THIRD DIVISION

[G.R. No. 181132. June 5, 2009.]

HEIRS OF LORETO C. MARAMAG, represented by surviving
spouse VICENTA PANGILINAN MARAMAG, petitioners, vs. EVA
VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN
MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA
ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE
COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, respondents.
D E C I S I O N
NACHURA, J p:
This is a petition 1 for review on certiorari under Rule 45 of the Rules, seeking
to reverse and set aside the Resolution 2 dated January 8, 2008 of the Court of
Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners' appeal for lack of
jurisdiction.
The case stems from a petition 3 filed against respondents with the Regional
Trial Court, Branch 29, for revocation and/or reduction of insurance proceeds for
being void and/or inofficious, with prayer for a temporary restraining order (TRO)
and a writ of preliminary injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children
of Loreto Maramag (Loreto), while respondents were Loreto's illegitimate family; (2)
Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the
killing of the latter, thus, she is disqualified to receive any proceeds from his
insurance policies from Insular Life Assurance Company, Ltd. (Insular) 4 and Great
Pacific Life Assurance Corporation (Grepalife); 5 (3) the illegitimate children of
Loreto Odessa, Karl Brian, and Trisha Angeliewere entitled only to one-half of
the legitime of the legitimate children, thus, the proceeds released to Odessa and those
to be released to Karl Brian and Trisha Angelie were inofficious and should be
reduced; and (4) petitioners could not be deprived of their legitimes, which should be
satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners
alleged, among others, that part of the insurance proceeds had already been released
in favor of Odessa, while the rest of the proceeds are to be released in favor of Karl
Brian and Trisha Angelie, both minors, upon the appointment of their legal guardian.
Petitioners also prayed for the total amount of P320,000.00 as actual litigation
expenses and attorney's fees. DAaEIc
In answer, 6 Insular admitted that Loreto misrepresented Eva as his legitimate
wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that
they filed their claims for the insurance proceeds of the insurance policies; that when
it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a
beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie,
as the remaining designated beneficiaries; and that it released Odessa's share as she
was of age, but withheld the release of the shares of minors Karl Brian and Trisha
Angelie pending submission of letters of guardianship. Insular alleged that the
complaint or petition failed to state a cause of action insofar as it sought to declare as
void the designation of Eva as beneficiary, because Loreto revoked her designation as
such in Policy No. A001544070 and it disqualified her in Policy No. A001693029;
and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and
Trisha Angelie, considering that no settlement of Loreto's estate had been filed nor
had the respective shares of the heirs been determined. Insular further claimed that it
was bound to honor the insurance policies designating the children of Loreto with Eva
as beneficiaries pursuant to Section 53 of the Insurance Code.
In its own answer 7 with compulsory counterclaim, Grepalife alleged that Eva
was not designated as an insurance policy beneficiary; that the claims filed by Odessa,
Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for
insurance due to a misrepresentation in his application for that he was born on
December 10, 1936 and, thus, not more than 65 years old when he signed it in
September 2001; that the case was premature, there being no claim filed by the
legitimate family of Loreto; and that the law on succession does not apply where the
designation of insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl were not known to petitioners,
summons by publication was resorted to. Still, the Brian, and Trisha Angelie
illegitimate family of Loreto failed to file their answer. Hence, the trial court, upon
motion of petitioners, declared them in default in its Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that
the issues raised in their respective answers be resolved first. The trial court ordered
petitioners to comment within 15 days. EHaASD
In their comment, petitioners alleged that the issue raised by Insular and
Grepalife was purely legal whether the complaint itself was proper or not and
that the designation of a beneficiary is an act of liberality or a donation and, therefore,
subject to the provisions of Articles 752 8 and 772 9 of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds
belong exclusively to the designated beneficiaries in the policies, not to the estate or
to the heirs of the insured.
Grepalife also reiterated that it had disqualified Eva as a beneficiary when it
ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive
portion of which reads
WHEREFORE, the motion to dismiss incorporated in the answer of defendants
Insular Life and Grepalife is granted with respect to defendants Odessa, Karl
Brian and Trisha Maramag. The action shall proceed with respect to the other
defendants Eva Verna de Guzman, Insular Life and Grepalife.
SO ORDERED. 10
In so ruling, the trial court ratiocinated thus
Art. 2011 of the Civil Code provides that the contract of insurance is governed
by the (sic) special laws. Matters not expressly provided for in such special laws
shall be regulated by this Code. The principal law on insurance is the Insurance
Code, as amended. Only in case of deficiency in the Insurance Code that the
Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil.
269.)
The Insurance Code, as amended, contains a provision regarding to whom the
insurance proceeds shall be paid. It is very clear under Sec. 53 thereof that the
insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made, unless otherwise
specified in the policy. Since the defendants are the ones named as the primary
beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C.
Maramag and there is no showing that herein plaintiffs were also included as
beneficiary (sic) therein the insurance proceeds shall exclusively be paid to
them. This is because the beneficiary has a vested right to the indemnity, unless
the insured reserves the right to change the beneficiary. (Grecio v. Sunlife
Assurance Co. of Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules on
testamentary succession in order to defeat the right of herein defendants to
collect the insurance indemnity. The beneficiary in a contract of insurance is not
the donee spoken in the law of donation. The rules on testamentary succession
cannot apply here, for the insurance indemnity does not partake of a donation.
As such, the insurance indemnity cannot be considered as an advance of the
inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534).
In the case of Southern Luzon Employees' Association v. Juanita Golpeo, et al.,
the Honorable Supreme Court made the following pronouncements[:] ECcTaH
"With the finding of the trial court that the proceeds to the Life
Insurance Policy belongs exclusively to the defendant as his individual
and separate property, we agree that the proceeds of an insurance policy
belong exclusively to the beneficiary and not to the estate of the person
whose life was insured, and that such proceeds are the separate and
individual property of the beneficiary and not of the heirs of the person
whose life was insured, is the doctrine in America. We believe that the
same doctrine obtains in these Islands by virtue of Section 428 of the
Code of Commerce . . . ."
In [the] light of the above pronouncements, it is very clear that the plaintiffs has
(sic) no sufficient cause of action against defendants Odessa, Karl Brian and
Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness
of donation as primary beneficiary (sic) in the insurances (sic) of the late Loreto
C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One of
the named beneficiary (sic) in the insurances (sic) taken by the late Loreto C.
Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden
from receiving any donation under Article 739 cannot be named beneficiary of a
life insurance policy of the person who cannot make any donation to him,
according to said article (Art. 2012, Civil Code). If a concubine is made the
beneficiary, it is believed that the insurance contract will still remain valid, but
the indemnity must go to the legal heirs and not to the concubine, for evidently,
what is prohibited under Art. 2012 is the naming of the improper beneficiary. In
such case, the action for the declaration of nullity may be brought by the spouse
of the donor or donee, and the guilt of the donor and donee may be proved by
preponderance of evidence in the same action (Comment of Edgardo L. Paras,
Civil Code of the Philippines, page 897). Since the designation of defendant
Eva Verna de Guzman as one of the primary beneficiary (sic) in the insurances
(sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil
Code, the insurance indemnity that should be paid to her must go to the legal
heirs of the deceased which this court may properly take cognizance as the
action for the declaration for the nullity of a void donation falls within the
general jurisdiction of this Court. 11

Insular 12 and Grepalife 13 filed their respective motions for reconsideration,
arguing, in the main, that the petition failed to state a cause of action. Insular further
averred that the proceeds were divided among the three children as the remaining
named beneficiaries. Grepalife, for its part, also alleged that the premiums paid had
already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that
whether the complaint may be dismissed for failure to state a cause of action must be
determined solely on the basis of the allegations in the complaint, such that the
defenses of Insular and Grepalife would be better threshed out during trial.
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for
Reconsideration filed by defendants Grepalife and Insular Life are hereby
GRANTED. Accordingly, the portion of the Resolution of this Court dated 21
September 2004 which ordered the prosecution of the case against defendant
Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and
the case against them is hereby ordered DISMISSED.
SO ORDERED. 14 TADcCS
In granting the motions for reconsideration of Insular and Grepalife, the trial
court considered the allegations of Insular that Loreto revoked the designation of Eva
in one policy and that Insular disqualified her as a beneficiary in the other policy such
that the entire proceeds would be paid to the illegitimate children of Loreto with Eva
pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases where
there are no beneficiaries designated, or when the only designated beneficiary is
disqualified, that the proceeds should be paid to the estate of the insured. As to the
claim that the proceeds to be paid to Loretos illegitimate children should be reduced
based on the rules on legitime, the trial court held that the distribution of the insurance
proceeds is governed primarily by the Insurance Code, and the provisions of the Civil
Code are irrelevant and inapplicable. With respect to the Grepalife policy, the trial
court noted that Eva was never designated as a beneficiary, but only Odessa, Karl
Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the
illegitimate children. It further held that the matter of Loreto's misrepresentation was
premature; the appropriate action may be filed only upon denial of the claim of the
named beneficiaries for the insurance proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed
the appeal for lack of jurisdiction, holding that the decision of the trial court
dismissing the complaint for failure to state a cause of action involved a pure question
of law. The appellate court also noted that petitioners did not file within the
reglementary period a motion for reconsideration of the trial court's Resolution, dated
September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and
Trisha Angelie; thus, the said Resolution had already attained finality.
Hence, this petition raising the following issues:
a.In determining the merits of a motion to dismiss for failure to state a cause of
action, may the Court consider matters which were not alleged in the
Complaint, particularly the defenses put up by the defendants in their Answer?
b.In granting a motion for reconsideration of a motion to dismiss for failure to
state a cause of action, did not the Regional Trial Court engage in the
examination and determination of what were the facts and their probative value,
or the truth thereof, when it premised the dismissal on allegations of the
defendants in their answer which had not been proven?
c.. . . (A)re the members of the legitimate family entitled to the proceeds of the
insurance for the concubine? 15


In essence, petitioners posit that their petition before the trial court should not
have been dismissed for failure to state a cause of action because the finding that Eva
was either disqualified as a beneficiary by the insurance companies or that her
designation was revoked by Loreto, hypothetically admitted as true, was raised only
in the answers and motions for reconsideration of both Insular and Grepalife. They
argue that for a motion to dismiss to prosper on that ground, only the allegations in
the complaint should be considered. They further contend that, even assuming Insular
disqualified Eva as a beneficiary, her share should not have been distributed to her
children with Loreto but, instead, awarded to them, being the legitimate heirs of the
insured deceased, in accordance with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial court's finding that
the petition failed to state a cause of action, as provided in Rule 16, Section 1 (g), of
the Rules of Court, which reads
SEC. 1.Grounds. Within the time for but before filing the answer to the
complaint or pleading asserting a claim, a motion to dismiss may be made on
any of the following grounds: SEIcHa
xxx xxx xxx
(g)That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of
another. 16 A complaint states a cause of action when it contains the three (3)
elements of a cause of action (1) the legal right of the plaintiff; (2) the correlative
obligation of the defendant; and (3) the act or omission of the defendant in violation
of the legal right. If any of these elements is absent, the complaint becomes vulnerable
to a motion to dismiss on the ground of failure to state a cause of action. 17
When a motion to dismiss is premised on this ground, the ruling thereon should
be based only on the facts alleged in the complaint. The court must resolve the issue
on the strength of such allegations, assuming them to be true. The test of sufficiency
of a cause of action rests on whether, hypothetically admitting the facts alleged in the
complaint to be true, the court can render a valid judgment upon the same, in
accordance with the prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is
no hypothetical admission of the veracity of the allegations if:
1.the falsity of the allegations is subject to judicial notice;
2.such allegations are legally impossible;
3.the allegations refer to facts which are inadmissible in evidence;
4.by the record or document in the pleading, the allegations appear
unfounded; or
5.there is evidence which has been presented to the court by stipulation of
the parties or in the course of the hearings related to the case. 18
In this case, it is clear from the petition filed before the trial court that,
although petitioners are the legitimate heirs of Loreto, they were not named as
beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of
petitioners' claim is that Eva, being a concubine of Loreto and a suspect in his murder,
is disqualified from being designated as beneficiary of the insurance policies, and that
Eva's children with Loreto, being illegitimate children, are entitled to a lesser share of
the proceeds of the policies. They also argued that pursuant to Section 12 of the
Insurance Code, 19 Eva's share in the proceeds should be forfeited in their favor, the
former having brought about the death of Loreto. Thus, they prayed that the share of
Eva and portions of the shares of Loreto's illegitimate children should be awarded to
them, being the legitimate heirs of Loreto entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a
favorable judgment in light of Article 2011 of the Civil Code which expressly
provides that insurance contracts shall be governed by special laws, i.e., the Insurance
Code. Section 53 of the Insurance Code states
SEC. 53.The insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made unless
otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the
insurance proceeds are either the insured, if still alive; or the beneficiary, if the
insured is already deceased, upon the maturation of the policy. 20 The exception to
this rule is a situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favorable stipulations or
indemnity. In such a case, third parties may directly sue and claim from the insurer.
21 CTDHSE
Petitioners are third parties to the insurance contracts with Insular and
Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly, respondents
Insular and Grepalife have no legal obligation to turn over the insurance proceeds to
petitioners. The revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment considering that the designation
of the illegitimate children as beneficiaries in Loreto's insurance policies remains
valid. Because no legal proscription exists in naming as beneficiaries the children of
illicit relationships by the insured, 22 the shares of Eva in the insurance proceeds,
whether forfeited by the court in view of the prohibition on donations under Article
739 of the Civil Code or by the insurers themselves for reasons based on the insurance
contracts, must be awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has
not designated any beneficiary, 23 or when the designated beneficiary is disqualified
by law to receive the proceeds, 24 that the insurance policy proceeds shall redound to
the benefit of the estate of the insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be
upheld. In the same light, the Decision of the CA dated January 8, 2008 should be
sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the
appeal; the issue of failure to state a cause of action is a question of law and not of
fact, there being no findings of fact in the first place. 25
WHEREFORE, the petition is DENIED for lack of merit. Costs against
petitioners.
SO ORDERED.
Ynares-Santiago, Carpio, * Corona ** and Peralta, JJ., concur.














THIRD DIVISION
[G.R. No. 183526. August 25, 2009.]
VIOLETA R. LALICAN, petitioner, vs. THE INSULAR LIFE
ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE
PRESIDENT VICENTE R. AVILON, respondent.
DECISION
CHICO-NAZARIO, ** J p:
Challenged in this Petition for Review on Certiorari 1 under Rule 45 of the Rules of
Court are the Decision 2 dated 30 August 2007 and the Orders dated 10 April 2008 3 and
3 July 2008 4 of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case
No. 2177. In its assailed Decision, the RTC dismissed the claim for death benefits filed
by petitioner Violeta R. Lalican (Violeta) against respondent Insular Life Assurance
Company Limited (Insular Life); while in its questioned Orders dated 10 April 2008 and
3 July 2008, respectively, the RTC declared the finality of the aforesaid Decision and
denied petitioner's Notice of Appeal.
The factual and procedural antecedents of the case, as culled from the records, are as
follows:
Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).
During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24
April 1997, Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan
City, issued in favor of Eulogio Policy No. 9011992, 5 which contained a 20-Year
Endowment Variable Income Package Flexi Plan worth P500,000.00, 6 with two riders
valued at P500,000.00 each. 7 Thus, the value of the policy amounted to P1,500,000.00.
Violeta was named as the primary beneficiary.
Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly
basis in the amount of P8,062.00, payable every 24 April, 24 July, 24 October and 24
January of each year, until the end of the 20-year period of the policy. According to the
Policy Contract, there was a grace period of 31 days for the payment of each premium
subsequent to the first. If any premium was not paid on or before the due date, the policy
would be in default, and if the premium remained unpaid until the end of the grace
period, the policy would automatically lapse and become void. 8
Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he
failed to pay the premium due on 24 January 1998, even after the lapse of the grace
period of 31 days. Policy No. 9011992, therefore, lapsed and became void. EScAHT
Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan,
on 26 May 1998, an Application for Reinstatement 9 of Policy No. 9011992, together
with the amount of P8,062.00 to pay for the premium due on 24 January 1998. In a letter
10 dated 17 July 1998, Insular Life notified Eulogio that his Application for
Reinstatement could not be fully processed because, although he already deposited
P8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue
interest thereon amounting to P322.48. Thus, Insular Life instructed Eulogio to pay the
amount of interest and to file another application for reinstatement. Eulogio was likewise
advised by Malaluan to pay the premiums that subsequently became due on 24 April
1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluan's house and submitted a second
Application for Reinstatement 11 of Policy No. 9011992, including the amount of
P17,500.00, representing payments for the overdue interest on the premium for 24
January 1998, and the premiums which became due on 24 April 1998 and 24 July 1998.
As Malaluan was away on a business errand, her husband received Eulogio's second
Application for Reinstatement and issued a receipt for the amount Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory
arrest secondary to electrocution.
Without knowing of Eulogio's death, Malaluan forwarded to the Insular Life Regional
Office in the City of San Fernando, on 18 September 1998, Eulogio's second Application
for Reinstatement of Policy No. 9011992 and P17,500.00 deposit. However, Insular Life
no longer acted upon Eulogio's second Application for Reinstatement, as the former was
informed on 21 September 1998 that Eulogio had already passed away.
On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full
proceeds of Policy No. 9011992.
In a letter 12 dated 14 January 1999, Insular Life informed Violeta that her claim could
not be granted since, at the time of Eulogio's death, Policy No. 9011992 had already
lapsed, and Eulogio failed to reinstate the same. According to the Application for
Reinstatement, the policy would only be considered reinstated upon approval of the
application by Insular Life during the applicant's "lifetime and good health", and
whatever amount the applicant paid in connection thereto was considered to be a deposit
only until approval of said application. Enclosed with the 14 January 1999 letter of
Insular Life to Violeta was DBP Check No. 0000309734, for the amount of P25,417.00,
drawn in Violeta's favor, representing the full refund of the payments made by Eulogio
on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of the disallowance of her
claim. In a letter 13 dated 10 March 1999, Insular Life stated that it could not find any
reason to reconsider its decision rejecting Violeta's claim. Insular Life again tendered to
Violeta the above-mentioned check in the amount of P25,417.00.
Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the
Cabanatuan District Office of Insular Life. Violeta's counsel subsequently sent a letter 14
dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy No.
9011992. On 11 August 1999, Insular Life responded to the said demand letter by
agreeing to conduct a re-evaluation of Violeta's claim. IASTDE
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the
RTC, on 11 October 1999, a Complaint for Death Claim Benefit, 15 which was docketed
as Civil Case No. 2177. Violeta alleged that Insular Life engaged in unfair claim
settlement practice and deliberately failed to act with reasonable promptness on her
insurance claim. Violeta prayed that Insular Life be ordered to pay her death claim
benefits on Policy No. 9011992, in the amount of P1,500,000.00, plus interests, attorney's
fees, and cost of suit.
Insular Life filed with the RTC an Answer with Counterclaim, 16 asserting that Violeta's
Complaint had no legal or factual bases. Insular Life maintained that Policy No. 9011992,
on which Violeta sought to recover, was rendered void by the non-payment of the 24
January 1998 premium and non-compliance with the requirements for the reinstatement
of the same. By way of counterclaim, Insular Life prayed that Violeta be ordered to pay
attorney's fees and expenses of litigation incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the
reinstatement of Policy No. 9011992 had been complied with and the defenses put up by
Insular Life were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have
the same reinstated:
[The] arguments [of Insular Life] are not without basis. When the premiums for
April 24 and July 24, 1998 were not paid by [Eulogio] even after the lapse of
the 31-day grace period, his insurance policy necessarily lapsed. This is clear
from the terms and conditions of the contract between [Insular Life] and
[Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 . .
. . 17
The RTC, taking into account the clear provisions of the Policy Contract between
Eulogio and Insular Life and the Application for Reinstatement Eulogio subsequently
signed and submitted to Insular Life, held that Eulogio was not able to fully comply with
the requirements for the reinstatement of Policy No. 9011992:
The well-settled rule is that a contract has the force of law between the parties.
In the instant case, the terms of the insurance contract between [Eulogio] and
[Insular Life] were spelled out in the policy provisions of Insurance Policy No.
9011992. There is likewise no dispute that said insurance contract is by nature a
contract of adhesion[,] which is defined as "one in which one of the contracting
parties imposes a ready-made form of contract which the other party may
accept or reject but cannot modify". (Polotan, Sr. vs. CA, 296 SCRA 247). ECaSIT
xxx xxx xxx
The New Lexicon Webster's Dictionary defines ambiguity as the "quality of
having more than one meaning" and "an idea, statement or expression capable
of being understood in more than one sense". In Nacu vs. Court of Appeals,
231 SCRA 237 (1994), the Supreme Court stated that[:]
"Any ambiguity in a contract, whose terms are susceptible of different
interpretations as a result thereby, must be read and construed against
the party who drafted it on the assumption that it could have been
avoided by the exercise of a little care."
In the instant case, the dispute arises from the afore-quoted provisions
written on the face of the second application for reinstatement. Examining
the said provisions, the court finds the same clearly written in terms that
are simple enough to admit of only one interpretation. They are clearly not
ambiguous, equivocal or uncertain that would need further construction.
The same are written on the very face of the application just above the
space where [Eulogio] signed his name. It is inconceivable that he signed it
without reading and understanding its import.
Similarly, the provisions of the policy provisions (sic) earlier mentioned are
written in simple and clear layman's language, rendering it free from any
ambiguity that would require a legal interpretation or construction. Thus, the
court believes that [Eulogio] was well aware that when he filed the said
application for reinstatement, his lapsed policy was not automatically reinstated
and that its approval was subject to certain conditions. Nowhere in the policy
or in the application for reinstatement was it ever mentioned that the
payment of premiums would have the effect of an automatic and immediate
renewal of the lapsed policy. Instead, what was clearly stated in the
application for reinstatement is that pending approval thereof, the
premiums paid would be treated as a "deposit only and shall not bind the
company until this application is finally approved during my/our" lifetime
and good health[.]" HSATIC

Again, the court finds nothing in the aforesaid provisions that would even
suggest an ambiguity either in the words used or in the manner they were
written. [Violeta] did not present any proof that [Eulogio] was not conversant
with the English language. Hence, his having personally signed the application
for reinstatement[,] which consisted only of one page, could only mean that he
has read its contents and that he understood them. . . .
Therefore, consistent with the above Supreme Court ruling and finding no
ambiguity both in the policy provisions of Policy No. 9011992 and in the
application for reinstatement subject of this case, the court finds no merit in
[Violeta's] contention that the policy provision stating that [the lapsed policy of
Eulogio] should be reinstated during his lifetime is ambiguous and should be
construed in his favor. It is true that [Eulogio] submitted his application for
reinstatement, together with his premium and interest payments, to [Insular
Life] through its agent Josephine Malaluan in the morning of September 17,
1998. Unfortunately, he died in the afternoon of that same day. It was only on
the following day, September 18, 1998 that Ms. Malaluan brought the said
document to [the regional office of Insular Life] in San Fernando, Pampanga for
approval. As correctly pointed out by [Insular Life] there was no more
application to approve because the applicant was already dead and no
insurance company would issue an insurance policy to a dead person. 18
(Emphases ours.)
The RTC, in the end, explained that:
While the court truly empathizes with the [Violeta] for the loss of her husband,
it cannot express the same by interpreting the insurance agreement in her favor
where there is no need for such interpretation. It is conceded that [Eulogio's]
payment of overdue premiums and interest was received by [Insular Life]
through its agent Ms. Malaluan. It is also true that [the] application for
reinstatement was filed by [Eulogio] a day before his death. However, there is
nothing that would justify a conclusion that such receipt amounted to an
automatic reinstatement of the policy that has already lapsed. The evidence
suggests clearly that no such automatic renewal was contemplated in the
contract between [Eulogio] and [Insular Life]. Neither was it shown that
Ms. Malaluan was the officer authorized to approve the application for
reinstatement and that her receipt of the documents submitted by [Eulogio]
amounted to its approval. 19 (Emphasis ours.)
The fallo of the RTC Decision thus reads:
WHEREFORE, all the foregoing premises considered and finding that
[Violeta] has failed to establish by preponderance of evidence her cause of
action against the defendant, let this case be, as it is hereby DISMISSED. 20
cIDHSC
On 14 September 2007, Violeta filed a Motion for Reconsideration 21 of the afore-
mentioned RTC Decision. Insular Life opposed 22 the said motion, averring that the
arguments raised therein were merely a rehash of the issues already considered and
addressed by the RTC. In an Order 23 dated 8 November 2007, the RTC denied Violeta's
Motion for Reconsideration, finding no cogent and compelling reason to disturb its
earlier findings. Per the Registry Return Receipt on record, the 8 November 2007 Order
of the RTC was received by Violeta on 3 December 2007.
In the interim, on 22 November 2007, Violeta filed with the RTC a Reply 24 to the
Motion for Reconsideration, wherein she reiterated the prayer in her Motion for
Reconsideration for the setting aside of the Decision dated 30 August 2007. Despite
already receiving on 3 December 2007, a copy of the RTC Order dated 8 November
2007, which denied her Motion for Reconsideration, Violeta still filed with the RTC, on
26 February 2008, a Reply Extended Discussion elaborating on the arguments she had
previously made in her Motion for Reconsideration and Reply.
On 10 April 2008, the RTC issued an Order, 25 declaring that the Decision dated 30
August 2007 in Civil Case No. 2177 had already attained finality in view of Violeta's
failure to file the appropriate notice of appeal within the reglementary period. Thus, any
further discussions on the issues raised by Violeta in her Reply and Reply Extended
Discussion would be moot and academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion, 26 praying
that the Order dated 10 April 2008 be set aside and that she be allowed to file an appeal
with the Court of Appeals.
In an Order 27 dated 3 July 2008, the RTC denied Violeta's Notice of Appeal with
Motion given that the Decision dated 30 August 2007 had long since attained finality.
Violeta directly elevated her case to this Court via the instant Petition for Review on
Certiorari, raising the following issues for consideration:
1.Whether or not the Decision of the court a quo dated August 30, 2007, can
still be reviewed despite having allegedly attained finality and despite
the fact that the mode of appeal that has been availed of by Violeta is
erroneous?
2.Whether or not the Regional Trial Court in its original jurisdiction has decided
the case on a question of law not in accord with law and applicable
decisions of the Supreme Court?
Violeta insists that her former counsel committed an honest mistake in filing a Reply,
instead of a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the
computation of the reglementary period for appealing the said judgment. Violeta claims
that her former counsel suffered from poor health, which rapidly deteriorated from the
first week of July 2008 until the latter's death just shortly after the filing of the instant
Petition on 8 August 2008. In light of these circumstances, Violeta entreats this Court to
admit and give due course to her appeal even if the same was filed out of time. IDTcHa
Violeta further posits that the Court should address the question of law arising in this case
involving the interpretation of the second sentence of Section 19 of the Insurance Code,
which provides:
Section. 19.. . . [I]nterest in the life or health of a person insured must exist
when the insurance takes effect, but need not exist thereafter or when the loss
occurs.
On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own
life when he reinstated Policy No. 9011992 just before he passed away on 17 September
1998. The RTC should have construed the provisions of the Policy Contract and
Application for Reinstatement in favor of the insured Eulogio and against the insurer
Insular Life, and considered the special circumstances of the case, to rule that Eulogio
had complied with the requisites for the reinstatement of Policy No. 9011992 prior to his
death, and that Violeta is entitled to claim the proceeds of said policy as the primary
beneficiary thereof.
The Petition lacks merit.
At the outset, the Court notes that the elevation of the case to us via the instant Petition
for Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court, 28
provides that no appeal may be taken from an order disallowing or dismissing an appeal.
In such a case, the aggrieved party may file a Petition for Certiorari under Rule 65 of the
Rules of Court. 29
Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long
become final and executory. Violeta filed a Motion for Reconsideration thereof, but the
RTC denied the same in an Order dated 8 November 2007. The records of the case reveal
that Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus,
Violeta had 15 days 30 from said date of receipt, or until 18 December 2007, to file a
Notice of Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five
months after receipt of the RTC Order dated 8 November 2007 denying her Motion for
Reconsideration.
Violeta's claim that her former counsel's failure to file the proper remedy within the
reglementary period was an honest mistake, attributable to the latter's deteriorating
health, is unpersuasive.
Violeta merely made a general averment of her former counsel's poor health, lacking
relevant details and supporting evidence. By Violeta's own admission, her former
counsel's health rapidly deteriorated only by the first week of July 2008. The events
pertinent to Violeta's Notice of Appeal took place months before July 2008, i.e., a copy of
the RTC Order dated 8 November 2007, denying Violeta's Motion for Reconsideration of
the Decision dated 30 August 2007, was received on 3 December 2007; and Violeta's
Notice of Appeal was filed on 20 May 2008. There is utter lack of proof to show that
Violeta's former counsel was already suffering from ill health during these times; or that
the illness of Violeta's former counsel would have affected his judgment and competence
as a lawyer. aCTHEA
Moreover, the failure of her former counsel to file a Notice of Appeal within the
reglementary period binds Violeta, which failure the latter cannot now disown on the
basis of her bare allegation and self-serving pronouncement that the former was ill. A
client is bound by his counsel's mistakes and negligence. 31
The Court, therefore, finds no reversible error on the part of the RTC in denying Violeta's
Notice of Appeal for being filed beyond the reglementary period. Without an appeal
having been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177
already became final and executory.
A judgment becomes "final and executory" by operation of law. Finality becomes a fact
when the reglementary period to appeal lapses and no appeal is perfected within such
period. As a consequence, no court (not even this Court) can exercise appellate
jurisdiction to review a case or modify a decision that has become final. 32 When a final
judgment is executory, it becomes immutable and unalterable. It may no longer be
modified in any respect either by the court, which rendered it or even by this Court. The
doctrine is founded on considerations of public policy and sound practice that, at the risk
of occasional errors, judgments must become final at some definite point in time. 33

The only recognized exceptions to the doctrine of immutability and unalterability are the
correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice
to any party, and void judgments. 34 The instant case does not fall under any of these
exceptions.
Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve
the substantive issues raised, the Petition must still fail.
Violeta makes it appear that her present Petition involves a question of law, particularly,
whether Eulogio had an existing insurable interest in his own life until the day of his
death.
An insurable interest is one of the most basic and essential requirements in an insurance
contract. In general, an insurable interest is that interest which a person is deemed to have
in the subject matter insured, where he has a relation or connection with or concern in it,
such that the person will derive pecuniary benefit or advantage from the preservation of
the subject matter insured and will suffer pecuniary loss or damage from its destruction,
termination, or injury by the happening of the event insured against. 35 The existence of
an insurable interest gives a person the legal right to insure the subject matter of the
policy of insurance. 36 Section 10 of the Insurance Code indeed provides that every
person has an insurable interest in his own life. 37 Section 19 of the same code also states
that an interest in the life or health of a person insured must exist when the insurance
takes effect, but need not exist thereafter or when the loss occurs. 38 aATHES
Upon more extensive study of the Petition, it becomes evident that the matter of insurable
interest is entirely irrelevant in the case at bar. It is actually beyond question that while
Eulogio was still alive, he had an insurable interest in his own life, which he did insure
under Policy No. 9011992. The real point of contention herein is whether Eulogio was
able to reinstate the lapsed insurance policy on his life before his death on 17 September
1998.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30
August 2007 Decision that Policy No. 9011992 lapsed because of Eulogio's non-payment
of the premiums which became due on 24 April 1998 and 24 July 1998. Policy No.
9011992 had lapsed and become void earlier, on 24 February 1998, upon the expiration
of the 31-day grace period for payment of the premium, which fell due on 24 January
1998, without any payment having been made.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio's filing of
his first Application for Reinstatement with Insular Life, through Malaluan, on 26 May
1998, constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life
did not act on Eulogio's first Application for Reinstatement, since the amount Eulogio
simultaneously deposited was sufficient to cover only the P8,062.00 overdue premium
for 24 January 1998, but not the P322.48 overdue interests thereon. On 17 September
1998, Eulogio submitted a second Application for Reinstatement to Insular Life, again
through Malaluan, depositing at the same time P17,500.00, to cover payment for the
overdue interest on the premium for 24 January 1998, and the premiums that had also
become due on 24 April 1998 and 24 July 1998. On the very same day, Eulogio passed
away.
To reinstate a policy means to restore the same to premium-paying status after it has been
permitted to lapse. 39 Both the Policy Contract and the Application for Reinstatement
provide for specific conditions for the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified the following conditions
for reinstatement should the policy lapse:
10.REINSTATEMENT
You may reinstate this policy at any time within three years after it lapsed if the
following conditions are met: (1) the policy has not been surrendered for its
cash value or the period of extension as a term insurance has not expired; (2)
evidence of insurability satisfactory to [Insular Life] is furnished; (3) overdue
premiums are paid with compound interest at a rate not exceeding that which
would have been applicable to said premium and indebtedness in the policy
years prior to reinstatement; and (4) indebtedness which existed at the time of
lapsation is paid or renewed. 40
Additional conditions for reinstatement of a lapsed policy were stated in the Application
for Reinstatement which Eulogio signed and submitted, to wit:
I/We agree that said Policy shall not be considered reinstated until this
application is approved by the Company during my/our lifetime and good
health and until all other Company requirements for the reinstatement of
said Policy are fully satisfied. EcHIAC
I/We further agree that any payment made or to be made in connection with
this application shall be considered as deposit only and shall not bind the
Company until this application is finally approved by the Company during
my/our lifetime and good health. If this application is disapproved, I/We also
agree to accept the refund of all payments made in connection herewith, without
interest, and to surrender the receipts for such payment. 41 (Emphases ours.)
In the instant case, Eulogio's death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death,
managed to file his Application for Reinstatement and deposit the amount for payment of
his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992
could only be considered reinstated after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogio's lifetime and good health.
Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life
Insurance Company, 42 citing McGuire v. The Manufacturer's Life Insurance Co.: 43
"The stipulation in a life insurance policy giving the insured the privilege to
reinstate it upon written application does not give the insured absolute right to
such reinstatement by the mere filing of an application. The insurer has the
right to deny the reinstatement if it is not satisfied as to the insurability of the
insured and if the latter does not pay all overdue premium and all other
indebtedness to the insurer. After the death of the insured the insurance
Company cannot be compelled to entertain an application for
reinstatement of the policy because the conditions precedent to reinstatement
can no longer be determined and satisfied." (Emphases ours.)
It does not matter that when he died, Eulogio's Application for Reinstatement and
deposits for the overdue premiums and interests were already with Malaluan. Insular
Life, through the Policy Contract, expressly limits the power or authority of its insurance
agents, thus:
Our agents have no authority to make or modify this contract, to extend the
time limit for payment of premiums, to waive any lapsation, forfeiture or any of
our rights or requirements, such powers being limited to our president, vice-
president or persons authorized by the Board of Trustees and only in writing. 44
(Emphasis ours.)
Malaluan did not have the authority to approve Eulogio's Application for Reinstatement.
Malaluan still had to turn over to Insular Life Eulogio's Application for Reinstatement
and accompanying deposits, for processing and approval by the latter.
The Court agrees with the RTC that the conditions for reinstatement under the Policy
Contract and Application for Reinstatement were written in clear and simple language,
which could not admit of any meaning or interpretation other than those that they so
obviously embody. A construction in favor of the insured is not called for, as there is no
ambiguity in the said provisions in the first place. The words thereof are clear,
unequivocal, and simple enough so as to preclude any mistake in the appreciation of the
same.
Violeta did not adduce any evidence that Eulogio might have failed to fully understand
the import and meaning of the provisions of his Policy Contract and/or Application for
Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of
insurance law that a policy or contract of insurance is to be construed liberally in favor of
the insured and strictly as against the insurer company, yet, contracts of insurance, like
other contracts, are to be construed according to the sense and meaning of the terms,
which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense. 45 cISAHT
Eulogio's death, just hours after filing his Application for Reinstatement and depositing
his payment for overdue premiums and interests with Malaluan, does not constitute a
special circumstance that can persuade this Court to already consider Policy No. 9011992
reinstated. Said circumstance cannot override the clear and express provisions of the
Policy Contract and Application for Reinstatement, and operate to remove the prerogative
of Insular Life thereunder to approve or disapprove the Application for Reinstatement.
Even though the Court commiserates with Violeta, as the tragic and fateful turn of events
leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with
the payment of proceeds on a lapsed insurance policy. Justice and fairness must equally
apply to all parties to a case. Courts are not permitted to make contracts for the parties.
The function and duty of the courts consist simply in enforcing and carrying out the
contracts actually made. 46
Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance
with the Policy Contract and Application for Reinstatement before Eulogio's death.
Violeta, therefore, cannot claim any death benefits from Insular Life on the basis of
Policy No. 9011992; but she is entitled to receive the full refund of the payments made
by Eulogio thereon.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review
on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated
10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No.
2177, denying petitioner Violeta R. Lalican's Notice of Appeal, on the ground that the
Decision dated 30 August 2007 subject thereof, was already final and executory. No
costs. SHTaID
SO ORDERED.
Carpio Morales, * Velasco, Jr., Nachura and Peralta, JJ., concur.









FIRST DIVISION
[G.R. No. 147839. June 8, 2006.]
GAISANO CAGAYAN, INC., petitioner, vs. INSURANCE
COMPANY OF NORTH AMERICA, respondent.
D E C I S I O N
AUSTRIA-MARTINEZ, J p:
Before the Court is a petition for review on certiorari of the Decision 1 dated October 11,
2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the
Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC)
in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance
Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and
the CA Resolution dated April 11, 2001 which denied petitioner's motion for
reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi
Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned
by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance
policies with book debt endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the Philippines." 2
The policies defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this Policy." 3
The policies also provide for the following conditions:
1.Warranted that the Company shall not be liable for any unpaid account in
respect of the merchandise sold and delivered by the Insured which are
outstanding at the date of loss for a period in excess of six (6) months
from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.
2.Warranted that the Insured shall submit to the Company within twelve (12)
days after the close of every calendar month all amount shown in their
books of accounts as unpaid and thus become receivable item from their
customers and dealers. . . . 4
xxx xxx xxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25,
1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was
consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-
made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It
alleges that IMC and LSPI filed with respondent their claims under their respective fire
insurance policies with book debt endorsements; that as of February 25, 1991, the unpaid
accounts of petitioner on the sale and delivery of ready-made clothing materials with
IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the
claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights
against petitioner; that respondent made several demands for payment upon petitioner but
these went unheeded. 5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not
be held liable because the property covered by the insurance policies were destroyed due
to fortuities event or force majeure; that respondent's right of subrogation has no basis
inasmuch as there was no breach of contract committed by it since the loss was due to
fire which it could not prevent or foresee; that IMC and LSPI never communicated to it
that they insured their properties; that it never consented to paying the claim of the
insured. 6
At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus,
trial on the merits ensued. TADaCH
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8
It held that the fire was purely accidental; that the cause of the fire was not attributable to
the negligence of the petitioner; that it has not been established that petitioner is the
debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that
merely for purpose of securing the payment of purchase price, the above-described
merchandise remains the property of the vendor until the purchase price is fully paid",
IMC and LSPI retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the CA rendered its
decision setting aside the decision of the RTC. The dispositive portion of the decision
reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED
and SET ASIDE and a new one is entered ordering defendant-appellee Gaisano
Cagayan, Inc. to pay:
1.the amount of P2,119,205.60 representing the amount paid by the plaintiff-
appellant to the insured Inter Capitol Marketing Corporation, plus legal interest
from the time of demand until fully paid;
2.the amount of P535,613.00 representing the amount paid by the plaintiff-
appellant to the insured Levi Strauss Phil., Inc., plus legal interest from the time
of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED. 10
The CA held that the sales invoices are proofs of sale, being detailed statements of the
nature, quantity and cost of the thing sold; that loss of the goods in the fire must be borne
by petitioner since the proviso contained in the sales invoices is an exception under
Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a
fortuitous event, the risk is borne by the owner of the thing at the time the loss under the
principle of res perit domino; that petitioner's obligation to IMC and LSPI is not the
delivery of the lost goods but the payment of its unpaid account and as such the
obligation to pay is not extinguished, even if the fire is considered a fortuitous event; that
by subrogation, the insurer has the right to go against petitioner; that, being a fire
insurance with book debt endorsements, what was insured was the vendor's interest as a
creditor. 11
Petitioner filed a motion for reconsideration 12 but it was denied by the CA in its
Resolution dated April 11, 2001. 13
Hence, the present petition for review on certiorari anchored on the following
Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER
THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED
TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE
IN FAVOR OF RESPONDENT. 14
Anent the first error, petitioner contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was not credit that was insured
since respondent paid on the occasion of the loss of the insured goods to fire and not
because of the non-payment by petitioner of any obligation; that, even if the insurance is
deemed as one over credit, there was no loss as the accounts were not yet due since no
prior demands were made by IMC and LSPI against petitioner for payment of the debt
and such demands came from respondent only after it had already paid IMC and LSPI
under the fire insurance policies. 15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-
buyer IMC and LSPI assumed the risk of loss when they secured fire insurance policies
over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all
risk had transferred to petitioner upon delivery of the goods; that petitioner was not privy
to the insurance contract or the payment between respondent and its insured nor was its
consent or approval ever secured; that this lack of privity forecloses any real interest on
the part of respondent in the obligation to pay, limiting its interest to keeping the insured
goods safe from fire.
For its part, respondent counters that while ownership over the ready-made clothing
materials was transferred upon delivery to petitioner, IMC and LSPI have insurable
interest over said goods as creditors who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the ready-made clothing materials
since it failed to overcome the presumption of liability under Article 1265 16 of the Civil
Code; that the fire was caused through petitioner's negligence in failing to provide
stringent measures of caution, care and maintenance on its property because electric
wires do not usually short circuit unless there are defects in their installation or when
there is lack of proper maintenance and supervision of the property; that petitioner is
guilty of gross and evident bad faith in refusing to pay respondent's valid claim and
should be liable to respondent for contracted lawyer's fees, litigation expenses and cost of
suit. 17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought
before it from the CA is limited to reviewing questions of law which involves no
examination of the probative value of the evidence presented by the litigants or any of
them. 18 The Supreme Court is not a trier of facts; it is not its function to analyze or
weigh evidence all over again. 19 Accordingly, findings of fact of the appellate court are
generally conclusive on the Supreme Court. 20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues
may be resolved by this Court, such as: (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the CA went beyond the issues of the case,
or its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth
in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion. 21 Exceptions (4), (5), (7), and (11)
apply to the present petition. cATDIH

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims
that the CA erred in construing a fire insurance policy on book debts as one covering the
unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there
is no room for construction. 22 In this case, the questioned insurance policies provide
coverage for "book debts in connection with ready-made clothing materials which have
been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines." 23 ; and defined book debts as the "unpaid account still appearing in the
Book of Account of the Insured 45 days after the time of the loss covered under this
Policy." 24 Nowhere is it provided in the questioned insurance policies that the subject of
the insurance is the goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract. 25 Thus, what were insured
against were the accounts of IMC and LSPI with petitioner which remained unpaid 45
days after the loss through fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership
of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for
purpose of securing the payment of the purchase price the above described merchandise
remains the property of the vendor until the purchase price thereof is fully paid." 26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504.Unless otherwise agreed, the goods remain at the seller's risk until
the ownership therein is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the buyer's risk whether
actual delivery has been made or not, except that:
(1)Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the
time of such delivery; (Emphasis supplied)
xxx xxx xxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the
risk of loss is borne by the buyer. 27 Accordingly, petitioner bears the risk of loss of the
goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable
interest until full payment of the value of the delivered goods. Unlike the civil law
concept of res perit domino, where ownership is the basis for consideration of who bears
the risk of loss, in property insurance, one's interest is not determined by concept of title,
but whether insured has substantial economic interest in the property. 28
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the insured." Parenthetically,
under Section 14 of the same Code, an insurable interest in property may consist in: (a)
an existing interest; (b) an inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest
in, or a lien upon, or possession of, the subject matter of the insurance, and neither the
title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient
that the insured is so situated with reference to the property that he would be liable to loss
should it be injured or destroyed by the peril against which it is insured. 29 Anyone has
an insurable interest in property who derives a benefit from its existence or would suffer
loss from its destruction. 30 Indeed, a vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein, in other words, so long as he would
suffer by its destruction, as where he has a vendor's lien. 31 In this case, the insurable
interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of
Account 45 days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under
Article 1174 32 of the Civil Code is misplaced. As held earlier, petitioner bears the loss
under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by
fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after
the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly
stated by the CA, where the obligation consists in the payment of money, the failure of
the debtor to make the payment even by reason of a fortuitous event shall not relieve him
of his liability. 33 The rationale for this is that the rule that an obligor should be held
exempt from liability when the loss occurs thru a fortuitous event only holds true when
the obligation consists in the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event. It does not apply when the obligation
is pecuniary in nature. 34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind does not extinguish the obligation." If the
obligation is generic in the sense that the object thereof is designated merely by its class
or genus without any particular designation or physical segregation from all others of the
same class, the loss or destruction of anything of the same kind even without the debtor's
fault and before he has incurred in delay will not have the effect of extinguishing the
obligation. 35 This rule is based on the principle that the genus of a thing can never
perish. Genus nunquan perit. 36 An obligation to pay money is generic; therefore, it is
not excused by fortuitous loss of any specific property of the debtor. 37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial
to this case. What is relevant here is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI. HcSETI
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to
"C-22" 38 show that petitioner has an outstanding account with IMC in the amount of
P2,119,205.00. Exhibit "E" 39 is the check voucher evidencing payment to IMC. Exhibit
"F" 40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of
the insurance proceeds. All these documents have been properly identified, presented and
marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establish
not only the relationship of respondent as insurer and IMC as the insured, but also the
amount paid to settle the insurance claim. The right of subrogation accrues simply upon
payment by the insurance company of the insurance claim. 41 Respondent's action
against petitioner is squarely sanctioned by Article 2207 of the Civil Code which
provides:
Art. 2207.If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract. . . .
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action.
No evidentiary weight can be given to Exhibit "F Levi Strauss", 42 a letter dated April
23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an
admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's
products in the amount of P535,613.00 in the fire that razed petitioner's building on
February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no
subrogation receipt was offered in evidence. Thus, there is no evidence that respondent
has been subrogated to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case for recovery of the
amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October
11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV
No. 61848 are AFFIRMED with the MODIFICATION that the order to pay the amount
of P535,613.00 to respondent is DELETED for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.
Panganiban, C.J., Callejo, Sr. and Chico-Nazario, JJ., concur.
Ynares-Santiago, J., is on leave.








FIRST DIVISION
[G.R. No. L-44059. October 28, 1977.]
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-
appellee, vs. CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO, defendants-appellants.
D E C I S I O N
MARTIN, J p:
This is a novel question in insurance law: Can a common-law wife named as beneficiary
in the life insurance policy of a legally married man claim the proceeds thereof in case of
death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Insular Life
Assurance Co., Ltd., Policy No. 009929 on a whole-life plan for P5,882.00 with a rider
for Accidental Death Benefits for the same amount. Buenaventura C. Ebrado designated
Carponia T. Ebrado as the revocable beneficiary in his policy. He referred to her as his
wife.
On October 21, 1969, Buenventura C. Ebrado died as a result of an accident when he was
hit by a falling branch of a tree. As the insurance policy was in force, The Insular Life
Assurance Co., Ltd. stands liable to pay the coverage of the policy in an amount of
P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the
additional benefits for accidental death also in the amount of P5,882.00 and the refund of
P18.00 paid for the premium due November, 1969, minus the unpaid premiums and
interest thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the policy as the
designated beneficiary therein, although she admits that she and the insured
Buenaventura C. Ebrado were merely living as husband and wife without the benefit of
marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds, not the
common-law wife, Carponia T. Ebrado. LLjur
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life
Assurance Co., Ltd. commenced an action for Interpleader before the Court of First
Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after
which, a pre-trial order was entered reading as follows:
"During the pre-trial conference, the parties manifested to the court that there is
no possibility of amicable settlement. Hence, the Court proceeded to have the
parties submit their evidence for the purposes of the pre-trial and make
admissions for the purpose of pre-trial. During this conference, parties Carponia
T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased
Buenaventura Ebrado was married to Pascuala Ebrado with whom she has six
(legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and
Helen, all surnamed Ebrado; 2) that during the lifetime of the deceased, he was
insured with Insular Life Assurance Co. Under Policy No. 009929 whole life
plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for
accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1
for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the
lifetime of Buenaventura Ebrado, he was living with his common-law wife,
Carponia Ebrado, with whom she had 2 children although he was not legally
separated from his legal wife; 4) that Buenaventura Ebrado died by accident on
October 21, 1969 as evidenced by the death certificate Exhibit 3 and affidavit of
the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado
filed claim with the Insular Life Assurance Co. which was contested by
Pascuala Ebrado who also filed claim for the proceeds of said policy; 6) that in
view of the adverse claims the insurance company filed this action against the
two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due
from the Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8)
that the beneficiary designated by the insured in the policy is Carponia Ebrado
and the insured made reservation to change the beneficiary but although the
insured made the option to change the beneficiary, same was never changed up
to the time of his death and the legal wife did not have any opportunity to write
the company that there was reservation to change the designation of the
beneficiary; 9) the parties agreed that a decision be rendered based on this
agreement and stipulation of facts as to who among the two claimants is entitled
to the policy.
"Upon motion of the parties, they are given ten (10) days to file their
simultaneous memoranda from the receipt of this order.
SO ORDERED."
On September 25, 1972, the trial court rendered judgment declaring, among others,
Carponia T. Ebrado disqualified from becoming beneficiary of the insured Buenaventura
Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the
deceased insured. The trial court held:
"It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal
conviction for adultery or concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also necessary that a finding of
such guilt or commission of those acts be made in a separate independent action
brought for the purpose. The guilt of the donee (beneficiary) may be proved by
preponderance of evidence in the same proceeding (the action brought to
declare the nullity of the donation).
It is, however, essential that such adultery or concubinage exists at the time
defendant Carponia T. Ebrado was made beneficiary in the policy in question
for the disqualification and incapacity to exist and that it is only necessary that
such fact be established by preponderance of evidence in the trial. Since it is
agreed in their stipulation above-quoted that the deceased insured and defendant
Carponia T. Ebrado were living together as husband and wife without being
legally married and that the marriage of the insured with the other defendant
Pascuala Vda. de Ebrado was valid and still existing at the time the insurance in
question was purchased there is no question that defendant Carponia T. Ebrado
is disqualified from becoming the beneficiary of the policy in question and as
such she is not entitled to the proceeds of the insurance upon the death of the
insured." Cdpr
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July
11, 1976, the Appellate Court certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1.It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new
Insurance Code (PD No. 612, as amended) does not contain any specific provision
grossly resolutory of the prime question at hand. Section 50 of the Insurance Act which
provides that "(t)he insurance shall be applied exclusively to the proper interest of the
person in whose name it is made" 1 cannot be validly seized upon to hold that the same
includes the beneficiary. The word interest" highly suggests that the provision refers only
to the insured" and not to the beneficiary, since a contract of insurance is personal in
character. 2 Otherwise, the prohibitory laws against illicit relationships especially on
property and descent will be rendered nugatory, as the same could easily be circumvented
by modes of insurance. Rather, the general rules of civil law should be applied to resolve
this void in the Insurance Law Article 2011 of the New Civil Code states: "The contract
of insurance is governed by special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code." When not otherwise specifically provided
for by the Insurance Law, the contract of life insurance is governed by the general rules
of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any
person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy by the person who cannot make a donation to him."
4 Common-law spouses are, definitely, barred from receiving donations from each other.
Article 739 of the new Civil Code provides:
"The following donations shall be void:
"1.Those made between persons who were guilty of adultery or concubinage at
the time of donation;
"Those made between persons found guilty of the same criminal offense, in
consideration thereof;
"3.Those made to a public officer or his wife, descendants or ascendants by
reason of his office.
"In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donee may be
proved by preponderance of evidence in the same action."
2.In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of the policy which the insured
pays out of liberality, the beneficiary will receive the proceeds or profits of said
insurance. As a consequence, the proscription in Article 739 of the new Civil Code
should equally operate in life insurance contracts. The mandate of Article 2012 cannot be
laid aside: any person who cannot receive a donation cannot be named as beneficiary in
the life insurance policy of the person who cannot make the donation. 5 Under American
law, a policy of life insurance is considered as a testament and in construing it, the courts
will, so far as possible treat it as a will and determine the effect of a clause designating
the beneficiary by rules under which wills are interpreted. 6
3.Policy considerations and dictates of morality rightly justify the institution of a barrier
between common-law spouses in regard to property relations since such relationship
ultimately encroaches upon the nuptial and filial rights of the legitimate family. There is
every reason to hold that the bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance policies since the same are
based on similar consideration. As above pointed out, a beneficiary in a life insurance
policy is no different from a donee. Both the recipients of pure beneficence. So long as
marriage remains the threshold of family laws, reason and morality dictate that the
impediments imposed upon married couple should likewise be imposed upon extra-
marital relationship. If legitimate relationship is circumscribed by these legal disabilities,
with more reason should an illicit relationship be restricted by these disabilities. Thus, in
Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said:

"If the policy of the law is, in the language of the opinion of the then Justice
J.B.L. Reyes of that court (Court of Appeals), `to prohibit donations in favor of
the other consort and his descendants because of fear and undue and improper
pressure and influence upon the donor, a prejudice deeply rooted in our ancient
law;" por-que no se enganen desponjandose el uno al otro por amor que han de
consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the
rationale `No Mutuato amore invicem spoliarentur' of the Pandects (Bk, 24, Titl.
1 De donat, inter virum et uxorem); then there is very reason to apply the same
prohibitive policy to persons living together as husband and wife without the
benefit of nuptials. For it is not to be doubted that assent to such irregular
connection for thirty years bespeaks greater influence of one party over the
other, so that the danger that the law seeks to avoid is correspondingly
increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad
Sabinum, fr. 1), `it would not be just that such donations should subsist, lest the
condition of those who incurred guilt should turn out to be better.' So long as
marriage remains the cornerstone of our family law, reason and morality alike
demand that the disabilities attached to marriage should likewise attach to
concubinage.
It is hardly necessary to add that even in the absence of the above
pronouncement, any other conclusion cannot stand the test of scrutiny. It would
be to indict the framers of the Civil Code for a failure to apply a laudable rule to
a situation which in its essentials cannot be distinguished. Moreover, if it is at
all to be differentiated the policy of the law which embodies a deeply rooted
notion of what is just and what is right would be nullified if such irregular
relationship instead of being visited with disabilities would be attended with
benefits. Certainly a legal norm should not be susceptible to such a reproach. If
there is every any occasion where the principle of statutory construction that
what is within the spirit of the law is as much a part of it as what is written, this
is it. Otherwise the basic purpose discernible in such codal provision would not
be attained. Whatever omission may be apparent in an interpretation purely
literal of the language used must be remedied by an adherence to its avowed
objective." LLphil
4.We do not think that a conviction for adultery or concubinage is exacted before the
disabilities mentioned in Article 739 may effectuate. More specifically, with regard to the
disability on "persons who were guilty of adultery or concubinage at the time of the
donation," Article 739 itself provides:
"In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donee may be
proved by preponderance of evidence in the same action."
The underscored clause neatly conveys that no criminal conviction for the disqualifying
offense is a condition precedent. In fact, it cannot even be gleaned from the aforequoted
provision that a criminal prosecution is needed. On the contrary, the law plainly states
that the guilt of the party may be proved "in the same action" for declaration of nullity of
donation. And, it would be sufficient if evidence preponderates upon the guilt of the
consort for the offense indicated. The quantum of proof in criminal cases is not
demanded.
In the case before Us, the requisite proof of common-law relationship between the
insured and the beneficiary has been conveniently supplied by the stipulations between
the parties in the pre-trial conference of the case. It case agreed upon and stipulated
therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala
Ebrado with whom she has six legitimate children; that during his lifetime, the deceased
insured was living with his common-law wife, Carponia Ebrado, with whom he has two
children. These stipulations are nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the
basis of these admissions, a judgment may be validly rendered without going through the
rigors of a trial for the sole purpose of proving the illicit liaison between the insured and
the beneficiary. In fact, in that pre-trial, the parties even agreed "that a decision be
rendered based on this agreement and stipulation of facts as to who among the two
claimants is entitled to the policy." Cdpr
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia
T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura
C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are
hereby held payable to the estate of the deceased insured. Costs against Carponia T.
Ebrado.
SO ORDERED.
Teehankee (Chairman), Makasiar, Muoz Palma, Fernandez and Guerrero, JJ., concur.







ONG LIM SING, JR. vs. FEB LEASING AND FINANCE CORPORATION
G.R. No. 168115 - June 8, 2007

FACTS:
On March 9, 1995, FEB Leasing and Finance Corporation entered into a lease of equipment and motor vehicles with
JVL Food Products. On the same date, Vicente Ong Lim Sing, Jr. executed an Individual Guaranty Agreement with
FEB to guarantee the prompt and faithful performance of the terms and conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and Acceptance Certificates over the equipment and motor vehicles
formed part of the agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross monthly rental of
One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos (P170,494.00).

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears, including the
penalty charges and insurance premiums, amounted to Three Million Four Hundred Fourteen Thousand Four
Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding
payment of the said amount. However, JVL failed to pay.

On December 6, 2000, FEB filed a Complaint with the Regional Trial Court of Manila for sum of money, damages,
and replevin against JVL, Lim, and John Doe.

In an Amended Answer, JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality a
sale of equipment on instalment basis, with FEB acting as the financier. On November 22, 2002, the trial court ruled
in favor of JVL and Lim and stressed the contradictory terms found in the lease agreement. The trial court stated,
among others, that if JVL and Lim (then defendants) were to be regarded as only a lessee, logically the lessor who
asserts ownership will be the one directly benefited or injured and therefore the lessee is not supposed to be the
assured as he has no insurable interest.

On December 27, 2002, FEB filed its Notice of Appeal. Accordingly, on January 17, 2003, the court issued an Order
elevating the entire records of the case to the Court of Appeals. On March 15, 2005, the Court of Appeals issued its
Decision declaring the transaction between the parties as a financial lease agreement. The said decision reversed and
set aside the trial courts decision dated November 22, 2002. Hence, Lim filed the present Petition for Review on
Certiorari.

ISSUE:
Whether or not petitioner has an insurable interest in the equipment and motor vehicles leased.

RULING:
Yes.

The stipulation in Section 14 of the leased contract, that the equipment shall be insured at the cost and expense of
the lessee against loss, damage, or destruction from fire, theft, accident, or other insurable risk for the full term of
the lease, is a binding and valid stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and
motor vehicles leased. Section 17 of the Insurance Code provides that the measure of an insurable interest in
property is the extent to which the insured might be damnified by loss or injury thereof. It cannot be denied that JVL
will be directly damnified in case of loss, damage, or destruction of any of the properties leased.







THIRD DIVISION
[G.R. No. 168115. June 8, 2007.]
VICENTE ONG LIM SING, JR., petitioner, vs. FEB LEASING &
FINANCE CORPORATION, respondent.
D E C I S I O N
NACHURA, J p:
This is a petition for review on certiorari assailing the Decision 1 dated March 15, 2005
and the Resolution 2 dated May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV
No. 77498.
The facts are as follows:
On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease 3 of
equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente
Ong Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement 4 with FEB to
guarantee the prompt and faithful performance of the terms and conditions of the
aforesaid lease agreement. Corresponding Lease Schedules with Delivery and
Acceptance Certificates 5 over the equipment and motor vehicles formed part of the
agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross monthly
rental of One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos
(P170,494.00).
JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in
arrears, including penalty charges and insurance premiums, amounted to Three Million
Four Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos
(P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding payment of
the said amount. However, JVL failed to pay. 6
On December 6, 2000, FEB filed a Complaint 7 with the Regional Trial Court of Manila,
docketed as Civil Case No. 00-99451, for sum of money, damages, and replevin against
JVL, Lim, and John Doe. IcTEaC
In the Amended Answer, 8 JVL and Lim admitted the existence of the lease agreement
but asserted that it is in reality a sale of equipment on installment basis, with FEB acting
as the financier. JVL and Lim claimed that this intention was apparent from the fact that
they were made to believe that when full payment was effected, a Deed of Sale will be
executed by FEB as vendor in favor of JVL and Lim as vendees. 9 FEB purportedly
assured them that documenting the transaction as a lease agreement is just an industry
practice and that the proper documentation would be effected as soon as full payment for
every item was made. They also contended that the lease agreement is a contract of
adhesion and should, therefore, be construed against the party who prepared it, i.e., FEB.
In upholding JVL and Lim's stance, the trial court stressed the contradictory terms it
found in the lease agreement. The pertinent portions of the Decision dated November 22,
2002 read:
A profound scrutiny of the provisions of the contract which is a contract of
adhesion at once exposed the use of several contradictory terms. To name a few,
in Section 9 of the said contract disclaiming warranty, it is stated that the
lessor is not the manufacturer nor the latter's agent and therefore does not
guarantee any feature or aspect of the object of the contract as to its
merchantability. Merchantability is a term applied in a contract of sale of goods
where conditions and warranties are made to apply. Article 1547 of the Civil
Code provides that unless a contrary intention appears an implied warranty on
the part of the seller that he has the right to sell and to pass ownership of the
object is furnished by law together with an implied warranty that the thing shall
be free from hidden faults or defects or any charge or encumbrance not known
to the buyer.
In an adhesion contract which is drafted and printed in advance and parties are
not given a real arms' length opportunity to transact, the Courts treat this kind of
contract strictly against their architects for the reason that the party entering into
this kind of contract has no choice but to accept the terms and conditions found
therein even if he is not in accord therewith and for that matter may not have
understood all the terms and stipulations prescribed thereat. Contracts of this
character are prepared unilaterally by the stronger party with the best legal
talents at its disposal. It is upon that thought that the Courts are called upon to
analyze closely said contracts so that the weaker party could be fully protected.
Another instance is when the alleged lessee was required to insure the thing
against loss, damage or destruction.
In property insurance against loss or other accidental causes, the assured must
have an insurable interest, 32 Corpus Juris 1059.
xxx xxx xxx
It has also been held that the test of insurable interest in property is whether the
assured has a right, title or interest therein that he will be benefited by its
preservation and continued existence or suffer a direct pecuniary loss from its
destruction or injury by the peril insured against. If the defendants were to be
regarded as only a lessee, logically the lessor who asserts ownership will be the
one directly benefited or injured and therefore the lessee is not supposed to be
the assured as he has no insurable interest. DaESIC
There is also an observation from the records that the actual value of each object
of the contract would be the result after computing the monthly rentals by
multiplying the said rentals by the number of months specified when the rentals
ought to be paid.
Still another observation is the existence in the records of a Deed of Absolute
Sale by and between the same parties, plaintiff and defendants which was an
exhibit of the defendant where the plaintiff sold to the same defendants one unit
1995 Mitsubishi L-200 STRADA DC PICK UP and in said Deed, The Court
noticed that the same terms as in the alleged lease were used in respect to
warranty, as well as liability in case of loss and other conditions. This action of
the plaintiff unequivocally exhibited their real intention to execute the
corresponding Deed after the defendants have paid in full and as heretofore
discussed and for the sake of emphasis the obscurity in the written contract
cannot favor the party who caused the obscurity.
Based on substantive Rules on Interpretation, if the terms are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to the evident
intention of the parties, their contemporaneous and subsequent acts shall be
principally considered. If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what may have been the
intention or will of the parties, the contract shall be null and void. 10
Thus, the court concluded with the following disposition:
In this case, which is held by this Court as a sale on installment there is no
chattel mortgage on the thing sold, but it appears amongst the Complaint's
prayer, that the plaintiff elected to exact fulfillment of the obligation.
For the vehicles returned, the plaintiff can only recover the unpaid balance of
the price because of the previous payments made by the defendants for the
reasonable use of the units, specially so, as it appears, these returned vehicles
were sold at auction and that the plaintiff can apply the proceeds to the balance.
However, with respect to the unreturned units and machineries still in the
possession of the defendants, it is this Court's view and so hold that the
defendants are liable therefore and accordingly are ordered jointly and severally
to pay the price thereof to the plaintiff together with attorney's fee and the costs
of suit in the sum of Php25,000.00.
SO ORDERED. 11
On December 27, 2002, FEB filed its Notice of Appeal. 12 Accordingly, on January 17,
2003, the court issued an Order 13 elevating the entire records of the case to the CA. FEB
averred that the trial court erred:
A.When it ruled that the agreement between the Parties-Litigants is one of sale
of personal properties on installment and not of lease;
B.When it ruled that the applicable law on the case is Article 1484 (of the Civil
Code) and not R.A. No. 8556;
C.When it ruled that the Plaintiff-Appellant can no longer recover the unpaid
balance of the price because of the previous payments made by the defendants
for the reasonable use of the units;
D.When it failed to make a ruling or judgment on the Joint and Solidary
Liability of Vicente Ong Lim, Jr. to the Plaintiff-Appellant. 14
On March 15, 2005, the CA issued its Decision 15 declaring the transaction between the
parties as a financial lease agreement under Republic Act (R.A.) No. 8556. 16 The fallo of
the assailed Decision reads:
WHEREFORE, the instant appeal is GRANTED and the assailed Decision
dated 22 November 2002 rendered by the Regional Trial Court of Manila,
Branch 49 in Civil Case No. 00-99451 is REVERSED and SET ASIDE, and a
new judgment is hereby ENTERED ordering appellees JVL Food Products and
Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing and Finance
Corporation the amount of Three Million Four Hundred Fourteen Thousand
Four Hundred Sixty Eight Pesos and 75/100 (Php3,414,468.75), with interest
at the rate of twelve percent (12%) per annum starting from the date of judicial
demand on 06 December 2000, until full payment thereof. Costs against
appellees. ETDSAc
SO ORDERED. 17
Lim filed the instant Petition for Review on Certiorari under Rule 45 contending that:
I
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO
CONSIDER THAT THE UNDATED COMPLAINT WAS FILED BY
SATURNINO J. GALANG, JR., WITHOUT ANY AUTHORITY FROM
RESPONDENT'S BOARD OF DIRECTORS AND/OR SECRETARY'S
CERTIFICATE.
II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO
STRICTLY APPLY SECTION 7, RULE 18 OF THE 1997 RULES OF CIVIL
PROCEDURE AND NOW ITEM 1, A(8) OF A.M. NO. 03-1-09 SC (JUNE 8,
2004).
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING
THE APPEAL FOR FAILURE OF THE RESPONDENT TO FILE ON TIME
ITS APPELLANT'S BRIEF AND TO SEPARATELY RULE ON THE
PETITIONER'S MOTION TO DISMISS.

IV
THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT
THE CONTRACT BETWEEN THE PARTIES IS ONE OF A FINANCIAL
LEASE AND NOT OF A CONTRACT OF SALE.
V
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
PAYMENTS PAID BY THE PETITIONER TO THE RESPONDENT ARE
"RENTALS" AND NOT INSTALLMENTS PAID FOR THE PURCHASE
PRICE OF THE SUBJECT MOTOR VEHICLES, HEAVY MACHINES AND
EQUIPMENT.
VI
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
PREVIOUS CONTRACT OF SALE INVOLVING THE PICK-UP VEHICLE
IS OF NO CONSEQUENCE.
VII
THE HONORABLE COURT OF APPEALS FAILED TO TAKE INTO
CONSIDERATION THAT THE CONTRACT OF LEASE, A CONTRACT OF
ADHESION, CONCEALED THE TRUE INTENTION OF THE PARTIES,
WHICH IS A CONTRACT OF SALE.
VIII
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
PETITIONER IS A LESSEE WITH INSURABLE INTEREST OVER THE
SUBJECT PERSONAL PROPERTIES.
IX
THE HONORABLE COURT OF APPEALS ERRED IN CONSTRUING THE
INTENTIONS OF THE COURT A QUO IN ITS USAGE OF THE TERM
MERCHANTABILITY. 18
We affirm the ruling of the appellate court.
First, Lim can no longer question Galang's authority as FEB's authorized representative
in filing the suit against Lim. Galang was the representative of FEB in the proceedings
before the trial court up to the appellate court. Petitioner never placed in issue the validity
of Galang's representation before the trial and appellate courts. Issues raised for the first
time on appeal are barred by estoppel. Arguments not raised in the original proceedings
cannot be considered on review; otherwise, it would violate basic principles of fair play.
19
Second, there is no legal basis for Lim to question the authority of the CA to go beyond
the matters agreed upon during the pre-trial conference, or in not dismissing the appeal
for failure of FEB to file its brief on time, or in not ruling separately on the petitioner's
motion to dismiss.
Courts have the prerogative to relax procedural rules of even the most mandatory
character, mindful of the duty to reconcile both the need to speedily put an end to
litigation and the parties' right to due process. In numerous cases, this Court has allowed
liberal construction of the rules when to do so would serve the demands of substantial
justice and equity. 20 In Aguam v. Court of Appeals, the Court explained: THaDAE
The court has the discretion to dismiss or not to dismiss an appellant's appeal. It
is a power conferred on the court, not a duty. The "discretion must be a sound
one, to be exercised in accordance with the tenets of justice and fair play,
having in mind the circumstances obtaining in each case." Technicalities,
however, must be avoided. The law abhors technicalities that impede the cause
of justice. The court's primary duty is to render or dispense justice. "A litigation
is not a game of technicalities." "Lawsuits unlike duels are not to be won by a
rapier's thrust. Technicality, when it deserts its proper office as an aid to justice
and becomes its great hindrance and chief enemy, deserves scant consideration
from courts." Litigations must be decided on their merits and not on
technicality. Every party litigant must be afforded the amplest opportunity for
the proper and just determination of his cause, free from the unacceptable plea
of technicalities. Thus, dismissal of appeals purely on technical grounds is
frowned upon where the policy of the court is to encourage hearings of appeals
on their merits and the rules of procedure ought not to be applied in a very rigid,
technical sense; rules of procedure are used only to help secure, not override
substantial justice. It is a far better and more prudent course of action for the
court to excuse a technical lapse and afford the parties a review of the case on
appeal to attain the ends of justice rather than dispose of the case on technicality
and cause a grave injustice to the parties, giving a false impression of speedy
disposal of cases while actually resulting in more delay, if not a miscarriage of
justice. 21
Third, while we affirm that the subject lease agreement is a contract of adhesion, such a
contract is not void per se. It is as binding as any ordinary contract. A party who enters
into an adhesion contract is free to reject the stipulations entirely. 22 If the terms thereof
are accepted without objection, then the contract serves as the law between the parties.
In Section 23 of the lease contract, it was expressly stated that:
SECTION 23.ENTIRE AGREEMENT; SEVERABILITY CLAUSE
23.1.The LESSOR and the LESSEE agree this instrument constitute the entire
agreement between them, and that no representations have been made other than
as set forth herein. This Agreement shall not be amended or altered in any
manner, unless such amendment be made in writing and signed by the parties
hereto.
Petitioner's claim that the real intention of the parties was a contract of sale of
personal property on installment basis is more likely a mere afterthought in order to
defeat the rights of the respondent.
The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance
Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556.
Section 3 (d) thereof defines "financial leasing" as:
[A] mode of extending credit through a non-cancelable lease contract under
which the lessor purchases or acquires, at the instance of the lessee, machinery,
equipment, motor vehicles, appliances, business and office machines, and other
movable or immovable property in consideration of the periodic payment by the
lessee of a fixed amount of money sufficient to amortize at least seventy (70%)
of the purchase price or acquisition cost, including any incidental expenses and
a margin of profit over an obligatory period of not less than two (2) years during
which the lessee has the right to hold and use the leased property with the right
to expense the lease rentals paid to the lessor and bears the cost of repairs,
maintenance, insurance and preservation thereof, but with no obligation or
option on his part to purchase the leased property from the owner-lessor at the
end of the lease contract. aTADCE
FEB leased the subject equipment and motor vehicles to JVL in consideration of a
monthly periodic payment of P170,494.00. The periodic payment by petitioner is
sufficient to amortize at least 70% of the purchase price or acquisition cost of the said
movables in accordance with the Lease Schedules with Delivery and Acceptance
Certificates. "The basic purpose of a financial leasing transaction is to enable the
prospective buyer of equipment, who is unable to pay for such equipment in cash in one
lump sum, to lease such equipment in the meantime for his use, at a fixed rental sufficient
to amortize at least 70% of the acquisition cost (including the expenses and a margin of
profit for the financial lessor) with the expectation that at the end of the lease period the
buyer/financial lessee will be able to pay any remaining balance of the purchase price." 23
The allegation of petitioner that the rent for the use of each movable constitutes the value
of the vehicle or equipment leased is of no moment. The law on financial lease does not
prohibit such a circumstance and this alone does not make the transaction between the
parties a sale of personal property on installment. In fact, the value of the lease, usually
constituting the value or amount of the property involved, is a benefit allowed by law to
the lessor for the use of the property by the lessee for the duration of the lease. It is
recognized that the value of these movables depreciates through wear and tear upon use
by the lessee. In Beltran v. PAIC Finance Corporation, 24 we stated that:
Generally speaking, a financing company is not a buyer or seller of goods; it is
not a trading company. Neither is it an ordinary leasing company; it does not
make its profit by buying equipment and repeatedly leasing out such equipment
to different users thereof. But a financial lease must be preceded by a purchase
and sale contract covering the equipment which becomes the subject matter of
the financial lease. The financial lessor takes the role of the buyer of the
equipment leased. And so the formal or documentary tie between the seller and
the real buyer of the equipment, i.e., the financial lessee, is apparently severed.
In economic reality, however, that relationship remains. The sale of the
equipment by the supplier thereof to the financial lessor and the latter's legal
ownership thereof are intended to secure the repayment over time of the
purchase price of the equipment, plus financing charges, through the payment of
lease rentals; that legal title is the upfront security held by the financial lessor, a
security probably superior in some instances to a chattel mortgagee's lien. 25
Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL
entered into the lease contract with full knowledge of its terms and conditions. The
contract was in force for more than four years. Since its inception on March 9, 1995, JVL
and Lim never questioned its provisions. They only attacked the validity of the contract
after they were judicially made to answer for their default in the payment of the agreed
rentals.
It is settled that the parties are free to agree to such stipulations, clauses, terms, and
conditions as they may want to include in a contract. As long as such agreements are not
contrary to law, morals, good customs, public policy, or public order, they shall have the
force of law between the parties. 26 Contracting parties may stipulate on terms and
conditions as they may see fit and these have the force of law between them. 27 HcTIDC
The stipulation in Section 14 28 of the lease contract, that the equipment shall be insured
at the cost and expense of the lessee against loss, damage, or destruction from fire, theft,
accident, or other insurable risk for the full term of the lease, is a binding and valid
stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and motor
vehicles leased. Section 17 of the Insurance Code provides that the measure of an
insurable interest in property is the extent to which the insured might be damnified by
loss or injury thereof. It cannot be denied that JVL will be directly damnified in case of
loss, damage, or destruction of any of the properties leased.

Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not
warrant the merchantability of the equipment is a valid stipulation. Section 9.1 of the
lease contract is stated as:
9.1IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS
NOT THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT NOR
THE AGENT OF THE MANUFACTURER OR SUPPLIER THEREOF. THE
LESSEE HEREBY ACKNOWLEDGES THAT IT HAS SELECTED THE
EQUIPMENT AND THE SUPPLIER THEREOF AND THAT THERE ARE
NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR
INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR
OTHERWISE, MADE BY OR ON BEHALF OF THE LESSOR AS TO ANY
FEATURE OR ASPECT OF THE EQUIPMENT OR ANY PART THEREOF,
OR AS TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR
MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT WILL
MEET THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS
OR CONTRACT WHICH PROVIDE FOR SPECIFIC MACHINERY OR
APPARATUS OR SPECIAL METHODS. 29 DHIETc
In the financial lease agreement, FEB did not assume responsibility as to the quality,
merchantability, or capacity of the equipment. This stipulation provides that, "in case of
defect of any kind that will be found by the lessee in any of the equipment, recourse
should be made to the manufacturer." The financial lessor, being a financing company,
i.e., an extender of credit rather than an ordinary equipment rental company, does not
extend a warranty of the fitness of the equipment for any particular use. Thus, the
financial lessee was precisely in a position to enforce such warranty directly against the
supplier of the equipment and not against the financial lessor. We find nothing contra
legem or contrary to public policy in such a contractual arrangement. 30
Fifth, petitioner further proffers the view that the real intention of the parties was to enter
into a contract of sale on installment in the same manner that a previous transaction
between the parties over a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially
covered by an agreement denominated as a lease and eventually became the subject of a
Deed of Absolute Sale.
We join the CA in rejecting this view because to allow the transaction involving the pick-
up to be read into the terms of the lease agreement would expand the coverage of the
agreement, in violation of Article 1372 of the New Civil Code. 31 The lease contract
subject of the complaint speaks only of a lease. Any agreement between the parties after
the lease contract has ended is a different transaction altogether and should not be
included as part of the lease. Furthermore, it is a cardinal rule in the interpretation of
contracts that if the terms of a contract are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning of its stipulations shall control. No amount of
extrinsic aid is necessary in order to determine the parties' intent. 32
WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of
the CA in CA-G.R. CV No. 77498 dated March 15, 2005 and Resolution dated May 23,
2005 are AFFIRMED. Costs against petitioner. ICAcaH
SO ORDERED.
Ynares-Santiago, Austria-Martinez and Chico-Nazario, JJ., concur.