime during the above mentioned hours, the prosecution
introduced testimonial evidence as to the probable time of death, always
placing it within the narrow 45-minute period between 9:15 and 10 A.M. of
July 11,1993, the time when Cariza Destresa, the occupant of the adjoining
room, heard banging sounds coming from the room of accused-appellant,
and the time accused-appellant left with his Filipino friends.
The prosecution alleges that at 10 A.M., Lam Po Chun was already
dead. However, Gwen delos Santos who never saw the couple before was
categorical in declaring that she met both of them at the lobby before the
group left for the tour (tsn, Feb. 14, 1994, p. 64; p. 20, RTC Decision; p.
150, Rollo), but Lam Po Chun asked to be excused because of a
headache. In fact, delos Santos was able to identify Lam Po Chun from
pictures shown during the trial. She could not have done this unless she
really saw and met the victim at the hotel lobby at around 10 A.M. of July
11,1993.
The prosecution introduced an expert in the person of Dr. Manuel
Lagonera to establish the probable time of death. Dr. Lagonera, medico-
legal officer of the PNP Western Police District, after extensive questioning
on his qualifications as an expert witness, what he discovered as the cause
of death (strangulation), the contents of the deceaseds stomach, injuries
sustained, and the condition of the cadaver, was asked to establish the time
of death, to wit:
Q. If we use thirty six (36) hours to forty eight (48) hours, will you
agree with me that it is possible that the victim was killed in
the morning of July 10, 1993?
A. I cannot, I have no basis whether the victim was killed in the
morning or in the afternoon.
Dr. Lagoneras testimony on the number of assailants was similar. He
had no basis for an answer, thusly:
ATTY. PASCUA:
Q. Would you be able to determine also based on your findings
your autopsy whether the assailants, the number of the
assailants?
WITNESS:
A. I have no basis, Sir.
ATTY. PASCUA:
Q. You have no basis. And would it also have been possible, that
there were more than one assailants?
WITNESS: WITNESS:
A. It is possible also. A. No injuries at the back, all in front.
ATTY. PASCUA: ATTY. PASCUA:
Q. It is possible also, who simultaneously inflicted the wounds of Q. All in front, meaning in terms of probability and based on your
the victim? professional opinion, the attack would have come from a
frontal attack or the attacker would have come from behind
WITNESS:
to inflict the frontal injuries of the victim?
A. It is possible.
WITNESS:
ATTY. PASCUA:
A. It can be the attack coming from behind in the front or both,
Q. Based also on your autopsy report, were there signs that the sir.
victim put a struggle?
ATTY. PASCUA:
WITNESS:
Q. But in your professional opinion or in your experience, based
A. There were no injuries in the hand or forearms or upper arms on the injuries sustained including the location of the injuries
of the victim. So, there were no sign of struggle on the part on the body of the victim, would it be more probable that
of the victim. the attack came from in front of the victim?
ATTY. PASCUA: WITNESS:
Q. And your basis in saying that there was no struggle on the part A. Yes, it is possible, Sir.
of the victim was that there were no apparent or seen
(tsn, Dec. 14, 1993, pp. 60-63.)
injuries in the hands of the victim?
Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn,
WITNESS:
Dec. 14, 1993, p.108). It is undisputed that at around 8:30 A.M. of July
A. Yes, sir. 11,1993 accused-appellant and Lam Po Chun took breakfast together at the
hotel restaurant. She could not have been killed on July 10,1993. The
ATTY. PASCUA: autopsy conducted by Dr. Lagonera and the testimony of accused-appellant
Q. But you did not examine the fingernails? coincided insofar as the food taken at breakfast is concerned. The couple
ate eggs, bacon, and toasted bread. But the doctor was insistent that the
WITNESS: death occurred the previous day.
A. No, I did not examine, Sir. Where a medico-legal expert of the police department could not, with
ATTY. PASCUA: any measure of preciseness, fix the time of death, the police investigator
was bold and daring enough to establish it. Surprisingly, the trial court
Q. Were there also injuries at the back portion of the head of the accepted this kind of evidence. SPO2 Alejandro Yanquiling testified that he
victim? arrived at the Park Hotel at about 11:25 oclock on the evening of July 11,
1993 to conduct the investigation of the crime. At the time, the victim
showed signs of rigor mortis, stiffening of the muscle joints, with liquid and on circumstantial evidence (U.S. vs. Cajayon, 2 Phil. 570 [1903]; U.S. vs. Tan
blood oozing from the nose and mouth. On the basis of his observations, he Chian, 17 Phil. 209 [1910]; U.S. vs. Levente, 18 Phil. 439 [1911]). All the
declared that the victim had been dead for 10 to 12 hours. evidence must be consistent with the hypothesis that the accused is guilty,
and at the same time inconsistent with the hypothesis that he is innocent,
The trial court stated that if the victim had been dead from 10 to 12
and with every other rational hypothesis except that of guilt (People vs.
hours at 11:35 oclock in the evening, it is safe to conclude that she was
Andia, 2 SCRA 423 [1961]).
killed between 9 and 10 oclock on the morning of July 11, 1993. The
mathematics of the trial court is faulty. Twelve hours before 11:35 P.M. The tests as to the sufficiency of the circumstantial evidence to prove
would be 11:35 A.M.. Ten hours earlier would even be later -- 1:35 P.M.. guilt beyond reasonable doubt have not been met in the case at bar.
Since accused-appellant was unquestionably with Gwen delos Santos and
The chain of circumstances is not unbroken. The most vital
her group touring and shopping in megamalls between 10 A.M. and 11:35
circumstantial evidence in this case is that which proves that accused-
P.M., the assailant or assailants must have been other people who were
appellant killed the victim so he could gain from the insurance proceeds on
able to gain entry into the hotel room at that time.
the life of the victim. Another vital circumstance is the time of death
The trial court stated that there was no sign of any forcible entry into precisely between 9:15 and 10 A.M. Both were not satisfactorily established
the room, no broken locks, windows, etc. The answer is simple. Somebody by the prosecution.Where the weakest link in the chain of evidence is at the
could have knocked on the door and Lam Po Chun could have opened it same time the most vital circumstance, there can be no other alternative
thinking they were hotel staff. Unfortunately, Detective Yanquiling was so but to acquit the accused (People vs. Magborang, 9 SCRA108 [1963]).
sure of himself that after pinpointing accused-appellant as the culprit, he
Since the sentence of conviction is based on the crime having been
did not follow any other leads. In the course of his interviews with
committed within a short time frame, accused-appellant cannot be
witnesses, his purpose was simply to nail down one suspect. His
convicted on the strength of circumstantial evidence if doubts are
investigation was angled towards pinning down Yip Wai Ming. In fact, Gwen
entertained as to where he was at that particular time and reasonable
delos Santos testified that Yanquiling talked to her over the telephone
conclusions can be had that other culprits could have entered the room
almost daily urging her to change her testimony.
after accused-appellant left with the delos Santos family. Other people
Officer Yanquiling testified on cross-examination that he did not apply could have killed the victim.
any mode of scientific investigation. If a medico-legal expert of the same
The trial court also relied heavily on the testimony of Cariza Destresa, a
police department who conducted an autopsy had no basis for giving the
19-year old cultural dancer occupying with her Australian boyfriend Peter
probable time of death, the police officer who merely looked at the body
Humphrey, the adjoining Room 211.Destresa testified that while she was in
and saw the blood oozing out of the victims nose and mouth must have
Room 211 at about 9:15 oclock on the morning of July 11,1993, she heard
simply guessed such time, plucking it out of thin air. The trial court
banging sounds in Room 210, as if somebody was being thrown, and there
accepted the erroneous timing, conveniently placing it where a finding of
was stomping on the floor. The banging sounds lasted about thirty (30)
guilt would follow as a consequence.
minutes, an improbably long time to kill a woman. Destresa stated that she
Before a conviction can be had upon circumstantial evidence, the placed her ear near the wall and heard the cry of a woman having difficulty
circumstances should constitute an unbroken chain which leads to but one in breathing.
fair and reasonable conclusion, which points to the accused, to the
The witness heard the banging sounds between 9:15 and 9:45 A.M. of
exclusion of all others, as the guilty person (U.S. vs. Villos, 6 Phil. 510
July 11, 1993, not before or after. The unreliability of Destresas memory as
[1906]; People vs. Subano, 73 Phil. 692 [1942]). Every hypothesis consistent
to dates and time is shown by the fact that when asked as to the date of
with innocence must be excluded if guilt beyond reasonable doubt is based
her Australian boyfriends arrival in the Philippines, she stated, July 29,
1993. Pressed by the prosecuting attorney if she was sure of said date, she
changed this to July 16,1993. Pressed further:
Q. Are you sure that he arrived in the Philippines on July 16,1993?
A. I cant exactly remember the date of the arrival of my boyfriend
here in the Philippines because his coming was sudden, Sir.
(tsn, Sept. 30, 1993, p.10.)
On July 16 and July 19, 1993 Lam Po Chun was already dead. If Peter
Humphrey was still in Australia on July 11, 1993, how could he occupy with
his girlfriend the next door room, Room 211, on that date at the Park
Hotel. If Destresa cannot remember the date her Australian boyfriend
arrived, how could the trial court rely on her memory as to the 30-minute
interval from 9:15 A.M. to 9:45 A.M. of July 11, 1993 when the alleged
murder took place. Asked what time on July 13, 1993 she gave her sworn
statement to the police, Destresa answered, I am not sure, may be it was in
the early morning between 2 or 3 oclock of that day, Sir. Destresa was
asked how she could be certain of July 13, 1993 as the date of her sworn
statement. She answered that this was the day her boyfriend left for
Australia (tsn, Aug. 31, 1993, p. 29). In her testimony given on the same
day, Destresa states that she stayed in Room 211 for 3 months. She later
changed her mind and said she stayed there only when Peter Humphrey
was in the Philippines. According to the witness, Peter left on May 29, 1993;
arrived in June and July; left in June; arrived in July; left on July 13,
1993. Destresa was confused and evasive not only as to dates, but also as
to her employment, stating at the start of her testimony that she was
jobless, but later declaring that she was a dancer with the Rampage group
and performed in Dubai.
Destresa testified at one point that she heard an argument between a
man and a woman in a dialect she could not understand. This was supposed
to be on the evening of July 11,1993.At that time, the victim had long been
dead. Destresa gave various contradictory statements in her August 30,
1993; August 31,1993; and September 1, 1993 testimony. To our mind, the
trial court gravely erred in relying on her testimony.
Accused-appellant was arrested on July 13, 1993, two days after the
killing. There was no warrant of arrest. Officer Yanquiling testified that
there was no warrant and he arrested the accused-appellant based on
series of circumstantial evidence. He had no personal knowledge of Yip Wai
Ming having committed the crime. Accused-appellant stated that five police
officers at the police station beat him up. They asked him to undress,
forced him to lie down on a bench, sat on his stomach, placed a
handkerchief over his face, and poured water and beer over his face. When
he could no longer bear the pain, he admitted the crime charged,
participated in a re-enactment, and signed an extrajudicial statement. All
the while, he was not informed of his right to remain silent nor did he have
counsel of his choice to assist him in confessing the crime.
The custodial interrogation of accused-appellant was violative of
Section 12, Article III of the Constitution. The Constitution provides that (3)
Any confession or admission obtained in violation of this section or Section
17 hereof shall be inadmissible against him. Section 17, Article III provides:
No person shall be compelled to be a witness against himself. Any
confession, including a re-enactment without admonition of the right to
silence and to counsel, and without counsel chosen by the accused is
inadmissible in evidence (People vs. Duero, 104 SCRA379 [1981]).
This Court notes that accused-appellant did not file any complaint or
charges against the police officers who allegedly tortured him. But he was a
foreign national, a tourist charged with a serious crime, finding himself in
strange surroundings. In Hongkong, there would have been family
members and friends who could have given him moral support. He would
have known that he was being questioned in his own country, being
investigated under the laws of that country. The degree of intimidation
needed to coerce a person to confess to the commission of a crime he did
not commit would be much less if he is in a strange land. Accused-appellant
states that his lawyers told him not to file any charges against the
policemen. He followed their advice, obviously not wanting to get into
more trouble.
This Court has carefully gone over the record of this case. We simply
cannot state that the circumstantial evidence is in its entirety credible and
unbroken and that the finding of guilt excludes any other possibility that
the accused-appellant may be innocent.
 Most of the circumstantial evidence in this case came from the
investigation conducted by Officer Alejandro Yanquiling or from the
prodding by him of various witnesses. The desire of a police officer to solve
a high profile crime which could mean a promotion or additional medals
and commendations is admirable. However, an investigator must pursue
various leads and hypotheses instead of singlemindedly pursuing one
suspect and limiting his investigation to that one possibility, excluding
various other probabilities. The killing of a tourist is a blot on the peace and
order situation in the Philippines and must be solved. Still, concentrating on
pinning down an alien companion of the victim and not pursuing the
possibilities that other persons could have killed the victim for her money
and valuables does not speak well of our crime detection system. It is not
enough to solve a crime. The truth is more important and justice must be
rendered.
WHEREFORE, the decision appealed from is hereby REVERSED and SET
ASIDE. Accused-appellant Yip Wai Ming is acquitted of the charge of murder
on grounds of reasonable doubt and his immediate release from custody is
ordered unless he is being held on other legal grounds.
SO ORDERED.
G.R. No. L-54216 July 19, 1989
THE PHILIPPINE AMERICAN INSURANCE COMPANY, petitioner,
vs.
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of
First Instance of Rizal, and RODOLFO C. DIMAYUGA, respondents.
PARAS, J.:
Challenged before Us in this petition for review on certiorari are the Orders
of the respondent Judge dated March 19, 1980 and June 10, 1980 granting
the prayer in the petition in Sp. Proc. No. 9210 and denying petitioner's
Motion for Reconsideration, respectively.
The undisputed facts are as follows:
On January 15, 1968, private respondent procured an ordinary life
insurance policy from the petitioner company and designated his wife and
children as irrevocable beneficiaries of said policy.
Under date February 22, 1980 private respondent filed a petition which was
docketed as Civil Case No. 9210 of the then Court of First Instance of Rizal
to amend the designation of the beneficiaries in his life policy from
irrevocable to revocable.
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing. Also
on the same date, petitioner filed its Comment and/or Opposition to
Petition.
When the petition was called for hearing on March 19, 1980, the
respondent Judge Gregorio G. Pineda, presiding Judge of the then Court of
First Instance of Rizal, Pasig Branch XXI, denied petitioner's Urgent Motion,
thus allowing the private respondent to adduce evidence, the consequence
of which was the issuance of the questioned Order granting the petition.
Petitioner promptly filed a Motion for Reconsideration but the same was
denied in an Order June 10, 1980. Hence, this petition raising the following
issues for resolution:
I
WHETHER OR NOT THE DESIGNATION OF THE
IRREVOCABLE BENEFICIARIES COULD BE CHANGED OR
AMENDED WITHOUT THE CONSENT OF ALL THE
IRREVOCABLE BENEFICIARIES.
I
I
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 beneficiaries of
the policy (the beneficiary-wife predeceased the insured) cannot be
considered an effective ratification to the change of the beneficiaries from
irrevocable to revocable. Indubitable is the fact that all the six (6) children
named as beneficiaries were minors at the time,** for which reason, they
could not validly give their consent. Neither could they act through their
father insured since their interests are quite divergent from one another. In
point is an excerpt from the Notes and Cases on Insurance Law by Campos
and Campos, 1960, reading-
The insured ... can do nothing to divest the beneficiary of
his rights without his consent. He cannot assign his policy,
nor even take its cash surrender value without the consent
of the beneficiary. Neither can the insured's creditors seize
the policy or any right thereunder. The insured may not
even add another beneficiary because by doing so, he
diminishes the amount which the beneficiary may recover
and this he cannot do without the beneficiary's consent.
Therefore, the parent-insured cannot exercise rights and/or privileges
pertaining to the insurance contract, for otherwise, the vested rights of the
irrevocable beneficiaries would be rendered inconsequential.
Of equal importance is the well-settled rule that the contract between the
parties is the law binding on both of them and for so many times, this court
has consistently issued pronouncements upholding the validity and
effectivity of contracts. Where there is nothing in the contract which is
contrary to law, good morals, good customs, public policy or public order
the validity of the contract must be sustained. Likewise, contracts which are
the private laws of the contracting parties should be fulfilled according to
the literal sense of their stipulations, if their terms are clear and leave no
room for doubt as to the intention of the contracting parties, for contracts
are obligatory, no matter in what form they may be, whenever the essential
requisites for their validity are present (Phoenix Assurance Co., Ltd. vs.
United States Lines, 22 SCRA 675, Phil. American General Insurance Co., Inc.
vs. Mutuc, 61 SCRA 22.)
In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA
385, this Court ruled that:
... it is settled that the parties may establish such
stipulations, clauses, terms, and conditions as they may
want to include; and as long as such agreements are not
contrary to law, good morals, good customs, public policy
or public order, they shall have the force of law between
them.
Undeniably, the contract in the case at bar, contains the indispensable
elements for its validity and does not in any way violate the law, morals,
customs, orders, etc. leaving no reason for Us to deny sanction thereto.
Finally, the fact that the contract of insurance does not contain a
contingency when the change in the designation of beneficiaries could be
validly effected means that it was never within the contemplation of the
parties. The lower court, in gratuitously providing for such contingency,
made a new contract for them, a proceeding which we cannot tolerate.
Ergo, We cannot help but conclude that the lower court acted in excess of
its authority when it issued the Order dated March 19, 1980 amending the
designation of the beneficiaries from "irrevocable" to "revocable" over the
disapprobation of the petitioner insurance company.

WHEREFORE, premises considered, the questioned Orders of the

respondent Judge are hereby nullified and set aside.

SO ORDERED.