Compilation Sec1-2 (Edited) Insurance Digests

INSURANCE DIGEST: Section 1-2
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SECTION 1
1. PAN MALAYAN INSURANCE CORP. v. CA (RC)

Petitioner: PAN MALAYAN INSURANCE CORPORATION
Respondent: COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN
DRIVER

G.R. No. 81026 April 3, 1990; Ponente: CORTES, J

SUMMARY:
There was a vehicular accident between a Mitsubishi Colt Lancer owned by
CANLUBANG and a pick-up truck owned by respondent Fabie, driven by her
unknown driver. PANMALAYA was the insurer of the Lancer. PANMALAYA paid for
the damages and subrogated CANLUBANG!s rights against respondent. RTC and
CA dimissed the case for damages saying that there was no cause of action.
According the lower courts, PANMALAYA!s own damage clause precludes
subrogation because the term means that the insured person was the own who did
the damage (or something like that). This is a wrong interpretation. The contract
clearly specifies that accidents and collisions are covered by the insurance. The
Courts cannot interpret the contract when the parties (the insurer and insured) are on
the same page and know what the contract means. PANMALAYA has subrogated
CANLUBANG!s cause of action. The case was reinstated and the RTC ordered to
determine whether there was carelessness, recklessness and imprudence.

FACTS:
On December 10, 1985, PANMALAY filed a complaint for damages with the
RTC of Makati against private respondents Erlinda Fabie and her driver.
PANMALAY averred the following:
o On May 26 1985, Fabie!s unknown driver, driving a pick-up with
plate no. PCR-220, thru carelessness, recklessness and
imprudence hit the insured Mitsubishi Colt Lancer car with plate
No. DDZ-431 and registered in the name of Canlubang Automotive
Resources Corporation [CANLUBANG];
o PANMALAY paid for the repairs amounting to P42k, therefore
PANMALAY subrogated the rights of CANLUBANG against the
driver and Fabie.
In compliance to a Bill of Materials, PANMALAY clarified, among others, that
the damage caused to the insured car was settled under the "own damage",
coverage of the insurance policy, and that the driver of the insured car was,
at the time of the accident, an authorized driver duly licensed to drive the
vehicle. PANMALAY also submitted a copy of the insurance policy and the
Release of Claim and Subrogation Receipt executed by CANLUBANG in
favor of PANMALAY.
Then private respondents filed a Motion to Dismiss alleging that
PANMALAY had no cause of action against them. They argued that
payment under the "own damage" clause of the insurance policy precluded
subrogation under Article 2207 of the Civil Code, since indemnification
thereunder was made on the assumption that there was no wrongdoer or no
third party at fault.
RTC dismissed the case for no cause of action. RTC denied MR. CA, upon
appeal, upheld the RTC decision. Hence this petition for review.

ISSUE/HELD:
Whether or not the insurer PANMALAY may institute an action to recover the amount
it had paid its assured in settlement of an insurance claim against private
respondents as the parties allegedly responsible for the damage caused to the
insured vehicle?

YES. Court holds that there is no legal obstacle to the filing by PANMALAY of a
complaint for damages against private respondents as the third parties
allegedly responsible for the damage. Respondent Court of Appeals therefore
committed reversible error in sustaining the lower court's order which dismissed
PANMALAY's complaint against private respondents for no cause of action. Hence, it
is now for the trial court to determine if in fact the damage caused to the
insured vehicle was due to the "carelessness, recklessness and imprudence"
of the driver of private respondent Erlinda Fabie. CA decision reversed. Case
was REINSTATED.

RATIO:
PANMALAY alleged in its complaint that, pursuant to a motor vehicle
insurance policy, it had indemnified CANLUBANG for the damage to the
insured car resulting from a traffic accident allegedly caused by the
negligence of the driver of private respondent, Erlinda Fabie. PANMALAY
contended, therefore, that its cause of action against private respondents
was anchored upon Article 2207 of the Civil Code, which reads:
If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person
who has violated the contract. . . .
Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the
fault or negligence of a party other than the assured, then the insurer, upon
payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated
to pay. This operates as an equitable assignment to the former of all
remedies which the latter may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is
not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim.It accrues simply upon payment of
the insurance claim by the insurer.
There are a few recognized exceptions to this rule. (NONE in case)
o If the assured by his own act releases the wrongdoer or third party
liable for the loss or damage, from liability, the insurer's right of
subrogation is defeated.
o Where the insurer pays the assured the value of the lost goods
without notifying the carrier who has in good faith settled the
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assured's claim for loss, the settlement is binding on both the
assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation.
o Where the insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting "voluntary payment", the
former has no right of subrogation against the third party liable for
the loss.
The lower court and Court of Appeals, erred is saying that PANMALAY was
not legally subrogated under Article 2207 of the Civil Code to the rights of
CANLUBANG, and therefore did not have any cause of action against
private respondents. On the one hand, the trial court held that payment by
PANMALAY of CANLUBANG's claim under the "own damage" clause of the
insurance policy was an admission by the insurer that the damage was
caused by the assured and/or its representatives. On the other hand, the
Court of Appeals in applying the ejusdem generis rule held that Section III-1
of the policy, which was the basis for settlement of CANLUBANG's claim,
did not cover damage arising from collision or overturning due to the
negligence of third parties as one of the insurable risks.
The "own damage" coverage under the policy implies damage to the insured
car caused by the assured itself, instead of third parties, proceeds from an
incorrect comprehension of the phrase "own damage" as used by the
insurer. When PANMALAY utilized the phrase "own damage" a phrase
which, incidentally, is not found in the insurance policy to define the basis
for its settlement of CANLUBANG's claim under the policy, it simply meant
that it had assumed to reimburse the costs for repairing the damage to the
insured vehicle
Neither is there merit in the Court of Appeals' ruling that the coverage of
insured risks under Section III-1 of the policy does not include to the insured
vehicle arising from collision or overturning due to the negligent acts of the
third party. This is an erroneous interpretation of the provisions of the
section, and also violates a fundamental rule on the interpretation of
property insurance contracts.
It is a basic rule in the interpretation of contracts that the terms of a
contract are to be construed according to the sense and meaning of
the terms which the parties thereto have used. It is only when the terms
of the policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, that the
courts will intervene. In such an event, the policy will be construed by
the courts liberally in favor of the assured and strictly against the
insurer
In this case, Section III-1 of the insurance policy which refers to the
conditions under which the insurer PANMALAY is liable to indemnify the
assured CANLUBANG against damage to or loss of the insured vehicle,
reads as follows:
1. The Company will, subject to the Limits of Liability, indemnify the
Insured against loss of or damage to the Scheduled Vehicle and its
accessories and spare parts whilst thereon:
(a) by accidental collision or overturning, or collision or overturning
consequent upon mechanical breakdown or consequent upon wear
and tear; (WHAT APPLIES)
***
Considering that the very parties to the policy were not shown to be in
disagreement regarding the meaning and coverage of Section III-1, CA
erred in applying the ejusdem generis rule, and to ascribe meaning contrary
to the clear intention and understanding of these parties.
Although the terms "accident" or "accidental" as used in insurance
contracts have not acquired a technical meaning, the Court has on several
occasions defined these terms to mean that which takes place "without
one's foresight or expectation, an event that proceeds from an
unknown cause, or is an unusual effect of a known cause and,
therefore, not expected" The concept "accident" is not necessarily
synonymous with the concept of "no fault". It may be utilized simply to
distinguish intentional or malicious acts from negligent or careless acts of
man.
Even assuming for the sake of argument that Section III-1(a) of the
insurance policy does not cover damage to the insured vehicle caused by
negligent acts of third parties, and that PANMALAY's settlement of
CANLUBANG's claim for damages allegedly arising from a collision due to
private respondents' negligence would amount to unwarranted or "voluntary
payment", dismissal of PANMALAY's complaint against private
respondents for no cause of action would still be a grave error of law.
o In the pertinent case of Sveriges Angfartygs Assurans Forening v.
Qua Chee Gan, supra., the Court ruled that the insurer who may
have no rights of subrogation due to "voluntary" payment
may nevertheless recover from the third party responsible for
the damage to the insured property under Article 1236 of the
Civil Code.

2. FEDERAL EXPRES CORP. v. AMERICAN HOMES
ASSOCIATION CO. (CG)

Petitioner: FEDERAL EXPRESS CORPORATION
Respondents: AMERICAN HOME ASSURANCE COMPANY and PHILAM
INSURANCE COMPANY, INC.
SUMMARY: Smithkline made a shipment of 109 cartons of veterinary biologicals to
Manila through FedEx. The cartons were marked REFRIGERATE WHEN NOT IN
TRANSIT and PERISHABLE. Burlington, the agent of FedEx insured the cargoes
with AHAC. The goods, upon its arrival in Manila, were immediately stored at
Cargohaus! warehouse. Before the goods were released, the customs broker noticed
that the vaccines were stored only in a room with 2 aircons running, and not in a
refrigerator causing Smithkline to declare "total loss! with Philam, AHAC!s
representative in the Philippines. AHAC, in turn, filed an action for damages against
FedEx and Cargohaus. FedEx contends that AHAC had no personality to sue, thus
there is no cause of action against it, because the payment made to Smithkline was
erroneous. Court ruled that the Insurance Certificate was a bearer instrument and
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Smithkline was in possession of it so it had the right of collection or of being
indemnified for loss of or damage to the insured shipment. It follows therefor that
AHAC had the right to file an action for damages because of its subrogatory right,
pursuant to the Insurance Contract. The subrogation receipt issued by Smithkline
to AHAC, is sufficient to establish not only the relationship of the insurer and the
insured, but also the amount paid to settle the insurance.
FACTS
On January 26, 1994, Smithkline Beecham (Smithkline) of Nebraska, USA
delivered to Burlington Air Express (Burlington), an agent of Federal Express
Corporation (FedEx), a shipment of 109 cartons of veterinary biologicals for
delivery to consignee SMITHKLINE and French Overseas Company in Makati
City, Metro Manila.
The shipment was covered by Burlington Airway Bill No. 11263825 with the
words, "REFRIGERATE WHEN NOT IN TRANSIT! and "PERISHABLE! stamp
marked on its face.
Burlington insured the cargoes in the amount of $39,339 with American Home
Insurance Company (AHAC)
The following day, Burlington turned over the custody of said cargoes to FedEx,
which transported the same to Manila.
The 1
st
shipment, consisting of 92 cartons, arrived in Manila on January 29, 1994
and the 2
nd
, consisting of 17 cartons came in 2 days later or on January 31,
1994. Both were immediately stored at Cargohaus Inc.!s (Cargohaus)
warehouse.
Prior to the arrival of the cargoes, FedEx informed GETC Cargo International
Corporation (GETC), the customs broker hired by the consignee, to facilitate the
release of its cargoes from the Bureau of Customs, of the impending arrival of its
client!s cargoes.
On February 10, 1994, Dario C. Dioneda (DIONEDA), a non-licensed custom!s
broker who was assigned by GETC to facilitate the release of the subject
cargoes, found out that the same were stored only in a room with two (2) air
conditioners running, to cool the place instead of a refrigerator
When asked, the employee of Cargohaus told him that the cartons where the
vaccines were contained specifically indicated therein that it should not be
subjected to hot or cold temperature
Dioneda, upon instructions from GETC, did not proceed with the withdrawal of
the vaccines. Instead, samples of the same were taken and brought to the
Bureau of Animal Industry of the Department of Agriculture by Smithkline for
examination
It was discovered that the "ELISA reading of vaccinates sera are below the
positive reference serum.!
Consequently, Smithkline abandoned the shipment and declared total loss. They
filed a claim with AHAC through its representative in the Philippines, the Philam
Insurance Co., INc. (Philam), in the amount of $39,339
Thereafter, respondents AHAC filed an action for damages against the petitioner
FedEx and Cargohaus imputing negligence on either or both of them in handling
of the cargo
RTC concluded on March 18, 1997 that petitioner and its co-defendant
Cargohaus are solidarily liable for the actual damages.
CA affirmed the decision of the RTC. It was held that the petitioner FedEx failed
to prove that the goods were not in good condition when delivered to it, or that
the damage was occasioned by some cause excepting it from absolute liability.
ISSUE/HELD
WON Smithkline was the proper payee YES
WON AHAC had the right to file an action for damages against FedEx and
Cargohaus YES

RULING(Liability for Damages and Proper Payee both lead to Subrogation. As per
de Leon, Subrogation is the relevant topic in Section 1 of the Insurance Code.)
Liability for Damages
FedEx contends that AHAC have no personality to sue, thus there is no cause of
action against it, because the payment made to Smithkline was erroneous
Pertinent to this is the Certificate of Insurance (Certificate) that both opposing
parties cite in support of their respective positions. They differ only in their
interpretation of what their rights are under its terms. The determination of those
rights involves a question of law.

Proper Payee
The Certificate specifies that loss of or damage to the insured cargo is payable
to order...
At the back of the Certificate appears the signature of the representative of
Burlington. This document has thus been duly indorsed in blank and is deemed a
bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter had the right
of collecting or of being indemnified for loss of or damage to the insured
shipment, as fully as if the property were covered by a special policy in the name
of the holder.
Hence, being the holder of the Certificate and having an insurable interest in the
goods, Smithkline was the proper payee of the insurance proceeds.

Subrogation
Upon receipt of the insurance proceeds, the consignee Smithkline executed a
subrogation Receipt in favor of AHAC. The latter were thus authorized to file
claims and begin suit against any such carrier, vessel, person, corporation or
government.
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Undeniably, the consignee had a legal right to receive the goods in the same
condition it was delivered for transport to petitioner. If the right was violated, the
consignee would have a cause of action against the person responsible therefor.
Upon payment to the consignee of an indemnity for the loss of or damage to the
insured goods, the insurer!s entitlement to subrogation pro tanto -- being of the
highest equity -- equips it with a cause of action in case of a contractual breach
or negligence.
Further, the insurer!s subrogatory right to sue for recovery under the bill of lading
in case of loss of or damage to the cargo is jurisprudentially upheld.
In the exercise of its subrogatory right, an insurer may proceed against an erring
carrier. To all intents and purposes, it stands in the place and in substitution of
the consignee. A fortiori, both the insurer and the consignee are bound by the
contractual stipulations under the bill of lading.

Prescription of Claim
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states that
to maintain an action in the case of damage to or partial loss of the shipment, a
written notice, sufficiently describing the goods concerned, the approximate date
of the damage or loss, and the details of the claim must be presented by the
shipper or consignee to an office of Burlington within 14 days from the date the
goods are placed at the disposal of the person entitled to delivery, or in the
within 120 days from the date of issue of the Airway Bill, in case of total loss.
Relevantly, petitioner!s airway bill states that the person entitled to delivery must
make a complaint to the carrier in writing in case of visible damage to the goods
or of other damage within 14 days from the date of the receipt of the goods.
Article 26 of the Warsaw Convention, on the other hand, provides that receipt of
the person entitled to delivery of the baggage or goods without complaint shall
be prima facie evidence that the same have been delivered in good condition. In
case of damage, the person entitled to delivery must complain in writing to the
carrier forthwith after the discovery of the damage, and, at the latest, within 3
days from the date of receipt in the case of baggage and 7 days from the date of
receipt in the case of goods.
In this jurisdiction, the filing of a claim with the carrier within the time limitation
therefor actually constitutes a condition precedent to the accrual of a right of
action against a carrier for loss of or damage to the goods. The shipper or
consignee must allege and prove the fulfillment of the condition. If it fails to do
so, no right of action against the carrier can accrue in favor of the former.
The requirement of giving notice of loss of or injury to the goods is not an empty
formalism. The fundamental reasons for such a stipulation are (1) to inform the
carrier that the cargo has been damaged, and that it is being charged with
liability therefor; and (2) to give it an opportunity to examine the nature and
extent of the injury.
When an airway bill -- or any contract of carriage for that matter -- has a
stipulation that requires a notice of claim for loss of or damage to goods shipped
and the stipulation is not complied with, its enforcement can be prevented and
the liability cannot be imposed on the carrier.
To stress, notice is a condition precedent, and the carrier is not liable if notice is
not given in accordance with the stipulation. Failure to comply with such a stipulation bars
recovery for the loss or damage suffered.
In the present case, there is neither an allegation nor a showing of respondents!
compliance with this requirement within the prescribed period. While
respondents may have had a cause of action then, they cannot now enforce it for
their failure to comply with the aforesaid condition precedent.
In view of the foregoing, the Court finds no more necessity to pass upon the
other issues raised by petitioner.
The respondents are not without recourse. Cargohaus has been adjudged by
the trial court as liable for, inter alia, actual damages in the amount of the peso
equivalent of US $39,339. This judgment was affirmed by the Court of Appeals
and is already final and executory.
WHEREFORE, the Petition is GRANTED, and the assailed
Decision REVERSED insofar as it pertains to Petitioner Federal Express
Corporation. No pronouncement as to costs.

3. FIREMAN!S FUND INSURANCE CO. & FIRESTONE TIRE &
RUBBER CO. v. JAMILA, INC. (MT)

SUMMARY:
Jamila is a company that supplies security guards. It contracted to supply security
guards to Firestone with Fireman!s Fund as Firestone!s insurer. An incident took
place wherein Firestone lost some properties. Fireman!s Fund as its insurer paid
Firestone. Therefore, Fireman!s Fund was supposedly subrogated of Firestone!s right
to reimbursement against Jamila and its surety. However, Jamila did not pay even
after repeated demands. Hence, an action was instituted but the lower courts
dismissed the case because they sided with Jamila that Fireman!s Fund has no
cause of action. But, this was reversed by the SC stating that Fireman!s Fund has a
cause of action due to the principle of subrogation.

FACTS:
Fireman's Fund and Insurance Company (Fireman's Fund) and Firestone
Tire and Rubber Company of the Philippines appealed from the order dated
Oct. 1966 of the CFI of Manila, dismissing their complaint against Jamila &
Co., Inc. (Jamila) for the recovery of the sum of P11,925.00 plus interest,
damages and attorney's fees.
The gist of the complaint is that Jamila or the Veterans Philippine Scouts
Security Agency contracted to supply security guards to Firestone; that
Jamila assumed responsibility for the acts of its security guards; that First
Quezon City Insurance Co., Inc. executed a bond in the sum of P20,000.00
to guarantee Jamila's obligations under that contract; that on May 1963
properties of Firestone valued at P11,925.00 were lost allegedly due to the
acts of its employees who connived with Jamila's security guard; that
Fireman's Fund, as insurer, paid to Firestone the amount of the loss; that
Fireman's Fund was subrogated to Firestone's right to get reimbursement
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from Jamila, and that Jamila and its surety, First Quezon City Insurance Co.,
Inc., failed to pay the amount of the loss in spite of repeated demands.
Upon defendants' motions, the lower court in its order of July 22, 1966
dismissed the complaint as to Jamila on the ground that Fireman's Fund
had no cause of action against it.
In the same order the lower court dismissed the complaint as to First
Quezon City Insurance Co., Inc. on the ground of res judicata but was set
aside.

ISSUE/HELD:
Whether or not the complaint of Firestone and Fireman's Fund states a cause of
action against Jamila. YES

RATIO:
Firestone is really a nominal, party in this case. It had already been
indemnified for the loss, which it had sustained. It joined as a party-plaintiff
in order to help Fireman's Fund to recover the amount of the loss from
Jamila and First Quezon City Insurance Co., Inc. Firestone had tacitly
assigned to Fireman's Fund its cause of action against Jamila for breach of
contract. Sufficient ultimate facts are alleged in the complaint to sustain that
cause of action.
On the other hand, Fireman's Fund's action against Jamila is squarely
sanctioned by article 2207. As the insurer, Fireman's Fund is entitled to go
after the person or entity that violated its contractual commitment to answer
for the loss insured against.
The trial court erred in applying to this case the rules on novation. Article
2207 is a restatement of a settled principle of American jurisprudence.
Subrogation has been referred to as the doctrine of substitution. It "is an arm
of equity that may guide or even force one to pay a debt for which an
obligation was incurred but which was in whole or in part paid by another".
"Subrogation is founded on principles of justice and equity, and its operation
is governed by principles of equity. It rests on the principle that substantial
justice should be attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the parties without
regard to form".
When the insurance company pays for the loss, such payment operates as
an equitable assignment to the insurer of the property and all remedies
which the insured may have for the recovery thereof. That right is not
dependent upon, nor does it grow out of, any privity of contract, or upon
written assignment of claim, and payment to the insured makes the insurer
an assignee in equity.
Finding the trial court's order of dismissal to be legally untenable, the same
is set aside with costs against defendant-appellee Jamila & Co., Inc. SO
ORDERED.

4. FF CRUZ & CO., INC v. CA (IE)

Petitioner: F.F. CRUZ and CO., INC.
Respondent: COURT OF APPEALS, GREGORIO MABLE SUBSTITUTED BY HIS
WIFE AND CHILDREN

G.R. No. L-52732 August 29, 1988; Ponente: CORTES, J

SUMMARY:
Cruz owned a manufacturing shop adjacent to the residence of Mable. Mable
requested that a firewall be constructed but Cruz ignored his request. When a fire
broke out in Cruz!s shop, it spread to Mable!s house and both were razed to the
ground. Mable filed an action for damages which the court granted in his favour but
on appeal Cruz sought a reduction of the amount of damages taking into
consideration the insurance proceeds received by Mable. The Court granted his
petition in accordance with article 2207 of the Civil Code and stated that ,having been
indemnified by their insurer, private respondents are only entitled to recover the
deficiency from petitioner. Wherefore damages awarded was modified.

FACTS:
The furniture manufacturing shop of Cruz in Caloocan City was situated adjacent
to the residence of Mable.
August 1971, respondent Gregorio Mable first approached, Cruz!s plant
manager, to request that a firewall be constructed between the shop and
respondents' residence.(request was repeated several times)
Early morning of September 6, 1974, fire broke out in Cruz!s shop. His
employees, who slept in the shop premises, tried to put out the fire, but their
efforts proved futile. The fire spread to Mable!s house. Both the shop and the
house were razed to the ground. The cause of the conflagration was never
discovered.
Subsequently, Mable collected P35,000.00 on the insurance on their house and
the contents thereof.
January 23, 1975, private respondents filed an action for damages against
petitioner
o Moral damages-P50,000
o Exemplary Damages- P25,000
o Attorney's fees- P20,000
CFI held in favour of Mable and ordered Cruz to pay:
o P80,000.00 for damages suffered by said plaintiffs for the loss of their
house`
o P50,000.00 for the loss of plaintiffs' furnitures, religious images,
silverwares, chinawares, jewelries, books, kitchen utensils, clothing and
other valuables
o Moral- P5,000,Exemplary-P2,000 and Attorney!s fees-P 5,000.
On appeal CA affirmed decision of trial court but reduced damages
Hence, Cruz filed for Petition for Review- denied for lack of merit
Cruz then filed an MR which was granted
Petitioner contends that the Court of Appeals erred
o In not deducting the sum of P35,000.00, which private respondents
recovered on the insurance on their house, from the award of damages.
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o In awarding excessive and/or unproved damages.
o In applying the doctrine of res ipsa loquitur to the facts of the instant
case.
ISSUE/HELD: W/N the sum of P35,000 should be deducted from the award of
damages (YES)

RATIO:
1. Main Issue
a. The court finds that petitioner is liable however it recognizes the fact
that respondents have been indemnified by their insurer
b. Hence, the Court holds that in accordance with Article 2207of the Civil
Code the amount of P35,000.00 should be deducted from the amount
awarded as damages.

Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company is subrogated to the rights of the insured against
the wrongdoer or the person who violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury.
c. Having been indemnified by their insurer, private respondents are only
entitled to recover the deficiency from petitioner
d. On the other hand, the insurer, if it is so minded, may seek
reimbursement of the amount it indemnified private respondents from
petitioner. This is the essence of its right to be subrogated to the rights
of the insured, as expressly provided in Article 2207. Upon payment of
the loss incurred by the insured, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured may have
against the third person whose negligence or wrongful act caused the
loss
e. Under Article 2207, the real party in interest with regard to the
indemnity received by the insured is the insurer. Whether or not the
insurer should exercise the rights of the insured to which it had been
subrogated lies solely within the former's sound discretion. Since the
insurer is not a party to the case, its identity is not of record and no
claim is made on its behalf, the private respondent's insurer has to
claim his right to reimbursement of the P35,000.00 paid to the insured.
2. (Other issues)
a. Since the amount of the loss sustained by private respondents
constitutes a finding of fact, such finding by the Court of Appeals should
not be disturbed by this Court more so when there is no showing of
arbitrariness.
b. Both the CFI and the Court of Appeals were in agreement as to the
value of private respondents' furniture and fixtures and personal effects
lost in the fire
3. (Res Ipsa Loquitor)
a. The doctrine of res ipsa loquitur, whose application to the instant case
petitioner objects to, may be stated as follows:
b. Where the thing which caused the injury complained of is shown to be
under the management of the defendant or his servants and the
accident is such as in the ordinary course of things does not happen if
those who have its management or control use proper care, it affords
reasonable evidence, in the absence of explanation by the defendant,
that the accident arose from want of care.
c. The facts of the case call for the application of the doctrine, considering
that in the normal course of operations of a furniture manufacturing
shop, combustible material such as wood chips, sawdust, paint, varnish
and fuel and lubricants for machinery may be found thereon.
d. It must also be noted that negligence or want of care on the part of
petitioner or its employees was not merely presumed. The Court of
Appeals found that petitioner failed to construct a firewall between its
shop and the residence of private respondents as required by a city
ordinance; that the fire could have been caused by a heated motor or a
lit cigarette; that gasoline and alcohol were used and stored in the shop;
and that workers sometimes smoked inside the shop
e. Even without applying the doctrine of res ipsa loquitur, petitioner's
failure to construct a firewall in accordance with city ordinances would
suffice to support a finding of negligence.
4. WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is
hereby AFFIRMED with the following modifications as to the damages awarded
for the loss of private respondents' house, considering their receipt of
P35,000.00 from their insurer: (1) the damages awarded for the loss of the
house is reduced to P35,000.00; and (2) the right of the insurer to subrogation
and thus seek reimbursement from petitioner for the P35,000.00 it had paid
private res!"#$%#&' )' *%+",#)-%$.

5. RIZAL SURETY & INSURANCE CO. v. MANILA RAILROAD CO.
(PR)

Plaintiff- appellant: Rizal Surety & Insurance Company
Defendants- appellants: Manila Railroad Company and Manila Port Service

Fernando, J.:

SUMMARY:
!""# %&' ( )! *)(*+
(
The vessel SS Flying Trader arrived in Manila from Italy containing, among other
cargoes, 6 cases OMH, Special Single Colour Offset Press Machine. When the said
cargo was being lifted by Manila Port!s crane, one case fell into Suter!s (consignee)
truck. So Rizal Surety paid Suter P16k representing damages. However, the
management contract between Manila Port and the Bureau of Customs limited its
liability to Php500 per package. Rizal Surety claimed that it was entitled to recover in
full under Article 2207 of the Civil Code. The Court disagreed and said that the
insurer, after paying the claim of the insured for damages under the insurance is
merely subrogated to the rights of the insured and can only recover what was
recoverable by the insured.

FACTS:
On or about November 29, 1960, the vessel SS Flying Trader, loaded on
board at Genoa, Italy for shipment to Manila, among other cargoes, 6 cases
OMH, Special Single Colour Offset Press Machine, for which Bill of Lading
No. 1 was issued, consigned to Suter, Inc.
Such vessel arrived in Manila and the shipment was subsequently
discharged completely and in good order into the custody of defendant
Manila Port Service as arrastre operator.
Manila Port!s crane lifted and loaded the cargoes, and while doing so, one
of the six cases which contained OMH, Special Single Colour Offset Press
was dropped by the crane and fell into the consignee!s (Suter) truck.
As a result, plaintiff Rizal Surety paid Suter Php16,500 representing
damages by way of costs of replacement of parts and repairs to put the
machine into working condition. It also paid Php180.70 to the International
Adjustment Bureau as adjuster!s fee for the survey the latter conducted on
the damaged cargo, representing Rizal Surety!s liability under the insurance
contract. The arrastre charges in this particular shipment was paid on the
weight or measurement basis, whichever is higher, and not the value
thereof.
Clause 15 of the management contract which as admitted by the plaintiff,
appeared at the dorsal part of the Delivery Permit and was used in taking
delivery of the subject shipment from the defendants! (Manila Port and
Manila Railroad) custody and control, issued in the name of consignee!s
broker. It contained what was referred to as "an important notice." Such
permit "is presented subject to all the terms and conditions of the
Management Contract between the Bureau of Customs and Manila Port
Service and amendments thereto or alterations thereof, particularly but not
limited to paragraph 15 thereof limiting the Company liability to
P500.00 per package, unless the value of the goods is otherwise
specified, declared or manifested and the corresponding arrastre
charges have been paid. . . . xxx (limited liability clause)
TC ruling: ordered defendants, jointly and severally, to pay plaintiff the
amount of Five Hundred Pesos (P500.00), with legal interest thereon from
January 13, 1962, the date of the filing of the complaint, with costs against
said defendants.
Rizal Surety appealed.

ISSUE:
W/N Rizal Surety is entitled to recover in full.

HELD:

WHEREFORE, the decision appealed from is affirmed. With costs against
Rizal Surety and Insurance Company.

RATIO:
Rizal Surety!s contention: under Article 2207 of the Civil Code, it could
recover in full.
Article 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. If the amount paid
by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.
But the court said that the literal language of Article 2207 does not warrant
such interpretation. It is there made clear that in the event that the property
has been insured and the Insurance Company has paid the indemnity for
the injury or loss sustained, it "shall be subrogated to the rights of the
insured against the wrong-doer or the person who has violated the
contract."
Therefore, Rizal Surety cannot recover from Manila Railroad an amount
greater than that to which the consignee could lawfully lay claim. The
management contract is clear. The amount is limited to Php500. This Court
has previously upheld the validity of this stipulation in a long line of cases.
In Atlantic Mutual Insurance Company v. Manila Port Service, the Court
restated the doctrine "Plaintiff maintains that, not being a party to the
management contract, the consignee - into whose shoes plaintiff had
stepped in consequence of said payment - is not subject to the provisions of
said stipulation, and that the same is furthermore invalid. The lower court
correctly rejected this pretense because, having taken delivery of the
shipment aforementioned by virtue of a delivery permit, incorporating
thereto, by reference, the provisions of said management contract,
particularly paragraph 15 thereof, the gist of which was set forth in the
permit, the consignee became bound by said provisions, and because it
could have avoided the application of said maximum limit of P500.00 per
package by stating the true value thereof in its claim for delivery of the
goods in question, which, admittedly, the consignee failed to do. . .
Rizal Surety and Insurance Company, having been subrogated merely to the
rights of the consignee, its recovery necessarily should be limited to what was
recoverable by the insured. The lower court therefore did not err when in the
decision appealed from, it limited the amount which defendants were jointly and
severally to pay plaintiff-appellants to "Five Hundred Pesos (P500.00) with legal
interest thereon from January 31, 1962, the date of the filing of the complaint, . . ."

!""# %&' ( )! *)(*+
)
6. PIONEER INSURANCE & SURETY CORP. v. CA (APG)
PIONEER INSURANCE & SURETY CORPORATION vs. THE HON. COURT OF
APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,

G.R. No. 84157 July 28, 1989

FACTS:
There are 2 consolidated petitions in this case.
The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants
(respondents in G.R. No. 84197) was dismissed but in all other respects the
trial court's decision was affirmed.
G.R. No. 84197.
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the
airline business as owner-operator of Southern Air Lines (SAL) a single
proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim
entered into and executed a sales contract for the sale and purchase of two
DC-3A Type aircrafts and one set of necessary spare parts for the total
agreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft,
arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on
July 18,1965.
On May 22, 1965, Pioneer Insurance (Petitioner in G.R. No. 84197) as surety
executed and issued its Surety Bond in favor of JDA, in behalf of its principal,
Lim, for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and
Constancio Maglana (respondents in both petitions) contributed some funds
used in the purchase of the above aircrafts and spare parts. The funds were
supposed to be their contributions to a new corporation proposed by Lim to
expand his airline business.
They executed two (2) separate indemnity agreements in favor of Pioneer,
one signed by Maglana and the other jointly signed by Lim for SAL,
Bormaheco and the Cervanteses.
The indemnity agreements stipulated that the indemnitors principally
agree and bind themselves jointly and severally to indemnify and hold
and save harmless Pioneer from and against any/all damages, losses,
costs, damages, taxes, penalties, charges and expenses of whatever kind
and nature which Pioneer may incur in consequence of having become surety
upon the bond/note and to pay, reimburse and make good to Pioneer, its
successors and assigns, all sums and amounts of money which it or its
representatives should or may pay or cause to be paid or become liable to
pay on them of whatever kind and nature.
On June 10, 1965, Lim executed in favor of Pioneer as deed of chattel
mortgage as security for the latter's suretyship in favor of the former. It
was stipulated therein that Lim transfer and convey to the surety the two
aircrafts.
Lim defaulted on his subsequent installment payments prompting JDA to
request payments from the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicialforeclosure of the said
chattel mortgage. The Cervanteses and Maglana, however, filed a third
party claim alleging that they are co-owners of the aircrafts.
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and respondents,
the Cervanteses, Bormaheco and Maglana.
Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim
alleging that they were not privies to the contracts signed by Lim
A decision was rendered holding Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants.
CA modified the trial court's decision in that the plaintiffs complaint against all
the defendants was dismissed. In all other respects the trial court's decision
was affirmed.

ISSUE/HELD: WON CA grievously erred when it dismissed the appeal of petitioner
on the sole ground that it had already collected the proceeds of the reinsurance on its
bond in favor of the JDA and that it cannot represent a reinsurer to recover the
amount from the private respondents as defendants in the trial court. - NO
RATIO:
Petition is not meritorious. It is undisputed that plaintiff Pioneer had
reinsured its risk of liability under the surety bond in favor of JDA and
subsequently collected the proceeds of such reinsurance in the sum of
P295,000.00. Respondents' alleged obligation to Pioneer amounts to
P295,000.00, hence, Pioneer!s instant action for the recovery of the amount
of P298,666.28 from respondents will no longer prosper. Pioneer is not the
real party in interest to institute the instant action as it does not stand
to be benefited or injured by the judgment.
Pioneer's contention that it is representing the reinsurer to recover the
amount from defendants, hence, it instituted the action is utterly devoid of
merit.
Pioneer failed to present evidence to prove that it is the attorney-in-fact of
the reinsurance company, authorized to institute an action for and in behalf
of the latter.
To qualify a person to be a real party in interest in whose name an action
must be prosecuted, he must appear to be the present real owner of the
right sought to be enforced. It has been held that the real party in interest is
the party who would be benefited or injured by the judgment or the party
entitled to the avails of the suit. By real party in interest is meant a present
substantial interest as distinguished from a mere expectancy or a future,
contingent, subordinate or consequential interest.
o Thus, Pioneer cannot be considered as the real party in interest as
it has already been paid by the reinsurer the sum of
P295,000.00 the bulk of defendants' (respondents in both
petitions) alleged obligation to Pioneer.
o Pioneer was able to foreclose extra-judicially one of the subject
airplanes and its spare engine, realizing the total amount of
P37,050.00 from the sale of the mortgaged chattels. Pioneer has
been overpaid considering that the total amount it had paid to JDA
totals to only P298,666.28.
!""# %&' ( )! *)(*+
*
o To allow plaintiff Pioneer to recover from the respondents the
amount in excess of P298,666.28 would be tantamount to unjust
enrichment as it has already been paid by the reinsurance
company of the amount Pioneer has paid to JDA as surety of Lim
vis-a-vis defendant Lim's liability to JDA.
The petitioner contends that-(1) it is at a loss where respondent court based
its finding that petitioner was paid by its reinsurer in the aforesaid amount,
as this matter has never been raised by any of the parties herein both in
their answers in the court below and in their respective briefs with
respondent court; (2) even assuming hypothetically that it was paid by its
reinsurer, still none of the respondents had any interest in the matter since
the reinsurance is strictly between the petitioner and the re-insurer pursuant
to section 91 of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from respondents
Bormaheco and Maglana; and (4) the principle of unjust enrichment is not
applicable considering that whatever amount he would recover from the co-
indemnitor will be paid to the reinsurer.
As affirmed by the SC: Trial court!s findings there is no slightest indication
in the complaint that Pioneer is suing as attorney-in- fact of the reinsurers
for any amount. Pioneer has no right to institute and maintain in its own
name an action for the benefit of the reinsurers. It is well-settled that an
action brought by an attorney-in-fact in his own name instead of that of the
principal will not prosper, and this is so even where the name of the principal
is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action
must be prosecuted in the name of the real party in interest.' This
provision is mandatory. The real party in interest is the party who would
be benefitted or injured by the judgment or is the party entitled to the
avails of the suit.
The petitioner's argument that the respondents had no interest in the
reinsurance contract as this is strictly between the petitioner as insured and
the reinsuring company pursuant to Section 91 (should be Section 98) of the
Insurance Code has no basis.
o In general a reinsurer, on payment of a loss acquires the same
rights by subrogation as are acquired in similar cases where the
original insurer pays a loss. The rules of practice in actions on
original insurance policies are in general applicable to actions or
contracts of reinsurance.
o Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
In the case of Phil. Air Lines, Inc. v. Heald Lumber Co. which we
subsequently applied in Manila Mahogany Manufacturing Corporation v.
Court of Appeals
If a property is insured and the owner receives the indemnity from
the insurer, it is provided in said article that the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if
the amount paid by the insurer does not fully cover the loss, then
the aggrieved party is the one entitled to recover the
deficiency. Evidently, under this legal provision, the real party in
interest with regard to the portion of the indemnity paid is the
insurer and not the insured.
It is clear from the records that Pioneer sued in its own name and not as an
attorney-in-fact of the reinsurer.
CA did not commit a reversible error in dismissing the petitioner's complaint
as against the respondents for the reason that the petitioner was not the real
party in interest in the complaint and, therefore, has no cause of action
against the respondents.
The petitioner argues that the appeal as regards the counter indemnitors
should not have been dismissed on the premise that the evidence on record
shows that it is entitled to recover from the counter indemnitors. It does not,
however, cite any grounds except its allegation that respondent "Maglanas
defense and evidence are certainly incredible".
Counter-indemnitors (Bormaheco, Cervantes, Maglana) are not liable to the
petitioner.
o Pioneer having foreclosed the chattel mortgage on the planes and
spare parts, no longer has any further action against the
defendants as indemnitors to recover any unpaid balance of the
price. Pioneer exercised the remedy of foreclosure of the chattel
mortgage both by extrajudicial foreclosure and the instant suit.
Pioneer shall have no further action against the purchaser to
recover any unpaid balance and any agreement to the contrary is
void.
o Obligations were restructured (loan agreement) with regard to their
maturity dates were done without the knowledge. It resulted to the
extinguishment of the obligations and of the surety bond secured
by the indemnity agreement which was thereby also extinguished.
Art. 2079. An extension granted to the debtor by the creditor
without the consent of the guarantor extinguishes the guaranty
The mere failure on the part of the creditor to demand
payment after the debt has become due does not of itself
constitute any extension time referred to herein.
Pioneer's liability as surety to JDA had already prescribed when
Pioneer paid the same. Pioneer has no more cause of action to
recover from these respondents, as supposed indemnitors, what
it has paid to JDA. By virtue of an express stipulation in the surety
bond, the failure of JDA to present its claim to Pioneer within ten days
from default of Lim or SAL on every installment, released Pioneer from
liability from the claim. Therefore, Pioneer is not entitled to exact
reimbursement from these respondents thru the indemnity.
!""# %&' ( )! *)(*+
!+
Art. 1318. Payment by a solidary debtor shall not
entitle him to reimbursement from his co-debtors
if such payment is made after the obligation has
prescribed or became illegal.

JACOB S. LIM vs. COURT OF APPEALS, PIONEER INSURANCE AND SURETY
CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,,
FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA

G.R. No. 84157.

ISSUE/HELD:
What is the relationship among co-investors (Bormaheco, Cervantes, Maglana)?
What legal rules govern them? no de facto relationship

RATIO:
Lim questions the appellate court's findings ordering him to reimburse certain
amounts given by the respondents to him as their contributions to the
intended corporation.
Where persons associate themselves together under articles to purchase
property to carry on a business, and their organization is so defective as to
come short of creating a corporation within the statute, they become in legal
effect partners inter se, and their rights as members of the company to the
property acquired by the company will be recognized.
It is to be noted that the petitioner was declared non-suited for his failure to
appear during the pretrial despite notification. In his answer, the petitioner
denied having received any amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court and the appellate court, however,
found that Lim received the amount of P151,000.00 representing the
participation of Bormaheco and the ownership of the subject airplanes and
spare parts. The record shows that defendant Maglana gave P75,000.00 to
petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that Lim never had the intention to form a corporation with
the respondents despite his representations to them. Thus, it could be inferred
that they were induced and lured by Lim to make contributions to a proposed
corporation which was never formed because Lim reneged on their
agreement.
Thus, no de facto partnership was created among the parties which
would entitle Lim to a reimbursement of the supposed losses of the
proposed corporation. The record shows that Lim was acting on his own
and not in behalf of his other would-be incorporators in transacting the
sale of the airplanes and spare parts.

7. COMPANIA MARTIMA v. INSURANCE CO. OF NORTH
AMERICA (DU)

BAUTISTA ANGELO, J. EN BANC | G.R. No. L-18965 - October 30, 1964

SUMMARY: Macleod (M) contracted with petitioner to transport hemp. While on a
barge of petitioner waiting for the boat that will ship the hemp, the barge sank
resulting damages amounting to P60,000++. Respondent paid M for the damages
and sued Petitioner to recover the amount. Court said that liability of a Carrier for the
goods commences upon actual delivery for transport when possession and control
was turned over to the carrier already. Here the hemp was already delivered to
petitioner and was properly received by its personnel when the barge carrying it sank,
thus petitioner is liable to pay respondent as M!s assignee of the claim.

FACTS:
! October, 1952, Macleod and Company contracted (by telephone) with
petitioner (Compaia Maritima), a shipping corporation, for the shipment of
2,645 bales of hemp from the former's Sasa private pier at Davao City to
Manila and for their subsequent transhipment to Boston, Massachusetts,
U.S.A. on board the S.S. Steel Navigator.
o Formal contract later followed
! Petitioner sent to Macleod's private wharf LCT Nos. 1023 and 1025 on
which the loading of the hemp was completed on October 29, 1952.
! The patrons of both barges issued the corresponding carrier's receipts and
that issued by the patron of Barge No. 1025 reads in part:
o Received in behalf of S.S. Bowline Knot in good order and
condition from MACLEOD AND COMPANY OF PHILIPPINES,
Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator.
o FINAL DESTINATION: Boston.
! The barges were moved to the government's marginal wharf to await the
arrival of the S.S. Bowline Knot belonging to Compaia Maritima on which
the hemp was to be loaded.
! During the night of October 29, 1952, or at the early hours of October 30,
LCT No. 1025 sank, resulting in the damage or loss of 1,162 bales of hemp
loaded therein.
! On October 30, 1952, Macleod promptly notified the carrier's main office in
Manila and its branch in Davao advising it of its liability.
! The damaged hemp was brought to Odell Plantation in Madaum, Davao, for
cleaning, washing, reconditioning, and redrying.
! After reclassification, the value of the reconditioned hemp was reduced to
P84,887.28.
! The total loss adds up to P60,421.02, which respondent (Insurance
Company of North America) duly paid Macleod as part of their insurance
contract.
! Macleod assigned its claim against petitioner to respondent
! Now respondent sued petitioner to collect said amount.
! The trial court and court of appeals ruled in favour of respondent

ISSUES/HELD:
(1) Was there a contract of carriage between the carrier and the shipper even if the
loss occurred when the hemp was loaded on a barge owned by the carrier which was
!""# %&' ( )! *)(*+
!!
loaded free of charge and was not actually loaded on the S.S. Bowline Knot which
would carry the hemp to Manila and no bill of lading was issued therefore?; (YES)
(2) Was the damage caused to the cargo or the sinking of the barge where it was
loaded due to a fortuitous event, storm or natural disaster that would exempt the
carrier from liability?; (NO)
(3) Can respondent insurance company sue the carrier under its insurance contract
as assignee of Macleod in spite of the fact that the liability of the carrier as insurer is
not recognized in this jurisdiction?; (YES)
(4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an implied
admission by the carrier of the correctness and sufficiency of the shipper's statement
of accounts contrary to the burden of proof rule?; and (NO)
(5) Can the insurance company maintain this suit without proof of its personality to do
so? (YES)

RATIO
I. There was a contract of carriage already
! There was a contract entered by the parties already (Oral and Written)
! The cargo of hemp was officially received in behalf of petitioner (see facts)
! The fact that the carrier sent its lighters free of charge to take the hemp from
Macleod's wharf at Sasa preparatory to its loading onto the ship Bowline
Knot does not in any way impair the contract of carriage already entered into
between the carrier and the shipper, for that preparatory step is but part
and parcel of said contract of carriage.
o here we have a complete contract of carriage the consummation of
which has already begun: the shipper delivering the cargo to the
carrier, and the latter taking possession thereof by placing it on a
lighter manned by its authorized employees, under which Macleod
became entitled to the privilege secured to him by law for its safe
transportation and delivery, and the carrier to the full payment of its
freight upon completion of the voyage.
o The liability and responsibility of the carrier under a contract for the
carriage of goods commence on their actual delivery to, or receipt
by, the carrier or an authorized agent. ... and delivery to a lighter in
charge of a vessel for shipment on the vessel, where it is the
custom to deliver in that way, is a good delivery and binds the
vessel receiving the freight, the liability commencing at the time of
delivery to the lighter. ...
o The test as to whether the relation of shipper and carrier had been
established is, Had the control and possession of the cotton been
completely surrendered by the shipper to the railroad company?
Whenever the control and possession of goods passes to the
carrier and nothing remains to be done by the shipper, then it can
be said with certainty that the relation of shipper and carrier has
been established.
! As regards the form of the contract of carriage it can be said that provided
that there is a meeting of the minds and from such meeting arise rights and
obligations, there should be no limitations as to form." The bill of lading is
not essential to the contract, although it may become obligatory by reason of
the regulations or as a condition imposed by agreement
o the Code does not demand, as necessary requisite in the contract
of transportation, the delivery of the bill of lading to the shipper, but
gives right to both the carrier and the shipper to mutually demand
of each other the delivery of said bill.
! The liability of the carrier as common carrier begins with the actual
delivery of the goods for transportation, and not merely with the
formal execution of a receipt or bill of lading; the issuance of a bill of
lading is not necessary to complete delivery and acceptance. Even
where it is provided by statute that liability commences with the
issuance of the bill of lading, actual delivery and acceptance are
sufficient to bind the carrier.
II. No force majeur
! Evidence support that during the sinking of the barge, there were no storm
! report of R. J. del Pan & Co., Inc., marine surveyors, attributes the sinking of
LCT No. 1025 to the 'non-water-tight conditions of various buoyancy
compartments'
III. Insurance Company is the assignee and is suing as the shipper
! There can also be no doubt that the insurance company can recover from
the carrier as assignee of the owner of the cargo for the insurance amount it
paid to the latter under the insurance contract. it is but fair that it be given
the right to recover from the party responsible for the loss
! The instant case, therefore, is not one between the insured and the insurer,
but one between the shipper and the carrier, because the insurance
company merely stepped into the shoes of the shipper
! Nor can the carrier set up as a defense any defect in the insurance policy
not only because it is not a privy to it but also because it cannot avoid its
liability to the shipper under the contract of carriage which binds it to pay
any loss that may be caused to the cargo involved therein.
o In any event the defect was waived with the payment by the
Insurance company of the damages
IV. Petitioner deemed to have admitted the correctness of the amount of damages
! There is reason to believe that the act of petitioner in waiving its right to
have the books of accounts of Odell Plantation presented in court is
tantamount to an admission that the statements contained therein are
correct and their verification not necessary because its main defense here,
as well as below, was that it is not liable for the loss because there was no
contract of carriage between it and the shipper and the loss caused, if any,
was due to a fortuitous event. Hence, under the carrier's theory, the
correctness of the account representing the loss was not so material as
would necessitate the presentation of the books in question.
V. Petitioner!s lawyer itself said that respondent is a foreign corporation doing
business in the Philippines with a personality to file the present action.

SECTION 2
1. CCC INSURANCE CORP. v. CA (JAG)

Petitioner: CCC INSURANCE CORPORATION
!""# %&' ( )! *)(*+
!#
Respondents: COURT OF APPEALS (FOURTH DIVISION) and CARLOS F.
ROBES

FACTS
March 1, 1961, Carlos F. Robes took an insurance, with CCC insurance
corporation (CCC) on his Dodge Kingsway car against loss or damage
through accident for an amount not exceeding P8,000.00.
25 June 1961, the insured vehicle, while being driven by his driver, involved
in a vehicular collision along Rizal Avenue Extension, Potrero, Malabon,
Rizal.
The car was damaged, and the repair was estimated to cost P5,300.00.
CCC refused to pay for the repair or the restoration of the Car.
Robes instituted a civil case against CCC in the CFI of Rizal for recovery of
amount necessary for the repair plus actual and moral damages including
attorney!s fees and costs.
CCC disclaimed liability claiming that the one driving the car at the time of
the accident was not an authorized driver.
Trial court ruled in favor of Robes and ordered CCC to pay P5k for the cost
of repairs, P150 for impounding fees, 2K actual damages and 1K attorney!s
fees.
CCC went to the CA; CA affirmed trial court!s decision but eliminated actual
damages, as it was too speculative.

ISSUE/HELD
W/N the damage to the insured car was covered by the insurance policy because at
the time of the accident it was being driven by one who was not an authorized driver.
COVERED

RULING
CCC argues that the one driving the insured vehicle at the time of the
accident was not an authorized driver thereof within the purview of the
following provision of the insurance policy:
AUTHORIZED DRIVER:
Any of the following: (a) The insured;
(b) Any person driving on the Insured's order or with his permission,
provided that the person driving is permitted in accordance with
licensing laws or regulations to drive the motor vehicle covered by
this Policy, or has been so permitted and is not disqualified by order
of a court of law or by reason of any enactment or regulation from
driving such Motor Vehicle. (Emphasis ours)

It has been found as a fact by the Court of Appeals that:
o The driver of the car, Domingo Reyes, does not know how to read
and write.
o He has not passed any driving examination therefore and only
secured a license by paying a certain woman P25.
o Cavite agency of the Motor Vehicles Office has certified not having
issued Reyes! purported drive!s license No. 271703 DP.
Validity of the license
The CA, in holding that the damage sustained by the car is within the
coverage of the car insurance policy found that Reyes! license bears all the
earmarks of a genuine license and it is up to CCC to disprove it; in which it
has failed to do so.
The CA in its ruling said that the fact that the no license issued notation
made by a certain Gloria Presa and signed by the OIC of MVO Cavite
Agency does not remove the possibility that said office may have been
mistaken or that said license was issued by another agency. (Gloria Presa
and OIC of office was not placed on the witness stand to testify that the
license was void)
In effect, CA found that the license was genuine. This finding of fact is now
conclusive upon the SC and may no longer be questioned.

Reyes did not pass any examination
o CCC nevertheless insists that Reyes is not an authorized driver as he was
not able to pass any drivers examination.
o The fatal flaw in CCC!s argument is that it ignores the provisions of law
existing at the time of the accident. Under Section 24 of the Revised Motor
Vehicles Law, Act 3992 of the Philippine Legislature, as amended by
Republic Acts Nos. 587, 1204 and 2863
An examination or demonstration to show any applicant's ability to operate
motor vehicles may also be required in the discretion of the Chief, Motor
Vehicles Office or his deputies.
o and reinforcing such discretion, Section 26 of the Act prescribes further:
SEC. 26. Issuance of chauffeur's license; professional badge: If, after
examination, or without the same, the Chief, Motor Vehicles Office or his
deputies, believe the applicant topossess thenecessary qualifications and
knowledge, they shall issue to such applicant a license to operate as
chauffeur ...
o It is thus clear that the issuance of a driving license without previous
examination does NOT necessarily imply that the license issued is invalid.
As the law stood in 1961, when the claim arose, the examinations could be
dispensed with in the discretion of the Motor Vehicles Office official officials.
o The issuance of the license is proof that the Motor Vehicles Office official
considered Reyes qualified to operate motor vehicles, and the insured was
entitled to rely upon such license. In this connection, it should be observed
that the chauffeur, Reyes, had been driving since 1957 and without mishap,
for all the record shows.
o (DOCTRINE)Considering that, as pointed out by the Court of Appeals, the
weight of authority is in favor of a liberal interpretation of the
insurancepolicy for the benefit of the party insured, and strictly against
the insurer, We find no reason to diverge from the conclusion reached by
the Court of Appeals that no breach was committed of the above-quoted
provision of the policy.

NOTE: Second issue unrelated to insurance. (in case she asks)
CCC claims that the proceedings in the trial court were irregular and invalid
because the Clerk of Court received evidence who acted as commissioner
without a court order or written request by the parties constituting him as such.
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SC found no cause sufficient to invalidate proceedings because
1) CCC was not able to prove or present evidence that the Clerk of court
committed any mistake or abuse in the performance of the task
2) Or that the trial court was not able to properly appreciate the evidence and;
3) It was raised only on the MR filed in the CA making it a procedural point that
can be waived by the consent of the parties either express or implied.

2. ASSOC. OF BAPTISTS FOR WORLD EVANGELISM, INC. v.
FIELDMAN!S INSURANCE COL., INC (RS)

No. L-28772. September 21, 1983
Plaintiff-appellee: Association of Baptists for World Evangelism, Inc.
Defendant-appellant: Fieldmen!s Insurance Co., Inc.

FACTS:
1. This case for Indemnity for Damages and Attorney!s Fees was elevated to
the SC by the then Court of Appeals on a question of law.
2. Stipulation of Facts submitted by the parties before the CFI of Davao:
a. Plaintiff is a religious corporation duly organized and
registered under the laws of the Philippines, while defendant
is also a domestic corporation duly organized and existing
under the laws of the Philippines
b. Plaintiff (having an insurable interest in a Chevrolet Carry-all,
1955 Model, with Motor No. 032433272555 and Plate No. E-73317
covered by Registration Certificate No. 288141 Rizal, issued by the
Davao Motor Vehicles Office Agency No. 20 and owned by
Reverend Clinton Bonnel) insured said vehicle with the
defendant under Fieldmen!s Insurance Co., Inc. Private Car
Comprehensive Policy No. 22 Jl 1107, against loss or damage
up to the amount of P5,000.00 (no mention of the cause for
loss or damage)
c. Latter part of 1961 - through plaintiffs representative, Dr.
Antonio Lim, the aforementioned Chevrolet Carry-all was
placed at the Jones Monument Mobilgas Service Station at
Davao City, under the care of the station!s operator, Rene Te
so that said carry-all could be displayed as being for sale, with
the understanding that the latter or any of his station boys would
receive a 2% commission should they sell said vehicle.
d. January 18, 1962 - Romeo Catiben, one of the boys at the Service
Station and a nephew of the wife of Rene Te who is residing with
them, took the car for a joy ride to Toril, Davao City, without the
prior permission, authority or consent of either the plaintiff or
its representative Dr. Antonio Lim, or of Rene Te, and on its
way back to Davao City, the car, due to some mechanical defect,
accidentally bumped an electric post causing actual damages
valued at P5,518.61.
e. The issue before the Honorable Court is whether or not for the
damage to the car to be compensable under Fieldmen!s Private
Car Comprehensive Policy, there must be a prior criminal
conviction of Romeo Catiben for theft.
3. RTC - ordered defendant insurance company to pay plaintiff association
the amount of P5,000.00 as indemnity for the damage sustained by the
vehicle, P2,000.00 for attorney!s fees, and costs.
a. Insurance company appealed to the CA
4. CA elevated the case to the SC on a question of law.

ISSUE: Whether there must be a prior criminal conviction of Romeo Catiben for theft
in order that the damage to the car be compensable under the insurance company!s
car comprehensive policy.
HELD: No. There need be no prior conviction for the crime of theft to make an
insurer liable under the theft clause of the policy. (Note: so there was a theft
clause in the policy. This info was left out of the stipulation of facts but mentioned in
the ratio. See below)
SC affirms the RTC order.

RATIO:
1. Theft Clause. The Comprehensive Policy issued by the insurance company
includes loss of or damage to the motor vehicle by burglary x x x or theft. It
is settled that the act of Catiben in taking the vehicle for a joy ride to Toril,
Davao City, constitutes theft within the meaning of the insurance policy and
that recovery for damage to the car is not barred by the illegal use of
the car by one of the station boys.
2. Villacorta vs. Insurance Commission (1980).
a. x x x where a car is admittedly as in this case unlawfully and
wrongfully taken by some people, be they employees of the car
shop or not to whom it had been entrusted, and taken on a long trip
to Montalban without the owner!s consent or knowledge, such
taking constitutes or partakes of the nature of theft as defined
in Article 308 of the Revised Penal Code, viz.:
i. (W)ho are liable for theft.Theft is committed by any
person who, with intent to gain but without violence
against or intimidation of persons nor force upon things,
shall take personal property of another without the latter!s
consent,! for purposes of recovering the loss under the
policy in question.
b. x x x the Court sustains as the better view that which holds that
when a person, either with the object of going to a certain
place, or learning how to drive, or enjoying a free ride, takes
possession of a vehicle belonging to another, without the
consent of its owner, he is guilty of theft because by taking
possession of the personal property belonging to another and
using it, his intent to gain is evident since he derives therefrom
utility, satisfaction, enjoyment and pleasure. Justice Ramon C,
Aquino cites in his work Groizard who holds that the use of a thing
constitutes gain and Cuello Calon who calls it hurto de uso.
3. Upon the facts stipulated by the parties it is admitted that Catiben had taken
the vehicle for a joy ride and while the same was in his possession he
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bumped it against an electric post resulting in damages. That act is theft
within a policy of insurance.
4. General Principle:
a. In a civil action for recovery on an automobile insurance, the
question whether a person using a certain automobile at the
time of the accident stole it or not is to be determined by a fair
preponderance of evidence and not by the rule of criminal law
requiring proof of guilt beyond reasonable doubt. Besides, there is
no provision in the policy requiring prior criminal conviction
for theft.

3. LANDICHO v. GSIS (RC)

Petitioner: FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her
minor children, RAFAEL J. LANDICHO and MA. LOURDES EUGENIA
LANDICHO
Respondent: GOVERNMENT SERVICE INSURANCE SYSTEM,

G.R. No. L-28866 March 17, 1972; CONCEPCION, C.J.:

SUMMARY:
Petitioner is the widow, and along with her children, is the beneficiary of a life
insurance policy from GSIS. GSIS is refusing to pay because her late husband did
not make the first premium payment as stipulated in the policy contract. Petitioner
contends that the contract also stipulates that failure to make the payment does not
make the policy lapse. SC affirm the CFI ruling saying that this ambiguity should be
settled in the favor of the insured. Further Art. 1377 of Civil Code provides that the
ambiguity should not be settled in favor of the one who caused the ambiguity, in this
case the GSIS.

FACTS:
Appeal of the Government Service Insurance System hereinafter referred to
as GSIS, for the sake of brevity from a decision of the Court of First Instance
of Manila directing said defendant to pay to the plaintiffs-appellees, Fe de Joya
Landicho and her minor children, Rafael J. and Maria Lourdes Eugenia, both
surnamed Landicho, the sum of P15,800, with interest thereon, at the legal rate,
from September 26, 1967, until fully paid, in addition to the sum of P1,000, as
and for attorney's fees, and the costs.
On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a civil engineer
of the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental,
optional additional life insurance policy No. OG-136107 in the sum of P7,900.
The policy states on its face and some relevant provisions:
This insurance is granted subject to the terms and conditions hereinafter set
forth and in consideration of the "Information" therefor and of the payment
on the day this Policy takes effect of the monthly premiums stated above,
due from and payable by the Insured, and the like payments on the last day
of every month during the lifetime of the Insured until maturity of this Policy
or until prior death of the Insured.

1. PAYMENT OF PREMIUMS: .
... . Premiums are due and payable at the Office of the System in Manila or
at any of its branches. When any premium or installment thereof remains
unpaid after its due date, such due date is the date of default in payment of
premiums. The mere possession of this Policy does not imply that it is in
force unless the premiums due thereon are paid on time or the policy has
sufficient cash value to keep it in force.

18. ENTIRE CONTRACT IN THIS POLICY: .
This Policy together with the "Information" sheet signed by the Insured, a
copy of which is attached hereto, is issued under the provisions of
Commonwealth Act No. 186, as amended, and constitutes the entire
contract.
All statements made by the Insured shall, in the absence of fraud, be
deemed representations and no warranties, and no statement shall void the
Policy or be used as a defense to claim hereunder unless it be contained in
written information and a copy of such information be endorsed upon or
attached to the Policy when issued.
Before the issuance of said policy, the insured had filed an application, by filing
and signing a printed form of the GSIS on the basis of which the policy was
issued. Paragraph 7 of said application States:
7. I hereby declare that all the above statements and answers as well as
those I may make to the System's Medical Examiner in continuation of this
application, to be true and co direct to the best of my knowledge and belief,
and I hereby agree as follows: .
a. That this declaration, with the answers to be given by me to the
Medical Officer, shall be made the basis the policy and form
part of the same; .
b. That acceptance of my policy issued on this application will
constitute a ratification by me of any correction or addition to
this application made by the System; .
c. That this application serves as a letter of authority to the
Collecting Officer of our Office thru the GSIS to deduct from my
salary the monthly premium in the amount of P33.36, beginning
the month of May, 1964, and every month thereafter until notice
of its discontinuance shall have beenreceived from the System;
.
d. That the failure to deduct from my salary the month premiums
shall not make the policy lapse, however, the premium account
shall be considered as indebtedness which, I bind myself to pay
the System; .
e. That my policy shall be made effective on the first day of the
month next following the month the first premium is paid;
provided, that it is not more ninety (90) days before or after the
date of the medical examination,was conducted if required." .
While still under the employment of the Bureau of Public Works, Mr. Landicho
met his death, on June 29, 1966, in an airplane crash in Mindoro. Thereupon,
Mrs. Landicho, in her own behalf and that of her co-plaintiffs and minor children
filed with the GSIS a claim for P15,800, as the double indemnity due under
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policy No. OG-136107, because of the untimely death of the insured owing to
said accident.
The GSIS denied the claim, upon the ground that the policy had never been
in force because, pursuant to subdivision (e) of the above-quoted
paragraph 7 of the application, the policy "shall be ... effective on the first
day of the month next following the month the first premium is paid," and
no premium had ever been paid on said policy.
CFI ordered GSIS to pay. GSIS appealed on a question of law.

ISSUE/HELD:
Whether or not the insurance policy in question has ever been in force, not a single
premium having been paid thereon?

YES. WHEREFORE, the decision appealed from should be, it is hereby affirmed,
with costs against the defendant-appellant, Government Service Insurance System.

RATIO:
In support of the affirmative, plaintiffs invoke the stipulation in the policy to the
effect that the information contained in the application filed by the insured shall
form part of the contract between him and the GSIS, and, especially,
subdivisions (c) and (d) of paragraph 7 of said application stating that the same
shall serve "as a letter of authority to the Collecting Officer of our Office" the
Bureau of Public Works "thru the GSIS to deduct from my salary the monthly
premium in the amount of P33.36 beginning the month of May, 1964, and every
month thereafter," and that "failure to deduct from my salary the monthly
premiums shall not make the policy lapse, however, the premium account shall
be considered as indebtedness which, I" the insured "bind myself to pay
the System."
The GSIS maintains, however, the negative, relying upon subdivision (e) of the
same paragraph No. 7, which provides that the "policy shall be made effective
on the first day of the month next following the month the first premium is paid."
Under this theory, subdivisions (c) and (d) of said paragraph 7 would not apply
unless and until the first premium shall have been actually paid, pursuant to
subdivision (e) of the same paragraph.
The language, of subdivisions (c), (d) and (e) is such as to create an
ambiguity that should be resolved against the party responsible therefor
defendant GSIS, as the party who prepared and furnished the
application form and in favor of the party misled thereby, the insured
employee.
Article 1377 of the Civil Code provides: The interpretation of obscure words
or stipulations in a contract shall not favor the party who caused the
obscurity.
This is particularly true as regards insurance policies, in respect of which it is
settled that the "terms in an insurance policy, which are ambiguous,
equivocal, or uncertain ... are to be construed strictly and most strongly
against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured, especially
where a forfeiture is involved"
The aforementioned subdivision (c) states "that this application serves as a
letter of authority to the Collecting Officer of our Office" the Bureau of Public
Works "thruthe GSIS to deduct from my salary the monthly premium in the
amount of P33.36." No such deduction was made and, consequently, not
even the first premium "paid" because the collecting officer of the Bureau
of Public Works was not advised by the GSIS to make it (the deduction)
pursuant to said authority. Surely, this omission of the GSIS should not
inure to its benefit.
The GSIS had impliedly induced the insured to believe that Policy No. OG-
136107 was in force, he having been paid by the GSIS the dividends
corresponding to said policy. Had the insured had the slightest inkling that
the latter was not, as yet, effective for non-payment of the first premium, he
would have, in all probability, caused the same to be forthwith satisfied.

4. MAYER STEEL PIPE CORP. v. CA (CG)

Petitioners: Mayer Steel Pipe Corporation and Hongkong Government Supplies
Department
Respondents: Court of Appeals, South Sea Surety and Insurance Co., Inc. and The
Charter Insurance Corporation

SUMMARY: Hongkong contracted Mayer to manufacture and supply various steel
pipes. Prior to shipping, Mayer insured the pipes and fittings against all risks with
South Sea and Charter. Industrial, a third-party inspector, certified that the
deliverables are in good order condition before they were loaded in the vessel. When
the goods reached Hongkong, it was discovered that a substantial portion thereof
was damaged. Charter paid Hongkong only HK$64k. They refused to pay HK$299k
alleging that these damages were due to factory defects. RTC ruled in favor of the
petitioners but the CA dismissed the case due to prescription. SC held that the
Carriage of Goods by Sea Act, which states that the action must have been filed
within one year, is not applicable. In the said provision of law, only the carrier!s
liability is extinguished. The Insurance Code on the other hand, governs the
insurer!s liability. Further, it was held that an "all risks" insurance policy covers all
kinds of loss other than those due to willful and fraudulent act of the insured.
Thus, when private respondents issued the "all risks" policies to petitioner Mayer,
they bound themselves to indemnify the latter in case of loss or damage to the goods
insured. And such obligation prescribes in ten years, in accordance with Article
1144 of the New Civil Code.

FACTS
In 1983, petitioner Hongkong Government Supplies Department (Hongkong)
contracted petioner Mayer Steel Pipe Corporation (Mayer) to manufacture and
supply various steel pipes
From August to October, Mayer shipped the pipes and fittings to Hongkong as
evidenced by six invoice numbers (MSPC 1014, 1015, 1025, 1020, 1017 and
1022)
Prior to the shipping, Mayer insured the pipes and fittings against all risks with
private respondents South Sea Surety and Insurance Co., Inc. (South Sea) and
Charter Insurance Corp. (Charter)
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The pipes and fittings covered by invoice nos. 1014, 1015 and 1025 with a total
amount of $212,772.09 were insured with South Sea, while the rest, with a total
amount of $149,470 were with Charter
Mayer and Hongkong jointly appointed Industrial Inspection International Inc.
(Industrial) as third-party inspector to examine whether the pipes and fittings are
manufactured in accordance with the specifications in the contract
Industrial certified all the pipes and fittings to be in good order condition before
they were loaded in the vessel
When the goods reached Hongkong, it was discovered a substantial portion
thereof was damaged
Petitioners filed a claim against private respondents for indemnity under the
insurance contract. Respondent Charter paid petitioner Hongkong HK$64,904.75
Petitioners demanded payment of the balance of HK$299,345.30 representing
the cost of repair of the damaged pipes, which private respondents refused to
pay because the insurance surveyor!s report allegedly showed that the damage
is a factory defect
On April 17, 1986, petitioners filed an action against private respondents to
recover the balance. Private respondents again averred that it was not covered
by the insurance policies since these were due to factory defects.
RTC ruled in favor of petitioners. Aside from not being manufacturing defects,
the Court noted that the insurance contracts covered all risks, which insure
against all cause of conceivable loss or damage. The only exceptions are those
excluded in the policy, or those sustained due to fraud or intentional misconduct
on the part of the insured, which were both not applicable to petitioners.
Private respondents elevated the case to the CA and the respondent court
affirmed the finding of the RTC. However, it set aside the decision of the trial
court and dismissed the complaint on ground of prescription. It held that it was
barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed
more than two years from the time the goods were unloaded from the vessel,
when it should have been filed only within one year.

ISSUE/HELD
WON the Respondent Court erred in applying Section 3(6) of the Carriage of Goods
by Sea YES

RATIO
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the
ship shall be discharged form all liability for loss or damage to the goods if not
suit is filed within one year after delivery of the goods or the date when they
should have been delivered.
Under this, only the carrier!s liability is extinguished if the suit is not brought
within one year but the liability of the insurer is not extinguished because it
is not based on the contract of carriage, but on the contract of insurance.
A close reading of the law reveals that the Carriage of Goods by Sea Act
governs the relationship between the carrier on the one hand and the
shipper, the consignee and/or the insurer on the other hand. It defines the
obligations of the carrier under the contract of carriage.
It does not, however, affect the relationship between the shipper and the
insurer because this is governed by the Insurance Code.
The case of Filipino Merchants Insurance Co., Inc. v. Alejandro, which the
petitioners used, is not applicable in the case at bar because in Filipino
Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. Here, it was the shipper
which filed a claim against the insurer.
When the court said in Filipino Merchants that Section 3(6) of the Carriage of
Goods by Sea Act applies to the insurer, it meant that the insurer, like the
shipper, may no longer file a claim against the carrier beyond the one-year
period provided in the law. It does not mean that the shipper may no longer file a
claim against the insurer because the basis of the insurer's liability is the
insurance contract.
An insurance contract is a contract whereby one party, for a consideration
known as the premium, agrees to indemnify another for loss or damage
which he may suffer from a specified peril
An "all risks" insurance policy coversall kinds of loss other than those due to
willful and fraudulent act of the insured.
Thus, when private respondents issued the "all risks" policies to petitioner
Mayer, they bound themselves to indemnify the latter in case of loss or
damage to the goods insured. Such obligation prescribes in ten years, in
accordance with Article 1144 of the New Civil Code.

IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of
Appeals dated December 14, 1995 and its Resolution dated February 22, 1996 are
hereby SET ASIDE and the Decision of the Regional Trial Court is hereby
REINSTATED. No costs.

5. GREAT PACIFIC LIFE v. CA (MT)

SUMMARY: A contract of group life insurance was executed between petitioner
Grepalife and DBP. Grepalife agreed to insure the lives of eligible housing loan
mortgagors of DBP. Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. He qualified but not long
after he died. Consequently, DBP submitted a death claim to Grepalife. Grepalife did
not want to pay DBP because it alleged that they did not accept Leuterio!s application
and that there was a misrepresentation. So his widow filed a case for specific
performance with damages in the RTC and it ruled in favor of the widow. So did the
CA and SC.

FACTS:
This petition for review assails the Decision dated May 1993, of the CA and
its Resolution dated January 1994. The appellate court affirmed in toto the
judgment of the Misamis Oriental RTC, in an insurance claim filed by private
respondent against Great Pacific Life Assurance Co.
A contract of group life insurance was executed between petitioner Great
Pacific Life Assurance Corporation (Grepalife) and Development Bank of the
Philippines (DBP). Grepalife agreed to insure the lives of eligible housing
loan mortgagors of DBP.
On November 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor
of DBP applied for membership in the group life insurance plan. In an
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application form, Dr. Leuterio answered questions concerning his health
condition which basically says he!s healthy.
Grepalife issued an insurance coverage for Dr. Leuterio, to the extent of his
DBP mortgage indebtedness amounting to P86,200.00.
On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage.
Consequently, DBP submitted a death claim to Grepalife. Grepalife denied
the claim alleging that Dr. Leuterio was not physically healthy when he
applied for an insurance coverage on November 15, 1983. Grepalife
insisted that Dr. Leuterio did not disclose he had been suffering from
hypertension, which caused his death. Allegedly, such non-disclosure
constituted concealment that justified the denial of the claim.
On October 1986, the widow of the late Dr. Leuterio, respondent Medarda V.
Leuterio, filed a complaint with the RTC of Misamis Oriental, against
Grepalife for Specific Performance with Damages. During the trial, Dr.
Hernando Mejia, who issued the death certificate, was called to testify. Dr.
Mejia!s findings, based partly from the information given by the respondent
widow, stated that Dr. Leuterio complained of headaches presumably due to
high blood pressure. The inference was not conclusive because Dr.
Leuterio was not autopsied, hence, other causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of
respondent widow and against Grepalife. On May 17, 1993, the Court of
Appeals sustained the trial court!s decision. Hence, the present petition.

ISSUE/HELD
1. Whether the Court of Appeals erred in holding petitioner liable to DBP as
beneficiary in a group life insurance contract from a complaint filed by the widow
of the decedent/mortgagor? NO.
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed
that he had hypertension, which would vitiate the insurance contract? NO.
3. Whether the Court of Appeals erred in holding Grepalife liable in the amount
of eighty six thousand, two hundred (P86,200.00) pesos without proof of the
actual outstanding mortgage payable by the mortgagor to DBP. NO.

RATIO:
To resolve the issue, we must consider the insurable interest in
mortgaged properties and the parties to this type of contract. The
rationale of a group insurance policy of mortgagors, otherwise known
as the mortgage redemption insurance, is a device for the protection
of both the mortgagee and the mortgagor. On the part of the
mortgagee, it has to enter into such form of contract so that in the
event of the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds from such
insurance will be applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the obligation. In a
similar vein, ample protection is given to the mortgagor under such a
concept so that in the event of death; the mortgage obligation will be
extinguished by the application of the insurance proceeds to the
mortgage indebtedness. Consequently, where the mortgagor pays the
insurance premium under the group insurance policy, making the loss
payable to the mortgagee, the insurance is on the mortgagor!s interest,
and the mortgagor continues to be a party to the contract. In this type
of policy insurance, the mortgagee is simply an appointee of the
insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.
The insured private respondent did not cede to the mortgagee all his
rights or interests in the insurance, the policy stating that: In the event
of the debtor!s death before his indebtedness with the Creditor [DBP]
shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the creditor and the balance of sum
assured, if there is any, shall then be paid to the beneficiary/ies
designated by the debtor.When DBP submitted the insurance claim
against petitioner, the latter denied payment thereof, interposing the
defense of concealment committed by the insured. Thereafter, DBP
collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent.
In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. we held:
Insured, being the person with whom the contract was made, is
primarily the proper person to bring suit thereon. * * * Subject to some
exceptions, insured may thus sue, although the policy is taken wholly
or in part for the benefit of another person named or unnamed, and
although it is expressly made payable to another as his interest may
appear or otherwise. * * * Although a policy issued to a mortgagor is
taken out for the benefit of the mortgagee and is made payable to him,
yet the mortgagor may sue thereon in his own name, especially where
the mortgagee!s interest is less than the full amount recoverable under
the policy, * * *.
The second assigned error refers to an alleged concealment that the
petitioner interposed as its defense to annul the insurance contract.
The fraudulent intent on the part of the insured must be established to
entitle the insurer to rescind the contract. Misrepresentation as a
defense of the insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer. In the case at bar, the petitioner failed
to clearly and satisfactorily establish its defense, and is therefore liable
to pay the proceeds of the insurance.
For the last point in the review of the case at bar. It Is noted that the
Court of Appeals! decision was promulgated on May 17, 1993. In
private respondent!s memorandum, she states that DBP foreclosed in
1995 their residential lot, in satisfaction of mortgagor!s outstanding
loan. Considering this supervening event, the insurance proceeds
shall inure to the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not unjustly enrich itself
at the expense of another. Hence, it cannot collect the insurance
proceeds, after it already foreclosed on the mortgage. The proceeds
now rightly belong to Dr. Leuterio!s heirs represented by his widow,
herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV 18341 is AFFIRMED
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with MODIFICATION that the petitioner is ORDERED to pay the
insurance proceeds amounting to Eighty-six thousand, two hundred
(P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio
(deceased), upon presentation of proof of prior settlement of
mortgagor!s indebtedness to Development Bank of the
Philippines. Costs against petitioner. SO ORDERED.

6. AMERICAN HOME ASS. v. TANTUCO ENT. (IE)

Petitioner: AMERICAN HOME ASSURANCE COMPANY
Respondent: TANTUCO ENTERPRISES, INC.

G.R. No. 138941. October 8, 2001; Ponente: PUNO, J

SUMMARY:
Tantuco Ent. Is engaged in two coconut oil milling and refining industry. Both are
separately covered by fire insurance issued by American Home. The fire that broke
out consumed the new oil mill, Tantuco is now claiming for the insurance proceeds.
AH rejected their claim, stating that no policy was issued covering the burned mill.
The court in deciding whether AH is liable or not stated that the prime rule is that in
the event of doubt, this doubt is to be resolved against the insurer. The
contract as a whole should be considered and the intent of both parties should
prevail. The policy showed that Tantuco intended to insure the new mill as the old mill
was already insured. Hence, AH should pay for the insurance proceeds.

FACTS:
Respondent Tantuco Enterprises, Inc. is engaged in two (2) coconut oil milling
and refining industry. Both are located at its factory compound at Iyam, Lucena
City.
Business operations commenced with only one oil mill. In 1988, it started
operating its second oil mill ( commonly referred to as the new oil mill)
The two oil mills were separately covered by fire insurance policies issued by
petitioner American Home Assurance Co., Philippine Branch
o 1
st
oil mill (3 million)
o 2
nd
oil mill (6 million)
A fire that broke out in the early morning of September 30,1991 gutted and
consumed the new oil mill. Respondent immediately notified the petitioner of the
incident
Petitioner rejected respondent!s claim for the insurance proceeds on the ground
that no policy was issued by it covering the burned oil mill.
o It stated that the description of the insured establishment referred to
another building thus: Our policy nos. 306-7432321-9 (Ps 6M) and
306-7432324-4 (Ps 3M) extend insurance coverage to your oil mill
under Building No. 5, whilst the affected oil mill was under Building No.
14
A complaint for specific performance and damages was consequently instituted
by the respondent ( court held that petitioner was liable on the insurance policy)
On appeal, petitioner assigned the following errors
o The Court of Appeals erred in its conclusion that the issue of non-
payment of the premium was beyond its jurisdiction because it was
raised for the first time on appeal.
o The Court of Appeals erred in its legal interpretation of 'Fire
Extinguishing Appliances Warranty' of the policy.
o With due respect, the conclusion of the Court of Appeals giving no
regard to the parole evidence rule and the principle of estoppel is
erroneous.
The primary reason advanced by the petitioner in resisting the claim of the
respondent is that the burned oil mill is not covered by any insurance policy
It argues that this specific boundary description clearly pertains, not to the
burned oil mill, but to the other mill. In other words, the oil mill gutted by fire was
not the one described by the specific boundaries in the contested policy.
Petitioner argues that respondent is barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, because it retained the
policy without having the same corrected before the fire by an endorsement in
accordance with its Condition No. 28.

ISSUE/HELD:
W/N petitioner was liable on the insurance policy (YES)

RATIO:
In construing the words used descriptive of a building insured, the greatest
liberality is shown by the courts in giving effect to the insurance
In view of the custom of insurance agents to examine buildings before writing
policies upon them, and since a mistake as to the identity and character of the
building is extremely unlikely, the courts are inclined to consider that the policy of
insurance covers any building which the parties manifestly intended to insure,
however inaccurate the description may be.
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute,
to our mind, that what the parties manifestly intended to insure was the new oil
mill.
The policy by embodying the ff. provision showed the intent of the insured,
o On machineries and equipment with complete accessories usual to a
coconut oil mill including stocks of copra, copra cake and copra mills
whilst contained in thenew oil mill building, situate (sic) at UNNO.
ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY
UNBLOCKED.
If the parties really intended to protect the first oil mill, then there is no need to
specify it as new
It would be absurd to portect the first oil mill for different amounts and leave the
new one uncovered.
The imperfection in the description can be attributed to a misunderstanding
between the petitioner!s general agent, Mr. Alfredo Borja, and its policy issuing
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clerk, who made the error of copying the boundaries of the first oil mill when
typing the policy to be issued for the new one.
It is thus clear that the source of the discrepancy happened during the
preparation of the written contract.
Respondent cannot be barred by estoppels because evidence on record reveals
that respondent!s operating manager, Mr. Edison Tantuco, notified Mr. Borja
about the inaccurate description in the policy. However, Mr. Borja assured Mr.
Tantuco that the use of the adjective new will distinguish the insured
property. The assurance convinced respondent that, despite the impreciseness
in the specification of the boundaries, the insurance will cover the new oil mill.
The object of the court in construing a contract is to ascertain the intent of the
parties to the contract and to enforce the agreement which the parties have
entered into. In determining what the parties intended, the courts will read and
construe the policy as a whole (purpose and object) ,however, the prime rule
is that in the event of doubt, this doubt is to be resolved against the
insurer.
Other issues
Petitioner claims that respondent forfeited the renewal policy for its failure to pay the
full amount of the premium and breach of the Fire Extinguishing Appliances Warranty
The Court of Appeals refused to consider this contention of the petitioner. It held
that this issue was raised for the first time on appeal, hence, beyond its
jurisdiction to resolve, pursuant to Rule 46, Section 18 of the Rules of Court
Also, petitioner!s answer did not contain any specific and definite allegation that
respondent did not pay the premium, or that it did not pay the full amount, or that
it did not pay the amount on time
The question on inadequate payment was never raised at the pre trial
Petitioner contends that respondent violated the express terms of the Fire
Extinguishing Appliances Warranty
Petitioner argues that the warranty clearly obligates the insured to maintain all
the appliances (extinguishers, external and internal hydrant, fire pump) specified
therein. The breach occurred when the respondent failed to install internal fire
hydrants inside the burned building as warranted.
The court agreed with CA!s conclusion that the warranty did not require
respondent to provide for all the fire extinguishing appliances enumerated
therein or restricted to those mentioned in the warranty.
To be sure, respondent was able to comply with the warranty. Within the vicinity
of the new oil mill can be found numerous extinguishers, fire hoses, fire
hydrant and an emergency fire engine. All of these equipments were in efficient
working order when the fire occurred.
It ought to be remembered that not only are warranties strictly construed
against the insurer, but they should, likewise, by themselves be
reasonably interpreted. That reasonableness is to be ascertained in light of the
factual conditions prevailing in each case. Here, we find that there is no more
need for an internal hydrant considering that inside the burned building were: (1)
numerous portable fire extinguishers, (2) an emergency fire engine, and (3) a fire
hose which has a connection to one of the external hydrants.

7. RIZAL SURETY v. CA (PR)
Petitioner: Rizal Surety & Insurance Company
Respondents: Court of Appeals and Transworld Knitting Mills, Inc.

Purisima, J.:

SUMMARY:
Rizal Surety issued an insurance policy in favor of Transworld. Included in the
insured property was a four span building; behind such building stood a two storey
annex containing machines, etc., also owned by Transworld. Then fire broke out,
damaging both the building and annex. Transworld filed insurance claims. Rizal
Surety said that the annex was not covered by the terms of the policy. The TC, CA,
and SC disagreed and said that the annex formed part of the four span building, thus
covered by the insurance policy. Article 1377 of CC: The interpretation of obscure
words or stipulations in a contract shall not favor the party who caused the obscurity.
Various jurisprudence also support this when it held that in case of ambiguity in
insurance contracts, it shall be ruled in favor of the insured.

FACTS:
On March 13, 1980 petitioner Rizal Surety & Insurance Company (Rizal
Insurance) issued Fire Insurance Policy No. 45727 in favor of respondent
Transworld Knitting Mills, Inc (Transworld), initially for 1M Php and
eventually increased to 1.5M Php, covering the period from August 14 1980-
March 13, 1981.
Pertinent provisions of the subject policy on the insured buildings read:
""On stocks of finished and/or unfinished products, raw materials and
supplies of every kind and description, the properties of the Insureds
and/or held by them in trust, on commission or on joint account with
others and/or for which they (sic) responsible in case of loss whilst
contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate
(sic) within own Compound at MAGDALO STREET, BARRIO
UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.!
xxx
"Said building of four-span lofty one storey in height with
mezzanine portions is constructed of reinforced concrete and
hollow blocks and/or concrete under galvanized iron roof and
occupied as hosiery mills, garment and lingerie factory, transistor-
stereo assembly plant, offices, warehouse and caretaker's
quarters. xxx
The same insured property was also insured with the New India Assurance
Company, Ltd. (New India)
On January 21, 1981, fire broke out in the compound of Transworld, razing
the middle portion of its four span building and partly gutting its left and right
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section. The two- storey building located behind the four- span building
where fun and amusement machines and spare parts were stored, was also
destroyed by the fire.
So Transworld filed its insurance claims with Rizal Surety and New India.
Petitioner Rizal Insurance!s contention: its fire insurance policies sued
upon covered only the contents of the partly burned four- span building, and
not on the damage caused by the fire on the two- storey annex building.
Respondent Transworld!s contention: the annex was not an annex but
was actually an integral part of the four- span building and therefore, the
goods and items stored therein were covered by the same insurance fire
policy.
TC!s decision: dismissed the case against New India, ordered Rizal Surety
to pay Transworld 826,500 Php as actual value of the losses and costs.
CA!s decision: modified the TC!s decision and required New India to pay
Transworld 1.8M ++ Php, and Rizal Surety 470k++ based on actual losses
based on the amount of fire insurance coverage of New India and Rizal
Surety worth 5.8M Php and 1.5M Php, respectively.
MR was filed and CA modified its decision as regards the imposition of
interest now reckoned from May 26, 1982/ from the filing of the complaint.
ISSUE: W/N the (2- storey) annex building where the bulk of the burned properties
were stored, was included in the coverage of the insurance policy issued by Rizal
Surety to Transworld.
HELD:WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated
October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED
in toto. No pronouncement as to costs.
RATIO:
After a perusal of the aforequoted provision (see the one in bold letters and
underlined ") of the insurance policy, it can be gleaned unerringly that the fire
insurance policy in question did not limit its coverage to what were stored in the
four span building.
TC was correct in saying that these 2 requirements must concur in order that the
spare parts and amusement machines be deemed protected by the said policy: a.
said properties must be contained and/ or stored in the areas occupied by
Transworld; b. said areas must form part of the building described in the policy.
Well-entrenched is the doctrine that factual findings by the CA are conclusive on
the parties and not reviewable by this Court, and the same carry even more weight
when the Court of Appeals has affirmed the findings of fact arrived at by the lower
court.
Here, both the TC and the CA found that the so called "annex " was not an annex
building but an integral and inseparable part of the four-span building described in
the policy and consequently, the machines and spare parts stored therein were
covered by the fire insurance in dispute.
Also, considering that the two-storey building aforementioned was already existing
when subject fire insurance policy contract was entered into (1981), having been
constructed sometime in 1978, Rizal Surety should have specifically excluded the
said two-storey building from the coverage of the fire insurance if wanted to
exclude the same but if did not, and instead provided that such policy covers the
things stored within the premises.
Indeed, the stipulation as to the coverage of the fire insurance policy under
controversy has created a doubt regarding the portions of the building insured
thereby.
Art.1377. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity
Conformably, it stands to reason that the doubt should be resolved against the
petitioner, Rizal Surety, whose lawyer or managers drafted the fire insurance
policy contract under scrutiny.
Landicho vs. Government Service Insurance System: "This is particularly true
as regards insurance policies, in respect of which it is settled that the
'terms in an insurance policy, which are ambiguous, equivocal, or uncertain
x x x are to be construed strictly and most strongly against the insurer, and
liberally in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where forfeiture is involved'
(29 Am. Jur., 181), and the reason for this is that the 'insured usually has no voice
in the selection or arrangement of the words employed and that the language of
the contract is selected with great care and deliberation by experts and legal
advisers employed by, and acting exclusively in the interest of, the insurance
company.' (44 C.J.S., p. 1174)."
Fieldmen's Insurance Company, Inc. vs. Vda. De Songco: "'This rigid application
of the rule on ambiguities has become necessary in view of current business
practices. The courts cannot ignore that nowadays monopolies, cartels and
concentration of capital, endowed with overwhelming economic power,
manage to impose upon parties dealing with them cunningly prepared
'agreements' that the weaker party may not change one whit, his
participation in the 'agreement' being reduced to the alternative to 'take it or
leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats [sic]
d'adhesion), in contrast to these entered into by parties bargaining on an equal
footing, such contracts (of which policies of insurance and international bills of
lading are prime example) obviously call for greater strictness and vigilance on the
part of courts of justice with a view to protecting the weaker party from abuses and
imposition, and prevent their becoming traps for the unwary (New Civil Code,
Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942.)'
On the issue of whether or not Transworld has an insurable interest in the fun and
amusement machines and spare parts, the same had already been had been
settled in G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs.
Court of Appeals, where the appeal of New India from the decision of the CA
under review, was denied with finality by this Court on February 2, 1994. This falls
under the rule on conclusiveness of judgment and thus precludes the relitigation of
a particular fact or issue in another action between the same parties based on a
different claim or cause of action.

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8. PERLA COMPANIA DE SEGUROS, INC. v. CA (APG)

G.R. No. 78860 May 28, 1990
FACTS:
Milagros Cayas was the registered owner of a Mazda bus with plate No.
PUB-4G-593. The vehicle was insured with Perla Compania de Seguros,
Inc. (PCSI) issued on February 3, 1978.
12/17/1978 - the bus figured in an accident in Naic, Cavite injuring several of
its passengers. One of them, 19-year old Edgardo Perea, sued Milagros
Cayas for damages in the CFI of Cavite (1
st
case), while three others,
namely: Rosario del Carmen, Ricardo Magsarili and Charlie Antolin, agreed
to a settlement of P4,000.00 each with Milagros Cayas.
At the pre-trial, Cayas failed to appear and hence, she was declared as in
default.
The trial court rendered a decision in favor of Perea - to compensate Edgar
Perea with damages in the sum of 10,000.00 Pesos for the medical
predicament he found himself as damaging consequences of Cayas
complete lack of diligence of a good father of a family' when she secured the
driving services of one Oscar Figueroa (driver); the sum of 10,000.00 Pesos
for exemplary damages; the sum 5,000.00 Pesos for moral damages; the
sum P7,000.00 Pesos for Attorney's fees.
When the decision was about to be executed against her, Milagros Cayas
filed a complaint against PCSI in the Office of the Insurance Commissioner
praying that PCSI be ordered to pay P40,000.00 for all the claims against
her arising from the vehicular accident plus legal and other expenses. Due
to procedural mistake, she withdrew said complaint.
Consequently, Milagros Cayas filed a complaint for a sum of money and
damages against PCSI in the CFI of Cavite (2
nd
case).
She alleged in the 2
nd
case that to satisfy the judgment in the 1
st
case
o her house and lot were levied upon and sold at public auction;
o that to avoid numerous suits and the "detention" of the insured
vehicle, she paid P4,000 to each of the following injured
passengers: Rosario del Carmen, Ricardo Magsarili and Charlie
Antolin;
o that she could not have suffered said financial setback had the
counsel for PCSI, who also represented her, appeared at the trial
of the 1
st
case and attended to the claims of the three other victims;
o she sought reimbursement of said amounts from the PCSI, which
notwithstanding the fact that her claim was within its contractual
liability under the insurance policy, refused to make such re-
imbursement; that she suffered moral damages as a consequence
of such refusal, and that she was constrained to secure the
services of counsel to protect her rights. She prayed that judgment
be rendered directing PCSI to pay her P50,000 for compensation of
the injured victims, such sum as the court might approximate as
damages, and P6,000 as attorney's fees.
Since Cayas failed to prosecute, the court motu propio ordered its dismissal
without prejudice.
She moved for the reconsideration of the order alleging that she had not
received a copy of the answer to the complaint, and that "out of
sportsmanship", she did not file a motion to hold PCSI in default which was
acted upon favorably by the court.
Two months later, Cayas filed a motion to declare PCSI in default for its
failure to file an answer.
The motion was granted and plaintiff was allowed to adduce evidence ex-
parte.
The court rendered judgment by default ordering PCSI to pay Milagros
Cayas P50,000 as compensation for the injured passengers, P5,000 as
moral damages and P5,000 as attorney's fees.
Said decision was set aside after the PCSI filed a motion therefor. Trial of
the case ensued.
The court promulgated a decision in the 2
nd
case.
Despite this determination of liability in the 1
st
civil case, defendant sought
escape from its obligation by positing the theory that plaintiff Milagros Cayas
lost the Naic case due to her negligence because of which, efforts exerted
by defendant's lawyers in protecting Cayas' rights proved futile and
rendered nugatory. Defendant labored under the impression that had Cayas
cooperated fully with defendant's lawyers, the latter could have won the suit
and thus relieved of any obligation to Perea Defendant's posture is
stretching the factual circumstances of the Naic case too far. Since Cayas
faIled to establish that she underwent moral suffering and mental anguish to
justify her prayer for damages, there should be no such award. Since there
was a proof that compelled to engage the services of counsel to protect her
rights under the insurance policy, the court allowed attorney's fees in the
amount of P5,000.
CA affirmed in toto the lower court's decision. Its motion for reconsideration
having been denied by said appellate court.
PCSI filed the instant petition charging the CA with having erred in
affirming in toto the decision of the lower court.

ISSUE/HELD: whether or not PCSI should still be liable to the payments made by
Cayas to the other 3 injured passengers NO shall only pay Cayas 12,000 plus
legal interest and ttorney's fees in the amount of P5,000.00.
Whether or not the CA erred in disregarding the stipulations of the parties YES

RATIO:
PCSI!s Liability under the Insurance Policy
PCSI other contentions are primarily concerned with the extent of its liability
to Cayas under the insurance policy.
PCSI seeks to limit its liability only to the payment made by CAYAS to
Perea and only up to the amount of P12,000.00. It altogether denies liability
for the payments made by private respondents to the other three (3) injured
passengers Rosario del Carmen, Ricardo Magsarili and Charlie Antolin in
the amount of P4,000.00 each or a total of P12,000.00.
PCSI was correct.
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The insurance policy involved explicitly limits petitioner's liability to
P12,000.00 per person and to P50,000.00 per accident.
SECTION I-Liability to the Public
3. The Limit of Liability stated in Schedule A as applicable (a) to
THIRD PARTY is the limit of the Company's liability for all damages
arising out of death, bodily injury and damage to property
combined so sustained as the result of any one accident; (b) "per
person" for PASSENGER liability is the limit of the Company's
liability for all damages arising out of death or bodily injury
sustained by one person as the result of any one accident: (c) "per
accident" for PASSENGER liability is, subject to the above
provisions respecting per person, the total limit of the Company's
liability for all such damages arising out of death or bodily injury
sustained by two or more persons as the result of any one
accident.
Conditions Applicable to All Sections
xxx xxx xxx
5. No admission, offer, promise or payment shall be made by
or on behalf of the insured without the written consent of the
Company which shall be entitled, if it so desires, to take over and
conduct in his (sic) name the defense or settlement of any claim, or
to prosecute in his (sic) name for its own benefit any claim for
indemnity or damages or otherwise, and shall have full discretion in
the conduct of any proceedings in the settlement of any claim, and
the insured shall give all such information and assistance as the
Company may require. If the Company shall make any payment in
settlement of any claim, and such payment includes any amount
not covered by this Policy, the Insured shall repay the Company
the amount not so covered.
In Stokes vs. Malayan Insurance Co., Inc., - that the terms of the contract
constitute the measure of the insurer's liability and compliance therewith is a
condition precedent to the insured's right of recovery from the insurer.
In the case at bar, the insurance policy clearly and categorically placed
petitioner's liability for all damages arising out of death or bodily injury
sustained by one person as a result of any one accident at P12,000.00.
Said amount complied with the minimum fixed by the law then prevailing,
o Section 377 of Presidential Decree No. 612 (which was retained by
P.D. No. 1460, the Insurance Code of 1978), which provided that
the liability of land transportation vehicle operators for bodily
injuries sustained by a passenger arising out of the use of their
vehicles shall not be less than P12,000.
o In other words, under the law, the minimum liability is P12,000 per
passenger. Petitioner's liability under the insurance contract not
being less than P12,000.00, and therefore not contrary to law,
morals, good customs, public order or public policy, said stipulation
must be upheld as effective, valid and binding as between the
parties.
The condition above-quoted requiring her to secure the written
permission of PCSI before effecting any payment in settlement of any
claim against her was valid as long as it is not unreasonable, arbitrary or
objectionable. It is designed to safeguard the insurer's interest against
collusion between the insured and the claimants.
Milagros Cayas admitted during her cross-examination that she informed
PCSI regarding the payments made to the other injured passengers and the
latter did not give a written authority that Cayas was supposed to pay those
claims.
Since it has been required that PCSI's written consent shall be first
secured before any payment in settlement of any claim could be
made, Cayas is precluded from seeking reimbursement of the
payments made to the 3 other injured passengers in view of her
failure to comply with the condition contained in the insurance policy.
The fundamental principle that contracts are respected as the law between
the contracting parties finds application in the present case.
It was an error on the part of the trial and appellate courts to have
disregarded the stipulations of the parties and to have substituted their own
interpretation of the insurance policy.
In Phil. American General Insurance Co., Inc vs. Mutuc - we ruled that
contracts which are the private laws of the contracting parties should be
fulfilled according to the literal sense of their stipulations, if their terms are
clear and leave no room for doubt as to the intention of the contracting
parties, for contracts are obligatory, no matter what form they may be,
whenever the essential requisites for their validity are present.
In Pacific Oxygen & Acetylene Co. vs. Central Bank," - that the first and
fundamental duty of the courts is the application of the law according to its
express terms, interpretation being called for only when such literal
application is impossible.
Although Cayas was able to prove a total loss of only P44,000.00, PCSI
was made liable for the amount of P50,000.00, the maximum liability per
accident stipulated in the policy is a patent error.
An insurance indemnity, being merely an assistance or restitution insofar
as can be fairly ascertained, cannot be availed of by any accident victim
or claimant as an instrument of enrichment by reason of an accident.
The award of attorney's fees was properly determined.
9. ZENITH INSURANCE CORP. v. CA (DU)

MEDIALDEA, J. EN BANC | G.R. No. 85296 - May 14, 1990
FACTS: (grey parts not important, just in case ma!am asks)
! On January 25, 1983, Respondent (Fernandez) insured his car with
Petitioner (Zenith)
! On July 6, 1983, the car figured in an accident and suffered actual damages
in the amount of P3,640.00.
! After allegedly being given a run around by Zenith for two (2) months,
Fernandez filed a complaint with the Regional Trial Court of Cebu for sum of
money and damages resulting from the refusal of Zenith to pay the amount
claimed.
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! Aside from actual damages and interests, Fernandez also prayed for moral
damages in the amount of P10,000.00, exemplary damages of P5,000.00,
attorney's fees of P3,000.00 and litigation expenses of P3,000.00.
! After Pre-trial, Petitioner Zenith, however, failed to present its evidence in
view of its failure to appear in court, without justifiable reason, on the day
scheduled for the purpose. The trial court issued an order on August 23,
1984 submitting the case for decision without Zenith's evidence.
! Both the trial court and CA ruled in favor of Fernandez ordering petitioner to
pay damages.
! On appeal, petitioner contends that while the complaint of private
respondent prayed for P10,000.00 moral damages, the lower court awarded
twice the amount, or P20,000.00 without factual or legal basis; while private
respondent prayed for P5,000.00 exemplary damages, the trial court
awarded P20,000.00; and while private respondent prayed for P3,000.00
attorney's fees, the trial court awarded P5,000.00.
RELEVANT ISSUE (out of 3):
! W/N the lower court erred in awarding moral damages, attorneys fees and
exemplary damages, the worst is that, the court awarded damages more
than what are prayed for in the complaint. (NO)
RATIO:
! The award of damages in case of unreasonable delay in the payment of
insurance claims is governed by the Philippine Insurance Code (see Sec
244)
o When the payment of the claim of the insured has been
unreasonably denied or withheld, x x x the insurance company
shall be adjudged to pay damages which shall consist of attomey's
fees and other expenses incurred by the insured person by reason
of such unreasonable denial or withholding of payment plus
interest... x x x
MORAL DAMAGES
! The purpose of moral damages is essentially indemnity or reparation, not
punishment or correction. Moral damages are emphatically not intended to
enrich a complainant at the expense of a defendant, they are awarded only
to enable the injured party to obtain means, diversions or amusements that
will serve to alleviate the moral suffering he has undergone by reason of the
defendant's culpable action.
! While it is true that no proof of pecuniary loss is necessary in order that
moral damages may be adjudicated, the assessment of which is left to the
discretion of the court according to the circumstances of each case (Art.
2216, New Civil Code), it is equally true that in awarding moral damages in
case of breach of contract, there must be a showing that the breach was
wanton and deliberately injurious or the one responsible acted
fraudently or in bad faith
! In the instant case, there was a finding that private respondent was given a
"run-around" for two months, which is the basis for the award of the
damages granted under the Insurance Code for unreasonable delay in the
payment of the claim.
! However, the act of petitioner of delaying payment for two months cannot be
considered as so wanton or malevolent to justify an award of P20,000.00 as
moral damages, taking into consideration also the fact that the actual
damage on the car was only P3,460. (amount reduced to P10,000)
EXEMPLARY DAMAGES
! On the other hand, exemplary or corrective damages are imposed by way of
example or correction for the public good (Art. 2229, New Civil Code of the
Philippines).
! In the case of Noda v. Cruz-Arnaldo, G.R. No. 57322, June 22,1987; 151
SCRA 227, exemplary damages were not awarded as the insurance
company had not acted in wanton, oppressive or malevolent manner.
The same is true in the case at bar.
ATTORNEY!S FEES AND ACTUAL DAMAGE
! Attorney!s fees is justified considering petitions were filed and suit was
defended
! As regards the actual damages incurred by private respondent, the amount
of P3,640.00 had been established before the trial court and affirmed by the
appellate court.
o Respondent appellate court correctly ruled that the deductions of
P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts, respectively claimed by petitioners as
agreed upon in the contract, had no basis.
o The policy does not mention any deductible franchise

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