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[REPUBLIC ACT NO.

10607]
AN ACT STRENGTHENING THE INSURANCE INDUSTRY, FURTHER AMENDING
PRESIDENTIAL DECREE NO. 612, OTHERWISE KNOWN AS THE INSURANCE
CODE, AS AMENDED BY PRESIDENTIAL DECREE NOS. 1141, 1280, 1455, 1460,
1814 AND 1981, AND BATAS PAMBANSA BLG. 874, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:
SECTION 1. Presidential Decree No. 612, as amended, is hereby further amended to
read as follows:
GENERAL PROVISIONS
SECTION 1. This Decree shall be known as The Insurance Code.
SEC. 2. Whenever used in this Code, the following terms shall have the respective
meanings hereinafter set forth or indicated, unless the context otherwise requires:
(a) A contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unkno

TITLE 7
WARRANTIES
SEC. 67. A warranty is either expressed or implied.
SEC. 68. A warranty may relate to the past, the present, the future, or to any or all of
these.
SEC. 69. No particular form of words is necessary to create a warranty.
SEC. 70. Without prejudice to Section 51, every express warranty, made at or
before the execution of a policy, must be contained in the policy itself, or in another
instrument signed by the insured and referred to in the policy as making a part of it.
SEC. 71. A statement in a policy, of a matter relating to the person or thing insured,
or to the risk, as fact, is an express warranty thereof.
SEC. 72. A statement in a policy, which imparts that it is intended to do or not to do
a thing which materially affects the risk, is a warranty that such act or omission shall
take place.
SEC. 73. When, before the time arrives for the performance of a warranty relating
to the future, a loss insured against happens, or performance becomes unlawful at
the place of the contract, or impossible, the omission to fulfill the warranty does not
avoid the policy.
SEC. 74. The violation of a material warranty, or other material provision of a
policy, on the part of either party thereto, entitles the other to rescind.
SEC. 75. A policy may declare that a violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial provision does not avoid the policy.
SEC. 76. A breach of warranty without fraud merely exonerates an insurer from the
time that it occurs, or where it is broken in its inception, prevents the policy from
attaching to the risk.
Title:
REPUBLIC BANK, plaintiffs,
UNION MANUFACTURING CO., INC. and the

REPUBLIC BANK vs. PHILIPPINE GUARANTY CO., INC

As far back as 1915, in Young v. Midland Textile Insurance


Company, 10 it was categorically set forth that as a condition
precedent to the right of recovery, there must be compliance
on the part of the insured with the terms of the policy. As
stated in the opinion of the Court through Justice Johnson: "If
the insured has violated or failed to perform the conditions of
the contract, and such a violation or want of performance has
not been waived by the insurer, then the insured cannot
recover. Courts are not permitted to make contracts for the
parties. The function and duty of the courts consist simply in
enforcing and carrying out the contracts actually made. While
it is true, as a general rule, that contracts of insurance are
construed most favorably to the insured, 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." 11 More specifically, there
was a reiteration of this Santa Ana ruling in a decision by the
then Justice, later Chief Justice, Bengzon, in General
Insurance & Surety Corp. v. Ng Hua. 12 Thus: "The annotation
then, must be deemed to be a warranty that the property was
not insured by any other policy. Violation thereof entitles the
insurer to rescind. (Sec. 69, Insurance Act) Such
misrepresentation is fatal in the light of our views in Santa
Ana v. Commercial Union Assurance Company, Ltd. ... . The
materiality of non-disclosure of other insurance policies is not
open to doubt." 13 As a matter of fact, in a 1966 decision,
Misamis Lumber Corp. v. Capital Ins. & Surety Co., Inc., 14
Justice J.B.L. Reyes, for this Court, made manifest anew its
adherence to such a principle in the face of an assertion that
thereby a highly unfavorable provision for the insured would
be accorded recognition. This is the language used: "The
insurance contract may be rather onerous ('one sided', as the
lower court put it), but that in itself does not justify the
abrogation of its express terms, terms which the insured
accepted or adhered to and which is the law between the
contracting parties." 15

March 31, 1915


G.R. No. L-9370K. S. YOUNG, plaintiff-
appellee,vs.THE MIDLAND TEXTILE
INSURANCE COMPANY,

Contracts of insurance are contracts of indemnity upon the


terms and conditions specified in the policy. The parties
have a right to impose such reasonable conditions at the
time of the making of the contract as they may deem wise
and necessary. The rate of premium is measured by the
character of the risk assumed. The insurance company, for
a comparatively small consideration, undertakes to
guarantee the insured against loss or damage, upon the
terms and conditions agreed upon, and upon no other, and
when called upon to pay, in case of loss, the insurer,
therefore, may justly insist upon a fulfillment of these
terms. If the insured cannot bring himself within the
conditions of the policy, he is not entitled to recover for the
loss. The terms of the policy constitute the measure of the
insurer's liability, and in order to recover the insured must
show himself within those terms; and if it appears that the
contract has been terminated by a violation, on the part of
the insured, of its conditions, then there can be no right of
recovery. The compliance of the insured with the terms of
the contract is a condition precedent to the right of
recovery. If the insured has violated or failed to perform the
conditions of the contract, and such a violation or want of
performance has not been waived by the insurer, then the
insured cannot recover. Courts are not permitted to make
contracts for the parties. The function and duty of the
courts consist simply in enforcing and carrying out he
contracts actually made. While it is true, as a general rule,
that contracts of insurance are construed most favorably to
the insured, 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.
(Imperial Fire Ins. Co. vs. County of Coos, 151 U. S., 542;
Kyte vs. Commercial Union Assurance Co., 149 Mass.,
116, 122.) The conditions of contracts of insurance, when
plainly expressed in a policy, are binding upon the parties
and should be enforced by the courts, if the evidence brings
the case clearly within their meaning and intent. It tends to
bring the law itself into disrepute when, by astute and
subtle distinctions, a plain case is attempted to be taken
without the operation of a clear, reasonable, and material
obligation of the contract. (Mack vs. Rochester German
Ins. Co., 106 N. Y., 560, 564.)
The appellant argues, however, that in view of the fact that
the "storing" of the fireworks on the premises of the insured
did not contribute in any way to the damage occasioned by
the fire, he should be permitted to recover - that the
"storing" of the "hazardous goods" in no way caused injury
to the defendant company. That argument, however, is
beside the question, if the "storing" was a violation of the
terms of the contract. The violation of the terms of the
contract, by virtue of the provisions of the policy itself,
terminated, at the election of either party, he contractual
relations. (Kyte vs. Commercial Union Assurance Co., 149
Mass., 116, 122.) The plaintiff paid a premium based upon
the risk at the time the policy was issued. Certainly it
cannot be denied that the placing of the firecrackers in the
building insured increased the risk. The plaintiff had not
paid a premium based upon the increased risk, neither had
the defendant issued a policy upon the theory of a different
risk. The plaintiff was enjoying, if his contention may be
allowed may be allowed, the benefits of an insurance policy
upon one risk, whereas, as a matter of fact, it was issued
upon an entirely different risk. The defendant had neither
been paid nor had issues a policy to cover the increased
risk. An increase of risk which is substantial and which is
continued for a considerable period of time, is a direct and
certain injury to the insurer, and changes the basis upon
which the contract of insurance rests. (Kyte vs. Commercial
Union Assurance Co. (supra); Frost's Detroit Lumber
Works vs. Millers' Mutual Ins. Co., 37 Minn., 300, 302;
Moore vs. Phoenix Ins. Co., 62 N. H., 240; Ferree vs.
Oxford Fire & Life Ins. Co., 67 Pa. State, 373.)
Therefore and for the foregoing reasons, the judgment of
the lower court is hereby revoked and the defendant is
hereby relieved from any responsibility under said
complaint, and, without any finding as to costs, it is so
ordered.
HIRD DIVISION paragraph
[ G . R . No . 110668 . February 6 , 1997 ] paragraph

SMITH , BELL & CO . , INC . , petitioner , vs


. COURT OF APPEALS and JOSEPH
BENGZON CHUA , [1] respondents . paragraph
D E C I S I O N paragraph
PANGANIBAN , J . : paragraph

The main issue raised in this case is whether a local


claim or settling agent is personally and / or solidarily liable
upon a marine insurance policy issued by its disclosed
foreign principal . paragraph
This is a petition for review on certiorari of the Decision
of respondent Court[2] promulgated on January 20 , 1993 in
CA - G . R . CV No . 31812 affirming the decision[3] of the
trial court[4] which disposed as follows : [5] paragraph
Wherefore , the Court renders judgment condemning the
defendants ( petitioner and First Insurance Co . Ltd . ) jointly
and severally to pay the plaintiff ( private respondent ) the
amount of US$7 , 359 . 78 . plus 24% interest thereon annually
until the claim is fully paid , 10% as and for attorney s fees , and
the cost . paragraph

The Facts paragraph

The facts are undisputed by the parties , [6] and are


narrated by respondent Court , quoting the trial court , as
follows : [7] paragraph
The undisputed facts of the case have been succintly ( sic
) summarized by the lower court ( , ) as follows : paragraph

x x x in July 1982 , the plaintiffs , doing business under the


style of Tic Hin Chiong , Importer , bought and imported to the
Philippines from the firm Chin Gact Co . , Ltd . of Taipei
, Taiwan , 50 metric tons of Dicalcium Phospate , Feed Grade F -
15% valued at US$13 , 000 . 00 CIF Manila . These were
contained in 1 , 250 bags and shipped from the Port of Kaohsiung
, Taiwan on Board S . S . GOLDEN WEALTH for the Port
on ( sic ) Manila . On July 27 , 1982 , this shipment was
insured by the defendant First Insurance Co . for US$19 , 500 . 00
`against all risks at port of departure under Marine Policy No
. 1000M82070033219 , with the note `Claim , if any , payable in
U . S . currency at Manila ( Exh . `1 , `D for the plaintiff
) and with defendant Smith , Bell , and Co . stamped at the lower
left side of the policy as `Claim Agent . paragraph

The cargo arrived at the Port of Manila on September 1 , 1982


aboard the above - mentioned carrying vessel and landed at port on
September 2 , 1982 . Thereafter , the entire cargo was
discharged to the local arrastre contractor , Metroport Services Inc
. with a number of the cargo in apparent bad order condition . On
September 27 , 1982 , the plaintiff secured the services of a cargo
surveyor to conduct a survey of the damaged cargo which were (
sic ) delivered by plaintiff s broker on said date to the plaintiff s
premises at 12th Avenue , Grace Park , Caloocan City . The
surveyor s report ( Exh . `E ) showed that of the 1 , 250 bags
of the imported material , 600 were damaged by tearing at the
sides of the container bags and the contents partly empty . Upon
weighing , the contents of the damaged bags were found to be 18 ,
546 . 0 kg short . Accordingly , on October 16 following , the
plaintiff filed with Smith , Bell , and Co . , Inc . a formal
statement of claim ( Exh . `G ) with proof of loss and a demand
for settlement of the corresponding value of the losses , in the sum
of US$7 , 357 . 78 . 00 . ( sic ) After purportedly conveying the
claim to its principal , Smith , Bell , and Co . , Inc . informed
the plaintiff by letter dated February 15 , 1983 ( Exh . `G - 2
) that its principal offered only 50% of the claim or US$3 , 616 .
17 as redress , on the alleged ground of discrepancy between the
amounts contained in the shipping agent s reply to the claimant of
only US$90 . 48 with that of Metroport s . The offer not being
acceptable to the plaintiff , the latter wrote Smith , Bell , & Co
. expressing his refusal to the `redress offer , contending that
the discrepancy was a result of loss from vessel to arrastre to
consignees warehouse which losses were still within the `all risk
insurance cover . No settlement of the claim having been made
, the plaintiff then caused the instant case to be filed . ( p . 2
, RTC Decision ; p . 142 , Record ) . paragraph

Denying any liability , defendant - appellant averred in its answer


that it is merely a settling or claim agent of defendant insurance
company and as such agent , it is not personally liable under the
policy in which it has not even taken part of . It then alleged that
plaintiff - appellee has no cause of action against it . paragraph

Defendant The First Insurance Co . Ltd . did not file an Answer


, hence it was declared in default . paragraph

After due trial and proceeding , the lower court rendered a


decision favorable to plaintiff - appellee . It ruled that plaintiff -
appellee has fully established the liability of the insurance firm on
the subject insurance contract as the former presented concrete
evidence of the amount of losses resulting from the risks insured
against which were supported by reliable report and assessment of
professional cargo surveyor . As regards defendant - appellant
, the lower court held that since it is admittedly a claim agent of
the foreign insurance firm doing business in the Philippines justice
is better served if said agent is made liable without prejudice to its
right of action against its principal , the insurance firm . x x
x paragraph

The Issue paragraph

Whether or not a local settling or claim agent of a disclosed


principal - - a foreign insurance company - - can be held jointly
and severally liable with said principal under the latter s marine
cargo insurance policy , given that the agent is not a party to the
insurance contract [8] - - is the sole issue raised by petitioner
. paragraph

Petitioner rejects liability under the said insurance contract


, claiming that : ( 1 ) it is merely an agent and thus not
personally liable to the party with whom it contracts on behalf of
its principal ; ( 2 ) it had no participation at all in the contract of
insurance ; and ( 3 ) the suit is not brought against the real party -
in - interest . [9] paragraph

On the other hand , respondent Court in ruling against petitioner


disposed of the main issue by citing a case it decided in 1987
, where petitioner was also a party - litigant . [10] In that case
, respondent Court held that petitioner as resident agent of First
Insurance Co . Ltd . was authorized to settle claims against its
principal . Its defense that its authority excluded personal liability
must be proven satisfactorily . There is a complete dearth of
evidence supportive of appellant s non - responsibility as resident
agent . The ruling continued with the statement that the
interest of justice is better served by holding the settling or claim
agent jointly and severally liable with its principal . [11] paragraph

Likewise , private respondent disputed the applicability


of the cases of E . Macias & Co . vs . Warner , Barnes &
Co . [12] and Salonga vs . Warner , Barnes & Co . , Ltd . [13]
invoked by petitioner in its appeal . According to private
respondent , these two cases impleaded only the
insurance agent and did not include the principal . While
both the foreign principal - - which was declared in default
by the trial court - - and petitioner , as claim agent , were
found to be solidarily liable in this case , petitioner still had
recourse against its foreign principal . Also , being a
contract of adhesion , an insurance agreement must be
strictly construed against the insurer . [14] paragraph
The Court s Ruling paragraph

There are three reasons why we find for petitioner


. paragraph
First Reason : Existing Jurisprudence paragraph

Petitioner , undisputedly a settling agent acting within


the scope of its authority , cannot be held personally and /
or solidarily liable for the obligations of its disclosed principal
merely because there is allegedly a need for a speedy
settlement of the claim of private respondent . In the
leading case of Salonga vs . Warner , Barnes & Co . , Ltd
. this Court ruled in this wise : [15] paragraph
We agree with counsel for the appellee that the defendant is a
settlement and adjustment agent of the foreign insurance company
and that as such agent it has the authority to settle all the losses and
claims that may arise under the policies that may be issued by or in
behalf of said company in accordance with the instructions it may
receive from time to time from its principal , but we disagree with
counsel in his contention that as such adjustment and settlement
agent , the defendant has assumed personal liability under said
policies , and , therefore , it can be sued in its own right . An
adjustment and settlement agent is no different from any other
agent from the point of view of his responsibilty ( sic ) , for he
also acts in a representative capacity . Whenever he adjusts or
settles a claim , he does it in behalf of his principal , and his
action is binding not upon himself but upon his principal . And
here again , the ordinary rule of agency applies . The following
authorities bear this out : paragraph

An insurance adjuster is ordinarily a special agent for the person


or company for whom he acts , and his authority is prima facie
coextensive with the business intrusted to him . * * * paragraph

An adjuster does not discharge functions of a quasi - judicial


nature , but represents his employer , to whom he owes faithful
service , and for his acts , in the employer s interest , the
employer is responsible so long as the acts are done while the
agent is acting within the scope of his employment . ( 45 C . J .
S . , 1338 - 1340 . ) paragraph

It , therefore , clearly appears that the scope and extent


of the functions of an adjustment and settlement agent do
not include personal liability . His functions are merely to
settle and adjusts claims in behalf of his principal if those
claims are proven and undisputed , and if the claim is
disputed or is disapproved by the principal , like in the
instant case , the agent does not assume any personal
liability . The recourse of the insured is to press his claim
against the principal . ( Underscoring supplied
) . paragraph
The foregoing doctrine may have been enunciated by
this Court in 1951 , but the passage of time has not eroded
its value or merit . It still applies with equal force and vigor
. paragraph
Private respondent s contention that Salonga does not
apply simply because only the agent was sued therein while
here both agent and principal were impleaded and found
solidarily liable is without merit . Such distinction is
immaterial . The agent can not be sued nor held liable
whether singly or solidarily with its principal . paragraph
Every cause of action ex contractu must be founded
upon a contract , oral or written , either express or implied .
[16] The only involvement of petitioner in the subject
contract of insurance was having its name stamped at the
bottom left portion of the policy as Claim Agent
. Without anything else to back it up , such stamp cannot
even be deemed by the remotest interpretation to mean that
petitioner participated in the preparation of said contract
. Hence , there is no privity of contract , and
correspondingly there can be no obligation or liability , and
thus no cause of action against petitioner attaches . Under
Article 1311[17] of the Civil Code , contracts are binding only
upon the parties ( and their assigns and heirs ) who
execute them . The subject cargo insurance was between
the First Insurance Company , Ltd . and the Chin Gact Co
. , Ltd . , both of Taiwan , and was signed in Taipei
, Taiwan by the president of the First Insurance Company
, Ltd . and the president of the Chin Gact Co . , Ltd . [18]
There is absolutely nothing in the contract which mentions
the personal liability of petitioner . paragraph
Second Reason : Absence of Solidary Liability
paragraph

May then petitioner , in its capacity as resident agent (


as found in the case cited by the respondent Court ) [19] be
held solidarily liable with the foreign insurer ? Article 1207
of the Civil Code clearly provides that ( t ) here is a
solidary liability only when the obligation expressly so states
, or when the law or the nature of the obligation requires
solidarity . The well - entrenched rule is that solidary
obligation cannot lightly be inferred . It must be positively
and clearly expressed . The contention that , in the end , it
would really be First Insurance Company , Ltd . which
would be held liable is specious and cannot be accepted
. Such a stance would inflict injustice upon petitioner which
would be made to advance the funds to settle the claim
without any assurance that it can collect from the principal
which disapproved such claim , in the first place . More
importantly , such position would have absolutely no legal
basis . paragraph
The Insurance Code is quite clear as to the purpose and
role of a resident agent . Such agent , as a representative
of the foreign insurance company , is tasked only to receive
legal processes on behalf of its principal and not to answer
personally for any insurance claims . We quote : paragraph
SEC . 190 . The Commissioner must require as a condition
precedent to the transaction of insurance business in the
Philippines by any foreign insurance company , that such
company file in his office a written power of attorney designating
some person who shall be a resident of the Philippines as its
general agent , on whom any notice provided by law or by any
insurance policy , proof of loss , summons and other legal
processes may be served in all actions or other legal proceedings
against such company , and consenting that service upon such
general agent shall be admitted and held as valid as if served upon
the foreign company at its home office . Any such foreign
company shall , as further condition precedent to the transaction of
insurance business in the Philippines , make and file with the
Commissioner an agreement or stipulation , executed by the
proper authorities of said company in form and substance as
follows : paragraph

The ( name of company ) does hereby stipulate and agree in


consideration of the permission granted by the Insurance
Commissioner to transact business in the Philippines , that if at
any time such company shall leave the Philippines , or cease to
transact business therein , or shall be without any agent in the
Philippines on whom any notice , proof of loss , summons , or
legal process may be served , then in any action or proceeding
arising out of any business or transaction which occurred in the
Philippines , service of any notice provided by law , or insurance
policy , proof of loss , summons , or other legal process may be
made upon the Insurance Commissioner shall have the same force
and effect as if made upon the company . paragraph

Whenever such service of notice , proof of loss


, summons , or other legal process shall be made upon the
Commissioner he must , within ten days thereafter
, transmit by mail , postage paid , a copy of such notice
, proof of loss , summons , or other legal process to the
company at its home or principal office . The sending of
such copy of the Commissioner shall be necessary part of
the service of the notice , proof of loss , or other legal
process . ( Underscoring supplied ) . paragraph
Further , we note that in the case cited by respondent
Court , petitioner was found to be a resident agent of First
Insurance Co . Ltd . In the instant case however , the trial
court had to order the service of summons upon First
Insurance Co . , Ltd . which would not have been
necessary if petitioner was its resident agent . Indeed
, from our reading of the records of this case , we find no
factual and legal bases for the finding of respondent Court
that petitioner is the resident agent of First Insurance Co
. , Ltd . . paragraph
Third Reason : Not Real Party - In - Interest paragraph

Lastly , being a mere agent and representative


, petitioner is also not the real party - in - interest in this case
. An action is brought for a practical purpose , that is , to
obtain actual and positive relief . If the party sued is not the
proper party , any decision that may be rendered against
him would be futile , for the decision cannot be enforced or
executed . Section 2 , Rule 3 of the Rules of Court
identifies who the real parties - in - interest are , thus
: paragraph
Section 2 . Parties in interest . - Every action must be
prosecuted and defended in the name of the real party in interest
. All persons having an interest in the subject of the action and in
obtaining the relief demanded shall be joined as plaintiffs . All
persons who claim an interest in the controversy or the subject
thereof adverse to the plaintiff , or who are necessary to a
complete determination or settlement of the questions involved
therein shall be joined as defendants . paragraph

The cause of action of private respondent is based on a


contract of insurance which as already shown was not
participated in by petitioner . It is not a person who claim (
s ) an interest adverse to the plaintiff nor is said
respondent necessary to a complete determination or
settlement of the questions involved in the controversy
. Petitioner is improperly impleaded for not being a real -
party - interest . It will not benefit or suffer in case the action
prospers . [20] paragraph
EN BANC

G.R. No. 16492 March 9, 1922

E. MACIAS & CO., importers and exporters, plaintiff-appellant,


vs. WARNER, BARNES & CO., in its capacity as agents of
"The China Fire Insurance Co.," of "The Yang-Tsze" and of "The
State Assurance Co., Ltd.," defendant-appellant.
Ramon Sotelo for plaintiff-appellant. Cohn, Fisher & DeWitt for
defendant-appellant.

STATEMENT

The plaintiff is a corporation duly registered and domiciled in Manila.


The defendant is a corporation duly licensed to do business in the
Philippine Islands, and is the resident agent of insurance companies
"The China Fire Insurance Company, Limited, of Hongkong," "The
Yang-Tsze Insurance Association Limited, of Shanghai," and "The
State Assurance Company, Limited, of Liverpool. The plaintiff is an
importer of textures and commercial articles for wholesale.

In the ordinary course of business, it applied for, and obtained, the


following policies against loss by fire:

Policy No. 4143, issued by The China Fire Insurance Co., Ltd., for
....................................................................... P12,000

Policy No. 4382, issued by The China Fire Insurance Co., Ltd., for
.......................................................................... 15,000

Policy No. 326, issued by The Yang-Tsze Insurance Ass'n., Ltd., for
..................................................................... 10,000

Policy No. 796111, issued by The State Assurance Co., Ltd., for
............................................................................ 8,000

Policy No. 4143, of P12,000, recites that Mrs. Rosario Vizcarra,


having paid to the China Fire Insurance Company, Limited, P102 for
insuring against or damage by fire certain merchandise the
description of which follows, "the company agrees with the insured
that, if the property above described, or any party thereof, shall be
destroyed or damaged by fire between September 16, 1918, and
September 16, 1919," etc., "The company will, out of its capital, stock
and funds, pay or make good all such loss or damage, not
exceeding" the amount of the policy. This policy was later duly
assigned to the plaintiff.

Policy No. 4382, for P15,000, was issued by the same company to,
and in the name of, plaintiff.
Policy No. 326, for P10,000, was issued to, and in the name of policy
No. 326, for P10,000, was issued to, and in the name of the plaintiff
by The Yang-Tsze Insurance Association, Limited, and recites that
the premium of P125 was paid by the plaintiff to the association, and
that, in the event of loss by fire between certain dates, "the funds and
property of the said association shall be subject and liable to pay,
reinstate, or make good to the said assured, their heirs, executors, or
administrators, such loss or damage as shall be occasioned by fire to
the property above-mentioned and hereby insured," not exceeding
the amount of the policy.

Policy No. 796111, for P8,000, was issued by The States Assurance
Company, Limited, to the plaintiff for a premium of P100, which was
paid to the Assurance Company through the defendant, its authorized
agent, and recites that "the company agrees with the insured that in
the event of loss by fire between certain dates, the company will, out
of its capital, stock and funds, pay the amount of such loss or
damage," not exceeding the amount of the policy, and it is attested by
the defendant, through its "Cashier and Accountant and Manager,
Agents, State Assurance Co., Ltd.," authorized agents of the
Assurance Company.

Policy No. 4143 is attested "on behalf of The China Fire Insurance
Company, Limited," by the cashier and accountant and manager of
the defendant, as agents of The China Fire Insurance Company,
Limited. The same is true as to policy no. 4382.

Policy No. 326 recites the payment of a premium of P125 by the


plaintiff to The Yang-Tsze Insurance Association, Limited, and that, in
the event of loss, "the funds and property of the said association shall
be subject and liable to pay, reinstate, or make good to the said
assured, their heirs, executors, or administrators, such loss or
damage as shall be occasioned by fire or lightning to the property"
insured, not exceeding the amount of the policy, and it is attested by
the defendant, through its cashier and accountant and manager, as
agents of the association "under the authority of a Power of Attorney
from The Yang-Tsze Insurance Association, Limited," "to sign, for and
on behalf of the said Association, etc."

March 25, 1919, and while the policies were in force, a loss occurred
in which the insured property was more or less damaged by fire and
the use of water resulting from the fire.

The plaintiff made a claim for damages under its policies, but could
not agree as to the amount of loss sustained. It sold the insured
property in its then damaged condition, and brought this action
against Warner, Barnes & Co., in its capacity as agents, to recover
the difference between the amount of the policies and the amount
realized from the sale of the property, and in the first cause of action,
it prayed for judgment for P23,052.99, and in the second cause of
action P9,857.15.

The numbers and amounts of the policies and the names of the
insurance companies are set forth and alleged in the complaint.

The answer admits that the defendants is the resident agent of the
insurance companies, the issuance of the policies, and that a fire
occurred on March 25, 1919, in the building in which the goods
covered by the insurance policies were stored, and that to extinguish
the fire three packages of goods were damage by water not to
exceed P500, and denies generally all other material allegations of
the complaint.

As a further and separate defense, the defendant pleads certain


provisions in the policies, among which was a written notice of loss,
and all other insurance and certain detailed information. It is then
alleged

That although frequently requested to do so, plaintiff failed and


refused to deliver to defendant or to any other person authorized to
receive it, any claim in writing specifying the articles or items of
property damaged or destroyed and of the alleged amount of the loss
or damage caused thereto.

That defendant was at all times ready and willing to pay, on behalf of
the insurance companies by whom said policies were issued, and to
the extent for which each was proportionately liable, the actual
damage to plaintiff's goods covered by the risks insured against,
upon compliance within the time limited, with the terms of the clause
of the contracts of insurance above set forth.
Defendants prays judgment for costs.

Before the trial, counsel for the defendant objected to the introduction
of any evidence in the case, and moved "that judgment be entered for
the defendant on the pleadings upon the ground that it appears from
the averment of the complaint that the plaintiff has had no contractual
relations with the defendant, and that the action has not been brought
against the real party in interest." The objection and motion was
overruled and exception duly taken. After trial the court found that
there was due the plaintiff from the three insurance companies
p18,493.29 with interest thereon at the rate of 6 per cent per annum,
from the date of the commencement of the action, and costs, and
rendered the following judgment:

It is, therefore, ordered that judgment be entered against Warner,


Barnes & Co., Ltd., in its capacity as agent and representative in the
Philippine Islands for The China fire Insurance Company, Ltd., The
Yang-Tsze Insurance Association, Ltd., and The State Assurance
Co., Ltd., for the payment to the plaintiff, E. Macias & Co., of the sum
of P18,493.29, the amount of this judgment to be prorated by Warner,
Barnes & Co., among the three insurance companies above-
mentioned by it represented, in proportion to the interest insured by
each of said three insurance companies, according to the policies
issued by them in favor of the plaintiff, and sued upon in this action.

The defendant then filed a motion to set aside the judgment and for a
new trial, which was overruled and exception taken. From this
judgment the defendant appealed, claiming that "the court erred in
overruling defendant's motion for judgment on the pleadings; that the
court erred in giving judgment for the plaintiff; that the court erred in
denying defendants motion for a new trial," and specifying other
assignments which are not material to this opinion, Plaintiff also
appealed.

JOHNS, J.:

The material facts are not in dispute it must be conceded that the
policies in question were issued by the different insurance
companies, through the defendant as their respective agent; that they
were issued in consideration of a premium which was paid by the
insured to the respective companies for the amount of the policies, as
alleged; that the defendant was, and is now, the resident agent in
Manila of the companies, and was authorized to solicit and do
business for them as such agent; that each company is a foreign
corporation. The principal office and place business of the The China
Fire Insurance Company is at Hongkong; of The Yang-Tsze
Insurance Association is at Shanghai; and of The State Assurance
Company is at Liverpool. As such foreign corporations they were duly
authorized and licensed to do insurance business in the Philippine
Islands, and, to that end and for that purpose, the defendant
corporation, Warner, Barnes & Co., was the agent of each company.

All of the policies are in writing, and recite that the premium was paid
by the insured to the insurance company which issued the policy, and
that, in the event of a loss, the insurance company which issued it will
pay to the insured the amount of the policy.

This is not a case of an undisclosed agent or an undisclosed


principal. It is a case of a disclosed agent and a disclosed principal.

The policies on their face shows that the defendant was the agent of
the respective companies, and that it was acting as such agent in
dealing with the plaintiff. That in the issuance and delivery of the
policies, the defendant was doing business in the name of, acting for,
and representing, the respective insurance companies. The different
policies expressly recite that, in the event of a loss, the respective
companies agree to compensate the plaintiff for the amount of the
loss. the defendant company did not insure the property of the
plaintiff, or in any manner agree to pay the plaintiff the amount of any
loss. There is no contract of any kind. either oral or written, between
the plaintiff and Warner, Barnes & Co. Plaintiff's contracts are with
the insurance companies, and are in writing, and the premiums were
paid to the insurance companies, and are in writing, and the
premiums were paid to the insurance companies and the policies
were issued by, and in the name of, the insurance companies, and on
the face of the policy itself, the plaintiff knew that the defendant was
acting as agent for, and was representing, the respective insurance
companies in the issuance and deliver of the policies. The defendant
company did not contract or agree to do anything or to pay the
plaintiff any money at any time or on any condition, either as agent or
principal.

There is a very important distinction between the power and duties of


a resident insurance agent of a foreign company and that of an
executor, administrator, or receiver. An insurance agent as such is
not responsible for, and does not have, any control over the corpus or
estate of the corporate property, as does an executor, administrator,
or receiver. Subject only to the order of the court, such officers are
legal custodians and have actual possession of the corporate
property. It is under their control and within their jurisdiction.

As stated by counsel for Warner, Barnes & Co., an attorney of record


for an insurance company has greater power and authority to act for,
and bind, the company than does a soliciting agent of an insurance
company. Yet, no attorney would contend that a personal action
would lie against local attorneys who represent a foreign corporation
to recover on a contract made by the corporation. On the same
principles by which plaintiff seeks to recover from the defendant, an
action could be maintained against the cashier of any bank on every
foreign draft which he signed for, and on behalf of, the bank.

Every cause of action ex contractu must be founded upon a contract,


oral or written, either express or implied.

Warner, Barnes & Co., as principal or agent, did not make any
contract, either or written, with the plaintiff. The contracts were made
between the respective insurance companies and the insured, and
were made by the insurance companies, through Warner, Barnes &
Co., as their agent.

As in the case of a bank draft, it is not the cashier of the bank who
makes the contract to pay the money evidenced by the draft, it is the
bank, acting through its cashier, that makes the contract. So, in the
instant case, it was the insurance companies, acting through Warner,
Barnes & Co., as their agent, that made the written contracts wit the
insured.

The trial court attached much importance to the fact that in the further
and separate answer, an admission was made "that defendant was at
all times ready and will not to pay, on behalf of the insurance
companies by whom each was proportionately liable, the actual
damage" sustained by the plaintiff covered by the policies upon the
terms and conditions therein stated.

When analyzed, that is nothing more than a statement that the


companies were ready and willing to prorate the amount when the
losses were legally ascertained. Again, there is not claim or pretense
that Warner, Barnes & Co. had any authority to act for, and represent
the insurance companies in the pending action, or to appear for them
or make any admission which would bind them. As a local agent, it
could not do that without express authority. That power could only
exercised by an executive officer of the company, or a person who
was duly authorized to act for, and represent, the company in legal
proceedings, and there is no claim or pretense, either express or
implied, that the defendant has any such authority.

Plaintiff's cause of action, if any, is direct against the insurance


companies that issued the policies and agreed to pay the losses.

The only defendant in the instant case is "Warner, Barnes & Co., in
its capacity as agents of:" the insurance companies. Warner, Barnes
& Co. did not make any contract with the plaintiff, and are not liable to
the plaintiff on any contract, either as principal or agent. For such
reason, plaintiff is not entitled to recover its losses from Warner,
Barnes & Co., either as principal or agent. There is no breach of any
contract with the plaintiff by Warners, Barnes & Co., either as agent
or principal, for the simple reason that Warner, Barnes & Co., as
agent or principal, never made any contract, oral or written, with the
plaintiff. This defense was promptly raised before the taking of the
testimony, and again renewed on the motion to set aside the
judgment.

Plaintiff's own evidence shows that any cause of action it may have is
against the insurance companies which issued the policies.

The complaint is dismissed, and the judgment of the lower court is


reversed, and one will be entered here in favor of Warner, Barnes &
Co., Ltd., against the plaintiff, for costs in both this and the lower
court. So ordered.
Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand
and Romualdez, JJ., concur.

G.R. No. L-2246 January 31, 1951

JOVITO R. SALONGA, plaintiff-appellee, vs. WARNER, BARNES


AND CO., LTD., defendant-appellant.

Perkins, Ponce Enrile, Contreras and Gomez for appellant. Pedro L.


Yap for appellee.

BAUTISTA ANGELO, J.:


We will begin by discussing the second error assigned by appellant
for the reason that if our view on the question raised is in favor of the
claim of appellant there would be no need to proceed with the
discussion of the other errors assigned, for that would put an end to
the controversy.

As regards the second assignment of error, counsel claims that the


defendant cannot be made responsible to pay the amount in litigation
because (1) said defendant has no contractual relation with either the
plaintiff or his consignor; (2) the defendant is not the real party in
interest against whom the suit should be brought; and (3) a judgment
for or against an agent in no way binds the real party in interest.

1. We are of the opinion that the first point is well taken. It is a well
known rule that a contractual obligation or liability, or an action ex-
contractu, must be founded upon a contract, oral or written, either
express or implied. This is axiomatic. If there is no contract, there is
no corresponding liability, and no cause of action may arise
therefrom. This is what is provided for in article 1257 of the Civil
Code. This article provides that contracts are binding upon the parties
who make them and their heirs, excepting, with respect to the latter,
where the rights and obligations are not transmissible, and when the
contract contains a stipulation in favor of a third person, he may
demand its fulfillment if he gives notice of his acceptance before it is
revoked. This is also the ruling laid down by this court in the case of
E. Macias and Co. vs. Warner, Barnes and Co. (43 Phil. 155)
wherein, among others, the court said:
xxx xxx xxx

. . . There is no contract of any kind, either oral or written, between


the plaintiff and Warner, Barnes and Company. Plaintiff's contracts
are with the insurance companies, and are in writing, and the
premiums were paid to the insurance companies and the policies
were issued by, and in the name of, the insurance companies, and on
the face of the policy itself, the plaintiff knew that the defendant was
acting as agent, for, and was representing, the respective insurance
companies in the issuance and delivery of the policies. The defendant
company did not contract or agree to do anything or to pay the
plaintiff any money at any time or on any condition, either as agent or
principal.

xxx xxx xxx

Every cause of action ex-contractu must be founded upon a contract,


oral or written, either express or implied.

Warner, Barnes and Co., as principal or agent, did not make any
contract, either oral or written, with the plaintiff. The contracts were
made between the respective insurance companies and the insured,
and were made by the insurance companies, through Warner, Barnes
and Co., as their agent.

As in the case of a bank draft, it is not the cashier of the bank who
makes the contract to pay the money evidenced by the draft, it is the
bank, acting through its cashier, that makes the contract. So, in the
instant case, it was the insurance companies, acting through Warner,
Barnes and Co., as their agent, that made the written contracts with
the insured. (E. Macias and Co. vs. Warner, Barnes and Co., 43 Phil.,
155, 161, 162.)

Bearing in mind the above rule, we find that the defendant has not
taken part, directly or indirectly, in the contract in question. The
evidence shows that the defendant did not enter into any contract
either with the plaintiff or his consignor Tina J. Gamboa. The
contract of marine insurance, Exhibit C, was made and executed only
by and between the Westchester Fire Insurance Company of New
York and Tina J. Gamboa. The contract was entered in New York.
There is nothing therein which may affect, in favor or adversely, the
defendant, the fulfillment of which may be demanded by or against it.
That contract is purely bilateral, binding only upon Gamboa and the
insurance company. When the lower court, therefore, imposed upon
the defendant an obligation which it has never assumed, either
expressly or impliedly, or when it extended to the defendant the
effects of a contract which was entered into exclusively by and
between the Westchester Fire Insurance Company of New York and
Tina J. Gamboa, the error it has committed is evident. This is contrary
to law.

We do not find any material variance between this case and the case
of E. Macias and Co. vs. Warner, Barnes and Co., supra, as pointed
out by counsel for appellee, in so far as the principle we are
considering is concerned. Both cases involve similar facts which call
for the application of a similar ruling. In both cases the issue is
whether an agent, who acts within the scope of his authority, can
assume personal liability for a contract entered into by him in behalf
of his principal. And in the Macias case we said that the agent did not
assume personal liability because the only party bound was the
principal. And in this case this principle acquires added force and
effect when we consider the fact that the defendant did not sign the
contract as agent of the foreign insurance company as the defendant
did in the Macias case. The Macias case, therefore, is on all fours
with this case and is decisive of the question under consideration.

2. Counsel next contends that Warner, Barnes and Co., Ltd., is not
the real party in interest against whom the suit should be brought. It is
claimed that this action should have been filed against its principal,
the Westchester Fire Insurance Company of New York. This point is
also well taken. Section 2, Rule 3 of the Rules of Court requires that
"every action must be prosecuted in the name of the real party in
interest." A corollary proposition to this rule is that an action must be
brought against the real party in interest, or against a party which
may be bound by the judgment to be rendered therein (Salmon and
Pacific Commercial Co. vs. Tan Cueco, 36 Phil., 556). 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" (1 Sutherland,
Court Pleading Practice and Forms, p. 11). And in the case at bar,
the defendant issued upon in its capacity as agent of Westchester
Fire Insurance Company of New York in spite of the fact that the
insurance contract has not been signed by it. As we have said, the
defendant did not assume any obligation thereunder either as agent
or as a principal. It cannot, therefore, be made liable under said
contract, and hence it can be said that this case was filed against one
who is not the real party in interest.

We agree with counsel for the appellee that the defendant is a


settlement and adjustment agent of the foreign insurance company
and that as such agent it has the authority to settle all the losses and
claims that may arise under the policies that may be issued by or in
behalf of said company in accordance with the instructions it may
receive from time to time from its principal, but we disagree with
counsel in his contention that as such adjustment and settlement
agent, the defendant has assumed personal liability under said
policies, and, therefore, it can be sued in its own right. An adjustment
and settlement agent is no different from any other agent from the
point of view of his responsibility, for he also acts in a representative
capacity. Whenever he adjusts or settles a claim, he does it in behalf
of his principal, and his action is binding not upon himself but upon
his principal. And here again, the ordinary rule of agency applies. The
following authorities bear this out:

An insurance adjuster is ordinarily a special agent for the person or


company for whom he acts, and his authority is prima facie
coextensive with the business intrusted to him. . . .

An adjuster does not discharge functions of a quasi-judicial nature,


but represents his employer, to whom he owes faithful service, and
for his acts, in the employer's interest, the employer is responsible so
long as the acts are done while the agent is acting within the scope of
his employment. (45 C. J. S., 1338-1340.)

It, therefore, clearly appears that the scope and extent of the
functions of an adjustment and settlement agent do not include
personal liability. His functions are merely to settle and adjusts claims
in behalf of his principal if those claims are proven and undisputed,
and if the claim is disputed or is disapproved by the principal, like in
the instant case, the agent does not assume any personal liability.
The recourse of the insured is to press his claim against the principal.
3. This brings us to the consideration of the third point. It is claimed
that a judgment, for or against an agent, in no way binds the real
party in interest. In our opinion this point is also well taken, for it is but
a sequel to the principle we have pointed out above. The reason is
obvious. An action is brought for a practical purpose, nay to obtain
actual and positive relief. If the party sued upon is not the proper
party, any decision that may be rendered against him would be futile,
for it cannot be enforced or executed. The effort that may be
employed will be wasted. Such would be the result of this case if it
will be allowed to proceed against the defendant, for even if a
favorable judgment is obtained against it, it cannot be enforced
because the real party is not involved. The defendant cannot be
made to pay for something it is not responsible. Thus, in the following
authorities it was held:

. . . Section 114 of the Code of Civil Procedure requires an action to


be brought in the name of the real party in interest; and a corollary
proposition requires that an action shall be brought against the
persons or entities which are to be bound by the judgment obtained
therein. An action upon a cause of action pertaining to his principal
cannot be brought by an attorney-in-fact in his name (Arroyo vs.
Granada and Gentero, 18 Phil., 484); nor can an action based upon a
right of action belonging to a principal be brought in the name of his
representative (Lichauco vs. Limjuco and Gonzalo, 19 Phil., 12).
Actions must be brought by the real parties in interest and against the
persons who are to be bound by the judgment obtained therein.
(Salmon and Pacific Commercial Co. vs. Tan Cueco, 36 Phil., 557-
558.)

xxx xxx xxx

An action to set aside an instrument of transfer of land should be


brought in the name of the real party in interest. An apoderado or
attorney in fact is not a real party. He has no interest in the litigation
and has absolutely no right to bring the defendant into court or to put
him to the expense of a suit, and there is no pro-vision of law
permitting action to be brought in such manner. A judgment for or
against the apoderado in no way binds or affects the real party, and a
decision in the suit would be utterly futile. It would touch no interest,
adjust no question, bind no one, and settle no litigation. Courts should
not be required to spend their time solemnly considering and deciding
cases where no one could be bound and no interest affected by such
deliberation and decision. (Arroyo vs. Granada and Gentero, 18 Phil.,
484.)

If the case cannot be filed against the defendant as we have pointed


out, what then is the remedy of the plaintiff under the circumstances?
Is the case of the plaintiff beyond remedy? We believe that the only
way by which the plaintiff can bring the principal into this case or
make it come under the courts in this jurisdiction is to follow the
procedure indicated in section 14, Rule 7, of the Rules of Court
concerning litigations involving foreign corporations. This rule says
that if the defendant is a foreign corporation and it has not designated
an agent in the Philippines on whom service may be made in case of
litigation, such service may be made on any agent it may have in the
Philippines. And in our opinion the Westchester Fire Insurance
Company of new York comes within the import of this rule for even if
it has not designated an agent as required by law, it has however a
settling agent who may serve the purpose. In other words, an action
may be brought against said insurance company in the Philippines
and the process may be served on the defendant to give our courts
the necessary jurisdiction. This is the way we have pointed out in the
case of General Corporation of the Philippines and Mayon Investment
Co. vs. Union Insurance Society of Canton Ltd. et al., (87 Phil., 313).

In view of the foregoing, we are of the opinion and so hold that the
lower court erred in holding the defendant responsible for the loss or
damage claimed in the complaint. And having arrived at this
conclusion, we do not deem it necessary to pass upon the other
errors assigned by the appellant.