SECOND DIVISION excepted hereinafter P1,000.

00

[G.R. No. L-16215. June 29, 1963.] SECTION 2. Injury sustained by the wrecking or disablement of a railroad
passenger car or street railway car in or on which the insured is traveling
SIMEON DEL ROSARIO, Plaintiff-Appellee, v. THE EQUITABLE as a fare-paying passenger P1,500.00
INSURANCE AND CASUALTY CO., INC., Defendant-Appellant.
SECTION 3. Injury sustained by the burning of a church, theatre, public
Vicente J. Francisco and Jose R. Francisco for Plaintiff-Appellee. library or municipal administration building while the Insured is therein at
the commencement of the fire P2,000.00
K. V. Faylona for defendant appellant.
SECTION 4. Injury sustained by the wrecking or disablement of a regular
passenger elevator car in which the Insured is being conveyed as a
SYLLABUS passenger (Elevator in mines excluded) P2,500.00

SECTION 5. Injury sustained by a stroke of lightning or by a cyclone

1. INSURANCE; INDEMNITY; AMBIGUITY IN TERMS AND CONDITIONS OF P3,000.00
A LIFE ACCIDENT POLICY RESOLVED AGAINST INSURER. Where there is
an ambiguity with respect to the terms and conditions of a policy, the same x x x
will be resolved against the one responsible thereof. Generally, the insured,
has little, if any, participation in the preparation of the policy, together with
the drafting of its terms and conditions. The interpretation of obscure Part VI. Exceptions
stipulations in a contract should not favor the party who caused the
obscurity (Art. 1377, N.C.C.) which, in the case at bar, is the insurance This policy shall not cover disappearance of the Insured nor shall it cover
company. Death, Disability, Hospital fees, or Loss of Time, caused to the
insured:chanrob1es virtual 1aw library

DECISION . . . (h) By drowning except as a consequence of the wrecking or

disablement in the Philippine waters of a passenger steam or motor vessel
in which the Insured is traveling as a fare-paying passenger; . . ."cralaw
PAREDES, J.: virtua1aw library

A rider to the Policy contained the following:jgc:chanrobles.com.ph

On February 7, 1957, the defendant Equitable Insurance and Casualty Co.,
Inc., issued Personal Accident Policy No. 7136 on the life of Francisco del
Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself
to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of
the insured. The pertinent provisions of the Policy, recite:chanrob1es
virtual 1aw library
"IV. DROWNING
It is hereby declared and agreed that exemption clause letter (h) embodied
in Part VI of the policy is hereby waived by the company, and to form a
part of the provision covered by the policy."cralaw virtua1aw library

Part I. Indemnity for Death
If the insured sustains any bodily injury which is effected solely through
violent, external, visible and accidental means, and which shall result,
independently of all other causes and within sixty (60) days from the
occurrence thereof, in the Death of the Insured, the Company shall pay the
amount set opposite such injury:chanrob1es virtual 1aw library
SECTION 1. Injury sustained other than those specified below unless
On February 24, 1957, the insured Francisco del Rosario alias Paquito
Bolero, while on board the motor launch "ISLAMA" together with 33 others,
including his beneficiary in the Policy, Remedios Jayme, were forced to
jump off said launch on account of fire which broke out on said vessel,
resulting to the death by drowning, of the insured and beneficiary in the
waters of Jolo.
On April 13, 1957, Simeon del Rosario, father of the insured, and as the

1
sole heir, filed a claim for payment with defendant company, and on Answer to the complaint, defendant company practically admitted all the
September 13, 1957, defendant company paid to him (plaintiff) the sum of allegations therein, denying only those which stated that under the policy
P1,000.00, pursuant to Section 1 of Part 1 of the policy. The receipt signed its liability was P3,000.00.
by plaintiff reads
On September 1, 1958, the trial court promulgated an amended Decision,
"RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO, INC., the sum the pertinent portions of which read
of PESOS ONE THOUSAND (P1,000.00) Philippine Currency, being
settlement in full for all claims and demands against said Company as a "x x x
result of an accident which occurred on February 26, 1957, insured under
our ACCIDENT Policy No. 7136, causing the death of the Assured. Since the contemporaneous and subsequent acts of the parties show that it
was not their intention that the payment of P1,000.00 to the plaintiff and
In view of the foregoing, this policy is hereby surrendered and CANCELLED. the signing of the loss receipt exhibit 1 would be considered as releasing
the defendant completely from its liability on the policy in question, said
LOSS COMPUTATION intention of the parties should prevail over the contents of the loss receipt
1 (Articles 1370 and 1371, New Civil Code).
Amount of Insurance P1,000.00"
". . . Under the terms of this policy, defendant company agreed to pay
On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote P1,000.00 to P3,000.00 as indemnity for the death of the insured. The
defendant company acknowledging receipt by his client (plaintiff herein), of insured died of drowning. Death by drowning is covered by the policy the
the P1,000.00, but informing said company that said amount was not the pertinent provisions of which reads as follows:chanrob1es virtual 1aw
correct one. Atty. Francisco claimed library

"The amount payable under the policy, I believe should be P1,500.00 under x x x
the provision of Section 2, part 1 of the policy, based on the rule of pari
materia as the death of the insured occurred under the circumstances
similar to that provided under the aforecited section."cralaw virtua1aw Part I of the policy fixes specific amounts as indemnities in case of deaths
library resulting from bodily injury which is effected solely thru violence, external,
visible and accidental means but, Part I of the Policy is not applicable in
Defendant company, upon receipt of the letter, referred the matter to the case of death by drowning because death by drowning is not one resulting
Insurance Commissioner, who rendered an opinion that the liability of the from bodily injury which is affected solely thru violent, external, visible
company was only P1,000.00, pursuant to Section 1, Part 1 of the and accidental means as Bodily Injury means a cut, a bruise, or a wound
Provisions of the policy (Exh. F, or 3). Because of the above opinion, and drowning is death due to suffocation and not any cut, bruise or
defendant insurance company refused to pay more than P1,000.00. In the wound.
meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance
company, asked for P3,000.00 which the Company refused to pay. Hence,
x x x
a complaint for the recovery of the balance of P2,000.00 more was
instituted with the CFI of Rizal (Pasay City, Branch VIII), praying for a
further sum of P10,000.00 as attorneys fees, expenses of litigation and
Besides, on the face of the policy Exhibit A itself, death by drowning is a
costs.
ground for recovery a part from the bodily injury because death by bodily
injury is covered by Part I of the policy while death by drowning is covered
Defendant Insurance Company presented a Motion to Dismiss, alleging that
by Part VI thereof. But while the policy mentions specific amounts that may
the demand or claim as set forth in the complaint had already been
be recovered for death for bodily injury, yet, there is no specific amount
released, plaintiff having received the full amount due as appearing in the
mentioned in the policy for death thru drowning although the latter is,
policy and as per opinion of the Insurance Commissioner. An opposition to
under Part VI of the policy, a ground for recovery thereunder. Since the
the motion to dismiss was presented by plaintiff, and other pleadings were
defendant has bound itself to pay P1,000.00 to P3,000.00 as indemnity for
subsequently filed by the parties. On December 28, 1957, the trial court
the death of the insured but the policy does not positively state any
deferred action on the motion to dismiss until termination of the trial of the
definite amount that may be recovered in case of death by drowning, there
case, it appearing that the ground thereof was not indubitable. In the

2
is an ambiguity in this respect in the policy, which ambiguity must be the contract is selected with great care and deliberation by expert and legal
interpreted in favor of the insured and strictly against the insurer so as to a advisers employed by, and acting exclusively in the interest of, the
low a greater indemnity. insurance company (44 C. J. S. 1174). Calanoc v. Court of Appeals, Et. Al.
98 Phil., 79."
x x x
". . . Where two interpretations, equally fair, of languages used in an
insurance policy may be made, that which allows the greater indemnity will
. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had prevail. (LEngel v. Scotish Union & Nat. F. Ins. Co. 48 Fla. 82, 37 So. 462,
already paid the amount of P1.000.00 to the plaintiff so that there still 67 LRA 581, 111 Am. St. Rep. 70, 5 Ann. Cas. 749)."cralaw virtua1aw
remains a balance of P2,000.00 of the amount to which plaintiff is entitled library
to recover under the policy exhibit A.
At any event, the policy under consideration, covers death or disability by
The plaintiff asks for an award of P10,000.00 as attorneys fees and accidental means, and the appellant insurance company agreed to pay
expenses of litigation. However, since it is evident that the defendant had P1,000.00 to P3,000.00, as indemnity for death of the insured.
not acted in bad faith in refusing to pay plaintiffs claim, the Court cannot
award plaintiffs claim for attorneys fees and expenses of litigation. In view of the conclusions reached, it would seem unnecessary to discuss
the other issues raised in the appeal.
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside
its decision dated July 21, 1958 and hereby renders judgment ordering the The judgment appealed from is hereby affirmed. Without costs.
defendant to pay plaintiff the sum of Two Thousand (P2,000.00) Pesos and
to pay the costs."cralaw virtua1aw library Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera,
Dizon and Regala, JJ., concur.
The above judgment was appealed to the Court of Appeals on three (3)
counts. Said Court, in a Resolution dated September 29, 1959, elevated Makalintal, J., reserves his vote.
the case to this Court, stating that the genuine issue is purely legal in
nature.
EN BANC
All the parties agree that indemnity has to be paid. The conflict centers on
how much should the indemnity be. We believe that under the proven facts [G.R. No. L-23491. July 31, 1968.]
and circumstances, the findings and conclusions of the trial court are well
taken, for they are supported by the generally accepted principles or TAURUS TAXI CO., INC., FELICITAS V. MONJE, ET AL., Plaintiffs-
rulings on insurance, which enunciate that where there is an ambiguity Appellees, v. THE CAPITAL INSURANCE & SURETY CO.,
with respect to the terms and conditions of a policy, the same will be INC., Defendant-Appellant.
resolved against the one responsible thereof. It should be recalled in this
connection, that generally, the insured, has little, if any, participation in Vergara & Dayot for Plaintiffs-Appellees.
the preparation of the policy, together with the drafting of its terms and
conditions. The interpretation of obscure stipulations in a contract should Achacoso, Nera & Ocampo, for Defendant-Appellant.
not favor the party who caused the obscurity (Art. 1377, N.C.C.), which, in
the case at bar, is the insurance company.
SYLLABUS
". . . And so it has been generally held that the terms in an insurance
policy, which are ambiguous, equivocal or uncertain . . . are to be
construed strictly against, the insurer, and liberally in favor of the insured 1. COMMERCIAL LAW; INSURANCE; VEHICLE COMPREHENSIVE POLICY;
so as to effect the dominant purpose of indemnity or payment to the EXCLUSION OF INDEMNITY UNDER OTHER POLICIES; WORKMANS
insured, especially where a forfeiture is involved, (29 Am. Jur. 181) and COMPENSATION NOT INDEMNITY. The obligation under a vehicle
the reason for this rule is that the insured usually has no voice in the comprehensive policy which stipulates that "the company will indemnify
selection or arrangement of the words employed and that the language of any authorized driver provided that he is not entitled to indemnity under

3
any other policy," is not extinguished by the previous payment to the heirs
of the deceased driver under a policy issued by another insurance firm,
where what was paid by the latter was not indemnity but the deceaseds
compensation under the Workmens Compensation Act.
2. ID.; ID.; ID.; LIMITATION ON SETTLEMENT OF CLAIM; JOINDER OF
INSURED ON BEHALF OF REAL BENEFICIARIES. The act of insured taxi
company in joining the real beneficiaries as party plaintiff, is not a breach
of policy condition that "no admission, offer, promise or payment shall be
made by or on behalf of the insured without the written consent of the
company" for it merely seeks to enforce, by court action, its rights under
the contract of insurance to which it is a party. To consider the
commencement of an action by the insured, alone or with others, as a
breach of the policy, resulting in forfeiture of the benefits thereunder, is to
place in the hands of the insurer the power to nullify at will the whole
contract of insurance by the simple expedient of refusing to make payment
and compelling the insured to bring a suit to enforce the policy.
3. ID.; ID.; INTERPRETATION OF POLICY; DOUBTS RESOLVED AGAINST
THE INSURER. Doubts concerning the liability of an insurance firm
should be resolved against its pretense and in favor of the insured. Courts
are to regard "with extreme jealousy" limitations of liability found in
insurance policies and to construe them in such a way as to preclude the
insurer from non-compliance with his obligation.
DECISION
FERNANDO, J.:
The principal legal question in this appeal from a lower court decision,
ordering defendant-appellant The Capital Insurance and Surety Co., Inc. to
pay the plaintiff-appellee Taurus Taxi Co., Inc. as well as plaintiffs-
appellees, widow and children of the deceased Alfredo Monje, who, in his
lifetime, was employed as a taxi driver of such plaintiff-appellee, "the sum
of P5,000.000 with interest thereon at the legal rate from the filing of the
complaint until fully paid," with P500.00 as attorneys fees and the costs of
the suit, is whether or not a provision in the insurance contract that
defendant-appellant will indemnify any authorized driver provided that [he]
is not entitled to any indemnity under any other policy, it being shown that
the deceased was paid his workmans compensation from another
insurance policy, should defeat such a right to recover under the insurance
contract subject of this suit. The lower court answered in the negative. Its
holding cannot be successfully impugned.
The appealed decision stated at the outset that the motion for judgment on
the pleadings filed by the plaintiffs was granted, the defendant having no
objection and the issue presented being capable of resolution without the
need of presenting any evidence. Then the decision continues: "Alfredo
Monje, according to the complaint was employed as taxi driver by the
plaintiff Taurus Taxi Co., Inc. On December 6, 1962, the taxi he was
driving collided with a Transport taxicab at the intersection of Old Sta.
Mesa and V. Mapa streets, Manila, resulting in his death. At the time of the
accident, there was subsisting and in force Commercial Vehicle
Comprehensive Policy No. 101, 737 . . . issued by the defendant to the
Taurus Taxi Co., Inc. The amount for which each passenger, including the
driver, is insured is P5,000.00. After the issuance of policy No. 101, 737,
the defendant issued the Taurus Taxi Co., Inc. Indorsement No. 1 which
forms part of the policy . . ." 1 Reference was then made to plaintiff-
appellee Felicitas Monje being the widow of the taxi driver, the other
plaintiffs-appellees with the exception of the Taurus Taxi Co., Inc., being
the children of the couple. After which it was noted that plaintiff Taurus
Taxi Co., Inc. made representations "for the payment of the insurance of
the insurance benefit corresponding to her and her children since it was
issued in its name, benefit corresponding to her and her children, . . . but
despite demands . . . the defendant refused and still refuses to pay them."
2
On the above facts, the liability apparently clear, the defenses interposed
by defendant insurance company being in the opinion of the lower court
without merit, the aforesaid judgment was rendered. This being a direct
appeal to us on questions of law, the facts as found by the lower court
cannot be controverted.
Defendant-appellant Capital Insurance & Surety Co., Inc. alleged as the
first error of the lower court its failure to hold "that in view of the fact that
the deceased Alfredo Monje was entitled to indemnity under another
insurance policy issued by Ed. A. Keller Co., Ltd., the heirs of the said
deceased are not entitled to indemnity under the insurance policy issued by
appellant for the reason that the latter policy contains a stipulation that
the company will indemnify any authorized driver provided that such
authorized driver is not entitled to indemnity under any other policy." 3 In
the discussion of the above error, Defendant-Appellant stated the
following: "The facts show that at the time of his death, the deceased
Alfredo Monje, as authorized driver and employee of plaintiff Taurus Taxi
Co., Inc., was entitled to indemnity under another insurance policy, then
subsisting, which was Policy No. 50PH-1605 issued by Ed. A. Keller Co.,
Ltd. to plaintiff Taurus Taxi Co., Inc. As a matter of fact, the indemnity to
which the deceased Alfredo Monje was entitled under the said Policy No.
50PH-1605 was paid by Ed. A. Keller Co., Ltd. to the heirs of Alfredo Monje
on December 28, 1962, as evidenced by the records of W.C.C. Case No. A-
88637 entitled Felicitas V. Monje, Et. Al. v. Taurus Taxi Co., Inc., Regional
Office No. 4, Department of Labor, Manila . . ." 4
4
The above defense, based on a fact which was not disputed, was raised
and rightfully rejected by the lower court. From its own
version, Defendant-Appellant would seek to escape liability on the plea that
the workmans compensation to which the deceased driver was rightfully
entitled was settled by the employer through a policy issued by another
insurance firm. What was paid therefore was not indemnity but
compensation.
Since what is prohibited by the insurance policy in question is that any
"authorized driver of plaintiff Taurus Taxi Co., Inc." should not be "entitled
to any indemnity under any policy", it would appear indisputable that the
obligation of defendant-appellant under the policy had not in any wise been
extinguished. It is too well-settled to need the citation of authorities that
what the law requires enters into and forms part of every contract. The
Workmens Compensation Act explicitly requires that an employee suffering
any injury or death arising out of or in the course of employment be
compensated. The fulfillment of such statutory obligation cannot be the
basis for evading the clear, explicit and mandatory terms of a policy.
In the same way as was held in Benguet Consolidated, Inc. v. Social
Security System, 5 that sickness benefits under the Social Security Act
may be recovered simultaneously with disability benefits under the
Workmens Compensation Act, the previous payment made of the
compensation under such legislation is no obstacle by virtue of a clause like
that invoked by defendant-appellant to the payment of indemnity under
the insurance policy.
Assuming however that there is a doubt concerning the liability of
defendant-appellant insurance firm, nonetheless, it should be resolved
against its pretense and in favor of the insured. It was the holding in Eagle
Star Insurance, Ltd. v. Chia Yu 6 that courts are to regard "with extreme
jealousy" limitations of liability found in insurance policies and to construe
them in such a way as to preclude the insurer from non-compliance with
his obligation. In other words, to quote a noted authority on the subject, "a
contract of insurance couched in language chosen by the insurer is, if open
to the construction contended for by the insured, to be construed most
strongly, or strictly, against the insurer and liberally in favor of the
contention of the insured, which means in accordance with the rule contra
proferentem." 7 Enough has been said therefore to dispose of the first
assigned error.
The point is made in the second alleged error that the lower court ought to
have held "that by joining the heirs of Alfredo Monje as a party plaintiff,
plaintiff Taurus Taxi Co., Inc. committed a breach of policy condition and
thus forfeited what ever benefits, if any, to which it might be entitled under
appellants policy." 8 The basis for such an allegation is one of the
conditions set forth in the policy. Thus:" 5. No admission, offer, promise or
payment shall be made by or on behalf of the insured without the written
consent of the Company which shall be entitled if it so desires to take over
and conduct in his name the defense or settlement of any claim or to
prosecute in his name for its own benefit any claim for indemnity or
damages or otherwise and shall have full discretion in the conduct of any
proceedings and in the settlement of any claim and the Insured shall give
all such information and assistance as the Company may require . . ." 9
Such a plea is even less persuasive. It is understandable then why the
lower court refused to be swayed by it. The plaintiff Taurus Taxi Co., Inc.
had to join the suit on behalf of the real beneficiaries, the heirs of the
deceased driver, who are the other plaintiffs as it was a party to the policy.
Moreover, as noted in the decision appealed from: "The institution of the
action cannot possibly be construed as an admission, offer, promise, or
payment by the company, for it merely seeks to enforce, by court action,
the only legal remedy available to it, its rights under the contract of
insurance to which it is a party. To consider, furthermore, the
commencement of an action by the insured, alone or with others, as a
breach of the policy, resulting in forfeiture of the benefits thereunder, to
place in the hands of the insurer the power to nullify at will the whole
contract of insurance by the simple expedient of refusing to make payment
and compelling the insured to bring a suit to enforce the policy." 10
To so construe the policy to yield a contrary result is to put a premium on
technicality. If such a defense is not frowned upon and rejected, the time
will come when the confidence on the part of the public in the good faith of
insurance firms would be minimized, if not altogether lost. Such a
deplorable consequence ought to be avoided and a construction of any
stipulation that would be fraught with such a risk repudiated. What the
lower court did then cannot be characterized as error.
The third error assigned, namely, that the lower court should have
considered the filing of the complaint against defendant-appellant as unjust
and unwarranted, is, in the light of the above, clearly without merit.
WHEREFORE, the appealed decision of the lower court ordering defendant-
appellant "to pay the plaintiffs the sum of P5,000.00 with interest thereon
at the legal rate from the filing of the complaint until fully paid, P500.00 as
attorneys fees," 11 with costs is affirmed. Costs against defendant-
appellant.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,
Angeles and Fernando, JJ., concur.
Castro, J., did not take part.
5
 FIRST DIVISION
[G.R. No. L-28772. September 21, 1983.]
ASSOCIATION OF BAPTISTS FOR WORLD EVANGELISM,
INC., Plaintiff, v. FIELDMENS INSURANCE CO., INC., Defendant-
Appellant.
SYLLABUS
1. MERCANTILE LAW; INSURANCE; COMPREHENSIVE POLICY; UNLAWFUL
AND WRONGFUL TAKING OF VEHICLE FOR A JOY RIDE CONSTITUTES
THEFT WITHIN THE MEANING OF INSURANCE POLICY; RECOVERY FOR
DAMAGE NOT BARRED BY THE ILLEGAL USE OF THE VEHICLE. The
Comprehensive Policy issued by the insurance company includes loss of or
damage to the motor vehicle by "burglary . . . or theft." It is settled that
the act of Catiben in taking the vehicle for a joy ride to Toril, Davao City,
constitutes theft within the meaning of the insurance policy and that
recovery for damage to the car is not barred by the illegal use of the car by
one of the station boys.
2. ID.; ID.; ID.; ID.; ID.; LIABILITY OF INSURER UNDER THE THEFT
CLAUSE OF AN INSURANCE POLICY; PRIOR CONVICTION NOT REQUIRED
IN AN ACTION FOR RECOVERY ON AN AUTOMOBILE INSURANCE; CASE AT
BAR. There need be no prior conviction for the crime of theft to make an
insurer liable under the theft clause of the policy. Upon the facts stipulated
by the parties it is admitted that Catiben had taken the vehicle for a joy
ride and while the same was in his possession he bumped it against an
electric post resulting in damages. That act is theft within a policy of
insurance. In a civil action for recovery on an automobile insurance, the
question whether a person using a certain automobile at the time of the
accident stole it or not is to be determined by a fair preponderance of
evidence and not by the rule of criminal law requiring proof of guilt beyond
reasonable doubt (Villacorta v. Insurance Commission, 100 SCRA 467
[1980]). Besides, there is no provision in the policy requiring prior criminal
conviction for theft.
RESOLUTION
MELENCIO-HERRERA, J.:
This case for "Indemnity for Damages and Attorneys Fees" was elevated to
this Tribunal by the then Court of Appeals on a question of law.
The Stipulation of Facts submitted by the parties before the Court of First
Instance of Davao, Branch I, in Case No. 3789, reads as
follows:jgc:chanrobles.com.ph
"COMES the parties in the above entitled case, through their respective
counsels and to this Honorable Court respectfully submit the following
stipulations of facts:chanrob1es virtual 1aw library
1. That plaintiff is a religious corporation duly organized and registered
under the laws of the Philippines, while defendant is also a domestic
corporation duly organized and existing under the laws of the Philippines;
2. That plaintiff, having an insurable interest in a Chevrolet Carry-all, 1955
Model, with Motor No. 032433272555 and Plate No. E-73317 covered by
Registration Certificate No. 288141 Rizal, issued by the Davao Motor
Vehicles Office Agency No. 20 and owned by Reverend Clinton Bonnel,
insured said vehicle with the defendant under Fieldmens Insurance Co.,
Inc. Private Car Comprehensive Policy No. 22 Jl 1107, attached hereto as
Annex A to A-2 against loss or damage up to the amount of P5,000.00;
3. That in the latter part of 1961, through plaintiffs representative, Dr.
Antonio Lim, the aforementioned Chevrolet Carry-all was placed at the
Jones Monument Mobilgas Service Station at Davao City, under the care of
said stations operator, Rene Te so that said carry-all could be displayed as
being for sale, with the understanding that the latter or any of his station
boys would receive a 2% commission should they sell said vehicle.
4. That on the night of January 18, 1962, Romeo Catiben one of the boys
at the aforementioned Jones Monument Service Station and a nephew of
the wife of Rene Te who is residing with them, took the aforementioned
chevrolet carry-all for a joy ride to Toril, Davao City, without the prior
permission, authority or consent of either the plaintiff or its representative
Dr. Antonio Lim, or of Rene Te, and on its way back to Davao City, said
vehicle, due to some mechanical defect accidentally bumped an electric
post causing actual damages valued at P5,518.61.
5. That the issue before the Honorable Court is whether or not for the
damage to the abovementioned Chevrolet Carry-all to be compensable
under the aforementioned Fieldmens Private Car Comprehensive Policy No.
22 JL 11107, there must be a prior criminal conviction of Romeo Catiben
for theft.
WHEREFORE, it is respectfully prayed that this Honorable Court render
judgment on the facts and issues above stipulated after the parties shall
have submitted their respective memoranda."cralaw virtua1aw library
The Trial Court rendered judgment based on the facts stipulated and
6
ordered defendant insurance company to pay plaintiff association the is hereby affirmed.
amount of P5,000.00 as indemnity for the damage sustained by the
vehicle, P2,000.00 for attorneys fees, and costs. Dissatisfied, the Costs against defendant Fieldmens Insurance Co., Inc.
insurance company interposed an appeal to the Appellate Court, docketed
as CA-G.R. No. 33543-R, which as above stated, elevated it to this SO ORDERED.
instance.chanrobles.com:cralaw:red

We affirm. The Comprehensive Policy issued by the insurance company FIRST DIVISION
includes loss of or damage to the motor vehicle by "burglary . . . or theft."
It is settled that the act of Catiben in taking the vehicle for a joy ride to [G.R. No. 138941. October 8, 2001.]
Toril, Davao City, constitutes theft within the meaning of the insurance
policy and that recovery for damage to the car is not barred by the illegal AMERICAN HOME ASSURANCE COMPANY, Petitioner, v. TANTUCO
use of the car by one of the station boys. ENTERPRISES, INC., Respondent.

". . . 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
owners consent or knowledge, such taking constitutes or partakes of the
nature of theft as defined in Article 308 of the Revised Penal Code,
viz.(W)ho are liable for theft. Theft is committed by any person who,
with intent to gain but without violence against or intimidation of persons
nor force upon things, shall take personal property of another without the
latters consent, for purposes of recovering the loss under the policy in
question."cralaw virtua1aw library
DECISION
PUNO, J.:
Before us is a Petition for Review on Certiorari assailing the Decision of the
Court of Appeals in CA-G.R. CV No. 52221 promulgated on January 14,
1999, which affirmed in toto the Decision of the Regional Trial Court,
Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.

". . . the Court sustains as the better view that which holds that when a
person, either with the object of going to a certain place, or learning how
to drive, or enjoying a free ride, takes possession of a vehicle belonging to
another, without the consent of its owner, he is guilty of theft because by
taking possession of the personal property belonging to another and using
it, his intent to gain is evident since he derives therefrom utility,
satisfaction, enjoyment and pleasure. Justice Ramon C. Aquino cites in his
work Groizard who holds that the use of a thing constitutes gain and Cuello
Calon who calls it hurto de uso. 1 by petitioner American Home Assurance Co., Philippine Branch. 1 The first
There need be no prior conviction for the crime of theft to make an insurer
liable under the theft clause of the policy. Upon the facts stipulated by the
parties it is admitted that Catiben had taken the vehicle for a joy ride and
while the same was in his possession he bumped it against an electric post
resulting in damages. That act is theft within a policy of insurance. In a
civil action for recovery on an automobile insurance, the question whether
a person using a certain automobile at the time of the accident stole it or
not is to be determined by a fair preponderance of evidence and not by the
rule of criminal law requiring proof of guilt beyond reasonable doubt. 2
Besides, there is no provision in the policy requiring prior criminal
conviction for theft.chanroblesvirtualawlibrary
ACCORDINGLY, finding no error in the judgment appealed from, the same
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling
and refining industry. It owns two oil mills. Both are located at factory
compound at Iyam, Lucena City. It appears that respondent commenced
its business operations with only one oil mill. In 1988, it started operating
its second oil mill. The latter came to be commonly referred to as the new
oil mill.chanrob1es virtua1 1aw 1ibrary
The two oil mills were separately covered by fire insurance policies issued
oil mill was insured for three million pesos (P3,000,000.00) under Policy
No. 306-7432324-3 for the period March 1, 1991 to 1992. 2 The new oil
mill was insured for six million pesos (P6,000,000.00) under Policy No.
306-7432321-9 for the same term. 3 Official receipts indicating payment
for the full amount of the premium were issued by the petitioners agent.
4
A fire that broke out in the early morning of September 30,1991 gutted
and consumed the new oil mill. Respondent immediately notified the
petitioner of the incident. The latter then sent its appraisers who inspected
the burned premises and the properties destroyed. Thereafter, in a letter
dated October 15, 1991, petitioner rejected respondents claim for the
insurance proceeds on the ground that no policy was issued by it covering

7
the burned oil mill. It stated that the description of the insured "(3) With due respect, the conclusion of the Court of Appeals giving no
establishment referred to another building thus: "Our policy nos. 306- regard to the parole evidence rule and the principle of estoppel is
7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance erroneous." 10
coverage to your oil mill under Building No. 5, whilst the affected oil mill
was under Building No. 14." 5chanrob1es virtua1 1aw 1ibrary The petition is devoid of merit.

A complaint for specific performance and damages was consequently The primary reason advanced by the petitioner in resisting the claim of the
instituted by the respondent with the RTC, Branch 53 of Lucena City. On respondent is that the burned oil mill is not covered by any insurance
October 16, 1995, after trial, the lower court rendered a Decision finding policy. According to it, the oil mill insured is specifically described in the
the petitioner liable on the insurance policy thus:jgc:chanrobles.com.ph policy by its boundaries in the following manner:jgc:chanrobles.com.ph

"WHEREFORE, judgment is rendered in favor of the plaintiff ordering "Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
defendant to pay plaintiff:chanrob1es virtual 1aw library
Right: by an open space thence by Bldg. No. 4.
(a) P4,406,536.40 representing damages for loss by fire of its insured
property with interest at the legal rate; Left: Adjoining thence an imperfect wall by Bldg. No. 4.

(b) P80,000.00 for litigation expenses; Rear: by an open space thence at 8 meters distance."cralaw virtua1aw
library
(c) P300,000.00 for and as attorneys fees; and
However, it argues that this specific boundary description clearly pertains,
(d) Pay the costs. not to the burned oil mill, but to the other mill. In other words, the oil mill
gutted by fire was not the one described by the specific boundaries in the
SO ORDERED." 6 contested policy.

Petitioner assailed this judgment before the Court of Appeals. The appellate What exacerbates respondents predicament, petitioner posits, is that it did
court upheld the same in a Decision promulgated on January 14, 1999, the not have the supposed wrong description or mistake corrected. Despite the
pertinent portion of which states:jgc:chanrobles.com.ph fact that the policy in question was issued way back in 1988, or about
three years before the fire, and despite the "Important Notice" in the policy
"WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit that "Please read and examine the policy and if incorrect, return it
and the trial courts Decision dated October 16, 1995 is hereby AFFIRMED immediately for alteration," respondent apparently did not call petitioners
in toto. attention with respect to the misdescription.

SO ORDERED." 7 By way of conclusion, petitioner argues that respondent is "barred by the

parole evidence rule from presenting evidence (other than the policy in
Petitioner moved for reconsideration. The motion, however, was denied for question) of its self-serving intention (sic) that it intended really to insure
lack of merit in a Resolution promulgated on June 10, 1999. the burned oil mill," just as it is "barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, because it
Hence, the present course of action, where petitioner ascribes to the retained the policy without having the same corrected before the fire by an
appellate court the following errors:jgc:chanrobles.com.ph endorsement in accordance with its Condition No. 28." chanrob1es virtua1
1aw 1ibrary
"(1) The Court of Appeals erred in its conclusion that the issue of non-
payment of the premium was beyond its jurisdiction because it was raised These contentions can not pass judicial muster.
for the first time on appeal." 8
In construing the words used descriptive of a building insured, the greatest
"(2) The Court of Appeals erred in its legal interpretation of Fire liberality is shown by the courts in giving effect to the insurance. 11 In
Extinguishing Appliances Warranty of the policy." 9 view of the custom of insurance agents to examine buildings before writing
policies upon them, and since a mistake as to the identity and character of

8
the building is extremely unlikely, the courts are inclined to consider that
the policy of insurance covers any building which the parties manifestly It is thus clear that the source of the discrepancy happened during the
intended to insure, however inaccurate the description may be. 12 preparation of the written contract.

Notwithstanding, therefore, the misdescription in the policy, it is beyond These facts lead us to hold that the present case falls within one of the
dispute, to our mind, that what the parties manifestly intended to insure recognized exceptions to the parole evidence rule. Under the Rules of
was the new oil mill. This is obvious from the categorical statement Court, a party may present evidence to modify, explain or add to the terms
embodied in the policy, extending its protection:jgc:chanrobles.com.ph of the written agreement if he puts in issue in his pleading, among others,
its failure to express the true intent and agreement of the parties thereto.
"On machineries and equipment with complete accessories usual to a 15 Here, the contractual intention of the parties cannot be understood from
coconut oil mill including stocks of copra, copra cake and copra mills whilst a mere reading of the instrument. Thus, while the contract explicitly
contained in the new oil mill building, situate (sic) at UNNO. ALONG stipulated that it was for the insurance of the new oil mill, the boundary
NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED. 13 description written on the policy concededly pertains to the first oil mill.
(Emphasis supplied.) This irreconcilable difference can only be clarified by admitting evidence
aliunde, which will explain the imperfection and clarify the intent of the
If the parties really intended to protect the first oil mill, then there is no parties.
need to specify it as new.
Anent petitioners argument that the respondent is barred by estoppel from
Indeed, it would be absurd to assume that respondent would protect its claiming that the description of the insured oil mill in the policy was wrong,
first oil mill for different amounts and leave uncovered its second one. As we find that the same proceeds from a wrong assumption. Evidence on
mentioned earlier, the first oil mill is already covered under Policy No. 306- record reveals that respondents operating manager, Mr. Edison Tantuco,
7432324-4 issued by the petitioner. It is unthinkable for respondent to notified Mr. Borja (the petitioners agent with whom respondent negotiated
obtain the other policy from the very same company. The latter ought to for the contract) about the inaccurate description in the policy. However,
know that a second agreement over that same realty results in its over Mr. Borja assured Mr. Tantuco that the use of the adjective new will
insurance. distinguish the insured property. The assurance convinced respondent,
despite the impreciseness in the specification of the boundaries, the
The imperfection in the description of the insured oil mills boundaries can insurance will cover the new oil mill. This can be seen from the testimony
be attributed to a misunderstanding between the petitioners general on cross of Mr. Tantuco:jgc:chanrobles.com.ph
agent, Mr. Alfredo Borja, and its policy issuing clerk, who made the error of
copying the boundaries of the first oil mill when typing the policy to be "ATTY. SALONGA:chanrob1es virtual 1aw library
issued for the new one. As testified to by Mr. Borja:chanrob1es virtua1 1aw
1ibrary Q: You mentioned, sir, that at least in so far as Exhibit A is concern you
have read what the policy contents. (sic)
"Atty. G. Camaligan:chanrob1es virtual 1aw library
Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2
Q: What did you do when you received the report? particularly the boundaries of the property insured by the insurance policy
Exhibit A, will you tell us as the manager of the company whether the
A: I told them as will be shown by the map the intention really of Mr. boundaries stated in Exhibit A-2 are the boundaries of the old (sic) mill that
Edison Tantuco is to cover the new oil mill that is why when I presented was burned or not.
the existing policy of the old policy, the policy issuing clerk just merely
(sic) copied the wording from the old policy and what she typed is that the A: It was not, I called up Mr. Borja regarding this matter and he told me
description of the boundaries from the old policy was copied but she that what is important is the word new oil mill. Mr. Borja said, as a matter
inserted covering the new oil mill and to me at that time the important of fact, you can never insured (sic) one property with two (2) policies, you
thing is that it covered the new oil mill because it is just within one will only do that if you will make to increase the amount and it is by
compound and there are only two oil mill[s] and so just enough, I had the indorsement not by another policy, sir.,, 16
policy prepared. In fact, two policies were prepared having the same date
one for the old one and the other for the new oil mill and exactly the same We again stress that the object of the court in construing a contract is to
policy period, sir." 14 (Emphasis supplied) ascertain the intent of the parties to the contract and to enforce the

9
agreement which the parties have entered into. In determining what the
parties intended, the courts will read and construe the policy as a whole
and if possible, give effect to all the parts of the contract, keeping in mind
always, however, the prime rule that in the event of doubt, this doubt is to
be resolved against the insurer. In determining the intent of the parties to
the contract, the courts will consider the purpose and object of the
contract. 17chanrob1es virtua1 1aw 1ibrary
In a further attempt to avoid liability, petitioner claims that respondent
forfeited the renewal policy for its failure to pay the full amount of the
premium and breach of the Fire Extinguishing Appliances Warranty.
The amount of the premium stated on the face of the policy was
P89,770.20. From the admission of respondents own witness, Mr. Borja,
which the petitioner cited, the former only paid it P75,147.00, leaving a
difference of P14,623.20. The deficiency, petitioner argues, suffices to
invalidate the policy, in accordance with Section 77 of the Insurance Code.
18
The Court of Appeals refused to consider this contention of the petitioner.
It held that this issue was raised for the first time on appeal, hence,
beyond its jurisdiction to resolve, pursuant to Rule 46, Section 18 of the
Rules of Court. 19
Petitioner, however, contests this finding of the appellate court. It insists
that the issue was raised in paragraph 24 of its Answer,
viz.:jgc:chanrobles.com.ph
"24. Plaintiff has not complied with the condition of the policy and renewal
certificate that the renewal premium should be paid on or before renewal
date."cralaw virtua1aw library
Petitioner adds that the issue was the subject of the cross-examination of
Mr. Borja, who acknowledged that the paid amount was lacking by
P14,623.20 by reason of a discount or rebate, which rebate under Sec. 361
of the Insurance Code is illegal.
The argument fails to impress. It is true that the asseverations petitioner
made in paragraph 24 of its Answer ostensibly spoke of the policys
condition for payment of the renewal premium on time and respondents
non-compliance with it. Yet, it did not contain any specific and definite
allegation that respondent did not pay the premium, or that it did not pay
the full amount, or that it did not pay the amount on time.
Likewise, when the issues to be resolved in the trial court were formulated
at the pre-trial proceedings, the question of the supposed inadequate
payment was never raised. Most significant to point, petitioner fatally
neglected to present, during the whole course of the trial, any witness to
testify that respondent indeed failed to pay the full amount of the
premium. The thrust of the cross-examination of Mr. Borja, on the other
hand, was not for the purpose of proving this fact. Though it briefly
touched on the alleged deficiency, such was made in the course of
discussing a discount or rebate, which the agent apparently gave
the Respondent. Certainly, the whole tenor of Mr. Borjas testimony, both
during direct and cross examinations, implicitly assumed a valid and
subsisting insurance policy. It must be remembered that he was called to
the stand basically to demonstrate that an existing policy issued by the
petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms of
the Fire Extinguishing Appliances Warranty. The said warranty
provides:jgc:chanrobles.com.ph
"WARRANTED that during the currency of this Policy, Fire Extinguishing
Appliances as mentioned below shall be maintained in efficient working
order on the premises to which insurance applies:chanrob1es virtual 1aw
library
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the
Company shall no longer be liable for any loss which may occur." 20
Petitioner argues that the warranty clearly obligates the insured to
maintain all the appliances specified therein. The breach occurred when the
respondent failed to install internal fire hydrants inside the burned building
as warranted. This fact was admitted by the oil mills expeller operator,
Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate courts
conclusion that the aforementioned warranty did not require respondent to
provide for all the fire extinguishing appliances enumerated therein.
Additionally, we find that neither did it require that the appliances are
restricted to those mentioned in the warranty. In other words, what the
warranty mandates is that respondent should maintain in efficient working
condition within the premises of the insured property, fire fighting
equipments such as, but not limited to, those identified in the list, which
will serve as the oil mills first line of defense in case any part of it bursts
10
into flame.
To be sure, respondent was able to comply with the warranty. Within the
vicinity of the new oil mill can be found the following devices: numerous
portable fire extinguishers, two fire hoses, 21 fire hydrant, 22 and an
emergency fire engine. 23 All of these equipments were in efficient working
order when the fire occurred.
It ought to be remembered that not only are warranties strictly construed
against the insurer, but they should, likewise, by themselves be reasonably
interpreted. 24 That reasonableness is to be ascertained in light of the
factual conditions prevailing in each case. Here, we find that there is no
more need for an internal hydrant considering that inside the burned
building were: (1) numerous portable fire extinguishers, (2) an emergency
fire engine, and (3) a fire hose which has a connection to one of the
external hydrants.
IN VIEW WHEREOF, finding no reversible error in the impugned Decision,
the instant petition is hereby DISMISSED.
SO ORDERED.
EN BANC
[G.R. No. L-27932. October 30, 1972.]
UNION MANUFACTURING CO., INC. and the REPUBLIC BANK,
plaintiffs, REPUBLIC BANK, Plaintiff-Appellant, v. PHILIPPINE
GUARANTY CO., INC., Defendant-Appellee.
Armando L. Abad, Sr., for Plaintiff-Appellant.
Gamelo, Francisco & Aquino, for Defendant-Appellee.
DECISION
FERNANDO, J.:
In a suit arising from a fire insurance policy, the insurer, Philippine
Guaranty Co., Inc., defendant in the lower court and now appellee, was
able to avoid liability upon proof that there was a violation of a warranty.
There was no denial thereof from the insured, Union Manufacturing Co.,
Inc. With such a legally crippling blow, the effort of the Republic Bank, the
main plaintiff and now the sole appellant, to recover on such policy as
mortgagee, by virtue of the cover note in the insurance policy providing
that it is entitled to the payment of loss or damages as its interest may
appear, was in vain. The defect being legally incurable, its appeal is
likewise futile. We affirm.
As noted in the decision, the following facts are not disputed:" (1) That on
January 12, 1962, the Union Manufacturing Co., Inc. obtained certain
loans, overdrafts and other credit accommodations from the Republic Bank
in the total sum of P415,000.00 with interest at 9% per annum from said
date and to secure the payment thereof, said Union Manufacturing Co.,
Inc. executed a real and chattel mortgages on certain properties, which are
more particularly described and listed at the back of the mortgage contract
. . .; (2) That as additional condition of the mortgage contract, the Union
Manufacturing Co., Inc. undertook to secure insurance coverage over the
mortgaged properties for the same amount of P415,000.00 distributed as
follows: (a) Buildings, P30,000.00; (b) Machineries, P300,000.00; and (c)
Merchandise Inventory, P85,000.00, giving a total of P415,000.00; (3)
That as Union Manufacturing Co., Inc. failed to secure insurance coverage
on the mortgaged properties since January 12, 1962, despite the fact that
Cua Tok, its general manager, was reminded of said requirement, the
Republic Bank procured from the defendant, Philippine Guaranty Co., Inc.
an insurance coverage on loss against fire for P500,000.00 over the
properties of the Union Manufacturing Co., Inc., as described in defendants
Cover Note dated September 25, 1962, with the annotation that loss or
damage, if any, under said Cover Note is payable to Republic Bank as its
interest may appear, subject however to the printed conditions of said
defendants Fire Insurance Policy Form; (4) That on September 27, 1962,
Fire Insurance Policy No. 43170 . . . was issued for the sum of
P500,000.00 in favor of the assured, Union Manufacturing Co., Inc., for
which the corresponding premium in the sum of P8,328.12, which was
reduced to P6,688.12, was paid by the Republic Bank to the defendant,
Philippine Guaranty Co., Inc. . . .; (5) That upon the expiration of said fire
policy on September 25, 1963, the same was renewed by the Republic
Bank upon payment of the corresponding premium in the same amount of
P6,663.52 on September 26, 1963; (6) That in the corresponding voucher .
. ., it appears that although said renewal premium was paid by the
Republic Bank, such payment vas for the account of Union Manufacturing
Co., Inc. and that the cash voucher for the payment of the first premium
was paid also by the Republic Bank but for the account of Union
Manufacturing Co., Inc.; (7) That sometime on September 6, 1964, a fire
occurred in the premises of the Union Manufacturing Co., Inc.; (8) That on
October 6, 1964, the Union Manufacturing Co., Inc. filed its fire claim with
the defendant Philippine Guaranty Co., Inc., thru its adjuster, H. H. Bayne
Adjustment Co., which was denied by said defendant in its letter dated
November 27, 1964 . . ., on the following grounds: a. Policy Condition No.
3 and/or the Other Insurance Clause of the policy was violated because
you did not give ,notice to us the other insurance which you had taken
11
from New India for P80,000.00, Sincere Insurance for P25,000.00 and
Manila Insurance for P200,000.00 with the result that these insurances, of
which we became aware of only after the fire, were not endorsed on our
policy; and (b) Policy Condition No. 11 was not complied with because you
have failed to give to our representatives the required documents and
other proofs with respect to your claim and matters touching on our
liability, if any, and the amount of such liability; (9) That as of September,
1962, when the defendant Philippine Guaranty Co., issued Fire Insurance
Policy No. 43170 . . . in the sum of P500,000.00 to cover the properties of
the Union Manufacturing Co., Inc., the same properties were already
covered by Fire Policy No. 1533 of the Sincere Insurance Company for
P25,000.00 for the period from October 7, 1961 to October 7, 1962 . . .;
and by insurance policies Nos. F-2314 . . . and F-2590 . . . of the Oceanic
Insurance Agency for the total sum of P300,000.00 and for periods
respectively, from January 27, 1962 to January 27, 1963, and from June 1,
1962 to June 1, 1963; and (10) That when said defendants Fire Insurance
Policy No. 43170 was already in full force and effect, the Union
Manufacturing Co., Inc. without the consent of the defendant, Philippine
Guaranty Co., Inc., obtained other insurance policies totalling P305,000.00
over the same properties prior to the fire, to wit: (1) Fire Policy No. 250 of
New India Assurance Co., Ltd., for P80,000.00 for the period from May 27,
1964 to May 27, 1965 . . .; (2) Fire Policy No. 3702 of the Sincere
Insurance Company for P25,000.00 for the period from October 7, 1963 to
October 7, 1964 . . .; and (3) Fire Policy No. 6161 of Manila Insurance Co.
for P200,000.00 for the period from May 15, 1964 to May 15, 1965 . . . ."
1 There is in the cover note 2 and in the fire insurance policy 3 the
following warranty:" [Co-Insurance Declared]: Nil." 4 are not permitted to make contracts for the parties. The function and duty
Why the appellant Republic Bank could not recover, as payee, in case of
loss as its "interest may appear subject to the terms and conditions,
clauses and warranties" of the policy was expressed in the appealed
decision thus: "However, inasmuch as the Union Manufacturing Co., Inc.
has violated the condition of the policy to the effect that it did not reveal
the existence of other insurance policies over the same properties, as
required by the warranty appearing on the face of the policy issued by the
defendant and that on the other hand said Union Manufacturing Co., Inc.
represented that there were no other insurance policies at the time of the
issuance of said defendants policy, and it appearing furthermore that while
the policy of the defendant was in full force and effect the Union
Manufacturing Co., Inc. secured other fire insurance policies without the
written consent of the defendant endorsed on the policy, the conclusion is
inevitable that both the Republic Bank and Union Manufacturing Co., Inc.
cannot recover from the same policy of the defendant because the same is
null and void." 5 The tone of confidence apparent in the above excerpts
from the lower court decision is understandable. The conclusion reached by
the lower court finds support in authoritative precedents. It is far from
easy, therefore, for appellant Republic Bank to impute to such a decision a
failure to abide by the law. Hence, as noted at the outset, the appeal
cannot prosper. An affirmance is indicated.
It is to Santa Ana v. Commercial Union Assurance Co., 6 a 1930 decision,
that one turns to for the first explicit formulation as to the controlling
principle. As was made clear in the opinion of this Court, penned by Justice
Villa-Real: "Without deciding whether notice of other insurance upon the
same property must be given in writing, or whether a verbal notice is
sufficient to render an insurance valid which requires such notice, whether
oral or written, we hold that in the absolute absence of such notice when it
is one of the conditions specified in the fire insurance policy, the policy is
null and void." 7 The next year, in Ang Giok Chip v. Springfield Fire &
Marine Ins. Co., 8 the conformity of the insured to the terms of the policy,
implied from the failure to express any disagreement with what is provided
for, was stressed in these words of the ponente, Justice Malcolm: "It is
admitted that the policy before us was accepted by the plaintiff. The
receipt of this policy by the insured without objection binds both the
acceptor and the insured to the terms thereof. The insured may not
thereafter be heard to say that he did not read the policy or know its
terms, since it is his duty to read his policy and it will be assumed that he
did so." 9 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
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 ponerous (one
sided, as the lower court put it), but that in itself does not justify the
12
abrogation of its express terms, terms which the insured accepted or
adhered to and which is the law between the contracting parties." 15
There is no escaping the conclusion then that the lower court could not
have disposed of this case in a way other than it did. Had it acted
otherwise, it clearly would have disregarded pronouncements of this Court,
the compelling force of which cannot be denied. There is, to repeat, no
justification for a reversal.
WHEREFORE, the decision of the lower court of March 31, 1967 is affirmed.
No costs.
SECOND DIVISION
[G.R. No. 96452. May 7, 1992.]
PERLA COMPANIA DE SEGUROS, INC., Petitioner, v. THE COURT OF
APPEALS, HERMINIO LIM and EVELYN LIM, Respondents.
[G.R. No. 96493. May 7, 1992.]
FCP CREDIT CORPORATION, Petitioner, v. THE COURT OF APPEALS,
Special Third Division, HERMINIO LIM and EVELYN
LIM,, Respondents.
Yolanda Quisumbing-Javellana and Nelson A. Loyola for Petitioner.
Wilson L. Tee for respondents Hermenio and Evelyn Lim.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; LOSS OF MOTOR VEHICLE THRU
THEFT; NO CAUSAL CONNECTION BETWEEN POSSESSION OF A VALID
DRIVERS LICENSE AND LOSS OF VEHICLE THRU THEFT. It is worthy to
note that there is no causal connection between the possession of a valid
drivers license and the loss of a vehicle. To rule otherwise would render
car insurance practically a sham since an insurance company can easily
escape liability by citing restrictions which are not applicable or germane to
the claim, thereby reducing indemnity to a shadow.
2. ID.; ID.; INSURANCE POLICY MEANT TO BE ADDITIONAL SECURITY TO
PRINCIPAL CONTRACT; CASE AT BAR. The insurance policy was
therefore meant to be an additional security to the principal contract, that
is, to insure that the promissory note will be paid in case the automobile is
lost through accident or theft. The Chattel Mortgage Contract provided
that:" THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL
CAUSE THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED
AGAINST LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A
PERIOD OF ONE YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER
UNTIL THE MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE
COMPANY OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN
AMOUNT NOT LESS THAN THE OUTSTANDING BALANCE OF THE
MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY,
UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE MORTGAGEE OR ITS
ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH DELIVER
SUCH POLICY OR POLICIES TO THE MORTGAGEE, . . ." It is clear from the
abovementioned provision that upon the loss of the insured vehicle, the
insurance company Perla undertakes to pay directly to the mortgagor or to
their assignee, FCP, the outstanding balance of the mortgage at the time of
said loss under the mortgage contract.
3. CIVIL LAW; CONTRACTS; CHATTEL MORTGAGE; MERELY AN
ACCESSORY TO PROMISSORY NOTE; PRINCIPAL CONTRACT UNAFFECTED
BY WHATEVER BEFALLS ACCESSORY CONTRACT; CASE AT BAR. The
chattel mortgage constituted over the automobile is merely an accessory
contract to the promissory note. Being the principal contract, the
promissory note is unaffected by whatever befalls the subject matter of the
accessory contract. Therefore, the unpaid balance on the promissory note
should be paid, and not just the installments due and payable before the
automobile was carnapped, as erronously held by the Court of Appeals.
4. ID.; DAMAGES; MAKER NOT LIABLE FOR INTEREST, LIQUIDATED
DAMAGES AND ATTORNEYS FEES STIPULATED IN PROMISSORY NOTE
REMAINING UNPAID DUE TO INSURERS DENIAL OF A VALID CLAIM; CASE
AT BAR. Because petitioner Perla had unreasonably denied their valid
claim, private respondents should not be made to pay the interest,
liquidated damages and attorneys fees as stipulated in the promissory
note. As mentioned above, the contract of indemnity was procured to
insure the return of the money loaned from petitioner FCP, and the
unjustified refusal of petitioner Perla to recognize the valid claim of the
private respondents should not in any way prejudice the latter.
5. ID.; ID.; AWARD FOR MORAL AND EXEMPLARY DAMAGES, AS WELL AS
ATTORNEYS FEES LEFT TO SOUND DISCRETION OF THE COURT; CASE AT
BAR. As to the award of a moral damages, exemplary damages and
attorneys fees, private respondents are legally entitled to the same since
petitioner Perla had acted in bad faith by unreasonably refusing to honor
the insurance claim of the private respondents. Besides, awards for moral
and exemplary damages, as well as attorneys fees are left to the sound
discretion of the Court. Such discretion, if well exercised, will not be
disturbed on appeal.
13

DECISION
NOCON, J.:
These are two petitions for review on certiorari, one filed by Perla
Compania de Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit
Corporation in G.R. No. 96493 both seeking to annul and set aside the
decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No.
13037, which reversed the decision of the Regional Trial Court of Manila,
Branch VIII in Civil Case No. 83-19098 for replevin and damages. The
dispositive portion of the decision of the Court of Appeals reads, as
follows:jgc:chanrobles.com.ph
"WHEREFORE, the decision appealed from is reversed and appellee Perla
Compania de Seguros, Inc. is ordered to indemnify appellants Herminio
and Evelyn Lim for the loss of their insured vehicle; while said appellants
are ordered to pay appellee FCP Credit Corporation all the unpaid
installments that were due and payable before the date said vehicle was
carnapped; and appellee Perla Compania de Seguros, Inc. is also ordered
to pay appellants moral damages of P12,000.00 for the latters mental
sufferings, exemplary damages of P20,000.00 for appellee Perla Compania
de Seguros. Inc.s unreasonable refusal on sham grounds to honor the just
insurance claim of appellants by way of example and correction for public
good, and attorneys fees of P10,000.00 as a just and equitable
reimbursement for the expenses incurred therefor by appellants, and the
costs of suit both in the lower court and in this appeal." 2
The facts as found by the trial court are as follows:chanrob1es virtual 1aw
library
On December 24, 1981, private respondents spouses Herminio and Evelyn
Lim executed a promissory note in favor of Supercars, Inc. in the sum of
P77,940.00, payable in monthly installments according to the schedule of
payment indicated in said note, 3 and secured by a chattel mortgage over
a brand new red Ford Laser 1300 5DR Hatchback 1981 model with motor
and serial No. SUPJYK-03780, which is registered under the name of
private respondent Herminio Lim 4 and insured with the petitioner Perla
Compania de Seguros, Inc. (Perla for brevity) for comprehensive coverage
under Policy No. PC/41PP-QCB-43383. 5
On the same date, Supercars, Inc., with notice to private respondents
spouses, assigned to petitioner FCP Credit Corporation (FCP for brevity) its
rights, title and interest on said promissory note and chattel mortgage as
shown by the Deed of Assignment. 6
At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped
while parked at the back of Broadway Centrum along N. Domingo Street,
Quezon City. Private respondent Evelyn Lim, who was driving said car
before it was carnapped, immediately called up the Anti-Carnapping Unit of
the Philippine Constabulary to report said incident and thereafter, went to
the nearest police substation at Araneta, Cubao to make a police report
regarding said incident, as shown by the certification issued by the Quezon
City police. 7
On November 10, 1982, private respondent Evelyn Lim reported said
incident to the Land Transportation Commission in Quezon City, as shown
by the letter of her counsel to said office, 8 in compliance with the
insurance requirement. She also filed a complaint with the Headquarters.
Constabulary Highway Patrol Group. 9
On November 11, 1982, private respondent filed a claim for loss with the
petitioner Perla but said claim was denied on November 18, 1982 10 on the
ground that Evelyn Lim, who was using the vehicle before it was
carnapped, was in possession of an expired drivers license at the time of
the loss of said vehicle which is in violation of the authorized driver clause
of the insurance policy, which states, to wit:chanrobles virtual lawlibrary
"AUTHORIZED DRIVER:chanrob1es virtual 1aw library
Any of the following: (a) The Insured (b) Any person driving on the
Insureds 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 Scheduled Vehicle, or has been permitted and is not disqualified
by order of a Court of Law or by reason of any enactment or regulation in
that behalf." 11
On November 17, 1982, private respondents requested from petitioner FCP
for a suspension of payment on the monthly amortization agreed upon due
to the loss of the vehicle and, since the carnapped vehicle was insured with
petitioner Perla, said insurance company should be made to pay the
remaining balance of the promissory note and the chattel mortgage
contract.
Perla, however, denied private respondents claim. Consequently, petitioner
FCP demanded that private respondents pay the whole balance of the
promissory note or to return the vehicle 12 but the latter refused.
On July 25, 1983, petitioner FCP filed a complaint against private
respondents, who in turn filed an amended third party complaint against
petitioner Perla on December 8, 1983. After trial on the merits, the trial
court rendered a decision, the dispositive portion of which reads.
14
"WHEREFORE, in view of the foregoing, judgment is hereby rendered as although it may proceed or result from negligence, is the happening of an
follows:chanrob1es virtual 1aw library event without the concurrence of the will of the person by whose agency it
was caused. (Bouviers Law Dictionary, Vol. I, 1914 ed., p. 101).
1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and
severally, plaintiff the sum of P55,055.93 plus interest thereon at the rate Clearly, the risk against accident is distinct from the risk against theft. The
of 24% per annum from July 2, 1983 until fully paid; authorized driver clause in a typical insurance policy as in contemplation
or anticipation of accident in the legal sense in which it should be
2. Ordering defendants to pay plaintiff P5,000.00 as and for attorneys understood, and not in contemplation or anticipation of an event such as
fees; and the costs of suit. theft. The distinction often seized upon by insurance companies in
resisting claims from their assureds between death occurring as a result
Upon the other hand, likewise, ordering the DISMISSAL of the Third Party of accident and death occurring as a result of intent may, by analogy,
Complaint filed against Third-Party Defendant." 13 apply to the case at bar. Thus, if the insured vehicle had figured in an
accident at the time she drove it with an expired license, then, appellee
Not satisfied with said decision, private respondents appealed the same to Perla Compania could properly resist appellants claim for indemnification
the Court of Appeals, which reversed said decision. for the loss or destruction of the vehicle resulting from the accident. But in
the present case, the loss of the insured vehicle did not result from an
After petitioners separate motions for reconsideration were denied by the accident where intent was involved; the loss in the present case was
Court of Appeals in its resolution of December 10, 1990, petitioners filed caused by theft, the commission of which was attended by intent." 15
these separate petitions for review on certiorari.
It is worthy to note that there is no causal connection between the
Petitioner Perla alleged that there was grave abuse of discretion on the possession of a valid drivers license and the loss of a vehicle. To rule
part of the appellate court in holding that private respondents did not otherwise would render car insurance practically a sham since an insurance
violate the insurance contract because the authorized driver clause is not company can easily escape liability by citing restrictions which are not
applicable to the "Theft" clause of said Contract. applicable or germane to the claim, thereby reducing indemnity to a
shadow.
For its part, petitioner FCP raised the issue of whether or not the loss of the
collateral exempted the debtor from his admitted obligations under the We however find the petition of FCP meritorious.
promissory note particularly the payment of interest, litigation expenses
and attorneys fees.chanrobles.com.ph : virtual law library This Court agrees with petitioner FCP that private respondents are not
relieved of their obligation to pay the former the installments due on the
We find no merit in Perlas petition. promissory note on account of the loss of the automobile. The chattel
mortgage constituted over the automobile is merely an accessory contract
The comprehensive motor car insurance policy issued by petitioner Perla to the promissory note. Being the principal contract, the promissory note is
undertook to indemnify the private respondents against loss or damages to unaffected by whatever befalls the subject matter of the accessory
the car (a) by accidental collision or overturning, or collision or overturning contract. Therefore, the unpaid balance on the promissory note should be
consequent upon mechanical breakdown or consequent upon wear and paid, and not just the installments due and payable before the automobile
tear; (b) by fire, external explosion, self-ignition or lightning or burglary, was carnapped, as erronously held by the Court of Appeals.
housebreaking or theft; and (c) by malicious act. 14
However, this does not mean that private respondents are bound to pay
Where a car is admittedly, as in this case, unlawfully and wrongfully taken the interest, litigation expenses and attorneys fees stipulated in the
without the owners consent or knowledge, such taking constitutes theft, promissory note. Because of the peculiar relationship between the three
and, therefore, it is the "THEFT" clause, and not the "AUTHORIZED contracts in this case, i. e., the promissory note, the chattel mortgage
DRIVER" clause, that should apply. As correctly stated by the respondent contract and the insurance policy, this Court is compelled to construe all
court in its decision:jgc:chanrobles.com.ph three contracts as intimately interrelated to each other, despite the fact
that at first glance there is no relationship whatsoever between the parties
". . . Theft is an entirely different legal concept from that of accident. Theft thereto.
is committed by a person with the intent to gain or, to put it in another
way, with the concurrence of the doers will. On the other hand, accident, Under the promissory note, private respondents are obliged to pay

15
Supercars, Inc. the amount stated therein in accordance with the schedule
provided for. To secure said promissory note, private respondents
constituted a chattel mortgage in favor of Supercars, Inc. over the
automobile the former purchased from the latter. The chattel mortgage, in
turn, required private respondents to insure the automobile and to make
the proceeds thereof payable to Supercars, Inc. The promissory note and
chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with
the knowledge of private respondents. Private respondents were able to
secure an insurance policy from petitioner Perla, and the same was made
specifically payable to petitioner FCP. 16
the expense of petitioner FCP since they will be required to pay the latter
the unpaid balance of its obligation under the promissory note.
In view of the foregoing discussion, We hold that the Court of Appeals did
not err in requiring petitioner Perla to indemnify private respondents for
the loss of their insured vehicle. However, the latter should be ordered to
pay petitioner FCP the amount of P55,055.93, representing the unpaid
installments from December 30, 1982 up to July 1, 1983, as shown in the
statement of account prepared by petitioner FCP, 18 plus legal interest
from July 2, 1983 until fully paid.chanrobles lawlibrary : rednad

The insurance policy was therefore meant to be an additional security to
the principal contract, that is, to insure that the promissory note will still be
paid in case the automobile is lost through accident or theft. The Chattel
Mortgage Contract provided that:chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
"THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL
CAUSE THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED
AGAINST LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A
PERIOD OF ONE YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER
UNTIL THE MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE
COMPANY OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN
AMOUNT NOT LESS THAN THE OUTSTANDING BALANCE OF THE
MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY,
UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE MORTGAGEE OR ITS
ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH DELIVER
SUCH POLICY OR POLICIES TO THE MORTGAGEE, . . ." 17
As to the award of moral damages, exemplary damages and attorneys
fees, private respondents are legally entitled to the same since petitioner
Perla had acted in bad faith by unreasonably refusing to honor the
insurance claim of the private respondents. Besides, awards for moral and
exemplary damages, as well as attorneys fees are left to the sound
discretion of the Court. Such discretion, if well exercised, will not be
disturbed on appeal. 19
WHEREFORE, the assailed decision of the Court of Appeals is hereby
MODIFIED to require private respondents to pay petitioner FCP the amount
of P55,055.93, with legal interest from July 2, 1983 until fully paid. The
decision appealed from is hereby affirmed as to all other respects. No
pronouncement as to costs.
SO ORDERED.

It is clear from the abovementioned provision that upon the loss of the
insured vehicle, the insurance company Perla undertakes to pay directly to
the mortgagor or to their assignee, FCP, the outstanding balance of the [G.R. Nos. 128833. April 20, 1998]
mortgage at the time of said loss under the mortgage contract. If the claim
on the insurance policy had been approved by petitioner Perla, it would
have paid the proceeds thereof directly to petitioner FCP, and this would
have had the effect of extinguishing private respondents obligation to
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND
petitioner FCP. Therefore, private respondents were justified in asking
ELI D. LAO, petitioners, vs. COURT OF APPEALS and GOYU &
petitioner FCP to demand the unpaid installments from petitioner Perla.
SONS, INC., respondents.
Because petitioner Perla had unreasonably denied their valid claim, private
respondents should not be made to pay the interest, liquidated damages
and attorneys fees as stipulated in the promissory note. As mentioned
above, the contract of indemnity was procured to insure the return of the [G.R. No. 128834. April 20, 1998]
money loaned from petitioner FCP, and the unjustified refusal of petitioner
Perla to recognize the valid claim of the private respondents should not in
any way prejudice the latter.

Private respondents can not be said to have unduly enriched themselves at

16
 RIZAL COMMERCIAL BANKING CORPORATION, petitioners, vs.
COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU &
SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK and
BETTY CHIU SUK YING alias BETTY GO, respondents.
[G.R. No. 128866. April 20, 1998]
MALAYAN INSURANCE INC., petitioner, vs. GOYU & SONS,
INC. respondent.
D EC I S I O N
MELO, J.:
The issues relevant to the herein three consolidated petitions revolve
around the fire loss claims of respondent Goyu & Sons, Inc. (GOYU) with
petitioner Malayan Insurance Company, Inc. (MICO) in connection with the
mortgage contracts entered into by and between Rizal Commercial Banking
Corporation (RCBC) and GOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the
total amount of P74,040,518.58, plus 37% interest per annum
commencing July 27, 1992. RCBC was ordered to pay actual and
compensatory damages in the amount of P5,000,000.00. MICO and RCBC
were held solidarily liable to pay GOYU P1,500,000.00 as exemplary
damages and P1,500,000.00 for attorneys fees. GOYUs obligation to RCBC
was fixed at P68,785,069.04 as of April 1992, without any interest,
surcharges, and penalties. RCBC and MICO appealed separately but, in
view of the common facts and issues involved, their individual petitions
were consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at
its Binondo Branch. After due evaluation, RCBC Binondo Branch, through
its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended
GOYUs application for approval by RCBCs executive committee. A credit
facility in the amount of P30 million was initially granted. Upon GOYUs
application and Uys and Laos recommendation, RCBCs executive
committee increased GOYUs credit facility to P50 million, then to P90
million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real
estate mortgages and two chattel mortgages in favor of RCBC, which were
registered with the Registry of Deeds at Valenzuela, Metro Manila. Under
each of these four mortgage contracts, GOYU committed itself to insure the
mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from
MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance
agent where GOYU obtained the Malayan insurance policies, issued nine
endorsements in favor of RCBC seemingly upon instructions of GOYU
(Exhibits 1-Malayan to 9-Malayan).
On April 27, 1992, one of GOYUs factory buildings in Valenzuela was
gutted by fire. Consequently, GOYU submitted its claim for indemnity on
account of the loss insured against. MICO denied the claim on the ground
that the insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the insurance
proceeds were also claimed by other creditors of GOYU alleging better
rights to the proceeds than the insured. GOYU filed a complaint for specific
performance and damages which was docketed at the Regional Trial Court
of the National Capital Judicial Region (Manila, Branch 3) as Civil Case No.
93-65442, now subject of the present G.R. No. 128833 and 128866.
RCBC, one of GOYUs creditors, also filed with MICO its formal claim
over the proceeds of the insurance policies, but said claims were also
denied for the same reasons that MICO denied GOYUs claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-
312), the Regional Trial Court of Manila (Branch 3), confirmed that GOYUs
other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine
Trust Company obtained their respective writs of attachments from various
courts, covering an aggregate amount of P14,938,080.23, and ordered that
the proceeds of the ten insurance policies be deposited with the said court
minus the aforementioned P14,938,080.23. Accordingly, on January 7,
1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the
Manila RTC.
In the meantime, another notice of garnishment was handed down by
another Manila RTC sala (Branch 28) for the amount of P8,696,838.75
(Exhibit 22-Malayan).
After trial, Branch 3 of the Manila RTC rendered judgment in favor of
GOYU, disposing:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, Malayan Insurance Company, Inc. and Rizal
Commercial Banking Corporation, ordering the latter as follows:
17
1. For defendant Malayan Insurance Co., Inc.:
a. To pay the plaintiff its fire loss claims in the total amount of
P74,040,518.58 less the amount of P50,000,000.00
which is deposited with this Court;
b. To pay the plaintiff damages by way of interest for the
duration of the delay since July 27, 1992 (ninety days
after defendant insurers receipt of the required proof of
loss and notice of loss) at the rate of twice the ceiling
prescribed by the Monetary Board, on the following
amounts:
1) P50,000,000.00 from July 27, 1992 up to the time said
amount was deposited with this Court on
January 7, 1994;
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby
ordered to release immediately to the plaintiff the amount of
P50,000,000.00 deposited with the Court by defendant Malayan, together
with all the interests earned thereon.
(
Record, pp. 478-479.)
From this judgment, all parties interposed their respective
appeals. GOYU was unsatisfied with the amounts awarded in its
favor. MICO and RCBC disputed the trial courts findings of liability on their
part. The Court of Appeals partly granted GOYUs appeal, but sustained the
findings of the trial court with respect to MICO and RCBCs liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby
modified as follows:

2) P24,040,518.58 from July 27, 1992 up to the time when
the writs of attachments were received by
defendant Malayan;
2. For defendant Rizal Commercial Banking Corporation:
a. To pay the plaintiff actual and compensatory damages in the
amount of P2,000,000.00;
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in the total amount of
P74,040,518.58 less the amount of P50,505,594.60 (per O.R. No.
3649285) plus deposited in court and damages by way of interest
commencing July 27, 1992 until the time Goyu receives the said amount at
the rate of thirty-seven (37%) percent per annum which is twice the ceiling
prescribed by the Monetary Board.

2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:

3. For both defendants Malayan and RCBC:

a) To pay the plaintiff actual and compensatory damages in the amount of

a. To pay the plaintiff, jointly and severally, the following amounts:
P5,000,000.00.

1) P1,000,000.00 as exemplary damages;

3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL
COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO:
2) P1,000,000.00 as, and for, attorneys fees;
a) To pay the plaintiff jointly and severally the following amounts:
3) Costs of suit.
1. P1,500,000.00 as exemplary damages;
and on the Counterclaim of defendant RCBC, ordering the
plaintiff to pay its loan obligations with defendant RCBC in the
2. P1,500,000.00 as and for attorneys fees.
amount of P68,785,069.04, as of April 27, 1992, with interest
thereon at the rate stipulated in the respective promissory notes
(without surcharges and penalties) per computation, pp. 14-A,
14-B & 14-C.

18
4. And on RCBCs Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to
pay its loan obligation with RCBC in the amount of P68,785,069.04 as of
April 27, 1992 without any interest, surcharges and penalties.
The Clerk of the Court of the Regional Trial Court of Manila is hereby
ordered to immediately release to Goyu & Sons, Inc. the amount of
P50,505,594.60 (per O.R. No. 3649285) deposited with it by Malayan
Insurance Co., Inc., together with all the interests thereon.
( obtained the subject insurance policies naming itself as the sole payee, the
Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866,
respectively, seeking review and consequent reversal of the above
dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A.
G.R. No. CV-48376, which case, by virtue of the Court of Appeals
resolution dated August 7, 1996, was consolidated with C.A. G.R. No. CV-
46162 (subject of herein G.R. No. 128833). At issue in said petition is
RCBCs right to intervene in the action between Alfredo C. Sebastian (the
creditor) and GOYU (the debtor), where the subject insurance policies were
attached in favor of Sebastian.
After a careful review of the material facts as found by the two courts
below in relation to the pertinent and applicable laws, we find merit in the
submissions of RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to
several related issues which are now submitted in the petitions before
us. This Court, however, discerns one primary and central issue, and this
is, whether or not RCBC, as mortgagee, has any right over the insurance
policies taken by GOYU, the mortgagor, in case of the occurrence of loss.
As earlier mentioned, accordant with the credit facilities extended by
RCBC to GOYU, the latter executed several mortgage contracts in favor of
RCBC. It was expressly stipulated in these mortgage contracts that GOYU
shall insure the mortgaged property with any of the insurance companies
acceptable to RCBC. GOYU indeed insured the mortgaged property with
MICO, an insurance company acceptable to RCBC. Based on their
stipulations in the mortgage contracts, GOYU was supposed to endorse
these insurance policies in favor of, and deliver them, to RCBC. Alchester
Insurance Agency, Inc., MICOs underwriter from whom GOYU obtained the
subject insurance policies, prepared the nine endorsements (see Exh. 1-
Malayan to 9-Malayan; also Exh. 51-RCBC to 59-RCBC), copies of which
were delivered to GOYU, RCBC, and MICO. However, because these
endorsements do not bear the signature of any officer of GOYU, the trial
court, as well as the Court of Appeals, concluded that the endorsements
are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and
distinct insurable interests in the same mortgaged property, such that each
one of them may insure the same property for his own sole benefit. There
is no question that GOYU could insure the mortgaged property for its own
exclusive benefit. In the present case, although it appears that GOYU
intentions of the parties as shown by their contemporaneous acts, must be
given due consideration in order to better serve the interest of justice and
equity.
It is to be noted that nine endorsement documents were prepared by
Alchester in favor of RCBC. The Court is in a quandary how Alchester could
arrive at the idea of endorsing any specific insurance policy in favor of any
particular beneficiary or payee other than the insured had not such named
payee or beneficiary been specifically disclosed by the insured itself. It is
also significant that GOYU voluntarily and purposely took the insurance
policies from MICO, a sister company of RCBC, and not just from any other
insurance company. Alchester would not have found out that the subject
pieces of property were mortgaged to RCBC had not such information been
voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester
would not have known of GOYUs intention of obtaining insurance coverage
in compliance with its undertaking in the mortgage contracts with RCBC,
and verily, Alchester would not have endorsed the policies to RCBC had it
not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the
Court is constrained to rule in favor of mortgagor RCBC. The basis and
purpose of the doctrine was explained in Philippine National Bank vs. Court
of Appeals (94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public policy, fair
dealing, good faith and justice, and its purpose is to forbid one to speak
against his own act, representations, or commitments to the injury of one
to whom they were directed and who reasonably relied thereon. The
doctrine of estoppel springs from equitable principles and the equities in
the case. It is designed to aid the law in the administration of justice where
without its aid injustice might result. It has been applied by this Court
wherever and whenever special circumstances of a case so demand.
(
p. 368.)
19
 Evelyn Lozada of Alchester testified that upon instructions of Mr. Go,
through a certain Mr. Yam, she prepared in quadruplicate on February 11,
1992 the nine endorsement documents for GOYUs nine insurance policies
in favor of RCBC. The original copies of each of these nine endorsement
documents were sent to GOYU, and the others were sent to RCBC and
MICO, while the fourth copies were retained for Alchesters file (tsn,
February 23, pp. 7-8). GOYU has not denied having received from
Alchester the originals of these endorsements.
RCBC, in good faith, relied upon the endorsement documents sent to
it as this was only pursuant to the stipulation in the mortgage
contracts. We find such reliance to be justified under the circumstances of
the case. GOYU failed to seasonably repudiate the authority of the person
or persons who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities
extended to it by RCBC. After the occurrence of the loss insured against, it
was too late for GOYU to disown the endorsements for any imagined or
contrived lack of authority of Alchester to prepare and issue said
endorsements. If there had not been actually an implied ratification of said
endorsements by virtue of GOYUs inaction in this case, GOYU is at the very
least estopped from assailing their operative effects. To permit GOYU to
capitalize on its non-confirmation of these endorsements while it continued
to enjoy the benefits of the credit facilities of RCBC which believed in good
faith that there was due endorsement pursuant to their mortgage
contracts, is to countenance grave contravention of public policy, fair
dealing, good faith, and justice. Such an unjust situation, the Court cannot
sanction. Under the peculiar circumstances obtaining in this case, the Court
is bound to recognize RCBCs right to the proceeds of the insurance policies
if not for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code
which provides that the proceeds of insurance shall exclusively apply to the
interest of the person in whose name or for whose benefit it is made. The
peculiarity of the circumstances obtaining in the instant case presents a
justification to take exception to the strict application of said provision, it
having been sufficiently established that it was the intention of the parties
to designate RCBC as the party for whose benefit the insurance policies
were taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of
mortgage contracts entered into between RCBC and GOYU in consideration
of and for securing GOYUs credit facilities from RCBC. The mortgage
contracts contained common provisions whereby GOYU, as mortgagor,
undertook to have the mortgaged property properly covered against any
loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged
property from MICO, no less than a sister company of RCBC and definitely
an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICOs underwriter, Alchester
Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO, and
RCBC. GOYU did not assail, until of late, the validity of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of
the credit facilities extended by RCBC which was conditioned upon the
endorsement of the insurance policies to be taken by GOYU to cover the
mortgaged properties.
This Court can not over stress the fact that upon receiving its copies
of the endorsement documents prepared by Alchester, GOYU, despite the
absence of its written conformity thereto, obviously considered said
endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the
benefits of its credit facilities and GOYU continued to benefit
therefrom. Just as plain too is the intention of the parties to constitute
RCBC as the beneficiary of the various insurance policies obtained by
GOYU.The intention of the parties will have to be given full force and effect
in this particular case. The insurance proceeds may, therefore, be
exclusively applied to RCBC, which under the factual circumstances of the
case, is truly the person or entity for whose benefit the policies were
clearly intended.
Moreover, the laws evident intention to protect the interests of the
mortgagee upon the mortgaged property is expressed in Article 2127 of
the Civil Code which states:
ART. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received
when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the
estate remains in the possession of the mortgagor, or it passes into the
hands of a third person.
Significantly, the Court notes that out of the 10 insurance policies
subject of this case, only 8 of them appear to have been subject of the
endorsements prepared and delivered by Alchester for and upon
instructions of GOYU as shown below:
20
INSURANCE POLICY PARTICULARS ENDORSEMENT Amount : P6,603,586.43

a. Policy Number : F-114-07795 None e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan

Issue Date : March 18, 1992 Issue Date : January 18, 1992

Expiry Date : April 5, 1993 Expiry Date : February 9, 1993

Amount : P9,646,224.92 Amount : P9,457,972.76

b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan

Issue Date : January 18, 1992 Issue Date : January 13, 1992

Expiry Date : February 9, 1993 Expiry Date : January 13, 1993

Amount : P4,307,217.54 Amount : P24,750,000.00

g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan

c. Policy Number : ACIA/F-114-07661 Exhibit 2-Malayan Issue Date : May 29, 1991

Issue Date : January 18, 1992 Expiry Date : June 27, 1992

Expiry Date : February 15, 1993 Amount : P6,000,000.00

Amount : P6,603,586.43

h. Policy Number : CI/F-128-03341 None

d. Policy Number : ACIA/F-114-07662 Exhibit 3-Malayan Issue Date : May 3, 1991

Issue Date : January 18, 1992 Expiry Date : May 3, 1992

Expiry Date : (not legible) Amount : P10,000,000.00

21

i. Policy Number : F-114-07402 Exhibit 8-Malayan
Issue Date : September 16, 1991
Expiry Date : October 19, 1992
Amount : P32,252,125.20
j. Policy Number : F-114-07525 Exhibit 9-Malayan
Issue Date : November 20, 1991
Expiry Date : December 5, 1992
Amount : P6,603,586.43
(pp. 456-457, Record;
Folder of Exhibits for
MICO.)
Policy Number F-114-07795 [(a) above] has not been endorsed. This
fact was admitted by MICOs witness, Atty. Farolan (tsn, February 16,
1994, p. 25). Likewise, the record shows no endorsement for Policy
Number CI/F-128-03341 [(h) above]. Also, one of the endorsement
documents, Exhibit 5-Malayan, refers to a certain insurance policy number
ACIA-F-07066, which is not among the insurance policies involved in the
complaint.
The proceeds of the 8 insurance policies endorsed to RCBC aggregate
to P89,974,488.36. Being exclusively payable to RCBC by reason of the
endorsement by Alchester to RCBC, which we already ruled to have the
force and effect of an endorsement by GOYU itself, these 8 policies can not
be attached by GOYUs other creditors up to the extent of the GOYUs
outstanding obligation in RCBCs favor. Section 53 of the Insurance Code
ordains that the insurance proceeds of the endorsed policies shall be
applied exclusively to the proper interest of the person for whose benefit it
was made. In this case, to the extent of GOYUs obligation with RCBC, the
interest of GOYU in the subject policies had been transferred to RCBC
effective as of the time of the endorsement. These policies may no longer
be attached by the other creditors of GOYU, like Alfredo Sebastian in the
present G.R. No. 128834, which may nonetheless forthwith be dismissed
for being moot and academic in view of the results reached herein. Only
the two other policies amounting to P19,646,224.92 may be validly
attached, garnished, and levied upon by GOYUs other creditors. To the
extent of GOYUs outstanding obligation with RCBC, all the rest of the other
insurance policies above-listed which were endorsed to RCBC, are,
therefore, to be released from attachment, garnishment, and levy by the
other creditors of GOYU.
This brings us to the next relevant issue to be resolved, which is, the
extent of GOYUs outstanding obligation with RCBC which the proceeds of
the 8 insurance policies will discharge and liquidate, or put differently, the
actual amount of GOYUs liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial court
finding that GOYUS total obligation to RCBC was only P68,785,060.04 as of
April 27, 1992, thus sanctioning the trial courts exclusion of Promissory
Note No. 421-92 (renewal of Promissory Note No. 908-91) and Promissory
Note No. 420-92 (renewal of Promissory Note No. 952-91) on the ground
that their execution is highly questionable for not only are these dated
after the fire, but also because the signatures of either GOYU or any its
representative are conspicuously absent.Accordingly, the Court of Appeals
speculated thusly:
Hence, this Court is inclined to conclude that said promissory notes were
pre-signed by plaintiff in blank terms, as averred by plaintiff, in
contemplation of the speedy grant of future loans, for the same practice of
procedure has always been adopted in its previous dealings with the bank.
(
Rollo, pp. 181-182.)
The fact that the promissory notes bear dates posterior to the fire
does not necessarily mean that the documents are spurious, for it is
presumed that the ordinary course of business had been followed
(Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 222 SCRA
486 [1993]). The obligor and not the holder of the negotiable instrument
has the burden of proof of showing that he no longer owes the obligee any
amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).
Even casting aside the presumption of regularity of private
transactions, receipt of the loan amounting to P121,966,058.67 (Exhibits
1-29, RCBC) was admitted by GOYU as indicated in the testimony of Go
Song Hiap when he answered the queries of the trial court:
22
 ATTY. NATIVIDAD The Court of Appeals erred in placing much significance on the fact
that the excluded promissory notes are dated after the fire. It failed to
Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you consider that said notes had for their origin transactions
received all the amounts stated therein? consummated prior to the fire. Thus, careful attention must be paid to the
fact that Promissory Notes No. 420-92 and 421-92 are mere renewals of
A: Yes, sir, I received the amount.
Promissory Notes No. 908-91 and 952-91, loans already availed of by
COURT GOYU.

He is asking if he received all the amounts stated in Exhibits 1 to 29- The two courts below erred in failing to see that the promissory notes
RCBC? which they ruled should be excluded for bearing dates which are after that
of the fire, are mere renewals of previous ones. The proceeds of the loan
WITNESS: represented by these promissory notes were admittedly received by
GOYU. There is ample factual and legal basis for giving GOYUs judicial
Yes, Your Honor, I received all the amounts. admission of liability in the amount of P116,301,992.60 full force and effect
COURT It should, however, be quickly added that whatever amount RCBC
may have recovered from the other insurers of the mortgaged property
Indicated in the Promissory Notes?
will, nonetheless, have to be applied as payment against GOYUs
WITNESS obligation. But, contrary to the lower courts findings, payments effected by
GOYU prior to January 21, 1993 should no longer be deducted. Such
A. The promissory Notes they did not give to me but the amount I payments had obviously been duly considered by GOYU, in its aforequoted
asked which is correct, Your Honor. letter dated March 9, 1993, wherein it admitted that its past due account
totaled P116,301,992.60 as of January 21, 1993.
COURT
The net obligation of GOYU, after deductions, is thus reduced to
Q: You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is P107,246,887.90 as of January 21, 1993, to wit:
correct?

A: Yes, Your Honor. Total Obligation as admitted by GOYU as of January 21,

1993: P116,301,992.60
(tsn, Jan. 14, 1994, p. 26.)

Furthermore, aside from its judicial admission of having received all Broken down as follows
the proceeds of the 29 promissory notes as hereinabove quoted, GOYU also
offered and admitted to RCBC that its obligation be fixed at
Principal[1] Interest
P116,301,992.60 as shown in its letter dated March 9, 1993, which
pertinently reads:
Regular 80,535,946.32
We wish to inform you, therefore that we are ready and willing to pay the
current past due account of this company in the amount of FDU 7,548,025.17
P116,301,992.60 as of 21 January 1993, specified in pars. 15, p. 10, and
18, p. 13 of your affidavits of Third Party Claims in the Urban case at ____________ _____________
Makati, Metro Manila and in the Zamboanga case at Zamboanga city,
respectively, less the total of P8,851,519.71 paid from the Seaboard and
Equitable insurance companies and other legitimate deductions. We accept Total: 108,083,971.49 8,218,021.11[2]
and confirm this amount of P116,301,992.60 as stated as true and correct.
LESS:
(
Exhibit BB.)

23
1) Proceeds from
Seaboard Eastern
Insurance Company: 6,095,145.81
2) Proceeds from
Equitable Insurance
Company: 2,756,373.00
3) Payment from
foreign department
negotiation: 203,584.89
9,055,104.70[3]
NET AMOUNT as of January 21, 1993: P 107,246,887.90
The need for the payment of interest due upon the principal amount
of the obligation, which is the cost of money to RCBC, the primary end and
the ultimate reason for RCBCs existence and being, was duly recognized by
the trial court when it ruled favorably on RCBCs counterclaim, ordering
GOYU to pay its loan obligation with RCBC in the amount of
P68,785,069.04, as of April 27,1992, with interest thereon at the rate
stipulated in the respective promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B, 14-C (Record, p.
479).Inexplicably, the Court of Appeals, without even laying down the
factual or legal justification for its ruling, modified the trial courts ruling
and ordered GOYU to pay the principal amount of P68,785,069.04 without
any interest, surcharges and penalties (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and
with much uncertainty deleted the payment of additional interest,
penalties, and charges, in this manner:
Regarding defendant RCBCs commitment not to charge additional interest,
penalties and surcharges, the same does not require that it be embodied in
a document or some form of writing to be binding and enforceable. The
principle is well known that generally a verbal agreement or contract is no
less binding and effective than a written one. And the existence of such a
verbal agreement has been amply established by the evidence in this
case. In any event, regardless of the existence of such verbal agreement, it
would still be unjust and inequitable for defendant RCBC to charge the
plaintiff with surcharges and penalties considering the latters pitiful
situation. (Emphasis supplied.)
The essence or rationale for the payment of interest or cost of money
is separate and distinct from that of surcharges and penalties. What may
justify a court in not allowing the creditor to charge surcharges and
penalties despite express stipulation therefor in a valid agreement, may
not equally justify non-payment of interest. The charging of interest for
loans forms a very essential and fundamental element of the banking
business, which may truly be considered to be at the very core of its
existence or being. It is inconceivable for a bank to grant loans for which it
will not charge any interest at all. We fail to find justification for the Court
of Appeals outright deletion of the payment of interest as agreed upon in
the respective promissory notes.This constitutes gross error.
For the computation of the interest due to be paid to RCBC, the
following rules of thumb laid down by this Court in Eastern Shipping Lines,
Inc. vs. Court of Appeals (234 SCRA 78 [1994]), shall apply, to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on Damages of the
Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable
24
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date of the judgment of the court
is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
( insurance claim to GOYU.
pp. 95-97.)
There being written stipulations as to the rate of interest owing on
each specific promissory note as summarized and tabulated by the trial
court in its decision (pp.470 and 471, Record) such agreed interest rates
must be followed. This is very clear from paragraph II, sub-paragraph 1
quoted above.
On the issue of payment of surcharges and penalties, we partly agree
that GOYUs pitiful situation must be taken into account. We do not agree,
however, that payment of any amount as surcharges and penalties should
altogether be deleted. Even assuming that RCBC, through its responsible
officers, herein petitioners Eli Lao and Uy Chun Bing, may have relayed its
assurance for assistance to GOYU immediately after the occurrence of the
fire, we cannot accept the lower courts finding that RCBC had thereby ipso
facto effectively waived collection of any additional interests, surcharges,
and penalties from GOYU. Assurances of assistance are one thing, but
waiver of additional interests, surcharges, and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of
default partake of the nature of liquidated damages, covered by Section 4,
Chapter 3, Title XVIII of the Civil Code.Article 2227 thereof provides:
ART. 2227. Liquidated damages, whether intended as a indemnity or
penalty, shall be equitably reduced if they are iniquitous and
unconscionable.
In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case. It
should be stressed that the Court will not make any sweeping ruling that
surcharges and penalties imposed by banks for non-payment of the loans
extended by them are generally iniquitous and unconscionable. What may
be iniquitous and unconscionable in one case, may be totally just and
equitable in another. This provision of law will have to be applied to the
established facts of any given case. Given the circumstances under which
GOYU found itself after the occurrence of the fire, the Court rules the
surcharges rates ranging anywhere from 9% to 27%, plus the penalty
charges of 36%, to be definitely iniquitous and unconscionable. The Court
tempers these rates to 2% and 3%, respectively. Furthermore, in the light
of GOYUs offer to pay the amount of P116,301,992.60 to RCBC as March
1993 (See: Exhibit BB), which RCBC refused, we find it more in keeping
with justice and equity for RCBC not to charge additional interest,
surcharges, and penalties from that time onward.
Given the factual milieu spread hereover, we rule that it was error to
hold MICO liable in damages for denying or withholding the proceeds of the
Firstly, by virtue of the mortgage contracts as well as the
endorsements of the insurance policies, RCBC has the right to claim the
insurance proceeds, in substitution of the property lost in the fire. Having
assigned its rights, GOYU lost its standing as the beneficiary of the said
insurance policies.
Secondly, for an insurance company to be held liable for unreasonably
delaying and withholding payment of insurance proceeds, the delay must
be wanton, oppressive, or malevolent (Zenith Insurance Corporation vs.
CA, 185 SCRA 403 [1990]). It is generally agreed, however, that an
insurer may in good faith and honesty entertain a difference of opinion as
to its liability.Accordingly, the statutory penalty for vexatious refusal of an
insurer to pay a claim should not be inflicted unless the evidence and
circumstances show that such refusal was willful and without reasonable
cause as the facts appear to a reasonable and prudent man (Buffalo Ins.
Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co.
vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep 307; Kusnetsky vs.
Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar
does not show that MICO wantonly and in bad faith delayed the release of
the proceeds. The problem in the determination of who is the actual
beneficiary of the insurance policies, aggravated by the claim of various
creditors who wanted to partake of the insurance proceeds, not to mention
the importance of the endorsement to RCBC, to our mind, and as now
borne out by the outcome herein, justified MICO in withholding payment to
GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals
said that RCBC cannot avail itself of two simultaneous remedies in
enforcing the claim of an unpaid creditor, one for specific performance and
the other for foreclosure. In doing so, said the appellate court, the second
action is deemed barred, RCBC having split a single cause of action (Rollo,
25
pp. 195-199). The Court of Appeals was too accommodating in giving due
consideration to this argument of GOYU, for the foreclosure suit is still
pending appeal before the same Court of Appeals in CA G.R CV No. 46247,
the case having been elevated by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth
Division of the Court of Appeals pre-empted the resolution of said
foreclosure case which is not before it. This is plain reversible error if not
grave abuse of discretion.
As held in Pea vs. Court of Appeals (245 SCRA 691[1995]):
It should have been enough, nonetheless, for the appellate court to merely
set aside the questioned orders of the trial court for having been issued by
the latter with grave abuse of discretion. In likewise enjoining permanently
herein petitioner from entering in and interfering with the use or
occupation and enjoyment of petitioners (now private respondent)
residential house and compound, the appellate court in effect, precipitately
resolved with finality the case for injunction that was yet to be heard on
the merits by the lower court. Elevated to the appellate court, it might be
stressed, were mere incidents of the principal case still pending with the
trial court. In Municipality of Bian, Laguna vs. Court of Appeals, 219 SCRA
69, we ruled that the Court of Appeals would have no jurisdiction in
a certiorari proceeding involving an incident in a case to rule on the merits
of the main case itself which was not on appeal before it.
pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before
the Zamboanga Regional Trial Court, since it has been determined that
RCBC has the right to the insurance proceeds, the subject matter of
intervention is rendered moot and academic. Respondent Sebastian must,
however, yield to the preferential right of RCBC over the MICO insurance
policies.It is basic and fundamental that the first mortgagee has superior
rights over junior mortgagees or attaching creditors (Alpha Insurance &
Surety Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life Assurance Co. of
Canada vs. Gonzales Diaz, 52 Phil. 271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and
resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No.
46162 are hereby REVERSED and SET ASIDE, and a new one entered:
1. Dismissing the Complaint of private respondent GOYU in Civil Case No.
93-65442 before Branch 3 of the Manila Regional Trial Court for lack of
merit;
2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal
Commercial Banking Corporation the proceeds of the insurance policies in
the amount of P51,862,390.94 (per report of adjuster Toplis & Harding (Far
East), Inc., Exhibits 2 and 2-1), less the amount of P50,505,594.60 (per
O.R. No. 3649285);
3. Ordering the Clerk of Court to release the amount of P50,505,594.60
including the interests earned to Rizal Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal
Commercial Banking Corporation in the principal amount of
P107,246,887.90, with interest at the respective rates stipulated in each
promissory note from January 21, 1993 until finality of this judgment, and
surcharges at 2% and penalties at 3% from January 21, 1993 to March 9,
1993, minus payments made by Malayan Insurance Company, Inc. and the
proceeds of the amount deposited with the trial court and its earned
interest. The total amount due RCBC at the time of the finality of this
judgment shall earn interest at the legal rate of 12% in lieu of all other
stipulated interests and charges until fully paid.
The petition of Rizal Commercial Banking Corporation against the
respondent Court in CA-GR CV 48376 is DISMISSED for being moot and
academic in view of the results herein arrived at. Respondent Sebastians
right as attaching creditor must yield to the preferential rights of Rizal
Commercial Banking Corporation over the Malayan insurance policies as
first mortgagee.
(
SO ORDERED.
EN BANC
[G.R. No. L-23276. November 29, 1968.]
MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW
TAXICAB CO., INC., Plaintiffs-Appellees, v. FIELDMENS INSURANCE
CO., INC., Defendant-Appellant.
Antonio de Venecia for Plaintiffs-Appellees.
Rufino Javier, for Defendant-Appellant.
SYLLABUS
26
1. CIVIL LAW; CONTRACTS; CONTRACTS POUR AUTRUI; MAY BE
ENFORCED BY A THIRD PARTY FOR WHOSE BENEFIT IT WAS MADE.
Although, in general, only parties to a contract may bring an action based
thereon, this rule is subject to exceptions, one of which is found in the
second paragraph of Article 1311 of the Civil Code of the Philippines,
reading: "If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or
interest of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third person." This is but
the restatement of a well-known principle concerning contracts pour autrui,
the enforcement of which may be demanded by a third party for whose
benefit it was made, although not a party to the contract, before the
stipulation in his favor has been revoked by the contracting parties.
2. ID.; ID.; ID.; INSURANCE CONTRACT CONTAINING A STIPULATION IN
FAVOR OF THE AUTHORIZED DRIVER OF INSUREDS MOTOR VEHICLE, A
CONTRACT POUR AUTRUI; HEIRS OF THE DECEASED DRIVER MAY BRING
AN ACTION AGAINST THE INSURANCE COMPANY. In the case at bar, the
insurance policy contains stipulations pursuant to which the insurance
company "will indemnify any authorized Driver who is driving the Motor
Vehicle" of the Insured and, in the event of death of said driver, the
Company shall, likewise, "indemnify his personal representatives," and the
Company "may, at its option, make indemnity payable directly to the
claimants or heirs of claimants . . . it being the true intention of this Policy
to protect . . . the liabilities of the Insured towards the passengers of the
Motor Vehicle and the Public" in other words, third parties. Thus, the policy
under consideration is typical of contracts pour autrui this character being
made more manifest by the fact that the deceased driver paid fifty percent
(50%) of the corresponding premiums, which were deducted from his
weekly commissions. Under these conditions, it is clear that the Coquias
who, admittedly, are the sole heirs of the deceased have a direct cause
of action against the Company (Uy Tam v. Leonard, 30 Phil. 471, 485-486;
Kauffman v. Philippine National Bank, 42 Phil. 182, 187, 189), and, since
they could have maintained this action by themselves, without the
assistance of the insured it goes without saying that they could and did
properly join the latter in filing the complaint herein (Guingon v. Capital
Insurance & Surety Co., Inc., L-22042, Aug. 17, 1967).
3. ID.; ID.; ID.; ID.; REFERENCE OF DISPUTE TO ARBITRATORS AS
PROVIDED IN THE POLICY, DEEMED WAIVED BY THE ACTS OR OMISSIONS
OF THE PARTIES. Section 17 of the policy under consideration reads: "If
any difference or dispute shall arise with respect to the amount of the
Companys liability under this Policy, the same shall be referred to the
decision of a single arbitrator to be agreed upon by both parties or failing
such agreement of a single arbitrator, to the decision of two arbitrators,
one to be appointed in writing by each of the parties within one calendar
month after having been required in writing so to do by either of the
parties and in case of disagreement between the arbitrator to the decision
of an umpire who shall have been appointed in writing by the arbitrators
before entering on the reference and the costs of and incidental to the
reference shall be dealt with in the Award. And it is hereby expressly
stipulated and declared that it shall be a condition precedent to any right of
action or suit upon this Policy that the award by such arbitrator, arbitrators
or umpire of the amount of the Companys liability hereunder if disputed
shall be first obtained." The record shows, however, that none of the
parties to the contract invoked this section, or made any reference to
arbitration, during the negotiations preceding the institution of the present
case. In fact, counsel for both parties stipulated, in the trial court, that
none of them had, at any time during said negotiations, even suggested
the settlement of the issue between them by arbitration, as provided in
said section. Their aforementioned acts or omissions had the effect of a
waiver of their respective right to demand an arbitration (Kahnweiler v.
Phenix Insurance Co. of Brooklyn, 67 Fed. 483; Independent School
District No. 35, St. Louis County v. A. Hedenberg & Co., Inc., 7 NW 2nd,
511).
DECISION
CONCEPCION, C.J.:
This is an appeal from a decision of the Court of First Instance of Manila,
certified to us by the Court of Appeals, only questions of law being involved
therein. Indeed, the pertinent facts have been stipulated and/or, admitted
by the parties at the hearing of the case in the trial court, to dispense with
the presentation of evidence therein.
It appears that on December 1, 1961, appellant Fieldmens Insurance
Company, Inc. herein after referred to as the Company issued, in
favor of the Manila Yellow Taxicab Co., Inc. herein after referred to as
the Insured a common carrier accident insurance policy, covering the
period from December 1, 1961 to December ,1962. It was stipulated in
said policy that:jgc:chanrobles.com.ph
"The Company will, subject to the Limits of Liability and under the Terms of
this Policy, indemnify the Insured in the event of accident caused by or
arising out of the use of Motor Vehicle against all sums which the Insured
will become legally liable to pay in respect of: Death or bodily injury to any
fare-paying passenger including the Driver, Conductor and/or Inspector
who is riding in the Motor Vehicle insured at the time of accident or injury."
1
While the policy was in force, or on February 10, 1962, a taxicab of the
27
Insured, driven by Carlito Coquia, met a vehicular accident at Maagaldan, x x x
Pangasinan, in consequence of which Carlito died. The Insured filed
therefor a claim for P5,000.00 to which the Company replied with an offer
to pay P2,000.00, by way of compromise. The Insured rejected the same "3. In terms of and subject to the limitations of and for the purposes of this
and made a counter-offer for P4,000.00, but the Company did not accept Section, the Company will indemnify any authorized Driver who is driving
it. Hence, on September 18, 1962, the Insured and Carlitos parents, the Motor Vehicle . . ."cralaw virtua1aw library
namely, Melecio Coquia and Maria Espanueva hereinafter referred to as
the Coquias filed a complaint against the Company to collect the "Conditions
proceeds of the aforementioned policy. In its answer, the Company
admitted the existence thereof, but pleaded lack of cause of action on the x x x
part of the plaintiffs.

After appropriate proceedings, the trial court rendered a decision "7. In the event of death of any person entitled to indemnify under this
sentencing the Company to pay to the plaintiffs the sum of P4,000.00 and Policy, the Company will, in respect of the liability incurred by such person,
the costs. Hence, this appeal by the Company, which contends that indemnify his personal representatives in terms of and subject to the
plaintiffs have no cause of action because: 1) the Coquias have no limitations of this Policy, provided, that such representatives shall, as
contractual relation with the Company; and 2) the Insured has not though they were the Insured, observe, fulfill and be subject to the Terms
complied with the provisions of the policy concerning arbitration. of this Policy insofar as they can apply.

As regards the first defense, it should be noted that, although, in general, "8. The Company may, at its option, make indemnity payable directly to
only parties to a contract may bring an action based thereon, this rule is the claimants or heirs of claimants, with or without securing the consent of
subject to exceptions, one of which is found in the second paragraph of or prior notification to the Insured, it being the true intention of this Policy
Article 1311 of the Civil Code of the Philippines, to protect, to the extent herein specified and subject always to the Terms
reading:jgc:chanrobles.com.ph of this Policy, the liabilities of the Insured towards the passengers of the
Motor Vehicle and the Public."cralaw virtua1aw library
"If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance of Pursuant to these stipulations, the Company "will indemnify any authorized
the obligor before its revocation. A mere incidental benefit or interest of a Driver who is driving the Motor Vehicle" of the Insured and, in the event of
person is not sufficient. The contracting parties must have clearly and death of said driver, the Company shall, likewise, "indemnify his personal
deliberately conferred a favor upon a third person." 2 representatives." In fact the Company "may, at its option, make indemnity
payable directly to the claimants . . . or heirs of claimants .. it being the
This is but the restatement of a well-known principle concerning contracts true intention of this Policy to protect . . . the liabilities of the Insured
pour autrui, the enforcement of which may be demanded by a third party towards the passengers of the Motor Vehicle and the Public" in other
for whose benefit it was made, although not a party to the contract, before words, third parties.
the stipulation in his favor has been revoked by the contracting parties.
Does the policy in question belong to such class of contracts pour autrui? Thus, the policy under consideration is typical of contracts pour autrui, this
character being made more manifest by the fact that the deceased driver
In this connection, said policy provides, inter alia:jgc:chanrobles.com.ph paid fifty percent (50%) of the corresponding premiums, which were
deducted from his weekly commissions. Under these conditions, it is clear
"Section I Liability to Passengers. 1. The Company will, subject to the that the Coquias who, admittedly, are the sole heirs of the deceased
Limits of Liability and under the Terms of this Policy, indemnify the Insured have a direct cause of action against the Company, 3 and, since they could
in the event of accident caused by or arising out of the use of Motor Vehicle have maintained this action by themselves, without the assistance of the
against all sums which the Insured will become legally liable to pay in Insured, it goes without saying that they could and did properly join the
respect of: Death or bodily injury to any fare-paying passenger including latter in filing the complaint herein. 4
the Driver. . . who is riding in the Motor Vehicle insured at the time of
accident or injury. The second defense set up by the Company is based upon Section 17 of
the policy reading:jgc:chanrobles.com.ph
"Section II. Liability to the Public

28

"If any difference or dispute shall arise with respect to the amount of the
Companys liability under this Policy, the same shall be referred to the
decision of a single arbitrator to be agreed upon by both parties or failing
such agreement of a single arbitrator, to the decision of two arbitrators,
one to be appointed in writing by each of the parties within one calendar
month after having been required in writing so to do by either of the
parties and in case of disagreement between the arbitrators, to the
decision of an umpire who shall have been appointed in writing by the
arbitrators before entering on the reference and the costs of and incidental
to the reference shall be dealt with in the Award. And it is hereby expressly
stipulated and declared that it shall be a condition precedent to any right of
action or suit upon this Policy that the award by such arbitrator, arbitrators
or umpire of the amount of the Companys liability hereunder if disputed
shall be first obtained."cralaw virtua1aw library
The record shows, however, that none of the parties to the contract
invoked this section, or made any reference to arbitration, during the
negotiations preceding the institution of the present case. In fact, counsel
for both parties stipulated, in the trial court, that none of them had, at any
time during said negotiations, even suggested the settlement of the issue
between them by arbitration, as provided in said section. Their
aforementioned acts or omissions had the effect of a waiver of their
respective right to demand an arbitration. Thus, in Kahnweiler v. Phenix
Ins. Co. of Brooklyn, 5 it was held:jgc:chanrobles.com.ph
"Another well-settled rule for interpretation of all contracts is that the court
will lean to that interpretation of a contract which will make it reasonable
and just. Bish. Cont. Sec. 400. Applying these rules to the tenth clause of
this policy, its proper interpretation seems quite clear. When there is a
difference between the company and the insured as to the amount of the
loss the policy declares: `The same shall then be submitted to competent
and impartial arbitrators, one to be selected by each party . . . It will be
observed that the obligation to procure or demand an arbitration is not, by
this clause, in terms imposed on either party. It is not said that either the
company or the insured shall take the initiative in setting the arbitration on
foot. The company had no more right to say the insured must do it than
the insured has to say the company must do it. The contract in this respect
is neither unilateral nor self-executing. To procure a reference to
arbitrators, the joint and concurrent action of both parties to the contract is
indispensable. The right it gives and the obligation it creates to refer the
differences between the parties to arbitrators are mutual. One party to the
contract cannot bring about an arbitration. Each party is entitled to
demand a reference, but neither can compel it, and neither has the right to
insist that the other shall first demand it, and shall forfeit any right by not
doing so. If the company demands it, and the insured refuses to arbitrate,
his right of action is suspended until he consents to an arbitration; and if
the insured demands an arbitration, and the company refuses to accede to
the demand, the insured may maintain a suit on the policy,
notwithstanding the language of the twelfth section of the policy, and,
where neither party demands an arbitration, both parties thereby waive it."
6
To the same effect was the decision of the Supreme Court of Minnesota in
Independent School Dist. No. 35, St. Louis County v. A. Hedenberg & Co.,
Inc. 7 from which we quote:jgc:chanrobles.com.ph
"This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54
N.W. 937, decided in 1893, this court held that the parties to a
construction contract, having proceeded throughout the entire course of
their dealings with each other in entire disregard of the provision of the
contract regarding the mode of determining by arbitration the value of the
extras, thereby waived such provision."cralaw virtua1aw library
x x x
"The test for determining whether there has been a waiver in a particular
case is stated by the author of an exhaustive annotation in 117 A.L.R. p.
304, as follows: `Any conduct of the parties inconsistent with the notion
that they treated the arbitration provision as in effect, or any conduct
which might be reasonably construed as showing that they did not intend
to avail themselves of such provision, may amount to a waiver thereof and
estop the party charged with such conduct from claiming its
benefits."cralaw virtua1aw library
x x x
"The decisive facts here are that both parties from the inception of their
dispute proceeded in entire disregard of the provisions of their contract
relating arbitration and that neither at any stage of such dispute, either
before or after commencement of the action, demanded arbitration, either
by oral or written demand, pleading, or otherwise. Their conduct was as
effective a rejection of the right to arbitrate as if, in the best Coolidge
tradition, they had said, `We do not choose to arbitrate. As arbitration
under the express provisions of article 40 was `at the choice of either
party, and was chosen by neither, a waiver by both of the right to
arbitration followed as a matter of law."cralaw virtua1aw library
WHEREFORE, the decision appealed from should be as it is hereby affirmed
in toto, with costs against the herein defendant-appellant, Fieldmens
Insurance Co., Inc.
IT IS SO ORDERED
29

SECOND DIVISION
[G.R. NO. 166245 : April 9, 2008]
ETERNAL GARDENS MEMORIAL PARK
CORPORATION, Petitioner, v. THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY, Respondent.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks
to reverse and set aside the November 26, 2004 Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of
the insurer on the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as Creditor
Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial
Park Corporation (Eternal). Under the policy, the clients of Eternal who
purchased burial lots from it on installment basis would be insured by
Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots. The policy was to be effective for a
period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65
years of age, is indebted to the Assured for the unpaid balance of his loan
with the Assured, and is accepted for Life Insurance coverage by the
Company on its effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to
P50,000.00. However, a declaration of good health shall be required for all
Lot Purchasers as part of the application. The Company reserves the right
to require further evidence of insurability satisfactory to the Company in
respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the
amount of the unpaid balance of his loan (including arrears up to but not
exceeding 2 months) as reported by the Assured to the Company or the
sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the
Assured if the Lot Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if
the application of the Lot Purchaser is not approved by the Company.3
Eternal was required under the policy to submit to Philamlife a list of all
new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all
insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982,4 containing a list of
insurable balances of its lot buyers for October 1982. One of those included
in the list as "new business" was a certain John Chuang. His balance of
payments was PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as
an insurance claim for Chuang's death. Attached to the claim were the
following documents: (1) Chuang's Certificate of Death; (2) Identification
Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5)
Assured's Certificate.
30
In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring No. 14736. The trial court decided in favor of Eternal, the dispositive
Eternal to submit the following documents relative to its insurance claim for portion of which reads:
Chuang's death: (1) Certificate of Claimant (with form attached); (2)
Assured's Certificate (with form attached); (3) Application for Insurance
WHEREFORE, premises considered, judgment is hereby rendered in favor
accomplished and signed by the insured, Chuang, while still living; and (4)
of Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the
Statement of Account showing the unpaid balance of Chuang before his
Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the
death.
proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until
fully paid; and, to pay the sum of P10,000.00 as attorney's fees.
Eternal transmitted the required documents through a letter dated
November 14, 1984,7 which was received by Philamlife on November 15,
SO ORDERED.
1984.

After more than a year, Philamlife had not furnished Eternal with any reply
to the latter's insurance claim. This prompted Eternal to demand from
Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8
In response to Eternal's demand, Philamlife denied Eternal's insurance
claim in a letter dated May 20, 1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and
9529 with Eternal Gardens Memorial Park in October 1982 for the total
maximum insurable amount of P100,000.00 each. No application for Group
Insurance was submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditor's Group Life Policy No. P-1920, under
Evidence of Insurability provision, "a declaration of good health shall be
required for all Lot Purchasers as party of the application." We cite further
the provision on Effective Date of Coverage under the policy which states
that "there shall be no insurance if the application is not approved by the
Company." Since no application had been submitted by the
Insured/Assured, prior to his death, for our approval but was submitted
instead on November 15, 1984, after his death, Mr. John Uy Chuang was
not covered under the Policy. We wish to point out that Eternal Gardens
being the Assured was a party to the Contract and was therefore aware of
these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our
approval per se of the insurance coverage but are held by us in trust for
the payor until the prerequisites for insurance coverage shall have been
met. We will however, return all the premiums which have been paid in
behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial
Court (RTC) for a sum of money against Philamlife, docketed as Civil Case
The RTC found that Eternal submitted Chuang's application for insurance
which he accomplished before his death, as testified to by Eternal's witness
and evidenced by the letter dated December 29, 1982, stating, among
others: "Encl: Phil-Am Life Insurance Application Forms & Cert."10 It further
ruled that due to Philamlife's inaction from the submission of the
requirements of the group insurance on December 29, 1982 to Chuang's
death on August 2, 1984, as well as Philamlife's acceptance of the
premiums during the same period, Philamlife was deemed to have
approved Chuang's application. The RTC said that since the contract is a
group life insurance, once proof of death is submitted, payment must
follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil
Case No. 57810 is REVERSED and SET ASIDE, and the complaint
is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuang's application
was not enclosed in Eternal's letter dated December 29, 1982. It further
ruled that the non-accomplishment of the submitted application form
violated Section 26 of the Insurance Code. Thus, the CA concluded, there
being no application form, Chuang was not covered by Philamlife's
insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not
therefore determined by this Honorable Court, or has decided it in a way
not in accord with law or with the applicable jurisprudence, in holding that:

31
I. The application for insurance was not duly submitted to respondent
PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; andcralawlibrary
III. Reversing and setting aside the Decision of the Regional Trial Court
dated May 29, 1996.
The Court's Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such
rule is subject to exceptions, as enunciated in Sampayan v. Court of
Appeals:
(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings the [CA] went beyond
the issues of the case, or its findings are contrary to the admissions of both
the appellant and the appellee; (7) when the findings [of the CA] are
contrary to the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner's main and reply briefs
are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.12(Emphasis
supplied.)
In the instant case, the factual findings of the RTC were reversed by the
CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance application
of Chuang before his death. In Eternal's letter dated December 29, 1982, a
list of insurable interests of buyers for October 1982 was attached,
including Chuang in the list of new businesses. Eternal added it was noted
at the bottom of said letter that the corresponding "Phil-Am Life Insurance
Application Forms & Cert." were enclosed in the letter that was apparently
received by Philamlife on January 15, 1983. Finally, Eternal alleged that it
provided a copy of the insurance application which was signed by Chuang
himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by
Eternal is insufficient, arguing that Eternal must present evidence showing
that Philamlife received a copy of Chuang's insurance application.
The evidence on record supports Eternal's position.
The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp of
receipt has the effect of acknowledging receipt of the letter together with
the attachments. Such receipt is an admission by Philamlife against its own
interest.13 The burden of evidence has shifted to Philamlife, which must
prove that the letter did not contain Chuang's insurance application.
However, Philamlife failed to do so; thus, Philamlife is deemed to have
received Chuang's insurance application.
To reiterate, it was Philamlife's bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are
correct and accounted for.
Philamlife's allegation that Eternal's witnesses ran out of credibility and
reliability due to inconsistencies is groundless. The trial court is in the best
position to determine the reliability and credibility of the witnesses,
because it has the opportunity to observe firsthand the witnesses'
demeanor, conduct, and attitude. Findings of the trial court on such
matters are binding and conclusive on the appellate court, unless some
facts or circumstances of weight and substance have been overlooked,
misapprehended, or misinterpreted,14 that, if considered, might affect the
result of the case.15
An examination of the testimonies of the witnesses mentioned by
Philamlife, however, reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the
original insurance application of Chuang was, as shown by the testimony of
Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of
new coverage?cra lawlibrary
32
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two
copies of this form and the original of this is submitted to Philamlife
together with the monthly remittances and the second copy is remained or
retained with the marketing department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is
merely asking for the location and does not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?cra lawlibrary
[Mendoza:]
A As far as I remember I do not know where the original but when I
submitted with that payment together with the new clients all the originals
I see to it before I sign the transmittal letter the originals are attached
therein.16
In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was
transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez
on whether one or two insurance application forms were accomplished and
the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the
witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies
are too trivial to affect the credibility of witnesses, and these may even
serve to strengthen their credibility as these negate any suspicion that the
testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity
of the prosecution's evidence as a whole or reflect on the witnesses'
honesty. The test is whether the testimonies agree on essential facts and
whether the respective versions corroborate and substantially coincide with
each other so as to make a consistent and coherent whole.18
In the present case, the number of copies of the insurance application that
Chuang executed is not at issue, neither is whether the insurance
application presented by Eternal has been falsified. Thus, the
inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternal's witnesses.
However, the question arises as to whether Philamlife assumed the risk of
loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December 10,
1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if
the application of the Lot Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its
two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon
contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can
become effective.
It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter's interest. Thus,
in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with
the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other
words, 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 noncompliance with its obligations.19 (Emphasis supplied.)
33
In the more recent case of Philamcare Health Systems, Inc. v. Court of 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED.
Appeals, we reiterated the above ruling, stating that: Philamlife is hereby ORDERED:

When the terms of insurance contract contain limitations on liability, courts (1) To pay Eternal the amount of PhP 100,000 representing the proceeds of
should construe them in such a way as to preclude the insurer from non- the Life Insurance Policy of Chuang;
compliance with his obligation. Being a contract of adhesion, the terms of
an insurance contract are to be construed strictly against the party which
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum
prepared the contract, the insurer. By reason of the exclusive control of the
of PhP 100,000 from the time of extra-judicial demand by Eternal until
insurance company over the terms and phraseology of the insurance
Philamlife's receipt of the May 29, 1996 RTC Decision on June 17, 1996;
contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.20
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per
annum of PhP 100,000 from June 17, 1996 until full payment of this
Clearly, the vague contractual provision, in Creditor Group Life Policy No.
award; andcralawlibrary
P-1920 dated December 10, 1980, must be construed in favor of the
insured and in favor of the effectivity of the insurance contract.
(4) To pay Eternal attorney's fees in the amount of PhP 10,000.
On the other hand, the seemingly conflicting provisions must be
harmonized to mean that upon a party's purchase of a memorial lot on No costs.
installment from Eternal, an insurance contract covering the lot purchaser
is created and the same is effective, valid, and binding until terminated by SO ORDERED.
Philamlife by disapproving the insurance application. The second sentence
of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is
in the nature of a resolutory condition which would lead to the cessation of
the insurance contract. Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the insured; it cannot be SPECIAL FIRST DIVISION
interpreted as a termination of the insurance contract. The termination of
the insurance contract by the insurer must be explicit and unambiguous.
[G.R. NO. 167330 : September 18, 2009]

As a final note, to characterize the insurer and the insured as contracting

parties on equal footing is inaccurate at best. Insurance contracts are PHILIPPINE HEALTH CARE PROVIDERS,
wholly prepared by the insurer with vast amounts of experience in the INC., Petitioner, v. COMMISSIONER OF INTERNAL
industry purposefully used to its advantage. More often than not, insurance REVENUE, Respondent.
contracts are contracts of adhesion containing technical terms and
conditions of the industry, confusing if at all understandable to laypersons, RESOLUTION
that are imposed on those who wish to avail of insurance. As such,
insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the CORONA, J.:
insured are to be delineated. Hence, in order to protect the interest of
insurance applicants, insurance companies must be obligated to act with ARTICLE II
haste upon insurance applications, to either deny or approve the same, or Declaration of Principles and State Policies
otherwise be bound to honor the application as a valid, binding, and
effective insurance contract.21
Section 15. The State shall protect and promote the right to health of the
people and instill health consciousness among them.
WHEREFORE, we GRANT the petition. The November 26, 2004 CA
Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May

34
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive
approach to health development which shall endeavor to make essential
goods, health and other social services available to all the people at
affordable cost. There shall be priority for the needs of the underprivileged
sick, elderly, disabled, women, and children. The State shall endeavor to
provide free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion
for reconsideration dated July 10, 2008 and July 14, 2008, respectively,
filed by petitioner Philippine Health Care Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o
establish, maintain, conduct and operate a prepaid group practice health
care delivery system or a health maintenance organization to take care of
the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the
organization." Individuals enrolled in its health care programs pay an
annual membership fee and are entitled to various preventive, diagnostic
and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or
accredited by it.
xxx xxx xxx
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR]
sent petitioner a formal demand letter and the corresponding assessment
notices demanding the payment of deficiency taxes, including surcharges
and interest, for the taxable years 1996 and 1997 in the total amount
of P224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed
on petitioner's health care agreement with the members of its health care
program pursuant to Section 185 of the 1997 Tax Code xxxx
xxx xxx xxx
Petitioner protested the assessment in a letter dated February 23, 2000. As
respondent did not act on the protest, petitioner filed a Petition for Review
in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency
VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of
which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency
VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20%
interest from January 20, 1997 until fully paid for the 1996 VAT deficiency
and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from
January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly,
VAT Ruling No. [231]-88 is declared void and without force and effect. The
1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from
collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)]
insofar as it cancelled the DST assessment. He claimed that petitioner's
health care agreement was a contract of insurance subject to DST under
Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioner's
health care agreement was in the nature of a non-life insurance contract
subject to DST.
WHEREFORE, the Petition for Review is GRANTED. The Decision of the
Court of Tax Appeals, insofar as it cancelled and set aside the 1996 and
1997 deficiency documentary stamp tax assessment and ordered petitioner
to desist from collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19
and P68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and
1997, respectively, plus 25% surcharge for late payment and 20% interest
per annum from January 27, 2000, pursuant to Sections 248 and 249 of
the Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner
filed this case.
35
xxx xxx xxx
In a decision dated June 12, 2008, the Court denied the petition and
affirmed the CA's decision. We held that petitioner's health care agreement
during the pertinent period was in the nature of non-life insurance which is
a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc. v. CA.4 We also ruled that
petitioner's contention that it is a health maintenance organization (HMO)
and not an insurance company is irrelevant because contracts between
companies like petitioner and the beneficiaries under their plans are
treated as insurance contracts. Moreover, DST is not a tax on the business
transacted but an excise on the privilege, opportunity or facility offered at
exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for
reconsideration and supplemental motion for reconsideration, asserting the
following arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997 is
imposed only on a company engaged in the business of fidelity bonds and
other insurance policies. Petitioner, as an HMO, is a service provider, not
an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank,
affirmed in effect the CA's disposition that health care services are not in
the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject
to DST is clear, especially in the light of the amendments made in the DST
law in 2002.
(e) Assuming arguendo that petitioner's agreements are contracts of
indemnity, they are not those contemplated under Section 185.
(f) Assuming arguendo that petitioner's agreements are akin to health
insurance, health insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of
insurance" mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the
taxable year 2005 and all prior years. Therefore, the questioned
assessments on the DST are now rendered moot and academic.6
Oral arguments were held in Baguio City on April 22, 2009. The parties
submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it
availed of a tax amnesty under RA 94807 (also known as the "Tax Amnesty
Act of 2007") by fully paying the amount of P5,127,149.08 representing
5% of its net worth as of the year ending December 31, 2005.8
We find merit in petitioner's motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and
Exchange Commission on June 30, 1987.9 It is engaged in the dispensation
of the following medical services to individuals who enter into health care
agreements with it:
Preventive medical services such as periodic monitoring of health
problems, family planning counseling, consultation and advices on diet,
exercise and other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations, x-
rays, urinalysis, fecalysis, complete blood count, and the like and
Curative medical services which pertain to the performing of other
remedial and therapeutic processes in the event of an injury or sickness on
the part of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership
fee. Membership is on a year-to-year basis. The medical services are
dispensed to enrolled members in a hospital or clinic owned, operated or
accredited by petitioner, through physicians, medical and dental
practitioners under contract with it. It negotiates with such health care
practitioners regarding payment schemes, financing and other procedures
for the delivery of health services. Except in cases of emergency, the
professional services are to be provided only by petitioner's physicians, i.e.
those directly employed by it11 or whose services are contracted by
it.12 Petitioner also provides hospital services such as room and board
accommodation, laboratory services, operating rooms, x-ray facilities and
general nursing care.13 If and when a member avails of the benefits under
the agreement, petitioner pays the participating physicians and other
health care providers for the services rendered, at pre-agreed rates.14
36
To avail of petitioner's health care programs, the individual members are
required to sign and execute a standard health care agreement embodying
the terms and conditions for the provision of the health care services. The
same agreement contains the various health care services that can be
engaged by the enrolled member, i.e., preventive, diagnostic and curative
medical services. Except for the curative aspect of the medical service
offered, the enrolled member may actually make use of the health care
services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The
Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is
an HMO and not an insurer because its agreements are treated as
insurance contracts and the DST is not a tax on the business but an excise
on the privilege, opportunity or facility used in the transaction of the
business.15
Petitioner, however, submits that it is of critical importance to characterize
the business it is engaged in, that is, to determine whether it is an HMO or
an insurance company, as this distinction is indispensable in turn to the
issue of whether or not it is liable for DST on its health care agreements.16
A second hard look at the relevant law and jurisprudence convinces the
Court that the arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997)
provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. - On
all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the
business of accident, fidelity, employer's liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance), and all
bonds, undertakings, or recognizances, conditioned for the performance of
the duties of any office or position, for the doing or not doing of anything
therein specified, and on all obligations guaranteeing the validity or legality
of any bond or other obligations issued by any province, city, municipality,
or other public body or organization, and on all obligations guaranteeing
the title to any real estate, or guaranteeing any mercantile credits, which
may be made or renewed by any such person, company or corporation,
there shall be collected a documentary stamp tax of fifty centavos (P0.50)
on each four pesos (P4.00), or fractional part thereof, of the premium
charged. (Emphasis supplied)cralawlibrary
It is a cardinal rule in statutory construction that no word, clause,
sentence, provision or part of a statute shall be considered surplusage or
superfluous, meaningless, void and insignificant. To this end, a
construction which renders every word operative is preferred over that
which makes some words idle and nugatory.17 This principle is expressed in
the maxim Ut magis valeat quam pereat, that is, we choose the
interpretation which gives effect to the whole of the statute - its every
word.18
From the language of Section 185, it is evident that two requisites must
concur before the DST can apply, namely: (1) the document must be
a policy of insurance or an obligation in the nature of
indemnity and (2) the maker should be transacting the business
of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health
Insurance Act of 1995"), an HMO is "an entity that provides, offers or
arranges for coverage of designated health services needed by plan
members for a fixed prepaid premium."19 The payments do not vary with
the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of
insurance during the pertinent taxable years? We rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code)
enumerates what constitutes "doing an insurance business" or "transacting
an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
37
d) doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is
derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received
therefore, shall not be deemed conclusive to show that the making thereof
does not constitute the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive
effect on our decisions,21have determined that HMOs are not in the
insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an
insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these
are the principal objectives, the business is that of insurance. But if they
are merely incidental and service is the principal purpose, then the
business is not insurance.
Applying the "principal object and purpose test,"22 there is significant
American case law supporting the argument that a corporation (such as an
HMO, whether or not organized for profit), whose main object is to provide
the members of a group with health services, is not engaged in the
insurance business.
The rule was enunciated in Jordan v. Group Health Association23 wherein
the Court of Appeals of the District of Columbia Circuit held that Group
Health Association should not be considered as engaged in insurance
activities since it was created primarily for the distribution of health care
services rather than the assumption of insurance risk.
xxx Although Group Health's activities may be considered in one aspect as
creating security against loss from illness or accident more truly they
constitute the quantity purchase of well-rounded, continuous medical
service by its members. xxx The functions of such an organization are
not identical with those of insurance or indemnity companies. The
latter are concerned primarily, if not exclusively, with risk and the
consequences of its descent, not with service, or its extension in kind,
quantity or distribution; with the unusual occurrence, not the daily routine
of living. Hazard is predominant. On the other hand, the cooperative is
concerned principally with getting service rendered to its members
and doing so at lower prices made possible by quantity purchasing
and economies in operation. Its primary purpose is to reduce the
cost rather than the risk of medical care; to broaden the service to
the individual in kind and quantity; to enlarge the number receiving
it; to regularize it as an everyday incident of living, like purchasing
food and clothing or oil and gas, rather than merely protecting
against the financial loss caused by extraordinary and unusual
occurrences, such as death, disaster at sea, fire and tornado. It is,
in this instance, to take care of colds, ordinary aches and pains, minor ills
and all the temporary bodily discomforts as well as the more serious and
unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the bringing
of physician and patient together, the preventive features, the
regularization of service as well as payment, the substantial
reduction in cost by quantity purchasing in short, getting the
medical job done and paid for; not, except incidentally to these
features, the indemnification for cost after the services is rendered.
Except the last, these are not distinctive or generally characteristic
of the insurance arrangement. There is, therefore, a substantial
difference between contracting in this way for the rendering of service,
even on the contingency that it be needed, and contracting merely to stand
its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be
present should not outweigh all other factors. If attention is focused only
on that feature, the line between insurance or indemnity and other types of
legal arrangement and economic function becomes faint, if not extinct. This
is especially true when the contract is for the sale of goods or services on
contingency. But obviously it was not the purpose of the insurance statutes
to regulate all arrangements for assumption or distribution of risk. That
view would cause them to engulf practically all contracts, particularly
conditional sales and contingent service agreements. The fallacy is in
looking only at the risk element, to the exclusion of all others
present or their subordination to it. The question turns, not on
whether risk is involved or assumed, but on whether that or
something else to which it is related in the particular plan is its
principal object purpose.24 (Emphasis supplied)cralawlibrary
In California Physicians' Service v. Garrison,25 the California court felt that,
after scrutinizing the plan of operation as a whole of the corporation, it was
service rather than indemnity which stood as its principal purpose.
There is another and more compelling reason for holding that the service is
not engaged in the insurance business. Absence or presence of
assumption of risk or peril is not the sole test to be applied in
determining its status. The question, more broadly, is whether,
looking at the plan of operation as a whole, 'service' rather than
'indemnity' is its principal object and purpose. Certainly the objects
and purposes of the corporation organized and maintained by the California
physicians have a wide scope in the field of social service. Probably there
38
is no more impelling need than that of adequate medical care on a
voluntary, low-cost basis for persons of small income. The medical
profession unitedly is endeavoring to meet that need.
Unquestionably this is 'service' of a high order and not
'indemnity.' 26 (Emphasis supplied)cralawlibrary
American courts have pointed out that the main difference between an
HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the
insured for medical expenses incurred up to a pre-agreed
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue
Shield of New Jersey27 is clear on this point:
The basic distinction between medical service corporations and ordinary
health and accident insurers is that the former undertake to provide
prepaid medical services through participating physicians, thus
relieving subscribers of any further financial burden, while the latter only
undertake to indemnify an insured for medical expenses up to, but not
beyond, the schedule of rates contained in the policy.
xxx xxx xxx
The primary purpose of a medical service corporation, however, is an
undertaking to provide physicians who will render services to subscribers
on a prepaid basis. Hence, if there are no physicians participating in
the medical service corporation's plan, not only will the subscribers
be deprived of the protection which they might reasonably have
expected would be provided, but the corporation will, in effect, be
doing business solely as a health and accident indemnity
insurer without having qualified as such and rendering itself subject to the
more stringent financial requirements of the General Insurance Laws'.
A participating provider of health care services is one who agrees in writing
to render health care services to or for persons covered by a contract
issued by health service corporation in return for which the health
service corporation agrees to make payment directly to the
participating provider.28 (Emphasis supplied)cralawlibrary
Consequently, the mere presence of risk would be insufficient to override
the primary purpose of the business to provide medical services as needed,
with payment made directly to the provider of these services.29 In short,
even if petitioner assumes the risk of paying the cost of these services
even if significantly more than what the member has prepaid, it
nevertheless cannot be considered as being engaged in the insurance
business.
By the same token, any indemnification resulting from the payment for
services rendered in case of emergency by non-participating health
providers would still be incidental to petitioner's purpose of providing and
arranging for health care services and does not transform it into an insurer.
To fulfill its obligations to its members under the agreements, petitioner is
required to set up a system and the facilities for the delivery of such
medical services. This indubitably shows that indemnification is not its sole
object.
In fact, a substantial portion of petitioner's services covers preventive and
diagnostic medical services intended to keep members from developing
medical conditions or diseases.30 As an HMO, it is its obligation to maintain
the good health of its members. Accordingly, its health care programs
are designed to prevent or to minimize the possibility of any
assumption of risk on its part. Thus, its undertaking under its
agreements is not to indemnify its members against any loss or damage
arising from a medical condition but, on the contrary, to provide the health
and medical services needed to prevent such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its
members (with respect to its curative medical services), but these are
incidental to the principal activity of providing them medical care. The
"insurance-like" aspect of petitioner's business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health
care services rather than insurance services, it cannot be considered as
being in the insurance business.
It is important to emphasize that, in adopting the "principal purpose test"
used in the above-quoted U.S. cases, we are not saying that petitioner's
operations are identical in every respect to those of the HMOs or health
providers which were parties to those cases. What we are stating is that,
for the purpose of determining what "doing an insurance business" means,
we have to scrutinize the operations of the business as a whole and not its
mere components. This is of course only prudent and appropriate, taking
into account the burdensome and strict laws, rules and regulations
applicable to insurers and other entities engaged in the insurance business.
Moreover, we are also not unmindful that there are other American
authorities who have found particular HMOs to be actually engaged in
insurance activities.32
Lastly, it is significant that petitioner, as an HMO, is not part of the
insurance industry. This is evident from the fact that it is not supervised by
39
the Insurance Commission but by the Department of Health.33 In fact, in a
letter dated September 3, 2000, the Insurance Commissioner confirmed
that petitioner is not engaged in the insurance business. This determination
of the commissioner must be accorded great weight. It is well-settled that
the interpretation of an administrative agency which is tasked to
implement a statute is accorded great respect and ordinarily controls the
interpretation of laws by the courts. The reason behind this rule was
explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to the accumulation of experience
and growth of specialized capabilities by the administrative agency charged
with implementing a particular statute. In Asturias Sugar Central, Inc. v.
Commissioner of Customs,35 the Court stressed that executive officials are
presumed to have familiarized themselves with all the considerations
pertinent to the meaning and purpose of the law, and to have formed an
independent, conscientious and competent expert opinion thereon. The
courts give much weight to the government agency officials charged with
the implementation of the law, their competence, expertness, experience
and informed judgment, and the fact that they frequently are the drafters
of the law they interpret.36
A Health Care Agreement Is Not An Insurance Contract
Contemplated Under Section 185 Of The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance' or
obligations of the nature of indemnity for loss, damage, or liability'. " In
our decision dated June 12, 2008, we ruled that petitioner's health care
agreements are contracts of indemnity and are therefore insurance
contracts:
It is - incorrect to say that the health care agreement is not based on loss
or damage because, under the said agreement, petitioner assumes the
liability and indemnifies its member for hospital, medical and related
expenses (such as professional fees of physicians). The term "loss or
damage" is broad enough to cover the monetary expense or liability a
member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and
professional services to the member in case of sickness, injury or
emergency or his availment of so-called "out-patient services" (including
physical examination, x-ray and laboratory tests, medical consultations,
vaccine administration and family planning counseling) is the contingent
event which gives rise to liability on the part of the member. In case of
exposure of the member to liability, he would be entitled to indemnification
by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability
by paying for expenses arising from the stipulated contingencies belies its
claim that its services are prepaid. The expenses to be incurred by each
member cannot be predicted beforehand, if they can be predicted at all.
Petitioner assumes the risk of paying for the costs of the services even if
they are significantly and substantially more than what the member has
"prepaid." Petitioner does not bear the costs alone but distributes or
spreads them out among a large group of persons bearing a similar risk,
that is, among all the other members of the health care program. This is
insurance.37
We reconsider. We shall quote once again the pertinent portion of Section
185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. - On
all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the business of
accident, fidelity, employer's liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), xxxx (Emphasis supplied)cralawlibrary
In construing this provision, we should be guided by the principle that tax
statutes are strictly construed against the taxing authority.38 This is
because taxation is a destructive power which interferes with the personal
and property rights of the people and takes from them a portion of their
property for the support of the government.39 Hence, tax laws may not be
extended by implication beyond the clear import of their language, nor
their operation enlarged so as to embrace matters not specifically
provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced
that a health care agreement is in the nature of non-life insurance, which is
primarily a contract of indemnity. However, those cases did not involve the
interpretation of a tax provision. Instead, they dealt with the liability of a
health service provider to a member under the terms of their health care
agreement. Such contracts, as contracts of adhesion, are liberally
interpreted in favor of the member and strictly against the HMO. For this
reason, we reconsider our ruling that Blue Cross and Philamcare are
applicable here.
40
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk and
5. In consideration of the insurer's promise, the insured pays a premium.41
Do the agreements between petitioner and its members possess all these
elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed
out that, even if a contract contains all the elements of an insurance
contract, if its primary purpose is the rendering of service, it is not a
contract of insurance:
It does not necessarily follow however, that a contract containing all the
four elements mentioned above would be an insurance contract. The
primary purpose of the parties in making the contract may negate
the existence of an insurance contract. For example, a law firm which
enters into contracts with clients whereby in consideration of periodical
payments, it promises to represent such clients in all suits for or against
them, is not engaged in the insurance business. Its contracts are simply for
the purpose of rendering personal services. On the other hand, a contract
by which a corporation, in consideration of a stipulated amount, agrees at
its own expense to defend a physician against all suits for damages for
malpractice is one of insurance, and the corporation will be deemed as
engaged in the business of insurance. Unlike the lawyer's retainer contract,
the essential purpose of such a contract is not to render personal services,
but to indemnify against loss and damage resulting from the defense of
actions for malpractice.42 (Emphasis supplied)cralawlibrary
Second. Not all the necessary elements of a contract of insurance are
present in petitioner's agreements. To begin with, there is no loss, damage
or liability on the part of the member that should be indemnified by
petitioner as an HMO. Under the agreement, the member pays petitioner a
predetermined consideration in exchange for the hospital, medical and
professional services rendered by the petitioner's physician or affiliated
physician to him. In case of availment by a member of the benefits under
the agreement, petitioner does not reimburse or indemnify the member as
the latter does not pay any third party. Instead, it is the petitioner who
pays the participating physicians and other health care providers for the
services rendered at pre-agreed rates. The member does not make any
such payment.
In other words, there is nothing in petitioner's agreements that gives rise
to a monetary liability on the part of the member to any third party-
provider of medical services which might in turn necessitate
indemnification from petitioner. The terms "indemnify" or "indemnity"
presuppose that a liability or claim has already been incurred. There is no
indemnity precisely because the member merely avails of medical services
to be paid or already paid in advance at a pre-agreed price under the
agreements.
Third. According to the agreement, a member can take advantage of the
bulk of the benefits anytime, e.g. laboratory services, x-ray, routine annual
physical examination and consultations, vaccine administration as well as
family planning counseling, even in the absence of any peril, loss or
damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the
member who receives care from a non-participating physician or hospital.
However, this is only a very minor part of the list of services available. The
assumption of the expense by petitioner is not confined to the happening
of a contingency but includes incidents even in the absence of illness or
injury.
In Michigan Podiatric Medical Association v. National Foot Care Program,
Inc.,43 although the health care contracts called for the defendant to
partially reimburse a subscriber for treatment received from a non-
designated doctor, this did not make defendant an insurer. Citing Jordan,
the Court determined that "the primary activity of the defendant (was) the
provision of podiatric services to subscribers in consideration of
prepayment for such services."44 Since indemnity of the insured was not
the focal point of the agreement but the extension of medical services to
the member at an affordable cost, it did not partake of the nature of a
contract of insurance.
41
Fifth. Although risk is a primary element of an insurance contract, it is not be written or printed by any person or persons who shall make, sign, or
necessarily true that risk alone is sufficient to establish it. Almost anyone issue the same, on and after January first, nineteen hundred and five, the
who undertakes a contractual obligation always bears a certain degree of several taxes following:
financial risk. Consequently, there is a need to distinguish prepaid service
contracts (like those of petitioner) from the usual insurance contracts.
xxx xxx xxx

Indeed, petitioner, as an HMO, undertakes a business risk when it offers to

Third xxx (c) on all policies of insurance or bond or obligation of the
provide health services: the risk that it might fail to earn a reasonable
nature of indemnity for loss, damage, or liability made or renewed
return on its investment. But it is not the risk of the type peculiar only to
by any person, association, company, or corporation transacting
insurance companies. Insurance risk, also known as actuarial risk, is the
the business of accident, fidelity, employer's liability, plate glass,
risk that the cost of insurance claims might be higher than the premiums
steam boiler, burglar, elevator, automatic sprinkle, or other branch
paid. The amount of premium is calculated on the basis of assumptions
of insurance (except life, marine, inland, and fire
made relative to the insured.45
insurance) xxxx(Emphasis supplied)cralawlibrary

However, assuming that petitioner's commitment to provide medical

services to its members can be construed as an acceptance of the risk that
it will shell out more than the prepaid fees, it still will not qualify as an
insurance contract because petitioner's objective is to provide medical
services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioner's agreements with its members leads
us to conclude that it is not an insurance contract within the context of our
Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care
Agreements Of HMOs
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914)
was enacted revising and consolidating the laws relating to internal
revenue. The aforecited pertinent portion of Section 116, Article XI of Act
No. 1189 was completely reproduced as Section 30 (l), Article III of Act
No. 2339.The very detailed and exclusive enumeration of items subject to
DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was
again reproduced as Section 1604 (l), Article IV of Act No. 2657
(Administrative Code). Upon its amendment on March 10, 1917, the
pertinent DST provision became Section 1449 (l) of Act No. 2711,
otherwise known as the Administrative Code of 1917.

Furthermore, militating in convincing fashion against the imposition of DST Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No.
on petitioner's health care agreements under Section 185 of the NIRC of 466 (the NIRC of 1939), which codified all the internal revenue laws of the
1997 is the provision's legislative history. The text of Section 185 came Philippines. In an amendment introduced by RA 40 on October 1, 1946, the
into U.S. law as early as 1904 when HMOs and health care agreements DST rate was increased but the provision remained substantially the same.
were not even in existence in this jurisdiction. It was imposed under
Section 116, Article XI of Act No. 1189 (otherwise known as the "Internal
Thereafter, on June 3, 1977, the same provision with the same DST rate
Revenue Law of 1904")46 enacted on July 2, 1904 and became effective on
was reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs
August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997
1457 and 1959, enacted on June 11, 1978 and October 10, 1984
is a verbatim reproduction of the pertinent portion of Section 116, to wit:
respectively, the DST rate was again
increased.rbl r l l lbrr
ARTICLE XI
Stamp Taxes on Specified Objects
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234
of the NIRC of 1977 was renumbered as Section 198. And under Section 23
Section 116. There shall be levied, collected, and paid for and in respect to of EO47 273 dated July 25, 1987, it was again renumbered and became
the several bonds, debentures, or certificates of stock and indebtedness, Section 185.
and other documents, instruments, matters, and things mentioned and
described in this section, or for or in respect to the vellum, parchment, or
paper upon which such instrument, matters, or things or any of them shall

42
On December 23, 1993, under RA 7660, Section 185 was amended but,
again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA
8424 (or the NIRC of 1997), the subject legal provision was retained as the
present Section 185. In 2004, amendments to the DST provisions were
introduced by RA 924348 but Section 185 was untouched.
Petitioner claims that the assessed DST to date which amounts to P376
million53 is way beyond its net worth of P259 million.54 Respondent never
disputed these assertions. Given the realities on the ground, imposing the
DST on petitioner would be highly oppressive. It is not the purpose of the
government to throttle private business. On the contrary, the government
ought to encourage private enterprise.55 Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a
legitimate business.56 As aptly held in Roxas, et al. v. CTA, et al.:57

On the other hand, the concept of an HMO was introduced in the

The power of taxation is sometimes called also the power to destroy.
Philippines with the formation of Bancom Health Care Corporation in 1974.
Therefore it should be exercised with caution to minimize injury to the
The same pioneer HMO was later reorganized and renamed Integrated
proprietary rights of a taxpayer. It must be exercised fairly, equally and
Health Care Services, Inc. (or Intercare). However, there are those who
uniformly, lest the tax collector kill the "hen that lays the golden egg."58
claim that Health Maintenance, Inc. is the HMO industry pioneer, having
set foot in the Philippines as early as 1965 and having been formally
incorporated in 1991. Afterwards, HMOs proliferated quickly and currently, Legitimate enterprises enjoy the constitutional protection not to be taxed
there are 36 registered HMOs with a total enrollment of more than 2 out of existence. Incurring losses because of a tax imposition may be an
million.49 acceptable consequence but killing the business of an entity is another
matter and should not be allowed. It is counter-productive and ultimately
subversive of the nation's thrust towards a better economy which will
We can clearly see from these two histories (of the DST on the one hand
ultimately benefit the majority of our people.59
and HMOs on the other) that when the law imposing the DST was first
passed, HMOs were yet unknown in the Philippines. However, when the
various amendments to the DST law were enacted, they were already in Petitioner's Tax Liability Was Extinguished Under The Provisions Of
existence in the Philippines and the term had in fact already been defined RA 9840
by RA 7875. If it had been the intent of the legislature to impose DST on
health care agreements, it could have done so in clear and categorical
Petitioner asserts that, regardless of the arguments, the DST assessment
terms. It had many opportunities to do so. But it did not. The fact that the
for taxable years 1996 and 1997 became moot and academic60 when it
NIRC contained no specific provision on the DST liability of health care
availed of the tax amnesty under RA 9480 on December 10, 2007. It
agreements of HMOs at a time they were already known as such, belies
paid P5,127,149.08 representing 5% of its net worth as of the year ended
any legislative intent to impose it on them. As a matter of fact,
December 31, 2005 and complied with all requirements of the tax
petitioner was assessed its DST liability only on January 27, 2000,
amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from
after more than a decade in the business as an HMO.50
payment of taxes as well as additions thereto, and the appurtenant civil,
criminal or administrative penalties under the 1997 NIRC, as amended,
Considering that Section 185 did not change since 1904 (except for the arising from the failure to pay any and all internal revenue taxes for
rate of tax), it would be safe to say that health care agreements were taxable year 2005 and prior years.61
never, at any time, recognized as insurance contracts or deemed engaged
in the business of insurance within the context of the provision.
Far from disagreeing with petitioner, respondent manifested in its
memorandum:
The Power To Tax Is Not The Power To Destroy
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a
As a general rule, the power to tax is an incident of sovereignty and is taxpayer to immunity from payment of the tax involved, including the civil,
unlimited in its range, acknowledging in its very nature no limits, so that criminal, or administrative penalties provided under the 1997 [NIRC], for
security against its abuse is to be found only in the responsibility of the tax liabilities arising in 2005 and the preceding years.
legislature which imposes the tax on the constituency who is to pay it.51 So
potent indeed is the power that it was once opined that "the power to tax
In view of petitioner's availment of the benefits of [RA 9840], and without
involves the power to destroy."52
conceding the merits of this case as discussed above, respondent

43
concedes that such tax amnesty extinguishes the tax liabilities of
petitioner. This admission, however, is not meant to preclude a revocation
of the amnesty granted in case it is found to have been granted under
circumstances amounting to tax fraud under Section 10 of said amnesty
law.62 (Emphasis supplied)cralawlibrary
Furthermore, we held in a recent case that DST is one of the taxes covered
by the tax amnesty program under RA 9480.63 There is no other conclusion
to draw than that petitioner's liability for DST for the taxable years 1996
and 1997 was totally extinguished by its availment of the tax amnesty
under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration:
whether this Court is bound by the ruling of the CA64 in CIR v. Philippine
National Bank65 that a health care agreement of Philamcare Health
Systems is not an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute
resolution of this Court dismissing the appeal in Philippine National
Bank (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No.
148680 by minute resolution was a judgment on the merits; hence, the
Court should apply the CA ruling there that a health care agreement is not
an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of
the petition was a disposition of the merits of the case. When we dismissed
the petition, we effectively affirmed the CA ruling being questioned. As a
result, our ruling in that case has already become final.67 When a minute
resolution denies or dismisses a petition for failure to comply with formal
and substantive requirements, the challenged decision, together with its
findings of fact and legal conclusions, are deemed sustained.68 But what is
its effect on other cases?cralawred
With respect to the same subject matter and the same issues concerning
the same parties, it constitutes res judicata.69 However, if other parties or
another subject matter (even with the same parties and issues) is involved,
the minute resolution is not binding precedent. Thus, in CIR v. Baier-
Nickel,70 the Court noted that a previous case, CIR v. Baier-
Nickel71 involving the same parties and the same issues, was
previously disposed of by the Court thru a minute resolution dated
February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court
ruled that the previous case "ha(d) no bearing" on the latter
casebecausethe two cases involved different subject matters as they were
concerned with the taxable income of different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a
minute resolution and a decision. The constitutional requirement under the
first paragraph of Section 14, Article VIII of the Constitution that the facts
and the law on which the judgment is based must be expressed clearly and
distinctly applies only to decisions, not to minute resolutions. A minute
resolution is signed only by the clerk of court by authority of the justices,
unlike a decision. It does not require the certification of the Chief Justice.
Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks
of a decision.73 Indeed, as a rule, this Court lays down doctrines or
principles of law which constitute binding precedent in a decision duly
signed by the members of the Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since
petitioner's liability for DST on its health care agreement was not the
subject matter of G.R. No. 148680, petitioner cannot successfully invoke
the minute resolution in that case (which is not even binding precedent) in
its favor. Nonetheless, in view of the reasons already discussed, this does
not detract in any way from the fact that petitioner's health care
agreements are not subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the
ambit of Section 185 of the NIRC and there was never any legislative intent
to impose the same on HMOs like petitioner, the same should not be
arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for
adequate medical services at a cost which the average wage earner can
afford. HMOs arrange, organize and manage health care treatment in the
furtherance of the goal of providing a more efficient and inexpensive health
care system made possible by quantity purchasing of services and
economies of scale. They offer advantages over the pay-for-service system
(wherein individuals are charged a fee each time they receive medical
services), including the ability to control costs. They protect their members
from exposure to the high cost of hospitalization and other medical
expenses brought about by a fluctuating economy. Accordingly, they play
an important role in society as partners of the State in achieving its
constitutional mandate of providing its citizens with affordable health
services.
44
The rate of DST under Section 185 is equivalent to 12.5% of the premium
charged.74 Its imposition will elevate the cost of health care services. This
will in turn necessitate an increase in the membership fees, resulting in PAREDES, J.:
either placing health services beyond the reach of the ordinary wage
earner or driving the industry to the ground. At the end of the day, neither
side wins, considering the indispensability of the services offered by HMOs. On February 7, 1957, the defendant Equitable Insurance and Casualty Co.,
Inc., issued Personal Accident Policy No. 7136 on the life of Francisco del
Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself
WHEREFORE, the motion for reconsideration is GRANTED.The August 16,
to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of
2004 decision of the Court of Appeals in CA-G.R. SP
the insured. The pertinent provisions of the Policy, recite:chanrob1es
No.70479is REVERSED and SET ASIDE. The 1996 and 1997 deficiency
virtual 1aw library
DST assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.
Part I. Indemnity for Death

No costs. If the insured sustains any bodily injury which is effected solely through
violent, external, visible and accidental means, and which shall result,
SO ORDERED. independently of all other causes and within sixty (60) days from the
occurrence thereof, in the Death of the Insured, the Company shall pay the
amount set opposite such injury:chanrob1es virtual 1aw library

SECTION 1. Injury sustained other than those specified below unless

SECOND DIVISION excepted hereinafter P1,000.00

[G.R. No. L-16215. June 29, 1963.] SECTION 2. Injury sustained by the wrecking or disablement of a railroad
passenger car or street railway car in or on which the insured is traveling
SIMEON DEL ROSARIO, Plaintiff-Appellee, v. THE EQUITABLE as a fare-paying passenger P1,500.00
INSURANCE AND CASUALTY CO., INC., Defendant-Appellant.
SECTION 3. Injury sustained by the burning of a church, theatre, public
Vicente J. Francisco and Jose R. Francisco for Plaintiff-Appellee. library or municipal administration building while the Insured is therein at
the commencement of the fire P2,000.00
K. V. Faylona for defendant appellant.
SECTION 4. Injury sustained by the wrecking or disablement of a regular
passenger elevator car in which the Insured is being conveyed as a
SYLLABUS passenger (Elevator in mines excluded) P2,500.00

SECTION 5. Injury sustained by a stroke of lightning or by a cyclone

1. INSURANCE; INDEMNITY; AMBIGUITY IN TERMS AND CONDITIONS OF P3,000.00
A LIFE ACCIDENT POLICY RESOLVED AGAINST INSURER. Where there is
an ambiguity with respect to the terms and conditions of a policy, the same x x x
will be resolved against the one responsible thereof. Generally, the insured,
has little, if any, participation in the preparation of the policy, together with
the drafting of its terms and conditions. The interpretation of obscure Part VI. Exceptions
stipulations in a contract should not favor the party who caused the
obscurity (Art. 1377, N.C.C.) which, in the case at bar, is the insurance This policy shall not cover disappearance of the Insured nor shall it cover
company. Death, Disability, Hospital fees, or Loss of Time, caused to the
insured:chanrob1es virtual 1aw library

DECISION

45
. . . (h) By drowning except as a consequence of the wrecking or
disablement in the Philippine waters of a passenger steam or motor vessel
in which the Insured is traveling as a fare-paying passenger; . . ."cralaw
virtua1aw library
A rider to the Policy contained the following:jgc:chanrobles.com.ph
"IV. DROWNING
It is hereby declared and agreed that exemption clause letter (h) embodied
in Part VI of the policy is hereby waived by the company, and to form a
part of the provision covered by the policy."cralaw virtua1aw library
On February 24, 1957, the insured Francisco del Rosario alias Paquito
Bolero, while on board the motor launch "ISLAMA" together with 33 others,
including his beneficiary in the Policy, Remedios Jayme, were forced to
jump off said launch on account of fire which broke out on said vessel,
resulting to the death by drowning, of the insured and beneficiary in the
waters of Jolo.
On April 13, 1957, Simeon del Rosario, father of the insured, and as the
sole heir, filed a claim for payment with defendant company, and on
September 13, 1957, defendant company paid to him (plaintiff) the sum of
P1,000.00, pursuant to Section 1 of Part 1 of the policy. The receipt signed
by plaintiff reads
"RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO, INC., the sum
of PESOS ONE THOUSAND (P1,000.00) Philippine Currency, being
settlement in full for all claims and demands against said Company as a
result of an accident which occurred on February 26, 1957, insured under
our ACCIDENT Policy No. 7136, causing the death of the Assured.
In view of the foregoing, this policy is hereby surrendered and CANCELLED.
LOSS COMPUTATION
Amount of Insurance P1,000.00"
On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote
defendant company acknowledging receipt by his client (plaintiff herein), of
the P1,000.00, but informing said company that said amount was not the
correct one. Atty. Francisco claimed
"The amount payable under the policy, I believe should be P1,500.00 under
the provision of Section 2, part 1 of the policy, based on the rule of pari
materia as the death of the insured occurred under the circumstances
similar to that provided under the aforecited section."cralaw virtua1aw
library
Defendant company, upon receipt of the letter, referred the matter to the
Insurance Commissioner, who rendered an opinion that the liability of the
company was only P1,000.00, pursuant to Section 1, Part 1 of the
Provisions of the policy (Exh. F, or 3). Because of the above opinion,
defendant insurance company refused to pay more than P1,000.00. In the
meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance
company, asked for P3,000.00 which the Company refused to pay. Hence,
a complaint for the recovery of the balance of P2,000.00 more was
instituted with the CFI of Rizal (Pasay City, Branch VIII), praying for a
further sum of P10,000.00 as attorneys fees, expenses of litigation and
costs.
Defendant Insurance Company presented a Motion to Dismiss, alleging that
the demand or claim as set forth in the complaint had already been
released, plaintiff having received the full amount due as appearing in the
policy and as per opinion of the Insurance Commissioner. An opposition to
the motion to dismiss was presented by plaintiff, and other pleadings were
subsequently filed by the parties. On December 28, 1957, the trial court
deferred action on the motion to dismiss until termination of the trial of the
case, it appearing that the ground thereof was not indubitable. In the
Answer to the complaint, defendant company practically admitted all the
allegations therein, denying only those which stated that under the policy
its liability was P3,000.00.
On September 1, 1958, the trial court promulgated an amended Decision,
the pertinent portions of which read
"x x x
Since the contemporaneous and subsequent acts of the parties show that it
was not their intention that the payment of P1,000.00 to the plaintiff and
the signing of the loss receipt exhibit 1 would be considered as releasing
the defendant completely from its liability on the policy in question, said
intention of the parties should prevail over the contents of the loss receipt
1 (Articles 1370 and 1371, New Civil Code).
". . . Under the terms of this policy, defendant company agreed to pay
P1,000.00 to P3,000.00 as indemnity for the death of the insured. The
insured died of drowning. Death by drowning is covered by the policy the
pertinent provisions of which reads as follows:chanrob1es virtual 1aw
library
x x x
Part I of the policy fixes specific amounts as indemnities in case of deaths
46
resulting from bodily injury which is effected solely thru violence, external,
visible and accidental means but, Part I of the Policy is not applicable in
case of death by drowning because death by drowning is not one resulting
from bodily injury which is affected solely thru violent, external, visible
and accidental means as Bodily Injury means a cut, a bruise, or a wound
and drowning is death due to suffocation and not any cut, bruise or
wound.
x x x connection, that generally, the insured, has little, if any, participation in
Besides, on the face of the policy Exhibit A itself, death by drowning is a
ground for recovery a part from the bodily injury because death by bodily
injury is covered by Part I of the policy while death by drowning is covered
by Part VI thereof. But while the policy mentions specific amounts that may
be recovered for death for bodily injury, yet, there is no specific amount
mentioned in the policy for death thru drowning although the latter is,
under Part VI of the policy, a ground for recovery thereunder. Since the
defendant has bound itself to pay P1,000.00 to P3,000.00 as indemnity for
the death of the insured but the policy does not positively state any
definite amount that may be recovered in case of death by drowning, there
is an ambiguity in this respect in the policy, which ambiguity must be
interpreted in favor of the insured and strictly against the insurer so as to a
low a greater indemnity.
x x x
. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had
already paid the amount of P1.000.00 to the plaintiff so that there still
remains a balance of P2,000.00 of the amount to which plaintiff is entitled
to recover under the policy exhibit A.
The plaintiff asks for an award of P10,000.00 as attorneys fees and
expenses of litigation. However, since it is evident that the defendant had
not acted in bad faith in refusing to pay plaintiffs claim, the Court cannot
award plaintiffs claim for attorneys fees and expenses of litigation.
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside
its decision dated July 21, 1958 and hereby renders judgment ordering the
defendant to pay plaintiff the sum of Two Thousand (P2,000.00) Pesos and
to pay the costs."cralaw virtua1aw library
The above judgment was appealed to the Court of Appeals on three (3)
counts. Said Court, in a Resolution dated September 29, 1959, elevated
the case to this Court, stating that the genuine issue is purely legal in
nature.
All the parties agree that indemnity has to be paid. The conflict centers on
how much should the indemnity be. We believe that under the proven facts
and circumstances, the findings and conclusions of the trial court are well
taken, for they are supported by the generally accepted principles or
rulings on insurance, which enunciate that where there is an ambiguity
with respect to the terms and conditions of a policy, the same will be
resolved against the one responsible thereof. It should be recalled in this
the preparation of the policy, together with the drafting of its terms and
conditions. The interpretation of obscure stipulations in a contract should
not favor the party who caused the obscurity (Art. 1377, N.C.C.), which, in
the case at bar, is the insurance company.
". . . And so it has been generally held that the terms in an insurance
policy, which are ambiguous, equivocal or uncertain . . . are to be
construed strictly against, the insurer, and liberally in favor of the insured
so as to effect the dominant purpose of indemnity or payment to the
insured, especially where a forfeiture is involved, (29 Am. Jur. 181) and
the reason for this rule is that the insured usually has no voice in the
selection or arrangement of the words employed and that the language of
the contract is selected with great care and deliberation by expert and legal
advisers employed by, and acting exclusively in the interest of, the
insurance company (44 C. J. S. 1174). Calanoc v. Court of Appeals, Et. Al.
98 Phil., 79."
". . . Where two interpretations, equally fair, of languages used in an
insurance policy may be made, that which allows the greater indemnity will
prevail. (LEngel v. Scotish Union & Nat. F. Ins. Co. 48 Fla. 82, 37 So. 462,
67 LRA 581, 111 Am. St. Rep. 70, 5 Ann. Cas. 749)."cralaw virtua1aw
library
At any event, the policy under consideration, covers death or disability by
accidental means, and the appellant insurance company agreed to pay
P1,000.00 to P3,000.00, as indemnity for death of the insured.
In view of the conclusions reached, it would seem unnecessary to discuss
the other issues raised in the appeal.
The judgment appealed from is hereby affirmed. Without costs.
47