Tan v.

CA - Rescission of the contract of insurance

174 SCRA 403

Facts:

> Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.

> On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with Philamlife for the proceeds of
the insurance.

> Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding the contract on the ground of
misrepresentation. The beneficiaries contend that Philamlife can no longer rescind the contract on the ground of
misrepresentation as rescission must allegedly be done during the lifetime of the insured within two years and
prior to the commencement of the action following the wording of Sec. 48, par. 2.

Issue:

Whether or not Philamlife can rescind the contract.

Held:

YES.

The phrase during the lifetime found in Sec. 48 simply means that the policy is no longer in force after the
insured has died. The key phrase in the second paragraph is for a period of two years.

What is a simpler illustration of the ruling in Tan v. CA?

The period to consider in a life insurance poiicy is two years from the date of issue or of the last reinstatement.
So if for example the policy was issued/reinstated on Jan 1, 2000, the insurer can still exercise his right to rescind
up to Jan. 1, 2003 or two years from the date of issue/reinstatement, REGARDLESS of whether the insured died
before or after Jan. 1, 2003.

NEW LIFE ENTERPRISES V CA

207 SCRA 669

REGALADO; March 31, 1992

NATURE

Appeal by certiorari

FACTS

- The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a business partnership in the City of
Lucena. Under the business name of New Life Enterprises, the partnership engaged in the sale of construction materials at its
place of business, a two storey building situated at Iyam, Lucena City. The facts show that Julian Sy insured the stocks in
trade of New Life Enterprises with Western Guaranty Corporation, Reliance Surety and Insurance Co. Inc., and Equitable
Insurance Corporation.

- On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the amount of P350,000.00. This
policy was renewed on May 13, 1982.
- On July 30, 1981, Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy No. 69135 in the amount of
P300,000.00 (Renewed under Renewal Certificate No. 41997). An additional insurance was issued by the same company on
November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of P700,000.00.

- On February 8, 1982, Equitable Insurance Corporation issued Fire Insurance Policy No. 39328 in the amount of
P200,000.00.

- Thus when the building occupied by the New Life Enterprises was gutted by fire at about 2:00 o'clock in the morning of
October 19, 1982, the stocks in trade inside said building were insured against fire in the total amount of P1,550,000.00.
According to the certification issued by the Headquarters, Philippine Constabulary/Integrated National Police, Camp Crame,
the cause of fire was electrical in nature. According to the plaintiffs, the building and the stocks inside were burned. After the
fire, Julian Sy went to the agent of Reliance Insurance whom he asked to accompany him to the office of the company so that
he can file his claim. He averred that in support of his claim, he submitted the fire clearance, the insurance policies and
inventory of stocks.

He further testified that the three insurance companies are sister companies, and as a matter of fact when he was following-
up his claim with Equitable Insurance, the Claims Manager told him to go first to Reliance Insurance and if said company
agrees to pay, they would also pay. The same treatment was given him by the other insurance companies. Ultimately, the
three insurance companies denied plaintiffs' claim for payment.

Respondents comments

> Western Guaranty Corporation through Claims Manager Bernard S. Razon told the plaintiff that his claim 'is denied for
breach of policy conditions.' Reliance Insurance purveyed the same message as well as Equitable Insurance Corporation.

- The said policy in question follows:

"The insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be
effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only
hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated therein or
endorsed on this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence
of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not
apply when the total insurance or insurances in force at the time of loss or damage is not more than P200,000.00."

Petitioners comments

> Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent Leon Alvarez (for
Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the existence of the additional insurance coverage and
that they were not informed about the requirement that such other or additional insurance should be stated in the policy, as
they have not even read said policies.

ISSUE

WON New Life Enterprises claim for payment be denied

HELD

YES

Ratio Furthermore, when the words and language of documents are clear and plain or readily understandable by an ordinary
reader thereof, there is absolutely no room for interpretation or construction anymore. Courts are not allowed to make
contracts for the parties; rather, they will intervene only when the terms of the policy are ambiguous, equivocal, or uncertain.
The parties must abide by the terms of the contract because such terms constitute the measure of the insurer's liability and
compliance therewith is a condition precedent to the insured's right of recovery from the insurer.

- While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of
the insured and strictly against the insurer company, yet contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Moreover, obligations arising
from contracts have the force of law between the contracting parties and should be complied with in good faith.

Reasoning
a. The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any
other insurance and its particulars which he may have effected on the same subject matter. The knowledge of such insurance
by the insurer's agents, even assuming the acquisition thereof by the former, is not the "notice" that would stop the insurers
from denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge of the agent is knowledge of
the principal, aside from being of dubious applicability here has likewise been roundly refuted by respondent court whose
factual findings we find acceptable.

b. Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care and prudence
that would be exacted in relation to other contracts. The conformity of the insured to the terms of the policy is implied from
his failure to express any disagreement with what is provided for.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,

vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner,

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

Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.

Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.

Renato J. Robles for BORMAHECO, Inc. and Cervanteses.

Leonardo B. Lucena for Constancio Maglana.

GUTIERREZ, JR., J.:

The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-
G.R. CV No. 66195 which modified the decision of the then Court of First Instance of Manila in
Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against all
defendants (respondents in G.R. No. 84197) was dismissed but in all other respects the trial
court's decision was affirmed.

The dispositive portion of the trial court's decision reads as follows:

 WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff
the amount of P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus
15% of the amount awarded to plaintiff as attorney's fees from July 2,1966, until full payment is
made; plus P70,000.00 moral and exemplary damages.

It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses
aside from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required
to pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the
amount of Pl84,878.74 with interest from the filing of the cross-complaints until the amount is fully
paid; plus moral and exemplary damages in the amount of P184,878.84 with interest from the filing
of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the
amount of P50,000.00 for each of the two Cervanteses.

Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another
P20,000.00 to Constancio B. Maglana as attorney's fees.

xxx xxx xxx

WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants
Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is
required to indemnify the defendants Bormaheco and the Cervanteses the amount of P20,000.00
as attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate of interest up to
the time it is paid.

Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as
attorney's fees and costs.

No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith.
The fact that the properties of the Bormaheco and the Cervanteses were attached and that they
were required to file a counterbond in order to dissolve the attachment, is not an act of bad faith.
When a man tries to protect his rights, he should not be saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided for in the Rules of Court, and it was the court that
ordered it, in the exercise of its discretion.

No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it
only secured the attachment prayed for by the plaintiff Pioneer. If an insurance company would be
liable for damages in performing an act which is clearly within its power and which is the reason for
its being, then nobody would engage in the insurance business. No further claim or counter-claim
for or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as
owner-operator of Southern Air Lines (SAL) a single proprietorship.

On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and
executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts
and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid
in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965
while the other aircraft, arrived in Manila on July 18,1965.

On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No.
84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in
behalf of its principal, Lim, for the balance price of the aircrafts and spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco
and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions)
contributed some funds used in the purchase of the above aircrafts and spare parts. The funds
were supposed to be their contributions to a new corporation proposed by Lim to expand his
airline business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2)
in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL,
Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors
principally agree and bind themselves jointly and severally to indemnify and hold and save
harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties,
charges and expenses of whatever kind and nature which Pioneer may incur in consequence of
having become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its
successors and assigns, all sums and amounts of money which it or its representatives should
or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of
Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former.
It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. The deed
(Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila and
with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil
Aeronautics Law (Republic Act No. 776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request payments from
the surety. Pioneer paid a total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before
the Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party claim
alleging that they are co-owners of the aircrafts,

On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of
preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and
Maglana.

In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim
alleging that they were not privies to the contracts signed by Lim and, by way of counterclaim,
sought for damages for being exposed to litigation and for recovery of the sums of money they
advanced to Lim for the purchase of the aircrafts in question.

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants.

As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs
complaint against all the defendants was dismissed. In all other respects the trial court's
decision was affirmed.

We first resolve G.R. No. 84197.

Petitioner Pioneer Insurance and Surety Corporation avers that:

RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE

APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY
COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA
AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM
HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No.
84197, p. 10)
The petitioner questions the following findings of the appellate court:

We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of
liability under the surety bond in favor of JDA and subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28 from
defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute the
instant action as it does not stand to be benefited or injured by the judgment.

Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from
defendants, hence, it instituted the action is utterly devoid of merit. Plaintiff did not even present
any evidence that it is the attorney-in-fact of the reinsurance company, authorized to institute an
action for and in behalf of the latter. To qualify a person to be a real party in interest in whose name
an action must be prosecuted, he must appear to be the present real owner of the right sought to
be enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has been held
that the real party in interest is the party who would be benefited or injured by the judgment or the
party entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By
real party in interest is meant a present substantial interest as distinguished from a mere
expectancy or a future, contingent, subordinate or consequential interest (Garcia v. David, 67 Phil.
27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW
2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).

Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in
interest as it has already been paid by the reinsurer the sum of P295,000.00 the bulk of
defendants' alleged obligation to Pioneer.

In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer,
the former was able to foreclose extra-judicially one of the subject airplanes and its spare engine,
realizing the total amount of P37,050.00 from the sale of the mortgaged chattels. Adding the sum of
P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff
has been overpaid in the amount of P33,383.72 considering that the total amount it had paid to
JDA totals to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the amount in
excess of P298,666.28 would be tantamount to unjust enrichment as it has already been paid by
the reinsurance company of the amount plaintiff has paid to JDA as surety of defendant Lim vis-a-
vis defendant Lim's liability to JDA. Well settled is the rule that no person should unjustly enrich
himself at the expense of another (Article 22, New Civil Code). (Rollo-84197, pp. 24-25).

The petitioner contends that-(1) it is at a loss where respondent court based its finding that
petitioner was paid by its reinsurer in the aforesaid amount, as this matter has never been
raised by any of the parties herein both in their answers in the court below and in their
respective briefs with respondent court; (Rollo, p. 11) (2) even assuming hypothetically that it
was paid by its reinsurer, still none of the respondents had any interest in the matter since the
reinsurance is strictly between the petitioner and the re-insurer pursuant to section 91 of the
Insurance Code; (3) pursuant to the indemnity agreements, the petitioner is entitled to recover
from respondents Bormaheco and Maglana; and (4) the principle of unjust enrichment is not
applicable considering that whatever amount he would recover from the co-indemnitor will be
paid to the reinsurer.

The records belie the petitioner's contention that the issue on the reinsurance money was never
raised by the parties.

A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out
were:

xxx xxx xxx

 1. Has Pioneer a cause of action against defendants with respect to so much of its obligations to
JDA as has been paid with reinsurance money?

2. If the answer to the preceding question is in the negative, has Pioneer still any claim against
defendants, considering the amount it has realized from the sale of the mortgaged properties?
(Record on Appeal, p. 359, Annex B of G.R. No. 84157).

In resolving these issues, the trial court made the following findings:

It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor
of JDA, collected the proceeds of such reinsurance in the sum of P295,000, and paid with the said
amount the bulk of its alleged liability to JDA under the said surety bond, it is plain that on this
score it no longer has any right to collect to the extent of the said amount.

On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for
the amount paid to it by the reinsurers, notwithstanding that the cause of action pertains to the
latter, Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation
shall pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is representing the
reinsurers to recover the amount.' In other words, insofar as the amount paid to it by the reinsurers
Pioneer is suing defendants as their attorney-in-fact.

But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as
attorney-in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has no
right to institute and maintain in its own name an action for the benefit of the reinsurers. It is well-
settled that an action brought by an attorney-in-fact in his own name instead of that of the principal
will not prosper, and this is so even where the name of the principal is disclosed in the complaint.

Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be
prosecuted in the name of the real party in interest.' This provision is mandatory.
The real party in interest is the party who would be benefitted or injured by the
judgment or is the party entitled to the avails of the suit.

This Court has held in various cases that an attorney-in-fact is not a real party in
interest, that there is no law permitting an action to be brought by an attorney-in-
fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and
Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L-
22347,1968, 23 SCRA 706, 710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00
from the reinsurers, the uninsured portion of what it paid to JDA is the difference between the two
amounts, or P3,666.28. This is the amount for which Pioneer may sue defendants, assuming that
the indemnity agreement is still valid and effective. But since the amount realized from the sale of
the mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine,
or a total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more
claim against defendants. (Record on Appeal, pp. 360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate court.
Considering this admitted payment, the only issue that cropped up was the effect of payment
made by the reinsurers to the petitioner. Therefore, the petitioner's argument that the
respondents had no interest in the reinsurance contract as this is strictly between the petitioner
as insured and the reinsuring company pursuant to Section 91 (should be Section 98) of the
Insurance Code has no basis.

In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are
acquired in similar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time
Molasses Co. C.C.A. La., 46 F 2nd 925).
 The rules of practice in actions on original insurance policies are in general applicable to actions or
contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA.
380, 7 Ann. Con. 1134).

Hence the applicable law is Article 2207 of the new Civil Code, to wit:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber
Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing
Corporation v. Court of Appeals (154 SCRA 650 [1987]):

Note that if a property is insured and the owner receives the indemnity from the insurer, it is
provided in said article that the insurer is deemed subrogated to the rights of the insured against
the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the
aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision,
the real party in interest with regard to the portion of the indemnity paid is the insurer and not the
insured. (Emphasis supplied).

It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of
the reinsurer.

Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's
complaint as against the respondents for the reason that the petitioner was not the real party in
interest in the complaint and, therefore, has no cause of action against the respondents.

Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should
not have been dismissed on the premise that the evidence on record shows that it is entitled to
recover from the counter indemnitors. It does not, however, cite any grounds except its
allegation that respondent "Maglanas defense and evidence are certainly incredible" (p. 12,
Rollo) to back up its contention.

On the other hand, we find the trial court's findings on the matter replete with evidence to
substantiate its finding that the counter-indemnitors are not liable to the petitioner. The trial court
stated:

Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective
after the execution of the chattel mortgage.

Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue
the bond provided that the same would be mortgaged to it, but this was not possible because the
planes were still in Japan and could not be mortgaged here in the Philippines. As soon as the
aircrafts were brought to the Philippines, they would be mortgaged to Pioneer Insurance to cover
the bond, and this indemnity agreement would be cancelled.

The following is averred under oath by Pioneer in the original complaint:

 The various conflicting claims over the mortgaged properties have impaired and
rendered insufficient the security under the chattel mortgage and there is thus no
other sufficient security for the claim sought to be enforced by this action.

This is judicial admission and aside from the chattel mortgage there is no other security for the
claim sought to be enforced by this action, which necessarily means that the indemnity agreement
had ceased to have any force and effect at the time this action was instituted. Sec 2, Rule 129,
Revised Rules of Court.

Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and
spare parts, no longer has any further action against the defendants as indemnitors to recover any
unpaid balance of the price. The indemnity agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These defendants, as indemnitors, would be entitled to be
subrogated to the right of Pioneer should they make payments to the latter. Articles 2067 and 2080
of the New Civil Code of the Philippines.

Independently of the preceding proposition Pioneer's election of the remedy of foreclosure

precludes any further action to recover any unpaid balance of the price.

SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer
as surety having made of the payments to JDA, the alternative remedies open to Pioneer were as
provided in Article 1484 of the New Civil Code, known as the Recto Law.

Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial
foreclosure and the instant suit. Such being the case, as provided by the aforementioned
provisions, Pioneer shall have no further action against the purchaser to recover any unpaid
balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance
Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6.

The operation of the foregoing provision cannot be escaped from through the contention that
Pioneer is not the vendor but JDA. The reason is that Pioneer is actually exercising the rights of
JDA as vendor, having subrogated it in such rights. Nor may the application of the provision be
validly opposed on the ground that these defendants and defendant Maglana are not the vendee
but indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974,
61 SCRA 124.

The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates
discharged these defendants from any liability as alleged indemnitors. The change of the maturity
dates of the obligations of Lim, or SAL extinguish the original obligations thru novations thus
discharging the indemnitors.

The principal hereof shall be paid in eight equal successive three months interval
installments, the first of which shall be due and payable 25 August 1965, the
remainder of which ... shall be due and payable on the 26th day x x x of each
succeeding three months and the last of which shall be due and payable 26th May
1967.

However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and
JDA, modifying the maturity dates of the obligations, as follows:

The principal hereof shall be paid in eight equal successive three month interval
installments the first of which shall be due and payable 4 September 1965, the
remainder of which ... shall be due and payable on the 4th day ... of each
succeeding months and the last of which shall be due and payable 4th June 1967.

Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates
different from that fixed in the aforesaid memorandum; the due date of the first installment appears
 as October 15, 1965, and those of the rest of the installments, the 15th of each succeeding three
months, that of the last installment being July 15, 1967.

These restructuring of the obligations with regard to their maturity dates, effected twice, were done
without the knowledge, much less, would have it believed that these defendants Maglana (sic).
Pioneer's official Numeriano Carbonel would have it believed that these defendants and defendant
Maglana knew of and consented to the modification of the obligations. But if that were so, there
would have been the corresponding documents in the form of a written notice to as well as written
conformity of these defendants, and there are no such document. The consequence of this was the
extinguishment of the obligations and of the surety bond secured by the indemnity agreement
which was thereby also extinguished. Applicable by analogy are the rulings of the Supreme Court
in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic
Petroleum Co. v. Hizon David, 45 Phil. 532, 538.

Art. 2079. An extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty The mere failure on the part of the creditor
to demand payment after the debt has become due does not of itself constitute any
extension time referred to herein, (New Civil Code).'

Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v.
Climacom et al. (C.A.) 36 O.G. 1571.

Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to recover from these defendants, as
supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the surety
bond, the failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL
on every installment, released Pioneer from liability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.

Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement
from his co-debtors if such payment is made after the obligation has prescribed or
became illegal.

These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety
by reason of the filing of the instant case against them and the attachment and garnishment of their
properties. The instant action is clearly unfounded insofar as plaintiff drags these defendants and
defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).

We find no cogent reason to reverse or modify these findings.

Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.

We now discuss the merits of G.R. No. 84157.

Petitioner Jacob S. Lim poses the following issues:

l. What legal rules govern the relationship among co-investors whose agreement was to do
business through the corporate vehicle but who failed to incorporate the entity in which they had
chosen to invest? How are the losses to be treated in situations where their contributions to the
intended 'corporation' were invested not through the corporate form? This Petition presents these
fundamental questions which we believe were resolved erroneously by the Court of Appeals ('CA').
(Rollo, p. 6).

These questions are premised on the petitioner's theory that as a result of the failure of
respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to
incorporate, a de facto partnership among them was created, and that as a consequence of
such relationship all must share in the losses and/or gains of the venture in proportion to their
contribution. The petitioner, therefore, questions the appellate court's findings ordering him to
reimburse certain amounts given by the respondents to the petitioner as their contributions to
the intended corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total
amount of P184,878.74 as correctly found by the trial court, with interest from the filing of the cross-
complaints until the amount is fully paid. Defendant Lim should pay one-half of the said amount to
Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is established in
the records that defendant Lim had duly received the amount of Pl51,000.00 from defendants
Bormaheco and Maglana representing the latter's participation in the ownership of the subject
airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred additional
expenses, hence, the total sum of P 184,878.74.

We first state the principles.

While it has been held that as between themselves the rights of the stockholders in a defectively
incorporated association should be governed by the supposed charter and the laws of the state
relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121,
96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a
corporation and who carry on business under the corporate name occupy the position of partners
inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons
associate themselves together under articles to purchase property to carry on a business, and their
organization is so defective as to come short of creating a corporation within the statute, they
become in legal effect partners inter se, and their rights as members of the company to the
property acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A.
268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated
themselves as a corporation for the development of land for irrigation purposes, and each
conveyed land to the corporation, and two of them contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and no stock was ever issued in the corporation,
it was treated as a trustee for the associates in an action between them for an accounting, and its
capital stock was treated as partnership assets, sold, and the proceeds distributed among them in
proportion to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446).
However, such a relation does not necessarily exist, for ordinarily persons cannot be made to
assume the relation of partners, as between themselves, when their purpose is that no partnership
shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688),
and it should be implied only when necessary to do justice between the parties; thus, one who
takes no part except to subscribe for stock in a proposed corporation which is never legally formed
does not become a partner with other subscribers who engage in business under the name of the
pretended corporation, so as to be liable as such in an action for settlement of the alleged
partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between
certain stockholders and other stockholders, who were also directors, will not be implied in the
absence of an agreement, so as to make the former liable to contribute for payment of debts
illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris
Secundum, Vol. 68, p. 464). (Italics supplied).

In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to
appear during the pretrial despite notification. In his answer, the petitioner denied having
received any amount from respondents Bormaheco, the Cervanteses and Maglana. The trial
court and the appellate court, however, found through Exhibit 58, that the petitioner received the
amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B.
Maglana in the ownership of the subject airplanes and spare parts. The record shows that
defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses.

It is therefore clear that the petitioner never had the intention to form a corporation with the
respondents despite his representations to them. This gives credence to the cross-claims of the
respondents to the effect that they were induced and lured by the petitioner to make
contributions to a proposed corporation which was never formed because the petitioner reneged
on their agreement. Maglana alleged in his cross-claim:

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to
expand his airline business. Lim was to procure two DC-3's from Japan and secure the necessary
certificates of public convenience and necessity as well as the required permits for the operation
thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to
Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his
share of the undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to
incorporate his airline in accordance with their agreement and proceeded to acquire the planes on
his own account. Since then up to the filing of this answer, Lim has refused, failed and still refuses
to set up the corporation or return the money of Maglana. (Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim,
cross-claim and third party complaint:

Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase
two airplanes and spare parts from Japan which the latter considered as their lawful contribution
and participation in the proposed corporation to be known as SAL. Arrangements and negotiations
were undertaken by defendant Lim. Down payments were advanced by defendants Bormaheco
and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the
defendants, defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel
mortgage and surety bond agreement in his personal capacity as the alleged proprietor of the SAL.
The answering defendants learned for the first time of this trickery and misrepresentation of the
other, Jacob Lim, when the herein plaintiff chattel mortgage (sic) allegedly executed by defendant
Lim, thereby forcing them to file an adverse claim in the form of third party claim. Notwithstanding
repeated oral demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to
surrender the possession of the two planes and their accessories and or return the amount
advanced by the former amounting to an aggregate sum of P 178,997.14 as evidenced by a
statement of accounts, the latter ignored, omitted and refused to comply with them. (Record on
Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de
facto partnership was created among the parties which would entitle the petitioner to a
reimbursement of the supposed losses of the proposed corporation. The record shows that the
petitioner was acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of
Appeals is AFFIRMED.

SO ORDERED.

CHOA TIEK SENG v. CA (FILIPINO MERCHANTS INSURANCE)

183 SCRA 223

GANCAYO; March 15, 1990

NATURE

Appeal from a decision of the Court of Appeals

FACTS

- Petitioner imported some lactose crystals from Holland.

- The importation involved fifteen (15) metric tons packed in 600 6-ply paper bags with polythelene inner bags, each bag at
25 kilos net. The goods were loaded at the port at Rotterdam in sea vans on board the vessel "MS Benalder' as the mother
vessel, and thereafter aboard the feeder vessel "Wesser Broker V-25" of respondent Ben Lines Container, Ltd. (Ben Lines for
short). The goods were insured by the respondent Filipino Merchants' Insurance Co., Inc. (insurance company for short) for
the sum of P98,882.35, the equivalent of US$8,765.00 plus 50% mark-up or US $13,147.50, against all risks under the terms
of the insurance cargo policy. Upon arrival at the port of Manila, the cargo was discharged into the custody of the arrastre
operator respondent E. Razon, Inc. (broker for short), prior to the delivery to petitioner through his broker. Of the 600 bags
delivered to petitioner, 403 were in bad order. The surveys showed that the bad order bags suffered spillage and loss later
valued at P33,117.63. Petitioner filed a claim for said loss dated February 16, 1977 against respondent insurance company in
the amount of P33,117.63 as the insured value of the loss.

- Respondent insurance company rejected the claim alleging that assuming that spillage took place while the goods were in
transit, petitioner and his agent failed to avert or minimize the loss by failing to recover spillage from the sea van, thus
violating the terms of the insurance policy sued upon; and that assuming that the spillage did not occur while the cargo was
in transit, the said 400 bags were loaded in bad order, and that in any case, the van did not carry any evidence of spillage.

- Petitioner filed a complaint in the RTC against the insurance company seeking payment of the sum of P33,117.63 as
damages plus attorney's fees and expenses of litigation. Insurance company denied all the material allegations of the
complaint and raised several special defenses as well as a compulsory counterclaim. Insurance company filed a third-party
complaint against respondents Ben Lines and broker.

- RTC dismissed the complaint, the counterclaim and the third-party complaint with costs against the petitioner. Appealed in
CA but denied. MFR was denied as well.

ISSUE

WON insurance company should be held liable even if the technical meaning in marine insurance of an insurance against all
risk" is applied

HELD

YES

- In Gloren Inc. vs. Filipinas Cia. de Seguros, 12 it was held that an all risk insurance policy insures against all causes of
conceivable loss or damage, except as otherwise excluded in the policy or due to fraud or intentional misconduct on the part
of the insured. It covers all losses during the voyage whether arising from a marine peril or not, including pilferage losses
during the war.

- In the present case, the "all risks" clause of the policy sued upon reads as follows:

"5. This insurance is against all risks of loss or damage to the subject matter insured but shall in no case be deemed to
extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject matter
insured. Claims recoverable hereunder shall be payable irrespective of percentage."

- The terms of the policy are so clear and require no interpretation. The insurance policy covers all loss or damage to the
cargo except those caused by delay or inherent vice or nature of the cargo insured. It is the duty of the respondent insurance
company to establish that said loss or damage falls within the exceptions provided for by law, otherwise it is liable therefor.

- An "all risks" provision of a marine policy creates a special type of insurance which extends coverage to risks not usually
contemplated and avoids putting upon the insured the burden of establishing that the loss was due to peril falling within the
policy's coverage. The insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss
from coverage.

- In this case, the damage caused to the cargo has not been attributed to any of the exceptions provided for nor is there any
pretension to this effect. Thus, the liability of respondent insurance company is clear.

Disposition the decision appealed from is hereby REVERSED AND SET ASIDE and another judgment is hereby rendered
ordering the respondent Filipinas Merchants Insurance Company, Inc. to pay the sum of P33,117.63 as damages to petitioner
with legal interest from the filing of the complaint, plus attorney's fees and expenses of litigation in the amount of P10,000.00
as well as the costs of the suit.
ROQUE v. IAC (PIONEER INSURANCE AND SURETY CORP.)
139 SCRA 596

GUTIERREZ; November 11, 1985

NATURE

Petition for certiorari to review the decision of the IAC

FACTS

- February 19, 1972 Common carrier Manila Bay Lighterage Corp. entered into a contract with Roque Timber Enterprises
and Chiong. The contract stated that Manila Bay would carry 422.18 cu. meters of logs on its vessel Mable 10 from
Malampaya Sound, Palawan to Manila North Harbor. Roque insured the logs with Pioneer Insurance for P100,000.

- February 29, 1972 811 logs were loaded in Malampaya but en route to Manila, Mable 10 sank.

- March 8,1972 Roque and Chiong wrote a letter to Manila Bay, demanding payment of P150,000.00 for the loss of the
shipment plus P100,000.00 as unrealized profits but the latter ignored the demand.

- A letter was also sent to Pioneer, claiming the full amount of P100,000.00 under the insurance policy but Pioneer refused to
pay on the ground that its liability depended upon the "Total Loss by Total Loss of Vessel only".

- After hearing, the trial court favored Roque. Pioneer and Manila Bay were ordered to pay Roque P100,000. Pioneer
appealed the decision.

- January 30, 1984 Pioneer was absolved from liability after finding that there was a breach of implied warranty of
seaworthiness on the part of the petitioners and that the loss of the insured cargo was caused by the "perils of the ship" and
not by the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy.

- It was alleged that Mable 10 was not seaworthy and that it developed a leak

- The IAC found that one of the hatches was left open, causing water to enter the barge and because the barge was not
provided with the necessary cover or tarpaulin, the splash of sea waves brought more water inside the barge.

- Petitioners contend that the implied warranty of seaworthiness provided for in the Insurance Code refers only to the
responsibility of the shipowner who must see to it that his ship is reasonably fit to make in safety the contemplated voyage.

- The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its seaworthiness.
They argue that a cargo owner has no control over the structure of the ship, its cables, anchors, fuel and provisions, the
manner of loading his cargo and the cargo of other shippers, and the hiring of a sufficient number of competent officers and
seamen.

ISSUE

WON the loss should have been covered by the marine insurance policy

HELD

NO

Ratio It is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a
warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. In marine insurance, the risks
insured against are classified as 'perils of the sea, which includes such losses that are of extraordinary nature, or arise from
some overwhelming power, which cannot be guarded against by the ordinary exertion of human skill and prudence.

Reasoning

- Based on Sec. 113 and Sec. 99 of the Insurance Code, the term "cargo" can be the subject of marine insurance and that
once it is so made, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he
be the shipowner or not.
- The fact that the un-seaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance and
may not be used by him as a defense in order to recover on the marine insurance policy.

- Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes
the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. The
shipper of cargo my have no control over the vessel but he has full control in the choice of the common carrier that will
transport his goods.

- In marine cases, the risks insured against are 'perils of the sea. The term extends only to losses caused by sea damage, or
by the violence of the elements, and does not embrace all losses happening at sea.

- It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea.

- Loss which, in the ordinary course of events, results from the natural and inevitable action of the sea, from the ordinary
wear and tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with proper equipment to
convey the cargo under ordinary conditions, is not a peril of the sea but is called peril of the ship.

Disposition Decision appealed from is affirmed.

ORIENTAL ASSURANCE v. CA (PANAMA SAW MILL)

200 SCRA 459

MELENCIO-HERRERA; August 9, 1991

NATURE

Petition for review on certiorari

FACTS

- Sometime in January 1986, private respondent Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of
apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport the logs by sea to
Manila and insured it against loss for P1-M with petitioner Oriental Assurance Corporation (Oriental Assurance).

- While the logs were being transported, rough seas and strong winds caused damage to one of the two barges resulting in
the loss of 497 pieces of logs out of the 598 pieces loaded thereon.

- Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its contracted liability was for
"TOTAL LOSS ONLY."

- Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against Oriental Assurance
before the Regional Trial Court.

- RTC ordered Oriental Assurance to pay Panama with the view that the insurance contract should be liberally construed in
order to avoid a denial of substantial justice; and that the logs loaded in the two barges should be treated separately such
that the loss sustained by the shipment in one of them may be considered as "constructive total loss" and correspondingly
compensable. CA affirmed in toto.

ISSUE

WON Oriental Assurance can be held liable under its marine insurance policy based on the theory of a divisible contract of
insurance and, consequently, a constructive total loss

HELD

NO

- The terms of the contract constitute the measure of the insurer liability and compliance therewith is a condition precedent to
the insured's right to recovery from the insurer. Whether a contract is entire or severable is a question of intention to be
determined by the language employed by the parties. The policy in question shows that the subject matter insured was the
entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges did not
make the contract several and divisible as to the items insured. The logs on the two barges were not separately valued or
separately insured. Only one premium was paid for the entire shipment, making for only one cause or consideration. The
insurance contract must, therefore, be considered indivisible.

- More importantly, the insurer's liability was for "total loss only." A total loss may be either actual or constructive (Sec. 129,
Insurance Code). An actual total loss is caused by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;

(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or

(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured.
(Section 130, Insurance Code).

- A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of the Insurance
Code. This provision reads:

SECTION 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion
thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the
cause of the loss is a peril injured against,

(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths;

xxx xxx xxx

- The requirements for the application of Section 139 of the Insurance Code, quoted above, have not been met. The logs
involved, although placed in two barges, were not separately valued by the policy, nor separately insured. Resultantly, the
logs lost in the damaged barge in relation to the total number of logs loaded on the same barge cannot be made the basis for
determining constructive total loss. The logs having been insured as one inseparable unit, the correct basis for determining
the existence of constructive total loss is the totality of the shipment of logs. Of the entirety of 1,208, pieces of logs, only 497
pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the
value of all 1,208 pieces of logs, the shipment cannot be said to have sustained a constructive total loss under Section 139(a)
of the Insurance Code.

Disposition judgment under review is SET ASIDE

BIAGTAN v. THE INSULAR LIFE ASSURANCE COMPANY, LTD.

44 SCRA 58

MAKALINTAL; March 29, 1972

NATURE

Appeal from decision of CFI Pangasinan.

FACTS

- Juan Biagtan was insured with Insular for P5k and a supplementary contract Accidental Death Benefit clause for another
P5k if "the death of the Insured resulted directly from bodily injury effected solely through external and violent means
sustained in an accident . . . and independently of all other causes." The clause, however, expressly provided that it would not
apply where death resulted from an injury "intentionally inflicted by a third party."

- One night, a band of robbers entered their house. Juan went out of his room and he was met with 9 knife stabs. He died.
The robbers were convicted of robbery with homicide.

- The family was claiming the additional P5k from Insular, under the Accidental Death Benefit clause. Insular refused on the
ground that the death resulted from injuries intentionally inflicted by 3 rd parties and was therefore not covered. Biagtans filed
against Insular. CFI ruled in favor of Biagtans.
ISSUE

WON the injuries were intentionally inflicted

HELD

YES

- Whether the robbers had the intent to kill or merely to scare the victim or to ward off any defense he might offer, it cannot
be denied that the act itself of inflicting the injuries was intentional.

- The exception in the accidental benefit clause invoked by the appellant does not speak of the purpose whether homicidal
or not of a third party in causing the injuries, but only of the fact that such injuries have been "intentionally" inflicted
this obviously to distinguish them from injuries which, although received at the hands of a third party, are purely accidental.

- Examples of unintentional:

>> A gun which discharges while being cleaned and kills a bystander;

>> a hunter who shoots at his prey and hits a person instead;

>> an athlete in a competitive game involving physical effort who collides with an opponent and fatally injures him as a
result.

- In Calanoc vs. CA: Where a shot was fired and it turned out afterwards that the watchman was hit in the abdomen, the
wound causing his death, the Court held that it could not be said that the killing was intentional for there was the possibility
that the malefactor had fired the shot to scare the people around for his own protection and not necessarily to kill or hit the
victim. A similar possibility is clearly ruled out by the facts in this case. For while a single shot fired from a distance, and by a
person who was not even seen aiming at the victim, could indeed have been fired without intent to kill or injure, nine wounds
inflicted with bladed weapons at close range cannot conceivably be considered as innocent insofar as such intent is concerned.

- In Hucthcraft's Ex'r vs. Travelers' Ins. Co. (US case): where the insured was waylaid and assassinated for the purpose of
robbery, the court rendered judgment for the insurance company and held that while the assassination of the insured was as
to him an unforeseen event and therefore accidental, "the clause of the proviso that excludes the (insurer's) liability, in case
death or injury is intentionally inflicted by any other person, applies to this case."

Disposition CFI decision reversed.

SEPARATE OPINION

TEEHANKEE [dissent]

- Calanoc v. CA is controlling in this case because the insurance company wasnt able to prove that the killing was intentional.
(Burden of proof is with the insurance company)

- Insurance, being contracts of adhesion, must be construed strictly against insurance company in cases of ambiguity.

- The supplementary contract enumerated exceptions. The only exception which is not susceptible of classification is that
provided in paragraph 5(e), the very exception herein involved, which would also except injuries "inflicted intentionally by a
third party, either with or without provocation on the part of the insured, and whether or not the attack or the defense by the
third party was caused by a violation of the law by the insured."

- This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5 particularly that immediately
preceding it in item (d) which excepts injuries received where the insured has violated the law or provoked the injury, while
this clause, construed as the insurance company now claims, would seemingly except also all other injuries, intentionally
inflicted by a third party, regardless of any violation of law or provocation by the insured, and defeat the very purpose of the
policy of giving the insured double indemnity in case of accidental death by "external and violent means" in the very
language of the policy.'

- It is obvious from the very classification of the exceptions and applying the rule of noscitus a sociis, that the double-
indemnity policy covers the insured against accidental death, whether caused by fault, negligence or intent of a third party
which is unforeseen and unexpected by the insured. All the associated words and concepts in the policy plainly exclude the
accidental death from the coverage of the policy only where the injuries are self-inflicted or attended by some proscribed act
of the insured or are incurred in some expressly excluded calamity such as riot, war or atomic explosion.

- The untenability of insurer's claim that the insured's death fell within the exception is further heightened by the stipulated
fact that two other insurance companies which likewise covered the insured for much larger sums under similar accidental
death benefit clauses promptly paid the benefits thereof to plaintiffs beneficiaries.

PAN MALAYAN INSURANCE CORPORATION v. CA (FABIE, HER

UNKNOWN DRIVER)
184 SCRA 54

CORTES, April 3, 1990

NATURE
PETITION to review the decision of the Court of Appeals

FACTS

- Pan Malayan Insurance Company (Panmalay) insured the Mitsubishi Colt Lancer car registered in the name of Canlubang
Automotive Resources Corporation (Canlubang) under its motor vehicle insurance policy. Among the provisions of the policy
was a own-damage clause whereby Panmalay agrees to indemnify Canlubang in cases of damage caused by accidental
collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and
tear.

- On 1985, the insured car was sideswept and damaged by a car owned by Erlinda Fabie, driven by an unknown driver who
fled the scene. Panmalay, in accordance with the policy, defrayed the cost of repair of the insured car and was subrogated to
the rights of Canlubang against the driver and owner of the pick-up. Panmalay then filed a complaint for damages with RTC
Makati against Erlinda Fabie and her driver on the grounds of subrogation, with the latter failing and refusing to pay their
claim. Fabie filed a Motion for Bill of Particulars.

- RTC: dismissed complaint for lack of cause of action (payment by PANMALAY of CANLUBANG's claim under the "own
damage" clause of the insurance policy was an admission by the insurer that the damage was caused by the assured and/or
its representatives) Panmalay appealed

- CA: dismissed appeal, affirmed RTC (applying the ejusdem generis rule held that Section III-1 of the policy, which was the
basis for settlement of CANLUBANG's claim, did not cover damage arising from collision or overturning due to the negligence
of third parties as one of the insurable risk)

ISSUE
WON the insurer PANMALAY may institute an action to recover the amount it had paid its assured in settlement of an
insurance claim against private respondents as the parties allegedly responsible for the damage caused to the insured vehicle,
in accordance with A2207, NCC

HELD

YES

Ratio Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is
destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to
the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has
been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all
remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer

Exceptions

(1) if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the
insurer's right of subrogation is defeated;
(2) where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled
the assured's claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an
action against the carrier on his right of subrogation;

(3) where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting "voluntary
payment", the former has no right of subrogation against the third party liable for the loss

Reasoning

- Both TC and CA are incorrect.

ON TC: Own damage (not found in the insurance policy) simply meant that Panmalay had assumed to reimburse the cost
for repairing the damage to the insured vehicle. Its different from Third Party Liability coverage (liabilities arising from the
death of or bodily injuries suffered by 3rd parties) and from Property Damage coverage (liabilities from damage caused by
insured vehicle to properties of 3rd parties)

ON CA: the terms of a contract are to be construed according to the sense and meaning of the terms which the parties
thereto have used. In the case of property insurance policies, the evident intention of the contracting parties, i.e., the insurer
and the assured, determine the import of the various terms and provisions embodied in the policy. It is only when the terms
of the policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of
particular provisions, that the courts will intervene. In such an event, the policy will be construed by the courts liberally in
favor of the assured and strictly against the insurer

- Both Panmalay and Canlubang had the same interpretation regarding the coverage of insured risk regarding accidental
collision or overturning to include damages caused by 3 rd party to Canlubang so it was improper for CA to ascribe meaning
contrary to the clear intention and understanding of the parties.

- Court on several occasions defined accident or accidental as taking place without ones foresight or expectation, an
event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected [Dela
Cruz v. Capital Insurance & Surety Co.] The concept "accident" is not necessarily synonymous with the concept of "no fault".
It may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts of man.

- damage/loss to insured vehicle due to negligence of 3 rd parties not listed as exceptions to coverage in the insurance policy

- Interpretation given by Panmalay is more in keeping with rationale behind rules on interpretation of insurance contracts in
favor of assured or beneficiary: indemnity or payment

- EVEN if voluntarily indemnified Canlubang, as interpreted by TC: the insurer who may have no rights of subrogation due to
"voluntary" payment may never. theless recover from the third party responsible for the damage to the insured property
under Article 1236 of the Civil Code. [Sveriges Angfartygs Assurans Forening v. Qua Chee Gan]

Disposition the present petition is GRANTED. Petitioner's complaint for damages against private respondents is hereby
REINSTATED. Let the case be remanded to the lower court for trial on the merits.

SHAFER v. JUDGE
167 SCRA 386
PADILLA; November 14, 1988

NATURE
Petition for review on certiorari

FACTS
- Sherman Shafer obtained a private car policy over his Ford Laser from Makati Insurance Company, Inc., for third party
liability. During the effectivity of the policy, an information for reckless imprudence resulting in damage to property and
serious physical injuries was filed against shafer. The information said that on or about the 17th day of May 1985, in the City
of Olongapo. Shafer hit and bumped a Volkswagen car owned and driven by Felino llano y Legaspi, thereby causing damage in
the total amount of P12,345.00 and as a result thereof one Jovencio Poblete, Sr. who was on board of the said Volkswagen car
sustained physical injuries which injuries causing deformity on the face. The owner of the damaged Volkswagen car filed a
separate civil action against petitioner for damages, while Jovencio Poblete, Sr., who was a passenger in the Volkswagen car,
did not reserve his right to file a separate civil action for damages. Instead, in the course of the trial in the criminal case,
Poblete, Sr. testified on his claim for damages for the serious physical injuries which he claimed to have sustained as a result
of the accident.
- The court issued an order dismissing the third party complaint on the ground that it was premature, based on the premise
that unless the accused (herein petitioner) is found guilty and sentenced to pay the offended party (Poblete Sr.) indemnity or
damages, the third party complaint is without cause of action. The court further stated that the better procedure is for the
accused (petitioner) to wait for the outcome of the criminal aspect of the case to determine whether or not the accused, also
the third party plaintiff, has a cause of action against the third party defendant for the enforcement of its third party liability
(TPL) under the insurance contract. 6 Petitioner moved for reconsideration of said order, but the motion was denied; hence,
this petition.

ISSUE
WON the court a quo erred in dismissing petitioner's third party complaint on the ground that petitioner had no cause of
action yet against the insurance company

HELD
YES
- There is no need on the part of the insured to wait for the decision of the trial court finding him guilty of reckless
imprudence. The occurrence of the injury to the third party immediately gave rise to the liability of the insurer under its
policy. Respondent insurance company's contention that the third party complaint involves extraneous matter which will only
clutter, complicate and delay the criminal case is without merit. The civil aspect of the offense charged, i.e., serious physical
injuries allegedly suffered by Jovencio Poblete, Sr., was impliedly instituted with the criminal case. Petitioner may thus raise all
defenses available to him insofar as the criminal and civil aspects of the case are concerned. The claim of petitioner for
payment of indemnity to the injured third party, under the insurance policy, for the alleged bodily injuries caused to said third
party, arose from the offense charged in the criminal case, from which the injured (Jovencio Poblete, Sr.) has sought to
recover civil damages. Hence, such claim of petitioner against the insurance company cannot be regarded as not related to
the criminal action.
- A third party complaint is a device allowed by the rules of procedure by which the defendant can bring into the original suit
a party against whom he will have a claim for indemnity or remuneration as a result of a liability established against him in
the original suit. 13 Third party complaints are allowed to minimize the number of lawsuits and avoid the necessity of bringing
two (2) or more actions involving the same subject matter. They are predicated on the need for expediency and the avoidance
of unnecessary lawsuits. If it appears probable that a second action will result if the plaintiff prevails, and that this result can
be avoided by allowing the third party complaint to remain, then the motion to dismiss the third party complaint should be
denied.
- Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for
the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of
motor vehicles. The victims and/or their dependents are assured of immediate financial assistance, regardless of the financial
capacity of motor vehicle owners.
- The liability of the insurance company under the Compulsory Motor Vehicle Liability Insurance is for loss or damage. Where
an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the
injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party
against the insured.
- The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes
enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the
insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy, and
statutes are to be liberally construed so that their intended purpose may be accomplished. It has even been held that such a
provision creates a contractual relation which inures to the benefit of any and every person who may be negligently injured by
the named insured as if such injured person were specifically named in the policy.
- In the event that the injured fails or refuses to include the insurer as party defendant in his claim for indemnity against the
insured, the latter is not prevented by law to avail of the procedural rules intended to avoid multiplicity of suits. Not even a
"no action" clause under the policy-which requires that a final judgment be first obtained against the insured and that only
thereafter can the person insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding
multiplicity of suits.
Disposition instant petition is GRANTED. The questioned order dated 24 April 1987 is SET ASIDE and a new one entered
admitting petitioner's third party complaint against the private respondent Makati Insurance Company, Inc.

Bonifacio Bros. v. Mora

20 SCRA 262
Facts:

> Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the condition that Mora
would insure the car with HS Reyes as beneficiary.

> The car was then insured with State Insurance Company and the policy delivered to Mora.

> During the effectivity of the insurance contract, the car figured in an accident. The company then
assigned the accident to an insurance appraiser for investigation and appraisal of the damage.
> Mora without the knowledge and consent of HS Reyes, authorized Bonifacio Bros to fix the car, using
materials supplied by the Ayala Auto Parts Company.

> For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the insurers
appraiser. The insurance company drew a check in the amount of the insurance proceeds and entrusted
the check to its appraiser for delivery to the proper party.

> The car was delivered to Mora without the consent of HS Reyes, and without payment to Bonifacio
Bros and Ayala.

> Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio and Ayala filed
a complaint against Mora and the insurer with the municipal court for the collection of P2,102.73.

> The insurance company filed its answer with a counterclaim for interpleader, requiring Bonifacio and
HS Reyes to interplead in order to determine who has a better right to the proceeds.

Issue:

Whether or not there is privity of contract between Bonficacio and Ayala on one hand and State Insurance
on the other.

Held:

NONE.

It is fundamental that contracts take effect only between the parties thereto, except in some specific
instance provided by law where the contract contains some stipulation in favor of a third person. Such
stipulation is known as a stipulation pour autrui; or a provision in favor of a third person not a party to the
contract.

Under this doctrine, a third person is ed to avail himself of a benefit granted to him by the terms of the
contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such
person. Consequently, a third person NOT a party to the contract has NO action against the aprties
thereto, and cannot generally demand the enforcement of the same.

The question of whether a third person has an enforceable interest in a contract must be settled by
determining whether the contracting parties intended to tender him such an interest by deliberately
inserting terms in their agreement with the avowed purpose of conferring favor upon such third person.
IN this connection, this court has laid down the rule that the fairest test to determine whether the interest
of a 3rd person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their contract.

In the instant case the insurance contract does not contain any words or clauses to disclose an intent to
give any benefit to any repairmen or material men in case of repair of the car in question. The parties to
the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion.
On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is
payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to
benefit.
A policy of insurance is a distinct and independent contract between the insured and insurer, and third
persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be
some contract of trust, expressed or implied, by the insured and third person. In this case, no contract of
trust, express or implied. In this case, no contract of trust, expressed or implied exists. We, therefore,
agree with the trial court that no cause of action exists in favor of the appellants in so far as the proceeds
of insurance are concerned. The appellant's claim, if at all, is merely equitable in nature and must be made
effective through Enrique Mora who entered into a contract with the Bonifacio Bros Inc. This conclusion
is deducible not only from the principle governing the operation and effect of insurance contracts in
general, but is clearly covered by the express provisions of section 50 of the Insurance Act (now Sec. 53).

PERLA COMPANIA DE SEGUROS, INC. v, CA (MILAGROS CAYAS)

185 SCRA 741

FERNAN; May 28, 1990

NATURE

Petition for review on certiorari of a decision of the Court of Appeals

FACTS

- Private respondent Milagros Cayas was the registered owner of a Mazda bus, insured with Perla Compania de Seguros, Inc.
(PCSI) under a policy issued on February 3, 1978.

- On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its passengers.

- One of them, 19-year old Edgardo Perea, sued Milagros Cayas for damages in the CFI of Cavite, while three others agreed to
a settlement of P4,000.00 each.

- After trial, the court rendered a decision in favor of Perea, ordering Cayas to compensate him, with an award of exemplary
and moral damages, as well as attorneys fees. ( P32,000 total)

- On November 11, 1981, Milagros Cayas filed a complaint for a sum of money and damages against PCSI in the Court of First
Instance of Cavite.

- In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its dismissal without prejudice.

- Alleging that she had not received a copy of the answer to the complaint, and that "out of sportsmanship", she did not file a
motion to hold PCSI in default, Milagros Cayas moved for the reconsideration of the dismissal order. Said motion for
reconsideration was acted upon favorably by the court.

- About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure to file an answer.

- The motion was granted and plaintiff was allowed to adduce evidence ex-parte.

- On July 13, 1982, the court rendered judgment by default ordering PCSI to pay Milagros Cayas P50,000 as compensation for
the injured passengers, P5,000 as moral damages and P5,000 as attorney's fees.

- Said decision was set aside after the PCSI filed a motion therefor. Trial of the case ensued.

- In due course, the court promulgated a decision ordering defendant Perla Compania de Seguros, Inc. to pay plaintiff
Milagros Cayas the sum of P50,000.00 under its maximum liability as provided for in the insurance policy; and the sum of
P5,000.00 as reasonable attorney's fee

- PCSI appealed to the Court of Appeals, which affirmed in toto the lower court's decision.

- Its motion for reconsideration having been denied by said appellate court, PCSI filed this petition
ISSUE

WON, as maintained by petitioner, its liability is limited only to the payment made by private respondent to Perea and only up
to the amount of P12,000.00

HELD

YES

- The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and to P50,000.00 per accident.

- In Stokes vs. Malayan Insurance Co., Inc., the Court held that the terms of the contract constitute the measure of the
insurer's liability and compliance therewith is a condition precedent to the insured's right of recovery from the insurer.

- In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for all damages arising out of
death or bodily injury sustained by one person as a result of any one accident at P12,000.00.

- Said amount complied with the minimum fixed by the law then prevailing, Section 377 of Presidential Decree No. 612, which
provided that the liability of land transportation vehicle operators for bodily injuries sustained by a passenger arising out of
the use of their vehicles shall not be less than P12,000.

- In other words, under the law, the minimum liability is P12,000 per passenger. Petitioner's liability under the insurance
contract not being less than P12,000.00, and therefore not contrary to law, morals, good customs, public order or public
policy, said stipulation must be upheld as effective, valid and binding as between the parties.

- In like manner, we rule as valid and binding upon private respondent the condition requiring her to secure the written
permission of petitioner before effecting any payment in settlement of any claim against her.

- There is nothing unreasonable, arbitrary or objectionable in this stipulation as would warrant its nullification. The same was
obviously designed to safeguard the insurer's interest against collusion between the insured and the claimants.

- It being specifically required that petitioner's written consent be first secured before any payment in settlement of any claim
could be made, private respondent is precluded from seeking reimbursement of the payments made to the three other
passangers in view of her failure to comply with the condition contained in the insurance policy.

- Clearly, the fundamental principle that contracts are respected as the law between the contracting parties finds application
in the present case.

- It was error on the part of the trial and appellate courts to have disregarded the stipulations of the parties and to have
substituted their own interpretation of the insurance policy.

- In Phil. American General Insurance Co., Inc vs. Mutuc, we ruled that contracts which are the private laws of the contracting
parties should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no room for
doubt as to the intention of the contracting parties, for contracts are obligatory, no matter what form they may be, whenever
the essential requisites for their validity are present.

- In Pacific Oxygen & Acetylene Co. vs. Central Bank," it was stated that the first and fundamental duty of the courts is the
application of the law according to its express terms, interpretation being called for only when such literal application is
impossible.

- We observe that although Milagros Cayas was able to prove a total loss of only P44,000.00, petitioner was made liable for
the amount of P50,000.00, the maximum liability per accident stipulated in the policy. This is patent error. An insurance
indemnity, being merely an assistance or restitution insofar as can be fairly ascertained, cannot be availed of by any accident
victim or claimant as an instrument of enrichment by reason of an accident.

Disposition Petition granted. The decision of the Court of Appeals is modified in that petitioner shall pay Milagros Cayas the
amount of Twelve Thousand Pesos (P12,000. 00) plus legal interest from the promulgation of the decision of the lower court
until it is fully paid and attorney's fees in the amount of P5,000.00.
VILLACORTA v. THE INSURANCE COMMISSION
100 SCRA 467

TEEHANKEE; October 30, 1980

FACTS

- JEWEL VILLACORTA was the owner of a Colt Lancer, Model 1976, insured with respondent company 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, which
clause limits the use of the insured vehicle to two (2) persons only, namely: the insured himself or any person on his
(insured's) permission. Apparently, the Insurance commission sees the unauthorized taking of the vehicle for a joyride as 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 "(T)he 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

ISSUE

WON the Insurance commissions findings are in accord with law

HELD

NO

- First, respondent commission's ruling that the person who drove the vehicle in the person of Benito Mabasa, who, according
to its own 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."

- 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.

- 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.

- 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 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.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-25920 January 30, 1970

CCC INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS (Fourth Division) and CARLOS F. ROBES, respondents.

Kalaw and Felipe for petitioner.

Adalia B. Francisco for respondents.

REYES, J.B.L., J.:

Petition for review of the decision of the Court of Appeals, affirming that of the Court of First Instance of Rizal
(Quezon City) allowing insurance indemnification of plaintiff for his damaged car and the payment of attorney's
fees.

The following facts are not in dispute:

On 1 March 1961, Carlos F. Robes took an insurance, with the CCC Insurance Corporation, on his Dodge
Kingsway car against loss or damage through accident for an amount not exceeding P8,000.00 (Policy No. M1156).
On 25 June 1961, and during the effectivity of the policy, the insured vehicle, while being driven by the owner's
driver, became involved in a vehicular collision along Rizal Avenue Extension, Potrero, Malabon, Rizal. The car was
damaged, and the repair was estimated to cost P5,300.00.

As the insurance company refused either to pay for the repair or to cause the restoration of the car to its original
condition, Robes instituted Civil Case No. Q-6063 in the Court of First Instance of Rizal for recovery not only of the
amount necessary for the repair of the insured car but also of actual and moral damages, attorneys' fees and costs.
Resisting plaintiff's claim, the insurance company disclaimed liability for payment, alleging that there had been
violation of the insurance contract because the one driving the car at the time of the incident was not an "authorized
driver."

After due hearing, judgment was rendered for the plaintiff, and defendant insurer was ordered to pay unto the
former the cost of repair of the car in the sum of P5,031.28; the sum of P150.00, for the hauling and impounding of
the car at the repair shop; P2,000.00 as actual damages; and P1,000.00 as attorneys' fees, plus costs.

The insurance company went to the Court of Appeals, raising inter alia the questions of the qualification of plaintiff's
driver to operate the insured vehicle and the correctness of the trial court's award to plaintiff of the amount of
P5,013.28 as cost of repairs, and of actual damages and attorneys' fees. In its decision of 31 January 1966, the
Court of Appeals affirmed the ruling of the lower court except the award of actual damages in the sum of P2,000.00,
which was eliminated on the ground that it was too speculative. Not content, the insurance company filed the
present petition for review of the aforesaid decision of the Court of Appeals on two grounds: (1) that the
proceedings observed in the trial court were irregular and invalid; and (2) that the damage to the insured car was
not covered by the insurance policy because at the time of the accident it was being driven by one who was not an
authorized driver.

The second issue constitutes the main contention of herein appellant, and will be considered first. It is vigorously
urged by the insurer that the one driving the insured vehicle at the time of the accident was not an authorized driver
thereof within the purview of the following provision of the insurance policy:

AUTHORIZED DRIVER:

Any of the following: (a) The insured;

(b) Any person driving on the Insured's order or with his permission, provided that the person
driving is permitted in accordance with licensing laws or regulations to drive the motor vehicle
covered by this Policy, or has been so permitted and is not disqualified by order of a court of law or
by reason of any enactment or regulation from driving such Motor Vehicle. (Emphasis ours)

It has been found as a fact by the Court of Appeals that Domingo Reyes, the, driver who was at the wheel of the
insured car at the time of the accident, does not know how to read and write; that he was able to secure a driver's
license, without passing any examination therefor, by paying P25.00 to a certain woman; and that the Cavite
agency of the Motor Vehicles Office has certified not having issued Reyes' purported driver's license No. 271703
DP.

In holding that the damage sustained by the car comes within the coverage of the insurance policy, the Court of
Appeals argued that since Reyes' purported driver's license (Exhibit "A") bears all the earmarks of a duly issued
license, then it is a public document, and petitioner insurance company then has the burden of disproving its
genuineness, which the latter has failed to do. In this respect the Court of Appeals ruled:

... . The fact that the Cavite Agency of the Motor Vehicles Office states that Driver's License No.
271703 DP was not issued by that office, does not remove the possibility that said office may have
been mistaken or that said license was issued by another agency. Indeed Exhibit 13 shows that a
certain Gloria Presa made the notation thereon "no license issued" and which notation was the
basis of the 1st Indorsement, Exhibit 12, signed by the MVO Cavite City Agency's officer-in-charge.
Neither Gloria Presa nor the officer-in-charge Marciano A. Monzon was placed on the witness
stand to be examined in order to determine whether said license is indeed void. As it is, as
heretofore pointed out, the fact remains that Domingo Reyes is in possession of a driver's license
issued by the Motor Vehicles Office which on its face appears to have been regularly issued.

In effect, the Court of Appeals found that the driver's license No. 271703 DP was genuine, that is, one really issued
by the Motor Vehicles Office or its authorized deputy; and this finding of fact is now conclusive and may not be
questioned in this appeal.

Nevertheless, the appellant insurer insists that, under the established facts of this case, Reyes, being admittedly
one who cannot read and write, who has never passed any examination for drivers, and has not applied for a
license from the duly constituted government agency entrusted with the duty of licensing drivers, cannot be
considered an authorized driver.

The fatal flaw in appellant's argument is that it studiously ignores the provisions of law existing at the time of the
mishap. Under Section 24 of the Revised Motor Vehicles Law, Act 3992 of the Philippine Legislature, as amended
by Republic Acts Nos. 587, 1204 and 2863,1

An examination or demonstration to show any applicant's ability to operate motor vehicles may also
be required in the discretion of the Chief, Motor Vehicles Office or his deputies. (Emphasis
supplied)

and reinforcing such discretion, Section 26 of the Act prescribes further:

SEC. 26. Issuance of chauffeur's license; professional badge: If, after examination, or without the
same, the Chief, Motor Vehicles Office or his deputies, believe the applicant to possess the
necessary qualifications and knowledge, they shall issue to such applicant a license to operate as
chauffeur ... (Emphasis supplied)

It is thus clear that the issuance of a driving license without previous examination does not necessarily imply that
the license issued is invalid. As the law stood in 1961, when the claim arose, the examinations could be dispensed
with in the discretion of the Motor Vehicles Office official officials. Whether discretion was abused in issuing the
license without examination is not a proper subject of inquiry in these proceedings, though, as a matter of legislative
policy, the discretion should be eliminated. There is no proof that the owner of the automobile knew that the
circumstance surrounding such issuance showed that it was irregular.

The issuance of the license is proof that the Motor Vehicles Office official considered Reyes, the driver of the
insured- appellee, qualified to operate motor vehicles, and the insured was entitled to rely upon such license. In this
connection, it should be observed that the chauffeur, Reyes, had been driving since 1957, 2 and without mishap, for
all the record shows. Considering that, as pointed out by the Court of Appeals, the weight of authority is in favor of a
liberal interpretation of the insurance policy for the benefit of the party insured, and strictly against the insurer, We
find no reason to diverge from the conclusion reached by the Court of Appeals that no breach was committed of the
above-quoted provision of the policy.

The next issue assigned is anchored on the fact that the decision of the trial court was based on evidence
presented to and received by the clerk of court who acted as commissioner, although allegedly, there was no
written court order constituting him as such commissioner, no written request for his commission was made by the
parties; he did not take an oath prior to entering into the discharge of his commission; no written report of his
findings was ever submitted to the court; and no notice thereof was sent to the parties, contrary to the specific
provisions of Rule 33 of the Rules of Court.

Actually there is nothing basically wrong with the practice of delegating to a commissioner, usually the clerk of
court, who is a duly sworn court officer, the reception of both parties and for him to submit a report thereon to the
court. In fact, this procedure is expressly sanctioned by Revised Rule 33 of the Rules of Court. 3 Petitioner's
objection in this case, however, is directed not against its referral to the clerk of court but against the alleged non-
observance of the prescribed steps in connection with such delegation.

We find no cause sufficient to invalidate the proceedings had in the trial court. We note that this issue was brought
up by the appellant insurance company or the first time only in its motion for reconsideration filed in the Court of
Appeals. It was not raised in the trial court, where the defect could still be remedied. This circumstance precludes
ventilation of the issue of validity of the hearing at this stage; for, if such irregularity is to vitiate the proceeding, the
question should have been seasonably raised, i.e., either before the parties proceeded with the hearing or before
the court handed down its ruling. 4 It is a procedural point that can be waived by consent of the parties, express or
implied.5

For the same reason, appellant cannot insist now on the annulment of the proceeding on the basis of alleged lack
of written consent of the parties to the commission, or of an order appointing the clerk as commissioner, or of notice
of the submission of his report to the court. Furthermore, appellant has presented no proof that the clerk of court
committed any mistake or abuse in the performance of the task entrusted to him, or that the trial court was not able
to properly appreciate the evidence in the case because it was received by another person. If indeed there were
errors at all, they would be non-prejudicial and could not justify the holding of a new trial, as urged by herein
petitioner. 6

WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against appellant CCC Insurance
Corporation.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-26827 June 29, 1984

AGAPITO GUTIERREZ, plaintiff-appellee,

vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellant.

Celso P. delas Alas for plaintiff-appellee.

Achacoso, Ocampo & Simbulan Law Office for defendant-appellant.

AQUINO, J.:

The issue in this case is whether an insurance covers a jeepney whose driver's traffic violation
report or temporary operator's permit had already expired.

Capital Insurance & Surety Co., Inc. insured on December 7, 1961 for one year the jeepney of
Agapito Gutierrez against passenger and third-party liability. The passenger liability would not
exceed P5,000 for any one person (Exh. 1 or C-2).

The policy provides in item 13 that the authorized driver must be the holder of a valid and
subsisting professional driver's license. "A driver with an expired Traffic Violation Receipt or
expired Temporary Operator's Permit is not considered an authorized driver" (pp. 26-27, 107,
Record on Appeal, Par. 13, Policy, Exh. C).

Item 13 is part of the "declarations" which formed part of the policy and had a promissory nature
and effect and constituted "the basis of the policy" (Exh. C, p. 7, Record on Appeal).

On May 29, 1962, the insured jeepney figured in an accident at Buendia Avenue, Makati, Rizal.
As a result, a passenger named Agatonico Ballega fell off the vehicle and died (Pars. 3 and 4,
Exh. A).

Teofilo Ventura, the jeepney driver, was duly licensed for the years 1962 and 1963 (Exh. D).
However, at the time of the accident he did not have the license. Instead, he had a carbon copy
of a traffic violation report (summons) issued by a policeman on February 22, 1962, with the
notation that he had committed the violation: "Inattentive to driving (Inv. in accident) at 9:30
a.m., 2-22-62" (Exh. E-1).
The same TVR, which served as a receipt for his license, required him to report to Branch 8 of
the traffic court at the corner of Arroceros and Concepcion Streets, Manila at nine o'clock in the
morning of March 2, 1962. The TVR would "serve as a temporary operator's permit for 15 days
from receipt hereof" (p. 100, Record on Appeal). It is indisputable that at the time of the accident
(May 29, 1962), Ventura was holding an "expired Temporary Operator's Permit."

Gutierrez paid P4,000 to the passenger's widow, Rosalina Abanes Vda. de Ballega, by reason
of her husband's death (5 tsn January 20, 1966; Exh. B and B-1).

As Capital Insurance refused to make any reimbursement, he filed on October 14, 1963 in the
city court of Manila an action for specific performance and damages.

The city court in a decision dated April 20, 1965 held that Ventura was an authorized driver
because his TVR was coterminous with his license. However, it dismissed the complaint
because Gutierrez allegedly failed to prove that he paid any amount to the heirs of Ballega.
Gutierrez appealed.

The Court of First Instance in a decision dated April 18, 1966 held that Gutierrez's Exhibits B
and B-1 prove that he paid the widow of Ballega P4,099.95 and that his driver, Ventura, was an
authorized driver because his TVR was "coextensive with the" two-year term of his confiscated
license. It ordered the insurance company to pay the Id amount. The insurance company
appealed to this Court.

We hold that paragraph 13 of the policy, already cited, is decisive and controlling in this case. It
plainly provides, and we repeat, that "a driver with an expired Traffic Violation Receipt or expired
Temporary Operator's permit is not considered an authorized driver within the meaning" of the
policy. Obviously, Ventura was not an authorized driver. His temporary operator's permit had
expired. The expiration bars recovery under the policy.

In liability insurance, "the parties are bound by the terms of the policy and the right of insured to
recover is governed thereby" (44 C.J.S. 934).

It may be that for purposes of the Motor Vehicle Law the TVR is coterminous with the
confiscated license. That is why the Acting Administrator of the Motor Vehicles Office and the
Manila deputy chief of police ventured the opinion that a TVR does not suspend the erring
driver's license, that it serves as a temporary license and that it may be renewed but should in
no case extend beyond the expiration date of the original license (Exh. F and J, 67, 90-9 1,
Record on Appeal).

But the instant case deals with an insurance policy which definitively fixed the meaning of
"authorized driver". That stipulation cannot be disregarded or rendered meaningless. It is
binding on the insured.

It means that to be entitled to recovery the insured should see to it that his driver is authorized
as envisaged in paragraph 13 of the policy which is the law between the parties (Ty vs. First
National Surety & Insurance Co., Inc., 111 Phil. 1122).lwphl@it The rights of the parties flow
from the insurance contract (Ang vs. Fulton Fire Ins. Co., 112 Phil. 844).

The following ruling has persuasive authority:

 Insurance; Automobile; When insurer exempt from liability; Case at bar. The automobile
insurance policy sued upon in the instant case exempts the insurer company from liability for any
accident loss, damage or liability caused, sustained or incurred while the vehicle is being driven by
any person other than an authorized driver.

The policy defines the term 'authorized driver' to be the insured himself or any person driving on
the insured's order or with his permission provided he is permitted to drive under the licensing laws.

In the case at bar, plaintiff's brother, who was at the wheel at the time of the collision, did not have
a valid license because the one he had obtained had already expired and had not been renewed
as required by Section 31 of the Motor Vehicle Law.

That he had renewed his license one week after the accident did not cure the delinquency or
revalidate the license which had already expired (Syllabus, Tanco, Jr. vs. Phil. Guaranty Co., 122
Phil. 709).

WHEREFORE. The judgment of the trial is reverse and set aside. The complaint is dismissed.
No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

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.

GREAT PACIFIC LIFE v. CA (LEUTERIO)

316 SCRA 677

QUISUMBING; October 13, 1999

NATURE

Petition for Review of CA decision

FACTS

- A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter
Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing
loan mortgagors of DBP.

- In Nov. 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life
insurance plan. In an application form, Dr. Leuterio answered Qs concerning his health condition as follows:

Q: Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney or
stomach disorder or any other physical impairment? No.

Q: Are you now, to the best of your knowledge, in good health? Yes.

- Grepalife issued an insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness of P86,200.00. In
Aug. 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." DBP submitted a death claim to Grepalife. Grepalife
denied the claim because Dr. Leuterio was not physically healthy when he applied for an insurance. Grepalife insisted that Dr.
Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure
constituted concealment that justified the denial of the claim.
- Herein respondent Medarda Leuterio, widow, filed a complaint with RTC against Grepalife for "Specific Performance with
Damages." Dr. Mejia, who issued the death certificate, testified that Dr. Leuterio complained of headaches presumably due to
high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not
ruled out.

- RTC ruled in favor of respondent widow and against Grepalife. CA sustained the RTC decision. Hence, the present petition.

ISSUES

1. WON CA erred in holding petitioner liable to DBP as beneficiary in a group life insurance contract from a complaint filed by
the widow of the decedent/mortgagor

2. WON CA erred in not finding that Dr. Leuterio concealed that he had hypertension, which would vitiate the insurance
contract

3. WON CA erred in holding Grepalife liable for P86,200.00 without proof of the actual outstanding mortgage payable by the
mortgagor to DBP

HELD

1. NO

Ratio Insured, being the person with whom the contract was made, is primarily the proper person to bring suit. Subject to
some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person named
or unnamed, and although it is expressly made payable to another as his interest may appear or otherwise. Although a policy
issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue
thereon in his own name, especially where the mortgagee's interest is less than the full amount recoverable under the policy.
(See Sec. 8, Insurance Code)

Reasoning

[a] The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating
that: In the event of the debtor's death before his indebtedness with the Creditor (DBP) shall have been fully paid, an
amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any,
shall then be paid to the beneficiary/ies designated by the debtor. When DBP submitted the insurance claim against
Grepalife, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter,
DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private
respondent.

[b] Since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an
insurable interest or not, and such person may recover it whatever the insured might have recovered, the widow of the
decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

2. NO

Ratio The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense
by satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.

Reasoning

[a] The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not
consulted a doctor or any of the enumerated ailments, including hypertension; when he died the attending physician had
certified in the death certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. From this
report, petitioner Grepalife refused to pay the insurance claim. It alleged that the insured had concealed the fact that he had
hypertension.

[b] Contrary to Grepalifes allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside
from the statement of the insured's widow who was not even sure if the medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterio's medical history.

[c] Grepalife had failed to establish that there was concealment made by the insured, hence, it cannot refuse payment of the
claim.
3. NO

- Considering the supervening event that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's
outstanding loan, the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries.
Equity dictates that DBP should not unjustly enrich itself at the expense of another. Hence, it cannot collect the insurance
proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by
his widow, herein private respondent.

- The Court ruled this issue based on the clear provisions of the policy. The mortgagor paid the premium according to the
coverage of his insurance, which states that: "The policy states that upon receipt of due proof of the Debtor's death during
the terms of this insurance, a death benefit in the amount of P86,200.00 shall be paid In the event of the debtor's death
before his indebtedness with the creditor shall have been fully paid, an amount to pay the outstanding indebtedness shall first
be paid to the Creditor and the balance of the Sum Assured, if there is any shall then be paid to the beneficiary/ies designated
by the debtor." From this, it is clear that Grepalife is liable and that Dr. Leuterios heirs must get the proceeds.

Disposition Petition DENIED. CA Decision AFFIRMED with modification.

FORTUNE INSURANCE AND SURETY CO. INC.V CA (PRODUCERS

BANK OF THE PHILIPPINES)
244 SCRA 308

DAVIDE; May 23, 1995

NATURE

Petition for Review on certiorari of CA decision

FACTS

- Producers Bank of the Philippines filed a complaint against Fortune Insurance and Surety Co., Inc. for recovery of
P725,000.00 under the policy issued by Fortune. The sum was allegedly lost on June 29, 1987 during a robbery of Producer's
armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its head office in Makati under the
custody of its teller, Maribeth Alampay. The armored car was driven by Benjamin Magalong Y de Vera, escorted by Security
Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC Management Systems.

- After an investigation by the Pasay police, driver Magalong and guard Atiga were charged, together with Batigue , Aquino
and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law)

- Demands were made by the Producers upon the Fortune to pay the amount of the loss of P725,000.00 but the latter refused
to pay as the loss is excluded from the coverage of the insurance policy specifically under "General Exceptions"

> The company shall not be liable under this policy in respect of x x x (b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured
whether acting alone or in conjunction with others.

- Fortune opposes the contention of Producers that Atiga and Magalong are not its "officer, employee, x x x trustee or
authorized representative x x x at the time of the robbery

- Trial Court

> On being EMPLOYEES

Magalong and Atiga were not employees or representatives of Producers as their services as armored car driver and as
security guard having been merely offered by PRC Management and by Unicorn Security and which latter firms assigned them
to plaintiff. The wages and salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone
wields the power to dismiss them

> On being AUTHORIZED REPRESENTATIVE

They were merely an assigned armored car driver and security guard for the money transfer. It was teller Maribeth Alampay
who had "custody" of the P725,000.00 cash being transferred along a specified money route
- Court of Appeals

> affirmed in toto

> A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the insurance
company (New Life Enterprises vs. Court of Appeals; Sun Insurance Office, Ltd. vs. Court of Appeals). Contracts of insurance,
like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have
used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense
(New Life Enterprises Case; Sun Insurance Office).

> The language used by Fortune in the policy is plain, ordinary and simple. No other interpretation is necessary. The word
"employee" should be taken to mean in the ordinary sense. The Labor Code is a special law specifically dealing with/and
specifically designed to protect labor and therefore its definition as to employer-employee relationships insofar as the
application/enforcement of said Code is concerned must necessarily be inapplicable to an insurance contract. Had it intended
to apply the Labor Code in defining what the word "employee" refers to, it must/ should have so stated expressly in the
insurance policy. Said driver and security guard cannot be considered as employees of Producers bank because it has no
power to hire or to dismiss said driver and security guard under the contracts except only to ask for their replacements from
the contractors.

- Fortunes Contention

> when Producers commissioned a guard and a driver to transfer its funds from one branch to another, they effectively and
necessarily became its authorized representatives in the care and custody of the money. Assuming that they could not be
considered authorized representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an
employer-employee relationship "is determined by law and being such, it cannot be the subject of agreement." Thus, if there
was in reality an employer-employee relationship between Producers, on the one hand, and Magalong and Atiga, on the other,
the provisions in the contracts of Producers with PRC Management System for Magalong and with Unicorn Security Services
for Atiga which state that Producers is not their employer and that it is absolved from any liability as an employer, would not
obliterate the relationship.

> an employer-employee relationship depends upon four standards:

(1) the manner of selection and engagement of the putative employee

(2) the mode of payment of wages

(3) the presence or absence of a power to dismiss and

(4) the presence and absence of a power to control the putative employee's conduct.

> Of the four, the right-of-control test has been held to be the decisive factor. It asserts that the power of control over
Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that PRC Management System and
Unicorn Security Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. - There is "labor-only" contracting where the person supplying workers to an
employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises,
among others, and the workers recruited and placed by such persons are performing activities which are directly related to
the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent
of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly
employed by him.

> International Timber Corp. vs. NLRC - a "labor-only" contractor is equivalent to a finding that there is an employer-
employee relationship between the owner of the project and the employee of the "labor-only" contractor

- Producers Contention

> Magalong and Atiga were not its employees since it had nothing to do with their selection and engagement, the payment of
their wages, their dismissal, and the control of their conduct.

> International Timber Corp. is not applicable to all cases but only when it becomes necessary to prevent any violation or
circumvention of the Labor Code, a social legislation whose provisions may set aside contracts entered into by parties in order
to give protection to the working man.

> American President Lines vs. Clave should be applied which stated
 In determining the existence of employer-employee relationship, the following elements are generally considered, namely:
(1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
power to control the employee's conduct.

- Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the driver of
Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities, and since Producers
paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it is clear that
Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn Security
Services which provides that the guards of the latter "are in no sense employees of the CLIENT."

ISSUE

WON Fortune Insurance and Surety Co. Inc. is liable under the Money, Security, and Payroll Robbery policy it issued to
Producers Bank of the Philippines or WON recovery is precluded under the general exceptions clause of the policy

HELD

NO

Ratio A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, or
it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from non-compliance with its
obligation. It goes without saying then that if the terms of the contract are clear and unambiguous, there is no room for
construction and such terms cannot be enlarged or diminished by judicial construction.

- An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is settled that the terms
of the policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to the contrary, insurance
companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon
their obligations not inconsistent with public policy.

Reasoning

- It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a form
of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types
of loss which by law or custom are considered as failing exclusively within the scope of insurance such as fire or marine. It
includes, but is not limited to, employer's liability insurance, public liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance. (italics supplied)

- Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions
applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general
provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be determined
by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of
insurance law.

- With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or authorized
representatives has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer
- the moral hazard - is so great that insurers have found it necessary to fill up their policies with countless restrictions, many
designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured against."
Persons frequently excluded under such provisions are those in the insured's service and employment. The purpose of the
exception is to guard against liability should the theft be committed by one having unrestricted access to the property. In such
cases, the terms specifying the excluded classes are to be given their meaning as understood in common speech. The terms
"service" and "employment" are generally associated with the idea of selection, control, and compensation.

- There is marked disagreement between the parties on the correct meaning of the terms "employee" and "authorized
representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage
losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers'
money or payroll. When it used then the term "employee," it must have had in mind any person who qualifies as such as
generally and universally understood, or jurisprudentially established in the light of the four standards in the determination of
the employer-employee relationship or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor
Code which considers the employees under a "labor-only" contract as employees of the party employing them and not of the
party who supplied them to the employer.

- But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management
Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga were, in
respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with
the specific duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for the money,
the vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents or stands in the place of another; one who represents others or another in
a special capacity, as an agent, and is interchangeable with "agent."

Disposition instant petition is hereby GRANTED. CA decision and RTC Makati decision are REVERSED and SET ASIDE. Civil
Case is DISMISSED.

SUN INSURANCE OFFICE LTD. V CA (TAN)

195 SCRA 193

PARAS; March 13, 1991

NATURE

Petition for certiorari to review the decision of the CA

FACTS

- Private respondent Emilio Tan took from the petitioner a Peso 300,000 property insurance policy to cover his interest in the
electrical insurance store of his brother housed in a building in Iloilo City on August 15, 1983. Four days after the issuance of
the policy, the building including the insured store burned.

- On August 20, 1983, Tan filed his claim for fire loss. Sun Insurance, on February 29, 1984, wrote the private respondent
denying the claim. On April 3, 1984, private respondent wrote another letter to the insurance company requesting
reconsideration of the denial. Tans lawyer wrote another letter to the insurance company inquiring about the April 3 letter
which sought for a reconsideration of the denial. In its reply to the lawyers letter, Sun Insurance reiterated its denial of the
claim and enclosed therein copies of the two previous denials dated February 29, 1984 and May 17, 1985.

- On November 20, 1985, Tan filed a civil case with the RTC. Petition filed a motion to dismiss on the alleged ground that the
action has already prescribed based on Condition 27 of the Insurance Policy which stated that the window to file the
appropriate action with either the Insurance Commission or in any court of competent jurisdiction is twelve months from the
rejection of the claim. RTC denied the motion and the subsequent motion for reconsideration. The CA likewise denied the
petition of Sun Insurance.

ISSUE

1. WON the court the filing of a motion for reconsideration interrupts the 12 months prescription period to contest the denial
of the insurance claim

2. WON the rejection of the claim shall be deemed final only if it contains words to the effect that the denial is final

HELD

1. NO

- The SC held that Condition 27 of the Insurance policy is very clear and free from any doubt or ambiguity. It has to be taken
in its plain, ordinary, and popular sense. The rejection letter of February 29, 1984 was clear and plain. The Court noted that
the one year period is likewise in accord with Section 23 of the Insurance Code which states that any condition which limits
the time for commencing an action to a period of less than one year when the cause of action accrues is void. The right of
action, according to the SC, accrues at the time that the claim is rejected at the first instance. A request for reconsideration of
the denial cannot suspend the running of the prescriptive period. The Court noted that the rationale for the one year period is
to ensure that the evidence as to the origin and cause of the destruction have not yet disappeared.

2. NO
- The Court clarified its ruling in Eagle Star Insurance Co. vs Chia Yu where it ruled that the cause of action in an insurance
contract does not accrue until the Insureds claim is finally rejected by the Insurer by stating the use of the word finally
cannot be construed to mean the rejection of a petition for reconsideration. What the court referred to in effect is the
rejection in the first instance as claimed by Sun Insurance

Disposition The decision of the CA is reversed and set aside. The case is dismissed