G.R. No.

L-36480 May 31, 1988

ANDREW PALERMO, plaintiff-appellee,
vs.
PYRAMID INSURANCE CO., INC., defendant- appellant.
GRIO-AQUINO, J:
The Court of Appeals certified this case to Us for proper disposition as the only question involved is the interpretation
of the provision of the insurance contract regarding the "authorized driver" of the insured motor vehicle.
On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the Court of First Instance of Negros
Occidental against Pyramid Insurance Co., Inc., for payment of his claim under a Private Car Comprehensive Policy
MV-1251 issued by the defendant (Exh. A).
In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed the claim because at the time of the
accident, the insured was driving his car with an expired driver's license.
After the trial, the court a quo rendered judgment on October 29, 1969 ordering the defendant "to pay the plaintiff the
sum of P20,000.00, value of the insurance of the motor vehicle in question and to pay the costs."
On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution Pending Appeal." It was opposed by the
defendant, but was granted by the trial court on December 15, 1969.
The trial court found the following facts to be undisputed:
On October 12,1968, after having purchased a brand new Nissan Cedric de Luxe Sedan car
bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod City, plaintiff insured the
same with the defendant insurance company against any loss or damage for P 20,000.00 and
against third party liability for P 10,000.00. Plaintiff paid the defendant P 361.34 premium for one
year, March 12, 1968 to March 12, 1969, for which defendant issued Private Car Comprehensive
Policy No. MV-1251, marked Exhibit "A."
The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam Bok Motors Co.,
to secure the payment of the balance of the purchase price, which explains why the registration
certificate in the name of the plaintiff remains in the hands of the mortgagee, Ng Sam Bok Motors
Co.
On April 17, 1968, while driving the automobile in question, the plaintiff met a violent accident. The
La Carlota City fire engine crashed head on, and as a consequence, the plaintiff sustained physical
injuries, his father, Cesar Palermo, who was with am in the car at the time was likewise seriously
injured and died shortly thereafter, and the car in question was totally wrecked.
The defendant was immediately notified of the occurrence, and upon its orders, the damaged car
was towed from the scene of the accident to the compound of Ng Sam Bok Motors in Bacolod City
where it remains deposited up to the present time.
The insurance policy, Exhibit "A," grants an option unto the defendant, in case of accident either to
indemnify the plaintiff for loss or damage to the car in cash or to replace the damaged car. The
defendant, however, refused to take either of the above-mentioned alternatives for the reason as
alleged, that the insured himself had violated the terms of the policy when he drove the car in
question with an expired driver's license. (Decision, Oct. 29, 1969, p. 68, Record on Appeal.)

Appellant alleges that the trial court erred in interpreting the following provision of the Private Car Comprehensive
Policy MV-1251:
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 the licensing or other laws or regulations to drive the Motor
Vehicle and is not disqualified from driving such motor vehicle by order of a Court of law or by
reason of any enactment or regulation in that behalf. (Exh. "A.")
There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the insured motor vehicle
because his driver's license had expired. The driver of the insured motor vehicle at the time of the accident was, the
insured himself, hence an "authorized driver" under the policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway without a license or
with an expired license, an infraction of the Motor Vehicle Law on the part of the insured, is not a bar to recovery
under the insurance contract. It however renders him subject to the penal sanctions of the Motor Vehicle Law.
The requirement that the driver be "permitted in accordance with the licensing or other laws or regulations to drive the
Motor Vehicle and is not disqualified from driving such motor vehicle by order of a Court of Law or by reason of any
enactment or regulation in that behalf," applies only when the driver" is driving on the insured's order or with his
permission." It does not apply when the person driving is the insured himself.
This view may be inferred from the decision of this Court in Villacorta vs. Insurance Commission, 100 SCRA 467,
where it was held that:
The main purpose of the "authorized driver" clause, as may be seen from its text, is that a person
other than the insured owner, who drives the car on the insured's order, such as his regular driver,
or with his permission, such as a friend or member of the family or the employees of a car service
or repair shop, must be duly licensed drivers and have no disqualification to drive a motor vehicle.
In an American case, where the insured herself was personally operating her automobile but without a license to
operate it, her license having expired prior to the issuance of the policy, the Supreme Court of Massachusetts was
more explicit:
... Operating an automobile on a public highway without a license, which act is a statutory crime is
not precluded by public policy from enforcing a policy indemnifying her against liability for bodily
injuries The inflicted by use of the automobile." (Drew C. Drewfield McMahon vs. Hannah
Pearlman, et al., 242 Mass. 367, 136 N.E. 154, 23 A.L.R. 1467.)
WHEREFORE, the appealed decision is affirmed with costs against the defendant-appellant.
SO ORDERED.
G.R. No. L-54171 October 28, 1980

JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,

vs.
THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents.
TEEHANKEE, Acting C.J.:
The Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint and holds that where
the insured's car is wrongfully taken without the insured's consent from the car service and repair shop to whom it
had been entrusted for check-up and repairs (assuming that such taking was for a joy ride, in the course of which it
was totally smashed in an accident), respondent insurer is liable and must pay insured for the total loss of the insured
vehicle under the theft clause of the policy.
The undisputed facts of the case as found in the appealed decision of April 14, 1980 of respondent insurance
commission are as follows:
Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with respondent
company under Private Car Policy No. MBI/PC-0704 for P35,000.00 Own Damage; P30,000.00
Theft; and P30,000.00 Third Party Liability, effective May 16, 1977 to May 16, 1978. On May
9, 1978, the vehicle was brought to the Sunday Machine Works, Inc., for general check-up and
repairs. On May 11, 1978, while it was in the custody of the Sunday Machine Works, the car was
allegedly taken by six (6) persons and driven out to Montalban, Rizal. While travelling along Mabini
St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car figured in an accident,
hitting and bumping a gravel and sand truck parked at the right side of the road going south. As a
consequence, the gravel and sand truck veered to the right side of the pavement going south and
the car veered to the right side of the pavement going north. The driver, Benito Mabasa, and one of
the passengers died and the other four sustained physical injuries. The car, as well, suffered
extensive damage. Complainant, thereafter, filed a claim for total loss with the respondent company
but claim was denied. Hence, complainant, was compelled to institute the present action.
The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire Insurance Company
admittedly undertook to indemnify the petitioner-insured against loss or damage to the car (a) by accidental collision
or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and
tear; (b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious
act.
Respondent insurance commission, however, dismissed petitioner's complaint for recovery of the total loss of the
vehicle against private respondent, sustaining respondent insurer's contention that the accident did not fall within the
provisions of the policy either for the Own Damage or Theft coverage, invoking the policy provision on "Authorized
Driver" clause. 1
Respondent commission upheld private respondent's contention on the "Authorized Driver" clause in this wise: "It
must be observed that under the above-quoted provisions, the policy limits the use of the insured vehicle to two (2)
persons only, namely: the insured himself or any person on his (insured's) permission. Under the second category, it
is to be noted that the words "any person' is qualified by the phrase
... on the insured's order or with his permission.' It is therefore clear that if the person driving is
other than the insured, he must have been duly authorized by the insured, to drive the vehicle to
make the insurance company liable for the driver's negligence. Complainant admitted that she did
not know the person who drove her vehicle at the time of the accident, much less consented to the
use of the same (par. 5 of the complaint). Her husband likewise admitted that he neither knew this
driver Benito Mabasa (Exhibit '4'). With these declarations of complainant and her husband, we
hold that the person who drove the vehicle, in the person of Benito Mabasa, is not an authorized

driver of the complainant. Apparently, this is a violation of the 'Authorized Driver' clause of the
policy.
Respondent commission likewise upheld private respondent's assertion that the car was not stolen and therefore not
covered by the Theft clause, ruling that "The element of 'taking' in Article 308 of the Revised Penal Code means that
the act of depriving another of the possession and dominion of a movable thing is coupled ... with the intention. at the
time of the 'taking', of withholding it with the character of permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In
other words, there must have been shown a felonious intent upon the part of the taker of the car, and the intent must
be an intent permanently to deprive the insured of his car," and that "Such was not the case in this instance. The fact
that the car was taken by one of the residents of the Sunday Machine Works, and the withholding of the same, for a
joy ride should not be construed to mean 'taking' under Art. 308 of the Revised Penal Code. If at all there was a
'taking', the same was merely temporary in nature. A temporary taking is held not a taking insured against (48 A LR
2d., page 15)."
The Court finds respondent commission's dismissal of the complaint to be contrary to the evidence and the law.
First, respondent commission's ruling that the person who drove the vehicle in the person of Benito Mabasa, who,
according to its finding, was one of the residents of the Sunday Machine Works, Inc. to whom the car had been
entrusted for general check-up and repairs was not an "authorized driver" of petitioner-complainant is too restrictive
and contrary to the established principle that insurance contracts, being contracts of adhesion where the only
participation of the other party is the signing of his signature or his "adhesion" thereto, "obviously call for greater
strictness and vigilance on the part of courts of justice with a view of protecting the weaker party from abuse and
imposition, and prevent their becoming traps for the unwary. 2
The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is that a person other than
the insured owner, who drives the car on the insured's order, such as his regular driver, or with his permission, such
as a friend or member of the family or the employees of a car service or repair shop must be duly licensed drivers
and have no disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop necessarily entrusts his car key to the
shop owner and employees who are presumed to have the insured's permission to drive the car for legitimate
purposes of checking or road-testing the car. The mere happenstance that the employee(s) of the shop owner diverts
the use of the car to his own illicit or unauthorized purpose in violation of the trust reposed in the shop by the insured
car owner does not mean that the "authorized driver" clause has been violated such as to bar recovery, provided that
such employee is duly qualified to drive under a valid driver's license.
The situation is no different from the regular or family driver, who instead of carrying out the owner's order to fetch the
children from school takes out his girl friend instead for a joy ride and instead wrecks the car. There is no question of
his being an "authorized driver" which allows recovery of the loss although his trip was for a personal or illicit purpose
without the owner's authorization.
Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft clause, not the
"authorized driver" clause, that applies), 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. "Who 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.
The Court rejects respondent commission's premise that there must be an intent on the part of the taker of the car
"permanently to deprive the insured of his car" and that since the taking here was for a "joy ride" and "merely
temporary in nature," a "temporary taking is held not a taking insured against."

The evidence does not warrant respondent commission's findings that it was a mere "joy ride". From the very
investigator's report cited in its comment, 3 the police found from the waist of the car driver Benito Mabasa Bartolome who
smashed the car and was found dead right after the incident "one cal. 45 Colt. and one apple type grenade," hardly the materials
one would bring along on a "joy ride". Then, again, it is equally evident that the taking proved to be quite permanent rather than
temporary, for the car was totally smashed in the fatal accident and was never returned in serviceable and useful condition to
petitioner-owner.

Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a "joy ride", 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 "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total loss of the insured car in the sum of
P35,000.00 under the theft clause of the policy, subject to the filing of such claim for reimbursement or payment as it
may have as subrogee against the Sunday Machine Works, Inc.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing private respondent
to pay petitioner the sum of P35,000.00 with legal interest from the filing of the complaint until full payment is made
and to pay the costs of suit.
SO ORDERED.
G.R. No. 177839

January 18, 2012

FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME INSURANCE

CORPORATION), Petitioner,
vs.
CHEVRON PHILIPPINES, INC. (formerly known as CALTEX [PHILIPPINES], INC.), Respondent.
DECISION
VILLARAMA, JR., J.:
Before this Court is a Rule 45 Petition assailing the Decision1 dated November 20, 2006 and Resolution2 dated May 8,
2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86623, which reversed the Decision3 dated August 5, 2005 of
the Regional Trial Court (RTC) of Makati City, Branch 59 in Civil Case No 02-857.
Respondent Chevron Philippines, Inc., formerly Caltex Philippines, Inc., sued petitioner First Lepanto-Taisho
Insurance Corporation (now known as FLT Prime Insurance Corporation) for the payment of unpaid oil and petroleum
purchases made by its distributor Fumitechniks Corporation (Fumitechniks).
Fumitechniks, represented by Ma. Lourdes Apostol, had applied for and was issued Surety Bond FLTICG (16) No.
01012 by petitioner for the amount of P15,700,000.00. As stated in the attached rider, the bond was in compliance
with the requirement for the grant of a credit line with the respondent "to guarantee payment/remittance of the cost of
fuel products withdrawn within the stipulated time in accordance with the terms and conditions of the agreement." The
surety bond was executed on October 15, 2001 and will expire on October 15, 2002.4
Fumitechniks defaulted on its obligation. The check dated December 14, 2001 it issued to respondent in the amount
of P11,461,773.10, when presented for payment, was dishonored for reason of "Account Closed." In a letter dated

February 6, 2002, respondent notified petitioner of Fumitechniks unpaid purchases in the total amount
of P15,084,030.30. In its letter-reply dated February 13, 2002, petitioner through its counsel, requested that it be
furnished copies of the documents such as delivery receipts.5 Respondent complied by sending copies of invoices
showing deliveries of fuel and petroleum products between November 11, 2001 and December 1, 2001.
Simultaneously, a letter6 was sent to Fumitechniks demanding that the latter submit to petitioner the following: (1) its
comment on respondents February 6, 2002 letter; (2) copy of the agreement secured by the Bond, together with
copies of documents such as delivery receipts; and (3) information on the particulars, including "the terms and
conditions, of any arrangement that [Fumitechniks] might have made or any ongoing negotiation with Caltex in
connection with the settlement of the obligations subject of the Caltex letter."
In its letter dated March 1, 2002, Fumitechniks through its counsel wrote petitioners counsel informing that it cannot
submit the requested agreement since no such agreement was executed between Fumitechniks and respondent.
Fumitechniks also enclosed a copy of another surety bond issued by CICI General Insurance Corporation in favor of
respondent to secure the obligation of Fumitechniks and/or Prime Asia Sales and Services, Inc. in the amount
of P15,000,000.00.7 Consequently, petitioner advised respondent of the non-existence of the principal agreement as
confirmed by Fumitechniks. Petitioner explained that being an accessory contract, the bond cannot exist without a
principal agreement as it is essential that the copy of the basic contract be submitted to the proposed surety for the
appreciation of the extent of the obligation to be covered by the bond applied for.8
On April 9, 2002, respondent formally demanded from petitioner the payment of its claim under the surety bond.
However, petitioner reiterated its position that without the basic contract subject of the bond, it cannot act on
respondents claim; petitioner also contested the amount of Fumitechniks supposed obligation.9
Alleging that petitioner unjustifiably refused to heed its demand for payment, respondent prayed for judgment
ordering petitioner to pay the sum of P15,080,030.30, plus interest, costs and attorneys fees equivalent to ten
percent of the total obligation.10
Petitioner, in its Answer with Counterclaim,11 asserted that the Surety Bond was issued for the purpose of securing the
performance of the obligations embodied in the Principal Agreement stated therein, which contract should have been
attached and made part thereof.
After trial, the RTC rendered judgment dismissing the complaint as well as petitioners counterclaim. Said court found
that the terms and conditions of the oral credit line agreement between respondent and Fumitechniks have not been
relayed to petitioner and neither were the same conveyed even during trial. Since the surety bond is a mere
accessory contract, the RTC concluded that the bond cannot stand in the absence of the written agreement secured
thereby. In holding that petitioner cannot be held liable under the bond it issued to Fumitechniks, the RTC noted the
practice of petitioner, as testified on by its witnesses, to attach a copy of the written agreement (principal contract)
whenever it issues a surety bond, or to be submitted later if not yet in the possession of the assured, and in case of
failure to submit the said written agreement, the surety contract will not be binding despite payment of the premium.
Respondent filed a motion for reconsideration while petitioner filed a motion for partial reconsideration as to the
dismissal of its counterclaim. With the denial of their motions, both parties filed their respective notice of appeal.
The CA ruled in favor of respondent, the dispositive portion of its decision reads:
WHEREFORE, the appealed Decision is REVERSED and SET ASIDE. A new judgment is hereby entered
ORDERING defendant-appellant First Lepanto-Taisho Insurance Corporation to pay plaintiff-appellant Caltex
(Philippines) Inc. now Chevron Philippines, Inc. the sum of P15,084,030.00.
SO ORDERED.12

According to the appellate court, petitioner cannot insist on the submission of a written agreement to be attached to
the surety bond considering that respondent was not aware of such requirement and unwritten company policy. It also
declared that petitioner is estopped from assailing the oral credit line agreement, having consented to the same upon
presentation by Fumitechniks of the surety bond it issued. Considering that such oral contract between Fumitechniks
and respondent has been partially executed, the CA ruled that the provisions of the Statute of Frauds do not apply.
With the denial of its motion for reconsideration, petitioner appealed to this Court raising the following issues:
I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF THE
PROVISIONS OF THE SURETY BOND WHEN IT HELD THAT THE SURETY BOND SECURED AN ORAL CREDIT
LINE AGREEMENT NOTWITHSTANDING THE STIPULATIONS THEREIN CLEARLY SHOWING BEYOND DOUBT
THAT WHAT WAS BEING SECURED WAS A WRITTEN AGREEMENT, PARTICULARLY, THE WRITTEN
AGREEMENT A COPY OF WHICH WAS EVEN REQUIRED TO BE ATTACHED TO THE SURETY BOND AND
MADE A PART THEREOF.
II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE
QUESTIONED RESPONDENTS EVIDENCE FOR BEING CONTRARY TO THE PAROL EVIDENCE RULE,
IMMATERIAL AND IRRELEVANT AND CONTRARY TO THE STATUTE OF FRAUDS.
III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE
RESPONDENTS MOTION FOR RECONSIDERATION OF THE RTC DECISION FOR BEING A MERE SCRAP OF
PAPER AND PRO FORMA AND, CONSEQUENTLY, IN NOT DECLARING THE RTC DECISION AS FINAL AND
EXECUTORY IN SO FAR AS IT DISMISSED THE COMPLAINT.
IV. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE RTC DECISION
AND IN NOT GRANTING PETITIONERS COUNTERCLAIM.13
The main issue to be resolved is one of first impression: whether a surety is liable to the creditor in the absence of a
written contract with the principal.
Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called the
surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in
favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued
under Act 536,14 as amended. Suretyship arises upon the solidary binding of a person deemed the surety with the
principal debtor, for the purpose of fulfilling an obligation.15 Such undertaking makes a surety agreement an ancillary
contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence
secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it
possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. And
notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability
as a regular party to the undertaking.16
The extent of a suretys liability is determined by the language of the suretyship contract or bond itself. It cannot be
extended by implication, beyond the terms of the contract.17 Thus, to determine whether petitioner is liable to
respondent under the surety bond, it becomes necessary to examine the terms of the contract itself.
Surety Bond FLTICG (16) No. 01012 is a standard form used by petitioner, which states:
That we, FUMITECHNIKS CORP. OF THE PHILS. of #154 Anahaw St., Project 7, Quezon City as principal and First
Lepanto-Taisho Insurance Corporation a corporation duly organized and existing under and by virtue of the laws of
the Philippines as Surety, are held firmly bound unto CALTEX PHILIPPINES, INC. of ______ in the sum ofFIFTEEN
MILLION SEVEN HUNDRED THOUSAND ONLY PESOS (P15,700,000.00), Philippine Currency, for the payment of

which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and
assigns, jointly and severally, firmly by these presents:
The conditions of this obligation are as follows:
WHEREAS, the above-bounden principal, on 15th day of October, 2001 entered into [an] agreement with CALTEX
PHILIPPINES, INC. of ________________ to fully and faithfully
a copy of which is attached hereto and made a part hereof:
WHEREAS, said Obligee__ requires said principal to give a good and sufficient bond in the above stated sum to
secure the full and faithful performance on his part of said agreement__.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms,
conditions, and agreements stipulated in said agreement__ then this obligation shall be null and void; otherwise it
shall remain in full force and effect.
The liability of First Lepanto-Taisho Insurance Corporation under this bond will expire on October 15, 2002__.
x x x x18 (Emphasis supplied.)
The rider attached to the bond sets forth the following:
WHEREAS, the Principal has applied for a Credit Line in the amount of PESOS: Fifteen Million Seven Hundred
thousand only (P15,700,000.00), Philippine Currency with the Obligee for the purchase of Fuel Products;
WHEREAS, the obligee requires the Principal to post a bond to guarantee payment/remittance of the cost of fuel
products withdrawn within the stipulated time in accordance with terms and conditions of the agreement;
IN NO CASE, however, shall the liability of the Surety hereunder exceed the sum of PESOS: Fifteen million seven
hundred thousand only (P15,700,000.00), Philippine Currency.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms and
conditions and agreements stipulated in said undertakings, then this obligation shall be null and void; otherwise, it
shall remain in full force and effect.
The liability of FIRST LEPANTO-TAISHO INSURANCE CORPORATION, under this Bond will expire on 10.15.01_.
Furthermore, it is hereby understood that FIRST LEPANTO-TAISHO INSURANCE CORPORATION will not be liable
for any claim not presented to it in writing within fifteen (15) days from the expiration of this bond, and that the
Obligee hereby waives its right to claim or file any court action against the Surety after the termination of fifteen (15)
days from the time its cause of action accrues.19
Petitioner posits that non-compliance with the submission of the written agreement, which by the express terms of the
surety bond, should be attached and made part thereof, rendered the bond ineffective. Since all stipulations and
provisions of the surety contract should be taken and interpreted together, in this case, the unmistakable intention of
the parties was to secure only those terms and conditions of the written agreement. Thus, by deleting the required
submission and attachment of the written agreement to the surety bond and replacing it with the oral credit
agreement, the obligations of the surety have been extended beyond the limits of the surety contract.
On the other hand, respondent contends that the surety bond had been delivered by petitioner to Fumitechniks which
paid the premiums and delivered the bond to respondent, who in turn, opened the credit line which Fumitechniks

availed of to purchase its merchandise from respondent on credit. Respondent points out that a careful reading of the
surety contract shows that there is no such requirement of submission of the written credit agreement for the bonds
effectivity. Moreover, respondents witnesses had already explained that distributorship accounts are not covered by
written distribution agreements. Supplying the details of these agreements is allowed as an exception to the parol
evidence rule even if it is proof of an oral agreement. Respondent argues that by introducing documents that
petitioner sought to exclude, it never intended to change or modify the contents of the surety bond but merely to
establish the actual terms of the distribution agreement between Fumitechniks and respondent, a separate
agreement that was executed shortly after the issuance of the surety bond. Because petitioner still issued the bond
and allowed it to be delivered to respondent despite the fact that a copy of the written distribution agreement was
never attached thereto, respondent avers that clearly, such attaching of the copy of the principal agreement, was for
evidentiary purposes only. The real intention of the bond was to secure the payment of all the purchases of
Fumitechniks from respondent up to the maximum amount allowed under the bond.
A reading of Surety Bond FLTICG (16) No. 01012 shows that it secures the payment of purchases on credit by
Fumitechniks in accordance with the terms and conditions of the "agreement" it entered into with respondent. The
word "agreement" has reference to the distributorship agreement, the principal contract and by implication included
the credit agreement mentioned in the rider. However, it turned out that respondent has executed written agreements
only with its direct customers but not distributors like Fumitechniks and it also never relayed the terms and conditions
of its distributorship agreement to the petitioner after the delivery of the bond. This was clearly admitted by
respondents Marketing Coordinator, Alden Casas Fajardo, who testified as follows:
Atty. Selim:
Q : Mr. Fajardo[,] you mentioned during your cross-examination that the surety bond as part of the
requirements of [Fumitechniks] before the Distributorship Agreement was approved?
A : Yes Sir.
xxxx
Q : Is it the practice or procedure at Caltex to reduce distributorship account into writing?
xxxx
A : No, its not a practice to make an agreement.
xxxx
Atty. Quiroz:
Q : What was the reason why you are not reducing your agreement with your client into writing?
A : Well, of course as I said, there is no fix pricing in terms of distributorship agreement, its usually with
regards to direct service to the customers which have direct fixed price.
xxxx
Q : These supposed terms and conditions that you agreed with [Fumitechniks], did you relay to the
defendant
A : Yes Sir.
xxxx
Q : How did you relay that, how did you relay the terms and conditions to the defendant?
A : I dont know, it was during the time for collection because I collected them and explain the terms and
conditions.
Q : You testified awhile ago that you did not talk to the defendant First Lepanto-Taisho Insurance
Corporation?
A : I was confused with the question. Im talking about Malou Apostol.
Q : So, in your answer, you have not relayed those terms and conditions to the defendant First Lepanto, you
have not?
A : Yes Sir.
Q : And as of this present, you have not yet relayed the terms and conditions?
A : Yes Sir.
x x x x 20
Respondent, however, maintains that the delivery of the bond and acceptance of premium payment by petitioner
binds the latter as surety, notwithstanding the non-submission of the oral distributorship and credit agreement which
understandably cannot be attached to the bond.

The contention has no merit.

The law is clear that a surety contract should be read and interpreted together with the contract entered into between
the creditor and the principal. Section 176 of the Insurance Code states:
Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the
amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal
contract between the obligor and the obligee. (Emphasis supplied.)
A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it
secures.21Necessarily, the stipulations in such principal agreement must at least be communicated or made known to
the surety particularly in this case where the bond expressly guarantees the payment of respondents fuel products
withdrawn by Fumitechniks in accordance with the terms and conditions of their agreement. The bond specifically
makes reference to a written agreement. It is basic that if the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its stipulations shall control.22 Moreover, being an
onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in
favor of the solidary debtor.23 Having accepted the bond, respondent as creditor must be held bound by the recital in
the surety bond that the terms and conditions of its distributorship contract be reduced in writing or at the very least
communicated in writing to the surety. Such non-compliance by the creditor (respondent) impacts not on the validity
or legality of the surety contract but on the creditors right to demand performance.
It bears stressing that the contract of suretyship imports entire good faith and confidence between the parties in
regard to the whole transaction, although it has been said that the creditor does not stand as a fiduciary in his relation
to the surety. The creditor is generally held bound to a faithful observance of the rights of the surety and to the
performance of every duty necessary for the protection of those rights.24 Moreover, in this jurisdiction, obligations
arising from contracts have the force of law between the parties and should be complied with in good
faith.25 Respondent is charged with notice of the specified form of the agreement or at least the disclosure of basic
terms and conditions of its distributorship and credit agreements with its client Fumitechniks after its acceptance of
the bond delivered by the latter. However, it never made any effort to relay those terms and conditions of its contract
with Fumitechniks upon the commencement of its transactions with said client, which obligations are covered by the
surety bond issued by petitioner. Contrary to respondents assertion, there is no indication in the records that
petitioner had actual knowledge of its alleged business practice of not having written contracts with distributors; and
even assuming petitioner was aware of such practice, the bond issued to Fumitechniks and accepted by respondent
specifically referred to a "written agreement."
As to the contention of petitioner that respondents motion for reconsideration filed before the trial court should have
been deemed not filed for being pro forma, the Court finds it to be without merit. The mere fact that a motion for
reconsideration reiterates issues already passed upon by the court does not, by itself, make it a pro forma motion.
Among the ends to which a motion for reconsideration is addressed is precisely to convince the court that its ruling is
erroneous and improper, contrary to the law or evidence; the movant has to dwell of necessity on issues already
passed upon.26
1avvphi1

Finally, we hold that the trial court correctly dismissed petitioners counterclaim for moral damages and attorneys
fees. The filing alone of a civil action should not be a ground for an award of moral damages in the same way that a
clearly unfounded civil action is not among the grounds for moral damages.27 Besides, a juridical person is generally
not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.28 Although in some recent cases we
have held that the Court may allow the grant of moral damages to corporations, it is not automatically granted; there
must still be proof of the existence of the factual basis of the damage and its causal relation to the defendants acts.
This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer.29 There is no evidence presented to establish the factual basis of petitioners claim for moral damages.

Petitioner is likewise not entitled to attorneys fees. The settled rule is that no premium should be placed on the right
to litigate and that not every winning party is entitled to an automatic grant of attorneys fees.30 In pursuing its claim on
the surety bond, respondent was acting on the belief that it can collect on the obligation of Fumitechniks
notwithstanding the non-submission of the written principal contract.
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The Decision dated November 20, 2006
and Resolution dated May 8, 2007 of the Court of Appeals in CA-G.R. CV No. 86623, are REVERSED and SET
ASIDE. The Decision dated August 5, 2005 of the Regional Trial Court of Makati City, Branch 59 in Civil Case No. 02857 dismissing respondents complaint as well as petitioners counterclaim, is hereby REINSTATED and UPHELD.
No pronouncement as to costs.
SO ORDERED.
G.R. Nos. 152505-06

September 13, 2007

PRUDENTIAL GUARANTEE and ASSURANCE, INC., petitioner,

vs.
EQUINOX LAND CORPORATION, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us for resolution is the instant Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals
(Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57335.
The undisputed facts of the case, as established by the Construction Industry Arbitration Commission (CIAC) and
affirmed by the Court of Appeals, are:
Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to construct five (5) additional floors to
its existing building, the Eastgate Centre, located at 169 EDSA, Mandaluyong City. It then sent invitations to bid to
various building contractors. Four (4) building contractors, including JMarc Construction & Development Corporation
(JMarc), responded.
Finding the bid of JMarc to be the most advantageous, Equinox offered the construction project to it. On February 22,
1997, JMarc accepted the offer. Two days later, Equinox formally awarded to JMarc the contract to build the
extension for a consideration of P37,000,000.00.
On February 24, 1997, JMarc submitted to Equinox two (2) bonds, namely: (1) a surety bond issued by Prudential
Guarantee and Assurance, Inc. (Prudential), herein petitioner, in the amount of P9,250,000.00 to guarantee the
unliquidated portion of the advance payment payable to JMarc; and (2) a performance bond likewise issued by
Prudential in the amount of P7,400,000.00 to guarantee JMarcs faithful performance of its obligations under the
construction agreement.
On March 17, 1997, Equinox and JMarc signed the contract and related documents. Under the terms of the contract,
JMarc would supply all the labor, materials, tools, equipment, and supervision required to complete the project.
In accordance with the terms of the contract, Equinox paid JMarc a downpayment of P9,250,000.00 equivalent to
25% of the contract price.

JMarc did not adhere to the terms of the contract. It failed to submit the required monthly progress billings for the
months of March and April 1997. Its workers neglected to cover the drainpipes, hence, they were clogged by wet
cement. This delayed the work on the project.
On May 23, 1997, JMarc requested an unscheduled cash advance of P300,000.00 from Equinox, explaining it had
encountered cash problems. Equinox granted JMarcs request to prevent delay.
On May 31, 1997, JMarc submitted its first progress billing showing that it had accomplished only 7.3825% of the
construction work estimated at P2,731,535.00. After deducting the advanced payments, the net amount payable to
JMarc was only P1,285,959.12. Of this amount, Equinox paid JMarc only P697,005.12 because the former paid
EXAN P588,954.00 for concrete mix.
Shortly after Equinox paid JMarc based on its first progress billing, the latter again requested an advanced payment
of P150,000.00. Again Equinox paid JMarc this amount. Eventually, Equinox found that the amount owing to JMarcs
laborers was only P121,000.00, not P150,000.00.
In June 1997, EXAN refused to deliver concrete mix to the project site due to JMarcs recurring failure to pay on time.
Faced with a looming delay in the project schedule, Equinox acceded to EXANs request that payments for the
concrete mix should be remitted to it directly.
On June 30, 1997, JMarc submitted its second progress billing showing that it accomplished only 16.0435% of the
project after 4 months of construction work. Based on the contract and its own schedule, JMarc should have
accomplished at least 37.70%.
Faced with the problem of delay, Equinox formally gave JMarc one final chance to take remedial steps in order to
finish the project on time. However, JMarc failed to undertake any corrective measure. Consequently, on July 10,
1997, Equinox terminated its contract with JMarc and took over the project. On the same date, Equinox sent
Prudential a letter claiming relief from JMarcs violations of the contract.
On July 11, 1997, the work on the project stopped. The personnel of both Equinox and JMarc jointly conducted an
inventory of all materials, tools, equipment, and supplies at the construction site. They also measured and recorded
the amount of work actually accomplished. As of July 11, 1997, JMarc accomplished only 19.0573% of the work or a
shortage of 21.565% in violation of the contract.
The cost of JMarcs accomplishment was only P7,051,201.00. In other words, Equinox overpaid JMarc in the sum
of P3,974,300.25 inclusive of the 10% retention on the first progress billing amounting to P273,152.50. In addition,
Equinox also paid the wages of JMarcs laborers, the billings for unpaid supplies, and the amounts owing to
subcontractors of JMarc in the total sum of P664,998.09.
On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch 214, Mandaluyong City a complaint
for sum of money and damages against JMarc and Prudential. Equinox prayed that JMarc be ordered to reimburse
the amounts corresponding to its (Equinox) advanced payments and unliquidated portion of its downpayment; and to
pay damages. Equinox also prayed that Prudential be ordered to pay its liability under the bonds.
In its answer, JMarc alleged that Equinox has no valid ground for terminating their contract. For its part, Prudential
denied Equinoxs claims and instituted a cross-claim against JMarc for any judgment that might be rendered against
its bonds.
During the hearing, Prudential filed a motion to dismiss the complaint on the ground that pursuant to Executive Order
No. 1008, it is the CIAC which has jurisdiction over it.
On February 12, 1999, the trial court granted Prudentials motion and dismissed the case.

On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed as CIAC Case No. 17-99. Prudential
submitted a position paper contending that the CIAC has no jurisdiction over it since it is not a privy to the
construction contract between Equinox and JMarc; and that its surety and performance bonds are not construction
agreements, thus, any action thereon lies exclusively with the proper court.
On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and against JMarc and Prudential, thus:
AWARD
After considering the evidence and the arguments of the parties, we find that:
1. JMarc has been duly notified of the filing and pendency of the arbitration proceeding commenced by
Equinox against JMarc and that CIAC has acquired jurisdiction over JMarc;
2. The construction Contract was validly terminated by Equinox due to JMarcs failure to provide a timely
supply of adequate labor, materials, tools, equipment, and technical services and to remedy its inability to
comply with the construction schedule;
3. Equinox is not entitled to claim liquidated damages, although under the circumstances, in the absence of
adequate proof of actual and compensatory damages, we award to Equinox nominal or temperate damages
in the amount of P500,000.00;
4. The percentage of accomplishment of JMarc at the time of the termination of the Contract was 19.0573%
of the work valued at P7,051,201.00. This amount should be credited to JMarc. On the other hand, Equinox
[i] had paid JMarc 25% of the contract price as down or advance payment, [ii] had paid JMarc its first
progress billing, [iii] had made advances for payroll of the workers, and for unpaid supplies and the works of
JMarcs subcontractors, all in the total sum of P11,690,483.34. Deducting the value of JMarcs
accomplishment from these advances and payment, there is due from JMarc to Equinox the amount
of P4,639,285.34. We hold JMarc liable to pay Equinox this amount of P4,639,285.34.
5. If JMarc had billed Equinox for its accomplishment as of July 11, 1997, 25% of the P7,051,201.00 would
have been recouped as partial payment of the advanced or down payment. This would have resulted in
reducing Prudentials liability on the Surety Bond from P8,250,000.00 to P7,487,199.80. We, therefore, find
that Prudential is liable to Equinox on its Surety Bond the amount of P7,487,199.80;
6. Prudential is furthermore liable on its Performance Bond for the following amounts: the advances made by
Equinox on behalf of JMarc to the workers, suppliers, and subcontractors amounting to P664,985.09, the
nominal damages of P500,000.00 and attorneys fees of P100,000.00 or a total amount ofP1,264,985.00;
7. All other claims and counterclaims are denied;
8. JMarc shall pay the cost of arbitration and shall indemnify Equinox the total amount paid by Equinox as
expenses of arbitration;
9. The total liability of JMarc to Equinox is determined to be P5,139,285.34 plus attorneys fees
ofP100,000.00. The suretys liability cannot exceed that of the principal debtor [Art. 2054, Civil Code}. We
hold that, notwithstanding our finding in Nos. 5 and 6 of this Award, Prudential is liable to Equinox on the
Surety Bond and Performance Bond an amount not to exceed P5,239,285.34. The cost of arbitration shall
be paid by JMarc alone.
The amount of P5,239,285.34 shall be paid by respondent JMarc and respondent Prudential, jointly and
severally, with interest at six percent [6%] per annum from promulgation of this award. This amount,

including accrued interest, shall earn interest at the rate of 12% per annum from the time this decision
becomes final and executory until the entire amount is fully paid or judgment fully satisfied. The expenses of
arbitration, which shall be paid by JMarc alone, shall likewise earn interest at 6% per annum from the date
of promulgation of the award, and 12% from the date the award becomes final until this amount including
accrued interest is fully paid.
SO ORDERED.
Thereupon, Prudential filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 56491.
Prudential alleged that the CIAC erred in ruling that it is bound by the terms of the construction contract between
Equinox and JMarc and that it is solidarily liable with JMarc under its bonds.
Equinox filed a motion for reconsideration on the ground that there is an error in the computation of its claim for
unliquidated damages; and that it is entitled to an award of liquidated damages.
On February 2, 2000, the CIAC amended its Award by reducing the total liability of JMarc to Equinox
toP4,060,780.21, plus attorneys fees of P100,000 or P4,160,780.21, and holding that Prudentials liability to Equinox
on the surety and performance bonds should not exceed the said amount of P4,160,780.21, payable by JMarc and
Prudential jointly and severally.
Dissatisfied, Equinox filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 57335. This
case was consolidated with CA-G.R. SP No. 56491 filed by Prudential.
On November 23, 2001, the Court of Appeals rendered its Decision in CA-G.R. SP No. 57335 and CA-G.R. SP No.
56491, the dispositive portion of which reads:
WHEREFORE, the Amended Decision dated February 2, 2000 is AFFIRMED with MODIFICATION in
paragraph 4 in the Award by holding JMarc liable for unliquidated damages to Equinox in the amount
ofP5,358,167.09 and in paragraph 9 thereof by increasing the total liability of JMarc to Equinox
toP5,958,167.09 (in view of the additional award of P500,000.00 as nominal and temperate damages
andP100,000.00 in attorneys fees), and AFFIRMED in all other respects.
SO ORDERED.
Prudential seasonably filed a motion for reconsideration but it was denied by the Court of Appeals.
The issue raised before us is whether the Court of Appeals erred in (1) upholding the jurisdiction of the CIAC over the
case; and (2) finding Prudential solidarily liable with JMarc for damages.
On the first issue, basic is the rule that administrative agencies are tribunals of limited jurisdiction and as such, can
only wield such powers as are specifically granted to them by their enabling statutes.2
Section 4 of Executive Order No. 1008,3 provides:
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from, or
connected with contracts entered into by parties involved in construction in the Philippines, whether the
dispute arises before or after the completion of the contract, or after the abandonment or breach thereof.
These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship, violation of the terms of agreement, interpretation and/or application of contractual time and
delays, maintenance and defects, payment, default of employer or contractor and changes in contract cost.
Excluded from the coverage of the law are disputes arising from employer-employee relationships which
continue to be covered by the Labor Code of the Philippines.
In David v. Construction Industry and Arbitration Commission,4 we ruled that Section 4 vests upon the CIAC original
and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties
who have agreed to submit their case for voluntary arbitration.
As earlier mentioned, when Equinox lodged with the RTC its complaint for a sum of money against JMarc and
Prudential, the latter filed a motion to dismiss on the ground of lack of jurisdiction, contending that since the case
involves a construction dispute, jurisdiction lies with CIAC. Prudentials motion was granted. However, after the CIAC
assumed jurisdiction over the case, Prudential again moved for its dismissal, alleging that it is not a party to the
construction contract between Equinox and JMarc; and that the surety and performance bonds it issued are not
construction agreements.
After having voluntarily invoked before the RTC the jurisdiction of CIAC, Prudential is estopped to question its
jurisdiction. As we held in Lapanday Agricultural & Development Corporation v. Estita,5 the active participation of a
party in a case pending against him before a court or a quasi-judicial body is tantamount to a recognition of that
courts or quasi-judicial bodys jurisdiction and a willingness to abide by the resolution of the case and will bar said
party from later on impugning the courts or quasi-judicial bodys jurisdiction.
Moreover, in its Reply to Equinoxs Opposition to the Motion to Dismiss before the RTC, Prudential, citingPhilippine
National Bank v. Pineda6 and Finman General Assurance Corporation v. Salik,7 argued that as a surety, it is
considered under the law to be the same party as the obligor in relation to whatever is adjudged regarding the latters
obligation. Therefore, it is the CIAC which has jurisdiction over the case involving a construction contract between
Equinox and JMarc. Such an admission by Prudential binds it and it cannot now claim otherwise.
Anent the second issue, it is not disputed that Prudential entered into a suretyship contract with JMarc. Section 175
of the Insurance Code defines a suretyship as "a contract or agreement whereby a party, called the suretyship,
guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of
a third party, called the obligee. It includes official recognizances, stipulations, bonds, or undertakings issued under
Act 5368, as amended." Corollarily, Article 2047 of the Civil Code provides that suretyship arises upon
the solidary binding of a person deemed the surety with the principal debtor for the purpose of fulfilling an obligation.
In Castellvi de Higgins and Higgins v. Seliner,9 we held that while a surety and a guarantor are alike in that each
promises to answer for the debt or default of another, the surety assumes liability as a regular party to the
undertaking and hence its obligation is primary.
In Security Pacific Assurance Corporation v. Tria-Infante,10 we reiterated the rule that while a contract of surety is
secondary only to a valid principal obligation, the suretys liability to the creditor is said to be direct, primary, and
absolute. In other words, the surety is directly and equally bound with the principal. Thus, Prudential is barred from
disclaiming that its liability with JMarc is solidary.
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals (Third Division) dated
November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57355 is AFFIRMED in toto. Costs against
petitioner.
SO ORDERED.

G.R. No. 151133

June 30, 2008

AFP GENERAL INSURANCE CORPORATION, petitioner,

vs.
NOEL MOLINA, JUANITO ARQUEZA, LEODY VENANCIO, JOSE OLAT, ANGEL CORTEZ, PANCRASIO SIMPAO,
CONRADO CALAPON AND NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION),respondents.
DECISION
QUISUMBING, J.:
This is a petition for review on certiorari of the Decision1 dated August 20, 2001 of the Court of Appeals in CA-G.R.
SP No. 58763 which dismissed herein petitioners special civil action for certiorari. Before the appellate court,
petitioner AFP General Insurance Corporation (AFPGIC) sought to reverse the Resolution2 dated October 5, 1999 of
the National Labor Relations Commission (NLRC) in NLRC NCR CA-011705-96 for having been issued with grave
abuse of discretion. The NLRC affirmed the Order3 dated March 30, 1999 of Labor Arbiter Edgardo Madriaga in NLRC
NCR Case No. 02-00672-90 which had denied AFPGICs Omnibus Motion to Quash Notice/Writ of Garnishment and
Discharge AFPGICs appeal bond for failure of Radon Security & Allied Services Agency (Radon Security) to pay the
premiums on said bond. Equally challenged is the Resolution4 dated December 14, 2001 of the appellate court in CAG.R. SP No. 58763 which denied herein petitioners motion for reconsideration.
The facts of this case are not disputed.
The private respondents are the complainants in a case for illegal dismissal, docketed as NLRC NCR Case No. 0200672-90, filed against Radon Security & Allied Services Agency and/or Raquel Aquias and Ever Emporium, Inc. In
his Decision dated August 20, 1996, the Labor Arbiter ruled that the private respondents were illegally dismissed and
ordered Radon Security to pay them separation pay, backwages, and other monetary claims.
Radon Security appealed the Labor Arbiters decision to public respondent NLRC and posted a supersedeasbond,
issued by herein petitioner AFPGIC as surety. The appeal was docketed as NLRC NCR CA-011705-96.
On April 6, 1998, the NLRC affirmed with modification the decision of the Labor Arbiter. The NLRC found the herein
private respondents constructively dismissed and ordered Radon Security to pay them their separation pay, in lieu of
reinstatement with backwages, as well as their monetary benefits limited to three years, plus attorneys fees
equivalent to 10% of the entire amount, with Radon Security and Ever Emporium, Inc. adjudged jointly and severally
liable.
Radon Security duly moved for reconsideration, but this was denied by the NLRC in its Resolution dated June 22,
1998.
Radon Security then filed a Petition for Certiorari docketed as G.R. No. 134891 with this Court, but we dismissed this
petition in our Resolution of August 31, 1998.
When the Decision dated April 6, 1998 of the NLRC became final and executory, private respondents filed an Urgent
Motion for Execution. As a result, the NLRC Research and Information Unit submitted a Computation of the Monetary
Awards in accordance with the NLRC decision. Radon Security opposed said computation in its Motion for
Recomputation.
On February 5, 1999, the Labor Arbiter issued a Writ of Execution5 incorporating the computation of the NLRC
Research and Information Unit. That same date, the Labor Arbiter dismissed the Motion for Recomputation filed by
Radon Security. By virtue of the writ of execution, the NLRC Sheriff issued a Notice of Garnishment6 against
the supersedeas bond.

Both Ever Emporium, Inc. and Radon Security moved to quash the writ of execution.
On March 30, 1999, the Labor Arbiter denied both motions, and Radon Security appealed to the NLRC.
On April 14, 1999, AFPGIC entered the fray by filing before the Labor Arbiter an Omnibus Motion to Quash
Notice/Writ of Garnishment and to Discharge AFPGICs Appeal Bond on the ground that said bond "has been
cancelled and thus non-existent in view of the failure of Radon Security to pay the yearly premiums."7
On April 30, 1999, the Labor Arbiter denied AFPGICs Omnibus Motion for lack of merit.8 The Labor Arbiter pointed
out that the question of non-payment of premiums is a dispute between the party who posted the bond and the
insurer; to allow the bond to be cancelled because of the non-payment of premiums would result in a factual and legal
absurdity wherein a surety will be rendered nugatory by the simple expedient of non-payment of premiums.
The petitioner then appealed the Labor Arbiters order to the NLRC. The appeals of Radon Security and AFPGIC
were jointly heard as NLRC NCR CA-011705-96.
On October 5, 1999, the NLRC disposed of NLRC NCR CA-011705-96 in this wise:
WHEREFORE, premises considered, the appeals under consideration are hereby DISMISSED for lack of
merit.
SO ORDERED.9
In dismissing the appeal of AFPGIC, the NLRC pointed out that AFPGICs theory that the bond cannot anymore be
proceeded against for failure of Radon Security to pay the premium is untenable, considering that the bond is
effective until the finality of the decision.10 The NLRC stressed that a contrary ruling would allow respondents to
simply stop paying the premium to frustrate satisfaction of the money judgment.11
AFPGIC then moved for reconsideration, but the NLRC denied the motion in its Resolution12 dated February 29, 2000.
AFPGIC then filed a special civil action for certiorari, docketed as CA-G.R. SP No. 58763, with the Court of Appeals,
on the ground that the NLRC committed a grave abuse of discretion in affirming the Order dated March 30, 1999 of
the Labor Arbiter.
On August 20, 2001, the appellate court dismissed CA-G.R. SP No. 58763, disposing as follows:
WHEREFORE, the foregoing considered, the petition is denied due course and accordingly DISMISSED.
SO ORDERED.13
AFPGIC seasonably moved for reconsideration, but this was denied by the appellate court in its Resolution14 of
December 14, 2001.
Hence, the instant case anchored on the lone assignment of error that:
THE COURT OF APPEALS SERIOUSLY ERRED IN SUSTAINING THE PUBLIC RESPONDENT NLRC
ALTHOUGH THE LATTER GRAVELY ABUSED ITS DISCRETION WHEN IT ARBITRARILY IGNORED THE
FACT THAT SUBJECT APPEAL BOND WAS ALREADY CANCELLED FOR NON-PAYMENT OF PREMIUM
AND THUS IT COULD NOT BE SUBJECT OF EXECUTION OR GARNISHMENT.15

The petitioner contends that under Section 6416 of the Insurance Code, which is deemed written into every insurance
contract or contract of surety, an insurer may cancel a policy upon non-payment of the premium. Said cancellation is
binding upon the beneficiary as the right of a beneficiary is subordinate to that of the insured. Petitioner points out
that in South Sea Surety & Insurance Co., Inc. v. CA,17 this Court held that payment of premium is a condition
precedent to and essential for the efficaciousness of a contract of insurance.18 Hence, following UCPB General Ins.
Co., Inc. v. Masagana Telamart, Inc.,19 no insurance policy, other than life, issued originally or on renewal is valid and
binding until actual payment of the premium.20 The petitioner also points toMalayan Insurance Co., Inc. v. Cruz
Arnaldo,21 which reiterated that an insurer may cancel an insurance policy for non-payment of premium.22 Hence,
according to petitioner, the Court of Appeals committed a reversible error in not holding that under Section 7723 of the
Insurance Code, the surety bond between it and Radon Security was not valid and binding for non-payment of
premiums, even as against a third person who was intended to benefit therefrom.
The private respondents adopted in toto the ratiocinations of the Court of Appeals that inasmuch as
asupersedeas bond was posted for the benefit of a third person to guarantee that the money judgment will be
satisfied in case it is affirmed on appeal, the third person who stands to benefit from said bond is entitled to notice of
its cancellation for any reason. Likewise, the NLRC should have been notified to enable it to take the proper action
under the circumstances. The respondents submit that from its very nature, a supersedeas bond remains effective
and the surety liable thereon until formally discharged from said liability. To hold otherwise would enable a losing
party to frustrate a money judgment by the simple expedient of ceasing to pay premiums.
We find merit in the submissions of the private respondents.
The controversy before the Court involves more than just the mere application of the provisions of the Insurance
Code to the factual circumstances. This instant case, after all, traces its roots to a labor controversy involving illegally
dismissed workers. It thus entails the application of labor laws and regulations. Recall that the heart of the dispute is
not an ordinary contract of property or life insurance, but an appeal bond required by both substantive and adjective
law in appeals in labor disputes, specifically Article 22324 of the Labor Code, as amended by Republic Act No.
6715,25 and Rule VI, Section 626 of the Revised NLRC Rules of Procedure. Said provisions mandate that in labor
cases where the judgment appealed from involves a monetary award, the appeal may be perfected only upon the
posting of a cash or surety bond issued by a reputable bonding company accredited by the NLRC.27 The perfection of
an appeal by an employer "only" upon the posting of a cash or surety bond clearly and categorically shows the intent
of the lawmakers to make the posting of a cash or surety bond by the employer to be the exclusive means by which
an employers appeal may be perfected.28 Additionally, the filing of a cash or surety bond is a jurisdictional
requirement in an appeal involving a money judgment to the NLRC.29 In addition, Rule VI, Section 6 of the Revised
NLRC Rules of Procedure is a contemporaneous construction of Article 223 by the NLRC. As an interpretation of a
law by the implementing administrative agency, it is accorded great respect by this Court.30 Note that Rule VI, Section
6 categorically states that the cash or surety bond posted in appeals involving monetary awards in labor disputes
"shall be in effect until final disposition of the case." This could only be construed to mean that the surety bond shall
remain valid and in force until finality and execution of judgment, with the resultant discharge of the surety company
only thereafter, if we are to give teeth to the labor protection clause of the Constitution. To construe the provision any
other way would open the floodgates to unscrupulous and heartless employers who would simply forego paying
premiums on their surety bond in order to evade payment of the monetary judgment. The Court cannot be a party to
any such iniquity.
Moreover, the Insurance Code supports the private respondents arguments. The petitioners reliance on Sections 64
and 77 of the Insurance Code is misplaced. The said provisions refer to insurance contracts in general. The instant
case pertains to a surety bond; thus, the applicable provision of the Insurance Code is Section 177,31which specifically
governs suretyship. It provides that a surety bond, once accepted by the obligee becomes valid and enforceable,
irrespective of whether or not the premium has been paid by the obligor. The private respondents, the obligees here,
accepted the bond posted by Radon Security and issued by the petitioner. Hence, the bond is both valid and
enforceable. A verbis legis non est recedendum (from the language of the law there must be no departure).32

When petitioner surety company cancelled the surety bond because Radon Security failed to pay the premiums, it
gave due notice to the latter but not to the NLRC. By its failure to give notice to the NLRC, AFPGIC failed to
acknowledge that the NLRC had jurisdiction not only over the appealed case, but also over the appeal bond. This
oversight amounts to disrespect and contempt for a quasi-judicial agency tasked by law with resolving labor disputes.
Until the surety is formally discharged, it remains subject to the jurisdiction of the NLRC.
Our ruling, anchored on concern for the employee, however, does not in any way seek to derogate the rights and
interests of the petitioner as against Radon Security. The former is not devoid of remedies against the latter. Under
Section 17633 of the Insurance Code, the liability of petitioner and Radon Security is solidary in nature. There is
solidary liability only when the obligation expressly so states, or when the law so provides, or when the nature of the
obligation so requires.34 Since the law provides that the liability of the surety company and the obligor or principal is
joint and several, then either or both of them may be proceeded against for the money award.
The Labor Arbiter directed the NLRC Sheriff to garnish the surety bond issued by the petitioner. The latter, as surety,
is mandated to comply with the writ of garnishment, for as earlier pointed out, the bond remains enforceable and
under the jurisdiction of the NLRC until it is discharged. In turn, the petitioner may proceed to collect the amount it
paid on the bond, plus the premiums due and demandable, plus any interest owing from Radon Security. This is
pursuant to the principle of subrogation enunciated in Article 206735 of the Civil Code which we apply to the suretyship
agreement between AFPGIC and Radon Security, in accordance with Section 17836 of the Insurance Code. Finding
no reversible error committed by the Court of Appeals in CA-G.R. SP No. 58763, we sustain the challenged decision.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed Decision dated August 20, 2001 of the
Court of Appeals in CA-G.R. SP No. 58763 and the Resolution dated December 14, 2001, of the appellate court
denying the herein petitioners motion for reconsideration are AFFIRMED. Costs against the petitioner.
SO ORDERED.
G.R. No. 92383 July 17, 1992
SUN INSURANCE OFFICE, LTD., petitioner,
vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of P200,000.00. Two
months later, he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on
the policy but her claim was rejected. The petitioner agreed that there was no suicide. It argued, however that there
was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at about 10
o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim was in a happy mood (but not
drunk) and was playing with his handgun, from which he had previously removed the magazine. As she watched
television, he stood in front of her and pointed the gun at her. She pushed it aside and said it might he loaded. He
assured her it was not and then pointed it to his temple. The next moment there was an explosion and Lim slumped
to the floor. He was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The petitioner was
sentenced to pay her P200,000.00, representing the face value of the policy, with interest at the legal rate; P10,000.00 as moral
damages; P5,000.00 as exemplary damages; P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees,

plus the costs of the suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. 3 The petitioner then
came to this Court to fault the Court of Appeals for approving the payment of the claim and the award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an
insurance contract are to be construed and considered according to the ordinary understanding and common usage
and speech of people generally. In-substance, the courts are practically agreed that the words "accident" and
"accidental" mean that which happens by chance or fortuitously, without intention or design, and which is unexpected,
unusual, and unforeseen. The definition that has usually been adopted by the courts is that an accident is an event
that takes place without one's foresight or expectation an event that proceeds from an unknown cause, or is an
unusual effect of a known case, and therefore not expected. 4
An accident is an event which happens without any human agency or, if happening through human agency, an event
which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has also been
defined as an injury which happens by reason of some violence or casualty to the injured without his design, consent,
or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was indeed an
accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that "there is no accident when a
deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs which produces or
brings about their injury or death." There was such a happening. This was the firing of the gun, which was the additional unexpected
and independent and unforeseen occurrence that led to the insured person's death.

The petitioner also cites one of the four exceptions provided for in the insurance contract and contends that the
private petitioner's claim is barred by such provision. It is there stated:
Exceptions
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit suicide or willfully exposing himself to needless peril
except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured
willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they
both signify a disregard for one's life. The only difference is in degree, as suicide imports a positive act of ending such
life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. To illustrate, a person who
walks a tightrope one thousand meters above the ground and without any safety device may not actually be intending
to commit suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing himself to
needless peril" within the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully exposed himself to
needless peril and so came under the exception. The theory is that a gun is per se dangerous and should therefore
be handled cautiously in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from the
gun and believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted
that Lim did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is
that he thought it was not unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed
harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never intended to reward the insured for his tendency to show off
or for his miscalculations. They were intended to provide for contingencies. Hence, when I
miscalculate and jump from the Quezon Bridge into the Pasig River in the belief that I can
overcome the current, I have wilfully exposed myself to peril and must accept the consequences of
my act. If I drown I cannot go to the insurance company to ask them to compensate me for my
failure to swim as well as I thought I could. The insured in the case at bar deliberately put the gun
to his head and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance company to ask for compensation. That
might frighten the insurance people to death. We also agree that under the circumstances narrated, his beneficiary
would not be able to collect on the insurance policy for it is clear that when he braved the currents below,
he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner's
hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below were dangerous. By
contrast, Lim did not know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from
recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy that
relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed
to his own accident. Indeed, most accidents are caused by negligence. There are only four exceptions expressly
made in the contract to relieve the insurer from liability, and none of these exceptions is applicable in the case at
bar. **
It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured.
There is no reason to deviate from this rule, especially in view of the circumstances of this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue raised in this
case is, as the petitioner correctly observed, one of first impression. It is evident that the petitioner was acting in good
faith then it resisted the private respondent's claim on the ground that the death of the insured was covered by the
exception. The issue was indeed debatable and was clearly not raised only for the purpose of evading a legitimate
obligation. We hold therefore that the award of moral and exemplary damages and of attorney's fees is unjust and so
must be disapproved.
In order that a person may be made liable to the payment of moral damages, the law requires that
his act be wrongful. The adverse result of an action does not per se make the act wrongful and
subject the act or to the payment of moral damages. The law could not have meant to impose a
penalty on the right to litigate; such right is so precious that moral damages may not be charged on
those who may exercise it erroneously. For these the law taxes costs. 7

The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing the
action wrongful because in most cases one party will lose; we would be imposing an unjust condition
or limitation on the right to litigate. We hold that the award of moral damages in the case at bar is not
justified by the facts had circumstances as well as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not
the fact of winning alone that entitles him to recover such damages of the exceptional
circumstances enumerated in Art. 2208. Otherwise, every time a defendant wins, automatically the
plaintiff must pay attorney's fees thereby putting a premium on the right to litigate which should not
be so. For those expenses, the law deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the petitioner liable
to the private respondent in the sum of P200,000.00 representing the face value of the insurance contract, with
interest at the legal rate from the date of the filing of the complaint until the full amount is paid, but MODIFIED with
the deletion of all awards for damages, including attorney's fees, except the costs of the suit.
SO ORDERED.
G.R. No. 175773

June 17, 2013

MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION (MMPSEU), Petitioner,

vs.
MITSUBISHI MOTORS PHILIPPINES CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
The Collective Bargaining Agreement (CBA) of the parties in this case provides that the company shoulder the
hospitalization expenses of the dependents of covered employees subject to certain limitations and restrictions.
Accordingly, covered employees pay part of the hospitalization insurance premium through monthly salary deduction
while the company, upon hospitalization of the covered employees' dependents, shall pay the hospitalization
expenses incurred for the same. The conflict arose when a portion of the hospitalization expenses of the covered
employees' dependents were paid/shouldered by the dependent's own health insurance. While the company refused
to pay the portion of the hospital expenses already shouldered by the dependents' own health insurance, the union
insists that the covered employees are entitled to the whole and undiminished amount of said hospital expenses.
By this Petition for Review on Certiorari,1 petitioner Mitsubishi Motors Philippines Salaried Employees Union
(MMPSEU) assails the March 31, 2006 Decision2 and December 5, 2006 Resolution3 of the Court of Appeals (CA) in
CA-G.R. SP No. 75630, which reversed and set aside the Voluntary Arbitrators December 3, 2002 Decision4 and
declared respondent Mitsubishi Motors Philippines Corporation (MMPC) to be under no legal obligation to pay its
covered employees dependents hospitalization expenses which were already shouldered by other health insurance
companies.
Factual Antecedents
The parties CBA5 covering the period August 1, 1996 to July 31, 1999 provides for the hospitalization insurance
benefits for the covered dependents, thus:
SECTION 4. DEPENDENTS GROUP HOSPITALIZATION INSURANCE The COMPANY shall obtain group
hospitalization insurance coverage or assume under a self-insurance basis hospitalization for the dependents of

regular employees up to a maximum amount of forty thousand pesos (P40,000.00) per confinement subject to the
following:
a. The room and board must not exceed three hundred pesos (P300.00) per day up to a maximum of thirtyone (31) days. Similarly, Doctors Call fees must not exceed three hundred pesos (P300.00) per day for a
maximum of thirty-one (31) days. Any excess of this amount shall be borne by the employee.
b. Confinement must be in a hospital designated by the COMPANY. For this purpose, the COMPANY shall
designate hospitals in different convenient places to be availed of by the dependents of employees. In cases
of emergency where the dependent is confined without the recommendation of the company doctor or in a
hospital not designated by the COMPANY, the COMPANY shall look into the circumstances of such
confinement and arrange for the payment of the amount to the extent of the hospitalization benefit.
c. The limitations and restrictions listed in Annex "B" must be observed.
d. Payment shall be direct to the hospital and doctor and must be covered by actual billings.
Each employee shall pay one hundred pesos (P100.00) per month through salary deduction as his share in the
payment of the insurance premium for the above coverage with the balance of the premium to be paid by the
COMPANY. If the COMPANY is self-insured the one hundred pesos (P100.00) per employee monthly contribution
shall be given to the COMPANY which shall shoulder the expenses subject to the above level of benefits and subject
to the same limitations and restrictions provided for in Annex "B" hereof.
The hospitalization expenses must be covered by actual hospital and doctors bills and any amount in excess of the
above mentioned level of benefits will be for the account of the employee.
For purposes of this provision, eligible dependents are the covered employees natural parents, legal spouse and
legitimate or legally adopted or step children who are unmarried, unemployed who have not attained twenty-one (21)
years of age and wholly dependent upon the employee for support.
This provision applies only in cases of actual confinement in the hospital for at least six (6) hours.
Maternity cases are not covered by this section but will be under the next succeeding section on maternity benefits.6
When the CBA expired on July 31, 1999, the parties executed another CBA7 effective August 1, 1999 to July 31, 2002
incorporating the same provisions on dependents hospitalization insurance benefits but in the increased amount
of P50,000.00. The room and board expenses, as well as the doctors call fees, were also increased toP375.00.
On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida), Hermie Juan Oabel (Oabel)
and Jocelyn Martin (Martin), filed claims for reimbursement of hospitalization expenses of their dependents.
MMPC paid only a portion of their hospitalization insurance claims, not the full amount. In the case of Calida, his wife,
Lanie, was confined at Sto. Tomas University Hospital from September 4 to 9, 1998 due to Thyroidectomy. The
medical expenses incurred totalled P29,967.10. Of this amount, P9,000.00 representing professional fees was paid
by MEDICard Philippines, Inc. (MEDICard) which provides health maintenance to Lanie.8 MMPC only
paid P12,148.63.9 It did not pay the P9,000.00 already paid by MEDICard and the P6,278.47 not covered by official
receipts. It refused to give to Calida the difference between the amount of medical expenses ofP27,427.1010 which he
claimed to be entitled to under the CBA and the P12,148.63 which MMPC directly paid to the hospital.
In the case of Martin, his father, Jose, was admitted at The Medical City from March 26 to 27, 2000 due to Acid Peptic
Disease and incurred medical expenses amounting to P9,101.30.14 MEDICard paid P8,496.00.15Consequently, MMPC

only paid P288.40,16 after deducting from the total medical expenses the amount paid by MEDICard and the P316.90
discount given by the hospital.
Claiming that under the CBA, they are entitled to hospital benefits amounting to P27,427.10, P6,769.35
andP8,123.80, respectively, which should not be reduced by the amounts paid by MEDICard and by Prosper, Calida,
Oabel and Martin asked for reimbursement from MMPC. However, MMPC denied the claims contending that double
insurance would result if the said employees would receive from the company the full amount of hospitalization
expenses despite having already received payment of portions thereof from other health insurance providers.
This prompted the MMPSEU President to write the MMPC President17 demanding full payment of the hospitalization
benefits. Alleging discrimination against MMPSEU union members, she pointed out that full reimbursement was given
in a similar claim filed by Luisito Cruz (Cruz), a member of the Hourly Union. In a letter-reply,18 MMPC, through its
Vice-President for Industrial Relations Division, clarified that the claims of the said MMPSEU members have already
been paid on the basis of official receipts submitted. It also denied the charge of discrimination and explained that the
case of Cruz involved an entirely different matter since it concerned the admissibility of certified true copies of
documents for reimbursement purposes, which case had been settled through voluntary arbitration.
On August 28, 2000, MMPSEU referred the dispute to the National Conciliation and Mediation Board and requested
for preventive mediation.19
Proceedings before the Voluntary Arbitrator
On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando Capocyan for resolution of the issue
involving the interpretation of the subject CBA provision.20
MMPSEU alleged that there is nothing in the CBA which prohibits an employee from obtaining other insurance or
declares that medical expenses can be reimbursed only upon presentation of original official receipts. It stressed that
the hospitalization benefits should be computed based on the formula indicated in the CBA without deducting the
benefits derived from other insurance providers. Besides, if reduction is permitted, MMPC would be unjustly benefited
from the monthly premium contributed by the employees through salary deduction. MMPSEU added that its members
had legitimate claims under the CBA and that any doubt as to any of its provisions should be resolved in favor of its
members. Moreover, any ambiguity should be resolved in favor of labor.21
On the other hand, MMPC argued that the reimbursement of the entire amounts being claimed by the covered
employees, including those already paid by other insurance companies, would constitute double indemnity or double
insurance, which is circumscribed under the Insurance Code. Moreover, a contract of insurance is a contract of
indemnity and the employees cannot be allowed to profit from their dependents loss.22
Meanwhile, the parties separately sought for a legal opinion from the Insurance Commission relative to the issue at
hand. In its letter23 to the Insurance Commission, MMPC requested for confirmation of its position that the covered
employees cannot claim insurance benefits for a loss that had already been covered or paid by another insurance
company. However, the Office of the Insurance Commission opted not to render an opinion on the matter as the
same may become the subject of a formal complaint before it.24 On the other hand, when queried by MMPSEU,25 the
Insurance Commission, through Atty. Richard David C. Funk II (Atty. Funk) of the Claims Adjudication Division,
rendered an opinion contained in a letter,26 viz:
Ms. Cecilia L. ParasPresident
Mitsubishi Motors Phils.
[Salaried] Employees Union
Ortigas Avenue Extension,
Cainta, Rizal

Madam:
We acknowledge receipt of your letter which, to our impression, basically poses the question of whether or not
recovery of medical expenses from a Health Maintenance Organization bars recovery of the same reimbursable
amount of medical expenses under a contract of health or medical insurance.
We wish to opine that in cases of claims for reimbursement of medical expenses where there are two contracts
providing benefits to that effect, recovery may be had on both simultaneously. In the absence of an Other Insurance
provision in these coverages, the courts have uniformly held that an insured is entitled to receive the insurance
benefits without regard to the amount of total benefits provided by other insurance. (INSURANCE LAW, A Guide to
Fundamental Principles, Legal Doctrines, and Commercial Practices; Robert E. Keeton, Alau I. Widiss, p. 261). The
result is consistent with the public policy underlying the collateral source rule that is, x x x the courts have usually
concluded that the liability of a health or accident insurer is not reduced by other possible sources of indemnification
or compensation. (ibid).
Very truly yours,
RICHARD DAVID C. FUNK II
Officer-in-Charge
Claims Adjudication Division
(SGD.)
Attorney IV
On December 3, 2002, the Voluntary Arbitrator rendered a Decision27 finding MMPC liable to pay or reimburse the
amount of hospitalization expenses already paid by other health insurance companies. The Voluntary Arbitrator held
that the employees may demand simultaneous payment from both the CBA and their dependents separate health
insurance without resulting to double insurance, since separate premiums were paid for each contract. He also noted
that the CBA does not prohibit reimbursement in case there are other health insurers.
Proceedings before the Court of Appeals
MMPC filed a Petition for Review with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction28 before the CA. It claimed that the Voluntary Arbitrator committed grave abuse of discretion in
not finding that recovery under both insurance policies constitutes double insurance as both had the same subject
matter, interest insured and risk or peril insured against; in relying solely on the unauthorized legal opinion of Atty.
Funk; and in not finding that the employees will be benefited twice for the same loss. In its Comment,29 MMPSEU
countered that MMPC will unjustly enrich itself and profit from the monthly premiums paid if full reimbursement is not
made.
On March 31, 2006, the CA found merit in MMPCs Petition. It ruled that despite the lack of a provision which bars
recovery in case of payment by other insurers, the wordings of the subject provision of the CBA showed that the
parties intended to make MMPC liable only for expenses actually incurred by an employees qualified dependent. In
particular, the provision stipulates that payment should be made directly to the hospital and that the claim should be
supported by actual hospital and doctors bills. These mean that the employees shall only be paid amounts not
covered by other health insurance and is more in keeping with the principle of indemnity in insurance contracts.
Besides, a contrary interpretation would "allow unscrupulous employees to unduly profit from the x x x benefits" and
shall "open the floodgates to questionable claims x x x."30
The dispositive portion of the CA Decision31 reads:

WHEREFORE, the instant petition is GRANTED. The decision of the voluntary arbitrator dated December 3, 2002 is
REVERSED and SET ASIDE and judgment is rendered declaring that under Art. XI, Sec. 4 of the Collective
Bargaining Agreement between petitioner and respondent effective August 1, 1999 to July 31, 2002, the formers
obligation to reimburse the Union members for the hospitalization expenses incurred by their dependents is exclusive
of those paid by the Union members to the hospital.
SO ORDERED.32
In its Motion for Reconsideration,33 MMPSEU pointed out that the alleged oppression that may be committed by
abusive employees is a mere possibility whereas the resulting losses to the employees are real. MMPSEU cited
Samsel v. Allstate Insurance Co.,34 wherein the Arizona Supreme Court explicitly ruled that an insured may recover
from separate health insurance providers, regardless of whether one of them has already paid the medical expenses
incurred. On the other hand, MMPC argued in its Comment35 that the cited foreign case involves a different set of
facts.
The CA, in its Resolution36 dated December 5, 2006, denied MMPSEUs motion.
Hence, this Petition.
Issues
MMPSEU presented the following grounds in support of its Petition:
A.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION DATED 03 [DECEMBER]
2002 OF THE VOLUNTARY ARBITRATOR BELOW WHEN THE SAME WAS SUPPORTED BY SUBSTANTIAL
EVIDENCE, INCLUDING THE OPINION OF THE INSURANCE COMMISSION THAT RECOVERY FROM BOTH
THE CBA AND SEPARATE HEALTH CARDS IS NOT PROHIBITED IN THE ABSENCE OF ANY SPECIFIC
PROVISION IN THE CBA.
B.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN OVERTURNING THE DECISION OF THE
VOLUNTARY ARBITRATOR WITHOUT EVEN GIVING ANY LEGAL OR JUSTIFIABLE BASIS FOR SUCH
REVERSAL.
C.
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO CONSIDER OR EVEN MENTION
ANYTHING ABOUT THE AMERICAN AUTHORITIES CITED IN THE RECORDS THAT DO NOT PROHIBIT, BUT IN
FACT ALLOW, RECOVERY FROM TWO SEPARATE HEALTH PLANS.
D.
THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE TO A POSSIBLE, HENCE
MERELY SPECULATIVE, ABUSE BY EMPLOYEES OF THE BENEFITS IF DOUBLE RECOVERY WERE ALLOWED
INSTEAD OF THE REAL INJURY TO THE EMPLOYEES WHO ARE PAYING FOR THE CBA HOSPITALIZATION
BENEFITS THROUGH MONTHLY SALARY DEDUCTIONS BUT WHO MAY NOT BE ABLE TO AVAIL OF THE SAME
IF THEY OR THEIR DEPENDENTS HAVE OTHER HEALTH INSURANCE.37

MMPSEU avers that the Decision of the Voluntary Arbitrator deserves utmost respect and finality because it is
supported by substantial evidence and is in accordance with the opinion rendered by the Insurance Commission, an
agency equipped with vast knowledge concerning insurance contracts. It maintains that under the CBA, memberemployees are entitled to full reimbursement of medical expenses incurred by their dependents regardless of any
amounts paid by the latters health insurance provider. Otherwise, non-recovery will constitute unjust enrichment on
the part of MMPC. It avers that recovery from both the CBA and other insurance companies is allowed under their
CBA and not prohibited by law nor by jurisprudence.
Our Ruling
The Petition has no merit.
Atty. Funk erred in applying the
collateral source rule.
The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the employees may recover benefits from
different insurance providers without regard to the amount of benefits paid by each. According to him, this view is
consistent with the theory of the collateral source rule.
As part of American personal injury law, the collateral source rule was originally applied to tort cases wherein the
defendant is prevented from benefiting from the plaintiffs receipt of money from other sources.38 Under this rule, if an
injured person receives compensation for his injuries from a source wholly independent of the tortfeasor, the payment
should not be deducted from the damages which he would otherwise collect from the tortfeasor.39 In a recent
Decision40 by the Illinois Supreme Court, the rule has been described as "an established exception to the general rule
that damages in negligence actions must be compensatory." The Court went on to explain that although the rule
appears to allow a double recovery, the collateral source will have a lien or subrogation right to prevent such a double
recovery.41 In Mitchell v. Haldar,42 the collateral source rule was rationalized by the Supreme Court of Delaware:
The collateral source rule is predicated on the theory that a tortfeasor has no interest in, and therefore no right to
benefit from monies received by the injured person from sources unconnected with the defendant. According to the
collateral source rule, a tortfeasor has no right to any mitigation of damages because of payments or compensation
received by the injured person from an independent source. The rationale for the collateral source rule is based upon
the quasi-punitive nature of tort law liability. It has been explained as follows:
The collateral source rule is designed to strike a balance between two competing principles of tort law: (1) a plaintiff is
entitled to compensation sufficient to make him whole, but no more; and (2) a defendant is liable for all damages that
proximately result from his wrong. A plaintiff who receives a double recovery for a single tort enjoys a windfall; a
defendant who escapes, in whole or in part, liability for his wrong enjoys a windfall. Because the law must sanction
one windfall and deny the other, it favors the victim of the wrong rather than the wrongdoer.
Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even if it results in a
windfall for the innocent plaintiff. (Citations omitted)
As seen, the collateral source rule applies in order to place the responsibility for losses on the party causing
them.43 Its application is justified so that "'the wrongdoer should not benefit from the expenditures made by the injured
party or take advantage of contracts or other relations that may exist between the injured party and third
persons."44 Thus, it finds no application to cases involving no-fault insurances under which the insured is indemnified
for losses by insurance companies, regardless of who was at fault in the incident generating the losses.45 Here, it is
clear that MMPC is a no-fault insurer. Hence, it cannot be obliged to pay the hospitalization expenses of the
dependents of its employees which had already been paid by separate health insurance providers of said
dependents.

The Voluntary Arbitrator therefore erred in adopting Atty. Funks view that the covered employees are entitled to full
payment of the hospital expenses incurred by their dependents, including the amounts already paid by other health
insurance companies based on the theory of collateral source rule.
The conditions set forth in the CBA provision indicate an intention to limit MMPCs liability only to actual expenses
incurred by the employees dependents, that is, excluding the amounts paid by dependents other health insurance
providers.
The Voluntary Arbitrator ruled that the CBA has no express provision barring claims for hospitalization expenses
already paid by other insurers. Hence, the covered employees can recover from both. The CA did not agree, saying
that the conditions set forth in the CBA implied an intention of the parties to limit MMPCs liability only to the extent of
the expenses actually incurred by their dependents which excludes the amounts shouldered by other health
insurance companies.
We agree with the CA. The condition that payment should be direct to the hospital and doctor implies that MMPC is
only liable to pay medical expenses actually shouldered by the employees dependents. It follows that MMPCs
liability is limited, that is, it does not include the amounts paid by other health insurance providers. This condition is
obviously intended to thwart not only fraudulent claims but also double claims for the same loss of the dependents of
covered employees.
It is well to note at this point that the CBA constitutes a contract between the parties and as such, it should be strictly
construed for the purpose of limiting the amount of the employers liability.46 The terms of the subject provision are
clear and provide no room for any other interpretation. As there is no ambiguity, the terms must be taken in their plain,
ordinary and popular sense.47 Consequently, MMPSEU cannot rely on the rule that a contract of insurance is to be
liberally construed in favor of the insured. Neither can it rely on the theory that any doubt must be resolved in favor of
labor.
Samsel v. Allstate Insurance Co. is not
on all fours with the case at bar.
MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court of Arizona allowed the insured
to enjoy medical benefits under an automobile policy insurance despite being able to also recover from a separate
health insurer. In that case, the Allstate automobile policy does not contain any clause restricting medical payment
coverage to expenses actually paid by the insured nor does it specifically provide for reduction of medical payments
benefits by a coordination of benefits.48 However, in the case before us, the dependents group hospitalization
insurance provision in the CBA specifically contains a condition which limits MMPCs liability only up to the extent of
the expenses that should be paid by the covered employees dependent to the hospital and doctor. This is evident
from the portion which states that "payment by MMPC shall be direct to the hospital and doctor."49 In contrast, the
Allstate automobile policy expressly gives Allstate the authority to pay directly to the insured person or on the latters
behalf all reasonable expenses actually incurred. Therefore, reliance on Samsel is unavailing because the facts
therein are different and not decisive of the issues in the present case.
To allow reimbursement of amounts paid
under other insurance policies shall
constitute double recovery which is not
sanctioned by law.
MMPSEU insists that MMPC is also liable for the amounts covered under other insurance policies; otherwise, MMPC
will unjustly profit from the premiums the employees contribute through monthly salary deductions.
This contention is unmeritorious.

To constitute unjust enrichment, it must be shown that a party was unjustly enriched in the sense that the term
unjustly could mean illegally or unlawfully.50 A claim for unjust enrichment fails when the person who will benefit has a
valid claim to such benefit.51
The CBA has provided for MMPCs limited liability which extends only up to the amount to be paid to the hospital and
doctor by the employees dependents, excluding those paid by other insurers. Consequently, the covered employees
will not receive more than what is due them; neither is MMPC under any obligation to give more than what is due
under the CBA.
Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the parties must be
determined in accordance with the general principles of insurance law.52 Being in the nature of a non-life insurance
contract and essentially a contract of indemnity, the CBA provision obligates MMPC to indemnify the covered
employees medical expenses incurred by their dependents but only up to the extent of the expenses actually
incurred.53 This is consistent with the principle of indemnity which proscribes the insured from recovering greater than
the loss.54 Indeed, to profit from a loss will lead to unjust enrichment and therefore should not be countenanced. As
aptly ruled by the CA, to grant the claims of MMPSEU will permit possible abuse by employees.
WHEREFORE, the Petition is DENIED. The Decision dated March 31, 2006 and Resolution dated December 5, 2006
of the Court of Appeals in CA-G.R. SP No. 75630, are AFFIRMED.
SO ORDERED.