FT-[G.R. No. 113899.
October 13, 1999] Regional Trial Court of Misamis Oriental, Branch 18, against
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO,
respondents.
DECISION
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court,
assails the Decision[1] dated May 17, 1993, of the Court of
Appeals and its Resolution[2] dated January 4, 1994 in CA-
G.R. CV No. 18341. The appellate court affirmed in toto the
judgment of the Misamis Oriental Regional Trial Court, Branch
18, in an insurance claim filed by private respondent against
Great Pacific Life Assurance Co. The dispositive portion of the
trial courts decision reads:
WHEREFORE, judgment is rendered adjudging the defendant
GREAT PACIFIC LIFE ASSURANCE CORPORATION as insurer
under its Group policy No. G-1907, in relation to Certification
B-18558 liable and ordered to pay to the DEVELOPMENT BANK
OF THE PHILIPPINES as creditor of the insured Dr. Wilfredo
Leuterio, the amount of EIGHTY SIX THOUSAND TWO
HUNDRED PESOS (P86,200.00); dismissing the claims for
damages, attorneys fees and litigation expenses in the
complaint and counterclaim, with costs against the defendant
and dismissing the complaint in respect to the plaintiffs, other
than the widow-beneficiary, for lack of cause of action.[3]
The facts, as found by the Court of Appeals, are as follows:
A contract of group life insurance was executed between
petitioner Great Pacific Life Assurance Corporation (hereinafter
Grepalife) and Development Bank of the Philippines
(hereinafter DBP). Grepalife agreed to insure the lives of
eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and
a housing debtor of DBP applied for membership in the group
life insurance plan. In an application form, Dr. Leuterio
answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart
condition, high blood pressure, cancer, diabetes, lung, kidney
or stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good
health?
Answer: [ x ] Yes [ ] No.[4]
On November 15, 1983, Grepalife issued Certificate No. B-
18558, as insurance coverage of Dr. Leuterio, to the extent of
his DBP mortgage indebtedness amounting to eighty-six
thousand, two hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to massive cerebral
hemorrhage. Consequently, DBP submitted a death claim to
Grepalife. Grepalife denied the claim alleging that Dr. Leuterio
was not physically healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife insisted that Dr.
Leuterio did not disclose he had been suffering from
hypertension, which caused his death. Allegedly, such non-
disclosure constituted concealment that justified the denial of
the claim.
On October 20, 1986, the widow of the late Dr. Leuterio,
respondent Medarda V. Leuterio, filed a complaint with the
Grepalife for Specific Performance with Damages.[5] During
the trial, Dr. Hernando Mejia, who issued the death certificate,
was called to testify. Dr. Mejias findings, based partly from
the information given by the respondent widow, stated that
Dr. Leuterio complained of headaches presumably due to high
blood pressure. The inference was not conclusive because Dr.
Leuterio was not autopsied, hence, other causes were not
ruled out.
On February 22, 1988, the trial court rendered a decision in
favor of respondent widow and against Grepalife. On May 17,
1993, the Court of Appeals sustained the trial courts decision.
Hence, the present petition. Petitioners interposed the
following assigned errors:
"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-
APPELLANT LIABLE TO THE DEVELOPMENT BANK OF THE
PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE
FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE
REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFFS
HUSBAND WILFREDO LEUTERIO ONE OF ITS LOAN
BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST
DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF
CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE
FOR WANT OF JURISDICTION OVER THE SUBJECT OR NATURE
OF THE ACTION AND OVER THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-
APPELLANT TO PAY TO DBP THE AMOUNT OF P86,200.00 IN
THE ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS
THE ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE
WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-
APPELLANT.
4. THE LOWER COURT ERRED IN - HOLDING THAT THERE
WAS NO CONCEALMENT OF MATERIAL INFORMATION ON THE
PART OF WILFREDO LEUTERIO IN HIS APPLICATION FOR
MEMBERSHIP IN THE GROUP LIFE INSURANCE PLAN
BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE CLAIM
ARISING FROM THE DEATH OF WILFREDO LEUTERIO.[6]
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in holding petitioner
liable to DBP as beneficiary in a group life insurance contract
from a complaint filed by the widow of the
decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr.
Leuterio concealed that he had hypertension, which would
vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife
liable in the amount of eighty six thousand, two hundred
(P86,200.00) pesos without proof of the actual outstanding
mortgage payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the
widow of Dr. Leuterio, not the real party in interest, hence the
trial court acquired no jurisdiction over the case. It argues
that when the Court of Appeals affirmed the trial courts
judgment, Grepalife was held liable to pay the proceeds of
insurance contract in favor of DBP, the indispensable party
who was not joined in the suit.
To resolve the issue, we must consider the insurable interest
in mortgaged properties and the parties to this type of
contract. The rationale of a group insurance policy of
mortgagors, otherwise known as the mortgage redemption
1
insurance, is a device for the protection of both the mortgagee
and the mortgagor. On the part of the mortgagee, it has to
enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of
the mortgage contract, the proceeds from such insurance will
be applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the
obligation.[7] In a similar vein, ample protection is given to
the mortgagor under such a concept so that in the event of
death; the mortgage obligation will be extinguished by the
application of the insurance proceeds to the mortgage
indebtedness.[8] Consequently, where the mortgagor pays
the insurance premium under the group insurance policy,
making the loss payable to the mortgagee, the insurance is on
the mortgagors interest, and the mortgagor continues to be a
party to the contract. In this type of policy insurance, the
mortgagee is simply an appointee of the insurance fund, such
loss-payable clause does not make the mortgagee a party to
the contract.[9]
Section 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property
effects insurance in his own name providing that the loss shall
be payable to the mortgagee, or assigns a policy of insurance
to a mortgagee, the insurance is deemed to be upon the
interest of the mortgagor, who does not cease to be a party to
the original contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will have the
same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.
The insured private respondent did not cede to the mortgagee
all his rights or interests in the insurance, the policy stating
that: In the event of the debtors death before his
indebtedness with the Creditor [DBP] shall have been fully
paid, an amount to pay the outstanding indebtedness shall
first be paid to the creditor and the balance of sum assured, if
there is any, shall then be paid to the beneficiary/ies
designated by the debtor.[10] When DBP submitted the
insurance claim against petitioner, the latter denied payment
thereof, interposing the defense of concealment committed by
the insured. Thereafter, DBP collected the debt from the
mortgagor and took the necessary action of foreclosure on the
residential lot of private respondent.[11] In Gonzales La O vs.
Yek Tong Lin Fire & Marine Ins. Co.[12] we held:
Insured, being the person with whom the contract was made,
is primarily the proper person to bring suit thereon. * * *
Subject to some exceptions, insured may thus sue, although
the policy is taken wholly or in part for the benefit of another
person named or unnamed, and although it is expressly made
payable to another as his interest may appear or otherwise. *
* * Although a policy issued to a mortgagor is taken out for
the benefit of the mortgagee and is made payable to him, yet
the mortgagor may sue thereon in his own name, especially
where the mortgagees interest is less than the full amount
recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the
following:
Insured may be regarded as the real party in interest,
although he has assigned the policy for the purpose of
collection, or has assigned as collateral security any judgment
he may obtain.[13]
And since a policy of insurance upon life or health may pass
by transfer, will or succession to any person, whether he has
an insurable interest or not, and such person may recover it
whatever the insured might have recovered,[14] the widow of
the decedent Dr. Leuterio may file the suit against the insurer,
Grepalife.
The second assigned error refers to an alleged concealment
that the petitioner interposed as its defense to annul the
insurance contract. Petitioner contends that Dr. Leuterio failed
to disclose that he had hypertension, which might have
caused his death. Concealment exists where the assured had
knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it
to the assured, but he designedly and intentionally withholds
the same.[15]
Petitioner merely relied on the testimony of the attending
physician, Dr. Hernando Mejia, as supported by the
information given by the widow of the decedent. Grepalife
asserts that Dr. Mejias technical diagnosis of the cause of
death of Dr. Leuterio was a duly documented hospital record,
and that the widows declaration that her husband had
possible hypertension several years ago should not be
considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive
because Dr. Mejia did not conduct an autopsy on the body of
the decedent. As the attending physician, Dr. Mejia stated
that he had no knowledge of Dr. Leuterios any previous
hospital confinement.[16] Dr. Leuterios death certificate
stated that hypertension was only the possible cause of death.
The private respondents statement, as to the medical history
of her husband, was due to her unreliable recollection of
events. Hence, the statement of the physician was properly
considered by the trial court as hearsay.
The question of whether there was concealment was aptly
answered by the appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance
application that he was in good health and that he had not
consulted a doctor or any of the enumerated ailments,
including hypertension; when he died the attending physician
had certified in the death certificate that the former died of
cerebral hemorrhage, probably secondary to hypertension.
From this report, the appellant insurance company refused to
pay the insurance claim. Appellant alleged that the insured
had concealed the fact that he had hypertension.
Contrary to appellants allegations, there was no sufficient
proof that the insured had suffered from hypertension. Aside
from the statement of the insureds widow who was not even
sure if the medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor produced any
witness who could attest to Dr. Leuterios medical history...
xxx
Appellant insurance company had failed to establish that there
was concealment made by the insured, hence, it cannot refuse
payment of the claim.[17]
The fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract.[18]
Misrepresentation as a defense of the insurer to avoid liability
is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon
the insurer.[19] In the case at bar, the petitioner failed to
clearly and satisfactorily establish its defense, and is therefore
liable to pay the proceeds of the insurance.
And that brings us to the last point in the review of the case
at bar. Petitioner claims that there was no evidence as to the
2
amount of Dr. Leuterios outstanding indebtedness to DBP at
the time of the mortgagors death. Hence, for private
respondents failure to establish the same, the action for
specific performance should be dismissed. Petitioners claim is
without merit. A life insurance policy is a valued policy.[20]
Unless the interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity under a
policy of insurance upon life or health is the sum fixed in the
policy.[21] The mortgagor paid the premium according to the
coverage of his insurance, which states that:
The policy states that upon receipt of due proof of the Debtors
death during the terms of this insurance, a death benefit in
the amount of P86,200.00 shall be paid.
In the event of the debtors death before his indebtedness with
the creditor shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the Creditor
and the balance of the Sum Assured, if there is any shall then
be paid to the beneficiary/ies designated by the debtor.[22]
(Emphasis omitted)
However, we noted that the Court of Appeals decision was
promulgated on May 17, 1993. In private respondents
memorandum, she states that DBP foreclosed in 1995 their
residential lot, in satisfaction of mortgagors outstanding loan.
Considering this supervening event, the insurance proceeds
shall inure to the benefit of the heirs of the deceased person
or his beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo cum
alterius detrimenio protest). Hence, it cannot collect the
insurance proceeds, after it already foreclosed on the
mortgage. The proceeds now rightly belong to Dr. Leuterios
heirs represented by his widow, herein private respondent
Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV 18341 is
AFFIRMED with MODIFICATION that the petitioner is
ORDERED to pay the insurance proceeds amounting to Eighty-
six thousand, two hundred (P86,200.00) pesos to the heirs of
the insured, Dr. Wilfredo Leuterio (deceased), upon
presentation of proof of prior settlement of mortgagors
indebtedness to Development Bank of the Philippines.
DIGEST
Great Pacific v CA G.R. No. 113899. October 13, 1999
Facts:
A contract of group life insurance was executed between
petitioner Great Pacific and Development Bank Grepalife
agreed to insure the lives of eligible housing loan mortgagors
of DBP.
Wilfredo Leuterio, a physician and a housing debtor of DBP,
applied for membership in the group life insurance plan. In an
application form, Dr. Leuterio answered questions concerning
his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart
condition, high blood pressure, cancer, diabetes, lung, kidney
or stomach disorder or any other physical impairment?
8. Are you now, to the best of your knowledge, in good
health?
Grepalife issued a coverage to the value of P86,200.00 pesos.
Dr. Leuterio died due to massive cerebral hemorrhage. DBP
submitted a death claim to Grepalife. Grepalife denied the
claim alleging that Dr. Leuterio was not physically healthy
when he applied for an insurance coverage. Grepalife insisted
that Dr. Leuterio did not disclose he had been suffering from
hypertension, which caused his death. Allegedly, such non-
disclosure constituted concealment that justified the denial of
the claim.
The widow, respondent Medarda V. Leuterio, filed against
Grepalife.
The trial court rendered a decision in favor of respondent
widow and against Grepalife. The Court of Appeals sustained
the trial courts decision.
Issues:
1. Whether the Court of Appeals erred in holding petitioner
liable to DBP as beneficiary in a group life insurance contract
from a complaint filed by the widow of the
decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr.
Leuterio concealed that he had hypertension, which would
vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife
liable in the amount of eighty six thousand, two hundred
(P86,200.00) pesos without proof of the actual outstanding
mortgage payable by the mortgagor to DBP.
Held: No to all three. Petition dismissed.
Ratio:
1. Petitioner alleges that the complaint was instituted by the
widow of Dr. Leuterio, not the real party in interest, hence the
trial court acquired no jurisdiction over the case. It argues
that when the Court of Appeals affirmed the trial courts
judgment, Grepalife was held liable to pay the proceeds of
insurance contract in favor of DBP, the indispensable party
who was not joined in the suit.
The insured private respondent did not cede to the mortgagee
all his rights or interests in the insurance, the policy stating
that: In the event of the debtors death before his
indebtedness with the Creditor [DBP] shall have been fully
paid, an amount to pay the outstanding indebtedness shall
first be paid to the creditor and the balance of sum assured, if
there is any, shall then be paid to the beneficiary/ies
designated by the debtor. When DBPs claim was denied, it
collected the debt from the mortgagor and took the necessary
action of foreclosure on the residential lot of private
respondent.
Gonzales vs. Yek Tong Lin- Insured, being the person with
whom the contract was made, is primarily the proper person
to bring suit thereon. Insured may thus sue, although the
policy is taken wholly or in part for the benefit of another
person named or unnamed, and although it is expressly made
payable to another as his interest may appear or
otherwise. Although a policy issued to a mortgagor is taken
out for the benefit of the mortgagee and is made payable to
him, yet the mortgagor may sue thereon in his own name,
especially where the mortgagees interest is less than the full
amount recoverable under the policy. Insured may be
regarded as the real party in interest, although he has
assigned the policy for the purpose of collection, or has
assigned as collateral security any judgment he may obtain.
And since a policy of insurance upon life or health may pass
by transfer, will or succession to any person, whether he has
an insurable interest or not, and such person may recover it
whatever the insured might have recovered,[14] the widow of
the decedent Dr. Leuterio may file the suit against the insurer,
Grepalife.
2. The medical findings were not conclusive because Dr. Mejia
did not conduct an autopsy on the body of the decedent. The
medical certificate stated that hypertension was the possible
cause of death. Hence, the statement of the physician was
properly considered by the trial court as hearsay.
Contrary to appellants allegations, there was no sufficient
proof that the insured had suffered from hypertension. Aside
from the statement of the insureds widow who was not even
sure if the medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor produced any
witness who could attest to Dr. Leuterios medical history.
Appellant insurance company had failed to establish that there
was concealment made by the insured, hence, it cannot refuse
payment of the claim.
3
The fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability
is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon
the insurer.
3. A life insurance policy is a valued policy. Unless the interest
of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of
insurance upon life or health is the sum fixed in the policy.
The mortgagor paid the premium according to the coverage of
his insurance.
In the event of the debtors death before his indebtedness
with the creditor shall have been fully paid, an amount to pay
the outstanding indebtedness shall first be paid to the
creditor.
DBP foreclosed one of the deceased persons lots to satisfy the
mortgage. Hence, the insurance proceeds shall inure to the
benefit of the heirs of the deceased person or his
beneficiaries.
FT-G.R. No. 183526 August 25, 2009
VIOLETA R. LALICAN, Petitioner,
vs.
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS
REPRESENTED BY THE PRESIDENT VICENTE R. AVILON,
Respondent.
DECISION
CHICO-NAZARIO, J.:
Challenged in this Petition for Review on Certiorari1 under Rule
45 of the Rules of Court are the Decision2 dated 30 August
2007 and the Orders dated 10 April 20083 and 3 July 20084 of
the Regional Trial Court (RTC) of Gapan City, Branch 34, in
Civil Case No. 2177. In its assailed Decision, the RTC
dismissed the claim for death benefits filed by petitioner
Violeta R. Lalican (Violeta) against respondent Insular Life
Assurance Company Limited (Insular Life); while in its
questioned Orders dated 10 April 2008 and 3 July 2008,
respectively, the RTC declared the finality of the aforesaid
Decision and denied petitioners Notice of Appeal.
The factual and procedural antecedents of the case, as culled
from the records, are as follows:
Violeta is the widow of the deceased Eulogio C. Lalican
(Eulogio).
During his lifetime, Eulogio applied for an insurance policy
with Insular Life. On 24 April 1997, Insular Life, through
Josephine Malaluan (Malaluan), its agent in Gapan City, issued
in favor of Eulogio Policy No. 9011992,5 which contained a 20-
Year Endowment Variable Income Package Flexi Plan worth
P500,000.00,6 with two riders valued at P500,000.00 each.7
Thus, the value of the policy amounted to P1,500,000.00.
Violeta was named as the primary beneficiary.
Under the terms of Policy No. 9011992, Eulogio was to pay
the premiums on a quarterly basis in the amount of
P8,062.00, payable every 24 April, 24 July, 24 October and 24
January of each year, until the end of the 20-year period of
the policy. According to the Policy Contract, there was a grace
period of 31 days for the payment of each premium
subsequent to the first. If any premium was not paid on or
before the due date, the policy would be in default, and if the
premium remained unpaid until the end of the grace period,
the policy would automatically lapse and become void.8
Eulogio paid the premiums due on 24 July 1997 and 24
October 1997. However, he failed to pay the premium due on
24 January 1998, even after the lapse of the grace period of
31 days. Policy No. 9011992, therefore, lapsed and became
void.
Eulogio submitted to the Cabanatuan District Office of Insular
Life, through Malaluan, on 26 May 1998, an Application for
Reinstatement9 of Policy No. 9011992, together with the
amount of P8,062.00 to pay for the premium due on 24
January 1998. In a letter10 dated 17 July 1998, Insular Life
notified Eulogio that his Application for Reinstatement could
not be fully processed because, although he already deposited
P8,062.00 as payment for the 24 January 1998 premium, he
left unpaid the overdue interest thereon amounting to
P322.48. Thus, Insular Life instructed Eulogio to pay the
amount of interest and to file another application for
reinstatement. Eulogio was likewise advised by Malaluan to
pay the premiums that subsequently became due on 24 April
1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluans house and
submitted a second Application for Reinstatement11 of Policy
No. 9011992, including the amount of P17,500.00,
representing payments for the overdue interest on the
premium for 24 January 1998, and the premiums which
became due on 24 April 1998 and 24 July 1998. As Malaluan
was away on a business errand, her husband received
Eulogios second Application for Reinstatement and issued a
receipt for the amount Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio
died of cardio-respiratory arrest secondary to electrocution.
Without knowing of Eulogios death, Malaluan forwarded to the
Insular Life Regional Office in the City of San Fernando, on 18
September 1998, Eulogios second Application for
Reinstatement of Policy No. 9011992 and P17,500.00 deposit.
However, Insular Life no longer acted upon Eulogios second
Application for Reinstatement, as the former was informed on
21 September 1998 that Eulogio had already passed away.
On 28 September 1998, Violeta filed with Insular Life a claim
for payment of the full proceeds of Policy No. 9011992.
In a letter12 dated 14 January 1999, Insular Life informed
Violeta that her claim could not be granted since, at the time
of Eulogios death, Policy No. 9011992 had already lapsed,
and Eulogio failed to reinstate the same. According to the
Application for Reinstatement, the policy would only be
considered reinstated upon approval of the application by
Insular Life during the applicants "lifetime and good health,"
and whatever amount the applicant paid in connection thereto
was considered to be a deposit only until approval of said
application. Enclosed with the 14 January 1999 letter of
Insular Life to Violeta was DBP Check No. 0000309734, for
the amount of P25,417.00, drawn in Violetas favor,
representing the full refund of the payments made by Eulogio
on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of
the disallowance of her claim. In a letter13 dated 10 March
1999, Insular Life stated that it could not find any reason to
reconsider its decision rejecting Violetas claim. Insular Life
again tendered to Violeta the above-mentioned check in the
amount of P25,417.00.
Violeta returned the letter dated 10 March 1999 and the check
enclosed therein to the Cabanatuan District Office of Insular
Life. Violetas counsel subsequently sent a letter14 dated 8 July
1999 to Insular Life, demanding payment of the full proceeds
of Policy No. 9011992. On 11 August 1999, Insular Life
responded to the said demand letter by agreeing to conduct a
re-evaluation of Violetas claim.
4
Without waiting for the result of the re-evaluation by Insular
Life, Violeta filed with the RTC, on 11 October 1999, a
Complaint for Death Claim Benefit,15 which was docketed as
Civil Case No. 2177. Violeta alleged that Insular Life engaged
in unfair claim settlement practice and deliberately failed to
act with reasonable promptness on her insurance claim.
Violeta prayed that Insular Life be ordered to pay her death
claim benefits on Policy No. 9011992, in the amount of
P1,500,000.00, plus interests, attorneys fees, and cost of
suit.
Insular Life filed with the RTC an Answer with Counterclaim,16
asserting that Violetas Complaint had no legal or factual
bases. Insular Life maintained that Policy No. 9011992, on
which Violeta sought to recover, was rendered void by the
non-payment of the 24 January 1998 premium and non-
compliance with the requirements for the reinstatement of the
same. By way of counterclaim, Insular Life prayed that Violeta
be ordered to pay attorneys fees and expenses of litigation
incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted
that the requirements for the reinstatement of Policy No.
9011992 had been complied with and the defenses put up by
Insular Life were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision
in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed and
Eulogio needed to have the same reinstated:
[The] arguments [of Insular Life] are not without basis. When
the premiums for April 24 and July 24, 1998 were not paid by
[Eulogio] even after the lapse of the 31-day grace period, his
insurance policy necessarily lapsed. This is clear from the
terms and conditions of the contract between [Insular Life]
and [Eulogio] which are written in [the] Policy provisions of
Policy No. 9011992 x x x.17
The RTC, taking into account the clear provisions of the Policy
Contract between Eulogio and Insular Life and the Application
for Reinstatement Eulogio subsequently signed and submitted
to Insular Life, held that Eulogio was not able to fully comply
with the requirements for the reinstatement of Policy No.
9011992:
The well-settled rule is that a contract has the force of law
between the parties. In the instant case, the terms of the
insurance contract between [Eulogio] and [Insular Life] were
spelled out in the policy provisions of Insurance Policy No.
9011992. There is likewise no dispute that said insurance
contract is by nature a contract of adhesion[,] which is defined
as "one in which one of the contracting parties imposes a
ready-made form of contract which the other party may
accept or reject but cannot modify." (Polotan, Sr. vs. CA, 296
SCRA 247).
xxxx
The New Lexicon Websters Dictionary defines ambiguity as
the "quality of having more than one meaning" and "an idea,
statement or expression capable of being understood in more
than one sense." In Nacu vs. Court of Appeals, 231 SCRA 237
(1994), the Supreme Court stated that[:]
"Any ambiguity in a contract, whose terms are susceptible of
different interpretations as a result thereby, must be read and
construed against the party who drafted it on the assumption
that it could have been avoided by the exercise of a little
care."
In the instant case, the dispute arises from the afore-quoted
provisions written on the face of the second application for
reinstatement. Examining the said provisions, the court finds
the same clearly written in terms that are simple enough to
admit of only one interpretation. They are clearly not
ambiguous, equivocal or uncertain that would need further
construction. The same are written on the very face of the
application just above the space where [Eulogio] signed his
name. It is inconceivable that he signed it without reading and
understanding its import.1avvphi1
Similarly, the provisions of the policy provisions (sic) earlier
mentioned are written in simple and clear laymans language,
rendering it free from any ambiguity that would require a legal
interpretation or construction. Thus, the court believes that
[Eulogio] was well aware that when he filed the said
application for reinstatement, his lapsed policy was not
automatically reinstated and that its approval was subject to
certain conditions. Nowhere in the policy or in the application
for reinstatement was it ever mentioned that the payment of
premiums would have the effect of an automatic and
immediate renewal of the lapsed policy. Instead, what was
clearly stated in the application for reinstatement is that
pending approval thereof, the premiums paid would be treated
as a "deposit only and shall not bind the company until this
application is finally approved during my/our" lifetime and
good health[.]"
Again, the court finds nothing in the aforesaid provisions that
would even suggest an ambiguity either in the words used or
in the manner they were written. [Violeta] did not present any
proof that [Eulogio] was not conversant with the English
language. Hence, his having personally signed the application
for reinstatement[,] which consisted only of one page, could
only mean that he has read its contents and that he
understood them. x x x
Therefore, consistent with the above Supreme Court ruling
and finding no ambiguity both in the policy provisions of Policy
No. 9011992 and in the application for reinstatement subject
of this case, the court finds no merit in [Violetas] contention
that the policy provision stating that [the lapsed policy of
Eulogio] should be reinstated during his lifetime is ambiguous
and should be construed in his favor. It is true that [Eulogio]
submitted his application for reinstatement, together with his
premium and interest payments, to [Insular Life] through its
agent Josephine Malaluan in the morning of September 17,
1998. Unfortunately, he died in the afternoon of that same
day. It was only on the following day, September 18, 1998
that Ms. Malaluan brought the said document to [the regional
office of Insular Life] in San Fernando, Pampanga for
approval. As correctly pointed out by [Insular Life] there was
no more application to approve because the applicant was
already dead and no insurance company would issue an
insurance policy to a dead person.18 (Emphases ours.)
The RTC, in the end, explained that:
While the court truly empathizes with the [Violeta] for the loss
of her husband, it cannot express the same by interpreting
the insurance agreement in her favor where there is no need
for such interpretation. It is conceded that [Eulogios]
payment of overdue premiums and interest was received by
[Insular Life] through its agent Ms. Malaluan. It is also true
that [the] application for reinstatement was filed by [Eulogio]
a day before his death. However, there is nothing that would
justify a conclusion that such receipt amounted to an
automatic reinstatement of the policy that has already lapsed.
The evidence suggests clearly that no such automatic renewal
was contemplated in the contract between [Eulogio] and
[Insular Life]. Neither was it shown that Ms. Malaluan was the
officer authorized to approve the application for reinstatement
and that her receipt of the documents submitted by [Eulogio]
amounted to its approval.19 (Emphasis ours.)
5
The fallo of the RTC Decision thus reads:
WHEREFORE, all the foregoing premises considered and
finding that [Violeta] has failed to establish by preponderance
of evidence her cause of action against the defendant, let this
case be, as it is hereby DISMISSED.20
On 14 September 2007, Violeta filed a Motion for
Reconsideration21 of the afore-mentioned RTC Decision.
Insular Life opposed22 the said motion, averring that the
arguments raised therein were merely a rehash of the issues
already considered and addressed by the RTC. In an Order23
dated 8 November 2007, the RTC denied Violetas Motion for
Reconsideration, finding no cogent and compelling reason to
disturb its earlier findings. Per the Registry Return Receipt on
record, the 8 November 2007 Order of the RTC was received
by Violeta on 3 December 2007.
In the interim, on 22 November 2007, Violeta filed with the
RTC a Reply24 to the Motion for Reconsideration, wherein she
reiterated the prayer in her Motion for Reconsideration for the
setting aside of the Decision dated 30 August 2007. Despite
already receiving on 3 December 2007, a copy of the RTC
Order dated 8 November 2007, which denied her Motion for
Reconsideration, Violeta still filed with the RTC, on 26
February 2008, a Reply Extended Discussion elaborating on
the arguments she had previously made in her Motion for
Reconsideration and Reply.
On 10 April 2008, the RTC issued an Order,25 declaring that
the Decision dated 30 August 2007 in Civil Case No. 2177 had
already attained finality in view of Violetas failure to file the
appropriate notice of appeal within the reglementary period.
Thus, any further discussions on the issues raised by Violeta
in her Reply and Reply Extended Discussion would be moot
and academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal
with Motion,26 praying that the Order dated 10 April 2008 be
set aside and that she be allowed to file an appeal with the
Court of Appeals.
In an Order27 dated 3 July 2008, the RTC denied Violetas
Notice of Appeal with Motion given that the Decision dated 30
August 2007 had long since attained finality.
Violeta directly elevated her case to this Court via the instant
Petition for Review on Certiorari, raising the following issues
for consideration:
1. Whether or not the Decision of the court a quo
dated August 30, 2007, can still be reviewed despite
having allegedly attained finality and despite the fact
that the mode of appeal that has been availed of by
Violeta is erroneous?
2. Whether or not the Regional Trial Court in its
original jurisdiction has decided the case on a
question of law not in accord with law and applicable
decisions of the Supreme Court?
Violeta insists that her former counsel committed an honest
mistake in filing a Reply, instead of a Notice of Appeal of the
RTC Decision dated 30 August 2007; and in the computation
of the reglementary period for appealing the said judgment.
Violeta claims that her former counsel suffered from poor
health, which rapidly deteriorated from the first week of July
2008 until the latters death just shortly after the filing of the
instant Petition on 8 August 2008. In light of these
circumstances, Violeta entreats this Court to admit and give
due course to her appeal even if the same was filed out of
time.
Violeta further posits that the Court should address the
question of law arising in this case involving the interpretation
of the second sentence of Section 19 of the Insurance Code,
which provides:
Section. 19. x x x [I]nterest in the life or health of a person
insured must exist when the insurance takes effect, but need
not exist thereafter or when the loss occurs.
On the basis thereof, Violeta argues that Eulogio still had
insurable interest in his own life when he reinstated Policy No.
9011992 just before he passed away on 17 September 1998.
The RTC should have construed the provisions of the Policy
Contract and Application for Reinstatement in favor of the
insured Eulogio and against the insurer Insular Life, and
considered the special circumstances of the case, to rule that
Eulogio had complied with the requisites for the reinstatement
of Policy No. 9011992 prior to his death, and that Violeta is
entitled to claim the proceeds of said policy as the primary
beneficiary thereof.
The Petition lacks merit.
At the outset, the Court notes that the elevation of the case to
us via the instant Petition for Review on Certiorari is not
justified. Rule 41, Section 1 of the Rules of Court,28 provides
that no appeal may be taken from an order disallowing or
dismissing an appeal. In such a case, the aggrieved party may
file a Petition for Certiorari under Rule 65 of the Rules of
Court.29
Furthermore, the RTC Decision dated 30 August 2007,
assailed in this Petition, had long become final and executory.
Violeta filed a Motion for Reconsideration thereof, but the RTC
denied the same in an Order dated 8 November 2007. The
records of the case reveal that Violeta received a copy of the 8
November 2007 Order on 3 December 2007. Thus, Violeta had
15 days30 from said date of receipt, or until 18 December
2007, to file a Notice of Appeal. Violeta filed a Notice of
Appeal only on 20 May 2008, more than five months after
receipt of the RTC Order dated 8 November 2007 denying her
Motion for Reconsideration.
Violetas claim that her former counsels failure to file the
proper remedy within the reglementary period was an honest
mistake, attributable to the latters deteriorating health, is
unpersuasive.
Violeta merely made a general averment of her former
counsels poor health, lacking relevant details and supporting
evidence. By Violetas own admission, her former counsels
health rapidly deteriorated only by the first week of July 2008.
The events pertinent to Violetas Notice of Appeal took place
months before July 2008, i.e., a copy of the RTC Order dated
8 November 2007, denying Violetas Motion for
Reconsideration of the Decision dated 30 August 2007, was
received on 3 December 2007; and Violetas Notice of Appeal
was filed on 20 May 2008. There is utter lack of proof to show
that Violetas former counsel was already suffering from ill
health during these times; or that the illness of Violetas
former counsel would have affected his judgment and
competence as a lawyer.
Moreover, the failure of her former counsel to file a Notice of
Appeal within the reglementary period binds Violeta, which
failure the latter cannot now disown on the basis of her bare
allegation and self-serving pronouncement that the former
was ill. A client is bound by his counsels mistakes and
negligence.31
The Court, therefore, finds no reversible error on the part of
the RTC in denying Violetas Notice of Appeal for being filed
beyond the reglementary period. Without an appeal having
6
been timely filed, the RTC Decision dated 30 August 2007 in
Civil Case No. 2177 already became final and executory.
A judgment becomes "final and executory" by operation of
law. Finality becomes a fact when the reglementary period to
appeal lapses and no appeal is perfected within such period.
As a consequence, no court (not even this Court) can exercise
appellate jurisdiction to review a case or modify a decision
that has become final.32 When a final judgment is executory, it
becomes immutable and unalterable. It may no longer be
modified in any respect either by the court, which rendered it
or even by this Court. The doctrine is founded on
considerations of public policy and sound practice that, at the
risk of occasional errors, judgments must become final at
some definite point in time.33
The only recognized exceptions to the doctrine of immutability
and unalterability are the correction of clerical errors, the so-
called nunc pro tunc entries, which cause no prejudice to any
party, and void judgments.34 The instant case does not fall
under any of these exceptions.
Even if the Court ignores the procedural lapses committed
herein, and proceeds to resolve the substantive issues raised,
the Petition must still fail.
Violeta makes it appear that her present Petition involves a
question of law, particularly, whether Eulogio had an existing
insurable interest in his own life until the day of his death.
An insurable interest is one of the most basic and essential
requirements in an insurance contract. In general, an
insurable interest is that interest which a person is deemed to
have in the subject matter insured, where he has a relation or
connection with or concern in it, such that the person will
derive pecuniary benefit or advantage from the preservation
of the subject matter insured and will suffer pecuniary loss or
damage from its destruction, termination, or injury by the
happening of the event insured against.35 The existence of an
insurable interest gives a person the legal right to insure the
subject matter of the policy of insurance.36 Section 10 of the
Insurance Code indeed provides that every person has an
insurable interest in his own life.37 Section 19 of the same
code also states that an interest in the life or health of a
person insured must exist when the insurance takes effect,
but need not exist thereafter or when the loss occurs.38
Upon more extensive study of the Petition, it becomes evident
that the matter of insurable interest is entirely irrelevant in
the case at bar. It is actually beyond question that while
Eulogio was still alive, he had an insurable interest in his own
life, which he did insure under Policy No. 9011992. The real
point of contention herein is whether Eulogio was able to
reinstate the lapsed insurance policy on his life before his
death on 17 September 1998.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous
declaration of the RTC in its 30 August 2007 Decision that
Policy No. 9011992 lapsed because of Eulogios non-payment
of the premiums which became due on 24 April 1998 and 24
July 1998. Policy No. 9011992 had lapsed and become void
earlier, on 24 February 1998, upon the expiration of the 31-
day grace period for payment of the premium, which fell due
on 24 January 1998, without any payment having been made.
That Policy No. 9011992 had already lapsed is a fact beyond
dispute. Eulogios filing of his first Application for
Reinstatement with Insular Life, through Malaluan, on 26 May
1998, constitutes an admission that Policy No. 9011992 had
lapsed by then. Insular Life did not act on Eulogios first
Application for Reinstatement, since the amount Eulogio
simultaneously deposited was sufficient to cover only the
P8,062.00 overdue premium for 24 January 1998, but not the
P322.48 overdue interests thereon. On 17 September 1998,
Eulogio submitted a second Application for Reinstatement to
Insular Life, again through Malaluan, depositing at the same
time P17,500.00, to cover payment for the overdue interest
on the premium for 24 January 1998, and the premiums that
had also become due on 24 April 1998 and 24 July 1998. On
the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-
paying status after it has been permitted to lapse.39 Both the
Policy Contract and the Application for Reinstatement provide
for specific conditions for the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified
the following conditions for reinstatement should the policy
lapse:
10. REINSTATEMENT
You may reinstate this policy at any time within three years
after it lapsed if the following conditions are met: (1) the
policy has not been surrendered for its cash value or the
period of extension as a term insurance has not expired; (2)
evidence of insurability satisfactory to [Insular Life] is
furnished; (3) overdue premiums are paid with compound
interest at a rate not exceeding that which would have been
applicable to said premium and indebtedness in the policy
years prior to reinstatement; and (4) indebtedness which
existed at the time of lapsation is paid or renewed.40
Additional conditions for reinstatement of a lapsed policy were
stated in the Application for Reinstatement which Eulogio
signed and submitted, to wit:
I/We agree that said Policy shall not be considered reinstated
until this application is approved by the Company during
my/our lifetime and good health and until all other Company
requirements for the reinstatement of said Policy are fully
satisfied.
I/We further agree that any payment made or to be made in
connection with this application shall be considered as deposit
only and shall not bind the Company until this application is
finally approved by the Company during my/our lifetime and
good health. If this application is disapproved, I/We also
agree to accept the refund of all payments made in connection
herewith, without interest, and to surrender the receipts for
such payment.41 (Emphases ours.)
In the instant case, Eulogios death rendered impossible full
compliance with the conditions for reinstatement of Policy No.
9011992. True, Eulogio, before his death, managed to file his
Application for Reinstatement and deposit the amount for
payment of his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogios
lifetime and good health.
Relevant herein is the following pronouncement of the Court
in Andres v. The Crown Life Insurance Company,42 citing
McGuire v. The Manufacturer's Life Insurance Co.43:
"The stipulation in a life insurance policy giving the insured
the privilege to reinstate it upon written application does not
give the insured absolute right to such reinstatement by the
mere filing of an application. The insurer has the right to deny
the reinstatement if it is not satisfied as to the insurability of
the insured and if the latter does not pay all overdue premium
and all other indebtedness to the insurer. After the death of
the insured the insurance Company cannot be compelled to
entertain an application for reinstatement of the policy
7
because the conditions precedent to reinstatement can no
longer be determined and satisfied." (Emphases ours.)
It does not matter that when he died, Eulogios Application for
Reinstatement and deposits for the overdue premiums and
interests were already with Malaluan. Insular Life, through the
Policy Contract, expressly limits the power or authority of its
insurance agents, thus:
Our agents have no authority to make or modify this contract,
to extend the time limit for payment of premiums, to waive
any lapsation, forfeiture or any of our rights or requirements,
such powers being limited to our president, vice-president or
persons authorized by the Board of Trustees and only in
writing.44 (Emphasis ours.)
Malaluan did not have the authority to approve Eulogios
Application for Reinstatement. Malaluan still had to turn over
to Insular Life Eulogios Application for Reinstatement and
accompanying deposits, for processing and approval by the
latter.
The Court agrees with the RTC that the conditions for
reinstatement under the Policy Contract and Application for
Reinstatement were written in clear and simple language,
which could not admit of any meaning or interpretation other
than those that they so obviously embody. A construction in
favor of the insured is not called for, as there is no ambiguity
in the said provisions in the first place. The words thereof are
clear, unequivocal, and simple enough so as to preclude any
mistake in the appreciation of the same.
Violeta did not adduce any evidence that Eulogio might have
failed to fully understand the import and meaning of the
provisions of his Policy Contract and/or Application for
Reinstatement, both of which he voluntarily signed. While it is
a cardinal principle of insurance law that a policy or contract
of insurance is to be construed liberally in favor of the insured
and strictly as against the insurer company, yet, contracts of
insurance, like other contracts, are to be construed according
to the sense and meaning of the terms, which the parties
themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their
plain, ordinary and popular sense.45
Eulogios death, just hours after filing his Application for
Reinstatement and depositing his payment for overdue
premiums and interests with Malaluan, does not constitute a
special circumstance that can persuade this Court to already
consider Policy No. 9011992 reinstated. Said circumstance
cannot override the clear and express provisions of the Policy
Contract and Application for Reinstatement, and operate to
remove the prerogative of Insular Life thereunder to approve
or disapprove the Application for Reinstatement. Even though
the Court commiserates with Violeta, as the tragic and fateful
turn of events leaves her practically empty-handed, the Court
cannot arbitrarily burden Insular Life with the payment of
proceeds on a lapsed insurance policy. Justice and fairness
must equally apply to all parties to a case. Courts are not
permitted to make contracts for the parties. The function and
duty of the courts consist simply in enforcing and carrying out
the contracts actually made.46
Policy No. 9011992 remained lapsed and void, not having
been reinstated in accordance with the Policy Contract and
Application for Reinstatement before Eulogios death. Violeta,
therefore, cannot claim any death benefits from Insular Life
on the basis of Policy No. 9011992; but she is entitled to
receive the full refund of the payments made by Eulogio
thereon.
WHEREFORE, premises considered, the Court DENIES the
instant Petition for Review on Certiorari under Rule 45 of the
Rules of Court. The Court AFFIRMS the Orders dated 10 April
2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in
Civil Case No. 2177, denying petitioner Violeta R. Lalicans
Notice of Appeal, on the ground that the Decision dated 30
August 2007 subject thereof, was already final and executory.
No costs.
SO ORDERED.
DIGEST G.R. No. 183526 Case Digest
G.R. No. 183526, August 25, 2009
Violeta Lalican
vs The Insular Life Insurance Company
Ponente: Chico-Nazario
Facts:
Violeta is the widow of the Eulogio Lalican. During his lifetime,
Eulogio applied for an insurance policy with Insular Life on April
24, 1997 which contained a 20-year endowment variable
income package flexi plan worth P500k with two riders worth
P500k each. Violeta was named the primary beneficiary.
Under the terms, Eulogio was to pay premiums on a quarterly
basin in the amount of P8,062 with a grace period of 31 days
for the payment of each premium subsequent to the first. If any
premium was not paid on or before the due date, the policy
would be in default, and if the premium remained unpaid until
the end of the grace period, the policy would automatically
lapse and become void.
Eulogio paid the premiums, however he failed to pay the
premium due on January 24, 1998, even after the lapse of the
grace period of 31 days. Therefore, lapsed and become void.
Eulogio submitted to the Cabanatuan District Office of Insular
Life an application for reinstatement together with the payment
of the premium due on January 24. Insular Life notified Eulogio
that his application for reinstatement could not be fully
processed because of the unpaid interest thereon. Eulogio was
likewise advised by Malaluan (insurance agent) to pay the
premiums that subsequently became due April 1998 and July
1998, plus interest.
September 17, 1998. Eulogio went to Malaluan's house and
paid for the interest which was received by Malaluan's husband.
Later that day, Eulogio died. Without the knowledge of Eulogio's
death, Malaluan forwarded to the Insular Life the application for
reinstatement and the payment made by Eulogio. However,
Insular Life did not act upon such reinstatement for they knew
already of Eulogio's death.
September 28, 1998, Violeta filed for the insurance claim.
Insular Life then informed Violeta in a letter that her claim could
not be processed because the insurance policy had lapsed
already and that Eulogio failed to reinstate the same and the
payment made done thru Malaluan's husband was, under the
insurance policy, was considered a deposit only until approval
of the said application. Enclosed to this letter was a check
representing the full refund of the past payments made by
Eulogio, amounting to P25,417.
Violeta requested for a reconsideration of her claim and
returned the check to Insular Life. Insular Life agreed to
conduct a re-evaluation of Violeta's claim. Without waiting for
the result of the re-evaluation, Violeta filed with the RTC a
complaint for death claim benefit alleging the Insular Life was
engaged in unfair claim settlement practice and deliberately
failed to act with reasonable promptness on her insurance
claim. Violeta claims for the P1.5M insurance, plus interest,
attorney's fees and cost of suit.
Insular Life filed with the RTC an answer with counterclaim
saying that the insurance claim was rendered void due to non-
payment of the premium and countered that Violeta should be
ordered to pay attorney's fees and expenses of litigation
incurred by Insular Life.
RTC declared that Violeta failed to establish by preponderance
of evidence her cause of action against the defendant. Violeta
8
failed to establish that the receipt of payment by Malaluan
amounted to the reinstatement of the insurance policy. Violeta
filed for motion for reconsideration but was denied as well;
hence she elevated her case for review on Certiorari.
Issues: (a) Whether the decision of the court can still be
reviewed despite having allegedly attained finality and despite
the mode of appeal of Violeta erroneous. (b) Whether the RTC
has decided the case on a question of law not in accord with
law and applicable decisions of the Supreme Court.
Ruling:
Petition lacks merit.
RTC's decision has long acquired finality for Violeta failed to file
a notice of appeal more than five months after the decision was
rendered.
As to the substantial claim of whether there is insurable
interest, the Court says that the matter of insurable interest is
entirely irrelevant and the real point of contention herein is
whether Eulogio was able to reinstate the lapsed insurance
policy on his life before his death.
The Court rules in the negative, for the insurance policy is clear
on the procedure of the reinstatement of the insurance
contract, of which Eulogio has failed to accomplish before his
death. As provided by the policy, insurance shall be deemed
reinstated upon the approval of the insurance policy of the
application for reinstatement. The approval should be made
during the lifetime of the insured, in the case at bar, it wasnt.
FT-G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD.,
plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO,
defendants-appellants.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law
wife named as beneficiary in the life insurance policy of a
legally married man claim the proceeds thereof in case of
death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was
issued by The Life Assurance Co., Ltd., Policy No. 009929 on a
whole-life for P5,882.00 with a, rider for Accidental Death for
the same amount Buenaventura C. Ebrado designated T.
Ebrado as the revocable beneficiary in his policy. He to her as
his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a
result of an t when he was hit by a failing branch of a tree. As
the policy was in force, The Insular Life Assurance Co., Ltd.
liable to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death
also in the amount of P5,882.00 and the refund of P18.00 paid
for the premium due November, 1969, minus the unpaid
premiums and interest thereon due for January and February,
1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the
proceeds of the Policy as the designated beneficiary therein,
although she admits that she and the insured Buenaventura
C. Ebrado were merely living as husband and wife without the
benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of
the deceased insured. She asserts that she is the one entitled
to the insurance proceeds, not the common-law wife,
Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the
insurer, The Insular Life Assurance Co., Ltd. commenced an
action for Interpleader before the Court of First Instance of
Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was
held on July 8, 1972, after which, a pre-trial order was
entered reading as follows: +.wph!1
During the pre-trial conference, the parties manifested
to the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the
parties submit their evidence for the purpose of the pre-
trial and make admissions for the purpose of pretrial.
During this conference, parties Carponia T. Ebrado and
Pascuala Ebrado agreed and stipulated: 1) that the
deceased Buenaventura Ebrado was married to Pascuala
Ebrado with whom she has six (legitimate) namely;
Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen,
all surnamed Ebrado; 2) that during the lifetime of the
deceased, he was insured with Insular Life Assurance
Co. Under Policy No. 009929 whole life plan, dated
September 1, 1968 for the sum of P5,882.00 with the
rider for accidental death benefit as evidenced by
Exhibits A for plaintiffs and Exhibit 1 for the defendant
Pascuala and Exhibit 7 for Carponia Ebrado; 3) that
during the lifetime of Buenaventura Ebrado, he was
living with his common-wife, Carponia Ebrado, with
whom she had 2 children although he was not legally
separated from his legal wife; 4) that Buenaventura in
accident on October 21, 1969 as evidenced by the death
Exhibit 3 and affidavit of the police report of his death
Exhibit 5; 5) that complainant Carponia Ebrado filed
claim with the Insular Life Assurance Co. which was
contested by Pascuala Ebrado who also filed claim for
the proceeds of said policy 6) that in view ofthe adverse
claims the insurance company filed this action against
the two herein claimants Carponia and Pascuala Ebrado;
7) that there is now due from the Insular Life Assurance
Co. as proceeds of the policy P11,745.73; 8) that the
beneficiary designated by the insured in the policy is
Carponia Ebrado and the insured made reservation to
change the beneficiary but although the insured made
the option to change the beneficiary, same was never
changed up to the time of his death and the wife did not
have any opportunity to write the company that there
was reservation to change the designation of the parties
agreed that a decision be rendered based on and
stipulation of facts as to who among the two claimants is
entitled to the policy.
Upon motion of the parties, they are given ten (10) days
to file their simultaneous memoranda from the receipt of
this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment
declaring among others, Carponia T. Ebrado disqualified from
becoming beneficiary of the insured Buenaventura Cristor
Ebrado and directing the payment of the insurance proceeds
to the estate of the deceased insured. The trial court held:
+.wph!1
It is patent from the last paragraph of Art. 739 of the
Civil Code that a criminal conviction for adultery or
concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also
necessary that a finding of such guilt or commission of
those acts be made in a separate independent action
9
 brought for the purpose. The guilt of the donee
(beneficiary) may be proved by preponderance of
evidence in the same proceeding (the action brought to
declare the nullity of the donation).
It is, however, essential that such adultery or
concubinage exists at the time defendant Carponia T.
Ebrado was made beneficiary in the policy in question
for the disqualification and incapacity to exist and
that it is only necessary that such fact be established
by preponderance of evidence in the trial. Since it is
agreed in their stipulation above-quoted that the
deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without
being legally married and that the marriage of the
insured with the other defendant Pascuala Vda. de
Ebrado was valid and still existing at the time the
insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is
disqualified from becoming the beneficiary of the
policy in question and as such she is not entitled to
the proceeds of the insurance upon the death of the
insured.
From this judgment, Carponia T. Ebrado appealed to the Court
of Appeals, but on July 11, 1976, the Appellate Court certified
the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as
amended) or even the new Insurance Code (PD No. 612, as
amended) does not contain any specific provision grossly
resolutory of the prime question at hand. Section 50 of the
Insurance Act which provides that "(t)he insurance shag be
applied exclusively to the proper interest of the person in
whose name it is made" 1 cannot be validly seized upon to
hold that the mm includes the beneficiary. The word "interest"
highly suggests that the provision refers only to the "insured"
and not to the beneficiary, since a contract of insurance is
personal in character. 2 Otherwise, the prohibitory laws
against illicit relationships especially on property and descent
will be rendered nugatory, as the same could easily be
circumvented by modes of insurance. Rather, the general
rules of civil law should be applied to resolve this void in the
Insurance Law. Article 2011 of the New Civil Code states:
"The contract of insurance is governed by special laws.
Matters not expressly provided for in such special laws shall
be regulated by this Code." When not otherwise specifically
provided for by the Insurance Law, the contract of life
insurance is governed by the general rules of the civil law
regulating contracts. 3 And under Article 2012 of the same
Code, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a
fife insurance policy by the person who cannot make a
donation to him. 4 Common-law spouses are, definitely,
barred from receiving donations from each other. Article 739
of the new Civil Code provides: +.wph!1
The following donations shall be void:
1. Those made between persons who were guilty of
adultery or concubinage at the time of donation;
Those made between persons found guilty of the
same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife,
descendants or ascendants by reason of his office.
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse
of the donor or donee; and the guilt of the donee
may be proved by preponderance of evidence in the
same action.
2. In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary
is like a donee, because from the premiums of the policy
which the insured pays out of liberality, the beneficiary will
receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil
Code should equally operate in life insurance contracts. The
mandate of Article 2012 cannot be laid aside: any person who
cannot receive a donation cannot be named as beneficiary in
the life insurance policy of the person who cannot make the
donation. 5 Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will,
so far as possible treat it as a will and determine the effect of
a clause designating the beneficiary by rules under which wins
are interpreted. 6
3. Policy considerations and dictates of morality rightly justify
the institution of a barrier between common law spouses in
record to Property relations since such hip ultimately
encroaches upon the nuptial and filial rights of the legitimate
family There is every reason to hold that the bar in donations
between legitimate spouses and those between illegitimate
ones should be enforced in life insurance policies since the
same are based on similar consideration As above pointed
out, a beneficiary in a fife insurance policy is no different from
a donee. Both are recipients of pure beneficence. So long as
manage remains the threshold of family laws, reason and
morality dictate that the impediments imposed upon married
couple should likewise be imposed upon extra-marital
relationship. If legitimate relationship is circumscribed by
these legal disabilities, with more reason should an illicit
relationship be restricted by these disabilities. Thus, in
Matabuena v. Cervantes, 7 this Court, through Justice
Fernando, said: +.wph!1
If the policy of the law is, in the language of the
opinion of the then Justice J.B.L. Reyes of that court
(Court of Appeals), 'to prohibit donations in favor of
the other consort and his descendants because of
and undue and improper pressure and influence upon
the donor, a prejudice deeply rooted in our ancient
law;" por-que no se enganen desponjandose el uno al
otro por amor que han de consuno' (According to)
the Partidas (Part IV, Tit. XI, LAW IV), reiterating the
rationale 'No Mutuato amore invicem spoliarentur'
the Pandects (Bk, 24, Titl. 1, De donat, inter virum et
uxorem); then there is very reason to apply the
same prohibitive policy to persons living together as
husband and wife without the benefit of nuptials. For
it is not to be doubted that assent to such irregular
connection for thirty years bespeaks greater
influence of one party over the other, so that the
danger that the law seeks to avoid is correspondingly
increased. Moreover, as already pointed out by
Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not
be just that such donations should subsist, lest the
condition 6f those who incurred guilt should turn out
to be better.' So long as marriage remains the
cornerstone of our family law, reason and morality
alike demand that the disabilities attached to
marriage should likewise attach to concubinage.
It is hardly necessary to add that even in the absence
of the above pronouncement, any other conclusion
cannot stand the test of scrutiny. It would be to
indict the frame of the Civil Code for a failure to
apply a laudable rule to a situation which in its
essentials cannot be distinguished. Moreover, if it is
at all to be differentiated the policy of the law which
embodies a deeply rooted notion of what is just and
what is right would be nullified if such irregular
relationship instead of being visited with disabilities
10
 would be attended with benefits. Certainly a legal
norm should not be susceptible to such a reproach. If
there is every any occasion where the principle of
statutory construction that what is within the spirit of
the law is as much a part of it as what is written, this
is it. Otherwise the basic purpose discernible in such
codal provision would not be attained. Whatever
omission may be apparent in an interpretation purely
literal of the language used must be remedied by an
adherence to its avowed objective.
4. We do not think that a conviction for adultery or
concubinage is exacted before the disabilities mentioned in
Article 739 may effectuate. More specifically, with record to
the disability on "persons who were guilty of adultery or
concubinage at the time of the donation," Article 739 itself
provides: +.wph!1
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse
of the donor or donee; and the guilty of the donee
may be proved by preponderance of evidence in the
same action.
The underscored clause neatly conveys that no criminal
conviction for the offense is a condition precedent. In fact, it
cannot even be from the aforequoted provision that a
prosecution is needed. On the contrary, the law plainly states
that the guilt of the party may be proved "in the same acting
for declaration of nullity of donation. And, it would be
sufficient if evidence preponderates upon the guilt of the
consort for the offense indicated. The quantum of proof in
criminal cases is not demanded.
In the caw before Us, the requisite proof of common-law
relationship between the insured and the beneficiary has been
conveniently supplied by the stipulations between the parties
in the pre-trial conference of the case. It case agreed upon
and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with
whom she has six legitimate children; that during his lifetime,
the deceased insured was living with his common-law wife,
Carponia Ebrado, with whom he has two children. These
stipulations are nothing less than judicial admissions which, as
a consequence, no longer require proof and cannot be
contradicted. 8 A fortiori, on the basis of these admissions, a
judgment may be validly rendered without going through the
rigors of a trial for the sole purpose of proving the illicit liaison
between the insured and the beneficiary. In fact, in that
pretrial, the parties even agreed "that a decision be rendered
based on this agreement and stipulation of facts as to who
among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is
hereby affirmed. Carponia T. Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura C.
Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of
the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
DIGEST - Insular Life v. Ebrado - Insurance Proceeds
80 SCRA 181
Facts:
> Buenaventura Ebrado was issued by Insular Life Assurance
Co. a whole life plan for P5,882.00 with a rider for Accidental
Death Benefits for the same amount.
> Ebrado designated Carponia Ebrado as the revocable
beneficiary in his policy, referring to her as his wife.
> Ebrado died when he was accidentally hit by a falling
branch of tree.
> Insurer by virtue of the contract was liable for 11,745.73,
and Carponia filed her claim, although she admitted that she
and the insured were merely living as husband and wife
without the benefit of marriage.
> Pascuala Ebrado also filed her claim as the widow of the
deceased insured.
> Insular life filed an interpleader case and the lower court
found in favor of Pascuala.
Issue:
Between Carponia and Pascuala, who is entitled to the
proceeds?
Held:
Pascuala.
It is quite unfortunate that the Insurance Act or our own
Insurance Code does not contain a specific provision grossly
resolutory of the prime question at hand. Rather, the general
rules of civil law should be applied to resolve this void in the
insurance law. Art. 2011 of the NCC states: The contract of
insurance is governed by special laws. Matters not expressly
provided for in such special laws shall be regulated by this
Code. When not otherwise specifically provided for in the
insurance law, the contract of life insurance is governed by
the general rules of civil law regulating contracts.
Under Art. 2012, NCC: Any person who is forbidden from
receiving any donation under Art. 739 cannot be named
beneficiary of a life insurance policy by a person who cannot
make any donation to him, according to said article. Under
Art. 739, donations between persons who were guilty of
adultery or concubinage at the time of the donation shall be
void.
In essence, a life insurance policy is no different from civil
donations insofar as the beneficiary is concerned. Both are
founded on the same consideration of liberality. A beneficiary
is like a donee because from the premiums of the policy which
the insured pays, the beneficiary will receive the proceeds or
profits of said insurance. As a consequence, the proscription
in Art. 739 should equally operate in life insurance contracts.
Therefore, since common-law spouses are barred from
receiving donations, they are likewise barred from receiving
proceeds of a life insurance contract.
FT-G.R. No. L-54216 July 19, 1989
THE PHILIPPINE AMERICAN INSURANCE COMPANY,
petitioner,
vs.
HONORABLE GREGORIO G. PINEDA in his capacity as
Judge of the Court of First Instance of Rizal, and
RODOLFO C. DIMAYUGA, respondents.
PARAS, J.:
Challenged before Us in this petition for review on certiorari
are the Orders of the respondent Judge dated March 19, 1980
and June 10, 1980 granting the prayer in the petition in Sp.
Proc. No. 9210 and denying petitioner's Motion for
Reconsideration, respectively.
The undisputed facts are as follows:
On January 15, 1968, private respondent procured an
ordinary life insurance policy from the petitioner company and
designated his wife and children as irrevocable beneficiaries of
said policy.
11
Under date February 22, 1980 private respondent filed a
petition which was docketed as Civil Case No. 9210 of the
then Court of First Instance of Rizal to amend the designation
of the beneficiaries in his life policy from irrevocable to
revocable.
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset
Hearing. Also on the same date, petitioner filed its Comment
and/or Opposition to Petition.
When the petition was called for hearing on March 19, 1980,
the respondent Judge Gregorio G. Pineda, presiding Judge of
the then Court of First Instance of Rizal, Pasig Branch XXI,
denied petitioner's Urgent Motion, thus allowing the private
respondent to adduce evidence, the consequence of which
was the issuance of the questioned Order granting the
petition.
Petitioner promptly filed a Motion for Reconsideration but the
same was denied in an Order June 10, 1980. Hence, this
petition raising the following issues for resolution:
WHETHER OR NOT THE DESIGNATION OF THE
IRREVOCABLE BENEFICIARIES COULD BE CHANGED
OR AMENDED WITHOUT THE CONSENT OF ALL THE
IRREVOCABLE BENEFICIARIES.
II
WHETHER OR NOT THE IRREVOCABLE
BENEFICIARIES HEREIN, ONE OF WHOM IS ALREADY
DECEASED WHILE THE OTHERS ARE ALL MINORS,
COULD VALIDLY GIVE CONSENT TO THE CHANGE OR
AMENDMENT IN THE DESIGNATION OF THE
IRREVOCABLE BENEFICIARIES.
We are of the opinion that his Honor, the respondent Judge,
was in error in issuing the questioned Orders.
Needless to say, the applicable law in the instant case is the
Insurance Act, otherwise known as Act No. 2427 as amended,
the policy having been procured in 1968. Under the said law,
the beneficiary designated in a life insurance contract cannot
be changed without the consent of the beneficiary because he
has a vested interest in the policy (Gercio v. Sun Life Ins. Co.
of Canada, 48 Phil. 53; Go v. Redfern and the International
Assurance Co., Ltd., 72 Phil. 71).
In this regard, it is worth noting that the Beneficiary
Designation Indorsement in the policy which forms part of
Policy Number 0794461 in the name of Rodolfo Cailles
Dimayuga states that the designation of the beneficiaries is
irrevocable (Annex "A" of Petition in Sp. Proc. No. 9210,
Annex "C" of the Petition for Review on Certiorari), to wit:
It is hereby understood and agreed that,
notwithstanding the provisions of this policy to the
contrary, inasmuch as the designation of the
primary/contingent beneficiary/beneficiaries in this
Policy has been made without reserving the right to
change said beneficiary/ beneficiaries, such
designation may not be surrendered to the Company,
released or assigned; and no right or privilege under
the Policy may be exercised, or agreement made with
the Company to any change in or amendment to the
Policy, without the consent of the said
beneficiary/beneficiaries. (Petitioner's Memorandum,
p. 72, Rollo)
Be it noted that the foregoing is a fact which the private
respondent did not bother to disprove.
Inevitably therefore, based on the aforequoted provision of
the contract, not to mention the law then applicable, it is only
with the consent of all the beneficiaries that any change or
amendment in the policy concerning the irrevocable
beneficiaries may be legally and validly effected. Both the law
and the policy do not provide for any other exception, thus,
abrogating the contention of the private respondent that said
designation can be amended if the Court finds a just,
reasonable ground to do so.
Similarly, the alleged acquiescence of the six (6) children
beneficiaries of the policy (the beneficiary-wife predeceased
the insured) cannot be considered an effective ratification to
the change of the beneficiaries from irrevocable to revocable.
Indubitable is the fact that all the six (6) children named as
beneficiaries were minors at the time,** for which reason,
they could not validly give their consent. Neither could they
act through their father insured since their interests are quite
divergent from one another. In point is an excerpt from the
Notes and Cases on Insurance Law by Campos and Campos,
1960, reading-
The insured ... can do nothing to divest the
I of his rights without his consent. He
beneficiary
cannot assign his policy, nor even take its cash
surrender value without the consent of the
beneficiary. Neither can the insured's creditors seize
the policy or any right thereunder. The insured may
not even add another beneficiary because by doing
so, he diminishes the amount which the beneficiary
may recover and this he cannot do without the
beneficiary's consent.
Therefore, the parent-insured cannot exercise rights and/or
privileges pertaining to the insurance contract, for otherwise,
the vested rights of the irrevocable beneficiaries would be
rendered inconsequential.
Of equal importance is the well-settled rule that the contract
between the parties is the law binding on both of them and for
so many times, this court has consistently issued
pronouncements upholding the validity and effectivity of
contracts. Where there is nothing in the contract which is
contrary to law, good morals, good customs, public policy or
public order the validity of the contract must be sustained.
Likewise, contracts which are the private laws of the
contracting parties should be fulfilled according to the literal
sense of their stipulations, if their terms are clear and leave
no room for doubt as to the intention of the contracting
parties, for contracts are obligatory, no matter in what form
they may be, whenever the essential requisites for their
validity are present (Phoenix Assurance Co., Ltd. vs. United
States Lines, 22 SCRA 675, Phil. American General Insurance
Co., Inc. vs. Mutuc, 61 SCRA 22.)
In the recent case of Francisco Herrera vs. Petrophil
Corporation, 146 SCRA 385, this Court ruled that:
... it is settled that the parties may establish such
stipulations, clauses, terms, and conditions as they
may want to include; and as long as such
agreements are not contrary to law, good morals,
good customs, public policy or public order, they shall
have the force of law between them.
Undeniably, the contract in the case at bar, contains the
indispensable elements for its validity and does not in any way
violate the law, morals, customs, orders, etc. leaving no
reason for Us to deny sanction thereto.
Finally, the fact that the contract of insurance does not
contain a contingency when the change in the designation of
beneficiaries could be validly effected means that it was never
within the contemplation of the parties. The lower court, in
12
gratuitously providing for such contingency, made a new
contract for them, a proceeding which we cannot tolerate.
Ergo, We cannot help but conclude that the lower court acted
in excess of its authority when it issued the Order dated March
19, 1980 amending the designation of the beneficiaries from
"irrevocable" to "revocable" over the disapprobation of the
petitioner insurance company.
WHEREFORE, premises considered, the questioned Orders of
the respondent Judge are hereby nullified and set aside.
SO ORDERED.
DIGEST-Philam v Pineda G.R. No. L-54216 July 19, 1989
J. Paras
Facts:
Pineda procured an ordinary life insurance policy from the
petitioner company and designated his wife and children as
irrevocable beneficiaries.
He then filed a petition to amend the designation of the
beneficiaries in his life policy from irrevocable to revocable.
The judge granted the request.
Petitioner promptly filed a motion but was denied. Hence, this
petition.
Issues:
1. WON the designation of the irrevocable beneficiaries could
be changed or amended without the consent of all the
irrevocable beneficiaries.
2. WON the irrevocable minor beneficiaries could give consent
to the change in designation
Held: No to both. Petition dismissed.
Ratio:
Under the Insurance Act, the beneficiary designated in a life
insurance contract cannot be changed without the consent of
the beneficiary because he has a vested interest in the policy.
There was an express stipulation to this effect: It is hereby
understood and agreed that, notwithstanding the provisions of
this policy to the contrary, inasmuch as the designation of the
primary/contingent beneficiary/beneficiaries in this Policy has
been made without reserving the right to change said
beneficiary/ beneficiaries, such designation may not be
surrendered to the Company, released or assigned; and no
right or privilege under the Policy may be exercised, or
agreement made with the Company to any change in or
amendment to the Policy, without the consent of the said
beneficiary/beneficiaries.
The alleged acquiescence of the six (6) children beneficiaries of
the policy cannot be considered an effective ratification due to
the fact that they were minors. Neither could they act through
their father insured since their interests are quite divergent
from one another.
Therefore, the parent-insured cannot exercise rights and/or
privileges pertaining to the insurance contract, for otherwise,
the vested rights of the irrevocable beneficiaries would be
rendered inconsequential.
Of equal importance is the well-settled rule that the contract
between the parties is the law binding on both of them and for
so many times, this court has consistently issued
pronouncements upholding the validity and effectivity of
contracts. Likewise, contracts which are the private laws of the
contracting parties should be fulfilled according to the literal
sense of their stipulations, for contracts are obligatory, no
matter in what form they may be, whenever the essential
requisites for their validity are present
The change in the designation of was not within the
contemplation of the parties. The lower court instead made a
new contract for them. It acted in excess of its authority when
it did so.
FT-G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the
Decision1 dated October 11, 2000 of the Court of Appeals (CA)
in CA-G.R. CV No. 61848 which set aside the Decision dated
August 31, 1998 of the Regional Trial Court, Branch 138,
Makati (RTC) in Civil Case No. 92-322 and upheld the causes
of action for damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc. (petitioner); and
the CA Resolution dated April 11, 2001 which denied
petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the
local distributor of products bearing trademarks owned by Levi
Strauss & Co.. IMC and LSPI separately obtained from
respondent fire insurance policies with book debt
endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines."2 The
policies defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after
the time of the loss covered under this Policy."3 The policies
also provide for the following conditions:
1. Warranted that the Company shall not be liable for
any unpaid account in respect of the merchandise
sold and delivered by the Insured which are
outstanding at the date of loss for a period in excess
of six (6) months from the date of the covering
invoice or actual delivery of the merchandise
whichever shall first occur.
2. Warranted that the Insured shall submit to the
Company within twelve (12) days after the close of
every calendar month all amount shown in their
books of accounts as unpaid and thus become
receivable item from their customers and dealers. x x
xx x x x
Petitioner is a customer and dealer of the products of IMC and
LSPI. On February 25, 1991, the Gaisano Superstore Complex
in Cagayan de Oro City, owned by petitioner, was consumed
by fire. Included in the items lost or destroyed in the fire were
stocks of ready-made clothing materials sold and delivered by
IMC and LSPI.
On February 4, 1992, respondent filed a complaint for
damages against petitioner. It alleges that IMC and LSPI filed
with respondent their claims under their respective fire
insurance policies with book debt endorsements; that as of
February 25, 1991, the unpaid accounts of petitioner on the
sale and delivery of ready-made clothing materials with IMC
was P2,119,205.00 while with LSPI it was P535,613.00; that
respondent paid the claims of IMC and LSPI and, by virtue
thereof, respondent was subrogated to their rights against
petitioner; that respondent made several demands for
payment upon petitioner but these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995,
petitioner contends that it could not be held liable because the
property covered by the insurance policies were destroyed due
to fortuities event or force majeure; that respondent's right of
subrogation has no basis inasmuch as there was no breach of
13
contract committed by it since the loss was due to fire which it
could not prevent or foresee; that IMC and LSPI never
communicated to it that they insured their properties; that it
never consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an
amicable settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing
respondent's complaint.8 It held that the fire was purely
accidental; that the cause of the fire was not attributable to
the negligence of the petitioner; that it has not been
established that petitioner is the debtor of IMC and LSPI; that
since the sales invoices state that "it is further agreed that
merely for purpose of securing the payment of purchase price,
the above-described merchandise remains the property of the
vendor until the purchase price is fully paid", IMC and LSPI
retained ownership of the delivered goods and must bear the
loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11,
2000, the CA rendered its decision setting aside the decision
of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision
is REVERSED and SET ASIDE and a new one is entered
ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the
amount paid by the plaintiff-appellant to the insured
Inter Capitol Marketing Corporation, plus legal
interest from the time of demand until fully paid;
2. the amount of P535,613.00 representing the
amount paid by the plaintiff-appellant to the insured
Levi Strauss Phil., Inc., plus legal interest from the
time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being
detailed statements of the nature, quantity and cost of the
thing sold; that loss of the goods in the fire must be borne by
petitioner since the proviso contained in the sales invoices is
an exception under Article 1504 (1) of the Civil Code, to the
general rule that if the thing is lost by a fortuitous event, the
risk is borne by the owner of the thing at the time the loss
under the principle of res perit domino; that petitioner's
obligation to IMC and LSPI is not the delivery of the lost goods
but the payment of its unpaid account and as such the
obligation to pay is not extinguished, even if the fire is
considered a fortuitous event; that by subrogation, the insurer
has the right to go against petitioner; that, being a fire
insurance with book debt endorsements, what was insured
was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied
by the CA in its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored
on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK
OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD
TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE
CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in
the present case cannot be deemed to be over credit since an
insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was
not credit that was insured since respondent paid on the
occasion of the loss of the insured goods to fire and not
because of the non-payment by petitioner of any obligation;
that, even if the insurance is deemed as one over credit, there
was no loss as the accounts were not yet due since no prior
demands were made by IMC and LSPI against petitioner for
payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under
the fire insurance policies.15
As to the second error, petitioner avers that despite delivery
of the goods, petitioner-buyer IMC and LSPI assumed the risk
of loss when they secured fire insurance policies over the
goods.
Concerning the third ground, petitioner submits that there is
no subrogation in favor of respondent as no valid insurance
could be maintained thereon by IMC and LSPI since all risk
had transferred to petitioner upon delivery of the goods; that
petitioner was not privy to the insurance contract or the
payment between respondent and its insured nor was its
consent or approval ever secured; that this lack of privity
forecloses any real interest on the part of respondent in the
obligation to pay, limiting its interest to keeping the insured
goods safe from fire.
For its part, respondent counters that while ownership over
the ready- made clothing materials was transferred upon
delivery to petitioner, IMC and LSPI have insurable interest
over said goods as creditors who stand to suffer direct
pecuniary loss from its destruction by fire; that petitioner is
liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article
126516 of the Civil Code; that the fire was caused through
petitioner's negligence in failing to provide stringent measures
of caution, care and maintenance on its property because
electric wires do not usually short circuit unless there are
defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner
is guilty of gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to respondent for
contracted lawyer's fees, litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of
this Court in cases brought before it from the CA is limited to
reviewing questions of law which involves no examination of
the probative value of the evidence presented by the litigants
or any of them.18 The Supreme Court is not a trier of facts; it
is not its function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate court are
generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions
in which factual issues may be resolved by this Court, such
as: (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 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
14
the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and
(11) when the CA manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered,
would justify a different conclusion.21 Exceptions (4), (5), (7),
and (11) apply to the present petition.
At issue is the proper interpretation of the questioned
insurance policy. Petitioner claims that the CA erred in
construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since such
insurance applies to loss of the ready-made clothing materials
sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain
and readily understood, there is no room for construction.22 In
this case, the questioned insurance policies provide coverage
for "book debts in connection with ready-made clothing
materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the
Philippines."23 ; and defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured
45 days after the time of the loss covered under this Policy." 24
Nowhere is it provided in the questioned insurance policies
that the subject of the insurance is the goods sold and
delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and
explicit that they do not justify an attempt to read into it any
alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the
contract.25 Thus, what were insured against were the accounts
of IMC and LSPI with petitioner which remained unpaid 45
days after the loss through fire, and not the loss or
destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it
expressly reserved ownership of the goods by stipulating in
the sales invoices that "[i]t is further agreed that merely for
purpose of securing the payment of the purchase price the
above described merchandise remains the property of the
vendor until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article
1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is transferred to the
buyer, but when the ownership therein is transferred to the
buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer
or to a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations
under the contract, the goods are at the buyer's risk from the
time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the
buyer will pay its debt, the risk of loss is borne by the buyer.27
Accordingly, petitioner bears the risk of loss of the goods
delivered.
IMC and LSPI did not lose complete interest over the goods.
They have an insurable interest until full payment of the value
of the delivered goods. Unlike the civil law concept of res perit
domino, where ownership is the basis for consideration of who
bears the risk of loss, in property insurance, one's interest is
not determined by concept of title, but whether insured has
substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as
"every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured."
Parenthetically, under Section 14 of the same Code, an
insurable interest in property may consist in: (a) an existing
interest; (b) an inchoate interest founded on existing interest;
or (c) an expectancy, coupled with an existing interest in that
out of which the expectancy arises.
Therefore, an insurable interest in property does not
necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and
neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is
so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril
against which it is insured.29 Anyone has an insurable interest
in property who derives a benefit from its existence or would
suffer loss from its destruction.30 Indeed, a vendor or seller
retains an insurable interest in the property sold so long as he
has any interest therein, in other words, so long as he would
suffer by its destruction, as where he has a vendor's lien.31 In
this case, the insurable interest of IMC and LSPI pertain to the
unpaid accounts appearing in their Books of Account 45 days
after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid
accounts?
Petitioner's argument that it is not liable because the fire is a
fortuitous event under Article 117432 of the Civil Code is
misplaced. As held earlier, petitioner bears the loss under
Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case
is not for loss of goods by fire but for petitioner's accounts
with IMC and LSPI that remained unpaid 45 days after the
fire. Accordingly, petitioner's obligation is for the payment of
money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to
make the payment even by reason of a fortuitous event shall
not relieve him of his liability.33 The rationale for this is that
the rule that an obligor should be held exempt from liability
when the loss occurs thru a fortuitous event only holds true
when the obligation consists in the delivery of a determinate
thing and there is no stipulation holding him liable even in
case of fortuitous event. It does not apply when the obligation
is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to
deliver a generic thing, the loss or destruction of anything of
the same kind does not extinguish the obligation." If the
obligation is generic in the sense that the object thereof is
designated merely by its class or genus without any particular
designation or physical segregation from all others of the
same class, the loss or destruction of anything of the same
kind even without the debtor's fault and before he has
incurred in delay will not have the effect of extinguishing the
obligation.35 This rule is based on the principle that the genus
of a thing can never perish. Genus nunquan perit.36 An
obligation to pay money is generic; therefore, it is not
excused by fortuitous loss of any specific property of the
debtor.37
Thus, whether fire is a fortuitous event or petitioner was
negligent are matters immaterial to this case. What is relevant
here is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI.
15
With respect to IMC, the respondent has adequately
established its claim. Exhibits "C" to "C-22"38 show that
petitioner has an outstanding account with IMC in the amount
of P2,119,205.00. Exhibit "E"39 is the check voucher
evidencing payment to IMC. Exhibit "F"40 is the subrogation
receipt executed by IMC in favor of respondent upon receipt of
the insurance proceeds. All these documents have been
properly identified, presented and marked as exhibits in court.
The subrogation receipt, by itself, is sufficient to establish not
only the relationship of respondent as insurer and IMC as the
insured, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment
by the insurance company of the insurance claim.41
Respondent's action against petitioner is squarely sanctioned
by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he
has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person
who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to
prove its cause of action. No evidentiary weight can be given
to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from
petitioner's General Manager, Stephen S. Gaisano, Jr., since it
is not an admission of petitioner's unpaid account with LSPI. It
only confirms the loss of Levi's products in the amount of
P535,613.00 in the fire that razed petitioner's building on
February 25, 1991.
Moreover, there is no proof of full settlement of the insurance
claim of LSPI; no subrogation receipt was offered in evidence.
Thus, there is no evidence that respondent has been
subrogated to any right which LSPI may have against
petitioner. Failure to substantiate the claim of subrogation is
fatal to petitioner's case for recovery of the amount of
P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed
Decision dated October 11, 2000 and Resolution dated April
11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are
AFFIRMED with the MODIFICATION that the order to pay
the amount of P535,613.00 to respondent is DELETED for
lack of factual basis.
DIGEST-Gaisano v Insurance G.R. No. 147839 June 8,
2006
Facts:
IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained
from respondent fire insurance policies with book debt
endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines."
The policies defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after
the time of the loss covered under this Policy." The policies
also provide for the following conditions:
1. Warranted that the Company shall not be liable for any
unpaid account in respect of the merchandise sold and
delivered by the Insured which are outstanding at the date of
loss for a period in excess of six (6) months from the date of
the covering invoice or actual delivery of the merchandise
whichever shall first occur.
2. Warranted that the Insured shall submit to the Company
within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as unpaid
and thus become receivable item from their customers and
dealers.
Gaisano is a customer and dealer of the products of IMC and
LSPI. On February 25, 1991, the Gaisano Superstore Complex
in Cagayan de Oro City, owned by petitioner, was consumed
by fire. Included in the items lost or destroyed in the fire were
stocks of ready-made clothing materials sold and delivered by
IMC and LSPI.
Insurance of America filed a complaint for damages against
Gaisano. It alleges that IMC and LSPI were paid for their
claims and that the unpaid accounts of petitioner on the sale
and delivery of ready-made clothing materials with IMC was
P2,119,205.00 while with LSPI it was P535,613.00.
The RTC rendered its decision dismissing Insurance's
complaint. It held that the fire was purely accidental; that the
cause of the fire was not attributable to the negligence of the
petitioner. Also, it said that IMC and LSPI retained ownership
of the delivered goods and must bear the loss.
The CA rendered its decision and set aside the decision of the
RTC. It ordered Gaisano to pay Insurance the P 2 million and
the P 500,000 the latter paid to IMC and Levi Strauss.
Hence this petition.
Issues:
1. WON the CA erred in construing a fire insurance policy on
book debts as one covering the unpaid accounts of IMC and
LSPI since such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner
2. WON IMC bears the risk of loss because it expressly
reserved ownership of the goods by stipulating in the sales
invoices that "[i]t is further agreed that merely for purpose of
securing the payment of the purchase price the above
described merchandise remains the property of the vendor
until the purchase price thereof is fully paid."
3. WON petitioner is liable for the unpaid accounts
4. WON it has been established that petitioner has
outstanding accounts with IMC and LSPI.
Held: No. Yes. Yes. Yes but account with LSPI
unsubstantiated. Petition partly granted.
Ratio:
1. Nowhere is it provided in the questioned insurance policies
that the subject of the insurance is the goods sold and
delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC
and LSPI with petitioner which remained unpaid 45 days after
the loss through fire, and not the loss or destruction of the
goods delivered.
2. The present case clearly falls under paragraph (1), Article
1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is transferred to the
buyer, but when the ownership therein is transferred to the
buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer
or to a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations
under the contract, the goods are at the buyer's risk from the
time of such delivery
Thus, when the seller retains ownership only to insure that the
buyer will pay its debt, the risk of loss is borne by the buyer.
Petitioner bears the risk of loss of the goods delivered.
IMC and LSPI had an insurable interest until full payment of
the value of the delivered goods. Unlike the civil law concept
of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property
insurance, one's interest is not determined by concept of title,
but whether insured has substantial economic interest in the
property.
Section 13 of our Insurance Code defines insurable interest as
"every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured."
Parenthetically, under Section 14 of the same Code, an
insurable interest in property may consist in: (a) an existing
interest; (b) an inchoate interest founded on existing interest;
16
or (c) an expectancy, coupled with an existing interest in that
out of which the expectancy arises.
Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its
destruction. Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest
therein, in other words, so long as he would suffer by its
destruction, as where he has a vendor's lien. In this case, the
insurable interest of IMC and LSPI pertain to the unpaid
accounts appearing in their Books of Account 45 days after
the time of the loss covered by the policies.
3. Petitioner's argument that it is not liable because the fire is
a fortuitous event under Article 117432 of the Civil Code is
misplaced. As held earlier, petitioner bears the loss under
Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case
is not for loss of goods by fire but for petitioner's accounts
with IMC and LSPI that remained unpaid 45 days after the
fire. Accordingly, petitioner's obligation is for the payment of
money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to
make the payment even by reason of a fortuitous event shall
not relieve him of his liability. The rationale for this is that the
rule that an obligor should be held exempt from liability when
the loss occurs thru a fortuitous event only holds true when
the obligation consists in the delivery of a determinate thing
and there is no stipulation holding him liable even in case of
fortuitous event. It does not apply when the obligation is
pecuniary in nature.
Under Article 1263 of the Civil Code, "[i]n an obligation to
deliver a generic thing, the loss or destruction of anything of
the same kind does not extinguish the obligation." This rule is
based on the principle that the genus of a thing can never
perish. An obligation to pay money is generic; therefore, it is
not excused by fortuitous loss of any specific property of the
debtor.
4. With respect to IMC, the respondent has adequately
established its claim. The P 3 m claim has been proven. The
subrogation receipt, by itself, is sufficient to establish not only
the relationship of respondent as insurer and IMC as the
insured, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment
by the insurance company of the insurance claim
Respondent's action against petitioner is squarely sanctioned
by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he
has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person
who has violated the contract.
As to LSPI, respondent failed to present sufficient evidence to
prove its cause of action. There was no evidence that
respondent has been subrogated to any right which LSPI may
have against petitioner. Failure to substantiate the claim of
subrogation is fatal to petitioner's case for recovery of
P535,613.00.
FT-[G.R. No. L-52027. April 27, 1982.]
COMMERCIAL UNION ASSURANCE COMPANY LIMITED
and NORTH BRITISH & MERCANTILE INSURANCE CO.,
LTD., Petitioners, v. LEPANTO CONSOLIDATED MINING
COMPANY and COURT OF APPEALS, Respondents.
Quasha, Asperilla, Ancheta, Valmonte, Pea & Marcos,
for Petitioners.
Sycip, Salazar, Feliciano, Hernandez & Castillo for
Private Respondent.
SYNOPSIS
Respondent company shipped to a consignee in the United
States certain cargoes covered by two "all risks" marine
insurance policies issued by petitioners containing express
stipulations that respondent company has an interest therein.
The shipments, which were undertaken in accordance with the
instructions of the insurers surveyor, sustained damage in
transit prompting private respondent to file the corresponding
insurance claims which were rejected. Consequently,
respondent company filed with the Court of First Instance a
complaint for recovery of damages which was dismissed for
lack of cause of action. On appeal, the Court of Appeals
reversed the Commercial Union Assurance Company Limited,
Et. Al. v. Lepanto Consolidated Mining Company, Et. Al. trial
courts order of dismissal. Hence, this petition for certiorari
(herein treated as an appeal) wherein petitioners contend,
among others, that respondent company is not the real party
in interest and has no personality to sue and that
respondents complaint has no cause of action against the
insurers.
On review, the Supreme Court, without prejudging the merits
of respondents case and petitioners affirmative defenses,
held that there is prima facie showing in respondents
complaint and pleadings that it is a real party in interest under
the policies and that it has a cause of action against
petitioners as insurers.
Judgment of the Court of Appeals, affirmed.
SYLLABUS
REMEDIAL LAW; ACTIONS; PARTIES; RESPONDENT IN CASE
AT BAR PRIMA FACIE SHOWN A REAL PARTY IN INTEREST.
Where, based (1) on express stipulation in the two subject
marine insurance policies that respondent company has an
interest therein and (2) on the facts that it was the shipper
(and presumably the owner) of the insured cargoes, that the
shipments were undertaken in accordance with the
instructions of the insurers marine surveyor and that it was
respondent company that filed the corresponding claim with
the adjuster when the cargoes were damaged, the Supreme
Court, without prejudging the merits of respondent companys
case and petitioners affirmative defenses, ruled that there is
prima facie showing in respondents complaint and pleadings
that it is a real party in interest under the policies and that it
has a cause of action against the petitioners as insurers.
DECISION
This is a marine insurance case. Lepanto Consolidated Mining
Company alleged in its complaint of February 7, 1974 that on
November 8 and 23, 1971 it shipped (for smelting) copper ore
concentrates on board the vessels M/S Hermosa and M/S
General Aguinaldo from Poro Point, San Fernando, La Union to
Tacoma, Washington, U.S.A.chanroblesvirtual|awlibrary
The first shipment is known as No. 167 and the other
shipment as Nos. 168 and 168-A. The copper ore concentrates
were stored on board the carrying vessels under the
supervision and approval of a marine surveying firm
designated by the insurer (pp. 8-9, Record on Appeal).
American Smelting and Refining Co., Ltd. (Asarco) was the
consignee. The ore was to be discharged at the wharf of
Asarcos smelter at Tacoma (pp. 75-76, 98-9, Record on
Appeal).
The shipments were covered by two "all risks" marine
insurance policies issued to Asarco by North British &
Mercantile Insurance Company Limited, a subsidiary of
Commercial Union Assurance Company Limited. The first
policy was for US$4,509,014 or 80% of the agreed total value
of US$5,636,268 while the second policy was for
US$6,230,591.03 or 80% of the agreed total value of
US$7,788,233.79. The 20% balance was covered by insurance
policies issued by Malayan Insurance Co., Inc.
Both policies contain this stipulation: "It is hereby noted and
agreed that Lepanto Consolidated Mining Co. have (has) an
interest on this Policy" (pp. 22 and 58, Record on Appeal).
From the opening clause of the policies (couched in
Chaucerian English), it may be inferred that Asarco and all
17
persons having an interest in the shipments were covered by
the insurance (pp. 20-21, 45-46, Record on Appeal).
Because the two shipments were damaged in transit, Lepanto
filed claims under the policies. Commercial Union Assurance
and North British denied the claims.chanrobles law library :
red
On February 8, 1974, Lepanto filed a complaint in the Court of
First Instance of Rizal, Pasig Branch 22, against Commercial
Union Assurance and North British wherein it prayed that they
be ordered to pay Lepanto the sums of US$523,139.20 and
US$553,564.80, representing 80% of the damages suffered
by Lepanto plus interest, litigation expenses and attorneys
fees.
On motion to dismiss filed by the defendants, the lower court
dismissed the complaint for lack of cause of action. Lepanto
appealed to the Court of Appeals which in its decision dated
September 27, 1979 reversed the order of dismissal (CA-G.R.
No. 55948-R).
In a resolution dated November 12, 1979, it denied the
motion for reconsideration filed by Commercial Union
Assurance and North British. A copy of that resolution was
received by their lawyers on November 19. Twelve days later,
or on December 1, they filed a special civil action of certiorari
in this Court wherein they alleged that the Court of Appeals
acted without jurisdiction in entertaining Lepantos appeal.
The certiorari petition was treated as an appeal. As directed,
the parties filed their briefs.
The petitioners contend in their first assignment of error that
the Court of Appeals had no jurisdiction over Lepantos appeal
because it raised only a pure question of
law.chanroblesvirtuallawlibrary
That contention is devoid of merit because Lepanto in its
notice of appeal expressly stated that it was appealing on
questions of fact and law and because in its assignment of
errors it contended that the trial court erred in finding that the
marine policies were issued solely in favor of Asarco, in not
finding that Lepanto was insured under the said policies and in
not finding that the insurers were estopped to deny that
Lepanto was an insured party.
The ventilation of those factual issues would explain why the
Court of Appeals did not certify the case to this Court as a
case involving a pure question of law.
The petitioners in their other assignments of error argue that
the Court of Appeals gravely abused its discretion in taking
into account Lepantos manifestation which is not a part of its
complaint; in finding that Lepanto claimed ownership of the
cargo covered by the marine insurance policies; in not finding
that Lepanto is not the real party in interest and has no
personality to sue and in not finding that under the ultimate
facts alleged in Lepantos complaint Lepanto has no cause of
action against the insurers.chanrobles.com : virtual law library
The issue is the correctness of the trial courts conclusion that
Lepanto has no right to sue the insurers since it has no cause
of action against them (p. 119, Record on Appeal), or, as
stated by the Appellate Court, whether Lepanto can legally
sue on the marine insurance policies.
We hold, without prejudging the merits of Lepantos case and
petitioners affirmative defenses, that there is a prima facie
showing in Lepantos complaint and pleadings that it is a real
party in interest under the policies and that it has a cause of
action against the petitioners as insurers.
This holding is based (1) on the stipulation (already quoted) in
the two policies that it has an interest therein and (2) on the
facts that it was the shipper (and presumably the owner) of
the insured cargoes, that the shipments were undertaken in
accordance with the instructions of the insurers marine
surveyor and that it was Lepanto that filed the corresponding
claim with the adjuster when the cargoes were damaged (pp.
34-37, Record on Appeal).
It is noteworthy that when Commercial Union Assurance
Company Limited rejected Lepantos claims it did not question
Lepantos right and personality to file the claims nor did it
state that Lepanto had no interest in the marine policies and
that it was not an insured party. Commercial Union rejected
the claims, not on those grounds, but because "both cargoes
were inherently vicious" (pp. 37-45, Record on Appeal).
To say that Lepanto has no interest under the policies would
render meaningless the said stipulation in its favor. To say
that Lepanto as shipper of the insured property had no
proprietary interest therein before its delivery at Asarcos
wharf in Tacoma is to imply that the insured property was res
nullius. These conclusions are
preposterous.chanrobles.com:cralaw:red
Hence, the trial court erred in dismissing the complaint.
Whether after hearing the parties it would appear that
Lepantos claims for damages are justified or not is an issue
on which we make no anticipatory and premature finding.
WHEREFORE, the decision of the Court of Appeals is affirmed.
Costs against the petitioners.
FT-G.R. No. 168115 June 8, 2007
VICENTE ONG LIM SING, JR., petitioner,
vs.
FEB LEASING & FINANCE CORPORATION, respondent.
DECISION
This is a petition for review on certiorari assailing the
Decision1 dated March 15, 2005 and the Resolution2 dated
May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No.
77498.
The facts are as follows:
On March 9, 1995, FEB Leasing and Finance Corporation (FEB)
entered into a lease3 of equipment and motor vehicles with
JVL Food Products (JVL). On the same date, Vicente Ong Lim
Sing, Jr. (Lim) executed an Individual Guaranty Agreement4
with FEB to guarantee the prompt and faithful performance of
the terms and conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and Acceptance
Certificates5 over the equipment and motor vehicles formed
part of the agreement. Under the contract, JVL was obliged to
pay FEB an aggregate gross monthly rental of One Hundred
Seventy Thousand Four Hundred Ninety-Four Pesos
(P170,494.00).
JVL defaulted in the payment of the monthly rentals. As of
July 31, 2000, the amount in arrears, including penalty
charges and insurance premiums, amounted to Three Million
Four Hundred Fourteen Thousand Four Hundred Sixty-Eight
and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB
sent a letter to JVL demanding payment of the said amount.
However, JVL failed to pay.6
On December 6, 2000, FEB filed a Complaint7 with the
Regional Trial Court of Manila, docketed as Civil Case No. 00-
99451, for sum of money, damages, and replevin against JVL,
Lim, and John Doe.
In the Amended Answer,8 JVL and Lim admitted the existence
of the lease agreement but asserted that it is in reality a sale
of equipment on installment basis, with FEB acting as the
financier. JVL and Lim claimed that this intention was
apparent from the fact that they were made to believe that
when full payment was effected, a Deed of Sale will be
executed by FEB as vendor in favor of JVL and Lim as
vendees.9 FEB purportedly assured them that documenting
18
the transaction as a lease agreement is just an industry
practice and that the proper documentation would be effected
as soon as full payment for every item was made. They also
contended that the lease agreement is a contract of adhesion
and should, therefore, be construed against the party who
prepared it, i.e., FEB.
In upholding JVL and Lims stance, the trial court stressed the
contradictory terms it found in the lease agreement. The
pertinent portions of the Decision dated November 22, 2002
read:
A profound scrutiny of the provisions of the contract which is a
contract of adhesion at once exposed the use of several
contradictory terms. To name a few, in Section 9 of the said
contract disclaiming warranty, it is stated that the lessor is
not the manufacturer nor the latters agent and therefore does
not guarantee any feature or aspect of the object of the
contract as to its merchantability. Merchantability is a term
applied in a contract of sale of goods where conditions and
warranties are made to apply. Article 1547 of the Civil Code
provides that unless a contrary intention appears an implied
warranty on the part of the seller that he has the right to sell
and to pass ownership of the object is furnished by law
together with an implied warranty that the thing shall be free
from hidden faults or defects or any charge or encumbrance
not known to the buyer.
In an adhesion contract which is drafted and printed in
advance and parties are not given a real arms length
opportunity to transact, the Courts treat this kind of contract
strictly against their architects for the reason that the party
entering into this kind of contract has no choice but to accept
the terms and conditions found therein even if he is not in
accord therewith and for that matter may not have
understood all the terms and stipulations prescribed thereat.
Contracts of this character are prepared unilaterally by the
stronger party with the best legal talents at its disposal. It is
upon that thought that the Courts are called upon to analyze
closely said contracts so that the weaker party could be fully
protected.
Another instance is when the alleged lessee was required to
insure the thing against loss, damage or destruction.
In property insurance against loss or other accidental causes,
the assured must have an insurable interest, 32 Corpus Juris
1059.
xxxx
It has also been held that the test of insurable interest in
property is whether the assured has a right, title or interest
therein that he will be benefited by its preservation and
continued existence or suffer a direct pecuniary loss from its
destruction or injury by the peril insured against. If the
defendants were to be regarded as only a lessee, logically the
lessor who asserts ownership will be the one directly benefited
or injured and therefore the lessee is not supposed to be the
assured as he has no insurable interest.
There is also an observation from the records that the actual
value of each object of the contract would be the result after
computing the monthly rentals by multiplying the said rentals
by the number of months specified when the rentals ought to
be paid.
Still another observation is the existence in the records of a
Deed of Absolute Sale by and between the same parties,
plaintiff and defendants which was an exhibit of the defendant
where the plaintiff sold to the same defendants one unit 1995
Mitsubishi L-200 STRADA DC PICK UP and in said Deed, The
Court noticed that the same terms as in the alleged lease
were used in respect to warranty, as well as liability in case of
loss and other conditions. This action of the plaintiff
unequivocally exhibited their real intention to execute the
corresponding Deed after the defendants have paid in full and
as heretofore discussed and for the sake of emphasis the
obscurity in the written contract cannot favor the party who
caused the obscurity.
Based on substantive Rules on Interpretation, if the terms are
clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control. If
the words appear to be contrary to the evident intention of
the parties, their contemporaneous and subsequent acts shall
be principally considered. If the doubts are cast upon the
principal object of the contract in such a way that it cannot be
known what may have been the intention or will of the
parties, the contract shall be null and void.10
Thus, the court concluded with the following disposition:
In this case, which is held by this Court as a sale on
installment there is no chattel mortgage on the thing sold, but
it appears amongst the Complaints prayer, that the plaintiff
elected to exact fulfillment of the obligation.
For the vehicles returned, the plaintiff can only recover the
unpaid balance of the price because of the previous payments
made by the defendants for the reasonable use of the units,
specially so, as it appears, these returned vehicles were sold
at auction and that the plaintiff can apply the proceeds to the
balance. However, with respect to the unreturned units and
machineries still in the possession of the defendants, it is this
Courts view and so hold that the defendants are liable
therefore and accordingly are ordered jointly and severally to
pay the price thereof to the plaintiff together with attorneys
fee and the costs of suit in the sum of Php25,000.00.
SO ORDERED.11
On December 27, 2002, FEB filed its Notice of Appeal.12
Accordingly, on January 17, 2003, the court issued an Order 13
elevating the entire records of the case to the CA. FEB averred
that the trial court erred:
A. When it ruled that the agreement between the Parties-
Litigants is one of sale of personal properties on installment
and not of lease;
B. When it ruled that the applicable law on the case is Article
1484 (of the Civil Code) and not R.A. No. 8556;
C. When it ruled that the Plaintiff-Appellant can no longer
recover the unpaid balance of the price because of the
previous payments made by the defendants for the
reasonable use of the units;
D. When it failed to make a ruling or judgment on the Joint
and Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-
Appellant.14
On March 15, 2005, the CA issued its Decision15 declaring the
transaction between the parties as a financial lease agreement
under Republic Act (R.A.) No. 8556.16 The fallo of the assailed
Decision reads:
WHEREFORE, the instant appeal is GRANTED and the
assailed Decision dated 22 November 2002 rendered by the
Regional Trial Court of Manila, Branch 49 in Civil Case No. 00-
99451 is REVERSED and SET ASIDE, and a new judgment is
hereby ENTERED ordering appellees JVL Food Products and
Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing
and Finance Corporation the amount of Three Million Four
Hundred Fourteen Thousand Four Hundred Sixty Eight
Pesos and 75/100 (Php3,414,468.75), with interest at the
19
rate of twelve percent (12%) per annum starting from the
date of judicial demand on 06 December 2000, until full
payment thereof. Costs against appellees.
SO ORDERED.17
Lim filed the instant Petition for Review on Certiorari under
Rule 45
contending that:
I Second, there is no legal basis for Lim to question the
The Honorable Court of Appeals erred when it failed to
consider that the undated complaint was filed by Saturnino J.
Galang, Jr., without any authority from respondents Board of
Directors and/or Secretarys Certificate.
II
The Honorable Court of Appeals erred when it failed to strictly
apply Section 7, Rule 18 of the 1997 Rules of Civil Procedure
and now Item 1, A(8) of A.M. No. 03-1-09 SC (June 8, 2004).
III
The Honorable Court of Appeals erred in not dismissing the
appeal for failure of the respondent to file on time its
appellants brief and to separately rule on the petitioners
motion to dismiss.
IV
The Honorable Court of Appeals erred in finding that the
contract between the parties is one of a financial lease and
not of a contract of sale.
V
The Honorable Court of Appeals ERRED IN ruling that the
payments paid by the petitioner to the respondent are
"rentals" and not installments paid for the purchase price of
the subject motor vehicles, heavy machines and equipment.
VI
The Honorable Court of Appeals erred in ruling that the
previous contract of sale involving the pick-up vehicle is of no
consequence.
VII
The Honorable Court of Appeals failed to take into
consideration that the contract of lease, a contract of
adhesion, concealed the true intention of the parties, which is
a contract of sale.
VIII
The Honorable Court of Appeals erred in ruling that the
petitioner is a lessee with insurable interest over the subject
personal properties.
IX
The Honorable Court of Appeals erred in construing the
intentions of the Court a quo in its usage of the term
merchantability.18
We affirm the ruling of the appellate court.
First, Lim can no longer question Galangs authority as FEBs
authorized representative in filing the suit against Lim. Galang
was the representative of FEB in the proceedings before the
trial court up to the appellate court. Petitioner never placed in
issue the validity of Galangs representation before the trial
and appellate courts. Issues raised for the first time on appeal
are barred by estoppel. Arguments not raised in the original
proceedings cannot be considered on review; otherwise, it
would violate basic principles of fair play.19
authority of the CA to go beyond the matters agreed upon
during the pre-trial conference, or in not dismissing the appeal
for failure of FEB to file its brief on time, or in not ruling
separately on the petitioners motion to dismiss.
Courts have the prerogative to relax procedural rules of even
the most mandatory character, mindful of the duty to
reconcile both the need to speedily put an end to litigation and
the parties right to due process. In numerous cases, this
Court has allowed liberal construction of the rules when to do
so would serve the demands of substantial justice and
equity.20 In Aguam v. Court of Appeals , the Court explained:
The court has the discretion to dismiss or not to dismiss an
appellant's appeal. It is a power conferred on the court, not a
duty. The "discretion must be a sound one, to be exercised in
accordance with the tenets of justice and fair play, having in
mind the circumstances obtaining in each case."
Technicalities, however, must be avoided. The law abhors
technicalities that impede the cause of justice. The court's
primary duty is to render or dispense justice. "A litigation is
not a game of technicalities." "Lawsuits unlike duels are not to
be won by a rapier's thrust. Technicality, when it deserts its
proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration from
courts." Litigations must be decided on their merits and not on
technicality. Every party litigant must be afforded the amplest
opportunity for the proper and just determination of his cause,
free from the unacceptable plea of technicalities. Thus,
dismissal of appeals purely on technical grounds is frowned
upon where the policy of the court is to encourage hearings of
appeals on their merits and the rules of procedure ought not
to be applied in a very rigid, technical sense; rules of
procedure are used only to help secure, not override
substantial justice. It is a far better and more prudent course
of action for the court to excuse a technical lapse and afford
the parties a review of the case on appeal to attain the ends
of justice rather than dispose of the case on technicality and
cause a grave injustice to the parties, giving a false
impression of speedy disposal of cases while actually resulting
in more delay, if not a miscarriage of justice.21
Third, while we affirm that the subject lease agreement is a
contract of adhesion, such a contract is not void per se. It is
as binding as any ordinary contract. A party who enters into
an adhesion contract is free to reject the stipulations
entirely.22 If the terms thereof are accepted without objection,
then the contract serves as the law between the parties.
In Section 23 of the lease contract, it was expressly stated
that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE
23.1. The LESSOR and the LESSEE agree this instrument
constitute the entire agreement between them, and that no
representations have been made other than as set forth
herein. This Agreement shall not be amended or altered in any
manner, unless such amendment be made in writing and
signed by the parties hereto.
20
Petitioners claim that the real intention of the parties was a
contract of sale of personal property on installment basis is
more likely a mere afterthought in order to defeat the rights
of the respondent.
The Lease Contract with corresponding Lease Schedules with
Delivery and Acceptance Certificates is, in point of fact, a
financial lease within the purview of R.A. No. 8556. Section
3(d) thereof defines "financial leasing" as:
[A] mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires, at the
instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable
or immovable property in consideration of the periodic
payment by the lessee of a fixed amount of money sufficient
to amortize at least seventy (70%) of the purchase price or
acquisition cost, including any incidental expenses and a
margin of profit over an obligatory period of not less than two
(2) years during which the lessee has the right to hold and
use the leased property with the right to expense the lease
rentals paid to the lessor and bears the cost of repairs,
maintenance, insurance and preservation thereof, but with no
obligation or option on his part to purchase the leased
property from the owner-lessor at the end of the lease
contract.
FEB leased the subject equipment and motor vehicles to JVL in
consideration of a monthly periodic payment of P170,494.00.
The periodic payment by petitioner is sufficient to amortize at
least 70% of the purchase price or acquisition cost of the said
movables in accordance with the Lease Schedules with
Delivery and Acceptance Certificates. "The basic purpose of a
financial leasing transaction is to enable the prospective buyer
of equipment, who is unable to pay for such equipment in
cash in one lump sum, to lease such equipment in the
meantime for his use, at a fixed rental sufficient to amortize
at least 70% of the acquisition cost (including the expenses
and a margin of profit for the financial lessor) with the
expectation that at the end of the lease period the
buyer/financial lessee will be able to pay any remaining
balance of the purchase price."23
The allegation of petitioner that the rent for the use of each
movable constitutes the value of the vehicle or equipment
leased is of no moment. The law on financial lease does not
prohibit such a circumstance and this alone does not make the
transaction between the parties a sale of personal property on
installment. In fact, the value of the lease, usually constituting
the value or amount of the property involved, is a benefit
allowed by law to the lessor for the use of the property by the
lessee for the duration of the lease. It is recognized that the
value of these movables depreciates through wear and tear
upon use by the lessee. In Beltran v. PAIC Finance
Corporation,24 we stated that:
Generally speaking, a financing company is not a buyer or
seller of goods; it is not a trading company. Neither is it an
ordinary leasing company; it does not make its profit by
buying equipment and repeatedly leasing out such equipment
to different users thereof. But a financial lease must be
preceded by a purchase and sale contract covering the
equipment which becomes the subject matter of the financial
lease. The financial lessor takes the role of the buyer of the
equipment leased. And so the formal or documentary tie
between the seller and the real buyer of the equipment, i.e.,
the financial lessee, is apparently severed. In economic
reality, however, that relationship remains. The sale of the
equipment by the supplier thereof to the financial lessor and
the latter's legal ownership thereof are intended to secure the
repayment over time of the purchase price of the equipment,
plus financing charges, through the payment of lease rentals;
that legal title is the upfront security held by the financial
lessor, a security probably superior in some instances to a
chattel mortgagee's lien.25
Fourth, the validity of Lease No. 27:95:20 between FEB and
JVL should be upheld. JVL entered into the lease contract with
full knowledge of its terms and conditions. The contract was in
force for more than four years. Since its inception on March 9,
1995, JVL and Lim never questioned its provisions. They only
attacked the validity of the contract after they were judicially
made to answer for their default in the payment of the agreed
rentals.
It is settled that the parties are free to agree to such
stipulations, clauses, terms, and conditions as they may want
to include in a contract. As long as such agreements are not
contrary to law, morals, good customs, public policy, or public
order, they shall have the force of law between the parties.26
Contracting parties may stipulate on terms and conditions as
they may see fit and these have the force of law between
them.27
The stipulation in Section 1428 of the lease contract, that the
equipment shall be insured at the cost and expense of the
lessee against loss, damage, or destruction from fire, theft,
accident, or other insurable risk for the full term of the lease,
is a binding and valid stipulation. Petitioner, as a lessee, has
an insurable interest in the equipment and motor vehicles
leased. Section 17 of the Insurance Code provides that the
measure of an insurable interest in property is the extent to
which the insured might be damnified by loss or injury
thereof. It cannot be denied that JVL will be directly damnified
in case of loss, damage, or destruction of any of the
properties leased.
Likewise, the stipulation in Section 9.1 of the lease contract
that the lessor does not warrant the merchantability of the
equipment is a valid stipulation. Section 9.1 of the lease
contract is stated as:
9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE
LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF THE
EQUIPMENT NOR THE AGENT OF THE MANUFACTURER OR
SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES
THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER
THEREOF AND THAT THERE ARE NO WARRANTIES,
CONDITIONS, TERMS, REPRESENTATION OR INDUCEMENTS,
EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY
OR ON BEHALF OF THE LESSOR AS TO ANY FEATURE OR
ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS
TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR
MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT
WILL MEET THE REQUIREMENTS OF ANY LAW, RULE,
SPECIFICATIONS OR CONTRACT WHICH PROVIDE FOR
SPECIFIC MACHINERY OR APPARATUS OR SPECIAL
METHODS.29
In the financial lease agreement, FEB did not assume
responsibility as to the quality, merchantability, or capacity of
the equipment. This stipulation provides that, in case of defect
of any kind that will be found by the lessee in any of the
equipment, recourse should be made to the manufacturer.
"The financial lessor, being a financing company, i.e., an
extender of credit rather than an ordinary equipment rental
company, does not extend a warranty of the fitness of the
equipment for any particular use. Thus, the financial lessee
was precisely in a position to enforce such warranty directly
against the supplier of the equipment and not against the
financial lessor. We find nothing contra legem or contrary to
public policy in such a contractual arrangement."30
Fifth, petitioner further proffers the view that the real
intention of the parties was to enter into a contract of sale on
installment in the same manner that a previous transaction
between the parties over a 1995 Mitsubishi L-200 Strada DC-
Pick-Up was initially covered by an agreement denominated as
a lease and eventually became the subject of a Deed of
Absolute Sale.
21
We join the CA in rejecting this view because to allow the
transaction involving the pick-up to be read into the terms of
the lease agreement would expand the coverage of the
agreement, in violation of Article 1372 of the New Civil Code.
31
The lease contract subject of the complaint speaks only of a
lease. Any agreement between the parties after the lease
contract has ended is a different transaction altogether and
should not be included as part of the lease. Furthermore, it is
a cardinal rule in the interpretation of contracts that if the
terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of its
stipulations shall control. No amount of extrinsic aid is
necessary in order to determine the parties' intent.32
WHEREFORE, in the light of all the foregoing, the petition is
DENIED. The Decision of the CA in CA-G.R. CV No. 77498
dated March 15, 2005 and Resolution dated May 23, 2005 are
AFFIRMED. Costs against petitioner.
DIGEST-G.R. No. 168115 June 8, 2007
Lessons Applicable: Existing Interest (Insurance)
Laws Applicable:
FACTS:
FEB Leasing and Finance Corporation (FEB) leased
equipment and motor vehicles to JVL Food Products
with a monthly rental of P170,494
At the same date, Vicente Ong Lim Sing, Jr. (Lim)
an executed an Individual Guaranty Agreement with
FEB to guarantee the prompt and faithful
performance of the terms and conditions of the lease
agreement
JVL defaulted in the payment of the monthly rentals
resulting to arrears of P3,414,468.75 and refused to
pay despite demands
FEB filed a complaint for damages and replevin
against JVL, Lim and John Doe
o JVL and Lim admitted the existence of the
lease agreement but asserted that it is in
reality a sale of equipment on installment
basis, with FEB acting as the financier
RTC: Sale on installment and the FEB elected full
payment of the obligation so for the unreturned units
and machineries the JVL and Lim are jointly and
severally liable to pay
CA: granted FEB appeal that it is a financial lease
agreement under Republic Act (R.A.) No. 8556 and
ordered JVL and Lim jointly and severally to
pay P3,414,468.75
ISSUE: W/N JVL and Lim should jointly and severally be liable
for the insured financial lease
HELD: YES. CA affirmed.
contract of adhesion is as binding as any ordinary
contract
The Lease Contract with corresponding Lease
Schedules with Delivery and Acceptance Certificates
is, in point of fact, a financial lease within the
purview of R.A. No. 8556
o FEB leased the subject equipment and motor
vehicles to JVL in consideration of a monthly
periodic payment of P170,494.00. The
periodic payment by petitioner is sufficient
to amortize at least 70% of the purchase
price or acquisition cost of the said
movables in accordance with the Lease
Schedules with
Delivery and Acceptance Certificates.
JVL entered into the lease contract with full
knowledge of its terms and conditions.
Lim, as a lessee, has an insurable interest in the
equipment and motor vehicles leased.
In the financial lease agreement, FEB did not assume
responsibility as to the quality, merchantability, or
capacity of the equipment. This stipulation provides
that, in case of defect of any kind that will be found
by the lessee in any of the equipment, recourse
should be made to the manufacturer. The financial
lessor, being a financing company, i.e., an extender
of credit rather than an ordinary equipment rental
company, does not extend a warranty of the fitness
of the equipment for any particular use. Thus, the
financial lessee was precisely in a position to enforce
such warranty directly against the supplier of the
equipment and not against the financial lessor. We
find nothing contra legem or contrary to public policy
in such a contractual arrangement
FT-G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
Ernani Trinos, deceased husband of respondent Julita Trinos,
applied for a health care coverage with petitioner Philamcare
Health Systems, Inc. In the standard application form, he
answered no to the following question:
Have you or any of your family members ever
consulted or been treated for high blood pressure,
heart trouble, diabetes, cancer, liver disease, asthma
or peptic ulcer? (If Yes, give details).1
The application was approved for a period of one year from
March 1, 1988 to March 1, 1989. Accordingly, he was issued
Health Care Agreement No. P010194. Under the agreement,
respondents husband was entitled to avail of hospitalization
benefits, whether ordinary or emergency, listed therein. He
was also entitled to avail of "out-patient benefits" such as
annual physical examinations, preventive health care and
other out-patient services.
Upon the termination of the agreement, the same was
extended for another year from March 1, 1989 to March 1,
1990, then from March 1, 1990 to June 1, 1990. The amount
of coverage was increased to a maximum sum of P75,000.00
per disability.2
During the period of his coverage, Ernani suffered a heart
attack and was confined at the Manila Medical Center (MMC)
for one month beginning March 9, 1990. While her husband
was in the hospital, respondent tried to claim the benefits
under the health care agreement. However, petitioner denied
her claim saying that the Health Care Agreement was void.
According to petitioner, there was a concealment regarding
Ernanis medical history. Doctors at the MMC allegedly
discovered at the time of Ernanis confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer
in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about
P76,000.00.
After her husband was discharged from the MMC, he was
attended by a physical therapist at home. Later, he was
admitted at the Chinese General Hospital. Due to financial
difficulties, however, respondent brought her husband home
again. In the morning of April 13, 1990, Ernani had fever and
was feeling very weak. Respondent was constrained to bring
him back to the Chinese General Hospital where he died on
the same day.
22
On July 24, 1990, respondent instituted with the Regional
Trial Court of Manila, Branch 44, an action for damages
against petitioner and its president, Dr. Benito Reverente,
which was docketed as Civil Case No. 90-53795. She asked
for reimbursement of her expenses plus moral damages and
attorneys fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court
renders judgment in favor of the plaintiff Julita
Trinos, ordering:
1. Defendants to pay and reimburse the medical and
hospital coverage of the late Ernani Trinos in the
amount of P76,000.00 plus interest, until the amount
is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral
damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of
P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00,
plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the
trial court but deleted all awards for damages and absolved
petitioner Reverente.4 Petitioners motion for reconsideration
was denied.5 Hence, petitioner brought the instant petition for
review, raising the primary argument that a health care
agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code6 does not
apply.1wphi1.nt
Petitioner argues that the agreement grants "living benefits,"
such as medical check-ups and hospitalization which a
member may immediately enjoy so long as he is alive upon
effectivity of the agreement until its expiration one-year
thereafter. Petitioner also points out that only medical and
hospitalization benefits are given under the agreement
without any indemnification, unlike in an insurance contract
where the insured is indemnified for his loss. Moreover, since
Health Care Agreements are only for a period of one year, as
compared to insurance contracts which last longer,7 petitioner
argues that the incontestability clause does not apply, as the
same requires an effectivity period of at least two years.
Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the
Department of Health.
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 designated 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 insurers promise, the
insured pays a premium.8
Section 3 of the Insurance Code states that any contingent or
unknown event, whether past or future, which may damnify a
person having an insurable interest against him, may be
insured against. Every person has an insurable interest in the
life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and
health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in
part for education or support, or in whom he has a
pecuniary interest;
(3) of any person under a legal obligation to him for
the payment of money, respecting property or
service, of which death or illness might delay or
prevent the performance; and
(4) of any person upon whose life any estate or
interest vested in him depends.
In the case at bar, the insurable interest of respondents
husband in obtaining the health care agreement was his own
health. The health care agreement was in the nature of non-
life insurance, which is primarily a contract of indemnity.9
Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the same to
the extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a
material fact in his application. It appears that in the
application for health coverage, petitioners required
respondents husband to sign an express authorization for any
person, organization or entity that has any record or
knowledge of his health to furnish any and all information
relative to any hospitalization, consultation, treatment or any
other medical advice or examination.10 Specifically, the Health
Care Agreement signed by respondents husband states:
We hereby declare and agree that all statement and
answers contained herein and in any addendum
annexed to this application are full, complete and
true and bind all parties in interest under the
Agreement herein applied for, that there shall be no
contract of health care coverage unless and until an
Agreement is issued on this application and the full
Membership Fee according to the mode of payment
applied for is actually paid during the lifetime and
good health of proposed Members; that no
information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless
set out in writing in the application; that any
physician is, by these presents, expressly authorized
to disclose or give testimony at anytime relative to
any information acquired by him in his professional
capacity upon any question affecting the eligibility for
health care coverage of the Proposed Members and
that the acceptance of any Agreement issued on this
application shall be a ratification of any correction in
or addition to this application as stated in the space
for Home Office Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally
required the applicant for authorization to inquire about the
applicants medical history, thus:
23
 I hereby authorize any person, organization, or entity
that has any record or knowledge of my health
and/or that of __________ to give to the PhilamCare
Health Systems, Inc. any and all information relative
to any hospitalization, consultation, treatment or any
other medical advice or examination. This
authorization is in connection with the application for
health care coverage only. A photographic copy of
this authorization shall be as valid as the original.12
(Underscoring ours)
Petitioner cannot rely on the stipulation regarding
"Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any
material information by the member in the
application or medical examination, whether
intentional or unintentional, shall automatically
invalidate the Agreement from the very beginning
and liability of Philamcare shall be limited to return of
all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its
revelation would have resulted in the declination of
the applicant by Philamcare or the assessment of a
higher Membership Fee for the benefit or benefits
applied for.13
The answer assailed by petitioner was in response to the
question relating to the medical history of the applicant. This
largely depends on opinion rather than fact, especially coming
from respondents husband who was not a medical doctor.
Where matters of opinion or judgment are called for, answers
made in good faith and without intent to deceive will not avoid
a policy even though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured
will not avoid the policy if there is no actual fraud in
inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the
rule although the statement is material to the risk, if
the statement is obviously of the foregoing character,
since in such case the insurer is not justified in
relying upon such statement, but is obligated to
make further inquiry. There is a clear distinction
between such a case and one in which the insured is
fraudulently and intentionally states to be true, as a
matter of expectation or belief, that which he then
knows, to be actually untrue, or the impossibility of
which is shown by the facts within his knowledge,
since in such case the intent to deceive the insurer is
obvious and amounts to actual fraud.15 (Underscoring
ours)
The fraudulent intent on the part of the insured must be
established to warrant rescission of the insurance contract.16
Concealment as a defense for the health care provider or
insurer to avoid liability is an affirmative defense and the duty
to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer. In any case, with
or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member
is hospitalized for the disease or injury covered by the
agreement or whenever he avails of the covered benefits
which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment
entitles the injured party to rescind a contract of insurance."
The right to rescind should be exercised previous to the
commencement of an action on the contract.17 In this case, no
rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence of
the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date
of the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the
address shown in the policy;
4. Must state the grounds relied upon provided in Section 64
of the Insurance Code and upon request of insured, to furnish
facts on which cancellation is based.18
None of the above pre-conditions was fulfilled in this case.
When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his
obligation.19 Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the
party which prepared the contract the insurer.20 By reason
of the exclusive control of the insurance company over the
terms and phraseology of the insurance contract, ambiguity
must be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture.21 This is
equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts,
such as the one at bar, must be liberally construed in favor of
the subscriber, and if doubtful or reasonably susceptible of
two interpretations the construction conferring coverage is to
be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.22
Anent the incontestability of the membership of respondents
husband, we quote with approval the following findings of the
trial court:
(U)nder the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had
twelve months from the date of issuance of the
Agreement within which to contest the membership
of the patient if he had previous ailment of asthma,
and six months from the issuance of the agreement if
the patient was sick of diabetes or hypertension. The
periods having expired, the defense of concealment
or misrepresentation no longer lie.23
Finally, petitioner alleges that respondent was not the legal
wife of the deceased member considering that at the time of
their marriage, the deceased was previously married to
another woman who was still alive. The health care agreement
is in the nature of a contract of indemnity. Hence, payment
should be made to the party who incurred the expenses. It is
not controverted that respondent paid all the hospital and
medical expenses. She is therefore entitled to reimbursement.
The records adequately prove the expenses incurred by
respondent for the deceaseds hospitalization, medication and
the professional fees of the attending physicians.24
WHEREFORE, in view of the foregoing, the petition is
DENIED. The assailed decision of the Court of Appeals dated
December 14, 1995 is AFFIRMED.
DIGEST- Philamcare v CA G.R. No. 125678. March 18,
2002
Facts:
Ernani Trinos applied for a health care coverage with Philam.
He answered no to a question asking if he or his family
members were treated to heart trouble, asthma, diabetes,
etc.
24
The application was approved for 1 year. He was also given
hospitalization benefits and out-patient benefits. After the
period expired, he was given an expanded coverage for Php
75,000. During the period, he suffered from heart attack and
was confined at MMC. The wife tried to claim the benefits but
the petitioner denied it saying that he concealed his medical
history by answering no to the aforementioned question. She
had to pay for the hospital bills amounting to 76,000. Her
husband subsequently passed away. She filed a case in the
trial court for the collection of the amount plus damages. She
was awarded 76,000 for the bills and 40,000 for damages.
The CA affirmed but deleted awards for damages. Hence, this
appeal.
Issue: WON a health care agreement is not an insurance
contract; hence the incontestability clause under the
Insurance Code does not apply.
Held: No. Petition dismissed.
Ratio:
Petitioner claimed that it granted benefits only when the
insured is alive during the one-year duration. It contended
that there was no indemnification unlike in insurance
contracts. It supported this claim by saying that it is a health
maintenance organization covered by the DOH and not the
Insurance Commission. Lastly, it claimed that the
Incontestability clause didnt apply because two-year and not
one-year effectivity periods were required.
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.
Section 3 states: every person has an insurable interest in the
life and health:
(1) of himself, of his spouse and of his children.
In this case, the husbands health was the insurable interest.
The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity. The
provider must pay for the medical expenses resulting from
sickness or injury.
While petitioner contended that the husband concealed
materialfact of his sickness, the contract stated that:
that any physician is, by these presents, expressly authorized
to disclose or give testimony at anytime relative to any
information acquired by him in his professional capacity upon
any question affecting the eligibility for health care coverage
of the Proposed Members.
This meant that the petitioners required him to sign
authorization to furnish reports about his medical condition.
The contract also authorized Philam to inquire directly to his
medical history.
Hence, the contention of concealment isnt valid.
They cant also invoke the Invalidation of agreement clause
where failure of the insured to disclose information was a
grounds for revocation simply because the answer assailed by
the company was the heart condition question based on the
insureds opinion. He wasnt a medical doctor, so he cant
accurately gauge his condition.
Henrick v Fire- in such case the insurer is not justified in
relying upon such statement, but is obligated to make further
inquiry.
Fraudulent intent must be proven to rescind the contract. This
was incumbent upon the provider.
Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed
upon. In the end, the liability of the health care provider
attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Section 27 of the Insurance Code- a concealment entitles the
injured party to rescind a contract of insurance.
As to cancellation procedure- Cancellation requires certain
conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective
date of the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at
the address shown in the policy;
4. Must state the grounds relied upon provided in Section
64 of the Insurance Code and upon request of insured, to
furnish facts on which cancellation is based
None were fulfilled by the provider.
As to incontestability- The trial court said that under the title
Claim procedures of expenses, the defendant Philamcare
Health Systems Inc. had twelve months from the date of
issuance of the Agreement within which to contest the
membership of the patient if he had previous ailment of
asthma, and six months from the issuance of the agreement if
the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or
misrepresentation no longer lie.
FT-G.R. No. 124520 August 18, 1997
Spouses NILO CHA and STELLA UY CHA, and UNITED
INSURANCE CO., INC., petitioners,
vs.
COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION, respondents.
This petition for review on certiorari under Rule 45 of the
Rules of Court seeks to set aside a decision of respondent
Court of Appeals.
The undisputed facts of the case are as follows:
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees,
entered into a lease contract with private respondent CKS
Development Corporation (hereinafter CKS), as lessor, on 5
October 1988.
2. One of the stipulations of the one (1) year lease contract
states:
18. . . . The LESSEE shall not insure against fire the
chattels, merchandise, textiles, goods and effects
placed at any stall or store or space in the leased
premises without first obtaining the written consent
and approval of the LESSOR. If the LESSEE obtain(s)
the insurance thereof without the consent of the
LESSOR then the policy is deemed assigned and
transferred to the LESSOR for its own benefit; . . . 1
3. Notwithstanding the above stipulation in the lease contract,
the Cha spouses insured against loss by fire the merchandise
inside the leased premises for Five Hundred Thousand
(P500,000.00) with the United Insurance Co., Inc.
(hereinafter United) without the written consent of private
respondent CKS.
4. On the day that the lease contract was to expire, fire broke
out inside the leased premises.
5. When CKS learned of the insurance earlier procured by the
Cha spouses (without its consent), it wrote the insurer
(United) a demand letter asking that the proceeds of the
insurance contract (between the Cha spouses and United) be
paid directly to CKS, based on its lease contract with the Cha
spouses.
6. United refused to pay CKS. Hence, the latter filed a
complaint against the Cha spouses and United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila,
rendered a decision * ordering therein defendant United to
pay CKS the amount of P335,063.11 and defendant Cha
spouses to pay P50,000.00 as exemplary damages,
P20,000.00 as attorney's fees and costs of suit.
25
8. On appeal, respondent Court of Appeals in CA GR CV No.
39328 rendered a decision ** dated 11 January 1996,
affirming the trial court decision, deleting however the awards
for exemplary damages and attorney's fees. A motion for
reconsideration by United was denied on 29 March 1996.
In the present petition, the following errors are assigned by
petitioners to the Court of Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN
FAILING TO DECLARE THAT THE STIPULATION IN
THE CONTRACT OF LEASE TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT IS
NULL AND VOID FOR BEING CONTRARY TO LAW,
MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN
FAILING TO DECLARE THE CONTRACT OF LEASE
ENTERED INTO AS A CONTRACT OF ADHESION AND
THEREFORE THE QUESTIONABLE PROVISION
THEREIN TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT MUST BE RULED OUT
IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN
AWARDING PROCEEDS OF AN INSURANCE POLICY
TO APPELLEE WHICH IS NOT PRIVY TO THE SAID
POLICY IN CONTRAVENTION OF THE INSURANCE
LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN
AWARDING PROCEEDS OF AN INSURANCE POLICY
ON THE BASIS OF A STIPULATION WHICH IS VOID
FOR BEING WITHOUT CONSIDERATION AND FOR
BEING TOTALLY DEPENDENT ON THE WILL OF THE
RESPONDENT CORPORATION. 2
The core issue to be resolved in this case is whether or not
the aforequoted paragraph 18 of the lease contract entered
into between CKS and the Cha spouses is valid insofar as it
provides that any fire insurance policy obtained by the lessee
(Cha spouses) over their merchandise inside the leased
premises is deemed assigned or transferred to the lessor
(CKS) if said policy is obtained without the prior written
consent of the latter.
It is, of course, basic in the law on contracts that the
stipulations contained in a contract cannot be contrary to law,
morals, good customs, public order or public policy. 3
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on
property shall be enforceable except for the benefit
of some person having an insurable interest in the
property insured.
A non-life insurance policy such as the fire insurance policy
taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the
property insured must exist at the time the insurance takes
effect and at the time the loss occurs. 4 The basis of such
requirement of insurable interest in property insured is based
on sound public policy: to prevent a person from taking out an
insurance policy on property upon which he has no insurable
interest and collecting the proceeds of said policy in case of
loss of the property. In such a case, the contract of insurance
is a mere wager which is void under Section 25 of the
Insurance Code, which provides:
Sec. 25. Every stipulation in a policy of Insurance for
the payment of loss, whether the person insured has
or has not any interest in the property insured, or
that the policy shall be received as proof of such
interest, and every policy executed by way of gaming
or wagering, is void.
In the present case, it cannot be denied that CKS has no
insurable interest in the goods and merchandise inside the
leased premises under the provisions of Section 17 of the
Insurance Code which provide:
Sec. 17. The measure of an insurable interest in
property is the extent to which the insured might be
damnified by loss of injury thereof.
Therefore, respondent CKS cannot, under the Insurance Code
a special law be validly a beneficiary of the fire insurance
policy taken by the petitioner-spouses over their merchandise.
This insurable interest over said merchandise remains with the
insured, the Cha spouses. The automatic assignment of the
policy to CKS under the provision of the lease contract
previously quoted is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus
rightfully belong to the spouses Nilo Cha and Stella Uy-Cha
(herein co-petitioners). The insurer (United) cannot be
compelled to pay the proceeds of the fire insurance policy to a
person (CKS) who has no insurable interest in the property
insured.
The liability of the Cha spouses to CKS for violating their lease
contract in that the Cha spouses obtained a fire insurance
policy over their own merchandise, without the consent of
CKS, is a separate and distinct issue which we do not resolve
in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R.
CV No. 39328 is SET ASIDE and a new decision is hereby
entered, awarding the proceeds of the fire insurance policy to
petitioners Nilo Cha and Stella Uy-Cha.
DIGEST-G.R. No. 124520 August 18, 1997
Lessons Applicable: Effect of Lack of Insurable Interest
(Insurance)
Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance
Code
FACTS:
Spouses Nilo Cha and Stella Uy-Cha and CKS
Development Corporation entered a 1 year lease
contract with a stipulation not to insure against fire
the chattels, merchandise, textiles, goods and effects
placed at any stall or store or space in the leased
premises without first obtaining the written consent
and approval of the lessor. But it insured against
loss by fire their merchandise inside the leased
premises for P500,000 with the United Insurance Co.,
Inc. without the written consent of CKS
On the day the lease contract was to expire, fire
broke out inside the leased premises and CKS
learning that the spouses procured an insurance
wrote to United to have the proceeds be paid directly
to them. But United refused so CKS filed against
Spouses Cha and United.
RTC: United to pay CKS the amount of P335,063.11
and Spouses Cha to pay P50,000 as exemplary
26
 damages, P20,000 as attorneys fees and costs of
suit
CA: deleted exemplary damages and attorneys fees
ISSUE: W/N the CKS has insurable interest because the
spouses Cha violated the stipulation
HELD: NO. CA set aside. Awarding the proceeds to spouses
Cha.
Sec. 18. No contract or policy of insurance on
property shall be enforceable except for the benefit
of some person having an insurable interest in the
property insured
A non-life insurance policy such as the fire insurance
policy taken by petitioner-spouses over their
merchandise is primarily a contract of
indemnity. Insurable interest in the property insured
must exist a t the time the insurance takes effect and
at the time the loss occurs. The basis of such
requirement of insurable interest in property insured
is based on sound public policy: to prevent a person
from taking out an insurance policy on property upon
which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the
property. In such a case, the contract of insurance is
a mere wager which is void under Section 25 of the
Insurance Code.
SECTION 25. Every stipulation in a policy of
Insurance for the payment of loss, whether the
person insured has or has not any interest in the
property insured, or that the policy shall be received
as proof of such interest, and every policy executed
by way of gaming or wagering, is void
Section 17. The measure of an insurable interest in
property is the extent to which the insured might be
damnified by loss of injury thereof
The automatic assignment of the policy to CKS under
the provision of the lease contract previously quoted
is void for being contrary to law and/or public
policy. The proceeds of the fire insurance policy thus
rightfully belong to the spouses. The liability of the
Cha spouses to CKS for violating their lease contract
in that Cha spouses obtained a fire insurance policy
over their own merchandise, without the consent of
CKS, is a separate and distinct issue which we do not
resolve in this case.
FT-G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner,
vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-
INDEMNITY CORPORATION, respondents.
This petition for review on certiorari seeks the reversal of the
decision of the Insurance Commission in IC Case #367 1
dismissing the complaint 2 for recovery of the alleged unpaid
balance of the proceeds of the Fire Insurance Policies issued
by herein respondent insurance company in favor of
petitioner-intervenor.
The facts of the case as found by respondent Insurance
Commission are as follows:
Complainants acquired from a certain Rolando
Gonzales a parcel of land and a building located at
San Rafael Village, Davao City. Complainants
assumed the mortgage of the building in favor of
S.S.S., which building was insured with respondent
S.S.S. Accredited Group of Insurers for P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan
from Tai Tong Chuache Inc. in the amount of
P100,000.00. To secure the payment of the loan, a
mortgage was executed over the land and the
building in favor of Tai Tong Chuache & Co. (Exhibit
"1" and "1-A"). On April 25, 1975, Arsenio Chua,
representative of Thai Tong Chuache & Co. insured
the latter's interest with Travellers Multi-Indemnity
Corporation for P100,000.00 (P70,000.00 for the
building and P30,000.00 for the contents thereof)
(Exhibit "A-a," contents thereof) (Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire
Insurance Policy No. F- 02500 (Exhibit "A"), covering
the building for P50,000.00 with respondent Zenith
Insurance Corporation. On July 16, 1975, another
Fire Insurance Policy No. 8459 (Exhibit "B") was
procured from respondent Philippine British
Assurance Company, covering the same building for
P50,000.00 and the contents thereof for P70,000.00.
On July 31, 1975, the building and the contents were
totally razed by fire.
Adjustment Standard Corporation submitted a report
as follow
xxx xxx xxx
... Thus the apportioned share of each company is as
follows:
We are showing hereunder another apportionment of
the loss which includes the Travellers Multi-Indemnity
policy for reference purposes.
Based on the computation of the loss, including the
Travellers Multi- Indemnity, respondents, Zenith
Insurance, Phil. British Assurance and S.S.S.
Accredited Group of Insurers, paid their
corresponding shares of the loss. Complainants were
paid the following: P41,546.79 by Philippine British
Assurance Co., P11,877.14 by Zenith Insurance
Corporation, and P5,936.57 by S.S.S. Group of
Accredited Insurers (Par. 6. Amended Complaint).
Demand was made from respondent Travellers Multi-
Indemnity for its share in the loss but the same was
refused. Hence, complainants demanded from the
other three (3) respondents the balance of each
share in the loss based on the computation of the
Adjustment Standards Report excluding Travellers
Multi-Indemnity in the amount of P30,894.31
(P5,732.79-Zenith Insurance: P22,294.62, Phil.
British: and P2,866.90, SSS Accredited) but the
same was refused, hence, this action.
In their answers, Philippine British Assurance and
Zenith Insurance Corporation admitted the material
allegations in the complaint, but denied liability on
the ground that the claim of the complainants had
already been waived, extinguished or paid. Both
companies set up counterclaim in the total amount of
P 91,546.79.
Instead of filing an answer, SSS Accredited Group of
Insurers informed the Commission in its letter of July
22, 1977 that the herein claim of complainants for
the balance had been paid in the amount of P
5,938.57 in full, based on the Adjustment Standards
Corporation Report of September 22, 1975.
Travellers Insurance, on its part, admitted the
issuance of the Policy No. 599 DV and alleged as its
27
 special and affirmative defenses the following, to wit:
that Fire Policy No. 599 DV, covering the furniture
and building of complainants was secured by a
certain Arsenio Chua, mortgage creditor, for the
purpose of protecting his mortgage credit against the
complainants; that the said policy was issued in the
name of Azucena Palomo, only to indicate that she
owns the insured premises; that the policy contains
an endorsement in favor of Arsenio Chua as his
mortgage interest may appear to indicate that
insured was Arsenio Chua and the complainants; that
the premium due on said fire policy was paid by
Arsenio Chua; that respondent Travellers is not liable
to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a
complaint in intervention claiming the proceeds of
the fire Insurance Policy No. F-559 DV, issued by
respondent Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint in
intervention, alleged that the Intervenor is not
entitled to indemnity under its Fire Insurance Policy
for lack of insurable interest before the loss of the
insured premises and that the complainants, spouses
Pedro and Azucena Palomo, had already paid in full
their mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission
dismissed spouses Palomos' complaint on the ground that the
insurance policy subject of the complaint was taken out by Tai
Tong Chuache & Company, petitioner herein, for its own
interest only as mortgagee of the insured property and thus
complainant as mortgagors of the insured property have no
right of action against herein respondent. It likewise dismissed
petitioner's complaint in intervention in the following words:
We move on the issue of liability of respondent
Travellers Multi-Indemnity to the Intervenor-
mortgagee. The complainant testified that she was
still indebted to Intervenor in the amount of
P100,000.00. Such allegation has not however, been
sufficiently proven by documentary evidence. The
certification (Exhibit 'E-e') issued by the Court of First
Instance of Davao, Branch 11, indicate that the
complainant was Antonio Lopez Chua and not Tai
Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache
filed a motion for reconsideration but it was likewise denied
hence, the present petition.
It is the contention of the petitioner that respondent
Insurance Commission decided an issue not raised in the
pleadings of the parties in that it ruled that a certain Arsenio
Lopez Chua is the one entitled to the insurance proceeds and
not Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous
interpretation of the decision appealed from considering the
manner it was written. 5 As correctly pointed out by
respondent insurance commission in their comment, the
decision did not pronounce that it was Arsenio Lopez Chua
who has insurable interest over the insured property. Perusal
of the decision reveals however that it readily absolved
respondent insurance company from liability on the basis of
the commissioner's conclusion that at the time of the
occurrence of the peril insured against petitioner as
mortgagee had no more insurable interest over the insured
property. It was based on the inference that the credit
secured by the mortgaged property was already paid by the
Palomos before the said property was gutted down by fire.
The foregoing conclusion was arrived at on the basis of the
certification issued by the then Court of First Instance of
Davao, Branch II that in a certain civil action against the
Palomos, Antonio Lopez Chua stands as the complainant and
not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well
known postulate that the case of a party is constituted by his
own affirmative allegations. Under Section 1, Rule 131 6 each
party must prove his own affirmative allegations by the
amount of evidence required by law which in civil cases as in
the present case is preponderance of evidence. The party,
whether plaintiff or defendant, who asserts the affirmative of
the issue has the burden of presenting at the trial such
amount of evidence as required by law to obtain favorable
judgment. 7 Thus, petitioner who is claiming a right over the
insurance must prove its case. Likewise, respondent insurance
company to avoid liability under the policy by setting up an
affirmative defense of lack of insurable interest on the part of
the petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not
assail the validity of the insurance policy taken out by
petitioner over the mortgaged property. Neither did it deny
that the said property was totally razed by fire within the
period covered by the insurance. Respondent, as mentioned
earlier advanced an affirmative defense of lack of insurable
interest on the part of the petitioner that before the
occurrence of the peril insured against the Palomos had
already paid their credit due the petitioner. Respondent
having admitted the material allegations in the complaint, has
the burden of proof to show that petitioner has no insurable
interest over the insured property at the time the contingency
took place. Upon that point, there is a failure of proof.
Respondent, it will be noted, exerted no effort to present any
evidence to substantiate its claim, while petitioner did. For
said respondent's failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance
Commission absolved respondent insurance company from
liability on the basis of the certification issued by the then
Court of First Instance of Davao, Branch II, that in a certain
civil action against the Palomos, Arsenio Lopez Chua stands as
the complainant and not Tai Tong Chuache. From said
evidence respondent commission inferred that the credit
extended by herein petitioner to the Palomos secured by the
insured property must have been paid. Such is a glaring error
which this Court cannot sanction. Respondent Commission's
findings are based upon a mere inference.
The record of the case shows that the petitioner to support its
claim for the insurance proceeds offered as evidence the
contract of mortgage (Exh. 1) which has not been cancelled
nor released. It has been held in a long line of cases that
when the creditor is in possession of the document of credit,
he need not prove non-payment for it is presumed. 8 The
validity of the insurance policy taken b petitioner was not
assailed by private respondent. Moreover, petitioner's claim
that the loan extended to the Palomos has not yet been paid
was corroborated by Azucena Palomo who testified that they
are still indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really
stemmed from the loan granted to Azucena Palomo by
petitioner the same should have been brought by Tai Tong
Chuache or by its representative in its own behalf. From the
above premise respondent concluded that the obligation
secured by the insured property must have been paid.
The premise is correct but the conclusion is wrong. Citing Rule
3, Sec. 2 10 respondent pointed out that the action must be
brought in the name of the real party in interest. We agree.
However, it should be borne in mind that petitioner being a
partnership may sue and be sued in its name or by its duly
authorized representative. The fact that Arsenio Lopez Chua is
the representative of petitioner is not questioned. Petitioner's
declaration that Arsenio Lopez Chua acts as the managing
partner of the partnership was corroborated by respondent
28
insurance company. 11 Thus Chua as the managing partner of
the partnership may execute all acts of administration 12
including the right to sue debtors of the partnership in case of
their failure to pay their obligations when it became due and
demandable. Or at the very least, Chua being a partner of
petitioner Tai Tong Chuache & Company is an agent of the
partnership. Being an agent, it is understood that he acted for
and in behalf of the firm. 13 Public respondent's allegation that
the civil case flied by Arsenio Chua was in his capacity as
personal creditor of spouses Palomo has no basis.
The respondent insurance company having issued a policy in
favor of herein petitioner which policy was of legal force and
effect at the time of the fire, it is bound by its terms and
conditions. Upon its failure to prove the allegation of lack of
insurable interest on the part of the petitioner, respondent
insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is
hereby SET ASIDE and ANOTHER judgment is rendered order
private respondent Travellers Multi-Indemnity Corporation to
pay petitioner the face value of Insurance Policy No. 599-DV
in the amount of P100,000.00. Costs against said private
respondent.
HELD: YES. Travellers Multi-Indemnity Corporation to pay Tai
Tong Chuache & Co.
when the creditor is in possession of the document of
credit, he need not prove non-payment for it is
presumed
o The validity of the insurance policy taken b
petitioner was not assailed by private
respondent. Moreover, petitioner's claim
that the loan extended to the Palomos has
not yet been paid was corroborated by
Azucena Palomo who testified that they are
still indebted to herein petitioner
Chua being a partner of petitioner Tai Tong Chuache
& Company is an agent of the partnership. Being an
agent, it is understood that he acted for and in behalf
of the firm
Upon its failure to prove the allegation of lack of
insurable interest on the part of the petitioner,
Travellers must be held liable

DIGEST-G.R. No. L-55397 February 29, 1988

Lessons Applicable: When Insurable Interest Must Exist

(Insurance)

FACTS:

Azucena Palomo bought a parcel of land and building

from Rolando Gonzales and assumed a mortgage of
the building in favor of S.S.S. which was insured with
S.S.S. Accredited Group of Insurers
April 19, 1975: Azucena Palomo obtained a loan from
Tai Tong Chuache Inc. in the amount of P100,000
and to secure it, the land and building was
mortgaged
June 11, 1975: Pedro Palomo secured a Fire
Insurance Policy covering the building for P50,000
with Zenith Insurance Corporation
July 16, 1975: another Fire Insurance policy was
procured from Philippine British Assurance Company,
covering the same building for P50,000 and the
contents thereof for P70,000
Before the occurrence of the peril insured against the
Palomos had already paid their credit due the
July 31, 1975: building and the contents were totally
razed by fire
Palomo was able to claim P41,546.79 from Philippine
British Assurance Co., P11,877.14 from Zenith
Insurance Corporation and P5,936.57 from S.S.S.
Group of Accredited Insurers but Travellers Multi-
Indemnity refused so it demanded the balance from
the other three but they refused so they filed against
them
Insurance Commission, CFI: absolved Travellers on
the basis that Arsenio Cua was claiming and NOT Tai
Tong Chuache
Palomo Appealed
o Travellers reasoned that the policy is
endorsed to Arsenio Chua, mortgage
creditor
o Tai Tong Chuache & Co. filed a complaint in
intervention claiming the proceeds of the
fire Insurance Policy issued by travellers
o affirmative defense of lack of insurable
interest that before the occurrence of the
peril insured against the Palomos had
already paid their credit due the petitioner

ISSUE: W/N Tai Tong Chuache & Co. has insurable interest
29