[G.R. No. 125678.

March 18, 2002]

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral damages and attorneys fees. After trial, the lower court ruled against petitioners, viz: WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering: 1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same; 2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS, respondents. DECISION YNARES-SANTIAGO, J.: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).[1] The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondents husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of outpatient benefits such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability.[2] During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day.

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff; 4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.

SO ORDERED.[3] On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente.[4] Petitioners motion for reconsideration was denied.[5] Hence, petitioner brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the incontestability clause under the Insurance Code[6] does not apply. Petitioner argues that the agreement grants living benefits, such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance contracts which last longer, [7] petitioner argues that the incontestability clause does not apply, as the same requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: 1. The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurers promise, the insured pays a premium.[8] Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides: Every person has an insurable interest in the life and health: (1) (2) of himself, of his spouse and of his children; of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and of any person upon whose life any estate or interest vested in him depends.

professional capacity upon any question affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a ratification of any correction in or addition to this application as stated in the space for Home Office Endorsement.[11] (Underscoring ours) In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicants medical history, thus: I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. This authorization is in connection with the application for health care coverage only. A photographic copy of this authorization shall be as valid as the original.[12](Underscoring ours) Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for.[13] The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondents husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. [14] Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud.[15] (Underscoring ours) The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.[16] Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or

(3)

(4)

In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.[9] Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Petitioner argues that respondents husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondents husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination.[10] Specifically, the Health Care Agreement signed by respondents husband states: We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there shall be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members; that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that any physician is, by these presents, expressly authorized to disclose or give testimony at anytime relative to any information acquired by him in his

insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a contract of insurance. The right to rescind should be exercised previous to the commencement of an action on the contract.[17] In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured;

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceaseds hospitalization, medication and the professional fees of the attending physicians.[24] WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14, 1995 is AFFIRMED. SO ORDERED.

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based.[18] None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation.[19] Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer.[20] By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.[21] This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.[22] Anent the incontestability of the membership of respondents husband, we quote with approval the following findings of the trial court: (U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie.[23]

In computing the interest and surcharge, a fraction of the month shall be considered one full month. G.R. No. 146942 April 22, 2003 In the event of an amicable settlement, the principal and surety in solidum shall reimburse the expenses of the plaintiff. (Sgd.) Corazon Ruiz Principal __________________ Surety"

CORAZON G. RUIZ, petitioner, vs. COURT OF APPEALS and CONSUELO TORRES, respondents. PUNO, J.: On appeal is the decision1 of the Court of Appeals in CA-G.R. CV No. 56621 dated 25 August 2000, setting aside the decision2 of the trial court dated 19 May 1997 and lifting the permanent injunction on the foreclosure sale of the subject lot covered by TCT No. RT-96686, as well as its subsequent Resolution3 dated 26 January 2001, denying petitioners Motion for Reconsideration. The facts of the case are as follows: Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry. 4 She obtained loans from private respondent Consuelo Torres on different occasions, in the following amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.5 Prior to their maturity, the loans were consolidated under one (1) promissory note dated March 22, 1995, which reads as follows:6 "P750,000.00 Quezon City, March 22, 1995 PROMISSORY NOTE For value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety in solidum, jointly and severally promise to pay to the order of CONSUELO P. TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00) Philippine Currency, to earn an interest at the rate of three per cent (3%) a month, for thirteen months, payable every _____ of the month, and to start on April 1995 and to mature on April 1996, subject to renewal. If the amount due is not paid on date due, a SURCHARGE of ONE PERCENT of the principal loan, for every month default, shall be collected. Remaining balance as of the maturity date shall earn an interest at the rate of ten percent a month, compounded monthly. It is finally agreed that the principal and surety in solidum, shall pay attorneys fees at the rate of twenty-five percent (25%) of the entire amount to be collected, in case this note is not paid according to the terms and conditions set forth, and same is referred to a lawyer for collection.

The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240square meter lot in New Haven Village, Novaliches, Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-96686, and registered in the name of petitioner.7 The mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her husband Rogelio. It was executed on 20 March 1995, or two (2) days before the execution of the subject promissory note.8 Thereafter, petitioner obtained three (3) more loans from private respondent, under the following promissory notes: (1) promissory note dated 21 April 1995, in the amount of P100,000.00;9 (2) promissory note dated May 23, 1995, in the amount of P100,000.00;10 and (3) promissory note dated December 21, 1995, in the amount of P100,000.00.11 These combined loans of P300,000.00 were secured by P571,000.00 worth of jewelry pledged by petitioner to private respondent.12 From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on the P750,000.00 loan,13amounting to P270,000.00.14 After March 1996, petitioner was unable to make interest payments as she had difficulties collecting from her clients in her jewelry business.15 Due to petitioners failure to pay the principal loan of P750,000.00, as well as the interest payment for April 1996, private respondent demanded payment not only of the P750,000.00 loan, but also of the P300,000.00 loan.16When petitioner failed to pay, private respondent sought the extra-judicial foreclosure of the aforementioned real estate mortgage.17 On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele, Deputy Sheriff In-Charge Rolando G. Acal and Supervising Sheriff Silverio P. Bernas issued a Notice of Sheriffs Sale of subject lot. The public auction was scheduled on October 8, 1996.18 On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a complaint with the RTC of Quezon City docketed as Civil Case No. Q-96-29024, with a prayer for the issuance of a Temporary Restraining Order to enjoin the sheriff from proceeding with the foreclosure sale and to fix her indebtedness to private respondent to P706,000.00. The computed amount of P706,000.00 was based on the aggregate loan of P750,000.00, covered by the March 22, 1995 promissory note, plus the other loans of P300,000.00, covered by separate promissory notes, plus interest, minus P571,000.00 representing the amount of jewelry pledged in favor of private respondent.19

The trial court granted the prayer for the issuance of a Temporary Restraining Order,20 and on 29 October 1996, issued a writ of preliminary injunction.21 In its Decision dated May 19, 1997, it ordered the Clerk of Court and Ex-Officio Sheriff to desist with the foreclosure sale of the subject property, and it made permanent the writ of preliminary injunction. It held that the real estate mortgage is unenforceable because of the lack of the participation and signature of petitioners husband. It noted that although the subject real estate mortgage stated that petitioner was "attorney-in-fact for herself and her husband," the Special Power of Attorney was never presented in court during the trial.22 The trial court further held that the promissory note in question is a unilateral contract of adhesion drafted by private respondent. It struck down the contract as repugnant to public policy because it was imposed by a dominant bargaining party (private respondent) on a weaker party (petitioner).23 Nevertheless, it held that petitioner still has an obligation to pay the private respondent. Private respondent was further barred from imposing on petitioner the obligation to pay the surcharge of one percent (1%) per month from March 1996 onwards, and interest of ten percent (10%) a month, compounded monthly from September 1996 to January 1997. Petitioner was thus ordered to pay the amount of P750,000.00 plus three percent (3%) interest per month, or a total of P885,000.00, plus legal interest from date of [receipt of] the decision until the total amount of P885,000.00 is paid.24 Aside from the foregoing, the trial court took into account petitioners proposal to pay her other obligations to private respondent in the amount of P392,000.00.25 The trial court also recognized the expenses borne by private respondent with regard the foreclosure sale and attorneys fees. As the notice of the foreclosure sale has already been published, it ordered the petitioner to reimburse private respondent the amount of P15,000.00 plus attorneys fees of the same amount.26 Thus, the trial court computed petitioners obligation to private respondent, as follows: Principal Loan . Interest.. Other Loans. Publication Fees. Attorneys Fees TOTAL P 750,000.00 135,000.00 392,000.00 15,000.00 15,000.00 P1,307,000.00

Private respondent appealed to the Court of Appeals. The appellate court set aside the decision of the trial court. It ruled that the real estate mortgage is valid despite the nonparticipation of petitioners husband in its execution because the land on which it was constituted is paraphernal property of petitioner-wife. Consequently, she may encumber the lot without the consent of her husband.28 It allowed its foreclosure since the loan it secured was not paid. Nonetheless, the appellate court declared as invalid the 10% compounded monthly interest29 and the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995,30 and so too the 1% compounded monthly interest stipulated in the promissory note dated 21 April 1995,31 for being excessive, iniquitous, unconscionable, and contrary to morals. It held that the legal rate of interest of 12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due, and that the only permissible rate of surcharge is 1% per month, without compounding.32 The appellate court also granted attorneys fees in the amount of P50,000.00, and not the stipulated 25% of the amount due, following the ruling in the case of Medel v. Court of Appeals.33 Now, before this Court, petitioner assigns the following errors: (1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PROMISSORY NOTE OF P750,000.00 IS NOT A CONTRACT OF ADHESION DESPITE THE CLEAR SHOWING THAT THE SAME IS A READYMADE CONTRACT PREPARED BY (THE) RESPONDENT CONSUELO TORRES AND DID NOT REFLECT THEIR TRUE INTENTIONS AS IT WEIGHED HEAVILY IN FAVOR OF RESPONDENT AND AGAINST PETITIONER. (2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE PROPERTY COVERED BY THE SUBJECT DEED OF MORTGAGE OF MARCH 20, 1995 IS A PARAPHERNAL PROPERTY OF THE PETITIONER AND NOT CONJUGAL EVEN THOUGH THE ISSUE OF WHETHER OR NOT THE MORTGAGED PROPERTY IS PARAPHERNAL WAS NEVER RAISED, NOR DISCUSSED AND ARGUED BEFORE THE TRIAL COURT. (3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE TRIAL COURTS COMPUTATION OF THE ACTUAL OBLIGATIONS OF THE PETITIONER WITH (THE) RESPONDENT TORRES EVEN THOUGH THE SAME IS BASED ON EVIDENCE SUBMITTED BEFORE IT. The pertinent issues to be resolved are: (1) Whether the promissory note of P750,000.00 is a contract of adhesion; (2) Whether the real property covered by the subject deed of mortgage dated March 20, 1995 is paraphernal property of petitioner; and (3) Whether the rates of interests and surcharges on the obligation of petitioner to private respondent are valid.

with legal interest from date of receipt of decision until payment of total amount of P1,307,000.00 has been made.27 Private respondents motion for reconsideration was denied in an Order dated July 21, 1997.

I We hold that the promissory note in the case at bar is not a contract of adhesion. In Sweet Lines, Inc. vs. Teves,34this Court discussed the nature of a contract of adhesion as follows: ". . . there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the other party is the signing of his signature or his adhesion thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category.35 " . . . it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other party . . . who cannot change the same and who are thus made to adhere hereto on the take it or leave it basis . . . "36 In said case of Sweet Lines,37 the conditions of the contract on the 4 x 6 inches passenger ticket are in fine print. Thus we held: " . . . it is hardly just and proper to expect the passengers to examine their tickets received from crowded/congested counters, more often than not during rush hours, for conditions that may be printed thereon, much less charge them with having consented to the conditions, so printed, especially if there are a number of such conditions in fine print, as in this case."38 We further stressed in the said case that the questioned Condition No. 14 was prepared solely by one party which was the corporation, and the other party who was then a passenger had no say in its preparation. The passengers have no opportunity to examine and consider the terms and conditions of the contract prior to the purchase of their tickets.39 In the case at bar, the promissory note in question did not contain any fine print provision which could not have been examined by the petitioner. Petitioner had all the time to go over and study the stipulations embodied in the promissory note. Aside from the March 22, 1995 promissory note for P750,000.00, three other promissory notes of different dates and amounts were executed by petitioner in favor of private respondent. These promissory notes contain similar terms and conditions, with a little variance in the terms of interests and surcharges. The fact that petitioner and private respondent had entered into not only one but several loan transactions shows that petitioner was not in any way compelled to accept the terms allegedly imposed by private respondent. Moreover, petitioner, in her complaint40 dated October 7, 1996 filed with the trial court, never claimed that she was forced to sign the subject note. Paragraph five of her complaint states: "That on or about March 22, 1995 plaintiff was required by the defendant Torres to execute a promissory note consolidating her unpaid principal loan and interests which said defendant computed to be in the sum of P750,000.00 . . ."

To be required is certainly different from being compelled. She could have rejected the conditions made by private respondent. As an experienced business- woman, she ought to understand all the conditions set forth in the subject promissory note. As held by this Court in Lee, et al. vs. Court of Appeals, et al.,41 it is presumed that a person takes ordinary care of his concerns.42 Hence, the natural presumption is that one does not sign a document without first informing himself of its contents and consequences. This presumption acquires greater force in the case at bar where not only one but several documents were executed at different times by petitioner in favor of private respondent. II We also affirm the ruling of the appellate court that the real property covered by the subject deed of mortgage is paraphernal property. The property subject of the mortgage is registered in the name of "Corazon G. Ruiz, of legal age, married to Rogelio Ruiz, Filipinos." Thus, title is registered in the name of Corazon alone because the phrase "married to Rogelio Ruiz" is merely descriptive of the civil status of Corazon and should not be construed to mean that her husband is also a registered owner. Furthermore, registration of the property in the name of "Corazon G. Ruiz, of legal age, married to Rogelio Ruiz" is not proof that such property was acquired during the marriage, and thus, is presumed to be conjugal. The property could have been acquired by Corazon while she was still single, and registered only after her marriage to Rogelio Ruiz. Acquisition of title and registration thereof are two different acts.43 The presumption under Article 116 of the Family Code that properties acquired during the marriage are presumed to be conjugal cannot apply in the instant case. Before such presumption can apply, it must first be established that the property was in fact acquired during the marriage. In other words, proof of acquisition during the marriage is a condition sine qua non for the operation of the presumption in favor of conjugal ownership.44 No such proof was offered nor presented in the case at bar. Thus, on the basis alone of the certificate of title, it cannot be presumed that said property was acquired during the marriage and that it is conjugal property. Since there is no showing as to when the property in question was acquired, the fact that the title is in the name of the wife alone is determinative of its nature as paraphernal, i.e., belonging exclusively to said spouse.45 The only import of the title is that Corazon is the owner of said property, the same having been registered in her name alone, and that she is married to Rogelio Ruiz.46 III We now resolve the issue of whether the rates of interests and surcharges on the obligation of petitioner to private respondent are legal. The four (4) unpaid promissory notes executed by petitioner in favor of private respondent are in the following amounts and maturity dates: (1) P750,000.00, dated March 22, 1995 matured on April 21, 1996; (2) P100,000.00, dated April 21, 1995 matured on August 21, 1995; (3) P100,000.00, dated May 23, 1995 matured on November 23, 1995; and

(4) P100,000.00, dated December 21, 1995 matured on March 1, 1996. The P750,000.00 promissory note dated March 22, 1995 has the following provisions: (1) 3% monthly interest, from the signing of the note until its maturity date; (2) 10% compounded monthly interest on the remaining balance at maturity date; (3) 1% surcharge on the principal loan for every month of default; and (4) 25% attorneys fees. The P100,000.00 promissory note dated April 21, 1995 has the following provisions: (1) 3% monthly interest, from the signing of the note until its maturity date; (2) 10% monthly interest on the remaining balance at maturity date; (3) 1% compounded monthly surcharge on the principal loan for every month of default; and (4) 10% attorneys fees. The two (2) other P100,000.00 promissory notes dated May 23, 1995 and December 1, 1995 have the following provisions: (1) 3% monthly interest, from the signing of the note until its maturity date; (2) 10% compounded monthly interest on the remaining balance at maturity date; (3) 10% surcharge on the principal loan for every month of default; and (4) 10% attorneys fees. We affirm the ruling of the appellate court, striking down as invalid the 10% compounded monthly interest, the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995, and the 1% compounded monthly interest stipulated in the promissory note dated April 21, 1995. The legal rate of interest of 12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due. Also, the only permissible rate of surcharge is 1% per month, without compounding. We also uphold the award of the appellate court of attorneys fees, the amount of which having been reasonably reduced from the stipulated 25% (in the March 22, 1995 promissory note) and 10% (in the other three promissory

notes) of the entire amount due, to a fixed amount of P50,000.00. However, we equitably reduce the 3% per month or 36% per annum interest present in all four (4) promissory notes to 1% per month or 12% per annum interest. The foregoing rates of interests and surcharges are in accord with Medel vs. Court of Appeals,47 Garcia vs. Court of Appeals,48 Bautista vs. Pilar Development Corporation,49 and the recent case of Spouses Solangon vs. Salazar.50 This Court invalidated a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan in Medel 51 and a 6% per month or 72% per annum interest on a P60,000.00 loan in Solangon52 for being excessive, iniquitous, unconscionable and exorbitant. In both cases, we reduced the interest rate to 12% per annum. We held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and parties to a loan agreement have been given wide latitude to agree on any interest rate, still stipulated interest rates are illegal if they are unconscionable. Nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. 53 On the other hand, in Bautista vs. Pilar Development Corp.,54 this Court upheld the validity of a 21% per annum interest on a P142,326.43 loan, and in Garcia vs. Court of Appeals, sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan. It is on the basis of these cases that we reduce the 36% per annum interest to 12%. An interest of 12% per annum is deemed fair and reasonable. While it is true that this Court invalidated a much higher interest rate of 66% per annum in Medel55 and 72% inSolangon56 it has sustained the validity of a much lower interest rate of 21% in Bautista57 and 24% in Garcia.58We still find the 36% per annum interest rate in the case at bar to be substantially greater than those upheld by this Court in the two (2) aforecited cases. The 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest payment.59 Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation.60 The obligor would then be bound to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.61 Although the courts may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced if it is iniquitous or unconscionable.62 In the instant case, the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995 was properly reduced by the appellate court. In sum, petitioner shall pay private respondent the following: 1. Principal of loan under promissory note dated March 22, 1995 a. 1% interest per month on principal from March 22, 1995 until fully paid, less P270,000.00 paid by petitioner as P750,000.00

interest from April 1995 to March 1996 b. 1% surcharge per month on principal from May 1996 until fully paid P100,000.00

2. Principal of loan under promissory note dated April 21, 1995 a. b. 1% interest per month on principal from April 21, 1995 until fully paid 1% surcharge per month on principal from September 1995 until fully paid

3. Principal of loan under promissory note dated May 23, 1995 a. b. 1% interest per month on principal from May 23, 1995 until fully paid 1% surcharge per month on principal from December 1995 until fully paid

P100,000.00

4. Principal of loan under promissory note dated December 1, 1995 a. b. 1% interest per month on principal from December 1, 1995 until fully paid 1% surcharge per month on principal from April 1996 until fully paid

P100,000.00

5. Attorneys fees Hence, since the mortgage is valid and the loan it secures remains unpaid, the foreclosure proceedings may now proceed.

P 50,000.00

IN VIEW WHEREOF, the appealed Decision of the Court of Appeals is AFFIRMED, subject to the MODIFICATION that the interest rate of 36% per annum is ordered reduced to 12 % per annum. SO ORDERED.

G.R. No. 156167

May 16, 2005

Item

P7,691,000.00 -

on the Clubhouse only @ .392%;

GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION, respondent. DECISION PUNO, J.: Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner assails the appellate court decision1 which dismissed its two appeals and affirmed the judgment of the trial court. For review are the warring interpretations of petitioner and respondent on the scope of the insurance companys liability for earthquake damage to petitioners properties. Petitioner avers that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944 covers all damages to the properties within its resort caused by earthquake. Respondent contends that the rider limits its liability for loss to the two swimming pools of petitioner. The facts as established by the court a quo, and affirmed by the appellate court are as follows: [P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2", "3" and "4" respectively), the risk of loss from earthquake shock was extended only to plaintiffs two swimming pools, thus, "earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming pools only (Exhs. "C-1"; D-1", "E" and "F-1"). "Item 5" in those policies referred to the two (2) swimming pools only (Exhs. "1-B", "2-B", "3-B" and "F-2"); that subsequently AHAC(AIU) issued in plaintiffs favor Policy No. 206-4182383-0 covering the period March 14, 1988 to March 14, 1989 (Exhs. "G" also "G-1") and in said policy the earthquake endorsement clause as indicated in Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was deleted and the entry under Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. "H") which carried the entry under "Endorsement/Warranties at Time of Issue", which read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in the amount of P10,700.00 and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof, computed as follows:

1,500,000.00 393,000.00 116,600.00 a) Tilter House b) Power House c) House Shed -

on the furniture, etc. contained in th mentioned@ .490%;

on the two swimming pools, only (a earthquake shock only) @ 0.100% other buildings include as follows: P19,800.00 P41,000.00 P55,000.00 0.551% 0.551% 0.540%

P100,000.00 -

for furniture, fixtures, lines air-con a

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 206-4568061-9 (Exh. "H") provided that the policy wording and rates in said policy be copied in the policy to be issued by defendant; that defendant issued Policy No. 31944 to plaintiff covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92 (Exh. "I"); that in the computation of the premium, defendants Policy No. 31944 (Exh. "I"), which is the policy in question, contained on the right-hand upper portion of page 7 thereof, the following: Rate-Various Premium Doc. Stamps F.S.T. Prem. Tax TOTAL P37,420.60 F/L 2,061.52 1,030.76 393.00 3,068.10 776.89 409.05 45,159.92; Typhoon EC ES

that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against earthquake shock (ES); that in all the six insurance policies (Exhs. "C", "D", "E", "F", "G" and "H"), the premium against the peril of earthquake shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in Policy No. 31944 issued by defendant, the shock endorsement provide(sic): In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees,

notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"); that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that on July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged.2 After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No. 31944 for damages on its properties. Respondent instructed petitioner to file a formal claim, then assigned the investigation of the claim to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc.3 On July 30, 1990, respondent, through its adjuster, requested petitioner to submit various documents in support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de Leon,4 rendered a preliminary report5 finding extensive damage caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de Leon stated that "except for the swimming pools, all affected items have no coverage for earthquake shocks."6 On August 11, 1990, petitioner filed its formal demand7 for settlement of the damage to all its properties in the Agoo Playa Resort. On August 23, 1990, respondent denied petitioners claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort.8 Petitioner and respondent failed to arrive at a settlement.9 Thus, on January 24, 1991, petitioner filed a complaint10 with the regional trial court of Pasig praying for the payment of the following: 1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with interest thereon, as computed under par. 29 of the policy (Annex "B") until fully paid; 2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff on account of defendants refusal to pay the claims; 3.) The sum of P500,000.00, by way of exemplary damages; 4.) The sum of P500,000.00 by way of attorneys fees and expenses of litigation; 5.) Costs.11 Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims.12 On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:

The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of earthquake shock, the same premium it paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the Court must consequently agree with the position of defendant that the endorsement rider (Exhibit "7-C") means that only the two swimming pools were insured against earthquake shock. Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the language used in an insurance contract or application is such as to create ambiguity the same should be resolved against the party responsible therefor, i.e., the insurance company which prepared the contract. To the mind of [the] Court, the language used in the policy in litigation is clear and unambiguous hence there is no need for interpretation or construction but only application of the provisions therein. From the above observations the Court finds that only the two (2) swimming pools had earthquake shock coverage and were heavily damaged by the earthquake which struck on July 16, 1990. Defendant having admitted that the damage to the swimming pools was appraised by defendants adjuster at P386,000.00, defendant must, by virtue of the contract of insurance, pay plaintiff said amount. Because it is the finding of the Court as stated in the immediately preceding paragraph that defendant is liable only for the damage caused to the two (2) swimming pools and that defendant has made known to plaintiff its willingness and readiness to settle said liability, there is no basis for the grant of the other damages prayed for by plaintiff. As to the counterclaims of defendant, the Court does not agree that the action filed by plaintiff is baseless and highly speculative since such action is a lawful exercise of the plaintiffs right to come to Court in the honest belief that their Complaint is meritorious. The prayer, therefore, of defendant for damages is likewise denied. WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2) swimming pools, with interest at 6% per annum from the date of the filing of the Complaint until defendants obligation to plaintiff is fully paid. No pronouncement as to costs.13 Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an a ppeal with the Court of Appeals based on the following assigned errors:14 A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE

ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990. B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO RECOVER UNDER DEFENDANT-APPELLEES POLICY (NO. 31944; EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990. C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY. On the other hand, respondent filed a partial appeal, assailing the lower courts failure to award it attorneys fees and damages on its compulsory counterclaim. After review, the appellate court affirmed the decision of the trial court and ruled, thus: However, after carefully perusing the documentary evidence of both parties, We are not convinced that the last two (2) insurance contracts (Exhs. "G" and "H"), which the plaintiff-appellant had with AHAC (AIU) and upon which the subject insurance contract with Philippine Charter Insurance Corporation is said to have been based and copied (Exh. "I"), covered an extended earthquake shock insurance on all the insured properties. xxx We also find that the Court a quo was correct in not granting the plaintiffappellants prayer for the imposition of interest 24% on the insurance claim and 6% on loss of income allegedly amounting toP4,280,000.00. Since the defendant-appellant has expressed its willingness to pay the damage caused on the two (2) swimming pools, as the Court a quo and this Court correctly found it to be liable only, it then cannot be said that it was in default and therefore liable for interest. Coming to the defendant-appellants prayer for an attorneys fees, longstanding is the rule that the award thereof is subject to the sound discretion of the court. Thus, if such discretion is well-exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the award thereof an exception rather than a rule, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award (Country Bankers Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002). Therefore, holding that the plaintiff-appellants action is not baseless and highly speculative, We find that the Court a quo did not err in granting the same.

WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the Trial Court hereby AFFIRMED in toto. No costs.15 Petitioner filed the present petition raising the following issues: 16 A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENTS INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK. B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS FEES AND EXPENSES OF LITIGATION. Petitioner contends: First, that the policys earthquake shock endorsement clearly covers all of the properties insured and not only the swimming pools. It used the words "any property insured by this policy," and it should be interpreted as all inclusive. Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in the body of the insurance policy itself, which states that it is "[s]ubject to: Other Insurance Clause, Typhoon Endorsement,Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term Policies."17 Third, that the qualification referring to the two swimming pools had already been deleted in the earthquake shock endorsement. Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it deleted the said qualification. Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of the insurance policy, because the rider is the more deliberate expression of the agreement of the contracting parties. Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties enumerated at the time of issue. Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner and against respondent. It was respondent which caused the ambiguity when it made the policy in issue. Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be interpreted as a caveat on the standard fire insurance policy, such as to remove the two swimming pools from the coverage for the risk of fire. It should not be used to limit the respondents liability for earthquake shock to the two swimming pools only.

Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under the extended coverage. The premium for the earthquake shock coverage was already included in the premium paid for the policy. Tenth, the parties contemporaneous and subsequent acts show that they intended to extend earthquake shock coverage to all insured properties. When it secured an insurance policy from respondent, petitioner told respondent that it wanted an exact replica of its latest insurance policy from American Home Assurance Company (AHACAIU), which covered all the resorts properties for earthquake shock damage and respondent agreed. After the July 16, 1990 earthquake, respondent assured petitioner that it was covered for earthquake shock. Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise requested petitioner to submit the necessary documents for its building claims and other repair costs. Thus, under the doctrine of equitable estoppel, it cannot deny that the insurance policy it issued to petitioner covered all of the properties within the resort. Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the Revised Rules of Court as its remedy, and there is no need for calibration of the evidence in order to establish the facts upon which this petition is based. On the other hand, respondent made the following counter arguments:18 First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage against earthquake shock to petitioners insured properties other than on the two swimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming pools were insured against earthquake shock. From 1988 until 1990, the provisions in its policy were practically identical to its earlier policies, and there was no increase in the premium paid. AHAC-AIU, in a letter19 by its representative Manuel C. Quijano, categorically stated that its previous policy, from which respondents policy was copied, covered only earthquake shock for the two swimming pools. Second, petitioners payment of additional premium in the amount of P393.00 shows that the policy only covered earthquake shock damage on the two swimming pools. The amount was the same amount paid by petitioner for earthquake shock coverage on the two swimming pools from 1990-1991. No additional premium was paid to warrant coverage of the other properties in the resort. Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to the two swimming pools in the policy schedule did not expand the earthquake shock coverage to all of petitioners properties. As per its agreement with petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner. Although the first five policies contained the said qualification in their riders title, in the last two policies, this qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such deletion was a mere inadvertence. This inadvertence did not make the policy incomplete, nor did it broaden the scope of the endorsement whose descriptive title was merely enumerated. Any ambiguity in the policy can be easily resolved by looking at the other provisions, specially the enumeration of the items insured, where only the two swimming pools were noted as covered for earthquake shock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase "Item 5 P393,000.00 on the two swimming pools only (against the peril of earthquake shock only)" meant that only the swimming pools were insured for earthquake damage. The same phrase is used in toto in the policies from 1989 to 1990, the only difference being the designation of the two swimming pools as "Item 3." Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all the properties covered. In all of its seven insurance policies, petitioner only paid P393.00 as premium for coverage of the swimming pools against earthquake shock. No other premium was paid for earthquake shock coverage on the other properties. In addition, the use of the qualifier "ANY" instead of "ALL" to describe the property covered was done deliberately to enable the parties to specify the properties included for earthquake coverage. Sixth, petitioner did not inform respondent of its requirement that all of its properties must be included in the earthquake shock coverage. Petitioners own evidence shows that it only required respondent to follow the exact provisions of its previous policy from AHAC-AIU. Respondent complied with this requirement. Respondents only deviation from the agreement was when it modified the provisions regarding the replacement cost endorsement. With regard to the issue under litigation, the riders of the old policy and the policy in issue are identical. Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from maintaining that only the two swimming pools were covered for earthquake shock. The adjusters letter notifying petitioner to present certain documents for its building claims and repair costs was given to petitioner before the adjuster knew the full coverage of its policy. Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase "Item 5 Only" after the descriptive name or title of the Earthquake Shock Endorsement. However, the words of the policy reflect the parties clear intention to limit earthquake shock coverage to the two swimming pools. Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not object to any deficiency nor did it institute any action to reform the policy. The policy binds the petitioner. Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigation expenses. Since respondent was willing and able to pay for the damage caused on the two swimming pools, it cannot be considered to be in default, and therefore, it is not liable for interest. We hold that the petition is devoid of merit. In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.

First, in the designation of location of risk, only the two swimming pools were specified as included, viz: ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of earthquake shock only)20 Second, under the breakdown for premium payments,21 it was stated that: PREMIUM RECAPITULATION ITEM NOS. xxx 3 393,000.00 0.100%-E/S 393.0022] AMOUNT RATES PREMIUM

loss or damage by fire should be deemed to apply also to loss or damage occasioned by or through or in consequence of Earthquake.24 Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the insured properties. It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each other.25 All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only. A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Thus, an insurance contract exists where the following elements concur: 1. The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the designated peril; 3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurer's promise, the insured pays a premium.26 (Emphasis ours) An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril.27 In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk attaches.28 In the subject policy, no premium payments were made with regard to earthquake shock coverage, except on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent with the history of petitioners previous insurance policies from AHAC-AIU. As borne out by petitioners witnesses: CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991 pp. 12-13

Third, Policy Condition No. 6 stated: 6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly of any of the following occurrences, namely:-(a) Earthquake, volcanic eruption or other convulsion of nature. 23 Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz: ANNUAL PAYMENT AGREEMENT ON LONG TERM POLICIES THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE PREMIUM. Earthquake Endorsement In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . . . additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this Policy to the contrary, that this insurance covers loss or damage (including loss or damage by fire) to any of the property insured by this Policy occasioned by or through or in consequence of Earthquake. Provided always that all the conditions of this Policy shall apply (except in so far as they may be hereby expressly varied) and that any reference therein to

Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during the period from March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited to the two swimming pools only? A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is a provision here that it was only for item 5. Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two swimming pools only? A. Yes, sir. CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991 pp. 23-26 Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for the procurement of this policy? A. Yes, sir. Q. Did you also do this through your insurance agency? A. If you are referring to Forte Insurance Agency, yes. Q. Is Forte Insurance Agency a department or division of your company? A. No, sir. They are our insurance agency. Q. And they are independent of your company insofar as operations are concerned? A. Yes, sir, they are separate entity. Q. But insofar as the procurement of the insurance policy is concerned they are of course subject to your instruction, is that not correct? A. Yes, sir. The final action is still with us although they can recommend what insurance to take. Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989, did you give written instruction to Forte Insurance Agency advising it that the earthquake shock coverage must extend to all properties of Agoo Playa Resort in La Union?

A. No, sir. We did not make any written instruction, although we made an oral instruction to that effect of extending the coverage on (sic) the other properties of the company. Q. And that instruction, according to you, was very important because in April 1987 there was an earthquake tremor in La Union? A. Yes, sir. Q. And you wanted to protect all your properties against similar tremors in the [future], is that correct? A. Yes, sir. Q. Now, after this policy was delivered to you did you bother to check the provisions with respect to your instructions that all properties must be covered again by earthquake shock endorsement? A. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit "G"? Atty. Mejia: Yes. Witness: A. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more limitation referring to the two swimming pools only, I was contented already that the previous limitation pertaining to the two swimming pools was already removed. Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies"29 to the insurance policy as proof of the intent of the parties to extend the coverage for earthquake shock. However, this phrase is merely an enumeration of the descriptive titles of the riders, clauses, warranties or endorsements to which the policy is subject, as required under Section 50, paragraph 2 of the Insurance Code. We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone. As explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU: DIRECT EXAMINATION OF JUAN BARANDA III30 TSN, August 11, 1992 pp. 9-12

Atty. Mejia: We respectfully manifest that the same exhibits C to H inclusive have been previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic) these six (6) policies issued by your company [in favor] of Agoo Playa Resort? WITNESS: Yes[,] I remember having gone over these policies at one point of time, sir. Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively carries an earthquake shock endorsement[?] My question to you is, on the basis on (sic) the wordings indicated in Exhibits C to H respectively what was the extent of the coverage [against] the peril of earthquake shock as provided for in each of the six (6) policies? xxx WITNESS: The extent of the coverage is only up to the two (2) swimming pools, sir. Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H? A. Yes, sir. ATTY. MEJIA: What is your basis for stating that the coverage against earthquake shock as provided for in each of the six (6) policies extend to the two (2) swimming pools only? WITNESS: Because it says here in the policies, in the enumeration "Earthquake Shock Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock Endorsement)," sir. ATTY. MEJIA: Witness referring to Exhibit C-1, your Honor.

WITNESS: We do not normally cover earthquake shock endorsement on stand alone basis. For swimming pools we do cover earthquake shock. For building we covered it for full earthquake coverage which includes earthquake shock COURT: As far as earthquake shock endorsement you do not have a specific coverage for other things other than swimming pool? You are covering building? They are covered by a general insurance? WITNESS: Earthquake shock coverage could not stand alone. If we are covering building or another we can issue earthquake shock solely but that the moment I see this, the thing that comes to my mind is either insuring a swimming pool, foundations, they are normally affected by earthquake but not by fire, sir. DIRECT EXAMINATION OF JUAN BARANDA III TSN, August 11, 1992 pp. 23-25 Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F inclusive [remained] its coverage against earthquake shock to two (2) swimming pools only but that Exhibits G and H respectively entend the coverage against earthquake shock to all the properties indicated in the respective schedules attached to said policies, what can you say about that testimony of plaintiffs witness? WITNESS: As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I assure you that this one covers the two swimming pools with respect to earthquake shock endorsement. Based on it, if we are going to look at the premium there has been no change with respect to the rates. Everytime (sic) there is a renewal if the intention of the insurer was to include the earthquake shock, I think there is a substantial increase in the premium. We are not only going to consider the two (2) swimming pools of the other as stated in the policy. As I see, there is no increase in the amount of the premium. I must say that the coverage was not broaden (sic) to include the other items. COURT:

They are the same, the premium rates? WITNESS: They are the same in the sence (sic), in the amount of the coverage. If you are going to do some computation based on the rates you will arrive at the same premiums, your Honor. CROSS-EXAMINATION OF JUAN BARANDA III TSN, September 7, 1992 pp. 4-6 ATTY. ANDRES: Would you as a matter of practice [insure] swimming pools for fire insurance? WITNESS: No, we dont, sir. Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was placed, is it not? A. Yes, sir. ATTY. ANDRES: Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed to during your direct-examination, the phrase "Item no. 5 only" meaning to (sic) the two (2) swimming pools was deleted from the policies issued by AIU, is it not? xxx ATTY. ANDRES: As an insurance executive will you not attach any significance to the deletion of the qualifying phrase for the policies? WITNESS: My answer to that would be, the deletion of that particular phrase is inadvertent. Being a company underwriter, we do not cover. . it was inadvertent because of the previous policies that we have issued with

no specific attachments, premium rates and so on. It was inadvertent, sir. The Court also rejects petitioners contention that respondents contemporaneous and subsequent acts to the issuance of the insurance policy falsely gave the petitioner assurance that the coverage of the earthquake shock endorsement included all its properties in the resort. Respondent only insured the properties as intended by the petitioner. Petitioners own witness testified to this agreement, viz: CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, January 14, 1992 pp. 4-5 Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policy from Philippine Charter Insurance Corporation? A. I told him that the insurance that they will have to get will have the same provisions as this American Home Insurance Policy No. 206-4568061-9. Q. You are referring to Exhibit "H" of course? A. Yes, sir, to Exhibit "H". Q. So, all the provisions here will be the same except that of the premium rates? A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be charging will be limited to this one. I (sic) can even be lesser. CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, January 14, 1992 pp. 12-14 Atty. Mejia: Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and scope of coverage of Exhibits "I" and "H" sometime in the third week of March, 1990 or thereabout? A. Yes, sir, about that time. Q. And at that time did you notice any discrepancy or difference between the policy wordings as well as scope of coverage of Exhibits "I" and "H" respectively?

A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the policy wordings and rates were copied from the insurance policy I sent them but it was only when this case erupted that we discovered some discrepancies. Q. With respect to the items declared for insurance coverage did you notice any discrepancy at any time between those indicated in Exhibit "I" and those indicated in Exhibit "H" respectively? A. With regard to the wordings I did not notice any difference because it was exactly the same P393,000.00 on the two (2) swimming pools only against the peril of earthquake shock which I understood before that this provision will have to be placed here because this particular provision under the peril of earthquake shock only is requested because this is an insurance policy and therefore cannot be insured against fire, so this has to be placed. The verbal assurances allegedly given by respondents representative Atty. Umlas were not proved. Atty. Umlas categorically denied having given such assurances. Finally, petitioner puts much stress on the letter of respondents independent claims adjuster, Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe that the endorsement for earthquake shock covered properties other than the two swimming pools, viz: DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.) TSN, January 26, 1993 pp. 22-26 Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage of the policy issued by Philippine Charter Insurance Corporation? A. I remember that when I returned to the office after the inspection, I got a photocopy of the insurance coverage policy and it was indicated under Item 3 specifically that the coverage is only for earthquake shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed to him what I had found out in the policy and he confirmed to me indeed only Item 3 which were the two swimming pools have coverage for earthquake shock. xxx Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for the swimming pools all affected items have no coverage for earthquake shock?

xxx A. I based my statement on my findings, because upon my examination of the policy I found out that under Item 3 it was specific on the wordings that on the two swimming pools only, then enclosed in parenthesis (against the peril[s] of earthquake shock only), and secondly, when I examined the summary of premium payment only Item 3 which refers to the swimming pools have a computation for premium payment for earthquake shock and all the other items have no computation for payment of premiums. In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule that insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it.31 A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. Through the years, the courts have held that in these type of contracts, the parties do not bargain on equal footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the courts of justice must protect.32Consequently, any ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured.33 The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will show that they are basically one-sided.34 Thus, we have called on lower courts to remain careful in scrutinizing the factual circumstances behind each case to determine the efficacy of the claims of contending parties. InDevelopment Bank of the Philippines v. National Merchandising Corporation, et al.,35 the parties, who were acute businessmen of experience, were presumed to have assented to the assailed documents with full knowledge. We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know the provisions of the policy. From the inception of the policy, petitioner had required the respondent to copyverbatim the provisions and terms of its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in securing the insurance policy of petitioner, is reflective of petitioners knowledge,viz: DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36 TSN, September 23, 1991 pp. 20-21 Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities in Agoo Playa? A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter Insurance Corporation as long as it will follow the same or exact provisions of the previous insurance policy we had with American Home Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the American Home Insurance policy are to be incorporated in the PCIC policy? A. Yes, sir. Q. What steps did you take? A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9. Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in the replacement cost endorsement, but the principal provisions of the policy remained essentially similar to AHAC-AIUs policy. Consequently, we cannot apply the "fine print" or "contract of adhesion" rule in this case as the parties intent to limit the coverage of the policy to the two swimming pools only is not ambiguous.37 IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is dismissed. No costs. SO ORDERED.

G.R. NO. 147039

January 27, 2006

DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner, vs. RADIO MINDANAO NETWORK, INC., Respondent. DECISION AUSTRIA-MARTINEZ, J.: This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking the review of the Decision1dated November 16, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 56351, the dispositive portion of which reads:
Wherefore, premises considered, the appealed Decision of the Regional Trial Court of Makati City, Branch 138 in Civil Case No. 90-602 is hereby AFFIRMED with MODIFICATION in that the interest rate is hereby reduced to 6% per annum. Costs against the defendants-appellants. SO ORDERED.2

and consequently, denied the claims. Hence, respondent was constrained to file Civil Case No. 90-602 against petitioner and Provident. After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a decision in favor of respondent. The dispositive portion of the decision reads:
IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant Provident Insurance Corporation is directed to pay plaintiff the amount of P450,000.00 representing the value of the destroyed property insured under its Fire Insurance Policy plus 12% legal interest from March 2, 1990 the date of the filing of the Complaint. Defendant DBP Pool Accredited Insurance Companies is likewise ordered to pay plaintiff the sum of P602,600.00 representing the value of the destroyed property under its Fire Insurance Policy plus 12% legal interest from March 2, 1990. SO ORDERED.4

Both insurance companies appealed from the trial courts decision but the CA affirmed the decision, with the modification that the applicable interest rate was reduced to 6% per annum. A motion for reconsideration was filed by petitioner DBP which was denied by the CA per its Resolution dated January 30, 2001.5 Hence, herein petition by DBP Pool of Accredited Insurance Companies,6 with the following assignment of errors:
Assignment of Errors THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NO SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20) ARMED MEN WHO CUSED [sic] THE FIRE AT RESPONDENTS RMN PROPERTY AT BACOLOD CITY WERE MEMBERS OF THE CPP-NPA. THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENT RMN CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEYS FEES FOR INSTITUTING THE PRESENT ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229 AND 2232 OF THE CIVIL CODE OF THE PHILIPPINES.7

The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao Network, Inc. (respondent) against DBP Pool of Accredited Insurance Companies (petitioner) and Provident Insurance Corporation (Provident) for recovery of insurance benefits. Respondent owns several broadcasting stations all over the country. Provident covered respondents transmitter equipment and generating set for the amount ofP13,550,000.00 under Fire Insurance Policy No. 30354, while petitioner covered respondents transmitter, furniture, fixture and other transmitter facilities for the amount of P5,883,650.00 under Fire Insurance Policy No. F-66860. In the evening of July 27, 1988, respondents radio station located in SSS Building, Bacolod City, was razed by fire causing damage in the amount of P1,044,040.00. Respondent sought recovery under the two insurance policies but the claims were denied on the ground that the cause of loss was an excepted risk excluded under condition no. 6 (c) and (d), to wit: 6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following consequences, namely: (c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be declared or not), civil war. (d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped power.3 The insurance companies maintained that the evidence showed that the fire was caused by members of the Communist Party of the Philippines/New Peoples Army (CPP/ NPA);

Petitioner assails the factual finding of both the trial court and the CA that its evidence failed to support its allegation that the loss was caused by an excepted risk, i.e., members of the CPP/NPA caused the fire. In upholding respondents claim for indemnity , the trial court found that: The only evidence which the Court can consider to determine if the fire was due to the intentional act committed by the members of the New Peoples Army (NPA), are the testimony [sic] of witnesses Lt. Col. Nicolas Torres and SPO3 Leonardo Rochar who were admittedly not present when the fire occurred. Their testimony [sic] was [sic] limited to the fact that an investigation was conducted and in the course of the investigation they were informed by bystanders that "heavily armed men entered the transmitter house, poured gasoline in (sic) it and then lighted it. After that, they went out shouting "Mabuhay ang NPA" (TSN, p. 12., August 2, 1995). The persons whom they investigated and actually saw the burning of the station were not presented as witnesses. The

documentary evidence particularly Exhibits "5" and "5-C" do not satisfactorily prove that the author of the burning were members of the NPA. Exhibit "5-B" which is a letter released by the NPA merely mentions some dissatisfaction with the activities of some people in the media in Bacolod. There was no mention there of any threat on media facilities.8 The CA went over the evidence on record and sustained the findings of the trial court, to wit: To recapitulate, defendants-appellants presented the following to support its claim, to wit: police blotter of the burning of DYHB, certification of the Negros Occidental Integrated National Police, Bacolod City regarding the incident, letter of alleged NPA members Celso Magsilang claiming responsibility for the burning of DYHB, fire investigation report dated July 29, 1988, and the testimonies of Lt. Col. Nicolas Torres and SFO III Leonardo Rochas. We examined carefully the report on the police blotter of the burning of DYHB, the certification issued by the Integrated National Police of Bacolod City and the fire investigation report prepared by SFO III Rochas and there We found that none of them categorically stated that the twenty (20) armed men which burned DYHB were members of the CPP/NPA. The said documents simply stated that the said armed men were believed to be or suspected of being members of the said group. Even SFO III Rochas admitted that he was not sure that the said armed men were members of the CPP-NPA, thus:
In fact the only person who seems to be so sure that that the CPP-NPA had a hand in the burning of DYHB was Lt. Col. Nicolas Torres. However, though We found him to be persuasive in his testimony regarding how he came to arrive at his opinion, We cannot nevertheless admit his testimony as conclusive proof that the CPP-NPA was really involved in the incident considering that he admitted that he did not personally see the armed men even as he tried to pursue them. Note that when Lt. Col. Torres was presented as witness, he was presented as an ordinary witness only and not an expert witness. Hence, his opinion on the identity or membership of the armed men with the CPPNPA is not admissible in evidence. Anent the letter of a certain Celso Magsilang, who claims to be a member of NPA-NIROC, being an admission of person which is not a party to the present action, is likewise inadmissible in evidence under Section 22, Rule 130 of the Rules of Court. The reason being that an admission is competent only when the declarant, or someone identified in legal interest with him, is a party to the action. 9

Petitioner argues that private respondent is responsible for proving that the cause of the damage/loss is covered by the insurance policy, as stipulated in the insurance policy, to wit:
Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through in consequence directly or indirectly, of any of the said occurrences shall be deemed to be loss or damage which is not covered by the insurance, except to the extent that the Insured shall prove that such loss or damage happened independently of the existence of such abnormal conditions. In any action, suit or other proceeding where the Companies allege that by reason of the provisions of this condition any loss or damage is not covered by this insurance, the burden of proving that such loss or damage is covered shall be upon the Insured.12 An insurance contract, being a contract of adhesion, should be so interpreted as to carry out the purpose for which the parties entered into the contract which is to insure against risks of loss or damage to the goods. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations. 13

The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden of evidence" (burden of going forward).14 As applied in this case, it refers to the duty of the insured to show that the loss or damage is covered by the policy. The foregoing clause notwithstanding, the burden of proof still rests upon petitioner to prove that the damage or loss was caused by an excepted risk in order to escape any liability under the contract. Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence required by law, which is preponderance of evidence in civil cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable judgment. For the plaintiff, the burden of proof never parts.15 For the defendant, an affirmative defense is one which is not a denial of an essential ingredient in the plaintiffs cause of action, but one which, if established, will be a good defense i.e. an "avoidance" of the claim.16 Particularly, in insurance cases, where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of the exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability.17 Consequently, it is sufficient for private respondent to prove the fact of damage or loss. Once respondent makes out a prima facie case in its favor, the duty or the burden of evidence shifts to petitioner to controvert respondents prima facie case.18 In this case, since petitioner alleged an excepted risk, then the burden of evidence shifted to petitioner to prove such exception. It is only when petitioner has sufficiently proven that the damage or loss was caused by an excepted risk does the burden of evidence shift back to respondent who is then under a duty of producing evidence to show why such

The Court will not disturb these factual findings absent compelling or exceptional reasons. It should be stressed that a review by certiorari under Rule 45 is a matter of discretion. Under this mode of review, the jurisdiction of the Court is limited to reviewing only errors of law, not of fact.10 Moreover, when supported by substantial evidence, findings of fact of the trial court as affirmed by the CA are conclusive and binding on the parties,11 which this Court will not review unless there are exceptional circumstances. There are no exceptional circumstances in this case that would have impelled the Court to depart from the factual findings of both the trial court and the CA. Both the trial court and the CA were correct in ruling that petitioner failed to prove that the loss was caused by an excepted risk.

excepted risk does not release petitioner from any liability. Unfortunately for petitioner, it failed to discharge its primordial burden of proving that the damage or loss was caused by an excepted risk. Petitioner however, insists that the evidence on record established the identity of the author of the damage. It argues that the trial court and the CA erred in not appreciating the reports of witnesses Lt. Col Torres and SFO II Rochar that the bystanders they interviewed claimed that the perpetrators were members of the CPP/NPA as an exception to the hearsay rule as part of res gestae. A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived from his perception.19 A witness may not testify as to what he merely learned from others either because he was told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose reliability on which the worth of the out-of-court statement depends.20 Res gestae, as an exception to the hearsay rule, refers to those exclamations and statements made by either the participants, victims, or spectators to a crime immediately before, during, or after the commission of the crime, when the circumstances are such that the statements were made as a spontaneous reaction or utterance inspired by the excitement of the occasion and there was no opportunity for the declarant to deliberate and to fabricate a false statement. The rule in res gestae applies when the declarant himself did not testify and provided that the testimony of the witness who heard the declarant complies with the following requisites: (1) that the principal act, the res gestae, be a startling occurrence; (2) the statements were made before the declarant had the time to contrive or devise a falsehood; and (3) that the statements must concern the occurrence in question and its immediate attending circumstances.21 The Court is not convinced to accept the declarations as part of res gestae. While it may concede that these statements were made by the bystanders during a startling occurrence, it cannot be said however, that these utterances were made spontaneously by the bystanders and before they had the time to contrive or devise a falsehood. Both SFO III Rochar and Lt. Col. Torres received the bystanders statements while they were making their investigations during and after the fire. It is reasonable to assume that when these statements were noted down, the bystanders already had enough time and opportunity to mill around, talk to one another and exchange information, not to mention theories and speculations, as is the usual experience in disquieting situations where hysteria is likely to take place. It cannot therefore be ascertained whether these utterances were the products of truth. That the utterances may be mere idle talk is not remote. At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements were made may be considered as independently relevant statements gathered in the course of

their investigation, and are admissible not as to the veracity thereof but to the fact that they had been thus uttered.22 Furthermore, admissibility of evidence should not be equated with its weight and sufficiency.23 Admissibility of evidence depends on its relevance and competence, while the weight of evidence pertains to evidence already admitted and its tendency to convince and persuade.24 Even assuming that the declaration of the bystanders that it was the members of the CPP/NPA who caused the fire may be admitted as evidence, it does not follow that such declarations are sufficient proof. These declarations should be calibrated vis--vis the other evidence on record. And the trial court aptly noted that there is a need for additional convincing proof, viz.: The Court finds the foregoing to be insufficient to establish that the cause of the fire was the intentional burning of the radio facilities by the rebels or an act of insurrection, rebellion or usurped power. Evidence that persons who burned the radio facilities shouted "Mabuhay ang NPA" does not furnish logical conclusion that they are member [sic] of the NPA or that their act was an act of rebellion or insurrection. Additional convincing proof need be submitted. Defendants failed to discharge their responsibility to present adequate proof that the loss was due to a risk excluded.25 While the documentary evidence presented by petitioner, i.e., (1) the police blotter; (2) the certification from the Bacolod Police Station; and (3) the Fire Investigation Report may be considered exceptions to the hearsay rule, being entries in official records, nevertheless, as noted by the CA, none of these documents categorically stated that the perpetrators were members of the CPP/NPA.26 Rather, it was stated in the police blotter that: "a group of persons accompanied by one (1) woman all believed to be CPP/NPA more or less 20 persons suspected to be CPP/NPA,"27 while the certification from the Bacolod Police station stated that " some 20 or more armed men believed to be members of the New Peoples Army NPA,"28 and the fire investigation report concluded that "(I)t is therefore believed by this Investigating Team that the cause of the fire is intentional, and the armed mensuspected to be members of the CPP/NPA where (sic) the ones responsible "29 All these documents show that indeed, the "suspected" executor of the fire were believed to be members of the CPP/NPA. But suspicion alone is not sufficient, preponderance of evidence being the quantum of proof. All told, the Court finds no reason to grant the present petition. WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated November 16, 2000 and Resolution dated January 30, 2001 rendered in CA-G.R. CV No. 56351 are AFFIRMED in toto. SO ORDERED.

[G.R. No. 154514. July 28, 2005]

FIRST ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES. SECOND ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS. THIRD ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP. FOURTH ASSIGNMENT OF ERROR THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER.[9] Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual? The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to do business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the certifications issued by the Insurance Commission. Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals[10] as an association composed of shipowners in general who band together for the specific purpose of providing insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties. It stresses that as a P & I Club, Steamship Mutuals primary purpose is to solicit and provide protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its agent. Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance business in the Philippines. It is merely an association of vessel owners who have come together to provide mutual protection against liabilities incidental to shipowning.[11] Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the jurisdiction of the court overHyopsung.

WHITE GOLD MARINE SERVICES, INC., petitioner, vs. PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., respondents. DECISION QUISUMBING, J.: This petition for review assails the Decision[1] dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60144, affirming the Decision[2] dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was no violation of the Insurance Code and the respondents do not need license as insurer and insurance agent/broker. The facts are undisputed. White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and Acceptance.[3] Pioneer also issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage. Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latters unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual violated Sections 186[4] and 187[5] of the Insurance Code, while Pioneer violated Sections 299,[6] 300[7] and 301[8] in relation to Sections 302 and 303, thereof. The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to secure a license because it was not engaged in the insurance business. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship Mutual was already superfluous. The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court distinguished between P & I Clubs vis--vis conventional insurance. The appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual. In this petition, petitioner assigns the following errors allegedly committed by the appellate court,

Is Steamship Mutual engaged in the insurance business? Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance business or transacting an insurance business. These are: (a) making or proposing to make, as insurer, any insurance contract; (b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. . . . The same provision also provides, the fact that no profit is derived from the making of insurance contracts, agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude the existence of an insurance business.[12] The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by what it is called.[13] Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.[14] In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a marine adventure. [15] Section 99[16] of the Insurance Code enumerates the coverage of marine insurance. Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their interest.[17] Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection and indemnity, war risks, and defense costs.[18] A P & I Club is a form of insurance against third party liability, where the third party is anyone other than the P & I Club and the members.[19] By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority mandated by Section 187 [20] of the Insurance Code. It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission. Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or insurance company is allowed to engage in the insurance business without a license or a certificate of authority from the Insurance Commission.[21] Does Pioneer, as agent/broker of Steamship Mutual, need a special license? Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration[22] issued by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate of authority [23] issued by the same agency. However, a Certification from the Commission states that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.[24] Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states: SEC. 299 . . . No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. . . Finally, White Gold seeks revocation of Pioneers certificate of authority a nd removal of its directors and officers. Regrettably, we are not the forum for these issues. WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations to do business as insurer and insurance agent, respectively. The petitioners prayer for the revocation of Pioneers Certificate of Authority and removal of its directors and officers, is DENIED. Costs against respondents. SO ORDERED.

G.R. No. L-51221 July 31, 1991 FIRST INTEGRATED BONDING & INSURANCE COMPANY, INC., petitioner, vs. HON. HAROLD M. HERNANDO, VICTORINO ADVINCULA, ROMANA ADVINCULA, SILVERIO BLANCO & THE SHERIFF OF MANILA and his DEPUTY SHERIFFS, respondents. Octavio M. Zavas for petitioner. MEDIALDEA, J.:p This petition for certiorari under Rule 65 of the Revised Rules of Court, seeks the annulment of the amended decision of respondent trial court in Civil Case No. 1104 for allegedly having been rendered in excess of jurisdiction. The same decision was sought to be annulled in a petition for relief from judgment filed in the same case but the petition was denied for having been filed out of time. The narration of facts below was taken from the pleadings filed by the parties. As regards the proceedings following the promulgation of the amended decision, the dates were supplied in the Comment and Answer filed by respondent judge and which were not disputed by petitioner. Silverio Blanco was the owner of a passenger jeepney which he insured against liabilities for death and injuries to third persons with First Integrated Bonding and Insurance Company, Inc. (First Insurance) under Motor Vehicle Policy No. V-0563751 with the face value of P30,000.00 (p. 15, Rollo). On November 25, 1976, the said jeepney driven by Blanco himself bumped a five-year old child, Deogracias Advincula, causing the latter's death. A complaint (pp. 38-41, Rollo) for damages was brought by the child's parents, the Advincula spouses, against Silverio Blanco. First Insurance was also impleaded in the complaint as the insurer. The complaint was docketed as Civil Case No. 1104 of the Court of First Instance of Abra (now Regional Trial Court). Summons were served on Silverio Blanco and First Insurance. However, only Blanco filed an answer. Upon motion of the Advincula spouses, First Insurance was declared in default (p. 45, Rollo) on January 19, 1978. Thereafter, a pre-trial conference was conducted where the Advincula spouses presented the following documentary evidence: Exhibit "A" Marriage Certificate, Exhibit B Birth Certificate, Exhibit B-1 The Certificate of the Local Civil Registrar, Exhibit C Certificate of Death, Exhibit C-1 the official receipt of the burial permit, Exhibit C-2 the autopsy report, Exhibit D filing fee under official receipt in the amount of P80.00, Exhibit D-1 list of actual expenses in connection with the death and burial of the deceased

Advincula, Exhibit E Criminal Case No. 666 of the Municipal Court of Tayum, Abra entitled People of the Philippines versus Silverio Blanco for Homicide thru Reckless Imprudence, Exhibit E-1 sworn statement of Severino Balneg Exhibit F Tax Declaration No. 906 in the name of Maria Blanco delivered by Silverio Blanco to the plaintiffs as pledge of Silverio Blanco to settle the civil aspect of this case. (pp. 14-15, Rollo) On the basis of the evidence presented by the Advincula spouses, judgment was rendered by the trial court on March 1, 1978, the dispositive portion of which states: WHEREFORE, for moral damages, this court adjudicates to the plaintiffs P5,000.00; for the life of Deogracias Advincula P12,000.00, for funeral expenses, P3,663.50 and for attomey's fees, P3,000.00. The satisfaction of these damages divulged (sic) independently now upon the defendant insurance company and to pay the costs of the proceedings. SO ORDERED. (p. 16, Rollo) First Insurance received a copy of the decision on March 14, 1978. Upon motion of the Advincula spouses, the decision was amended on March 27, 1978 (p. 17, Rollo), which, in addition to the damages granted in the original decision, awarded damages in the amount of P6,336.50 to Silverio Blanco. The dispositive portion of the amended decision is quoted, as follows: WHEREFORE, for moral damages, this Court hereby adjudicates to the plaintiffs P5,000.00; for the life of Deogracias Advincula P12,000.00; for funeral expenses P3,663.50 and for attorney's fees P3,000.00 or in the total amount of P23,663.50 which must be satisfied independently by the defendant First Integrated Bonding and Insurance Company, Inc. in favor of the plaintiffs and the balance of P6,336.50 shall also be paid by said defendant Insurance Company to the defendant Silverio Blanco. The grand total under the insurance policy, Exhibit H, is P30,000.00. The defendant Insurance Company to pay the costs of the proceedings. SO ORDERED. (p. 17, Rollo) The amended decision was received by First Instance on April 11, 1978. On May 11, 1978, entry of judgment was made, a copy of which was furnished First Insurance on June 27, 1978. Upon motion of the Advincula spouses, an order granting execution was issued by the court on June 14, 1978, which was received by First Insurance on August 1, 1978 (pp. 31-32, Rollo).

On September 5, 1978, First Insurance filed a petition for relief from judgment in the same case. The petition was set for hearing on September 28, 1978. No appearance was entered by First Insurance on the said date. On October 4, 1978, the trial court issued an order, denying the petition for relief from judgment (pp. 33-34, Rollo), a copy of which was received by First Insurance on October 10, 1978 (p. 35, Rollo). The order reads: The records of this case show that on April 11, 1978, the defendant First Integrated Bonding and Insurance Company, Inc. received a copy of the amended decision dated March 27, 1978 and found on page 30 of the records of this case; on May 11, 1978, the Deputy Clerk of Court entered the corresponding entry of judgment and the First Integrated Bonding and Insurance Company, Inc. received a copy thereof on June 27, 1978, On June 13, 1978, the plaintiffs moved for execution of judgment and the same was granted pursuant to an Order of this Court dated June 14, 1978 and found on page 35 of the records of this case. And now comes the petition for relief from the Order of execution and judgment with preliminary injunction filed by First integrated Bonding and Insurance Co., Inc. and which was received by this Court on September 5, 1978; on September 28, 1978, the plaintiffs filed their written opposition to the petition for relief from judgment and preliminary injunction. The opposition is based on three grounds, namely: 1. that the petition is filed out of time; 2. that there was gross and notorious negligence of the Insurance Company; 3. that this case is within the jurisdiction of this Court and therefore the cause of action of the plaintiffs deserves judicial consideration. It was on April 11, 1978 that the First Integrated Bonding and Insurance Co., Inc. received the amended decision and the petition for relief from Order of Execution and judgment with preliminary injunction was filed on September 5, 1978 or a period of 191 days already expired, that is, more than 6 months already as required by Section 3, Rule 38 of the Rules of Court. Consequently, the first ground invoked by the opposition must be sustained. On the second ground, the records of this case show that the First Integrated Bonding and Insurance Co., Inc. was duly summoned and served a copy of the complaint on August 16, 1977 and it was received by the President of the Insurance Company as shown by the certificate of Service of the Sheriff of Manila and found in page 12 and page 13 of the records of this case; after the reglementary period to file an answer expired, the plaintiffs move to declare the defendant insurance company in default and likewise asked the Court that they be allowed to present their evidence on January 23, 1978 and which was granted by this Court pursuant to an order dated January 19, 1978 and found on page 16 of the records of this case; after the reception of the evidence for the plaintiffs this Court rendered a decision on March 1, 1978 and which is found on pages 23 to 26 of the records of this case; subsequently, on March 27, 1978, an amended decision was issued by this Court and it is found on page 30 of the records of this case. Clearly, therefore, the

First Integrated Bonding and Insurance Co., Inc. was grossly and notoriously negligent in giving the proper attention to this case. This kind of gross and notorious negligence can not be considered excusable. The last ground is that this Court has jurisdiction over the plaintiffs' cause of action against the insurance company. This ground is well-taken because according to Section 416 of the Philippine Insurance Code, Presidential Decree No. 612, it provides that the authority to adjudicate granted to the Commissioner of insurance shall be concurrent with that of the civil courts, but the filing of a complaint with the commissioner shall preclude the civil courts from taking cognizance of a suit involving the same subject matter. Furthermore, the plaintiffs did not intervene in the criminal aspect of this case, instead, they filed a separate and independent civil action on July 26, 1977 and which is now the present Civil Case No. 1104. It may be added, that the matter of exhaustion of administrative remedy may be waived which has been so in the present case because the First Integrated Bonding and Insurance Co., Inc. was declared in default. In view of all the foregoing considerations, the petition for relief from the order of execution and judgment with preliminary injunction, for lack of merit, is hereby denied. SO ORDERED. (pp. 33-34, Rollo) First Insurance filed a motion for reconsideration of the order denying the petition for relief on May 14, 1979. The motion was set for hearing and again no appearance was entered by the movant First Insurance (p. 35, Rollo), prompting the trial court to deny the same. On August 13, 1979, the herein petitioner First Insurance filed this petition for certiorari on the following grounds: 1. The trial court erred in deciding for the respondent spouse(s) where there exists no cause of action against the herein petitioner. 2. The trial court erred when it abbreviated the proceeding and rendered judgment based only on the documentary evidence presented during the pre-trial conference. 3. The trial court erred in holding the petitioner liable in excess of the limits of liability as provided for in the policy contract. On August 20, 1979, this Court issued a temporary restraining order enjoining the respondents from enforcing the Writ of Execution dated August 1, 1978 (p. 19, Rollo) It is the contention of the petitioner that the Advincula spouses have no cause of action against it. As parents of the victim, they may proceed against the driver, Silverio Blanco

on the basis of the provisions of the New Civil Code. However, they have no cause of action against First Insurance, because they are not parties to the insurance contract. It is settled that where the insurance contract provides for indemnity against liability to a third party, such third party can directly sue the insurer (Caguia v. Fieldman's Insurance Co., Inc., G. R. No. 23276, November 29, 1968, 26 SCRA 178). The liability of the insurer to such third person is based on contract while the liability of the insured to the third party is based on tort (Malayan Insurance Co., Inc. v. CA, L-36413, September 26, 1988, 165 SCRA 536). This rule was explained in the case of Shafer v. Judge, RTC of Olongapo City, Br. 75, G.R. No. 78848, November 14, 1988: The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally construed so that their intended purpose may be accomplished. It has even been held that such a provision creates a contractual relation which inures to the benefit of any and every person who may be negligently injured by the named insured as if such injured person were specifically named in the policy. In the event that the injured fails or refuses to include the insurer as party defendant in his claim for indemnity against the insured, the latter is not prevented by law to avail of the procedural rules intended to avoid multiplicity of suits. Not even a "no action" clause under the policy which requires that a final judgment be first obtained against the insured and that only thereafter can the person insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding multiplicity of suits. (p. 391, 167 SCRA) (emphasis supplied) First Insurance cannot evade its liability as insurer by hiding under the cloak of the insured. Its liability is primary and not dependent on the recovery of judgment from the insured. Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor vehicles. The victims and/or their dependents are assured of immediate financial assistance, regardless of the financial capacity of the motor vehicle owners. . . . the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured (Shafer v. Judge, RTC of Olongapo, supra, p. 390).

It is true that Blanco denied that he was negligent when the incident occurred. However, during the pre-trial conference, when respondent judge admitted all the exhibits of the plaintiffs to abbreviate the proceedings, no objection was interposed by Blanco. When a decision was rendered based only on the exhibits of the plaintiffs, Blanco likewise did not object. No motion for reconsideration was filed by either Blanco or First Insurance. Hence, the decision became final and may no longer be attacked. It should be noted also that First Insurance was declared in default because of its failure to file an answer. As far as it was concerned, it failed to raise any triable issue. It lost its standing in court and judgment may be rendered against it on the basis only of the evidence of the Advincula spouses. Petitioner had been given its day in court. Despite its having been declared in default and its failure to file a motion to lift the order of default, it was still notified of the subsequent proceedings in the trial court. But no positive step was taken by it on time to vacate the order of default, the decision nor the amended decision. Instead, it chose to file a petition for relief from judgment on September 1, 1978 almost five (5) months from its receipt of a copy of the amended decision on April 11, 1978. Clearly, the said petition for relief from judgment was filed out of time. The rules require that such petitions must be filed within sixty (60) days after the petitioner learns of the judgment and not more than six (6) months after such judgment was entered (Rule 38, Section 3). The period fixed by Rule 38 of the Rules of Court is non-extendible and never interrupted. It is not subject to any condition or contingency, because it is itself devised to meet a condition or contingency. The remedy allowed by Rule 38 is an act of grace, as it were, designed to give the aggrieved party another and last chance. Being in the position of one who begs, such party's privilege is not to impose conditions, haggle or dilly-dally, but to grab what is offered him. (Palomares, et al. v. Jimenez, et al., 90 Phil. 773, XVII, L.J., No. 3, p. 136, Rafanan v. Rafanan, 35 O.G. 228; Santos v. Manila Electric Co., G.R. L-7735, December 29, 1955; Gana v. Abaya, G.R. No. L-3106, December 29, 1955, cited in Vicente J. Francisco, The Revised Rules of Court of the Philippines, Annotated and Commented, Vol, 11, p. 580. It appears that the award of damages in favor of Blanco has no basis. The complaint in Civil case 1104 was for damages brought by the spouses against Blanco and First Insurance. Blanco did not put up any claim against the latter. However, since the said decision had already become final and executory, it can no longer be corrected or amended. In the same vein, the claim of petitioner that its liability to third parties under the insurance policy is limited to P20,000.00 only can no longer be given consideration at this late stage, when the decision of the trial court awarding damages had already become final and executory. ACCORDINGLY, finding respondent judge to have acted within his jurisdiction in denying the petition for relief from judgment, the petition is DISMISSED. The questioned decision of the trial court in Civil Case No. 1104 having become final and executory, is AFFIRMED. The temporary restraining order issued on August 20, 1979 is hereby lifted. Costs against petitioner. SO ORDERED.

G.R. No. L-24833

September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner, vs. MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF APPEALS, respondents. Jose S. Suarez for petitioner. Eligio G. Lagman for respondents. FERNANDO, J.: An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability under a common carrier insurance policy on the pretext that what was insured, not once but twice, was a private vehicle and not a common carrier, the policy being issued upon the insistence of its agent who discounted fears of the insured that his privately owned vehicle might not fall within its terms, the insured moreover being "a man of scant education," finishing only the first grade. So it was held in a decision of the lower court thereafter affirmed by respondent Court of Appeals. Petitioner in seeking the review of the above decision of respondent Court of Appeals cannot be so sanguine as to entertain the belief that a different outcome could be expected. To be more explicit, we sustain the Court of Appeals. The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case. Federico Songco of Floridablanca, Pampanga, a man of scant education being only a first grader ..., owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such private vehicle owner, he was induced by Fieldmen's Insurance Company Pampanga agent Benjamin Sambat to apply for a Common Carrier's Liability Insurance Policy covering his motor vehicle ... Upon paying an annual premium of P16.50, defendant Fieldmen's Insurance Company, Inc. issued on September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO- 4254 ... the duration of which will be for one (1) year, effective September 15, 1960 to September 15, 1961. On September 22, 1961, the defendant company, upon payment of the corresponding premium, renewed the policy by extending the coverage from October 15, 1961 to October 15, 1962. This time Federico Songco's private jeepney carried Plate No. J-68136-Pampanga-1961. ... On October 29, 1961, during the effectivity of the renewed policy, the insured vehicle while being driven by Rodolfo Songco, a duly licensed driver and son of Federico (the vehicle owner) collided with a car in the municipality of Calumpit, province of Bulacan, as a result of which mishap Federico Songco (father) and Rodolfo Songco (son) died, Carlos Songco (another son), the latter's wife, Angelita Songco, and a family friend by the name of Jose Manuel sustained physical injuries of varying degree." 1 It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-year-old son of deceased Federico Songco, testifying as witness, declared that when insurance agent Benjamin Sambat was inducing his father to insure his vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is an "owner" private vehicle and not for passengers,' to which agent Sambat replied: 'whether our vehicle was an "owner" type or for passengers it could be insured because their company is not owned by the Government and the Government has nothing to do with

their company. So they could do what they please whenever they believe a vehicle is insurable' ... In spite of the fact that the present case was filed and tried in the CFI of Pampanga, the defendant company did not even care to rebut Amor Songco's testimony by calling on the witness-stand agent Benjamin Sambat, its Pampanga Field Representative." 2 The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of the deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts they prevailed, as had been mentioned, in the lower court and in the respondent Court of Appeals.1awphl.nt The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It is now beyond question that where inequitable conduct is shown by an insurance firm, it is "estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured." 4 As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of estoppel undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the insured Federico Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such representation, be permitted to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this case would result in a gross travesty of justice. That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in the policy. lt would now rely on the fact that the insured owned a private vehicle, not a common carrier, something which it knew all along when not once but twice its agent, no doubt without any objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into such a contract. Nor is there any merit to the second alleged error of respondent Court that no legal liability was incurred under the policy by petitioner. Why liability under the terms of the policy 5 was inescapable was set forth in the decision of respondent Court of Appeals. Thus: "Since some of the conditions contained in the policy issued by the defendantappellant were impossible to comply with under the existing conditions at the time and 'inconsistent with the known facts,' the insurer 'is estopped from asserting breach of such conditions.' From this jurisprudence, we find no valid reason to deviate and consequently hold that the decision appealed from should be affirmed. The injured parties, to wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the defendant company was being made liable, were passengers of the jeepney at the time of the occurrence, and Rodolfo Songco, for whose burial expenses the defendant company was also being made liable was the driver of the vehicle in question. Except for the fact, that they were not fare paying passengers, their status as beneficiaries under the policy is recognized therein." 6

Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision would reveal anew the weakness of petitioner's contention. Thus: "Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly interpreted against the party that caused them, the 'memo of warranty' invoked by appellant bars the latter from questioning the existence of the appliances called for in the insured premises, since its initial expression, 'the undernoted appliances for the extinction of fire being kept on the premises insured hereby, ... it is hereby warranted ...,' admits of interpretation as an admission of the existence of such appliances which appellant cannot now contradict, should the parol evidence rule apply." 7 To the same effect is the following citation from the same leading case: "This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats d'adhesion), in contrast to those entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime examples) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary (New Civil Code. Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942)." 8 The last error assigned which would find fault with the decision of respondent Court of Appeals insofar as it affirmed the lower court award for exemplary damages as well as attorney's fees is, on its face, of no persuasive force at all. The conclusion that inescapably emerges from the above is the correctness of the decision of respondent Court of Appeals sought to be reviewed. For, to borrow once again from the language of the Qua Chee Gan opinion: "The contract of insurance is one of perfect good faith (uberima fides) not for the insured alone,but equally so for the insurer; in fact, it is more so for the latter, since its dominant bargaining position carries with it stricter responsibility." 9 This is merely to stress that while the morality of the business world is not the morality of institutions of rectitude like the pulpit and the academe, it cannot descend so low as to be another name for guile or deception. Moreover, should it happen thus, no court of justice should allow itself to lend its approval and support.1awphl.nt We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance Co., Inc. It did not succeed in its persistent effort to avoid complying with its obligation in the lower court and the Court of Appeals. Much less should it find any receptivity from us for its unwarranted and unjustified plea to escape from its liability. WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety. Costs against petitioner Fieldmen's Insurance Co., Inc.

G.R. No. L-20853

May 29, 1967

BONIFACIO BROS., INC., ET AL., plaintiffs-appellants, vs. ENRIQUE MORA, ET AL., defendants-appellees. G. Magsaysay for plaintiffs-appellants. Abad Santos and Pablo for defendant-appellee H. E. Reyes, Inc. J. P. Santilla and A. D. Hidalgo, Jr. for other defendant-appellee. CASTRO, J.: This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case 48823, affirming the decision of the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts Company, appellants herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the State Bonding & Insurance Co. Inc., and directing payment of the said amount to the H. Reyes, Inc. Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insured on June 23, 1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A0615 was issued to Enrique Mora, the pertinent provisions of which read: 1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to the Limits of Liability, indemnify the Insured against loss of or damages to the Motor Vehicle and its accessories and spare parts whilst thereon; (a) by accidental collision or overturning or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear, xxx xxx xxx

virtue of the fact that said Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes, Inc. and that under a clause in said insurance policy, any loss was made payable to the H.S. Reyes, Inc. as Mortgagee; xxx xxx xxx

During the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident to the Bayne Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. The insurance company after claiming a franchise in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and materials. Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila against Enrique Mora and the State Bonding & Insurance Co., Inc. for the collection of the sum of P2,002.73 The insurance company filed its answer with a counterclaim for interpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better right to the insurance proceeds in question. Enrique Mora was declared in default for failure to appear at the hearing, and evidence against him was received ex parte. However, the counsel for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the basis of which are Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a better right to the disputed amount and ordering State Bonding & Insurance Co. Inc. to pay to the H. S. Reyes, Inc. the said sum of P2,002.73. From this decision, the appellants elevated the case to the Court of First Instance of Manila which the stipulation of facts was reproduced. On October 19, 1962 the latter court rendered a decision, affirming the decision of the Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial court denied the motion. Hence, this appeal. The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand and the insurance company on the other. The appellants argue that the insurance company and Enrique Mora are parties to the repair of the car as well as the towage thereof performed. The authority for this assertion is to be found, it is alleged, in paragraph 4 of the insurance contract which provides that "the insured may authorize the repair of the Motor Vehicle necessitated by damage for which the company may be liable under the policy provided that (a) the estimated cost of such repair does not exceed the Authorized Repair Limit, and (b) a detailed estimate of the cost is forwarded to the company without delay." It is stressed that the H.H. Bayne Adjustment Company's recommendation of payment of the appellants' bill for materials and repairs for which the latter drew a check for P2,002.73

2. At its own option the Company may pay in cash the amount of the loss or damage or may repair, reinstate, or replace the Motor Vehicle or any part thereof or its accessories or spare parts. The liability of the Company shall not exceed the value of the parts whichever is the less. The Insured's estimate of value stated in the schedule will be the maximum amount payable by the Company in respect of any claim for loss or damage.1wph1.t xxx xxx xxx

4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the Company may be liable under this Policy provided that: (a) The estimated cost of such repair does not exceed the Authorized Repair Limit, (b) A detailed estimate of the cost is forwarded to the Company without delay, subject to the condition that "Loss, if any is payable to H.S. Reyes, Inc.," by

indicates that Mora and the H.H. Bayne Adjustment Co. acted for and in representation of the insurance company. This argument is, in our view, beside the point, because from the undisputed facts and from the pleadings it will be seen that the appellants' alleged cause of action rests exclusively upon the terms of the insurance contract. The appellants seek to recover the insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance contract document executed by and between the State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned in the contract as parties thereto nor is there any clause or provision thereof from which we can infer that there is an obligation on the part of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take effect only between the parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of a third person.1Such stipulation is known as stipulation pour autrui or a provision in favor of a third person not a pay to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person.2 Consequently, a third person not a party to the contract has no action against the parties thereto, and cannot generally demand the enforcement of the same.3 The question of whether a third person has an enforcible interest in a contract, must be settled by determining whether the contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed purpose of conferring a favor upon such third person. In this connection, this Court has laid down the rule that the fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.4 In the instant case the insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit. We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or pretension of the appellants that they are privy to the contract. If it were the intention of the insurance company to make itself liable to the repair shop or materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance contract intended to confer upon the appellants the benefit claimed by them would require us to ignore the indespensable requisite that a stipulationpour autrui must be clearly expressed by the parties, which we cannot do. As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between the appellants and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of the appellants a right of action against the insurance company as such intention can never be inferred therefrom.

Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied between the insured and third person."5 In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial court that no cause of action exists in favor of the appellants in so far as the proceeds of insurance are concerned. The appellants' claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros. Inc. This conclusion is deducible not only from the principle governing the operation and effect of insurance contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read: The insurance shall be applied exclusively to the proper interests of the person in whose name it is made unless otherwise specified in the policy. The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.," which unmistakably shows the intention of the parties. The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance proceeds arises only if there was loss and not where there is mere damage as in the instant case. Suffice it to say that any attempt to draw a distinction between "loss" and "damage" is uncalled for, because the word "loss" in insurance law embraces injury or damage. Loss in insurance, defined. The injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608). Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial. Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.

G.R. No. L-28237 August 31, 1982 BAY VIEW HOTEL., INC., plaintiff-appellant, vs. KER & CO., LTD., and PHOENIX ASSURANCE CO., LTD., defendants-appellees. TEEHANKEE, J.: This appeal was originally brought before the Court of Appeals but was certified to this Court pursuant to the appellate court's resolution of October 13, 1967 since it involved purely questions of law. Sometime in January, 1958, plaintiff-appellant Bay View Hotel, Inc., then the lessee arid operator of the Manila Hotel, secured a fidelity guarantee bond from defendant-appellee Ker & Co., Ltd., for its accountable employees against acts of fraud and dishonesty. Said defendant-appellee Ker & Co., Ltd., is the Philippine general agent of Phoenix Assurance Co., Ltd. a foreign corporation duly licensed to do insurance business in the Philippines. When one of the bonded employees, Tomas E. Ablaza, while acting in his capacity as cashier, was discovered by plaintiff-appellant to have had a cash shortage and unremitted collections in the total amount of P42,490.95, it filed claims for payments on the said fidelity guarantee bond but defendant-appellee Ker & Co. denied and refused indemnification and payment. To enforce its claims, plaintiff-appellant instituted its complaint, dated August 30, 1965 docketed as Civil Case No. 63181 of the Court of First Instance of Manila. In its answer, defendant-appellee Ker & Co. justified its denial of the claims of plaintiffappellant on various reas ns, such as non-compliance with the conditions stipulated in the insurance policy; non-presentation of evidence regarding the various charges of dishonesty and misrepresentation against Tomas E. Ablaza and non-production of the documents to prove the alleged loss. Ker & Co. likewise averred that it was merely an agent and- as such it was not liable under the policy. On June 22, 1966, counsel for Ker & Co. filed a request for admission, furnishing plaintiffappellant's counsel with a copy thereof requesting admission of the following facts: 1wph1.t
1. On February 14, 1967, the Bay View Hotel, Inc., applied to the Phoenix Assurance Co., Ltd., for a fidelity guarantee bond through a proposal form, a true copy of which is annexed to our answer as Annex "A" thereof. 2. Such a policy was actually issued on January 22, 1958 by the Phoenix Assurance Co., Ltd., in favor of the Bay View Hotel, Inc., and was renewed from time to time with amendments. A true copy of the policy as it finally stood at the time of the alleged defalcation is annexed to our answer as Annex 'B ' thereof. 3. This claim filed by the Bay View Hotel, Inc., under this policy was denied on behalf of the Phoenix Assurance Co., Ltd., by a letter dated 18th June, 1965 sent by registered mail to the

Bay View Hotel, Inc. on June 22, 1965. A true copy of this letter of denial is annexed to the present request as Annex "C" hereof. "

When plaintiff-appellant failed to make any answer to the request for admission within the period prescribed by the rules, defendant-appellee Ker & Co. filed a Motion to Dismiss on Affirmative Defense, dated July 6, 1966, insisting that since under Sec. 2, Rule 26 of the Rules of Court, plaintiff-appellant was deemed to have impliedly admitted each of the matters enumerated in the request for admission, it followed that the proper party in interest against whom plaintiff-appellant might have a claim was the principal Phoenix Assurance Co. (Phoenix) and not the agent Ker & Co. Plaintiff-appellant filed an opposition, dated July 19, 1966 arguing that the proper remedy, under the circumstances was not to dismiss the complaint but to amend it in order to bring the necessary or indispensable parties to the suit. Defendant-appellee Ker & Co. filed a reply to the opposition reiterating its stand that since it merely acted as an agent, the case should be dismissed and plaintiff-appellant should file the necessary action against the principal Phoenix. On August 1, 1966, plaintiff-appellant filed a Motion for Leave to Admit Amended Complaint, attaching copy of the complaint, as amended, this time impleading Phoenix as party defendant. On August 16, 1966, defendants- appellees filed their joint answer to the amended complaint. Again, Ker & Co., Ltd., argued that it was merely an agent and therefore not liable under the policy. On the other hand, Phoenix, averred that under Condition 8 of the insurance policy, plaintiff-appellant was deemed to have abandoned its claim in view of the fact that it did not ask for an arbitration of its claim within twelve (12) months from June 22, 1965 the date of receipt of the denial of the claim. On August 24, 1966, defendants-appellees filed a motion for summary judgment which the trial court granted in its decision of November 4, 1966, ordering the dismissal of the case. After denial of its motion for reconsideration, plaintiff-appellant filed the present appeal, raising the following assignment of errors: 1wph1.t
I The lower court erred and acted with grave abuse of discretion in extending the legal effects, if any, of the request for admission filed by Ker & Co., Ltd. to the Phoenix Assurance Co., Ltd., which was not a party-defendant at the time said request was filed and for whom no similar request was ever filed. II The lower court erred and acted with grave abuse of discretion in giving legal effects to a request for admission by the defendant-appellee under the original complaint after the said original complaint was, with leave of court, amended. III The lower court erred and acted with grave abuse of discretion in holding that "Condition No. 8 of the Policy No. FGC-5018-P requires that should there be a controversy in the payment of

the claims, it should be submitted to an arbitration" despite the admissions by the parties and the established fact that Condition No. 8 of said Policy No. FGC-5018-P provides for Arbitration if any dispute shall arise as to the amount of company's liability." IV The lower court erred and acted with grave abuse of discretion in granting the Motion for Summary Judgment and dismissing the complaint.

tie policy, to have abandoned its claim against said defendant phoenix Assurance Co., Ltd." The main issue raised by plaintiff-appellant is with respect to Condition No. 8 of the insurance policy, photostatic copy of which was submitted to the trial court and reproduced as follows:
If any dispute shall arise as to the amount of company's liability under this Policy the matter shall if required by either party be to the decision of two neutral persons as arbitrators one of, whom shall be named by each party or of an umpire who shall be appointed by the said arbitrators before entering on the reference and in case either party or his representative shall neglect or refuse for the space of two months after request in writing from the other party so to do to name an arbitrator the arbitrator of the other party may proceed alone. And it is hereby expressly agreed and declared that it shag be a condition precedent to any right of action or upon this Policy that the award by such arbitrators, arbitrator or umpire of the amount of the loss shall first be obtained. The costs of and connected with the arbitration shag be in the discretion of the arbitrators, arbitrator or umpire. 2

The first two errors assigned may be taken jointly. Plaintiff-appellant argues that since the implied admission was made before the amendment of its complaint so as to include Phoenix, it follows that Phoenix has no right to avail of these admissions, and that the trial court committed a grave abuse of discretion in extending to Phoenix the legal effects of the request for admission filed solely by Ker & Co. The argument is untenable, Admission is in the nature of evidence and its legal effects were already part of the records of the case and therefore could be availed of by any party even by one subsequently impleaded. The amendment of the complaint per se cannot set aside the legal effects of the request for admission since its materiality has not been affected by the amendment. If a fact is admitted to be true at any stage of the proceedings, it is not stricken out through the amendment of the complaint. To allow a party to alter the legal effects of the request for admission by the mere amendment of a pleading would constitute a dangerous and undesirable precedent. The legal effects of plaintiff- appellant's failure to answer the request for admission could and should have been corrected below by its filing a motion to be relieved of the consequences of the implied admission with respect to respondent Phoenix. Moreover, since an agent may do such acts as may be conducive to the accomplishment of the purpose of the agency, admissions secured by the agent within the scope of the agency ought to favor the principal. This has to be the rule, for the act or declarations of an agent of the party within the scope of the agency and during its existence are considered and treated in turn as the declarations, acts and representations of his principal 1 and may be given in evidence against such party. Plaintiff-appellant insists that since the motion for summary judgment was filed on behalf of defendant-appellee Ker & Co. alone, there was no motion for summary judgment as far as Phoenix was concerned and the trial court's decision dismissing the case should not have included the principal Phoenix. But the motion for summary judgment was filed after the complaint had been amended and answer thereto had been filed. The issues, therefore, with respect to Phoenix had already been likewise joined. Moreover, a reading of the said motion for summary judgment, more particularly the prayer thereof, shows that Phoenix did join Ker & Co. in moving for the dismissal of the case and prayed "that the present action be dismissed as against Ker & Co., Ltd., because being purely and simply the agent of the insurer, it is not liable under the policy and as against the Phoenix Assurance Co., Ltd. because by failing to seek an arbitration within twelve months from the date of its receipt of the denial of its claim on June 22, 1965, plaintiff Bay View Hotel, Inc., is deemed under condition 8 of ,,

Plaintiff-appellant maintains that Condition No. 8 of the policy provides for arbitration only "if any dispute should arise as to the amount of company's liability" consequently, the reference to arbitration is not a condition precedent to the filing of the suit contrary to the insurer company's posture. Plaintiff-appellant points out that in the instant case, there is a total and complete negation of liability. There is no dispute as to the amount of company's liability because this presupposes an admission of responsibility although not to the extent of the cost thereof, while here the insurer denies liability wholly and totally. We find in favor of plaintiff-appellant. The provisions of Condition No. 8, more specifically the portion thereof which reads, "if any dispute shall arise as to the amount of company's liability under this policy ...," do not appear to require any extended interpretation. Condition No. 8 requires arbitration only as to disputes regarding the amountof the insurer's liability but not as to any dispute as to the existence or non- existence of liability. Thus, Condition No. 8 comes into play only if the insurer admits liability but cannot agree with the insured as to the amount thereof and cannot be invoked in cases like that at bar where the insurer completely denies any liability. Defendants-appellees' contention that plaintiff-appellant's failure to request arbitration proceedings is a bar to its filing of the suit at bar against the insurer company cannot be sustained, specially considering the established principle that contracts of adhesion such as the insurance policy in question are to be strictly construed in case of doubt against the insurer.
As to appellee Ker & Co., Ltd., however, there appears to be no serious contradiction as to the fact that it merely acted as the agent of its principal, Phoenix. Considering that there was full disclosure of such agency since the insurance policy was actually issued by Phoenix, We find no error in the dismissal of the case against said defendant Ker & Co., Ltd. Accordingly, the dismissal of the case against Ker & Co., Ltd., is hereby affirmed and maintained, while the dismissal of the case against Phoenix Assurance Co., Ltd. is hereby set aside and the case is remanded to the court of origin for further proceedings and determination on the merits. No costs.

G.R. No. L-39419 April 12, 1982 MAPALAD AISPORNA, petitioner, vs. THE COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.

DE CASTRO, J.: In this petition for certiorari, petitioner-accused Aisporna seeks the reversal of the decision dated August 14, 19741 in CA-G.R. No. 13243-CR entitled "People of the Philippines, plaintiff-appellee, vs. Mapalad Aisporna, defendant-appellant" of respondent Court of Appeals affirming the judgment of the City Court of Cabanatuan 2rendered on August 2, 1971 which found the petitioner guilty for having violated Section 189 of the Insurance Act (Act No. 2427, as amended) and sentenced her to pay a fine of P500.00 with subsidiary imprisonment in case of insolvency, and to pay the costs. Petitioner Aisporna was charged in the City Court of Cabanatuan for violation of Section 189 of the Insurance Act on November 21, 1970 in an information 3 which reads as follows: That on or before the 21st day of June, 1969, in the City of Cabanatuan, Republic of the Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, did then and there, wilfully, unlawfully and feloniously act as agent in the solicitation or procurement of an application for insurance by soliciting therefor the application of one Eugenio S. Isidro, for and in behalf of Perla Compania de Seguros, Inc., a duly organized insurance company, registered under the laws of the Republic of the Philippines, resulting in the issuance of a Broad Personal Accident Policy No. 28PI-RSA 0001 in the amount not exceeding FIVE THOUSAND PESOS (P5,000.00) dated June 21, 1969, without said accused having first secured a certificate of authority to act as such agent from the office of the Insurance Commissioner, Republic of the Philippines. CONTRARY TO LAW. The facts, 4 as found by the respondent Court of Appeals are quoted hereunder: IT RESULTING: That there is no debate that since 7 March, 1969 and as of 21 June, 1969, appellant's husband, Rodolfo S. Aisporna was duly licensed by Insurance Commission as agent to Perla Compania de Seguros, with license to expire on 30 June, 1970, Exh. C; on that date, at Cabanatuan City, Personal Accident Policy, Exh. D was issued by Perla thru its author representative, Rodolfo S. Aisporna, for a period of twelve (12) months with beneficiary as Ana M. Isidro, and for P5,000.00; apparently, insured died by violence during lifetime of

policy, and for reasons not explained in record, present information was filed by Fiscal, with assistance of private prosecutor, charging wife of Rodolfo with violation of Sec. 189 of Insurance Law for having, wilfully, unlawfully, and feloniously acted, "as agent in the solicitation for insurance by soliciting therefore the application of one Eugenio S. Isidro for and in behalf of Perla Compaa de Seguros, ... without said accused having first secured a certificate of authority to act as such agent from the office of the Insurance Commission, Republic of the Philippines." and in the trial, People presented evidence that was hardly disputed, that aforementioned policy was issued with active participation of appellant wife of Rodolfo, against which appellant in her defense sought to show that being the wife of true agent, Rodolfo, she naturally helped him in his work, as clerk, and that policy was merely a renewal and was issued because Isidro had called by telephone to renew, and at that time, her husband, Rodolfo, was absent and so she left a note on top of her husband's desk to renew ... Consequently, the trial court found herein petitioner guilty as charged. On appeal, the trial court's decision was affirmed by the respondent appellate court finding the petitioner guilty of a violation of the first paragraph of Section 189 of the Insurance Act. Hence, this present recourse was filed on October 22, 1974. 5 In its resolution of October 28, 1974, 6 this Court resolved, without giving due course to this instant petition, to require the respondent to comment on the aforesaid petition. In the comment 7 filed on December 20, 1974, the respondent, represented by the Office of the Solicitor General, submitted that petitioner may not be considered as having violated Section 189 of the Insurance Act. 8 On April 3, 1975, petitioner submitted his Brief 9 while the Solicitor General, on behalf of the respondent, filed a manifestation 10 in lieu of a Brief on May 3, 1975 reiterating his stand that the petitioner has not violated Section 189 of the Insurance Act. In seeking reversal of the judgment of conviction, petitioner assigns the following errors 11 allegedly committed by the appellate court: 1. THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT RECEIPT OF COMPENSATION IS NOT AN ESSENTIAL ELEMENT OF THE CRIME DEFINED BY THE FIRST PARAGRAPH OF SECTION 189 OF THE INSURANCE ACT. 2. THE RESPONDENT COURT OF APPEALS ERRED IN GIVING DUE WEIGHT TO EXHIBITS F, F-1, TO F-17, INCLUSIVE SUFFICIENT TO ESTABLISH PETITIONER'S GUILT BEYOND REASONABLE DOUBT. 3. THE RESPONDENT COURT OF APPEALS ERRED IN NOT ACQUITTING HEREIN PETITIONER.

We find the petition meritorious. The main issue raised is whether or not a person can be convicted of having violated the first paragraph of Section 189 of the Insurance Act without reference to the second paragraph of the same section. In other words, it is necessary to determine whether or not the agent mentioned in the first paragraph of the aforesaid section is governed by the definition of an insurance agent found on its second paragraph. The pertinent provision of Section 189 of the Insurance Act reads as follows: No insurance company doing business within the Philippine Islands, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining new insurance, unless such person shall have first procured from the Insurance Commissioner a certificate of authority to act as an agent of such company as hereinafter provided. No person shall act as agent, subagent, or broker in the solicitation of procurement of applications for insurance, or receive for services in obtaining new insurance, any commission or other compensation from any insurance company doing business in the Philippine Islands, or agent thereof, without first procuring a certificate of authority so to act from the Insurance Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. Such certificate shall be issued by the Insurance Commissioner only upon the written application of persons desiring such authority, such application being approved and countersigned by the company such person desires to represent, and shall be upon a form approved by the Insurance Commissioner, giving such information as he may require. The Insurance Commissioner shall have the right to refuse to issue or renew and to revoke any such certificate in his discretion. No such certificate shall be valid, however, in any event after the first day of July of the year following the issuing of such certificate. Renewal certificates may be issued upon the application of the company. Any person who for compensation solicits or obtains insurance on behalf of any insurance company, or transmits for a person other than himself an application for a policy of insurance to or from such company or offers or assumes to act in the negotiating of such insurance, shall be an insurance agent within the intent of this section, and shall thereby become liable to all the duties, requirements, liabilities, and penalties to which an agent of such company is subject. Any person or company violating the provisions of this section shall be fined in the sum of five hundred pesos. On the conviction of any person acting as agent, sub-agent, or broker, of the commission of any offense connected with the business of insurance, the Insurance Commissioner shall immediately revoke the certificate of authority

issued to him and no such certificate shall thereafter be issued to such convicted person. A careful perusal of the above-quoted provision shows that the first paragraph thereof prohibits a person from acting as agent, sub-agent or broker in the solicitation or procurement of applications for insurance without first procuring a certificate of authority so to act from the Insurance Commissioner, while its second paragraph defines who is an insurance agent within the intent of this section and, finally, the third paragraph thereof prescribes the penalty to be imposed for its violation. The respondent appellate court ruled that the petitioner is prosecuted not under the second paragraph of Section 189 of the aforesaid Act but under its first paragraph. Thus ... it can no longer be denied that it was appellant's most active endeavors that resulted in issuance of policy to Isidro, she was there and then acting as agent, and received the pay thereof her defense that she was only acting as helper of her husband can no longer be sustained, neither her point that she received no compensation for issuance of the policy because any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy of insurance to or from such company or offers or assumes to act in the negotiating of such insurance, shall be an insurance agent within the intent of this section, and shall thereby become liable to all the duties, requirements, liabilities, and penalties, to which an agent of such company is subject. paragraph 2, Sec. 189, Insurance Law, now it is true that information does not even allege that she had obtained the insurance, for compensation which is the gist of the offense in Section 189 of the Insurance Law in its 2nd paragraph, but what appellant apparently overlooks is that she is prosecuted not under the 2nd but under the 1st paragraph of Sec. 189 wherein it is provided that, No person shall act as agent, sub-agent, or broker, in the solicitation or procurement of applications for insurance, or receive for services in obtaining new insurance any commission or other compensation from any insurance company doing

business in the Philippine Island, or agent thereof, without first procuring a certificate of authority to act from the insurance commissioner, which must be renewed annually on the first day of January, or within six months thereafter. therefore, there was no technical defect in the wording of the charge, so that Errors 2 and 4 must be overruled.12 From the above-mentioned ruling, the respondent appellate court seems to imply that the definition of an insurance agent under the second paragraph of Section 189 is not applicable to the insurance agent mentioned in the first paragraph. Parenthetically, the respondent court concludes that under the second paragraph of Section 189, a person is an insurance agent if he solicits and obtains an insurance for compensation, but, in its first paragraph, there is no necessity that a person solicits an insurance for compensation in order to be called an insurance agent. We find this to be a reversible error. As correctly pointed out by the Solicitor General, the definition of an insurance agent as found in the second paragraph of Section 189 is intended to define the word "agent" mentioned in the first and second paragraphs of the aforesaid section. More significantly, in its second paragraph, it is explicitly provided that the definition of an insurance agent is within the intent of Section 189. Hence Any person who for compensation ... shall be an insurance agent within the intent of this section, ... Patently, the definition of an insurance agent under the second paragraph holds true with respect to the agent mentioned in the other two paragraphs of the said section. The second paragraph of Section 189 is a definition and interpretative clause intended to qualify the term "agent" mentioned in both the first and third paragraphs of the aforesaid section. Applying the definition of an insurance agent in the second paragraph to the agent mentioned in the first and second paragraphs would give harmony to the aforesaid three paragraphs of Section 189. Legislative intent must be ascertained from a consideration of the statute as a whole. The particular words, clauses and phrases should not be studied as detached and isolated expressions, but the whole and every part of the statute must be considered in fixing the meaning of any of its parts and in order to produce harmonious whole. 13 A statute must be so construed as to harmonize and give effect to all its provisions whenever possible. 14 The meaning of the law, it must be borne in mind, is not to be extracted from any single part, portion or section or from isolated words and phrases, clauses or sentences but from a general consideration or view of the act as a whole. 15 Every part of the statute must be interpreted with reference to the context. This means that every part of the statute must be considered together with the other parts, and kept subservient to the general intent of the whole enactment, not separately and independently. 16 More importantly, the doctrine of associated words (Noscitur a Sociis) provides that where a particular word or phrase in a statement is ambiguous in itself or is equally susceptible of various meanings, its true meaning may be made clear and specific by considering the company in which it is found or with which it is associated. 17

Considering that the definition of an insurance agent as found in the second paragraph is also applicable to the agent mentioned in the first paragraph, to receive a compensation by the agent is an essential element for a violation of the first paragraph of the aforesaid section. The appellate court has established ultimately that the petitioner-accused did not receive any compensation for the issuance of the insurance policy of Eugenio Isidro. Nevertheless, the accused was convicted by the appellate court for, according to the latter, the receipt of compensation for issuing an insurance policy is not an essential element for a violation of the first paragraph of Section 189 of the Insurance Act. We rule otherwise. Under the Texas Penal Code 1911, Article 689, making it a misdemeanor for any person for direct or indirect compensation to solicit insurance without a certificate of authority to act as an insurance agent, an information, failing to allege that the solicitor was to receive compensation either directly or indirectly, charges no offense. 18 In the case of Bolen vs. Stake, 19 the provision of Section 3750, Snyder's Compiled Laws of Oklahoma 1909 is intended to penalize persons only who acted as insurance solicitors without license, and while acting in such capacity negotiated and concluded insurance contracts for compensation. It must be noted that the information, in the case at bar, does not allege that the negotiation of an insurance contracts by the accused with Eugenio Isidro was one for compensation. This allegation is essential, and having been omitted, a conviction of the accused could not be sustained. It is well-settled in Our jurisprudence that to warrant conviction, every element of the crime must be alleged and proved. 20 After going over the records of this case, We are fully convinced, as the Solicitor General maintains, that accused did not violate Section 189 of the Insurance Act. WHEREFORE, the judgment appealed from is reversed and the accused is acquitted of the crime charged, with costs de oficio. SO ORDERED.

G.R. No. L-25803 May 29, 1970 LUZ PICAR, NANCY PICAR, JESSE PICAR, assisted by their mother, CONSOLACION PICAR, plaintiffs-appellants, vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee, REPUBLIC OF THE PHILIPPINES, as represented by the PROVINCIAL TREASURER OF CAMARINES SUR, intervenor-appellee. Nilo A. Malanyaon for plaintiffs-appellants. Celso B. Pleta for defendant-appellee. Florecita Flores for intervenor-appelle.

6. That on September 30, 1961 a claim was presented to the G.S.I.S. for the proceeds of the life insurance policy for relief or payment to the beneficiaries named therein; 7. That the G.S.I.S. is withholding payment of the proceeds of the life insurance policy only on the ground that no clearance was issued to the deceased by the employer of the deceased, the Provincial Treasurer of Camarines Sur; 8. That the Provincial Treasurer filed a claim for P9,746.07 to the intestate estate of the late Napoleon Picar; 9. That the basis of the government represented by the Provincial Treasurer of Camarines Sur in intervening in this case (Civil Case No. 5673) is Section 26 of Commonwealth Act 186, as amended; 10. That the plaintiffs are also withdrawing their claim for moral damages as well as attorney's fees, but insist on the interest due from September 30, 1961 when the claim was made, up to the time the insurance policy is fully paid; 11. That the plaintiffs secured the services of counsel to claim this insurance policy in the amount of P500.00. On the basis of these stipulated facts, the court a quo, on August 30, 1965, dismissed the aforesaid action of the beneficiaries. It ruled thus: The only issues to be decided in this case are: (1) whether it is legally necessary for the plaintiffs to present a clearance from money and property accountabilities of the deceased to be issued by the authorities concerned, and required by the defendant, GSIS, before the proceeds of the Policy No. 170329 is paid to the beneficiaries designated therein; and (2) whether the Republic of the Philippines, as represented by the Provincial Treasurer of Camarines Sur, can legally lay claim to the proceeds of the policy in question. The contract of insurance entered into by the insured, Napoleon F. Picar and the Government Service Insurance System is governed by Commonwealth Act No. 186, the law creating the said insurance system and not by Act 2427 as contended by the plaintiffs. While Act 2427 governs the contract of insurance between Private Insurance Companies and private persons Commonwealth Act No. 186 on the other hand, governs the contract of insurance between the Government Service Insurance System and employees of the Philippine Government. The Government Service Insurance System was created by Commonwealth Act 186 for the sole purpose and benefit of government employees, so much so, that nobody can be insured with the Government Service Insurance System except when he is a government employee. Hence, General Circular No. 52 of the General Auditing Office dated December 23, 1957 is applicable to the insurance contract between the deceased Napoleon F. Picar and the defendant, Government Service Insurance System. And due to the failure of

BARREDO, J.: Appeal on pure questions of law from the decision of the Court of First Instance of Camarines Sur in its Civil Case No. 5673, dismissing the action instituted by the petitioners as designated beneficiaries in the life insurance policy of one Napoleon F. Picar, a deceased government employee, against the Government Service Insurance System, on the ground that due to the failure of the said petitioners to submit a certificate of clearance from the money and property accountabilities of the deceased, they have no cause of action against the defendant GSIS. The case was submitted by all the parties for decision in the court below upon the following Stipulation of Facts: 1. That Policy No. 170329 issued in favor of the late Napoleon F. Picar, was, on September 13, 1961, in force; 2. That Napoleon F. Picar died on September 13, 1961; 3. That Consolacion J. Picar is the guardian of all the minors who are the plaintiffs herein; 4. That the beneficiaries in the insurance policy issued in favor of Napoleon F. Picar are the following: Nancy Picar, Jesse Picar, Sylvia Picar, Luz Picar and Consolacion Picar; 5. That the administrator of the estate of the late Napoleon F. Picar is the Provincial Treasurer of Camarines Sur;

the plaintiffs to submit a certificate of clearance from the money and property accountabilities of the deceased, Napoleon F. Picar, they have no cause of action against the defendant, Government Service Insurance System. As to the claim of the intervenor, Republic of the Philippines represented by the Provincial Treasurer of Camarines Sur, the court is of the opinion and so holds, that it being the employer of the deceased, Napoleon F. Picar, it has the right to the proceeds of said insurance to satisfy the indebtedness of said deceased to the government, pursuant to the provision of Section 26 of Commonwealth Act 186. In view of all the foregoing considerations, judgment is hereby rendered; (a) dismissing the plaintiffs' complaint with costs against them; and (b) declaring that the intervenor is legally entitled to the proceeds of the life insurance policy of the defendant, Napoleon F. Picar. It is from this holding of the court below that, as earlier stated in the opening paragraph of this decision, the present appeal has been taken to this Court by the designated beneficiaries in the life insurance policy here involved, the widow and the minor children of the late Napoleon F. Picar. Said appellants here allege that the lower court erred: (a) in holding that the plaintiffs-appellants have no cause of action against the defendantappellee due to the failure of the plaintiffs-appellants to submit a certificate of clearance of the deceased Napoleon F. Picar; and (b) in holding that the Republic of the Philippines is the entity legally entitled to the proceeds of the policy on the life of Napoleon F. Picar. Appellants vigorously contend that the proceeds of the life insurance policy here involved upon the death of the insured employee during the endowment period belonged exclusively to the beneficiaries designated in the policy and not to the estate of the insured; that, therefore, the said deceased's employer the Provincial Treasurer of Camarines Sur or the Republic of the Philippines cannot legally lay claim to the proceeds of such life insurance, since it is not part of the estate of said deceased employee; and, consequently, the appellee Government Service Insurance System acted without legal authority when it made the presentation of a certificate of clearance from money and property accountabilities of the deceased to be secured from his employer as a condition precedent to the payment of the proceeds of the life insurance in question to the appellants who are the designated beneficiaries in the policy. This contention is untenable. It is true that under general principles in the law of insurance, if a policy provides that the proceeds shall be payable to the assured, if he lives to a certain date, and, in case of his death before that date, then they shall be payable to the beneficiary designated, the benefit of the policy will inure to such beneficiary in case the assured dies before the end of the period designated in the policy, 1 and, generally, that the proceeds of a life insurance in which a third person is named beneficiary belong exclusively to such beneficiary as an individual, they are not the property of the heirs of the insured, are not subject to administration, and cannot properly be claimed or received by the administrator or other legal representative of the insured as assets of his estate. 2 As correctly ruled by the lower court, however, such general principles are not applicable to the life insurance herein involved which is governed by specific law.

The law in point is Section 26 of Commonwealth Act 186 (the law creating the Government Service Insurance System), as amended, which provides: SEC. 26. Exemption from legal process and liens. No policy of life insurance issued under this Act, or the proceeds thereof, when paid to any member thereunder, nor any other benefit granted under this Act, shall be liable to attachment, garnishment, or other proceeds, or to be seized, taken, appropriated, or applied by any legal or equitable process or operation of law to pay any debt or liability of such member, or his beneficiary, or any other person who may have a right thereunder; nor shall the proceeds thereof, when not made payable to a named beneficiary, constitute a part of the estate of the member for payment of his debt; Provided, however, That this section shall not apply when obligations or indebtedness to the System and the employer are concerned, nor when the retirement annuity is assigned to any person, corporation, association or bank or other financial institution, which is hereby authorized. The above-quoted provision is too clear to require the application of any rule of statutory construction for purposes of showing the weakness of the position taken by herein appellants. As may be seen, it recognizes the principles relied upon by them, but at the same time, it expressly provides that "this section shall not apply when obligations or indebtedness to the System and the employer are concerned." In other words, in life insurance policies issued by the GSIS in favor of government employees, the proceeds even if not made payable to named beneficiaries and may, therefore, be payable to the estate of the insured shall not constitute part of the estate of the member (insured) for payment of his debt; but such proceeds whether or not made payable to named beneficiaries shall so constitute part of the estate of the insured for payment of his debt and shall thereby be liable to attachment, garnishment and other legal processes, when obligations or indebtedness to the GSIS and the employer, that is, the government are concerned. There can be no doubt then that the appellee Government Service Insurance System was right in requiring herein appellants to submit the necessary clearance from money and property accountabilities of the deceased government employee whose insurance policy is here involved, before paying them the proceeds of the policy concerned; and the lower court did not err in holding that the appellants for their failure to submit the certificate of clearance required of them, have no cause of action against the GSIS. Similarly, since it is not disputed by appellants that the Republic of the Philippines, employer of the deceased employee in this case, is claiming the proceeds of his insurance on the basis of the provisions of the law above-quoted, We agree with the appellee GSIS that the court a quo was right in declaring that the intervenor Republic of the Philippines is legally entitled to the proceeds of the life insurance here put to question. WHEREFORE, the decision appealed from is affirmed. On equitable considerations, no pronouncement as to costs.

G.R. No. L-44059 October 28, 1977 THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs. CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.: This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a legally married man claim the proceeds thereof in case of death of the latter? On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He to her as his wife. On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest thereon due for January and February, 1969, in the sum of P36.27. Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado. In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970. After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was entered reading as follows: +.wph!1 During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable settlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pre-trial and make admissions for the purpose of pretrial.

During this conference, parties Carponia T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married to Pascuala Ebrado with whom she has six (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from his legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the proceeds of said policy 6) that in view ofthe adverse claims the insurance company filed this action against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by the insured in the policy is Carponia Ebrado and the insured made reservation to change the beneficiary but although the insured made the option to change the beneficiary, same was never changed up to the time of his death and the wife did not have any opportunity to write the company that there was reservation to change the designation of the parties agreed that a decision be rendered based on and stipulation of facts as to who among the two claimants is entitled to the policy. Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receipt of this order. SO ORDERED. On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the deceased insured. The trial court held: +.wph!1 It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it also necessary that a finding of such guilt or commission of those acts be made in a separate independent action brought for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of evidence in the same proceeding (the action brought to declare the nullity of the donation).

It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado was made beneficiary in the policy in question for the disqualification and incapacity to exist and that it is only necessary that such fact be established by preponderance of evidence in the trial. Since it is agreed in their stipulation abovequoted that the deceased insured and defendant Carponia T. Ebrado were living together as husband and wife without being legally married and that the marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the insurance in question was purchased there is no question that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the policy in question and as such she is not entitled to the proceeds of the insurance upon the death of the insured. From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified the case to Us as involving only questions of law. We affirm the judgment of the lower court. 1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shag be applied exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides: +.wph!1 The following donations shall be void: 1. Those made between persons who were guilty of adultery or concubinage at the time of donation; Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office. In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same action. 2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation.5 Under American law, a policy of life insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating the beneficiary by rules under which wins are interpreted. 6 3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be enforced in life insurance policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as manage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said: +.wph!1 If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se enganen desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the same prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest the

condition 6f those who incurred guilt should turn out to be better.' So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage. It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be differentiated the policy of the law which embodies a deeply rooted notion of what is just and what is right would be nullified if such irregular relationship instead of being visited with disabilities would be attended with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is every any occasion where the principle of statutory construction that what is within the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal provision would not be attained. Whatever omission may be apparent in an interpretation purely literal of the language used must be remedied by an adherence to its avowed objective. 4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the time of the donation," Article 739 itself provides: +.wph!1 In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same action. The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannot even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the guilt of the party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded. In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with whom he has two children. These stipulations are nothing less thanjudicial admissions which, as a consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and

the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on this agreement and stipulation of facts as to who among the two claimants is entitled to the policy." ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado. SO ORDERED.