FIRST DIVISION G.R. NO. 147039 : January 27, 2006 DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner, v.

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 Decision1 dated November 16, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 56351, the dispositive portion of which reads:
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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
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The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao Network, Inc. (respondent) against DBP Pool of Accredited Insurance Companies (petitioner) and Provident Insurance Corporation (Provident) for recovery of insurance benefits. Respondent owns several broadcasting stations all over the country. Provident covered respondent's transmitter equipment and generating set for the amount of P13,550,000.00 under Fire Insurance Policy No. 30354, while petitioner covered respondent's transmitter, furniture, fixture and other transmitter facilities for the amount of P5,883,650.00 under Fire Insurance Policy No. F-66860. In the evening of July 27, 1988, respondent's radio station located in SSS Building, Bacolod City, was razed by fire causing damage in the amount of P1,044,040.00. Respondent sought recovery under the two insurance policies but the claims were denied on the ground that the cause of loss was an excepted risk excluded under condition no. 6 (c) and (d), to wit:
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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:
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(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
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The insurance companies maintained that the evidence showed that the fire was caused by members of the Communist Party of the Philippines/New People's Army (CPP/NPA); and consequently, denied the claims. Hence, respondent was constrained to file Civil Case No. 90-602 against petitioner and Provident.

After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a decision in favor of respondent. The dispositive portion of the decision reads:
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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
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Both insurance companies appealed from the trial court's decision but the CA affirmed the decision, with the modification that the applicable interest rate was reduced to 6% per annum. A motion for reconsideration was filed by petitioner DBP which was denied by the CA per its Resolution dated January 30, 2001.5
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Hence, herein petition by DBP Pool of Accredited Insurance Companies, 6 with the following assignment of errors: Assignment of Errors THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NO SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20) ARMED MEN WHO CUSED [sic] THE FIRE AT RESPONDENT'S RMN PROPERTY AT BACOLOD CITY WERE MEMBERS OF THE CPP-NPA. THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENT RMN CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEY'S FEES FOR INSTITUTING THE PRESENT ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229 AND 2232 OF THE CIVIL CODE OF THE PHILIPPINES.7
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Petitioner assails the factual finding of both the trial court and the CA that its evidence failed to support its allegation that the loss was caused by an excepted risk, i.e., members of the CPP/NPA caused the fire. In upholding respondent's claim for indemnity, the trial court found that:
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The only evidence which the Court can consider to determine if the fire was due to the intentional act committed by the members of the New People's Army (NPA), are the testimony [sic] of witnesses Lt. Col. Nicolas Torres and SPO3 Leonardo Rochar who were admittedly not present when the fire occurred. Their testimony [sic] was [sic] limited to the fact that an investigation was conducted and in the course of the investigation they were informed by bystanders that "heavily armed men entered the transmitter house, poured gasoline in (sic) it and then lighted it. After that, they went out shouting "Mabuhay ang NPA" (TSN, p. 12., August 2, 1995). The persons whom they investigated and actually saw the burning of the station were not presented as witnesses. The documentary evidence particularly Exhibits "5" and "5C" 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
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The CA went over the evidence on record and sustained the findings of the trial court, to wit:
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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:
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. In fact the only person who seems to be so sure that that the CPP-NPA had a hand in the burning of DYHB was Lt. Col. Nicolas Torres. However, though We found him to be persuasive in his testimony regarding how he came to arrive at his opinion, We cannot nevertheless admit his testimony as conclusive proof that the CPP-NPA was really involved in the incident considering that he admitted that he did not personally see the armed men even as he tried to pursue them. Note that when Lt. Col. Torres was presented as witness, he was presented as an ordinary witness only and not an expert witness. Hence, his opinion on the identity or membership of the armed men with the CPP-NPA is not admissible in evidence. Anent the letter of a certain Celso Magsilang, who claims to be a member of NPANIROC, 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
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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
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Moreover, when supported by substantial evidence, findings of fact of the trial court as affirmed by the CA are conclusive and binding on the parties,11 which this Court will not review unless there are exceptional circumstances. There are no exceptional circumstances in this case that would have impelled the Court to depart from the factual findings of both the trial court and the CA. Both the trial court and the CA were correct in ruling that petitioner failed to prove that the loss was caused by an excepted risk.

Petitioner argues that private respondent is responsible for proving that the cause of the damage/loss is covered by the insurance policy, as stipulated in the insurance policy, to wit:
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. 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
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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
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The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden of evidence" (burden of going forward). 14 As applied in this case, it refers to the duty of the insured to show that the loss or damage is covered by the policy. The foregoing clause notwithstanding, the burden of proof still rests upon petitioner to prove that the damage or loss was caused by an excepted risk in order to escape any liability under the contract. Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence required by law, which is preponderance of evidence in civil cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable judgment. For the plaintiff, the burden of proof never parts.15 For the defendant, an affirmative defense is one which is not a denial of an essential ingredient in the plaintiff's cause of action, but one which, if established, will be a good defense - i.e. an "avoidance" of the claim.16
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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
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Consequently, it is sufficient for private respondent to prove the fact of damage or loss. Once respondent makes out a prima facie case in its favor, the duty or the burden of evidence shifts to petitioner to controvert respondent's prima facie case. 18 In this case, since petitioner alleged an excepted risk, then the burden of evidence shifted to petitioner to prove such exception. It is only when petitioner has sufficiently proven that the damage or loss was caused by an excepted risk does the burden of evidence shift back to respondent who is then under a duty of producing evidence to show why such excepted risk does not release petitioner from any liability. Unfortunately for petitioner, it failed to discharge its primordial burden of proving that the damage or loss was caused by an excepted risk. Petitioner however, insists that the evidence on record established the identity of the author of the damage. It argues that the trial court and the CA erred in not appreciating the reports of witnesses Lt. Col Torres and SFO II Rochar that the bystanders they interviewed claimed that the perpetrators were members of the CPP/NPA as an exception to the hearsay rule as part of res gestae. A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived from his perception. 19 A witness may not testify as to what he merely learned from others either because he was told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose reliability on which the worth of the out-of-court statement depends.20
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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
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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
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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.:
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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
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While the documentary evidence presented by petitioner, i.e., (1) the police blotter; (2) the certification from the Bacolod Police Station; and (3) the Fire Investigation Report may be considered exceptions to the hearsay rule, being entries in official records, nevertheless, as noted by the CA, none of these documents categorically stated that the perpetrators were members of the CPP/NPA. 26 Rather, it was stated in the police blotter that: "a group of persons accompanied by one (1) woman all believed to be CPP/NPA . more or less 20 persons suspected to be CPP/NPA," 27 while the certification from the Bacolod Police station stated that ". some 20 or more armed men believed to be members of the New People's Army NPA,"28 and the fire investigation report concluded that "(I)t is therefore believed by this Investigating Team that the cause of the fire is intentional, and the armed men suspected to be members of the CPP/NPA where (sic) the ones responsible ."29 All these documents show that indeed, the "suspected" executor of the fire were believed to be members of the CPP/NPA. But suspicion alone is not sufficient, preponderance of evidence being the quantum of proof. All told, the Court finds no reason to grant the present petition. WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated November 16, 2000 and Resolution dated January 30, 2001 rendered in CA-G.R. CV No. 56351 are AFFIRMED in toto. SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice WE CONCUR. ARTEMIO V. PANGANIBAN Chief Justice Chairman CONSUELO YNARES-SANTIAGO Associate Justice ROMEO J. CALLEJO, SR. Associate Justice

MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ARTEMIO V. PANGANIBAN Chief Justice

FIRST DIVISION G.R. No. 151890 : June 20, 2006 PRUDENTIAL GUARANTEE and ASSURANCE INC., Petitioner, v. TRANS-ASIA SHIPPING LINES, INC., Respondent. G.R. No. 151991 : June 20, 2006 TRANS-ASIA SHIPPING LINES, INC., Petitioner, v. PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent. DECISION CHICO-NAZARIO, J: This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January 2002 Resolution3 of the Court of Appeals, denying PRUDENTIAL's Motion for

Reconsideration and TRANS-ASIA's Partial Motion for Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set aside. The Facts The material antecedents as found by the court a quo and adopted by the appellate court are as follows:
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Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage sustained by the vessel. This is evidenced by a letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its right to subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon final survey and determination by average adjuster Richard Hogg International (Phil.) of the damage sustained by reason of fire. An adjuster's report on the fire in question was submitted by Richard Hogg International together with the U-Marine Surveyor Report (Exhibits "4" to "4-115"). On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of which read (sic):
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"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net recovery is made by Trans-Asia Shipping Corporation, from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable occasioned by the 25 October 1993: Fire on Board." (Exhibit "4") In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiff's claim (Exhibit "5"). The letter reads:
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"After a careful review and evaluation of your claim arising from the abovecaptioned incident, it has been ascertained that you are in breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not compensable and hereby DENIED." This was followed by defendant's letter dated 21 July 1997 requesting the return or payment of the P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4
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Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint 5 for Sum of Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA

similarly sought interest at 42% per annum citing Section 2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended. In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts and law require and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of action; and, that its claim has been effectively waived and/or abandoned, or it is estopped from pursuing the same. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorney's fees. The Ruling of the Trial Court On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant) PRUDENTIAL. It ruled that a determination of the parties' liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL, the insured party, to rescind the contract.9
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Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the concealment made by TRANS-ASIA that the vessel was not adequately maintained to preserve its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party to rescind the contract. The court a quo found merit in PRUDENTIAL's contention that there was nothing in the adjustment of the particular average submitted by the adjuster that would show that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and trust receipt, the court a quo said that in substance and in form, the same is a receipt for a loan. It held that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance payment, it should have so clearly stated as such. The court a quo did not award PRUDENTIAL's claim for P500,000.00, representing expert survey fees on the ground of lack of sufficient basis in support thereof. Neither did it award attorney's fees on the rationalization that the instant case does not fall under the exceptions stated in Article 220811 of the Civil Code. However, the court a quo granted PRUDENTIAL's counterclaim stating that there is factual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of loan without interest. The decretal portion of the Judgment of the RTC reads:
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WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action.

On defendant's counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the loan extended to it by the defendant, within a period of ten (10) days from and after this judgment shall have become final and executory. 12
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The Ruling of the Court of Appeals On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June 2000 Judgment of the RTC. On the issue of TRANS-ASIA's alleged breach of warranty of the policy condition CLASSED AND CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. The Court of Appeals opined that the lack of a certification does not necessarily mean that the warranty was breached by TRANSASIA. Instead, the Court of Appeals considered PRUDENTIAL's admission that at the time the insurance contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification society recognized by the industry. The Court of Appeals similarly gave weight to the fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere absence of a certification does not warrant denial of TRANS-ASIA's claim under the insurance policy. In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider which, while contained in the policy, was inserted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract d'adhesion which should be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according to the Court of Appeals, PRUDENTIAL's renewal of the insurance policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waiver by PRUDENTIAL of any breach of warranty committed by TRANS-ASIA. Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIAL's partial payment to TRANS-ASIA's claim under the policy. Finally, the Court of Appeals denied TRANS-ASIA's prayer for attorney's fees, but held TRANS-ASIA entitled to double interest on the policy for the duration of the delay of payment of the unpaid balance, citing Section 24413 of the Insurance Code. Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:
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WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initially paid by appellee Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD

to be in partial settlement of the loss suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further, appellee is hereby ORDERED to pay appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered by the latter as recommended by the average adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from the time Richard Hogg's Survey Report was completed, or on 13 August 1996, until the same is fully paid. All other claims and counterclaims are hereby DISMISSED. All costs against appellee.14
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Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial Motion for Reconsideration thereon, respectively, which motions were denied by the Court of Appeals in the Resolution dated 29 January 2002. The Issues Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the following grounds, viz: I. THE AWARD IS GROSSLY UNCONSCIONABLE. II. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY. III. THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL WARRANTY. IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER. V. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE WARRANTY BY TRANS-ASIA. VI.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING PARTIAL PAYMENT THEREOF. VII. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY. VIII. THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID. 15 Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit: I. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEY'S FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIA'S INSURANCE CLAIM. II. THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM. 16 In our Resolution of 2 December 2002, we granted TRANS-ASIA's Motion for Consolidation17 of G.R. Nos. 151890 and 151991;18 hence, the instant consolidated petitions. In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANSASIA arising from the subject insurance contract; (2) the liability, if any, of TRANSASIA to PRUDENTIAL arising from the transaction between the parties as evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of interest to be imposed on the liability, if any, of either or both parties. Ruling of the Court Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be raised.19 This rule may be disregarded only when the findings of fact of the Court of Appeals are contrary to the findings and

conclusions of the trial court, or are not supported by the evidence on record. 20 In the case at bar, we find an incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are constrained to assess the evidence adduced by the parties to make appropriate findings of facts as are necessary. I. A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in the subject insurance contract. In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 7421 of the Insurance Code. The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL's Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The pertinent portions of his testimony on direct examination is reproduced hereunder, viz:
cra:nad

ATTY. LIM Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was taken?
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A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy warranty condition and on that basis the claim was denied. Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was breached or violated by the plaintiff which constituted your basis for denying the claim as you testified. A Warranted Vessel Classed and Class Maintained. ATTY. LIM Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy below the printed words: "Clauses, Endorsements, Special Conditions and Warranties," below this are several typewritten clauses and the witness pointed out in particular the clause reading: "Warranted Vessel Classed and Class Maintained."

COURT Q Will you explain that particular phrase?

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A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be entered in the classification society. COURT Slowly. WITNESS (continued) A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain their membership in the classification society. So, if they failed to meet that standard, they are considered not members of that class, and thus breaching the warranty, that requires them to maintain membership or to maintain their class on that classification society. And it is not sufficient that the member of this classification society at the time of a loss, their membership must be continuous for the whole length of the policy such that during the effectivity of the policy, their classification is suspended, and then thereafter, they get reinstated, that again still a breach of the warranty that they maintained their class (sic). Our maintaining team membership in the classification society thereby maintaining the standards of the vessel (sic). ATTY. LIM Q Can you mention some classification societies that you know?
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A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society, The Philippine Registration of Ships Society, China Classification, NKK and Company Classification Society, and many others, we have among others, there are over 20 worldwide. 22
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At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA breached the warranty in the policy, has the burden of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach. In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiff's prima facie case, otherwise, a verdict must be

returned in favor of plaintiff.23 TRANS-ASIA was able to establish proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIA's case, and to prove its special and affirmative defense that TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS MAINTAINED. We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS MAINTAINED. Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made a categorical admission that at the time of the procurement of the insurance contract in July 1993, TRANS-ASIA's vessel, "M/V Asia Korea" was properly classed by Bureau Veritas, thus:
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Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic). WITNESS A I recall that they were classed. ATTY. LIM Q With what classification society? A I believe with Bureau Veritas.24
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As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation. We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL's records to the effect that TRANS-ASIA's "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With more reason must we sustain the findings of the Court of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjuster's survey report, or adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board. We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind." It is

generally accepted that "[a] warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer." 25 However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy. B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same. The Court of Appeals, in reversing the Judgment of the RTC which held that TRANSASIA breached the warranty provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIA's breach of warranty as alleged, ratiocinating, thus:
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Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.26
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PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a waiver of TRANS-ASIA's alleged breach, averring herein that the subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of the subject warranty clause only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL would have this Court believe that the issuance of the renewal policies cannot be a waiver because they were issued without knowledge of the alleged breach of warranty committed by TRANS-ASIA. 27

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We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing TRANS-ASIA's insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIA's breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as before.28 There can be no clearer intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANSASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.

To our mind, the argument is made even more credulous by PRUDENTIAL's lack of proof to support its allegation that the renewals of the policies were taken only after a request was made to TRANS-ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIAL's claim that no certification was issued to that effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-ASIA's alleged breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to waive compliance of the warranty. The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that: (1) PRUDENTIAL was not able to discharge the burden of evidence to show that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the commission of a breach by TRANSASIA, the same was shown to have been waived by PRUDENTIAL. II. A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on the policy. It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was evidenced by a transaction receipt denominated as a "Loan and Trust Receipt," dated 29 May 1995, reproduced hereunder: LOAN AND TRUST RECEIPT Claim File No. MH-93-025 : P3,000,000.00 Check No. PCIB066755 May 29, 1995

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy No. MH93/1353, repayable only in the event and to the extent that any net recovery is made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board. As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary to prove our interest in said property. We also hereby agree to promptly prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence, in our own name, but at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC. TRANS-ASIA SHIPPING CORPORATION29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for the loss. It further submits that it is a customary practice for insurance companies in this country to extend loans gratuitously as part of good business dealing with their assured, in order to afford their assured the chance to continue business without embarrassment while awaiting outcome of the settlement of their claims.30 According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no means be taken that by virtue thereof, PRUDENTIAL was granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter. The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and Trust Receipt" is that of an advance payment by PRUDENTIAL of TRANS-ASIA's claim on the insurance, thus:
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The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California, except Chapter V thereof, which was taken largely from the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us persuasive in interpreting provisions of our own Insurance Code. In addition, the application of the adopted statute should correspond in fundamental points with the application in its country of origin x x x. xxx Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was intended as a loan does not detract from its real character as payment of claim, thus:
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"The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an employee where no provision or repayment of the money was made except upon condition that it be recovered from other parties and neither interest nor security for the asserted debts was provided for, the money constituted the payment of a liability and not a mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere loan." What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may make and deliver to (Prudential) all documents necessary to prove its interest in the said property." For all intents and purposes therefore, the money receipted is payment under the policy, with Prudential having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the insurer of all remedies which the insured may have against third person whose negligence or wrongful act caused the loss covered by the insurance policy, which is created as the legal effect of payment by the insurer as an assignee in equity. The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer. It has been

referred to as the doctrine of substitution and rests on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties without regard to form.31
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We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of the transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an advance on the policy of the claims due to TRANS-ASIA. First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board." 32
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Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence" in its name, the prosecution of the claims against such third persons are to be carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the exclusive direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against parties who may have occasioned the loss. Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not think that this is constitutive of a loan.34 The liberality in the tenor of the "Loan and Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an advance payment on TRANS-ASIA's claim on MH93/1353. III. A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363. Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.

B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney's fees equivalent to 10% of P8,395,072.26. The Court of Appeals denied the grant of attorney's fees. It held that attorney's fees cannot be awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIA's claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals, attorney's fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which finds no application in the instant case. We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney's fees and other expenses incurred by the insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an unreasonable denial or withholding of the payment of the claims due. Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary Board on the amount of the claim due the insured from the date following the time prescribed in Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the failure to pay the claims within the time prescribed in Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in payment. To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney's fees be granted. As earlier stated, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Code. As established in Section 244, by reason of the delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured.37
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Section 244 reads:

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In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment. Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the payment of the insurance claims. In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day

after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg International (Phils.), Inc., completed its survey report recommending the amount of P11,395,072.26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latter's claim for the amount of P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the insurance claim. As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latter's right to the insurance claims, from the time proof of loss was shown and the ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIAL's unreasonable delay in satisfying TRANS-ASIA's unpaid claims compelled the latter to file a suit for collection. Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorney's fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of Appeals,41 where a finding of an unreasonable delay under Section 244 of the Insurance Code was made by this Court, we grant an award of attorney's fees equivalent to ten percent (10%) of the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar. C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney's fees) shall be imposed double interest in accordance with Section 244 of the Insurance Code. Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the Monetary Board due the insured, from the date following the time prescribed in Section 242 or in Section 243, as the case may be, until the claim is fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a policy other than life insurance. Section 243 is hereunder reproduced:
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SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.

As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of the insurer to pay was founded on the ground that the claim is fraudulent. D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per annum. PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIAL's stance that the award is extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes a reference to TRANS-ASIA's prayer in the Complaint filed with the court a quo wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum now obtaining in the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x."42
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The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals,44 this Court held that the payment of 24% interest per annum is authorized by the Insurance Code.45 There is no gainsaying that the term "double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per annum interest, thus:
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The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum interest on the proceeds of the insurance.46
chanroblesvirtuallawlibary

E. The payment of double interest should be counted from 13 September 1996. The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due TRANS-ASIA, computed the same from 13 August 1996 until such time when the amount is fully paid. Although not raised by the parties, we find the computation of the duration of the delay made by the appellate court to be patently erroneous. To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after proof of loss and ascertainment of the loss or damage to pay its liability under the insurance, and only after such time can the insurer be held to be in delay, thereby necessitating the imposition of double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANS-ASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin to run from 13 September 1996 only. IV. A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in section III herein, computed from the time of finality of judgment until the full satisfaction thereof in conformity with this Court's ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the application of interest to be imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, regardless of whether the obligation involves a loan or forbearance of money, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance49 of credit. We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the aforesaid interest. Fallo WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is GRANTED, thus, we award the grant of attorney's fees and make a clarification that the term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further clarification, that the same should be computed from 13 September 1996 until fully paid. The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the following manner, to wit: 1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363; 2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attorney's fees equivalent to 10% of the amount of P8,395,072.26; 3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney's fees) shall be imposed double interest at the rate of 24% per annum to be computed from 13 September 1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed from the time of finality of judgment until the full satisfaction thereof. No costs. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice WE CONCUR: ARTEMIO V. PANGANIBAN Chief Justice Chairperson CONSUELO YNARES-SANTIAGO Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Associate Justice

ROMEO J. CALLEJO, SR. Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ARTEMIO V. PANGANIBAN Chief Justice

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 138060 September 1, 2004

WILLIAM TIU, doing business under the name and style of "D Rough Riders," and VIRGILIO TE LAS PIAS petitioners, vs. PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., respondents. DECISION

CALLEJO, SR., J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision1 of the Court of Appeals in CA-G.R. CV No. 54354 affirming with modification the Decision2 of the Regional Trial Court, 7th Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of contract of carriage, damages and attorneys fees, and the Resolution dated February 26, 1999 denying the motion for reconsideration thereof. The following facts are undisputed: At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks and General Merchandise" bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The driver, Sergio Pedrano, then parked along the right side of the national highway and removed the damaged tire to have it vulcanized at a nearby shop, about 700 meters away.3 Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed the latter to place a spare tire six fathoms away4 behind the stalled truck to serve as a warning for oncoming vehicles. The trucks tail lights were also left on. It was about 12:00 a.m., March 16, 1987. At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te Laspias was cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or four (4) places from the front seat. As the bus was approaching the bridge, Laspias saw the stalled truck, which was then about 25 meters away.5 He applied the breaks and tried to swerve to the left to avoid hitting the truck. But it was too late; the bus rammed into the trucks left rear. The impact damaged the right side of the bus and left several passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right colles. 6 His wife, Felisa, was brought to the Danao City Hospital. She was later transferred to the Southern Island Medical Center where she died shortly thereafter. 7 Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and attorneys fees before the Regional Trial Court of Cebu City, Branch 20, against the petitioners, D Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspias on May 27, 1987. The respondent alleged that the passenger bus in question was cruising at a fast and high speed along the national road, and that petitioner Laspias did not take precautionary measures to avoid the accident.8 Thus: 6. That the accident resulted to the death of the plaintiffs wife, Felisa Pepito Arriesgado, as evidenced by a Certificate of Death, a xerox copy of which is hereto attached as integral part hereof and marked as ANNEX "A", and physical injuries to several of its passengers, including plaintiff himself who suffered a "COLLES FRACTURE RIGHT," per Medical Certificate, a xerox copy of

which is hereto attached as integral part hereof and marked as ANNEX "B" hereof. 7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspias of the said Rough Riders passenger bus, plaintiff and his wife, Felisa Pepito Arriesgado, failed to safely reach their destination which was Cebu City, the proximate cause of which was defendant-drivers failure to observe utmost diligence required of a very cautious person under all circumstances. 8. That defendant William Tiu, being the owner and operator of the said Rough Riders passenger bus which figured in the said accident, wherein plaintiff and his wife were riding at the time of the accident, is therefore directly liable for the breach of contract of carriage for his failure to transport plaintiff and his wife safely to their place of destination which was Cebu City, and which failure in his obligation to transport safely his passengers was due to and in consequence of his failure to exercise the diligence of a good father of the family in the selection and supervision of his employees, particularly defendant-driver Virgilio Te Laspias.9 The respondent prayed that judgment be rendered in his favor and that the petitioners be condemned to pay the following damages: 1). To pay to plaintiff, jointly and severally, the amount of P30,000.00 for the death and untimely demise of plaintiffs wife, Felisa Pepito Arriesgado; 2). To pay to plaintiff, jointly and severally, the amount of P38,441.50, representing actual expenses incurred by the plaintiff in connection with the death/burial of plaintiffs wife; 3). To pay to plaintiff, jointly and severally, the amount of P1,113.80, representing medical/hospitalization expenses incurred by plaintiff for the injuries sustained by him; 4). To pay to plaintiff, jointly and severally, the amount of P50,000.00 for moral damages; 5). To pay to plaintiff, jointly and severally, the amount of P50,000.00 by way of exemplary damages; 6). To pay to plaintiff, jointly and severally, the amount of P20,000.00 for attorneys fees; 7). To pay to plaintiff, jointly and severally, the amount of P5,000.00 for litigation expenses. PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN LAW AND EQUITY.10 The petitioners, for their part, filed a Third-Party Complaint11 on August 21, 1987 against the following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tius insurer; respondent Benjamin Condor, the registered owner

of the cargo truck; and respondent Sergio Pedrano, the driver of the truck. They alleged that petitioner Laspias was negotiating the uphill climb along the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It was further alleged that the truck was parked in a slanted manner, its rear portion almost in the middle of the highway, and that no early warning device was displayed. Petitioner Laspias promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but despite his efforts to avoid damage to property and physical injuries on the passengers, the right side portion of the bus hit the cargo trucks left rear. The petitioners further alleged, thus: 5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered in the name of the third-party defendant Benjamin Condor and was left unattended by its driver Sergio Pedrano, one of the third-party defendants, at the time of the incident; 6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked (sic) "Condor Hollow Blocks & General Merchandise," with Plate No. GBP-675 which was recklessly and imprudently parked along the national highway of Compostela, Cebu during the vehicular accident in question, and third-party defendant Benjamin Condor, as the registered owner of the cargo truck who failed to exercise due diligence in the selection and supervision of third-party defendant Sergio Pedrano, are jointly and severally liable to the third-party plaintiffs for whatever liability that may be adjudged against said third-party plaintiffs or are directly liable of (sic) the alleged death of plaintiffs wife; 7. That in addition to all that are stated above and in the answer which are intended to show reckless imprudence on the part of the third-party defendants, the third-party plaintiffs hereby declare that during the vehicular accident in question, third-party defendant was clearly violating Section 34, par. (g) of the Land Transportation and Traffic Code 10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William Tiu, is covered by a common carrier liability insurance with Certificate of Cover No. 054940 issued by Philippine Phoenix Surety and Insurance, Inc., Cebu City Branch, in favor of third-party plaintiff William Tiu which covers the period from July 22, 1986 to July 22, 1987 and that the said insurance coverage was valid, binding and subsisting during the time of the aforementioned incident (Annex "A" as part hereof); 11. That after the aforesaid alleged incident, third-party plaintiff notified thirdparty defendant Philippine Phoenix Surety and Insurance, Inc., of the alleged incident hereto mentioned, but to no avail; 12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be adversely adjudged, they stand to pay damages sought by the plaintiff and therefore could also look up to the Philippine Phoenix Surety and Insurance, Inc., for contribution, indemnification and/or reimbursement of any liability or obligation that they might [be] adjudged per insurance coverage duly entered

into by and between third-party plaintiff William Tiu and third-party defendant Philippine Phoenix Surety and Insurance, Inc.;12 The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu, but averred that it had already attended to and settled the claims of those who were injured during the incident.13 It could not accede to the claim of respondent Arriesgado, as such claim was way beyond the scheduled indemnity as contained in the contract of insurance.14 After the parties presented their respective evidence, the trial court ruled in favor of respondent Arriesgado. The dispositive portion of the decision reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff as against defendant William Tiu ordering the latter to pay the plaintiff the following amounts: 1 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages; 2 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as exemplary damages; 3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE PESOS (P38,441.00) as actual damages; 4 - The sum of TWENTY THOUSAND PESOS (P20,000.00) as attorneys fees; 5 - The sum of FIVE THOUSAND PESOS (P5,000.00) as costs of suit; SO ORDERED.15 According to the trial court, there was no dispute that petitioner William Tiu was engaged in business as a common carrier, in view of his admission that D Rough Rider passenger bus which figured in the accident was owned by him; that he had been engaged in the transportation business for 25 years with a sole proprietorship; and that he owned 34 buses. The trial court ruled that if petitioner Laspias had not been driving at a fast pace, he could have easily swerved to the left to avoid hitting the truck, thus, averting the unfortunate incident. It then concluded that petitioner Laspias was negligent. The trial court also ruled that the absence of an early warning device near the place where the truck was parked was not sufficient to impute negligence on the part of respondent Pedrano, since the tail lights of the truck were fully on, and the vicinity was well lighted by street lamps.16 It also found that the testimony of petitioner Tiu, that he based the selection of his driver Laspias on efficiency and in-service training, and that the latter had been so far an efficient and good driver for the past six years of his employment, was insufficient to prove that he observed the diligence of a good father of a family in the selection and supervision of his employees.

After the petitioners motion for reconsideration of the said decision was denied, the petitioners elevated the case to the Court of Appeals on the following issues: I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS RECKLESS AND IMPRUDENT WHEN HE PARKED THE CARGO TRUCK IN AN OBLIQUE MANNER; II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE OR TO DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT MAY BE ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS; III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIAS WAS GUILTY OF GROSS NEGLIGENCE; IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED THE DUE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE SELECTION AND SUPERVISION OF HIS DRIVERS; V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-APPELLANT WILLIAM TIU IS LIABLE TO PLAINTIFF-APPELLEE, WHETHER THERE IS LEGAL AND FACTUAL BASIS IN AWARDING EXCESSIVE MORAL DAMAGES, EX[E]MPLARY DAMAGES, ATTORNEYS FEES AND LITIGATION EXPENSES TO PLAINTIFF-APPELLEE; VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. IS LIABLE TO DEFENDANT- APPELLANT WILLIAM TIU. 17 The appellate court rendered judgment affirming the trial courts decision with the modification that the awards for moral and exemplary damages were reduced to P25,000. The dispositive portion reads: WHEREFORE, the appealed Decision dated November 6, 1995 is hereby MODIFIED such that the awards for moral and exemplary damages are each reduced to P25,000.00 or a total of P50,000.00 for both. The judgment is AFFIRMED in all other respects. SO ORDERED.18 According to the appellate court, the action of respondent Arriesgado was based not on quasi-delict but on breach of contract of carriage. As a common carrier, it was incumbent upon petitioner Tiu to prove that extraordinary diligence was observed in ensuring the safety of passengers during transportation. Since the latter failed to do so, he should be held liable for respondent Arriesgados claim. The CA also ruled that no evidence was presented against the respondent PPSII, and as such, it could not be held liable for respondent Arriesgados claim, nor for contribution, indemnification and/or reimbursement in case the petitioners were adjudged liable. The petitioners now come to this Court and ascribe the following errors committed by the appellate court:

I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING RESPONDENTS BENJAMIN CONDOR AND SERGIO PEDRANO GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONERS FOR WHATEVER LIABILITY THAT MAY BE ADJUDGED AGAINST THEM. II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO. III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONER WILLIAM TIU LIABLE FOR EXEMPLARY DAMAGES, ATTORNEYS FEES AND LITIGATION EXPENSES. IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONER WILLIAM TIU. 19 According to the petitioners, the appellate court erred in failing to appreciate the absence of an early warning device and/or built-in reflectors at the front and back of the cargo truck, in clear violation of Section 34, par. (g) of the Land Transportation and Traffic Code. They aver that such violation is only a proof of respondent Pedranos negligence, as provided under Article 2185 of the New Civil Code. They also question the appellate courts failure to take into account that the truck was parked in an oblique manner, its rear portion almost at the center of the road. As such, the proximate cause of the incident was the gross recklessness and imprudence of respondent Pedrano, creating the presumption of negligence on the part of respondent Condor in supervising his employees, which presumption was not rebutted. The petitioners then contend that respondents Condor and Pedrano should be held jointly and severally liable to respondent Arriesgado for the payment of the latters claim. The petitioners, likewise, aver that expert evidence should have been presented to prove that petitioner Laspias was driving at a very fast speed, and that the CA could not reach such conclusion by merely considering the damages on the cargo truck. It was also pointed out that petitioner Tiu presented evidence that he had exercised the diligence of a good father of a family in the selection and supervision of his drivers. The petitioners further allege that there is no legal and factual basis to require petitioner Tiu to pay exemplary damages as no evidence was presented to show that the latter acted in a fraudulent, reckless and oppressive manner, or that he had an active participation in the negligent act of petitioner Laspias. Finally, the petitioners contend that respondent PPSII admitted in its answer that while it had attended to and settled the claims of the other injured passengers, respondent Arriesgados claim remained unsettled as it was beyond the scheduled indemnity under the insurance contract. The petitioners argue that said respondent PPSII should have settled the said claim in accordance with the scheduled indemnity instead of just denying the same.

On the other hand, respondent Arriesgado argues that two of the issues raised by the petitioners involved questions of fact, not reviewable by the Supreme Court: the finding of negligence on the part of the petitioners and their liability to him; and the award of exemplary damages, attorneys fees and litigation expenses in his favor. Invoking the principle of equity and justice, respondent Arriesgado pointed out that if there was an error to be reviewed in the CA decision, it should be geared towards the restoration of the moral and exemplary damages to P50,000 each, or a total of P100,000 which was reduced by the Court of Appeals to P25,000 each, or a total of only P50,000. Respondent Arriesgado also alleged that respondents Condor and Pedrano, and respondent Phoenix Surety, are parties with whom he had no contract of carriage, and had no cause of action against. It was pointed out that only the petitioners needed to be sued, as driver and operator of the ill-fated bus, on account of their failure to bring the Arriesgado Spouses to their place of destination as agreed upon in the contract of carriage, using the utmost diligence of very cautious persons with due regard for all circumstances. Respondents Condor and Pedrano point out that, as correctly ruled by the Court of Appeals, the proximate cause of the unfortunate incident was the fast speed at which petitioner Laspias was driving the bus owned by petitioner Tiu. According to the respondents, the allegation that the truck was not equipped with an early warning device could not in any way have prevented the incident from happening. It was also pointed out that respondent Condor had always exercised the due diligence required in the selection and supervision of his employees, and that he was not a party to the contract of carriage between the petitioners and respondent Arriesgado. Respondent PPSII, for its part, alleges that contrary to the allegation of petitioner Tiu, it settled all the claims of those injured in accordance with the insurance contract. It further avers that it did not deny respondent Arriesgados claim, and emphasizes that its liability should be within the scheduled limits of indemnity under the said contract. The respondent concludes that while it is true that insurance contracts are contracts of indemnity, the measure of the insurers liability is determined by the insureds compliance with the terms thereof. The Courts Ruling At the outset, it must be stressed that this Court is not a trier of facts.20 Factual findings of the Court of Appeals are final and may not be reviewed on appeal by this Court, except when the lower court and the CA arrived at diverse factual findings. 21 The petitioners in this case assail the finding of both the trial and the appellate courts that petitioner Laspias was driving at a very fast speed before the bus owned by petitioner Tiu collided with respondent Condors stalled truck. This is clearly one of fact, not reviewable by the Court in a petition for review under Rule 45.22 On this ground alone, the petition is destined to fail. However, considering that novel questions of law are likewise involved, the Court resolves to examine and rule on the merits of the case.

Petitioner Laspias Was negligent in driving The Ill-fated bus In his testimony before the trial court, petitioner Laspias claimed that he was traversing the two-lane road at Compostela, Cebu at a speed of only forty (40) to fifty (50) kilometers per hour before the incident occurred.23 He also admitted that he saw the truck which was parked in an "oblique position" at about 25 meters before impact,24 and tried to avoid hitting it by swerving to the left. However, even in the absence of expert evidence, the damage sustained by the truck25 itself supports the finding of both the trial court and the appellate court, that the D Rough Rider bus driven by petitioner Laspias was traveling at a fast pace. Since he saw the stalled truck at a distance of 25 meters, petitioner Laspias had more than enough time to swerve to his left to avoid hitting it; that is, if the speed of the bus was only 40 to 50 kilometers per hour as he claimed. As found by the Court of Appeals, it is easier to believe that petitioner Laspias was driving at a very fast speed, since at 4:45 a.m., the hour of the accident, there were no oncoming vehicles at the opposite direction. Petitioner Laspias could have swerved to the left lane with proper clearance, and, thus, could have avoided the truck.26 Instinct, at the very least, would have prompted him to apply the breaks to avert the impending disaster which he must have foreseen when he caught sight of the stalled truck. As we had occasion to reiterate: A man must use common sense, and exercise due reflection in all his acts; it is his duty to be cautious, careful and prudent, if not from instinct, then through fear of recurring punishment. He is responsible for such results as anyone might foresee and for acts which no one would have performed except through culpable abandon. Otherwise, his own person, rights and property, and those of his fellow beings, would ever be exposed to all manner of danger and injury.27 We agree with the following findings of the trial court, which were affirmed by the CA on appeal: A close study and evaluation of the testimonies and the documentary proofs submitted by the parties which have direct bearing on the issue of negligence, this Court as shown by preponderance of evidence that defendant Virgilio Te Laspias failed to observe extraordinary diligence as a driver of the common carrier in this case. It is quite hard to accept his version of the incident that he did not see at a reasonable distance ahead the cargo truck that was parked when the Rough Rider [Bus] just came out of the bridge which is on an (sic) [more] elevated position than the place where the cargo truck was parked. With its headlights fully on, defendant driver of the Rough Rider was in a vantage position to see the cargo truck ahead which was parked and he could just easily have avoided hitting and bumping the same by maneuvering to the left without hitting the said cargo truck. Besides, it is (sic) shown that there was still much room or space for the Rough Rider to pass at the left lane of the said national highway even if the cargo truck had occupied the entire right lane thereof. It is not true that if the Rough Rider would proceed to pass through the left lane it would fall into a canal considering that there was much space for it to pass without hitting and bumping the cargo truck at the left

lane of said national highway. The records, further, showed that there was no incoming vehicle at the opposite lane of the national highway which would have prevented the Rough Rider from not swerving to its left in order to avoid hitting and bumping the parked cargo truck. But the evidence showed that the Rough Rider instead of swerving to the still spacious left lane of the national highway plowed directly into the parked cargo truck hitting the latter at its rear portion; and thus, the (sic) causing damages not only to herein plaintiff but to the cargo truck as well.28 Indeed, petitioner Laspias negligence in driving the bus is apparent in the records. By his own admission, he had just passed a bridge and was traversing the highway of Compostela, Cebu at a speed of 40 to 50 kilometers per hour before the collision occurred. The maximum speed allowed by law on a bridge is only 30 kilometers per hour.29 And, as correctly pointed out by the trial court, petitioner Laspias also violated Section 35 of the Land Transportation and Traffic Code, Republic Act No. 4136, as amended:1avvphil.net Sec. 35. Restriction as to speed. (a) Any person driving a motor vehicle on a highway shall drive the same at a careful and prudent speed, not greater nor less than is reasonable and proper, having due regard for the traffic, the width of the highway, and or any other condition then and there existing; and no person shall drive any motor vehicle upon a highway at such speed as to endanger the life, limb and property of any person, nor at a speed greater than will permit him to bring the vehicle to a stop within the assured clear distance ahead.30 Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of the mishap, he was violating any traffic regulation.31 Petitioner Tiu failed to Overcome the presumption Of negligence against him as One engaged in the business Of common carriage The rules which common carriers should observe as to the safety of their passengers are set forth in the Civil Code, Articles 1733, 32 175533 and 1756.34 In this case, respondent Arriesgado and his deceased wife contracted with petitioner Tiu, as owner and operator of D Rough Riders bus service, for transportation from Maya, Daanbantayan, Cebu, to Cebu City for the price of P18.00.35 It is undisputed that the respondent and his wife were not safely transported to the destination agreed upon. In actions for breach of contract, only the existence of such contract, and the fact that the obligor, in this case the common carrier, failed to transport his passenger safely to his destination are the matters that need to be proved. 36 This is because under the said contract of carriage, the petitioners assumed the express obligation to transport the respondent and his wife to their destination safely and to observe extraordinary diligence with due regard for all circumstances.37 Any injury suffered by the passengers in the course thereof is immediately attributable to the negligence of the carrier.38 Upon the happening of the accident, the presumption of negligence at once arises, and it becomes the duty of a common carrier to prove that he observed extraordinary diligence in the care of his passengers.39 It must be

stressed that in requiring the highest possible degree of diligence from common carriers and in creating a presumption of negligence against them, the law compels them to curb the recklessness of their drivers.40 While evidence may be submitted to overcome such presumption of negligence, it must be shown that the carrier observed the required extraordinary diligence, which means that the carrier must show the utmost diligence of very cautious persons as far as human care and foresight can provide, or that the accident was caused by fortuitous event.41 As correctly found by the trial court, petitioner Tiu failed to conclusively rebut such presumption. The negligence of petitioner Laspias as driver of the passenger bus is, thus, binding against petitioner Tiu, as the owner of the passenger bus engaged as a common carrier.42 The Doctrine of Last Clear Chance Is Inapplicable in the Case at Bar Contrary to the petitioners contention, the principle of last clear chance is inapplicable in the instant case, as it only applies in a suit between the owners and drivers of two colliding vehicles. It does not arise where a passenger demands responsibility from the carrier to enforce its contractual obligations, for it would be inequitable to exempt the negligent driver and its owner on the ground that the other driver was likewise guilty of negligence.43 The common law notion of last clear chance permitted courts to grant recovery to a plaintiff who has also been negligent provided that the defendant had the last clear chance to avoid the casualty and failed to do so. Accordingly, it is difficult to see what role, if any, the common law of last clear chance doctrine has to play in a jurisdiction where the common law concept of contributory negligence as an absolute bar to recovery by the plaintiff, has itself been rejected, as it has been in Article 2179 of the Civil Code.44 Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgados wife due to the negligence of petitioner Laspias, his employee, on this score. Respondents Pedrano and Condor were likewise Negligent In Phoenix Construction, Inc. v. Intermediate Appellate Court,45 where therein respondent Dionisio sustained injuries when his vehicle rammed against a dump truck parked askew, the Court ruled that the improper parking of a dump truck without any warning lights or reflector devices created an unreasonable risk for anyone driving within the vicinity, and for having created such risk, the truck driver must be held responsible. In ruling against the petitioner therein, the Court elucidated, thus: In our view, Dionisios negligence, although later in point of time than the truck drivers negligence, and therefore closer to the accident, was not an efficient intervening or independent cause. What the petitioners describe as an "intervening cause" was no more than a foreseeable consequence of the risk created by the negligent manner in which the truck driver had parked the

dump truck. In other words, the petitioner truck driver owed a duty to private respondent Dionisio and others similarly situated not to impose upon them the very risk the truck driver had created. Dionisios negligence was not that of an independent and overpowering nature as to cut, as it were, the chain of causation in fact between the improper parking of the dump truck and the accident, nor to sever the juris vinculum of liability. We hold that private respondent Dionisios negligence was "only contributory," that the "immediate and proximate cause" of the injury remained the truck drivers "lack of due care."46 In this case, both the trial and the appellate courts failed to consider that respondent Pedrano was also negligent in leaving the truck parked askew without any warning lights or reflector devices to alert oncoming vehicles, and that such failure created the presumption of negligence on the part of his employer, respondent Condor, in supervising his employees properly and adequately. As we ruled in Poblete v. Fabros:47 It is such a firmly established principle, as to have virtually formed part of the law itself, that the negligence of the employee gives rise to the presumption of negligence on the part of the employer. This is the presumed negligence in the selection and supervision of employee. The theory of presumed negligence, in contrast with the American doctrine of respondeat superior, where the negligence of the employee is conclusively presumed to be the negligence of the employer, is clearly deducible from the last paragraph of Article 2180 of the Civil Code which provides that the responsibility therein mentioned shall cease if the employers prove that they observed all the diligence of a good father of a family to prevent damages. 48 The petitioners were correct in invoking respondent Pedranos failure to observe Article IV, Section 34(g) of the Rep. Act No. 4136, which provides:1avvphil.net (g) Lights when parked or disabled. Appropriate parking lights or flares visible one hundred meters away shall be displayed at a corner of the vehicle whenever such vehicle is parked on highways or in places that are not welllighted or is placed in such manner as to endanger passing traffic. The manner in which the truck was parked clearly endangered oncoming traffic on both sides, considering that the tire blowout which stalled the truck in the first place occurred in the wee hours of the morning. The Court can only now surmise that the unfortunate incident could have been averted had respondent Condor, the owner of the truck, equipped the said vehicle with lights, flares, or, at the very least, an early warning device.49 Hence, we cannot subscribe to respondents Condor and Pedranos claim that they should be absolved from liability because, as found by the trial and appellate courts, the proximate cause of the collision was the fast speed at which petitioner Laspias drove the bus. To accept this proposition would be to come too close to wiping out the fundamental principle of law that a man must respond for the foreseeable consequences of his own negligent act or omission. Indeed, our law on quasi-delicts seeks to reduce the risks and burdens of living in society and to

allocate them among its members. To accept this proposition would be to weaken the very bonds of society.50 The Liability of Respondent PPSII as Insurer The trial court in this case did not rule on the liability of respondent PPSII, while the appellate court ruled that, as no evidence was presented against it, the insurance company is not liable. A perusal of the records will show that when the petitioners filed the Third-Party Complaint against respondent PPSII, they failed to attach a copy of the terms of the insurance contract itself. Only Certificate of Cover No. 054940 51 issued in favor of "Mr. William Tiu, Lahug, Cebu City" signed by Cosme H. Boniel was appended to the third-party complaint. The date of issuance, July 22, 1986, the period of insurance, from July 22, 1986 to July 22, 1987, as well as the following items, were also indicated therein: SCHEDULED VEHICLE MODEL MAKE Isuzu Forward SERIAL/CHASSIS NO. SER450-1584124 TYPE OF BODY Bus MOTOR NO. 677836 COLOR blue mixed AUTHORIZED CAPACITY 50 BLT FILE NO.

PLATE NO. PBP-724

UNLADEN WEIGHT 6 Cyls. Kgs. PREMIUMS PAID P540.0052

SECTION 1/11 A. THIRD PARTY LIABILITY B. PASSENGER LIABILITY

*LIMITS OF LIABILITY P50,000.00 Per Person P12,000.00 Per Accident P50,000

In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted the existence of the contract of insurance, in view of its failure to specifically deny the same as required under then Section 8(a), Rule 8 of the Rules of Court, 54 which reads: Sec. 8. How to contest genuineness of such documents. When an action or defense is founded upon a written instrument copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but the requirement of an oath does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for inspection of the original instrument is refused.

In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it was liable thereon. It claimed, however, that it had attended to and settled the claims of those injured during the incident, and set up the following as special affirmative defenses: Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and incorporates by way of reference the preceding paragraphs and further states THAT:8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali Palces who sustained injuries during the incident in question. In fact, it settled financially their claims per vouchers duly signed by them and they duly executed Affidavit[s] of Desistance to that effect, xerox copies of which are hereto attached as Annexes 1, 2, 3, 4, 5, and 6 respectively; 9. With respect to the claim of plaintiff, herein answering third party defendant through its authorized insurance adjuster attended to said claim. In fact, there were negotiations to that effect. Only that it cannot accede to the demand of said claimant considering that the claim was way beyond the scheduled indemnity as per contract entered into with third party plaintiff William Tiu and third party defendant (Philippine Phoenix Surety and Insurance, Inc.). Third party Plaintiff William Tiu knew all along the limitation as earlier stated, he being an old hand in the transportation business;55 Considering the admissions made by respondent PPSII, the existence of the insurance contract and the salient terms thereof cannot be dispatched. It must be noted that after filing its answer, respondent PPSII no longer objected to the presentation of evidence by respondent Arriesgado and the insured petitioner Tiu. Even in its Memorandum56 before the Court, respondent PPSII admitted the existence of the contract, but averred as follows: Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification and/or reimbursement. This has no basis under the contract. Under the contract, PPSII will pay all sums necessary to discharge liability of the insured subject to the limits of liability but not to exceed the limits of liability as so stated in the contract. Also, it is stated in the contract that in the event of accident involving indemnity to more than one person, the limits of liability shall not exceed the aggregate amount so specified by law to all persons to be indemnified.57 As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the Compulsory Motor Vehicle Liability Insurance Law. It was expressly provided therein that the limit of the insurers liability for each person was P12,000, while the limit per accident was pegged at P50,000. An insurer in an indemnity contract for third party liability is directly liable to the injured party up to the extent specified in the agreement but it cannot be held solidarily liable beyond that amount.58 The respondent PPSII could not then just deny petitioner Tius claim; it should have paid P12,000 for the death of Felisa Arriesgado,59 and respondent Arriesgados hospitalization expenses of P1,113.80, which the trial court found to

have been duly supported by receipts. The total amount of the claims, even when added to that of the other injured passengers which the respondent PPSII claimed to have settled,60 would not exceed the P50,000 limit under the insurance agreement. Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of the 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 motor vehicle owners.61 As the Court, speaking through Associate Justice Leonardo A. Quisumbing, explained in Government Service Insurance System v. Court of Appeals:62 However, although the victim may proceed directly against the insurer for indemnity, the third party liability is only up to the extent of the insurance policy and those required by law. While it is true that where the insurance contract provides for indemnity against liability to third persons, and such persons can directly sue the insurer, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held liable in solidum with the insured and/or the other parties found at fault. For the liability of the insurer is based on contract; that of the insured carrier or vehicle owner is based on tort. Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract of insurance, in accordance with the CMVLI law. At the time of the incident, the schedule of indemnities for death and bodily injuries, professional fees and other charges payable under a CMVLI coverage was provided for under the Insurance Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As therein provided, the maximum indemnity for death was twelve thousand (P12,000.00) pesos per victim. The schedules for medical expenses were also provided by said IMC, specifically in paragraphs (C) to (G).63 Damages to be Awarded The trial court correctly awarded moral damages in the amount of P50,000 in favor of respondent Arriesgado. The award of exemplary damages by way of example or correction of the public good,64 is likewise in order. As the Court ratiocinated in Kapalaran Bus Line v. Coronado:65 While the immediate beneficiaries of the standard of extraordinary diligence are, of course, the passengers and owners of cargo carried by a common carrier, they are not the only persons that the law seeks to benefit. For if common carriers carefully observed the statutory standard of extraordinary diligence in respect of their own passengers, they cannot help but simultaneously benefit pedestrians and the passengers of other vehicles who are equally entitled to the safe and convenient use of our roads and highways. The law seeks to stop and prevent the slaughter and maiming of people (whether passengers or not) on our highways and buses, the very size and power of which seem to inflame the minds of their drivers. Article 2231 of the

Civil Code explicitly authorizes the imposition of exemplary damages in cases of quasi-delicts "if the defendant acted with gross negligence."66 The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is entitled to indemnity in the amount of P50,000.00.67 The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly and severally liable for said amount, conformably with the following pronouncement of the Court in Fabre, Jr. vs. Court of Appeals:68 The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff was riding concurred with the negligence of a third party who was the driver of another vehicle, thus causing an accident. In Anuran v. Buo, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit Corporation v. Court of Appeals, the bus company, its driver, the operator of the other vehicle and the driver of the vehicle were jointly and severally held liable to the injured passenger or the latters heirs. The basis of this allocation of liability was explained in Viluan v. Court of Appeals, thus: "Nor should it make difference that the liability of petitioner [bus owner] springs from contract while that of respondents [owner and driver of other vehicle] arises from quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the negligence of the driver of the bus on which he was riding and of the driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and severally liable for damages. Some members of the Court, though, are of the view that under the circumstances they are liable on quasi-delict."69 IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals is AFFIRMED with MODIFICATIONS: (1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu are ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado the total amount of P13,113.80; (2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano are ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado P50,000.00 as indemnity; P26,441.50 as actual damages; P50,000.00 as moral damages; P50,000.00 as exemplary damages; and P20,000.00 as attorneys fees. SO ORDERED.