Insurance Case 1

INSURANCE
III. NATURE
Contract of Insurance
370
SUPREME COURT REPORTS ANNOTATED
Development Bank of the Philippines vs. Court of Appeals
G.R. No. 109937. March 21, 1994.*
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and the ESTATE OF THE
LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION
INSURANCE POOL, respondents.
Civil Law; Contracts; Insurance; Where there was no perfected contract of insurance, DBP MRI Pool
cannot be held liable on the contract that does not exist.—Undisputably, the power to approve MRI
applications is lodged with the DBP MRI Pool. The pool, however, did not approve the application of
Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited to its account
with full knowledge that it was payment for Dans’s premium. There was, as a result, no perfected
contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist.
Same; Agency; Obligation of the Agent; Agent acting as such is not personally liable unless he expressly
binds himself or exceeds his authority.—Under Article 1897 of the Civil Code of the Philippines, “the
agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly
binds himself or exceeds the limits of his authority without giving such party sufficient notice of his
powers.”
Same; Same; Same; Liability of the agent who exceeds the scope of his authority depends upon whether
the 3rd person is aware of the limits of agent’s powers.—The liability of an agent who exceeds the scope
of his authority depends upon whether the third person is aware of the limits of the agent’s powers.
There is no showing that Dans knew of the limitation on DBP’s authority to solicit applications for MRI.
Same; Same; Same; If the third person dealing with an agent is unaware of the limits of the authority
conferred by the principal on the agent and the third person has been deceived by the non-disclosure by
the agent, then the latter is liable for damages to him.—If the third person dealing with an agent is
unaware of the limits of the authority conferred by the principal on the agent and he (third person) has
been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him (V
Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing
Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts without
authority is founded upon the supposition that there has been some wrong or omission on his part
either in misrepresenting, or in affirming, or concealing the authority under which he assumes to act
(Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-
disclosure of the limits of the agency carries with it the implication that a deception was perpetrated on
the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come
into play.
Same; Damages; One is entitled to an adequate compensation only for such pecuniary loss suffered by
him as he has duly proved.—One is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be
recoverable, must not only be capable of proof, but must be actually proved with a reasonable degree of
certainty (Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee
v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included in
an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
Same; Same; No proof of pecuniary loss is required in the assessment of moral damages.—While Dans is
not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is
required in the assessment of said kind of damages (Civil Code of the Philippines, Art. 2216). The same
may be recovered in acts referred to in Article 2219 of the Civil Code.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set
aside the decision of the Court of Appeals in CA-G.R. CV No. 26434 and its resolution denying
reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a
loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the
principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption
insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on
August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for
the MRI premium. On August 15, 1987, Dans accomplished and submitted the “MRI Application for
Insurance” and the “Health Statement for DBP MRI Pool.”
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by
DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the
credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to
the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for
MRI coverage, being over the acceptance age limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband’s MRI
application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but
Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an
amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00,
which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as amdinistratrix, filed a complaint with
the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for “Collection of Sum of
Money with Damages.” Respondent Estate alleged that Dans became insured by the DBP MRI Pool when
DBP, with full knowledge of Dans’ age at the time of application, required him to apply for MRI, and
later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum
P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the
deceased be declared fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim
against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by
respondent Estate. As a result of these admissions, the trial court narrowed down the issues and,
without opposition from the parties, found the case ripe for summary judgment. Consequently, the trial
court ordered the parties to submit their respective position papers and documentary evidence, which
may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP.
The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract
between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying
for MRI and actually collecting the premium and the service fee, despite knowledge of his age
ineligibility. The dispositive portion of the decision reads as follows:
“WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity, the
Court finds judgment for the plaintiff and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as
amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have
been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney’s fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and other relief
just and equitable.
The Counterclaims of Defendants DBP and DBP-MRI POOL are hereby dismissed. The Cross-claim of
Defendant DBP is likewise dismissed” (Rollo, p. 79).
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court
affirmed in toto the decision of the trial court. The DBP’s motion for reconsideration was denied in a
resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a “Health Statement for DBP MRI Pool”
(Exh. “5-Bank”) with the following declaration:
“I hereby declare and agree that all the statements and answers contained herein are true, complete
and correct to the best of my knowledge and belief and form part of my application for insurance. It is
understood and agreed that no insurance coverage shall be effected unless and until this application is
approved and the full premium is paid during my continued good health” (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall
be approved by the insurance pool; and (2) when the full premium is paid during the continued good
health of the applicant. These two conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool,
however, did not approve the application of Dans. There is also no showing that it accepted the sum of
P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dans’s
premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be
held liable on a contract that does not exist. The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI
coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance
policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dans’s loan was
released on August 11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four
days later, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The
DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP
Main Building, Makati, Metro Manila. As service fee, DBP deducted 10 percent of the premium collected
by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby
leading him and his family to believe that they had already fulfilled all the requirements for the MRI and
that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dans’s
application was never going to be approved. The maximum age for MRI acceptance is 60 years as clearly
and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984
by all the insurance companies concerned (Exh. “1-Pool”).
Under Article 1897 of the Civil Code of the Philippines, “the agent who acts as such is not personally
liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers.”
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age
(Exh. “1-Pool”). Knowing all the while that Dans was ineligible for MRI coverage because of his advanced
age, DBP exceeded the scope of its authority when it accepted Dans’s application for MRI by collecting
the insurance premium, and deducting its agent’s commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third person
is aware of the limits of the agent’s powers. There is no showing that Dans knew of the limitation on
DBP’s authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the
principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the
Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that
the agent is liable when he acts without authority is founded upon the supposition that there has been
some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the
authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46
N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the implication
that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of
the Civil Code of the Philippines come into play.
Article 19 provides:
“Every person must, in the exercise of his rights and in the performance of his duties, act with justice
give everyone his due and observe honesty and good faith.”
“Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify
the latter for the same.”
“Any person, who willfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.”
The DBP’s liability, however, cannot be for the entire value of the insurance policy. To assume that were
it not for DBP’s concealment of the limits of its authority, Dans would have secured an MRI from
another insurance company, and therefore would have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an
insurance coverage from another company. It must also be noted that Dans died almost immediately,
i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of
release of his loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly
proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capable
of proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil.
447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages
(Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of
pecuniary loss is required in the assessment of said kind of damages (Civil Code of the Philippines, Art.
2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the circumstances of
each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00
to respondent Estate in ex gratia settlement of its claim and that DBP’s non-disclosure of the limits of its
authority amounted to a deception to its client, an award of moral damages in the amount of
P50,000.00 would be reasonable.
The award of attorney’s fees is also just and equitable under the circumstances (Civil Code of the
Philippines, Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV No. 26434 is MODIFIED and petitioner
DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476.00 with
legal interest from the date of the filing of the complaint until fully paid; and (2) to PAY said Estate the
amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the amount of Ten Thousand Pesos
(P 10,000.00) as attorney’s fees. With costs against petitioner.
SO ORDERED.
Cruz (Chairman), Davide, Jr., Bellosillo and Kapunan, JJ., concur.
Reviewed decision modified.
Note.—Since it has been found that Bedia was acting beyond the scope of her authority when she
entered into the Participation Contract on behalf of the Honteveros, it is the latter that should be held
answerable for any obligation arising from that agreement (Bedia vs. White, 204 SCRA 273).
——o0o——
Characteristics – VOLUNTARY
No. L-27703. July 31, 1970.
MANILA SURETY & FIDELITY CO., INC, petitioner, vs. WORKMEN’S COMPENSATION COMMISSION and
MARIA P. MALLARI,respondents.
Workmen’s Compensation; Where co-employee stabbed to death deceased employee.—Simeon Mallari

was stabbed to death between one o’clock and two o’clock in the afternoon of May 3, 1965 by a co-
employee, Fortunato Reyes. The killing took place inside the shop of the furniture store. The reason for
the stabbing which caused his death was not brought out by the claimant, but neither the employer nor
the petitioner-company proved that the killing was the result of a quarrel purely personal in character
and completely unrelated to the work of the deceased. In the absence of evidence to the contrary, the
death of Mallari must be presumed to have arisen out of and in the course of his employment.
Same; Same; Where insurance company liable for compensation payments regardless of conditions in
policy.—Under the provisions of Section 30 of the Workmen’s Compensation Act, as further amended by
Rep. Act No. 4119 effective June 20, 1964, which introduced into our country the new concept of ‘com-
pulsory insurance’ in our workmen’s compensation System, the insurance company which issued a
workmen’s compensation policy is liable for compensation payments regardless of conditions
incorporated in the insurance policy limiting its coverage to certain named locations, classes of
employees, or specified operations, in view of the fact that we follow the ‘full coverage’ rule in
compulsory insurance.
Same; Same; Same; Defenses not available against employee.—Defenses such as non-payment of
premiums, breach of policy conditions, or even assignment and transfer for interests which the insurer
might have against the employer, are not available against the employee. (Cf. Larson, Workmen’s
Compensation Law, Vol. 2, Sec. 92.00, p. 443).
Same; Philosophy underlying compulsory insurance of workmen’s compensation liability.—The

philosophy underlying compulsory insurance of workmen’s compensation liabilities is to allow the
injured or sick worker to receive prompt payment of his full compensation benefits with a minimum of
legal conformity.
APPEAL from a decision of the Workmen’s Compensation Commission.
De Santos & Delfino for petitioner.
Ruben C. Ayson for respondent Maria P. Mallari.
Juan O. Ramos & Miguel E. Lanzona, Jr. for respondent Workmen’s Compensation Commission.
CASTRO, J.:
Simeon Mallari was employed as a laborer of the Pineda Furniture Store located at Abanao St. in Baguio
City, from 1947 until his death on May 3, 1965, with an average weekly wage of P36. On the latter date,
while inside the shop of the furniture store, and during working hours, Mallari was stabbed to death by
a fellow employee. The claimant Maria P. Mallari is his widow with eight minor children, all of whom
were fully dependent upon him for support. Pursuant to section 30 of Act 3428 as amended. Adela
Pineda, the owner of the furniture store, obtained workmen’s compensation policy DG-WC-312 from
the in-tervenor-appellant Manila Surety & Fidelity Co., Inc. This policy was in force from May 1, 1965 to
May 1, 1966. In virtue of this policy, the intervenor-appellant bound itself to a maximum liability of
P15,000 for any one employee. The policy covers, in the language of the policy itself, “seven (7) shop
workers,” without mention of names of the employees covered. The amount of P364.50 was duly paid
as insurance premium.
Acting on the claim of the widow Maria P. Mallari, Referee Erudito E. Luna of the Regional Office No. 1 in
Dagupan City rendered a decision, declaring the death of Simeon Mallari compensable, absolving the
Pineda Furniture Store from liability, and adjudging the intervenor company liable to” pay compensation
benefits to the surviving dependents of Simeon Mallari on the basis of the workmen’s compensation
policy already adverted to, and ordering the respondent-intervenor company:
“1. To pay to the widow, Mrs. Maria P. Mallari and her minor children, thru this Office the total amount
of FOUR THOUSAND FOUR HUNDRED NINETY TWO PESOS AND 80/100 (P4,492.80), as compensation
benefit, plus the amount of P200.00, for burial expenses; and
“2. To pay to this Office the amount of P45.00 as Administrative Costs, pursuant to Section 55 of the Act,
to wit:
“(a) 1.00 for the decision.................................. P 1.00
“(b)
1.00 for every hundred pesos of the Award which in this case is 4,492.80 . .
P44.00
P45.00”
The case was elevated to the Workmen’s Compensation Commission, and in his decision of May 19,
1967 Associate Commissioner Cesareo Perez affirmed the decision of the Referee, “with the
modification that the respondent Pineda Furniture Store be ordered to pay the sum of Five Pesos
(P5.00) as postponement fee, per order dated July 8, 1966 of the Acting Referee and Chief, Workmen’s
Compensation Unit, and the respondent Manila Surety & Fidelity Co., Inc. is hereby further ordered to
pay to this Commission the sum of Five Pesos (P5.00) as costs for this review, pursuant to section 55 of
Act 3428, as amended.” The motion for reconsideration of the intervenor surety company was denied
en banc.
In this appeal, the petitioner company poses two issues, namely: (1) Was the death of Simeon Mallari
compensable, “it having been proved by competent evidence that he met his death because of a
personal quarrel between him and another employee?” and (2) Was the death of Simeon Mallari
covered by the terms of the policy it issued to the Pineda Furniture Store?
Resolution of these two issues presents no special difficulty.
1. Simeon Mallari was stabbed to death between one o’clock and two o’clock in the afternoon of May 3,
1965 by a co-employee, Fortunato Reyes. The killing took place inside the shop of the furniture store.
The reason for the stabbing which caused his death was not brought out by the claimant, but neither the
employer nor the petitioner-company proved that the killing was the result of a quarrel purely personal
in character and completely unrelated to the work of the deceased. In the absence of evidence to the
contrary, the death of Mallari must be presumed to have arisen out of and in the course of his
employment.
2. To resolve the second issue, we need merely quote from the decision of the Workmen’s
Compensation Commission. Thus:
“x x x Was Simeon Mallari among the seven (7) employees covered by Workmen’s Compensation
Commission Policy No. DG-WC-312 dated May 1, 1965? In contending that the late Mallari was not
covered by the policy the insurance carrier insisted that since Mallari was an employee of the Insured
assigned to the Holy Ghost Subdivision Shop and not one of those assigned at its Abanao St. Shop, he is
not among those covered by the policy. This contention is a law [sic] attempt to exculpate the insurance
carrier from its accepted liability under the workmen’s compensation policy issued in favor of the Pineda
Furniture Shop where Mallari was admittedly employed. Under the provisions of Section 30 of the
Workmen’s Compensation Act, as further amended by Rep. Act No. 4119 effective June 20, 1964, which
introduced into our country the new concept of ‘compulsory insurance’ in our workmen’s compensation
System, the insurance company which issued a workmen’s compensation policy is liable for
compensation payments regardless of conditions incorporated in the insurance policy limiting its
coverage to certain named locations, classes of employees, or specified operations, in view of the fact
that we follow the ‘full coverage’ rule in compulsory insurance. For instance, if the policy enumerates
the names or number of employees covered by it, the Bureau will disregard such enumeration or
limitation when an employee, not within the list, meets with an accident, and the bureau will require
the insurance carrier to pay compensation benefits to him as if his name were included in the list.
Similarly, defenses such as non-payment of premiums, breach of policy conditions, or even assignment
and transfer of interests which the insurer might have against the employer, are not available against
the employee. (Cf. Larson, Workmen’s Compensation Law, Vol. 2, Sec. 92.00, p. 443). The philosophy
underlying compulsory insurance of workmen’s compensation liabilities is to allow the injured or sick
worker to receive prompt payment of his full compensation benefits with a minimum of legal formality.
Besides, it appears in the insurance carriers ‘Schedule’ that the policy apparently covers ‘Any person in
the Insured’s immediate service xxx’ which necessarily includes the late Mallari. Any other interpretation
will tend to defeat the very purpose for which compulsory insurance system was introduced into the
country.”
We need only add, in refutation of the petitioner-appellant’s contention that the deceased Mallari
exceeded the number of employees (seven in all) covered by the insurance policy, that since the policy
itself nowhere specifies the names of the persons covered, it is obvious that Simeon Mallari cannot by
any reason or rule of logic be considered as excluded from the coverage thereof.
ACCORDINGLY, the judgment appealed from is affimiied, at petitioner’s cost.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo and
Villamor, JJ., concur.
Judgment affirmed.
________________ Manila Surety & Fidelity Co., Inc. vs. Workmen’s 1Compensation Commission, 34
SCRA 68, No. L-27703 July 31, 1970
PERLA COMPANIA DE SEGUROS, INC., petitioner, vs. HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES,
HONORATO BORBON, SR., OFFICE OF THE PROVINCIAL SHERIFF, PROVINCE OF CEBU, respondents.
Provisional Remedies; Garnishment.—Garnishment has been defined as a species of attachment for

reaching any property or credits pertaining or payable to a judgment debtor. In legal contemplation, it is
a forced novation by the substitution of creditors: the judgment debtor, who is the original creditor of
the garnishee is, through service of the writ of garnishment, substituted by the judgment creditor who
thereby becomes creditor of the garnishee. Garnishment has also been described as a warning to a
person having in his possession property or credits of the judgment debtor, not to pay the money or
deliver the property to the latter, but rather to appear and answer the plaintiff’s suit.
Same; Same; Jurisdiction to bind person of garnishee, how acquired.—In order that the trial court may
validly acquire jurisdiction to bind the person of the garnishee, it is not necessary that summons be
served upon him. The garnishee need not be impleaded as a party to the case. All that is necessary for
the trial court lawfully to bind the person of the garnishee or any person who has in his possession
credits belonging to the judgment debtor is service upon him of the writ of garnishment. The Rules of
Court themselves do not require that the garnishee be served with summons or impleaded in the case in
order to make him liable xxx Through service of the writ of garnishment, the garnishee becomes a
“virtual party” to, or a “forced intervenor” in, the case and the trial court thereby acquires jurisdiction to
bind him to compliance with all orders and processes of the trial court with a view to the complete
satisfaction of the judgment of the court.
Judgments; Execution; Garnishment of third party liability insurance contract.—Every interest which the
judgment debtor may have in property may be subjected to execution. xxx In a third-party liability
insurance contract, the insurer assumes the obligation of paying the injured third party to whom the
insured is liable. The insurer becomes liable as soon as the liability of the insured to the injured third
person attaches. Prior payment by the insured to the injured third person is not necessary in order that
the obligation of the insurer may arise. From the moment that the insured became liable to the third
person, the insured acquired an interest in the insurance contract, which interest may be garnished like
any other credit.
PETITION for certiorari to review the orders of the then Court of First Instance of Cebu City, Br. 3.
Ramolete, J.
Hector L. Fernandez for petitioner.
Domingo Quibranza and Vicente A. Quibranza for private respondents.
FELICIANO, J.:
The present Petition for Certiorari seeks to annul: (a) the Order dated 6 August 19791 which ordered the
Provincial Sheriff to garnish the third-party liability insurance policy issued by petitioner Perla Compania
de Seguros, Inc. (“Perla”) in favor of Nelia Enriquez, judgment debtor in Civil Case No. R-15391; (b) the
Order dated 24 October 19792 which denied the motion for reconsideration of the 6 August 1979 Order;
and (c) the Order dated 8 April 19803 which ordered the issuance of an alias writ of garnishment against
petitioner.
In the afternoon of 1 June 1976, a Cimarron PUJ owned and registered in the name of Nelia Enriquez,
and driven by Cosme Casas, was travelling from Cebu City to Danao City. While passing through Liloan,
Cebu, the Cimarron PUJ collided with a private jeep owned by the late Calixto Palmes (husband of
private respondent Primitiva Palmes) who was then driving the private jeep. The impact of the collision
was such that the private jeep was flung away to a distance of about thirty (30) feet and then fell on its
right side pinning down Calixto Palmes. He died as a result of cardio-respiratory arrest due to a crushed
chest.4 The accident also caused physical injuries on the part of Adeudatus Borbon who was then only
two (2) years old.
On 25 June 1976, private respondents Primitiva Palmes (widow of Calixto Palmes) and Honorato Borbon,
Sr. (father of minor Adeudatus Borbon) filed a complaint5 against Cosme Casas and Nelia Enriquez
(assisted by her husband Leonardo Enriquez) before the then Court of First Instance of Cebu, Branch 3,
claiming actual, moral, nominal and exemplary damages as a result of the accident.
The claim of private respondent Honorato Borbon, Sr., being distinct and separate from that of co-
plaintiff Primitiva Palmes, and the amount thereof falling properly within the jurisdiction of the inferior
court, respondent Judge Jose R. Ramolete ordered the Borbon claim excluded from the complaint,
without prejudice to its being filed with the proper inferior court.
On 4 April 1977, the Court of First Instance rendered a Decision6 in favor of private respondent Primitiva
Palmes, ordering common carrier Nelia Enriquez to pay her P10,000.00 as moral damages, P12,000.00 as
compensatory damages for the death of Calixto Palmes, P3,000.00 as exemplary damages, P5,000.00 as
actual damages, and P1,000.00 as attorney’s fees.
The judgment of the trial court became final and executory and a writ of execution was thereafter
issued. The writ of execution was, however, returned unsatisfied. Consequently, the judgment debtor
Nelia Enriquez was summoned before the trial court for examination on 23 July 1979. She declared
under oath that the Cimarron PUJ registered in her name was covered by a third-party liability insurance
policy issued by petitioner Perla.
Thus, on 31 July 1979, private respondent Palmes filed a motion for garnishment7 praying that an order
of garnishment be issued against the insurance policy issued by petitioner in favor of the judgment
debtor. On 6 August 1979, respondent Judge issued an Order8 directing the Provincial Sheriff or his
deputy to garnish the third-party liability insurance policy.
Petitioner then appeared before the trial court and moved for reconsideration of the 6 August 1979
Order and for quashal of the writ of garnishment,9 alleging that the writ was void on the ground that it
(Perla) was not a party to the case and that jurisdiction over its person had never been acquired by the
trial court by service of summons or by any process. The trial court denied petitioner’s motion.10 An
Order for issuance of an alias writ of garnishment was subsequently issued on 8 April 1980.11
More than two (2) years later, the present Petition for Certiorari and Prohibition was filed with this
Court on 25 June 1982 alleging grave abuse of discretion on the part of respondent Judge Ramolete in
ordering garnishment of the third-party liability insurance contract issued by petitioner Perla in favor of
the judgment debtor, Nelia Enriquez. The Petition should have been dismissed forthwith for having been
filed way out of time but, for reasons which do not appear on the record, was nonetheless entertained.
In this Petition, petitioner Perla reiterates its contention that its insurance contract cannot be subjected
to garnishment or execution to satisfy the judgment in Civil Case No. R-15391 because petitioner was
not a party to the case and the trial court did not acquire jurisdiction over petitioner’s person. Perla
further argues that the writ of garnishment had been issued solely on the basis of the testimony of the
judgment debtor during the examination on 23 July 1979 to the effect that the Cimarron PUJ was
covered by a third-party liability insurance issued by Perla, without granting it the opportunity to set up
any defenses which it may have under the insurance contract; and that the proceedings taken against
petitioner are contrary to the procedure laid down in Economic Insurance Company, Inc. v. Torres, et
al.,12 which held that under Rule 39, Section 45, the Court “may only authorize” the judgment creditor
to institute an action against a third person who holds property belonging to the judgment debtor.
We find no grave abuse of discretion or act in excess of or without jurisdiction on the part of respondent
Judge Ramolete in ordering the garnishment of the judgment debtor’s third-party liability insurance.
Garnishment has been defined as a species of attachment for reaching any property or credits
pertaining or payable to a judgment debtor.13 In legal contemplation, it is a forced novation by the
substitution of creditors:14 the judgment debtor, who is the original creditor of the garnishee is,
through service of the writ of garnishment, substituted by the judgment creditor who thereby becomes
creditor of the garnishee. Garnishment has also been described as a warning to a person having in his
possession property or credits of the judgment debtor, not to pay the money or deliver the property to
the latter, but rather to appear and answer the plaintiff’s suit.15
In order that the trial court may validly acquire jurisdiction to bind the person of the garnishee, it is not
necessary that summons be served upon him. The garnishee need not be impleaded as a party to the
case. All that is necessary for the trial court lawfully to bind the person of the garnishee or any person
who has in his possession credits belonging to the judgment debtor is service upon him of the writ of
garnishment.
The Rules of Court themselves do not require that the garnishee be served with summons or impleaded
in the case in order to make him liable.
Rule 39, Section 15 provides:
“Sec. 15. Execution of money judgments.—The officer must enforce an execution of a money judgment
by levying on all the property, real or personal of every name and nature whatsoever, and which may be
disposed of for value, of the judgment debtor not exempt from execution x x x.
Real property, stocks, shares, debts, credits, and other personal property, or any interest in either real
or personal property, may be levied on in like manner and with like effect as under a writ of
attachment.” (Italics supplied).
Rule 57, Section 7(e) in turn reads:
“Sec. 7. Attachment of real and personal property; recording thereof.—Properties shall be attached by
the officer executing the order in the following manner:
xxx xxx xxx
(e) Debts and credits, and other personal property not capable of manual delivery, by leaving with the
person owing such debts, or having his possession or under his control such credits or other personal
property, or with his agent, a copy of the order, and notice that the debts owing by him to the party
against whom attachment is issued, and the credits and other personal property in his possession, or
under his control, belonging to said party, are attached in pursuance of such order;
xxx xxx xxx”
(Italics supplied)
Through service of the writ of garnishment, the garnishee becomes a “virtual party” to, or a “forced
intervenor” in, the case and the trial court thereby acquires jurisdiction to bind him to compliance with
all orders and processes of the trial court with a view to the complete satisfaction of the judgment of the
court. In Bautista v. Barredo,16 the Court, through Mr. Justice Bautista Angelo, held:
“While it is true that defendant Jose M. Barredo was not a party in Civil Case No. 1636 when it was
instituted by appellant against the Philippine Ready Mix Concrete Company, Inc., however, jurisdiction
was acquired over him by the court and he became a virtual party to the case when, after final judgment
was rendered in said case against the company, the sheriff served upon him a writ of garnishment in
behalf of appellant. Thus, as held by this Court in the case of Tayabas Land Company vs. Sharruf, 41 Phil.
382, the proceeding by garnishment is a species of attachment for reaching credits belonging to the
judgment debtor and owing to him from a stranger to the litigation. By means of the citation, the
stranger becomes a forced intervenor; and the court, having acquired jurisdiction over him by means of
the citation, requires him to pay his debt, not to his former creditor, but to the new creditor, who is
creditor in the main litigation.” (Italics supplied).
In Rizal Commercial Banking Corporation v. De Castro,17 the Court stressed that the asset or credit
garnished is thereupon subjected to a specific lien:
“The garnishment of property to satisfy a writ of execution operates as an attachment and fastens upon
the property a lien by which the property is brought under the jurisdiction of the court issuing the writ.
It is brought into custodia legis, under the sole control of such court.”18 (Italics supplied)
In the present case, there can be no doubt, therefore, that the trial court actually acquired jurisdiction
over petitioner Perla when it was served with the writ of garnishment of the third-party liability
insurance policy it had issued in favor of judgment debtor Nelia Enriquez. Perla cannot successfully
evade liability thereon by such a contention.
Every interest which the judgment debtor may have in property may be subjected to execution.19 In the
instant case, the judgment debtor Nelia Enriquez clearly had an interest in the proceeds of the third-
party liability insurance contract. In a third-party liability insurance contract, the insurer assumes the
obligation of paying the injured third party to whom the insured is liable.20 The insurer becomes liable
as soon as the liability of the insured to the injured third person attaches. Prior payment by the insured
to the injured third person is not necessary in order that the obligation of the insurer may arise. From
the moment that the insured became liable to the third person, the insured acquired an interest in the
insurance contract, which interest may be garnished like any other credit.21
Petitioner also contends that in order that it may be held liable under the third-party liability insurance,
a separate action should have been commenced by private respondents to establish petitioner’s liability.
Petitioner invokes Economic Insurance Company, Inc. vs. Torres,22 which stated:
“It is clear from Section 45, Rule 39 that if a persons alleged to have property of the judgment debtor or
to be indebted to him claims an interest in the property adverse to him or denies the debt, the court
may only authorize the judgment creditor to institute an action against such person for the recovery of
such interest or debt. Said section does not authorize the court to make a finding that the third person
has in his possession property belonging to the judgment debtor or is indebted to him and to order said
third person to pay the amount to the judgment creditor.
It has been held that the only power of the court in proceedings supplemental to execution is to make
an order authorizing the creditor to sue in the proper court to recover an indebtedness due to the
judgment debtor. The court has no jurisdiction to try summarily the question whether the third party
served with notice of execution and levy is indebted to defendant when such indebtedness is denied. To
make an order in relation to property which the garnishee claimed to own in his own right, requiring its
application in satisfaction of judgment of another, would be to deprive the garnishee of property upon
summary proceeding and without due process of law.” (Italics supplied)
But reliance by petitioner on the case of Economic Insurance Company, Inc. v. Torres (supra) is
misplaced. The Court there held that a separate action needs to be commenced when the garnishee
“claims an interest in the property adverse to him (judgment debtor) or denies the debt.” In the instant
case, petitioner Perla did not deny before the trial court that it had indeed issued a third-party liability
insurance policy in favor of the judgment debtor. Petitioner moreover refrained from setting up any
substantive defense which it might have against the insured-judgment debtor. The only ground asserted
by petitioner in its “Motion for Reconsideration of the Order dated August 6, 1979 and to Quash Notice
of Garnishment” was lack of jurisdiction of the trial court for failure to implead it in the case by serving it
with summons. Accordingly, Rule 39, Section 45 of the Rules of Court is not applicable in the instant
case, and we see no need to require a separate action against Perla: a writ of garnishment suffices to
hold petitioner answerable to the judgment creditor. If Perla had any substantive defenses against the
judgment debtor, it is properly deemed to have waived them by laches.
WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED for having been filed out of
time and for lack of merit. The assailed Orders of the trial court are hereby AFFIRMED. Costs against
petitioner. This Decision is immediately executory.
SO ORDERED.
Narvasa (Chairman), Cruz, Griño-Aquino and Medialdea, JJ., concur.
Petition dismissed. Orders affirmed.
Note.—The garnishment of a property to satisfy a writ of execution operates as an attachment and

fastens upon the property a lien by which the property is brought under the jurisdiction of the court
issuing the writ. (Hacbang vs. Leyte Autobus Co., Inc., 8 SCRA 103.)
——o0o——
Perla Compania de Seguros, Inc. vs. Ramolete, 203 SCRA 487, G.R. No. 60887 November 13, 1991
UBBERIMEA FIDES CONTRACT
No. L-24833. September 23, 1968.
FIELDMEN'S INSURANCE Co., INC., petitioner, vs. MERCEDES VARGAS VDA. DE SONGCO; ET AL. and
COURT OF APPEALS, respondents.
Insurance; Nature of contract.—To borrow once again from the language of the Qua Chee Gan opinion:
"The contract of insurance is one of perfect good faith (uberrima fides) not for the insured alone, but
equally so for the insurer; in fact, it is more so for the latter, since its dominant bargaining position
carries with it stricter responsibility."
Same; Where insurer is estopped from disclaiming responsibility; Case at bar.—The insurer knew all
along that the insured owned a private vehicle and not a common carrier. Its agents even discounted
the fears of the latter, not once but twice, that his privately owned vehicle might not fall within the
terms of the common carrier insurance policy. Held: This is a case where the doctrine of estoppel
undeniably calls for application. It is now beyond question that where inequitable conduct is shown by
an insurance firm, it is "estopped from enforcing forfeitures in its f avor, in order to forestall fraud or
imposition on the insured." After petitioner had led the insured to believe that he could qualify under
the common carrier liability insurance policy, and to enter into contract of insurance paying the
premiums due, it could not, thereafter, in any litigation arising out of such representation, be permitted
to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the
doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious
reliance, the failure to apply it in this case would result in a gross travesty of justice.
Same; Ambiguities in contract; Against whom and how interpreted.—It is a well-known rule that
ambiguities or obscurities must be strictly interpreted against the party that caused them. This rigid
application of the rule on ambiguities has become necessary in view of current business practices. The
courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared
'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being
reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilees 'contracts by
adherence' (contrats d'adhesion), in contrast to those entered into by parties bargaining on an equal f
ooting, such contracts (of which policies of insurance and international bills of lading are prime example)
obviously call for greater strictness and vigilance on the part of the court of justice with a view to
protecting the weaker party from abuses and imposition, and prevent their becoming traps for the
unwary. (Citing Qua Chee Gan case).
REVIEW of a decision of the Court of Appeals.
The facts are stated in the resolution of the Court.
Jose S. Suarez for petitioner.
Eligio G. Lagman for respondents.
FERNANDO, J.:
An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability under a
common carrier insurance policy on the pretext that what was insured, not once but twice, was a
private vehicle and not a common carrier, the policy being issued upon the insistence of its agent who
discounted fears of the insured that his privately owned vehicle might not fall within its terms. the
insured moreover being "a man of scant education", finishing only the first grade. So it was held in a
decision of the lower court thereafter affirmed by respondent Court of Appeals. Petitioner in seeking the
review of the above decision of respondent Court of Appeals cannot be so sanguine as to entertain the
belief that a different outcome could be expected. To be more explicit, we sustain the Court of Appeals.
The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case.
Federico Songco of Floridablanca, Pampanga, a man of scant education, being only a first grader x x x,
owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such
private vehicle owner, he was induced by Fieldmen's Insurance Company Pampanga agent Benjamin
Sambat to apply for a Common
Carrier's Liability Insurance Policy covering his motor vehicle x x x. Upon paying an annual premium of
P16.50, defendant Fieldmen's Insurance Company, Inc. issued on September 19, 1960, Common Carriers
Accident Insurance Policy No. 45-HO-4254 x x x the duration of which will be for one (1) year, effective
September 15, 1960 to September 15, 1961. On September 22, 1961, the defendant company, upon
payment of the corresponding premium, renewed the policy by extending the coverage f rom October
15, 1961 to October 15, 1962. This time Federico Songco's private jeepney carried Plate No. J-68136-
Pampanga-1961 x x x. On October 29, 1961, during the effectivity of the renewed policy, the insured
vehicle while being driven by Rodolfo Songco, a duly licensed driver and son of Federico (the vehicle
owner) collided with a car in the municipality of Calumpit, province of Bulacan, as a result of which
mishap Federico Songco, (father) and Rodolfo Songco (son) died, Carlos Songco (another son), the
latter's wife, Angelita Songco, and a family friend by the name of Jose Manuel sustained physical injuries
of varying degree."1
It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-year-
old son of deceased Federico Songco, testifying as witness, declared that when insurance agent
Benjamin Sambat was inducing his father to insure his vehicle, he butted in saying: "That cannot be, Mr.
Sambat, because our vehicle is an 'owner' private vehicle and not for passengers/ to which agent
Sambat replied: 'whether our vehicle was an 'owner' type or for passengers it could be insured because
their company is not owned by the Government and the Government has nothing to do with their
company. So they could do what they please whenever they believe a vehicle is insurable' x x x. In spite
of the fact that the present case was filed and tried in the CFI of Pampanga, the defendant company did
not even care to rebut Amor Songco's testimony by calling on the witness-stand agent Benjamin
Sambat, its Pampanga Field Representative."2
The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of
the deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts they
prevailed, as had been mentioned, in the lower court and in the respondent Court of Appeals.
The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and Rock
Insurance Co., Ltd.,3 with Justice J. B. L. Reyes speaking for the Court. It is now beyond question that
where inequitable conduct is shown by an insurance firm, it is "estopped from enforcing forfeitures in its
favor, in order to forestall fraud or imposition on the insured."4
As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of
estoppel undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the
insured Federico Songco to believe that he could qualify under the common carrier liability insurance
policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any
litigation arising out of such representation, be permitted to change its stand to the detriment of the
heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of
harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this case
would result in a gross travesty of justice.
That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is
concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be invoked
by the heirs of the insured as a bar to the alleged breach of warranty and condition in the policy. It
would now rely on the fact that the insured owned a private vehicle, not a common carrier, something
which it knew all along, when not once but twice its agent, no doubt without any objection in its part,
exerted the utmost pressure on the insured, a man of scant education, to enter into such a contract.
Nor is there any merit to the second alleged error of respondent Court that no legal liability was
incurred under the policy by petitioner. Why liability under the terms of the policy5 was inescapable was
set forth in the decision of respondent Court of Appeals. Thus: "Since some of the conditions contained
in the policy Issued by the defendant-appellant were impossible to comply with under the existing
conditions at the time and 'inconsistent with the known facts,' the insurer 'is estopped from asserting
breach of such conditions.' From this jurisprudence, we find no valid reason to deviate and consequently
hold that the decision appealed from should be affirmed. The injured parties, to wit, Carlos Songco,
Angelito Songco and Jose Manuel, for whose hospital and medical expenses the defendant company
was being made liable, were passengers of the jeepney at the time of the occurrence, and Rodolfo
Songco, for whose burial expenses the defendant company was also being made liable was the driver of
the vehicle in question. Except for the fact, that they were not fare-paying passengers, their status as
beneficiaries under the policy is recognized therein."6
Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision would
reveal anew the weakness of petitioner's contention. Thus: "Moreover, taking into account the well
known rule that ambiguities or obscurities must be strictly interpreted against the party that caused
them, the 'memo of warranty' invoked by appellant bars the latter from questioning the existence of the
appliances called for in the insured premises, since its initial expression, 'the undernoted appliances for
the extinction of fire being kept on the premises insured hereby, x x x it is hereby warranted x x x',
admits of interpretation as an admission of the existence of such appliances which appellant cannot now
contradict, should the parol evidence rule apply."7
To the same effect is the following citation from the same leading case: "This rigid application of the rule
on ambiguities has become necessary in view of current business practices. The courts cannot ignore
that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the
weaker party may not change one whit, his participation in the 'agreement' being reduced to the
alternative to take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats
d'adhesion), in contrast to those entered into by parties bargaining on an equal footing, such contracts
(of which policies of insurance and international bills of lading are prime examples) obviously call for
greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker
party from abuses and imposition, and prevent their becoming traps for the unwary (New Civil Code,
Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942) ."8
The last error assigned which would find fault with the decision of respondent Court of Appeals insofar
as it affirmed the lower court award for exemplary damages as well as attorney's fees is, on its face, of
no persuasive force at all.
The conclusion that inescapably emerges f rom the above is the correctness of the decision of
respondent Court of Appeals sought to be reviewed. For, to borrow once again from the language of the
Qua Chee Gan opinion: "The contract of insurance is one of perfect good faith (uberrima fides) not for
the insured alone, but equally so for the insurer; in fact, it is more so for the latter, since its dominant
bargaining position carries with it stricter responsibility."9 This is merely to stress that.while the morality
of the business world is not the morality of institutions of rectitude like the pulpit and the academe, it
cannot descend so low as to be another name for guile or deception. Moreover, should it happen thus,
no court of justice should allow itself to lend its approval and support.
We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance Co.,
Inc. It did not succeed in its persistent effort to avoid complying with its obligation in the lower court
and the Court of Appeals. Much less should it find any receptivity from us for its unwarranted and
unjustified plea to escape from its liability.
WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety.
Costs against petitioner Fieldmen's Insurance Co., Inc.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.
Decision affirmed.
_______________ Fieldmen's Insurance Co., Inc. vs. Vda. de Songco, 25 SCRA 70, No. L-24833
September 23, 1968
PERSONAL
VOL. 20, MAY 29, 1967
261
Bonifacio Bros., Inc. vs. Mora
No. L-20853. May 29, 1967.
BONIFACIO BROS., INC., ET AL., plaintiffs-appellants, vs. ENRIQUE MORA, ET AL., defendants-appellees.
Contracts; Contracts take effect only between the parties thereto; Exception.—Contracts take effect
only between the parties thereto, except in some specific instances provided by law where the contract
contains some stipulation in favor of a third person which is known as a stipulation pour autrui or a
provision in favor of a third person not a party to the contract. Under this doctrine, a third person is
allowed to avail himself of a benef it granted to him by the terms of the contract, provided that the
contracting parties have clearly and deliberately conferred a favor upon such person. Consequently, a
third person, not a party to the contract, has no action against the parties thereto, and cannot generally
demand the enforcement of the same.
Same; Stipulation pour autrui; When a third person has an enforceable interest in the contract.—The
question of whether a third person has an enforceable interest in a contract must be settled by
determining whether the contracting parties intended to tender him such an interest by deliberately
inserting terms in their agreement with the avowed purpose of conferring a favor upon such third
person. The fairest test to determine whether the interest of a third person in a contract is a stipulation
pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by
their contract.
Same; Insurance; Nature of insurance policy.—A policy of insurance is a distinct and independent
contract between the insured and insurer. A third person has no right in law or equity to the proceeds of
an insurance unless there is a contract or trust, expressed or implied, between the insured and third
person.
Same; Interpretation of clause in insurance contract regarding repair of damaged vehicle.—The clause in
an insurance policy, authorizing the owner of the damaged vehicle to contract for its repair does not
mean that the repairman is entitled to collect the cost of repair out of the proceeds of the insurance. It
merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for
repair.
Same; Meaning of loss in insurance.—The word "loss" in insurance law embraces injury or damage. A
loss may be total or partial.
Same; When mortgagee of damaged car, as beneficiary, is preferred to the repairman with respect to
insurance proceeds.—Where the mortgagee is the beneficiary in a car insurance, it has a better right
than the repairman to the insurance proceeds.
APPEAL from a decision of the Court of First Instance of Manila. Solidum, J.
G. Magsaysay for plaintiffs-appellants.
Abad Santos & Pablo for defendant-appellee H. E. Reyes, Inc.
J. P. Santilla & A. D. Hidalgo, Jr. for other defendant-appellee.
CASTRO, J.:
This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case
48823, affirming the decision of the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a
better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts Company, appellants herein, to the
proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the State Bonding &
Insurance Co. Inc., and directing payment of the said amount to the H.S. Reyes, Inc.
Enrique Mora, owner of an Oldsmobile sedan model 1956, bearing plate No. QC-8088, mortgaged the
same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile with the
latter as beneficiary. The automobile was thereafter insured on June 23, 1959 with the State Bonding &
Insurance Co,, Inc., and motor car insurance policy A-0615 was issued to Enrique Mora, the pertinent
provisions of which read:
"1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to the Limits of
Liability, indemnify the Insured against loss of or damages to the Motor Vehicle and its accessories and
spare parts whilst thereon; (a) by accidental collision or overturning or collision or overturning
consequent upon mechanical breakdown or consequent upon wear and tear,
xxx xxx xxx
2. At its own option the Company may pay in cash the amount of the loss or damage or may repair,
reinstate, or replace the Motor Vehicle or any part thereof or its accessories or spare parts. The liability
of the Company shall not exceed the value of the parts whichever is the less. The Insured's estimate of
value stated in the schedule will be the maximum amount payable by the Company in respect of any
claim for loss or damage.
xxx xxx xxx
4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the
Company may be liable under this Policy provided that:—(a) The estimated cost of such repair does not
exceed the Authorized Repair Limit, (b) A detailed estimate of the cost is forwarded to the Company
without delay, subject to the condition that 'Loss, if any, is payable to H.S. Reyes, Inc..', by virtue of the
fact that said Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes, Inc. and that under a
clause in said insurance policy, any loss was made payable to the H.S, Reyes, Inc. as Mortgagee;
xxx xxx xxx
During the effectivity of the insurance contract, the car met with an accident. The insurance company
then assigned the accident to the H.H. Bayne Adjustment Co. for investigation and appraisal of the
damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the
Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto
Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H.
Bayne Adjustment Co. The insurance company, after claiming a franchise in the amount of ?100, drew a
check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the order of Enrique
Mora or H.S. Reyes, Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and
delivery to the proper party. In the meantime, the car was delivered to Enrique Mora without the
consent of the H.S, Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the Ayala Auto Parts
Co. of the cost of repairs and materials,
Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc.
and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila
against Enrique Mora and the State Bonding & Insurance Co., Inc. for the collection of the sum of
P2,002.73. The insurance company filed its answer with a counterclaim for interpleader, requiring the
Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better right to
the insurance proceeds in question. Enrique Mora was declared in default for failure to appear at the
hearing, and evidence against him was received ex parte. However, the counsel for the Bonifacio Bros.
Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the
basis of which the Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a better
right to the disputed amount, and ordering the State Bonding & Insurance Co. Inc. to pay to the H.S.
Reyes, Inc. the said sum of P2,002.73. From this decision, the herein appellants elevated the case to the
Court of First Instance of Manila before which the stipulation of facts was reproduced. On October 19,
1962 the latter court rendered a decision, affirming the decision of the Municipal Court. The Bonifacio
Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial court
denied the motion. Hence, this appeal.
The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc. and the
Ayala Auto Parts Co. on the one hand and the insurance company on the other. The appellants argue
that the insurance company and Enrique Mora are parties to the repair of the car as well as the towage
thereof performed. The authority for this assertion is to be found, it is alleged, in paragraph 4 of the
insurance contract which provides that "the insured may authorize the repair of the Motor Vehicle
necessitated by damage for which the company may be liable under the policy provided that (a) the
estimated cost of such repair does not exceed the Authorized Repair Limit, and (b) a detailed estimate of
the cost is forwarded to the company without delay." It is stressed that the H.H. Bayne Adjustment
Company's recommendation of payment of the appellants' bill for materials and repairs for which the
latter drew a check for P2,002.73 indicates that Mora and the H.H. Bayne Adjustment Co. acted for and
in representation of the insurance company.
This argument is, in our view, beside the point, because from the undisputed facts and from the
pleadings it will be seen that the appellants' alleged cause of action rests exclusively upon the terms of
the insurance contract. The appellants seek to recover the insurance proceeds, and for this purpose,
they rely upon paragraph 4 of the insurance contract document executed by and between the State
Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned in the contract
as parties thereto; nor is there any clause or provision thereof from which we can infer that there is an
obligation on the part of the insurance company to pay the cost of repairs directly to them. It is
fundamental' that contracts take effect only between the parties thereto, except in some specific
instances provided by law where the contract contains some stipulation in favor of a third person.1 Such
stipulation is known as stipulation pour autrui or a provision in favor of a third person not a party to the
contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by
the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a
favor upon such person.2 Consequently, a third person not a party to the contract has no action against
the parties thereto, and cannot generally demand the enforcement of the same.3 The question of
whether a third person has an enforcible interest in a contract. must be settled by determining whether
the contracting parties intended to tender him. such an interest by deliberately inserting terms in their
agreement with the avowed purpose of conferring a favor upon such third person. In this connection,
this Court has laid down the rule that the fairest test to determine whether the interest of a third person
in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of
the parties as disclosed by their contract.4 In the instant case the insurance contract does not contain
any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of
repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a
circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the
insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the
H.S. Reyes, Inc. which they intended to benefit.
We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently
opposed the assertion or pretension of the appellants that they are privy to the contract. If it were the
intention of the insurance company to make itself liable to the repair shop or materialmen, it could have
easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the
insurance contract intended to confer upon the appellants the benefit claimed by them would require
us to ignore the indispensable requisite that a stipulation pour autrui must be clearly expressed by the
parties, which we cannot do.
As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of
establishing privity between the appellants and the insurance company, such stipulation merely
establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair.
This paragraph therefore should not be construed as bringing into existence in favor of the appellants a
right of action against the insurance company as such intention can never be inferred therefrom.
Another cogent reason for not recognizing a right of action by the appellants against the insurance
company is that "a policy of insurance is a distinct and independent contract between the insured and
insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds
of it, unless there be some contract or trust, expressed or implied between the insured and third
person."5 In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the
trial court that no cause of action exists in favor of the appellants in so far as the proceeds of insurance
are concerned. The appellants' claim, if at all, is merely equitable in nature and must be made effective
through Enrique Mora who entered into a contract with the Bonifacio Bros. Inc. This conclusion is
deducible not only from the principle governing the operation and effect of insurance contracts in
general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read:
"The insurance shall be applied exclusively to the proper interests of the person in whose name it is
made unless otherwise specified in the policy."
The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.," which
unmistakably shows the intention of the parties.
The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance proceeds
arises only if there was loss and not where there is mere damage as in the instant case. Suffice it to say
that any attempt to draw a distinction between "loss" and "damage" is uncalled for, because the word
"loss" in insurance law embraces injury or damage.
"Loss in insurance, defined.—The injury or damage sustained by the insured in consequence of the
happening of one or more of the accidents or misfortune against which the insurer, in consideration of
the premium, has undertaken to indemnify the insured." (1 Bouv. Ins. No. 1215; Black's Law Dictionary;
Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).
Indeed, according; to sec. 120 of the Insurance Act, a loss may be either total or partial.
Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost,
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar Sanchez and Castro,
JJ., concur.
Judgment affirmed.
_______________ Bonifacio Bros., Inc. vs. Mora, 20 SCRA 261, No. L-20853 May 29, 1967
No. L-15862. July 31, 1961.
PAULO ANG and SALLY C. ANG, plaintiffs-appellees, vs. FULTON FIRE INSURANCE CO., ET AL.,
defendants. FULTON FIRE INSURANCE CO., defendant-appellant.
Insurance; Fire Insurance Policies; Condition limiting period for filing claim after rejection not merely
procedural but a condition precedent.—The condition contained in an insurance policy that claims must
be presented within one year after rejection is not merely a procedural requirement but an important
matter essential to a prompt settlement of claims against insurance companies as it demands that
insurance suits be brought by the insured while the evidence as to the origin and cause of destruction
have not yet disappeared. It is in the nature of a condition precedent to the liability of the insurer, or in
other terms, a resolution clause, the purpose of which is to terminate all liabilities in case the action is
not filed by the insured within the period stipulated.
Same; Contractual limitations in policies prevail over statutory limitations.—Contractual limitations in

insurance policies prevail over the statutory limitations, as well as over the exceptions to the latter,
because the rights of the parties flow from the contract of insurance. Their contract is the law between
the parties, and their agreement that an action on a claim denied by the insurer must be brought within
one year from the denial, governs, not the rules on the prescription of actions.
Same; When filing of action by insured against agent in’ effective.—If there is no condition in the policy
that an action should be filed by the insured against the agent for his claim, the filing of such action has
no legal effect and serves no other purpose except that of notifying the agent of the claim. There is no
law giving any effect to such action upon the principal, and courts can not by interpretation extend the
clear scope of the agreement beyond what is agreed upon by the parties.
APPEAL from a judgment of the Court of First Instance of Ilocos Norte. Ortega, J.
Santiago Ranada for plaintiffs-appellees.
Benjamin S. Valte for defendant-appellant.
LABRADOR, J.:
The present action was instituted by the spouses Paulo Ang and Sally C. Ang against the Fulton Fire
Insurance Company and the Paramount Surety and Insurance Company, Inc. to recover from them the
face value of a fire insurance policy issued in plaintiffs’ favor covering a store owned and operated by
them in Laoag, Ilocos Norte. From a judgment of the court ordering the defendant Fulton Fire Insurance
Co. to pay the plaintiffs the sum of P10,000.00, with interest, and an additional sum of P2,000.00 as
attorney’s fees, and costs, the defendants have appealed directly to this Court.
On September 9, 1953, defendant Fulton Fire Insurance Company issued a policy No. F-4730340, in favor
of P. & S. Department Store (Sally C. Ang) over stocks of general merchandise, consisting principally of
dry goods, contained in a building occupied by the plaintiffs at Laoag, Ilocos Norte. The premium is
P500.00 annually. The insurance was issued for one year, but the same was renewed for another year
on September 31, 1954. On December 27, 1954, the store containing the goods insured was destroyed
by fire. On December 30, following, plaintiffs executed the first claim form. The claim together with all
the necessary papers relating thereto, were forwarded to the Manila Adjustment Company, the
defendants’ adjusters, and received by the latter on June 8, 1955. On January 12, 1955, the Manila
Adjustment Company accepted receipt of the claim and requested the submission of the books of
accounts of the insured for the year 1953-1954 and a clearance from the Philippine Constabulary and
the police. On April 6, 1956, the Fulton Fire Insurance Company wrote the plaintiffs that their claim was
denied. This denial of the claim was received by the plaintiffs on April 19, 1956.
On January 13, 1955, plaintiff Paulo Ang and ten others were charged for arson in Criminal Case No.
1429 in the Justice of the Peace Court of Laoag, Ilocos Norte. The case was remanded for trial to the
Court of First Instance of Ilocos Norte and there docketed as Criminal Case No. 2017. The said court in a
decision dated December 9, 1957, acquitted plaintiff Paulo Ang of the crime of arson.
The present action was instituted on May 5, 1958. The action was originally instituted against both the
Fulton Fire Insurance Company and the Paramount Surety and Insurance Company, Inc., but on June 16,
1958, upon motion of the Paramount Surety, the latter was dropped from the complaint.
On May 26, 1958, the defendant Fulton Fire Insurance Company filed an answer to the complaint,
admitting the existence of the contract of insurance, its renewal and the loss by fire of the department
store and the merchandise contained therein, but denying that the loss by the fire was accidental,
alleging that it was occasioned by the wilful act of the plaintiff Paulo Ang himself. It claims that under
paragraph 13 of the policy, if the loss or damage is occasioned by the wilful act of the insured, or if the
claim is made and rejected but no action is commenced within 12 months after such rejection, all
benefits under the policy would be forfeited, and that since the claim of the plaintiffs was denied and
plaintiffs received notice of denial on April 18, 1956, and they brought the action only on May 5, 1958,
all the benefits under the policy have been forfeited.
On February 12, 1959, plaintiffs filed a reply to the above answer of the Fulton Fire Insurance, alleging
that on May 11, 1956, plaintiffs had instituted Civil Case No. 2949 in the Court of First Instance of
Manila, to assert the claim; that this case was dismissed without prejudice on September 3, 1957 and
that deducting the period within which said action was pending, the present action was still within the
12 month period from April 12, 1956. The court below held that the bringing of the action in the Court
of First Instance of Manila on May 11, 1956, tolled the running of the 12 month period within which the
action must be filed. Said the court on this point:
“True, indeed, plaintiffs committed a procedural mistake in first suing the agent instead of its principal,
the herein defendant, as correctly pointed out by counsel for the defendant, for ‘Un agente residente de
una compañia de seguros extranjera que comercia en las Islas Filipinas no es responsable, como
mandante ni como mandatario, en virtud de contratas de seguro expendidos a nombre de la compañia,’
(Macias & Co. vs. Warner, Barnes & Co., 43 Phil. 161). But the mistake being merely procedural, and the
defendant not having been misled by the error, ‘There is nothing sacred about process or pleadings,
their forms or contents. Their sole purpose is to facilitate the application of justice to the rival claims of
contending parties. They were created not to hinder and delay, but to facilitate and promote the
administration of justice.’ (Alonso vs. Villamor, 16 Phil. 578.)”
“The complaint, Exh. ‘C’, was dismissed by the Court without prejudice (Exh. ‘H-l’) on September 3,
1957, and motion for reconsideration dated September 21, 1957. The instant complaint was filed on
May 8, 1958. The Rules of Court (See 132 thereof) is applicable in the computation of time. Now, as
correctly pointed out by the plaintiffs’ counsel, by simple mathematical computation, the present action
was filed less than nine (9) months after the notice of rejection received by plaintiffs on April 19, 1956,
because the filing of the original complaint stopped the running of the period.” (Decision, pp. 42-43,
R.O.A.)
In view of the reasons thus above quoted, the court rendered decision in favor of the plaintiffs.
On the appeal before this Court, defendant-appellant argues that the court below erred in holding that
the filing of the previous suit tolled or suspended the running of the prescriptive period.
The clause subject of the issue is paragraph 13 of the policy, which reads as follows:
“13. If the claim be in any respect fraudulent, or if any false declaration is made or used in support
thereof, or if any fraudulent means or devices are used by the Insured or any one acting on his behalf to
obtain any benefit under this Policy, or, if the loss or damage be occasioned by the wilful act or with
connivance of the Insured, or, if the claim be made and months after such rejection or (in case of
arbitration taking place in pursuance of the 18th condition of this Policy) within twelve months after the
arbitrator or arbitrators or umpire shall have made their award, all benefits under this Policy shall be
forfeited.” (Italics supplied). (Decision, p. 10, R.O.A.)
The appellant cites in support of its contention the cases of E. Macias & Co. vs. Warner, Barnes & Co.,
Ltd., 43 Phil. 155; E. Macias & Co. vs. China Fire Insurance Co., 46 Phil. 345 and Castillo etc. vs.
Metropolitan Insurance Co., 47 O.G. (September, 1951).
In answer to appellant’s contention, counsel for appellees contend that the action of the plaintiffs
against the defendant had not yet prescribed at the time of the bringing of the action, because the
period of prescription was interrupted by the filing of the first action against the Paramount Surety &
Insurance Co., in accordance with Article 1155 of the Civil Code. Counsel further argues that the basis of
prescription of an action is the abandonment by a person of his right of action or claim, so that any act
of said person tending to show his intention not to abandon his right of action or claim, as the filing of
the previous action in the case at bar, interrupts the period of prescription. Furthermore, counsel
argues, the dismissal of the previous action is without prejudice, which means that plaintiffs have the
right to file another complaint against the principal.
The basic error committed by the trial court is its view that the filing of the action against the agent of
the defendant company was “merely a procedural mistake of no significance or consequence, which
may be overlooked.” The condition contained in the insurance policy that claims must be presented
within one year after rejection is not merely a procedural requirement. The condition is an important
matter, essential to a prompt settlement of claims against insurance companies, as it demands that
insurance suits be brought by the insured while the evidence as to the origin and cause of destruction
have not yet disappeared. It is in the nature of a condition precedent to the liability of the insurer, or in
other terms, a resolutory cause, the purpose of which is to terminate all liabilities in case the action is
not filed by the insured within the period stipulated.
The bringing of the action against the Paramount Surety & Insurance Company, the agent of the
defendant company cannot have any legal effect except that of notifying the agent of the claim. Beyond
such notification, the filing of the action can serve no other purpose. There is no law giving any effect to
such action upon the principal. Besides, there is no condition in the policy that the action must be filed
against the agent, and this Court can not by interpretation, extend the clear scope of the agreement
beyond what is agreed upon by the parties.
The case of E. Macias & Co. vs. China Fire Insurance & Co. has settled the issue presented by the
appellees in the case at bar definitely against their claim. In that case, We declared that the contractual
limitation in an insurance policy prevails over the statutory limitation, as well as over the exceptions to
the statutory limitations that the contract necessarily supersedes the statute (of limitations) and the
limitation is in all phases governed by the former. (E. Macias & Co. vs. China Fire Insurance & Co., 46
Phil. pp. 345-353). As stated in said case and in accordance with the decision of the Supreme Court of
the United States in Riddlesbarger vs. Hartford Fire Insurance Co. (7 Wall., 386), the rights of the parties
flow from the contract of insurance, hence they are not bound by the statute of limitations nor by
exemptions thereto. In the words of our own law, their contract is the law between the parties, and
their agreement that an action on a claim denied by the insurer must be brought within one year from
the denial, governs, not the rules on the prescription of actions.
The judgment appealed from is hereby set aside and the case dismissed, with costs against the plaintiffs-
appellees.
Bengzon, C.J., Padilla, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, De Leon and Natividad, JJ.,
concur.
Judgment set aside.
Notes.—A complaint or claim filed by the insured with the Office of the Insurance Commissioner could
not have halted the running of the prescriptive period stipulated in the insurance policy involved. For
there is nothing in the Insurance Law, nor in any of its allied Legislations, which empowers the Insurance
Commissioner to adjudicate on disputes relating to an insurance company’s liability to an insured under
a policy issued by the former to the latter. (Lopez v. Filipinas Compañia de Seguros, L-19613, Apr. 30,
1966, 16 SCRA 855).
_______________ Ang vs. Fulton Fire Ins. Co., 2 SCRA 945, No. L-15862 July 31, 1961
CLASSES OF INSURANCE
BASILIA BERDIN VDA. DE CONSUEGRA;JULIANA,PACITA,MARIA LOURDES,JOSE,JR., RODRIGO,LINEDA,

and Luis, all
_______________
5 Article 1146 of the Civil Code provides: “The following actions must be instituted within four years: (1)
Upon an injury to the rights of the plaintiff; (2) Upon a quasi-delict.”
316
316
Vda. de Consuegra vs. Government Service Insurance System
surnamed CONSUEGRA, petitioners and appellants, vs. GOVERNMENT SERVICE INSURANCE

SYSTEM,COMMISSIONER OF PUBLIC HIGHWAYS,HIGHWAY DISTRICT ENGINEER OF SURIGAO DEL
NORTE,COMMISSIONER OF CIVIL SERVICE, and ROSARIO DIAZ, respondents and appellees.
Government Service Insurance System; Designation of beneficiaries in life insurance differs from that in
retirement insurance.—When Consuegra designated his beneficiaries in his life insurance he could not
have intended those beneficiaries of his life insurance as also the beneficiaries of his retirement
insurance because the provisions on retirement insurance under the_GSIS came about only when Com.
Act 186 was amended by Rep. Act 660 on June 16, 1951. Hence, it cannot be said that because
appellants were designated beneficiaries in Consuegra’s life insurance they automatically became the
beneficiaries also of his retirement insurance. The provisions of subsection (b) of Section 11 of
Commonwealth Act 186, as amended by Rep. Act 660, clearly indicate that there is need for the
employee to file an application for retirement insurance benefits when he becomes a member of the
GSIS, and he should state in his application the beneficiary of his retirement insurance. Hence, the
beneficiary named in the life insurance does not automatically become the beneficiary in the retirement
insurance unless the same beneficiary in the life insurance is so designated in the application for
retirement insurance.
Same; Benefits offered to members.—The GSIS offers two separate and distinct systems of benefits to
its members—one is the life insurance and the other is the retirement insurance. These two distinct
systems of benefits are paid out from two distinct and separate funds that are maintained by the GSIS.
Same; Beneficiaries in life insurance.—In the case of the proceeds of a life insurance, the same are paid
to whoever is named the beneficiary in the life insurance policy. As in the case of life insurance provided
for in the Insurance Act (Act 2427, as amended), the beneficiary in a life insurance under the GSIS may
not necessarily be an heir of the insured. The insured in a life insurance may designate any person as
beneficiary unless disqualified to be so under the provisions of the Civil Code. And in the absence of any
beneficiary named in the life insurance policy, the proceeds of the insurance will go to the estate of the
insured.
Same; Beneficiaries in retirement insurance.—Retirement insurance is primarily intended for the benefit
of the employee—to provide for his old age, or incapacity, after rendering service in the government for
a required number of years. If the employee reaches the age of retirement, he gets the retirement
benefits even to the exclusion of the beneficiary or beneficiaries named in his application for retirement
insurance. The beneficiary of the retirement insurance can only claim the proceeds of the retirement
insurance if the employee dies before retirement. If the employee failed or -overlooked to state the
beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be
given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is
named in the insurance policy.
Civil law; Succession; Rights to retirement benefits when there exists two marriages.—The respondent
GSIS had correctly acted when it ruled that the proceeds of the retirement insurance of the late Jose
Consuegra should be divided equally between his first living wife Rosario Diaz, on the one hand, and his
second wife Basilia Berdin and his children by her on the other; and the lower court did not commit
error when it affirmed the action of the GSIS, it being accepted as a fact that the second marriage of
Jose Consuegra to Basilia Berdin was contracted in good faith. The Supreme Court, in construing the
rights of two women who were married to the same man, held “that since the defendant’s first marriage
has not been dissolved or declared void the conjugal partnership established by that marriage has not
ceased. Nor has the first wife lost or relinquished her status as putative heir of her husband under the
new Civil Code, entitled to share in his estate upon his death should she survive him. Consequently,
whether as conjugal partner in a still subsisting marriage or as such putative heir she has an interest in
the husband’s share in the property in dispute.” And with respect, to the right of the second wife, this
Court observed that although the second marriage can be presumed to be void ab initio as it was
celebrated while the first marriage was still subsisting, still there is need for judicial declaration of its
nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved before
judicial declaration of its nullity, “the only just and equitable solution in this case would be to recognize
the right of the second wife to her share of one-half in the property acquired by her husband, and
consider the other half as pertaining to the conjugal partnership of the first marriage.”
APPEAL from a decision of the Court of First Instance of Surigao del Norte. De Peralta, J.
Bernardino O. Almeda for petitioners and appellants.
Binag & Arevalo, Jr. for respondent and appellee Government Service Insurance System.
The Solicitor General for other respondents and appellees.
ZALDIVAR, J .:
Appeal on purely questions of law from the decision of the Court of First Instance of Surigao del Norte,
dated March 7, 1967, in its Special Proceeding No. 1720.
The pertinent facts, culled from the stipulation of facts submitted by the parties, are the following:
The late Jose Consuegra, at the time of his death, was employed as a shop foreman of the office of the
District Engineer in the province of Surigao del Norte. In his lifetime, Consuegra contracted two
marriages, the first with herein respondent Rosario Diaz, solemnized in the parish church of San Nicolas
de Tolentino, Surigao, Surigao, on July 15, 1937, out of which marriage were born two children, namely,
Jose Consuegra, Jr. and Pedro Consuegra, but both predeceased their father; and the second, which was
contracted in good faith while the first marriage was subsisting, with herein petitioner Basilia Berdin, on
May 1, 1957 in the same parish and municipality, out of which marriage were born seven children,
namely, Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz,* all surnamed Consuegra.
Being a member of the Government Service Insurance System (GSIS, for short) when Consuegra died on
September 26, 1965, the proceeds of his life insurance under policy No. 601801 were paid by the GSIS to
petitioner Basilia Berdin and her children who were the beneficiaries named in the policy. Having been
in the service of the government for 22.5028 years, Consuegra was entitled to retirement insurance
benefits in the sum of P6,304.47 pursuant to Section 12(c) of Commonwealth Act 186 as amended by
Republic Acts 1616 and 3836. Consuegra did not designate any beneficiary who would receive the
retirement insurance benefits due to him. Respondent Rosario Diaz, the widow by the first marriage,
filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the only legal
heir of Consuegra, considering that the deceased did not designate any beneficiary with respect to his
retirement insurance benefits. Petitioner Basilia Berdin and her children, likewise, filed a similar claim
with the GSIS, asserting that being the beneficiaries named in the life insurance policy of Consuegra,
they are the only ones entitled to receive the retirement insurance benefits due the deceased
Consuegra. Resolving the conflicting claims, the GSIS ruled that the legal heirs of the late Jose Consuegra
were Rosario Diaz, his widow by his first marriage who is entitled to one-half, or 8/16, of the retirement
insurance benefits, on the one hand; and Basilia Berdin, his widow by the second marriage and their
seven children, on the other hand, who are entitled to the remaining one-half, or 8/16, each of them to
receive an equal share of 1/16.
Dissatisfied with the foregoing ruling and apportionment made by the GSIS, Basilia Berdin and her
children1 filed on October 10, 1966 a petition for mandamus with preliminary injunction in the Court of
First Instance of Surigao, naming as respondents the GSIS, the Commissioner of Public Highways, the
Highway District Engineer of Surigao del Norte, the Commissioner of Civil Service, and Rosario Diaz,
praying that they (petitioners therein) be declared the legal heirs and exclusive beneficiaries of the
retirement insurance of the late Jose Consuegra, and that a writ of preliminary injunction be issued
restraining the implementation of the adjudication made by the GSIS. On October 26, 1966, the trial
court issued an order requiring therein respondents to file their respective answers, but refrained from
issuing the writ of preliminary injunction prayed for. On February 11, 1967, the parties submitted a
stipulation of facts, prayed that the same be admitted and approved and that judgment be rendered on
the basis of the stipulation of facts. On March 7, 1967, the court below rendered judgment, the
pertinent portions of which are quoted hereunder:
“This Court, in conformity with the foregoing stipulation of facts, likewise is in full accord with the
parties with respect to the authority cited by them in support of said stipulation and which is herein-
below cited for purposes of this judgment, to wit:
‘When two women innocently and in good faith are legally united in holy matrimony to the same man,
they and their children, born of said wedlock, will be regarded as legitimate children and each family be
entitled to one half of the estate. Lao & Lao vs. Dee Tim, 45 Phil. 739; Estrella vs. Laong Masa, Inc., (CA)
39 OG 79; Pisalbon vs. Bejec, 74 Phil. 88.
“WHEREFORE, in view of the above premises, this Court is of the opinion that the foregoing stipulation
of facts is in order and in accordance with law and the same is hereby approved. Judgment, therefore, is
hereby rendered declaring the petitioner Basilia Berdin Vda. de Consuegra and her co-petitioners
Juliana, Pacita, Maria Lourdes, Jose Jr., Rodrigo, Lenida and Luis, all surnamed Consuegra, beneficiary
and entitled to one-half (½) of the retirement benefit in the amount of Six Thousand Three Hundred
Four Pesos and Fourty-Seven Centavos (P6,304.47) due to the deceased Jose Consuegra from the
Government Service Insurance System or the amount of P3,152.235 to be divided equally among them
in the proportional amount of 1/16 each. Likewise, the respondent Rosario Diaz Vda. de Consuegra is
hereby declared beneficiary and entitled to the other half of the retirement benefit of the late Jose
Consuegra or the amount of P3,152.235. The case with respect to the Highway District Engineer of
Surigao del Norte is hereby ordered dismissed.”
Hence the present appeal by herein petitioners-appellants, Basilia Berdin and her children.
It is the contention of appellants that the lower court erred in not holding that the designated
beneficiaries in the life insurance of the late Jose Consuegra are also the exclusive beneficiaries in the
retirement insurance of said deceased. In other words, it is the submission of appellants that because
the deceased Jose Consuegra failed to designate the beneficiaries in his retirement insurance, the
appellants who were the beneficiaries named in the life insurance should automatically be considered
the beneficiaries to receive the retirement insurance benefits, to the exclusion of respondent Rosario
Diaz. From the arguments adduced by appellants in their brief We gather that it is their stand that the
system of life insurance and the system of retirement insurance, that are provided for in
Commonwealth Act 186 as amended, are simply complementary to each other, or that one is a part or
an extension of the other, such that whoever is named the beneficiary in the life insurance is also the
beneficiary in the retirement insurance when no such beneficiary is named in the retirement insurance.
The contention of appellants is untenable.
It should be noted that the law creating the Government Service Insurance System is Commonwealth
Act 186 which was enacted by the National Assembly on November 14, 1936. As originally approved,
Commonwealth Act 186 provided for the compulsory membership in the Government Service Insurance
System of all regularly and permanently appointed officials and employees of the government,
considering as automatically insured on life all such officials and employees, and issuing to them the
corresponding membership policy under the terms and conditions as provided in the Act.2
Originally, Commonwealth Act 186 provided for life insurance only. Commonwealth Act 186 was
amended by Republic Act 660 which was enacted by the Congress of the Philippines on June 16, 1951,
and, among others, the amendatory Act provided that aside from the system of life insurance under the
Government Service Insurance System there was also established the system of retirement insurance.
Thus, We will note in Republic Act 660 that there is a chapter on life insurance and another chapter on
retirement insurance.3 Under the chapter on life insurance are sections 8, 9 and 10 of Commonwealth
Act 186, as amended; and under the chapter on retirement insurance are sections 11, 12, 13 and 13-A.
On May 31, 1957, Republic Act 1616 was enacted by Congress, amending section 12 of Commonwealth
Act 186 as amended by Republic Act 660, by adding thereto two new subsections, designated as
subsections (b) and (c). This subsection (c) of section 12 of Commonwealth Act 186, as amended by
Republic Acts 660, 1616 and 3096, was again amended by Republic Act 3836 which was enacted on June
22, 1963. The pertinent provisions of subsection (c) of Section 12 of Commonwealth Act 186, as thus
amended and reamended, read as follows:
“(c) Retirement is likewise allowed to a member, regardless of age, who has rendered at least twenty
years of service. The benefit shall, in addition to the return of his personal contributions plus interest
and the payment of the corresponding employer’s premiums described in subsection (a) of Section 5
hereof, without interest, be only a gratuity equivalent to one month’s salary for every year of service,
based on the highest rate received, but not to exceed twenty four months; Provided, That the retiring
officer or employee has been in the service of the said employer or office for at least four years,
immediately preceding his retirement.
x x x x
“The gratuity is payable by the employer or office concerned which is hereby authorized to provide the
necessary appropriation to pay the same from any unexpended items of appropriations.
“Elective or appointive officials and employees paid gratuity under this subsection shall be entitled to
the commutation of the unused vacation and sick leave, based on the highest rate received, which they
may have to their credit at the time of retirement.”
Jose Consuegra died on September 26, 1965, and so at the time of his death he had acquired rights
under the above-quoted provisions of subsection (c) of Section 12 of Com. Act 186, as finally amended
by Rep. Act 3836 on June 22, 1963. When Consuegra died on September 26, 1965, he had to his credit
22.5028 years of service in the government, and pursuant to the above-quoted provisions of subsection
(c) of Section 12 of Com. Act 186, as amended, on the basis of the highest rate of salary received by him
which was P282.83 per month, he was entitled to receive retirement insurance benefits in the amount
of P6,304.47. This is the retirement benefits that are the subject of dispute between the appellants, on
the one hand, and the appellee Rosario Diaz, on the other, in the present case. The question posed is: to
whom should this retirement insurance benefits of Jose Consuegra be paid, because he did not, or failed
to, designate the beneficiary of his retirement insurance ?
If Consuegra had 22.5028 years of service in the government when he died on September 26, 1965, it
follows that he started in the government service sometime during the early part of 1943, or before
1943. In 1943 Com. Act 186 was not yet amended, and the only benefits then provided for in said Com.
Act 186 were those that proceed from a life insurance. Upon entering the government service
Consuegra became a compulsory member of the GSIS, being automatically insured on his life, pursuant
to the provisions of Com. Act 186 which was in force at the time. During 1943 the operation of the
Government Service Insurance System was suspended because of the war, and the operation was
resumed sometime in 1946. When Consuegra designated his beneficiaries in his life insurance he could
not have intended those beneficiaries of his life insurance as also the beneficiaries of his retirement
insurance because the provisions on retirement insurance under the GSIS came about only when Com.
Act 186 was amended by Rep. Act 660 on June 16, 1951. Hence, it cannot be said that because herein
appellants were designated beneficiaries in Consuegra’s life insurance they automatically became the
beneficiaries also of his retirement insurance. Rep. Act 660 added to Com. Act 186 provisions regarding
retirement insurance, which are Sections 11, 12, and 13 of Com. Act 186, as amended. Subsection (b) of
Section 11 of Com. Act 186, as amended by Rep. Act 660, provides as follows:
“(b) Survivors benefit.—Upon death before he becomes eligible for retirement, his beneficiaries as
recorded in the application for retirement annuity filed with the System shall be paid his own premiums
with interest of three per centum per annum, compounded monthly. If on his death he is eligible for
retirement, then the automatic retirement annuity or the annuity chosen by him previously shall be paid
accordingly.”
The above-quoted provisions of subsection (b) of Section 11 of Commonwealth Act 186, as amended by
Rep. Act 660, clearly indicate that there is need for the employee to file an application for retirement
insurance benefits when he becomes a member of the GSIS, and he should state in his application the
beneficiary of his retirement insurance. Hence, the beneficiary named in the life insurance does not
automatically become the beneficiary in the retirement insurance unless the same beneficiary in the life
insurance is so designated in the application for retirement insurance.
Section 24 of Commonwealth Act 186, as amended by Rep. Act 660, provides for a life insurance fund
and for a retirement insurance fund. There was no such provision in Com. Act 186 before it was
amended by Rep. Act 660. Thus, subsections (a) and (b) of Section 24 of Commonwealth Act 186, as
amended by Rep. Act 660, partly read as follows:
“(a)Life insurance fund. —This shall consist of all premiums for life insurance benefit and/or earnings
and savings therefrom. It shall meet death claims as they may arise or such equities as any member may
be entitled to, under the conditions of his policy, and shall maintain the required reserves to the end of
guaranteeing the fulfillment of the life insurance contracts issued by the System ...”
“(b) Retirement insurance fund. —This shall consist of all contributions for retirement insurance benefit
and of earnings and savings therefrom. It shall meet annuity payments and establish the required
reserves to the end of guaranteeing the fulfillment of the contracts issued by the System. ...”
Thus, We see that the GSIS offers two separate and distinct systems of benefits to its members—one is
the life insurance and the other is the retirement insurance. These two distinct systems of benefits are
paid out from two distinct and separate funds that are maintained by the GSIS.
In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in
the life insurance policy. As in the case of a life insurance provided for in the Insurance Act (Act 2427, as
amended), the beneficiary in a life insurance under the GSIS may not necessarily be an heir of the
insured. The insured in a life insurance may designate any person as beneficiary unless disqualified to be
so under the provisions of the Civil Code.4 And in the absence of any beneficiary named in the life
insurance policy, the proceeds of the insurance will go to the estate of the insured.
Retirement insurance is primarily intended for the benefit of the employee—to provide for his old age,
or incapacity, after rendering service in the government for a required number of years. If the employee
reaches the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary
or beneficiaries named in his application for retirement insurance. The beneficiary of the retirement
insurance can only claim the proceeds of the retirement insurance if the employee dies before
retirement. If the employee failed or overlooked to state the beneficiary of his retirement insurance, the
retirement benefits will accrue to his estate and will be given to his legal heirs in accordance with law, as
in the case of a life insurance if no beneficiary is named in the insurance policy.
It is Our view, therefore, that the respondent GSIS had correctly acted when it ruled that the proceeds
of the retirement insurance of the late Jose Consuegra should be divided equally between his first living
wife Rosario Diaz, on the one hand, and his second wife Basilia Berdin and his children by her, on the
other; and the lower court did not commit an error when it confirmed the action of the GSIS, it being
accepted as a fact that the second marriage of Jose Consuegra to Basilia Berdin was contracted in good
faith. The lower court has correctly applied the ruling of this Court in the case of Lao, et al. vs. Dee Tim,
et al., 45 Phil. 739, as cited in the stipulation of facts and in the decision appealed from.5 In the recent
case of Gomez vs. Lipana, L-23214, June 30, 1970,6 this Court, in construing the rights of two women
who were married to the same man—a situation more or less similar to the case of appellant Basilia
Berdin and appellee Rosario Diaz—held “that since the defendant’s first marriage has not been dissolved
or declared void the conjugal partnership established by that marriage has not ceased. Nor has the first
wife lost or relinquished her status as putative heir of her husband under the new Civil Code, entitled to
share in his estate upon his death should she survive him. Consequently, whether as conjugal partner in
a still subsisting marriage or as such putative heir she has an interest in the husband’s share in the
property here in dispute….“ And with respect to the right of the second wife, this Court observed that
although the second marriage can be presumed to be void ab initio as it was celebrated while the first
marriage was still subsisting, still there is need for judicial declaration of such nullity. And inasmuch as
the conjugal partnership formed by the second marriage was dissolved before judicial declaration of its
nullity, “[t]he only just and equitable solution in this case would be to recognize the right of the second
wife to her share of one-half in the property acquired by her and her husband, and consider the other
half as pertaining to the conjugal partnership of the first marriage.”
WHEREFORE, the decision appealed from is affirmed, with costs against petitioners-appellants. It is so
ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal,
Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
Decision affirmed.
_______________ Vda. de Consuegra vs. Government Service Insurance System, 37 SCRA 315, No. L-
28093 January 30, 1971
PARTIES TO AN INSURANCE CONTRACT
The Insurer
VOL. 113, APRIL 12, 1982
459
Aisporna vs. Court of Appeals
No. L-39419. April 12, 1982.*
MAPALAD AISPORNA, petitioner, vs. THE COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES,
respondents.
Insurance Law; Criminal Law; Criminal Procedure; Statutory Construction; The definition of an insurance
agent as found in the second paragraph of Section 189 of the Insurance Act is intended to define the
word “agent” mentioned in the first and second paragraphs thereof which states to be considered an
insurance agent the solicitation must be for a compensation.—The definition of an insurance agent as
found in the second paragraph of Section 189 is intended to define the word “agent” mentioned in the
first and second paragraphs of the aforesaid section. More significantly, in its second paragraph, it is
explicitly provided that the definition of an insurance agent is within the intent of Section 189. Hence—
“Any person who for compensation x x x shall be an insurance agent within the intent of this section, x x
x.” Patently, the definition of an insurance agent under the second paragraph holds true with respect to
the agent mentioned in the other two paragraphs of the said section. The second paragraph of Section
189 is a definition and interpretative clause intended to qualify the term “agent” mentioned in both the
first and third paragraphs of the aforesaid section.
Same; Same; Same; Same; Legislative intent must be ascertained from a consideration of the whole
statute; Words and phrases and clauses should not be studied in isolation or detached from the rest.—
Applying the definition of an insurance agent in the second paragraph to the agent mentioned in the
first and second paragraphs would give harmony to the aforesaid three paragraphs of Section 189.
Legislative intent must be ascertained from a consideration of the statute as a whole. The particular
words, clauses and phrases should not be studied as detached and isolated expressions, but the whole
and every part of the statute must be considered in fixing the meaning of any of its parts and in order to
produce harmonious whole. A statute must be so construed as to harmonize and give effect to all its
provisions whenever possible. The meaning of the law, it must be borne in mind, is not to be extracted
from any single part, portion or section or from isolated words and phrases, clauses or sentences but
from a general consideration or view of the act as a whole. Every part of the statute must be interpreted
with reference to the context.
Same; Same; Same; Same; Receipt of compensation is essential for a person to be considered an
insurance agent. The criminal information charging a person of insurance solicitation must state that it
was for compensation, otherwise no conviction is warranted.—In the case of Bolen vs. Stake, the
provision of Section 3750, Snyder’s Compiled Laws of Oklahoma 1909 is intended to penalize persons
only who acted as insurance solicitors without license, and while acting in such capacity negotiated and
concluded insurance contracts for compensation. It must be noted that the information, in the case at
bar, does not allege that the negotiation of an insurance contract by the accused with Eugenio Isidro
was one for compensation. This allegation is essential, and having been omitted, a conviction of the
accused could not be sustained. It is well-settled in Our jurisprudence that to warrant conviction, every
element of the crime must be alleged and proved.
Plana, J., took no part.
PETITION for certiorari to review the judgment of the Court of Appeals.
DE CASTRO, J.:
In this petition for certiorari, petitioner-accused Aisporna seeks the reversal of the decision dated
August 14, 19741 in CA-G.R. No. 13243-CR entitled “People of the Philippines, plaintiff-appellee, vs.
Mapalad Aisporna, defendant-appellant” of respondent Court of Appeals affirming the judgment of the
City Court of Cabanatuan2 rendered on August 2, 1971 which found the petitioner guilty for having
violated Section 189 of the Insurance Act (Act No. 2427, as amended) and sentenced her to pay a fine of
P500.00 with subsidiary imprisonment in case of insolvency, and to pay the costs.
Petitioner Aisporna was charged in the City Court of Cabanatuan for violation of Section 189 of the
Insurance Act on November 21, 1970 in an information3 which reads as follows:
“That on or before the 21st day of June, 1969, in the City of Cabanatuan, Republic of the Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused, did then and there, willfully,
unlawfully and feloniously act as agent in the solicitation or procurement of an application for insurance
by soliciting therefor the application of one Eugenio S. Isidro, for and in behalf of Perla Compania de
Seguros, Inc., a duly organized insurance company, registered under the laws of the Republic of the
Philippines, resulting in the issuance of a Broad Personal Accident Policy No. 28PI-RSA 0001 in the
amount not exceeding FIVE THOUSAND PESOS (P5,000.00) dated June 21, 1969, without said accused
having first secured a certificate of authority to act as such agent from the office of the Insurance
Commissioner, Republic of the Philippines.
“CONTRARY TO LAW.”
The facts,4 as found by the respondent Court of Appeals are quoted hereunder:
“IT RESULTING: That there is no debate that since 7 March, 1969 and as of 21 June, 1969, appellant’s
husband, Rodolfo S. Aisporna was duly licensed by Insurance Commission as agent to Perla Compania de
Seguros, with license to expire on 30 June, 1970, Exh. C; on that date, at Cabanatuan City, Personal
Accident Policy, Exh. D was issued by Perla thru its authorized representative, Rodolfo S. Aisporna, for a
period of twelve (12) months with beneficiary as Ana M. Isidro, and for P5,000.00; apparently, insured
died by violence during lifetime of policy, and for reasons not explained in record, present information
was filed by Fiscal, with assistance of private prosecutor, charging wife of Rodolfo with violation of Sec.
189 of Insurance Law for having, wilfully, unlawfully, and feloniously acted, ‘as agent in the solicitation
for insurance by soliciting therefore the application of one Eugenio S. Isidro for and in behalf of Perla
Compaña de Seguros, x x x without said accused having first secured a certificate of authority to act as
such agent from the office of the Insurance Commission, Republic of the Philippines.’
and in the trial, People presented evidence that was hardly disputed, that aforementioned policy was
issued with active participation of appellant wife of Rodolfo, against which appellant in her defense
sought to show that being the wife of true agent, Rodolfo, she naturally helped him in his work, as clerk,
and that policy was merely a renewal and was issued because Isidro had called by telephone to renew,
and at that time, her husband, Rodolfo, was absent and so she left a note on top of her husband’s desk
to renew x x x.”
Consequently, the trial court found herein petitioner guilty as charged. On appeal, the trial court’s
decision was affirmed by the respondent appellate court finding the petitioner guilty of a violation of the
first paragraph of Section 189 of the Insurance Act. Hence, this present recourse was filed on October
22, 1974.5
In its resolution of October 28, 1974,6 this Court resolved, without giving due course to this instant
petition, to require the respondent to comment on the aforesaid petition. In the comment7 filed on
December 20, 1974, the respondent, represented by the Office of the Solicitor General, submitted that
petitioner may not be considered as having violated Section 189 of the Insurance Act.8 On April 3, 1975,
petitioner submitted his Brief9 while the Solicitor General, on behalf of the respondent, filed a
manifestation10 in lieu of a Brief on May 3, 1975 reiterating his stand that the petitioner has not
violated Section 189 of the Insurance Act.
In seeking reversal of the judgment of conviction, petitioner assigns the following errors11 allegedly
committed by the appellate court:
“1. THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT RECEIPT OF COMPENSATION IS NOT
AN ESSENTIAL ELEMENT OF THE CRIME DEFINED BY THE FIRST PARAGRAPH OF SECTION 189 OF THE
INSURANCE ACT.
“2. THE RESPONDENT COURT OF APPEALS ERRED IN GIVING DUE WEIGHT TO EXHIBITS F, F-1, TO F-17,
INCLUSIVE SUFFICIENT TO ESTABLISH PETITIONER’S GUILT BEYOND REASONABLE DOUBT. “3. THE
RESPONDENT COURT OF APPEALS ERRED IN NOT ACQUITTING HEREIN PETITIONER.”
We find the petition meritorious.
The main issue raised is whether or not a person can be convicted of having violated the first paragraph
of Section 189 of the Insurance Act without reference to the second paragraph of the same section. In
other words, it is necessary to determine whether or not the agent mentioned in the first paragraph of
the aforesaid section is governed by the definition of an insurance agent found on its second paragraph.
The pertinent provision of Section 189 of the Insurance Act reads as follows:
“No insurance company doing business within the Philippine Islands, nor any agent thereof, shall pay
any commission or other compensation to any person for services in obtaining new insurance, unless
such person shall have first procured from the Insurance Commissioner a certificate of authority to act
as an agent of such company as hereinafter provided. No person shall act as agent, sub-agent, or broker
in the solicitation of procurement of applications for insurance, or receive for services in obtaining new
insurance, any commission or other compensation from any insurance company doing business in the
Philippine Islands, or agent thereof, without first procuring a certificate of authority so to act from the
Insurance Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. Such certificate shall be issued by the Insurance Commissioner only upon the written
application of persons desiring such authority, such application being approved and countersigned by
the company such person desires to represent, and shall be upon a form approved by the Insurance
Commissioner, giving such information as he may require. The Insurance Commissioner shall have the
right to refuse to issue or renew and to revoke any such certificate in his discretion. No such certificate
shall be valid, however, in any event after the first day of July of the year following the issuing of such
certificate. Renewal certificates may be issued upon the application of the company.
“Any person who for compensation solicits or obtains insurance on behalf of any insurance company, or
transmits for a person other than himself an application for a policy of insurance to or from such
company or offers or assumes to act in the negotiating of such insurance, shall be an insurance agent
within the intent of this section, and shall thereby become liable to all the duties, requirements,
liabilities, and penalties to which an agent of such company is subject.
“Any person or company violating the provisions of this section shall be fined in the sum of five hundred
pesos. On the conviction of any person acting as agent, sub-agent, or broker, of the commission of any
offense connected with the business of insurance, the Insurance Commissioner shall immediately revoke
the certificate of authority issued to him and no such certificate shall thereafter be issued to such
convicted person.”
A careful perusal of the above-quoted provision shows that the first paragraph thereof prohibits a
person from acting as agent, sub-agent or broker in the solicitation or procurement of applications for
insurance without first procuring a certificate of authority so to act from the Insurance Commissioner,
while its second paragraph defines who is an insurance agent within the intent of this section and,
finally, the third paragraph thereof prescribes the penalty to be imposed for its violation.
The respondent appellate court ruled that the petitioner is prosecuted not under the second paragraph
of Section 189 of the aforesaid Act but under its first paragraph. Thus—
“x x x it can no longer be denied that it was appellant’s most active endeavors that resulted in issuance
of policy to Isidro, she was there and then acting as agent, and received the pay thereof—her defense
that she was only acting as helper of her husband can no longer be sustained, neither her point that she
received no compensation for issuance of the policy because
‘any person who for compensation solicits or obtains insurance on behalf of any insurance company or
transmits for a person other than himself an application for a policy of insurance to or from such
company or offers or assumes to act in the negotiating of such insurance, shall be an insurance agent
within the intent of this section, and shall thereby become liable to all the duties, requirements,
liabilities, and penalties, to which an agent of such company is subject.’ paragraph 2, Sec. 189, Insurance
Law,
now it is true that information does not even allege that she had obtained the insurance,
‘for compensation’
which is the gist of the offense in Section 189 of the Insurance Law in its 2nd paragraph, but what
appellant apparently overlooks is that she is prosecuted not under the 2nd but under the 1st paragraph
of Sec. 189 wherein it is provided that,
‘No person shall act as agent, sub-agent, or broker, in the solicitation or procurement of applications for
insurance, or receive for services in obtaining new insurance any commission or other compensation
from any insurance company doing business in the Philippine Island, or agent thereof, without first
procuring a certificate of authority to act from the insurance commissioner, which must be renewed
annually on the first day of January, or within six months thereafter.’
therefore, there was no technical defect in the wording of the charge, so that Errors 2 and 4 must be
overruled.”12
From the above-mentioned ruling, the respondent appellate court seems to imply that the definition of
an insurance agent under the second paragraph of Section 189 is not applicable to the insurance agent
mentioned in the first paragraph. Parenthetically, the respondent court concludes that under the second
paragraph of Section 189, a person is an insurance agent if he solicits and obtains an insurance for
compensation, but, in its first paragraph, there is no necessity that a person solicits an insurance for
compensation in order to be called an insurance agent.
We find this to be a reversible error. As correctly pointed out by the Solicitor General, the definition of
an insurance agent as found in the second paragraph of Section 189 is intended to define the word
“agent” mentioned in the first and second paragraphs of the aforesaid section. More significantly, in its
second paragraph, it is explicitly provided that the definition of an insurance agent is within the intent of
Section 189. Hence—
“Any person who for compensation x x x shall be an insurance agent within the intent of this section, x x
x.”
Patently, the definition of an insurance agent under the second paragraph holds true with respect to the
agent mentioned in the other two paragraphs of the said section. The second paragraph of Section 189
is a definition and interpretative clause intended to qualify the term “agent” mentioned in both the first
and third paragraphs of the aforesaid section.
Applying the definition of an insurance agent in the second paragraph to the agent mentioned in the
first and second paragraphs would give harmony to the aforesaid three paragraphs of Section 189.
Legislative intent must be ascertained from a consideration of the statute as a whole. The particular
words, clauses and phrases should not be studied as detached and isolated expressions, but the whole
and every part of the statute must be considered in fixing the meaning of any of its parts and in order to
produce harmonious whole.13 A statute must be so construed as to harmonize and give effect to all its
provisions whenever possible14 The meaning of the law, it must be borne in mind, is not to be extracted
from any single part, portion or section or from isolated words and phrases, clauses or sentences but
from a general consideration or view of the act as a whole.15 Every part of the statute must be
interpreted with reference to the context. This means that every part of the statute must be considered
together with the other parts, and kept subservient to the general intent of the whole enactment, not
separately and independently.16 More importantly, the doctrine of associated words (Noscitur a Sociis)
provides that where a particular word or phrase in a statement is ambiguous in itself or is equally
susceptible of various meanings, its true meaning may be made clear and specific by considering the
company in which it is found or with which it is associated.17
Considering that the definition of an insurance agent as found in the second paragraph is also applicable
to the agent mentioned in the first paragraph, to receive a compensation by the agent is an essential
element for a violation of the first paragraph of the aforesaid section. The appellate court has
established ultimately that the petitioner-accused did not receive any compensation for the issuance of
the insurance policy of Eugenio Isidro. Nevertheless, the accused was convicted by the appellate court
for, according to the latter, the receipt of compensation for issuing an insurance policy is not an
essential element for a violation of the first paragraph of Section 189 of the Insurance Act.
We rule otherwise. Under the Texas Penal Code 1911, Article 689, making it a misdemeanor for any
person for direct or indirect compensation to solicit insurance without a certificate of authority to act as
an insurance agent, an information, failing to allege that the solicitor was to receive compensation
either directly or indirectly, charges no offense.18 In the case of Bolen vs. Stake,19 the provision of
Section 3750, Snyder’s Compiled Laws of Oklahoma 1909 is intended to penalize persons only who acted
as insurance solicitors without license, and while acting in such capacity negotiated and concluded
insurance contracts for compensation. It must be noted that the information, in the case at bar, does
not allege that the negotiation of an insurance contract by the accused with Eugenio Isidro was one for
compensation. This allegation is essential, and having been omitted, a conviction of the accused could
not be sustained. It is well-settled in Our jurisprudence that to warrant conviction, every element of the
crime must be alleged and proved.20
After going over the records of this case, We are fully convinced, as the Solicitor General maintains, that
accused did not violate Section 189 of the Insurance Act.
WHEREFORE, the judgment appealed from is reversed and the accused is acquitted of the crime
charged, with costs de oficio.
SO ORDERED.
Teehankee, (Acting C.J.,) Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.
De Castro, J., was designated to sit with the First Division under Special Order No. 225.
Plana, J., took no part.
Judgment reversed.
Notes.—A contract of life insurance is personal in character. (Insular Life Assurance Co. Ltd. vs. Ebrado,
80 SCRA 181.)
On matters not otherwise specifically provided by the Insurance Law, the provisions of the general civil
law govern. (Insular Life Assurance Co. Ltd. vs. Ebrado, 80 SCRA 181.)
The admiralty or maritime laws are not applicable to the work of the arrastre operator. (Delgado Bros.
Inc. vs. Home Insurance Co., 1 SCRA 853.)
Injustice is not caused to private parties who could not file a direct action against the Government for
damages to their goods as they could still seek collection of their money claims by pursuing the
statutory remedy by having the Commission on Audit pass upon the claim. (Switzerland Insurance Co.
Ltd. vs. Republic, 32 SCRA 227.)
Where there is irreconcilable repugnancy between a proviso and the body of the statute, the former
prevails as latest expression of legislative intent. (Arenas vs. City of San Carlos, Pangasinan, 82 SCRA
318.)
The purpose why penal statutes are construed strictly against the state is not to enable a guilty person
to escape punishment through a technicality but to provide a precise definition of forbidden acts.
(People vs. Purisima, 86 SCRA 542.)
The preamble of a statute may be referred to determine what acts fall within the purview of a penal
statute. (People vs. Purisima, 86 SCRA 542.)
Legislation is more than composition; Laws are active instruments of government with ends to be
achieved which cannot be ascertained by resort only to rules of grammar or logic. (Litex Employees
Association vs. Eduvala, 79 SCRA 88.)
Inconsistency and repugnancy between provisions should be clearly and convincingly shown. (Bocobo
vs. Estanislao, 72 SCRA 520.)
——o0o—— Aisporna vs. Court of Appeals, 113 SCRA 459, No. L-39419 April 12, 1982
BENEFICIARY
Beneficiary of one who insures his own life
324
Picar vs. Government Service Insurance System
No. L-25803. May 29, 1970.
Luz PICAR, NANCY PICAR, JESSE PICAR, assisted by their mother, CONSOLACION PICAR, plaintiffs-
appellants, vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee, REPUBLIC OF THE
PHILIPPINES, as represented by the PROVINCIAL TREASURER OF CAMARINES SUR, intervenor-appellee.
Insurance law; Life insurance; Beneficiary; When beneficiary is not entitled to proceeds of insurance.—It
is true that under general principles in the law of insurance, if a policy provides that the proceeds shall
be payable to the assured, if he lives to a certain date, and, in case of his death before that date, then
they shall be payable to the beneficiary designated, the benefit of the policy will inure to such
beneficiary in case the assured dies before the need of the period designated in the policy, and,
generally, that the proceeds of a life insurance in which a third person is named beneficiary belong
exclusively to such beneficiary as an individual, they are not the property of the heirs of the insured, are
not subject to administration and cannot properly be claimed or received by the administrator of other
legal representative of the insured as assets of his estate. However, such general principles are not
applicable to the life insurance of government employees which is governed by specific law, namely
Section 26 of Commonwealth Act 186, which specifically provides that in life insurance policies issued by
the GSIS in favor of government employees, the proceeds shall be liable to attachment, garnishment
and other legal processes, when obligations or indebtedness to the GSIS and the employer are
concerned.
Government Service Insurance System; Insurance proceeds; GSIS may require beneficiaries of insurance
policies to present necessary clearance from money and property accountabilities of deceased
government employee; Reason.—The Government Service Insurance System has the right to require the
benef iciaries to submit the necessary clearance from money and property accountabilities of the
deceased government employee whose insurance policy is involved, before paying them the proceeds of
the policy concerned.
Same; Same; Subject to attachment in favor of Government.—Under Section 26 of Commonwealth Act

186, insurance proceeds of insurance policies issued to government employees are exempt from
attachment or liens except when obligations or indebtedness to the GSIS and the employer are
concerned.
APPEAL from a decision of the Court of First Instance of Camarines Sur. Palacio, J.
Nilo A. Malanyaon for plaintiffs-appellants,

Celso B. Pleta for defendant-appellee.
Florecita Flores for intervenor-appellee.
BARREDO, J.:
Appeal on pure questions of law from the decision of the Court of First Instance of Camarines Sur in its
Civil Case No. 5673, dismissing the action instituted by the petitioners as designated beneficiaries in the
life insurance policy of one Napoleon F. Picar, a deceased government employee, against the
Government Service Insurance System, on the ground that due to the failure of the said petitioners to
submit a certificate of clearance f rom the money and property accountabilities of the deceased, they
have no cause of action against the defendant GSIS.
The case was submitted by all the parties for decision in the court below upon the following Stipulation
of Facts:
"1. That Policy No. 170329 issued in favor of the late Napoleon F. Picar, was, on September 13, 1961, in
force;
"2. That Napoleon F. Picar died on September 13, 1961;
"3. That Consolacion J. Picar is the guardian of all the minors who are the plaintiffs herein;
"4. That the beneficiaries in the insurance policy issued in favor of Napoleon F. Picar are the following:
Nancy Picar, Jesse Picar, Sylvia Picar, Luz Picar and Consolacion Picar;
"5. That the -administrator of the estate of the late Napoleon F. Picar is the Provincial Treasurer of
Camarines Sur;
"6. That on September 30, 1961 a claim was presented to the G.S.I.S. for the proceeds of the life
insurance -policy for relief or payment to the beneficiaries named therein;
"7. That the G.S.I.S. is withholding payment of the proceeds of the life insurance policy only on the
ground that no clearance was issued to the deceased by the employer of the deceased, the Provincial
Treasurer of Camarines Sur;
"8. That the Provincial Treasurer filed a claim for P9,746.07 to the intestate estate of the late Napoleon
Picar;
"9. That the basis of the government represented by the Provincial Treasurer of Camarines Sur in
intervening in this case (Civil Case No. 5673) is Section 26 of Commonwealth Act 186, as amended;
"10. That the plaintiffs are also withdrawing their claim for moral damages as well as attorney's fees, but
insist on the interest due from September 30, 1961 when the claim was made, up to the time the
insurance policy is fully paid;
"11. That the plaintiffs secured the services of counsel to claim this insurance policy in the amount of
P500.00."
On the basis of these stipulated facts, the court a quo, on August 30, 1965, dismissed the aforesaid
action of the beneficiaries. It ruled thus:
"The only issues to be decided in this case are: (1) whether it is legally necessary for the plaintiffs to
present a clearance from money and property accountabilities of the deceased to be issued by the
authorities concerned, and required by the defendant, GSIS, before the proceeds of the Policy No.
170329 is paid to the beneficiaries designated therein; and (2) whether the Republic of the Philippines,
as represented by the Provincial Treasurer of Camarines Sur, can legally lay claim to the proceeds of the
policy in question.
"The contract of insurance entered into by the insured, Napoleon F. Picar and the Government Service
Insurance System is governed by Commonwealth Act No. 186, the law creating the said insurance
system and not by Act 2427 as contended by the plaintiffs. While Act 2427 governs the contract of
insurance between Private Insurance Companies and private persons Commonwealth Act No. 186 on
the other hand, governs the contract of insurance between the Government Service Insurance System
and employees of the Philippine Government, The Government Service Insurance System was created
by Commonwealth Act 186 for the sole purpose and benefit of government employees, so much so, that
nobody can be insured with the Government Service Insurance System except when he is a government
employee. Hence, General Circular No. 52 of the General Auditing Office dated December 23, 1957 is
applicable to the insurance contract between the deceased Napoleon F. Picar and the defendant,
Government Service Insurance System. And due to the failure of the plaintif fs to submit a certificate of
clearance from the money and property accountabilities of the deceased, Napoleon F. Picar, they have
no cause of action against the defendant, Government Service Insurance System.
"As to the claim of the intervenor, Republic of the Philippines represented by the Provincial Treasurer of
Camarines Sur, the court is of the opinion -and so holds, that it being the employer of the deceased,
Napoleon F. Picar, it has the right to the proceeds of said insurance to satisfy the indebtedness of said
deceased to the government, pursuant to the provision of Section 26 of Commonwealth Act 186.
"In view of all the foregoing considerations, judgment is hereby rendered; (a) dismissing the plaintiffs'
complaint with costs against them; and (b) declaring that the intervenor is legally entitled to the
proceeds of the life insurance policy of the defendant, Napoleon F. Picar."
It is from this holding of the court below that, as earlier stated in the opening paragraph of this decision,
the present appeal has been taken to this Court by the designated beneficiaries in the life insurance
policy here involved, the widow and the minor children of the late Napoleon F. Picar. Said appellants
here allege that the lower court erred: (a) in holding that the plaintiffs-appellants have no cause of
action against the defendant-appellee due to the failure of the plaintiffs-appellants to submit a
certificate of clearance of the deceased Napoleon F. Picar; and (b) in holding that the Republic of the
Philippines is the entity legally entitled to the proceeds of the policy on the life of Napoleon F. Picar.
Appellants vigorously contend that the proceeds of the life insurance policy here involved—upon the
death of the insured employee during the endowment period—belonged exclusively to the benef
iciaries designated in the policy and not to the estate of the insured; that, therefore, the said deceased's
employer—the Provincial Treasurer of Camarines Sur or the Republic of the Philippines—cannot legally
lay claim to the proceeds of such life insurance, since it is not part of the estate of said deceased
employee: and, consequently, the appellee Government Service Insurance System acted without legal
authority when it made the presentation of a certificate of clearance from money and property
accountabilities of the deceased to be secured f rom his employer as a condition precedent to the
payment of the proceeds of the life insurance in question to the appellants who are the designated
beneficiaries in the policy. This contention is untenable.
It is true that under general principles in the law of insurance, if a policy provides that the proceeds shall
be payable to the assured, if he lives to a certain date, and, in case of his death before that date, then
they shall be payable to the beneficiary designated, the benefit of the policy will inure to such
beneficiary in case the assured dies before the end of the period designated in the policy,1 and,
generally, that the proceeds of a life insurance in which a third person is named beneficiary belong
exclusively to such beneficiary as an individual, they are not the property of the heirs of the insured, are
not subject to administration, and cannot properly be claimed or received by the administrator or other
legal representative of the insured as assets of his estate.2 As correctly ruled by the lower court,
however, such general principles are not applicable to the life insurance herein involved which is
governed by specific law.
The law in point is Section 26 of Commonwealth Act 186 (the law creating- the Government Service
Insurance System), as amended, which provides:
"SEC. 26. Exemption from legal process and liens.—No policy of life insurance issued under this Act, or
the proceeds thereof, when paid to any member thereunder, nor any other benefit granted under this
Act, shall be liable to attachment, garnishment, or other proceeds, or to be seized, taken, appropriated,
or applied by any legal or equitable process or operation of law to pay any debt or liability of such
member, or his beneficiary, or any other person who may have a right thereunder; nor shall the
proceeds thereof, when not made payable to a named beneficiary, constitute a part of the estate of the
member for payment of his debt; Provided, however, That this section shall not apply when obligations
or indebtedness to the System and the employer are concerned, nor when the retirement annuity is
assigned to any person, corporation, association or bank or other financial institution, which is hereby
authorized."
The above-quoted provision is too clear to require the application of any rule of statutory construction
for purposes of showing the weakness of the position taken by herein appellants. As may be seen, It
recognizes the principles relied upon by them, but at the same time, it expressly provides that "this
section shall not apply when obligations or indebtedness to the System and the employer are
concerned." In other words, in life insurance policies issued by the GSIS in favor of government
employees, the proceeds—even if not made payable to named beneficiaries and may, therefore, be
payable to the estate of the insured—shall not constitute part of the estate of the member (insured) for
payment of his debt; but such proceeds—whether or not made payable to named beneficiaries—shall so
constitute part of the estate of the insured for payment of his debt and shall thereby be liable to
attachment, garnishment and other legal processes, when obligations or indebtedness to the GSIS and
the employer, that is, the government are concerned. There can be no doubt then that the appellee
Government Service Insurance System was right in requiring herein appellants to submit the neccessary
clearance from money and property accountabilities of the deceased grovernment employee whose
insurance policy is here involved, before paying them the proceeds of the policy concerned; and the
lower court did not err in holding that the appellants, for their failure to submit the certificate of
clearance required of them, have no cause of action against the GSIS. Similarly, since it is not disputed
by appellants that the Republic of the Philippines, employer of the deceased employee in this case, is
claiming the proceeds of his insurance on the basis of the provisions of the law above-quoted, We agree
with the appellee GSIS that the court a quo was right in declaring that the intervenor Republic of the
Philippines is legally entitled to the proceeds of the life insurance here put to question.
WHEREFORE, the decision appealed from is affirmed. On equitable considerations, no pronouncement

as to costs.
Concepcion, C.J., Reyes, J.B.L., Fernando, Teehankee and Villamor, JJ., concur,
Dizon, Makalintal and Zaldivar, JJ., took no part.
Castro, J., is on official leave of absence.
Decision affirmed,.
_____________ Picar vs. Government Service Insurance System, 33 SCRA 324, No. L-25803 May 29,
1970
Vested right of Beneficiary
434
Nario vs. Philippine American Life Ins. Co.
No. L-22796. June 26, 1967.
DELFIN NARIO, and ALEJANDRA SANTOS-NARIO. plaintiffsappellants, vs. THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY, defendant-appellee.
Insurance; Vested interest of beneficiaries in life insurance policy.—The vested interest or right of the
beneficiaries in a life insurance policy should be measured on its full face value and not on its cash
surrender value, for, in case of death of the insured, said beneficiaries are paid on the basis of its face
value and, in case the insured should discontinue paying premiums, the beneficiaries may continue
paying the same and they are entitled to automatic extended term or paidup insurance options, etc.
Said vested right under the policy cannot be divisible at any given time.
Same; Parental authority; Alienation of minor child's property.—Where a person secured a life insurance
policy with a face value of P5,000, and she designated her husband and minor child as irrevocable
beneficiaries, her act of securing a loan on said policy and the act of surrendering the policy because the
loan was not granted are acts of disposition or alienation of her minor child's property rights and are not
merely acts of management or administration. Said acts involve the incurring or termination of
contractual obligations.
Same; Judicial authorization is required for alienation or incumbrance of minor child's property rights.—
Judicial authorization is necessary for the consent to be given by the father to a policy loan or to the
surrender of a life insurance policy wherein a minor has a vested interest worth P2,500. To obtain such
judicial authorization, the father should be appointed guardian of 'the child's property. If the minor's
property is valued at less than P2,000, the father or mother, as legal administrator, needs judicial
authorization to alienate or encumber the same. As legal administrator, the father or mother can
perform only acts of administration or management, as distinguished f rom incumbrance or disposition.
Same; Provisions of New and Old Civil Codes compared.— The New Civil Code has not effected a
restitutio in integrum of the Spanish patria potestas. The revival has been in part only. The fact that the
New Civil Code did not reenact article 104 of the old Civil Code, which prohibited the parents from
alienating the real property owned by the child without court authority, proves that the parents have no
authority to carry out acts of disposition or alienation of the child's real or personal property without
judicial authorization.
APPEAL from a decision of the Court of First Instance of Manila.
The facts are stated in the opinion of the court.
Ricardo T. Bancod and Severino C. Zarasate for plaintiffs-appellants.
M. Lim, M. Y. Macias & Associates for defendant-appellee.
REYES, J.B.L., J.:
Direct appeal, on pure question of law, from a decision of the Court of First Instance of Manila, in its Civil
Case No. 54942, dismissing plaintiffs' complaint as well as from a later order of the same court, denying
a motion to set aside and/or reconsider said decision of dismissal.
The facts of this case may be stated briefly as follows:
Mrs. Alejandra Santos-Mario was, upon application, issued, on June 12, 1959, by the Philippine
American Life Insurance Co., a life insurance policy (No. 503617) under a 20-year endowment plan, with
a face value of P5,000.00. She designated thereon her husband, Delfin Nario, and their unemancipated
minor son, Ernesto Nario, as her irrevocable beneficiaries.
About the middle of June, 1963, Mrs. Nario applied for a loan on the above stated policy with the
Insurance Company, which loan she, as policy-holder, has been entitled to avail of under one of the
provisions of said policy after the same has been in force for three (3) years, for the purpose of using the
proceeds thereof for the school expenses of her minor son, Ernesto Nario. Said application bore the
written signature and consent of Delfin Nario in two capacities: first, as one of the irrevocable
beneficiaries of the policy; and the other, as the father-guardian of said minor son and irrevocable
beneficiary, Ernesto Nario, and as the legal administrator of the minor's properties, pursuant to Article
320 of the Civil Code of the Philippines.
The Insurance Company denied said application, manif esting to the policy holder that the written
consent for the minor son must not only be given by his father as legal guardian but it must also be
authorized by the court in a competent guardianship proceeding.
After the denial of said policy loan application, Mrs. Nario signified her decision to surrender her policy
to the Insurance Company, which she was also entitled to avail of under one of the provisions of the
same policy, and demanded its cash value which then amounted to P520.00.
The Insurance Company also denied the surrender of the policy, on the same ground as that given in
disapproving the policy loan application; hence. on September 10, 1963, Mrs. Alejandra Santos-Nario
and her husband, Delfin Nario, brought suit against the Philippine American Life Insurance Co. in the
above mentioned court of first instance, seeking to compel the latter (defendant) to grant their policy
loan application and/or to accept the surrender of said policy in exchange f or its cash value.
Defendant Insurance Company answered the complaint, virtually admitting its material allegations, but
it set up the affirmative defense that inasmuch as the policy loan application and the surrender of the
policy involved acts of disposition and alienation of the property rights of the minor, said acts are not
within the powers of the legal administrator, under article 320 in relation to article 326 of the Civil Code;
hence, mere written consent given by the father-guardian, for and in behalf of the minor son, without
any court authority therefor, was not a sufficient compliance of the law, and it (defendant Insurance
Company) was, therefore, justified in refusing to grant and in disapproving the proposed transactions in
question.
There having been no substantial disagreement or dispute as to any material fact, the parties, upon joint
motion which the lower court granted, dispensed with the presentation of evidence and submitted their
respective memoranda, after which the case was considered submitted for decision.
The lower court found and opined that since the parties expressly stipulated in the endorsement
attached to the policy and which formed part thereof that—
"It is hereby understood and agreed that, notwithstanding the provisions of this Policy to the contrary,
inasmuch as the designation of the beneficiaries have been made by the Insured without reserving the
right to change said beneficiaries, the Insured may not designate a new beneficiary or assign, release or
surrender this Policy to the Company and exercise any and all other rights and privileges hereunder or
agree with the Company to any change in or amendment to this Policy, without the consent of the
beneficiaries originally designated";
that under the above quoted provision, the minor son, as one of the designated irrevocable
beneficiaries, "acquired a vested right to all benefits accruing to the policy, including that of obtaining a
policy loan to the extent stated in the schedule of values attached to the policy (Gercio vs. Sun Life
Assurance of Canada, 48 Phil. 53, 58)"; that the proposed transactions in question (policy loan and
surrender of policy) involved acts of disposition or alienation of the minor's properties for which the
consent given by the father-guardian, for and in behalf of the minor son, must be with the requisite
court authority (U.S.V.A. vs. Bustos, 92 Phil. 327; Visaya vs. Suguitan, G.R. No. L-8300, November 18,
1955; 99 Phil. 1004 [unrep.]; and in the case at bar, such consent was given by the father-guardian
without any judicial authority; said court, agreeing with defendant's contention, sustained defendant's
affirmative defense, and rendered, on January 28, 1964, its decision dismissingplaintiffs' complaint.
Unable to secure reconsideration of the trial Court's ruling, petitioner appealed directly to this Court,
contending that the minor's interest amounted to only' one-half of the policy's cash surrender value of
P520.00; that under Rule 96, Section 2 of the Revised Rules of Court, payment of the ward's debts is
within the powers of the guardian, where no realty is involved; hence, there is no reason why the father
may not validly agree to the proposed transaction on .behalf of the minor without need of court
authority.
The appeal is unmeritorious. We agree with the lower court that the vested interest or right of the
beneficiaries in the policy should be measured on its full face value and not on its cash surrender value,
for in case of death of the insured, said beneficiaries are paid on the basis of its face value and in case
the insured should discontinue paying premiums, the beneficiaries may continue paying it and are
entitled to automatic extended term or paid-up insurance options, etc. and that said vested right under
the policy cannot be divisible at any given time. We likewise agree with the conclusion of the lower
court that the proposed transactions in question (policy loan and surrender of policy) constitute acts of
disposition or alienation of property rights and not merely of management or administration because
they involve the incurring or termination of contractual obligations.
As above noted, the full face value of the policy is P5,000.00 and the minor's vested interest therein, as
one of the two (2) irrevocable beneficiaries, consists of onehalf (1/2) of said amount or P2,500.00.
Article 320 of the Civil Code of the Philippines provides—
"The father, or in his absence the mother, is the legal administrator of the property pertaining to the
child under parental authority. If the property is worth more than two thousand pesos, the father or
mother shall give a bond subject to the approval of the Court of First Instance."
and article 326 of the same Code reads—
"When the property of the child is worth more than two thousand pesos, the father or mother shall be
considered a guardian of the child's property, subject to the duties and obligations of guardians under
the Rules of Court."
The above quoted provisions of the Civil Code have already been implemented and clarified in our
Revised Rules of Court which provides—
"SEC. 7. Parents as guardians.—When the property of the child under parental authority is worth two
thousand pesos or less, the father or the mother, without the necessity of court appointment, shall be
his legal guardian. When the property of the child is worth more than two thousand pesos, the father or
the mother shall be considered guardian of the child's property, with the duties and obligations of
guardians under these rules, and shall file the petition required by Section 2 hereof. For good reasons
the court may, however, appoint another suitable person." (Rule 93).
It appearing that the minor beneficiary's vested interest or right on the policy exceeds two thousand
pesos (P2,000.-00); that plaintiffs did not file any guardianship bond to be approved by the court; and as
later implemented in the abovequoted Section 7, Rule 93 of the Revised Rules of Court, plaintiffs should
have, but, had not, filed a formal application or petition for guardianship, plaintiffs-parents cannot
possibly exercise the powers vested on them, as legal administrators of their child's property, under
articles 820 and 326 of the Civil Code. As there was no such petition and bond, the consent given by the
father-guardian, for and in behalf of the minor son, without prior court authorization, to the policy loan
application and the surrender of said policy, was insufficient and ineffective, and defendant-appellee
was justified in disapproving the proposed transactions in question.
The American cases cited by appellants are not applicable to the case at bar f or lack of analogy. In those
cases, there were pending guardianship proceedings and the guardians therein were covered by bonds
to protect the wards' interests, which circumstances are wanting in this case.
The result would be the same even if we regarded the interest of the ward to be worth less than
P2,000.00. While the father or mother would in such event be exempt from the duty of filing a bond,
and securing judicial appointment, still the parent's authority over the estate of the ward as a legal-
guardian would not extend to acts of encumbrance or disposition, as distinguished from acts of
management or administration. The distinction between one and the other kind of power is too basic in
our law to be ignored. Thus, under Article 1877 of the Civil Code of the Philippines, an agency in general
terms does not include power to encumber or dispose of the property of the principal; and the Code
explicitly requires a special power or authority for the agent "to loan or borrow money, unless the latter
act be urgent or indispensable for the preservation of the thing under administration" (Art. 1878, no. 7).
Similarly, special powers are required to effect novations, to waive any obligation gratuitously or
obligate the principal as a guarantor or surety (Do., nos. 2, 4 and 11). By analogy, since the law merely
constitutes the parent as legal administrator of the child's property (which is a general power), the
parent requires special authority for the acts above specified, and this authority can be given only by a
court. This restricted interpretation of the parent's authority becomes all the more necessary where as
in the case before us, there is no bond to guarantee the ward against eventual losses.
Appellants seek to bolster their petition by invoking the parental power (patria potestas) under the Civil
Code of 1889, which they claim to have been revived by the Civil Code of the Philippines (Rep. Act 386).
The appeal profits them nothing, For the new Civil Code has not effected a restitutio in integrum of the
Spanish patria potestas; the revival has been only in part. And, significantly, the Civil Code now in force
did not reenact Article 164 of the Civil Code of 1889, that prohibited the alienation by the parents of the
real property owned by the child without court authority and led the commentators and interpreters of
said Code to infer that the parents could by themselves alienate the child's movable property. The
omission of any equivalent precept in the Civil Code now in force proves the absence of any authority in
the parents to carry out now acts of disposition or alienation of the child's goods without court
approval, as contended by the appellee and the court below.
Wherefore, the decision appealed from is affirmed. Costs against appellants Nario. So ordered.
Concepcion, C.J., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur,
Regala, J., did not take part.
Decision affirmed.
____________ Nario vs. Philippine American Life Ins. Co., 20 SCRA 434, No. L-22796 June 26, 1967
ICAR, Supra
Irrevocable Designation
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.
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 beneficiary of his rights without his
consent. He 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 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.
Melencio-Herrera (Chairperson), Sarmiento and Regalado, JJ., concur.
Padilla, J., took no part.
Can’t find PNB v CA huhu suri
Estate of the insured as beneficiary
Picar case, supra
Consuegra case, Supra
Disqualified
VOL. 80, OCTOBER 28, 1977
181
The Insular Life Assurance Company, Ltd. vs. Ebrado
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.
Commercial Law; Insurance; Insurance Code; Word “Interest” in Sec. 50 of Insurance Act which provides
that insurance shall be applied exclusively to the proper interest of the person in whose name it is made
refers only to the insured and not to the beneficiary; contract of insurance personal in character.—
Section 50 of the Insurance Act which provides that “(t)he insurance shall be applied exclusively to the
proper interest of the person in whose name it is made” cannot be validly seized upon to hold that the
same includes the beneficiary. The word “interest” highly suggests that the provision refers only to the
“insured” and not the beneficiary, since a contract of insurance is personal in character. 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.
Same; Same; On matters not otherwise specifically provided for by the Insurance Law, the contract of
life insurance is governed by general rules of civil law.—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. And under
Article 2012 of the same Code, “any person who is forbiden from receiving any donation under Article
739 cannot be named beneficiary of a life insurance policy by the person who cannot make a donation
to him.” Common-law spouses are, definitely, barred from receiving donations from each other.
Same; Same; Life Insurance policy no different from civil donation as far as beneficiary is concerned;
Both are founded on liberality; Common-law spouses designated as beneficiary barred from receiving
life insurance proceeds from a legally married person; Reasons therefor.—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. 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 wills are interpreted.
Same; Same; Conviction for adultery or concubinage for those barred from receiving donations or life
insurance not required as only preponderance of evidence is necessary.—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 regard to the disability on “persons who were guilty of adultery or
concubinage at the time of the donation,” x x x The underscored clause neatly conveys that no criminal
conviction for the disqualifying offense is a condition precedent. In fact, it cannot even be gleaned from
the aforequoted provision that a criminal prosecution is needed. On the contrary, the law plainly states
that the guilt of the party may be proved “in the same action” 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.
Same; Same; Remedial Law; Evidence; Requisite proof of common-law relationship between insured and
beneficiary supplied by stipulations of parties at pre-trial conference; Considered judicial admissions, of
which judgment may be validly rendered without rigors of trial to prove illicit relationship.—In the case
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 was 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 admission which, as a consequence, no longer
require proof and cannot be contradicted. 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
liason between the insured and the beneficiary. In fact, in that pre-trial, 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.”
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 Insular Life Assurance Co., Ltd.,
Policy No. 009929 on a whole-life plan for P5,882.00 with a rider for Accidental Death Benefits for the
same amount. Buenaventura C. Ebrado designated Carponia T. Ebrado as the revocable beneficiary in
his policy. He referred to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an accident when he was hit by a
falling branch of a tree. As the insurance policy was in force, The Insular Life Assurance Co., Ltd. stands
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:
“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
purposes of the pre-trial and make admissions for the purpose of pre-trial. 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-law wife,
Carponia Ebrado, with whom she had 2 children although he was not legally separated from his legal
wife; 4) that Buenaventura Ebrado died by accident on October 21, 1969 as evidenced by the death
certificate 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 of the 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 legal wife did not have any opportunity to write the
company that there was reservation to change the designation of the beneficiary; 9) the parties 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.
“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:
“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 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 shall 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 same 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 life 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:
“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 wills are
interpreted.6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between
common-law spouses in regard to property relations since such relationship 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 life insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as
marriage remains the threshold of family laws, reason and morality dictate that the impediments
imposed upon married couples 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:
“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
fear 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’ of 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 of 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 framers 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 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 regard to the disability on “persons
who were guilty of adultery or concubinage at the time of the donation,” Article 739 itself provides:
“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.”
The underscored clause neatly conveys that no criminal conviction for the disqualifying offense is a
condition precedent. In fact, it cannot even be gleaned from the aforequoted provision that a criminal
prosecution is needed. On the contrary, the law plainly states that the guilt of the party may be proved
“in the same action” 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 case 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 pre-trial, 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.
Teehankee (Chairman), Makasiar, Muñoz Palma, Fernandez and Guerrero, JJ., concur.
Judgment affirmed.
Notes.—Under the following circumstances, it was held that the insured is not entitled to the additional
sum of P5,000.00 provided under an “Accidental Death Benefit Clause” of an insurance policy: “That on
the night while the said life policy and supplementary contract were in full force and effect, the house of
the insured was robbed by a band of robbers who were charged in and convicted by the CFI of
Pangasinan for robbery with homcide; that in committing the robbery, the robbers, on reaching the
staircase landing of the second floor, rushed towards the doors of the second floor room where they
suddenly met a person near the door of one of the rooms who turned out to be the insured who
received thrusts from their sharp-pointed instruments, causing wounds on the body resulting in his
death.” (Biagtan vs. Insular Life Ass. Co., Ltd., 44 SCRA 58).
The contractual limitations in insurance policies prevail over the statutory limitations as well as over the
exceptions to the latter, because the rights of the parties flow from the contract of insurance. (Ang vs.
Fulton Fire Ins. Co., 2 SCRA 945).
——o0o—— The Insular Life Assurance Company, Ltd. vs. Ebrado, 80 SCRA 181, No. L-44059 October 28,
1977
INSURABLE INTEREST
In Life insurance
690

Cha vs. Court of Appeals
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.
Contracts; Stipulations contained in a contract cannot be contrary to law, morals, good customs, public
order or public policy.—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.
Same; Insurance; 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.—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 petitionerspouses 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. 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.
Same; Same; Leases; The lessor cannot be validly a beneficiary of a fire insurance policy taken by a
lessee over his merchandise, and the provision in the lease contract providing for such automatic
assignment is void for being contrary to law and/or public policy—the insurer cannot be compelled to
pay the proceeds of the policy to a person who has no insurable interest in the property insured.—
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.
Jose Angelito B. Bulao for petitioners.

Jara & Eduardo for private respondent.
PADILLA, J.:
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. x x x. 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; x x x.”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.
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:
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:
“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.”
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:
“Section 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss or 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 UyCha (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 insur-ance 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 CAG.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.
SO ORDERED.
Bellosillo, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Judgment set aside, award of proceeds of fire insurance policy ordered given to petitioners Nilo Cha and
Stella Uy-Cha.
Notes.—In a case arising from a vehicular collision where the driver, the registered owners, the
beneficial owners, and the insurer were sued, a compromise agreement entered into between the
plaintiff and the insurer resulting in the dismissal of the case as against the insurer does not redound to
the benefit of the other defendants. (Imson vs. Court of Appeals, 239 SCRA 58 [1994])
If the insured property is destroyed or damaged through the fault or negligence of a party other than
the assured, then the insurer, upon payment to the assured will be subrogated to the rights of the
assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay.
(Coastwise Lighterage Corporation vs. Court of Appeals, 245 SCRA 796 [1995])
——o0o—— Cha vs. Court of Appeals, 277 SCRA 690, G.R. No. 124520 August 18, 1997
638
Filipino Merchants Insurance Co., Inc. vs. Court of Appeals
G.R. No. 85141. November 28, 1989.*
FILIPINO MERCHANTS INSURANCE CO., INC., petitioner, vs. COURT OF APPEALS and CHOA TIEK SENG,
respondents.
Insurance; An “all risks” policy covers all losses other than those caused by the wilful and fraudulent act
of insured.—The very nature of the term “all risks” must be given a broad and comprehensive meaning
as covering any loss other than a wilful and fraudulent act of the insured. This is pursuant to the very
purpose of an “all risks” insurance to give protection to the insured in those cases where difficulties of
logical explanation or some mystery surround the loss or damage to property. An “all risks” policy has
been evolved to grant greater protection than that afforded by the “perils clause,” in order to assure
that no loss can happen through the incidence of a cause neither insured against nor creating liability in
the ship; it is written against all losses, that is, attributable to external causes.
Same; Same; Insurer has burden of proof to show that loss is caused by an excepted risk.—Generally,
the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an “all
risks”, policy the burden is not on the insured to prove the precise cause of loss or damage for which it
seeks compensation. The insured under an “all risks insurance policy” has the initial burden of proving
that the cargo was in good condition when the policy attached and that the cargo was damaged when
unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the
coverage. As we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basic rule is that
the insurance company has the burden of proving that the loss is caused by the risks excepted and for
want of such proof, the company is liable.
Same; Insurable Interest; Perfected contract of sale even without delivery vests in the vendee, an
equitable title, an existing interest over the goods sufficient to be subject of insurance.—Herein private
respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be the
subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of
sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him
an equitable title even before delivery or before he performed the conditions of the sale. The contract
of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of
whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of
sale even without delivery vests in the vendee an equitable title, an existing interest over the goods
sufficient to be the subject of insurance.
Same; Marine Insurance; Obligations and Contracts; Delivery; Delivery of goods on board the carrying
vessels partake of the nature of actual delivery.—Further, Article 1523 of the Civil Code provides that
where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the
buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of
transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said
rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on
board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign
buyers assumed the risks of loss of the goods and paid the insurance premium covering them.
PETITION to review the decision of the Court of Appeals. Gonzaga-Reyes, J.
Balgos & Perez Law Offices for petitioner.
Lapuz Law Office for private respondent.

REGALADO, J.:
This is a review of the decision of the Court of Appeals, promulgated on July 19, 1988, the dispositive
part of which reads:
“WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino Merchants
Insurance Company to pay the plaintiff the sum of P51,568.62 with interest at legal rate from the date of
filing of the complaint, and is modified with respect to the third party complaint in that (1) third party
defendant E. Razon, Inc. is ordered to reimburse third party plaintiff the sum of P25,471.80 with legal
interest from the date of payment until the date of reimbursement, and (2) the third-party complaint
against third party defendant Compagnie Maritime Des Chargeurs Reunis is dismissed.”1
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
“This is an action brought by the consignee of the shipment of fishmeal loaded on board the vessel SS
Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover
from the defendant insurance company the amount of P51,568.62 representing damages to said
shipment which has been insured by the defendant insurance company under Policy No. M-2678. The
defendant brought a third party complaint against third party defendants Compagnie Maritime Des
Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third (sic) defendants in case
judgment is rendered against the third party plaintiff. It appears from the evidence presented that in
December 1976, plaintiff insured said shipment with defendant insurance company under said cargo
Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in
new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to
warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton
CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on December 11, 1976 at
Manila unto the arrastre contractor E. Razon, Inc. and defendant’s surveyor ascertained and certified
that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship’s agent and
the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of
Bad Order cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also
Exhibits 4, 5 and 6-Razon. The cargo was also surveyed by the arrastre contractor before delivery of the
cargo to the consignee and the condition of the cargo on such delivery was reflected in E. Razon’s Bad
Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags in bad order condition.
Defendant’s surveyor has conducted a final and detailed survey of the cargo in the warehouse for which
he prepared a survey report Exhibit F with the findings on the extent of shortage or loss on the bad
order bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on said computation the
plaintiff made a formal claim against the defendant Filipino Merchants Insurance Company for
P51,568.62 (Exhibit C) the computation of which claim is contained therein. A formal claim statement
was also presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B, but the
defendant Filipino Merchants Insurance Company refused to pay the claim. Consequently, the plaintiff
brought an action against said defendant as adverted to above and defendant presented a third party
complaint against the vessel and the arrastre contractor.”2
The court below, after trial on the merits, rendered judgment in favor of private respondent, the
decretal portion whereof reads:
“WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff and against
the defendant Filipino Merchant’s (sic) Insurance Co., ordering the defendants to pay the plaintiff the
following amount:
“The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint;
“On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and
third party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff jointly and severally
reimbursement of the amounts paid by the third party plaintiff with legal interest from the date of such
payment until the date of such reimbursement.
“Without pronouncement as to costs.”3
On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the
complaint is concerned and modified the same with regard to the adjudication of the third-party
complaint. A motion for reconsideration of the aforesaid decision was denied, hence this petition with
the following assignment of errors:
“1. The Court of Appeals erred in its interpretation and application of the ‘all risks’ clause of the marime
insurance policy when it held the petitioner liable to the private respondent for the partial loss of the
cargo, notwithstanding the clear absence of proof of some fortuitous event, casualty, or accidental
cause to which the loss is attributable, thereby contradicting the very precedents cited by it in its
decision as well as a prior decision of the same Division of the said court (then composed of Justices
Cacdac, Castro-Bartolome, and Pronove);
“2. The Court of Appeals erred in not holding that the private respondent had no insurable interest in
the subject cargo, hence, the marine insurance policy taken out by private respondent is null and void;
“3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in not
disclosing the fact, it being bound out of utmost good faith to do so, that it had no insurable interest in
the subject cargo, which bars its recovery on the policy.”4
On the first assignment of error, petitioner contends that an “all risks” marine policy has a technical
meaning in insurance in that before a claim can be compensable it is essential that there must be “some
fortuity,” “casualty” or “accidental cause” to which the alleged loss is attributable and the failure of
herein private respondent, upon whom lay the burden, to adduce evidence showing that the alleged
loss to the cargo in question was due to a fortuitous event precludes his right to recover from the
insurance policy. We find said contention untenable.
The “all risks clause” of the Institute Cargo Clauses read as follows:
“5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no case
be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or
nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of
percentage.”5
An “all risks policy” should be read literally as meaning all risks whatsoever and covering all losses by an
accidental cause of any kind. The terms “accident” and “accidental”, as used in insurance contracts,
have not acquired any technical meaning. They are construed by the courts in their ordinary and
common acceptance. Thus, the terms have been taken to mean that which happens by chance or
fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An
accident is an event that takes place without one’s foresight or expectation; an event that proceeds
from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected.6
The very nature of the term “all risks” must be given a broad and comprehensive meaning as covering
any loss other than a wilful and fraudulent act of the insured.7 This is pursuant to the very purpose of an
“all risks” insurance to give protection to the insured in those cases where difficulties of logical
explanation or some mystery surround the loss or damage to property.8 An “all risks” policy has been
evolved to grant greater protection than that afforded by the “perils clause,” in order to assure that no
loss can happen through the incidence of a cause neither insured against nor creating liability in the
ship; it is written against all losses, that is, attributable to external causes.9
The term “all risks” cannot be given a strained technical meaning, the language of the clause under the
Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses
suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b)
loss or damage or expense proximately caused by the inherent vice or nature of the subject matter
insured.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but
under an “all risks” policy the burden is not on the insured to prove the precise cause of loss or damage
for which it seeks compensation. The insured under an “all risks insurance policy” has the initial burden
of proving that the cargo was in good condition when the policy attached and that the cargo was
damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the
exception to the coverage.10 As we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd.
11 the basic rule is that the insurance company has the burden of proving that the loss is caused by the
risks excepted and for want of such proof, the company is liable.
Coverage under an “all risks” provision of a marine insurance policy creates a special type of insurance
which extends coverage to risks not usually contemplated and avoids putting upon the insured the
burden of establishing that the loss was due to the peril falling within the policy’s coverage; the insurer
can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from
coverage.12 A marine insurance policy providing that the insurance was to be “against all risks” must be
construed as creating a special insurance and extending to other risks than are usually contemplated,
and covers all losses except such as arise from the fraud of the insured.13 The burden of the insured,
therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated.
Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To
impose on the insured the burden of proving the precise cause of the loss or damage would be
inconsistent with the broad protective purpose of “all risks” insurance.
In the present case, there being no showing that the loss was caused by any of the excepted perils, the
insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due
consideration of the authorities and jurisprudence it discussed—
“x x x it is believed that in the absence of any showing that the losses/damages were caused by an
excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no
such showing, the lower court did not err in holding that the loss was covered by the policy.
“There is no evidence presented to show that the condition of the gunny bags in which the fishmeal was
packed was such that they could not hold their contents in the course of the necessary transit, much less
any evidence that the bags of cargo had burst as the result of the weakness of the bags themselves. Had
there been such a showing that spillage would have been a certainty, there may have been good reason
to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance
Claims, ibid, p. 125). Under an ‘all risks’ policy, it was sufficient to show that there was damage
occasioned by some accidental cause of any kind, and there is no necessity to point to any particular
cause.”14
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy.
The agreement has the force of law between the parties. The terms of the policy constitute the measure
of the insurer’s liability. If such terms are clear and unambiguous, they must be taken and understood in
their plain, ordinary and popular sense.15
Anent the issue of insurable interest, we uphold the ruling of the respondent court that private
respondent, as consignee of the goods in transit under an invoice containing the terms under “C & F
Manila,” has insurable interest in said goods.
Section 13 of the Insurance Code defines insurable interest in property 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. In principle, anyone has an insurable interest in
property who derives a benefit from its existence or would suffer loss from its destruction whether he
has or has not any title in, or lien upon or possession of the property.16 Insurable interest in property
may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the expectancy arises.17
Herein private respondent, as vendee/consignee of the goods in transit has such existing interest
therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the
perfected contract of sale.18 The perfected contract of sale between him and the shipper of the goods
operates to vest in him an equitable title even before delivery or before he performed the conditions of
the sale.19 The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial
in the determination of whether the vendee has an insurable interest or not in the goods in transit. The
perfected contract of sale even without delivery vests in the vendee an equitable title, an existing
interest over the goods sufficient to be the subject of insurance.
Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller
is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether
named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of
the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has
heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of
actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid
the insurance premium covering them.20
C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the
cost of the goods and freight to the named destination.21 It simply means that the seller must pay the
costs and freight necessary to bring the goods to the named destination but the risk of loss or damage
to the goods is transferred from the seller to the buyer when the goods pass the ship’s rail in the port of
shipment.22
Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioner’s
answer. It was neither an issue agreed upon by the parties at the pre-trial conference nor was it raised
during the trial in the court below. It is a settled rule that an issue which has not been raised in the court
a quo cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play,
justice and due process.23 This is but a permuted restatement of the long settled rule that when a party
deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court
below, he will not be permitted to change his theory on appeal because, to permit him to do so, would
be unfair to the adverse party.24
If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the
issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the
facts in this case and also to dispose of petitioner’s third assignment of error which consequently needs
no further discussion.
WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of
Appeals is AFFIRMED in toto.
SO ORDERED.
Paras, Padilla and Sarmiento, JJ., concur.
Melencio-Herrera (Chairman), J., On leave.
Petition denied, decision affirmed in toto.
Note.—In marine insurance, the implied warranty of seaworthiness attaches to the shipper whether
shipowner or not. (Roque vs. Intermediate Appellate Court, 139 SCRA 596.)
——o0o—— Filipino Merchants Insurance Co., Inc. vs. Court of Appeals, 179 SCRA 638, G.R. No. 85141
November 28, 1989
INSURABLE INTEREST IN PROPERTY
Mortgaged Property
152
Geagonia vs. Court of Appeals
G.R. No. 114427. February 6, 1995.*
ARMANDO GEAGONIA, petitioner, vs. COURT OF APPEALS and COUNTRY BANKERS INSURANCE
CORPORATION, respondents.
Remedial Law; Evidence; Petitioner's letter of reconsideration having been made an integral part of the
complaint has attained the status of a judicial admission and since its due execution and authenticity
was not denied by the other party, the petitioner is bound by it even if it were not introduced as an
independent evidence.—The second ground, which is based on the Court of Appeals' reliance on the
petitioner's letter of reconsideration of 18 January 1991, is without merit. The petitioner claims that the
said letter was not offered in evidence and thus should not have been considered in deciding the case.
However, as correctly pointed out by the Court of Appeals, a copy of this letter was attached to the
petitioner's complaint in I.C. Case No. 3340 as Annex "M" thereof and made an integral part of the
complaint. It has attained the status of a judicial admission and since its due execution and authenticity
was not denied by the other party, the petitioner is bound by it even if it were not introduced as an
independent evidence.
Same; Same; Appeals; The divergent findings of fact constitute an exception to the general rule that in
petitions for review under Rule 45, only questions of law are involved and findings of fact by the Court of
Appeals are conclusive and binding upon this Court.—As to the first issue, the Insurance Commission
found that the petitioner had no knowledge of the previous two policies. The Court of Appeals disagreed
and found otherwise in view of the explicit admission by the petitioner in his letter to the private
respondent of 18 January 1991, which was quoted in the challenged decision of the Court of Appeals.
These divergent findings of fact constitute an exception to the general rule that in petitions for review
under Rule 45, only questions of law are involved and findings of fact by the Court of Appeals are
conclusive and binding upon this Court.
Insurance; The incorporation of Condition 3 in the policy is allowed by Section 75 of the Insurance
Code.—Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed
by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code which provides that
"[a] policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy." Such a condition is a provision which
invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It
is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to
constitute a violation, the other insurance must be upon the same subject matter, the same interest
therein, and the same risk.
Same; Same; Separate insurances covering different insurable interests may be obtained by the
mortgagor and the mortgagee.—As to a mortgaged property, the mortgagor and the mortgagee have
each an independent insurable interest therein and both interests may be covered by one policy, or
each may take out a separate policy covering his interest, either at the same or at separate times. The
mortgagor's insurable interest covers the full value of the mortgaged property, even though the
mortgage debt is equivalent to the full value of the property. The mortgagee's insurable interest is to
the extent of the debt, since the property is relied upon as security thereof, and in insuring he is not
insuring the property but his interest or lien thereon. His insurable interest is prima facie the value
mortgaged and extends only to the amount of the debt, not exceeding the value of the mortgaged
property. Thus, separate insurances covering different insurable interests may be obtained by the
mortgagor and the mortgagee.
Same; A policy or insurance contract is to be interpreted liberally in favor of the insured and strictly
against the company.—It is a cardinal rule on insurance that a policy or insurance contract is to be
interpreted liberally in favor of the insured and strictly against the company, the reason being,
undoubtedly, to afford the greatest protection which the insured was endeavoring to secure when he
applied for insurance. It is also a cardinal principle of law that forfeitures are not favored and that any
construction which would result in the forfeiture of the policy benefits for the person claiming
thereunder, will be avoided, if it is possible to construe the policy in a manner which would permit
recovery, as, for example, by finding a waiver for such forfeiture.
Same; Double Insurance; A double insurance exists where the same person is insured by several insurers
separately in respect of the same subject and interest.—A double insurance exists where the same
person is insured by several insurers separately in respect of the same subject and interest. As earlier
stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct
and separate. Since the two policies of the PFIC do not cover the same interest as that covered by the
policy of the private respondent, no double insurance exists. The non-disclosure then of the former
policies was not fatal to the petitioner's right to recover on the private respondent's policy.
Same; Same; The rationale behind the incorporation of "other insurance" clause in fire policies is to
prevent over-insurance and thus avert the perpetration of fraud.—Furthermore, by stating within
Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss
does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability up
to a loss not exceeding P200,000.00. What it had in mind was to discourage overinsurance. Indeed, the
rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies
from two or more insurers in a total amount that exceeds the property's value, the insured may have an
inducement to destroy the property for the purpose of collecting the insurance. The public as well as the
insurer is interested in preventing a situation in which a fire would be profitable to the insured.
Generoso S. Sansaet for petitioner.
Romeo G. Velasquez for private respondent.
DAVIDE, JR., J.:
For our review under Rule 45 of the Rules of Court is the decision1 of the Court of Appeals in CA-G.R. SP
No. 31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia," reversing the
decision of the Insurance Commission in I.C. Case No. 3340 which awarded the claim of petitioner
Armando Geagonia against private respondent Country Bank-The petitioner is the owner of Norman's
Mart located in the public market of San Francisco, Agusan del Sur. On 22 December 1989, he obtained
from the private respondent fire insurance policy No. F-146222 for P100,000.00. The period of the policy
was from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting
principally of dry goods such as RTW's for men and women wear and other usual to assured's business."
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his
inventory stocks amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc.
P 55,698.00
F. Legaspi Gen. Merchandise
86,432.50
Cebu Tesing Textiles
250,000.00 (on credit)
P392,130.50
The policy contained the following condition:
"3. The insured shall give notice to the Company of any insurance or insurances already effected, or
which may subsequently be effected, covering any of the property or properties consisting of stocks in
trade, goods in process and/or inventories only hereby insured, and unless such notice be given and the
particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to
Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition
shall not apply when the total insurance or insurances in force at the time of the loss or damage is not
more than P200,000.00."
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San
Francisco, Agusan del Sur. The petitioner's insured stocks-in-trade were completely destroyed
prompting him to file with the private respondent a claim under the policy. On 28 December 1990, the
private respondent denied the claim because it found that at the time of the loss the petitioner's stocks-
in-trade were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter
PFIC).3 These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia,
Prop.)" with a mortgage clause reading:
"MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest
may appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000.—Phils. First CEB/F-
24758"4
The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the
policy.
The petitioner then filed a complaint5 against the private respondent with the Insurance Commission
(Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F14622 and for
attorney's fees and costs of litigation. He attached as Annex "M"6 thereof his letter of 18 January 1991
which asked for the reconsideration of the denial. He admitted in the said letter that at the time he
obtained the private respondent's fire insurance policy he knew that the two policies issued by the PFIC
were already in existence; however, he had no knowledge of the provision in the private respondent's
policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by the
private respondent's agent; and had it been so mentioned, he would not have withheld such
information. He further asserted that the total of the amounts claimed under the three policies was
below the actual value of his stocks at the time of loss, which was P1,000,000.00.
In its answer,7 the private respondent specifically denied the allegations in the complaint and set up as
its principal defense the violation of Condition 3 of the policy.
In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from
the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or
securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.
These findings were based on the petitioner's testimony that he came to know of the PFIC policies only
when he filed his claim with the private respondent and that Cebu Tesing Textile obtained them and
paid for their premiums without informing him thereof. The Insurance Commission then decreed:
"WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the
sum of P 100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus
the amount of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is
hereby dismissed."
Its motion for the reconsideration of the decision9 having been denied by the Insurance Commission in
its resolution of 20 August 1993,10 the private respondent appealed to the Court of Appeals by way of a
petition for review. The petition was docketed as CA-G.R. SP No. 31916.
In its decision of 29 December 1993,11 the Court of Appeals reversed the decision of the Insurance
Commission because it found that the petitioner knew of the existence of the two other policies issued
by the PFIC. It said:
"It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken
in the name of private respondent [petitioner herein]. The policy states that 'DISCOUNT MART (MR.
ARMANDO GEAGONIA, PROP)' was the assured and that 'TESING TEXTILES' [was] only the mortgagee of
the goods.
In addition, the premiums on both policies were paid for by private respondent, not by the Tesing
Textiles which is alleged to have taken out the other insurances without the knowledge of private
respondent. This is shown by Premium Invoices Nos. 46632 and 46630. (Annexes M and N). In both
invoices, Tesing Textiles is indicated to be only the mortgagee of the goods insured but the party to
which they were issued were the 'DISCOUNT MART (MR. ARMANDO GEAGONIA).'
It is clear that it was the private respondent [petitioner herein] who took out the policies on the same
property subject of the insurance with petitioner. Hence, in failing to disclose the existence of these
insurances private respondent violated Condition No. 3 of Fire Policy No. 14622
Indeed private respondent's allegation of lack of knowledge of the previous insurances is belied by his
letter to petitioner [of 18 January 1991. The body of the letter reads as follows:]
...
'Please be informed that I have no knowledge of the provision requiring me to inform your office about
my prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention about said
requirement at the time he was convincing me to insure with you. If he only did or even inquired if I had
other existing policies covering my establishment, I would have told him so. You will note that at the
time he talked to me until I decided to insure with your company the two policies aforementioned were
already in effect. Therefore I would have no reason to withhold such information and I would have
desisted to part with my hard earned peso to pay the insurance premiums [if] I know I could not recover
anything.
Sir, I am only an ordinary businessman interested in protecting my investments. The actual value of my
stocks damaged by the fire was estimated by the Police Department to be P 1,000,000.00 (Please see
xerox copy of Police Report Annex "A"). My Income Statement as of December 31, 1989 or five months
before the fire, shows my merchandise inventory was already some P595,455,75 .... These will support
my claim that the amount claimed under the three policies are much below the value of my stocks lost.
. . .'
...
The letter contradicts private respondent's pretension that he did not know that there were other
insurances taken on the stock-in-trade and seriously puts in question his credibility."
His motion to reconsider the adverse decision having been denied, the petitioner filed the instant
petition. He contends therein that the Court of Appeals acted with grave abuse of discretion amounting
to lack or excess of jurisdiction:
"A—. . .WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASI-
JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE DECISION
IS ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS;
B—. . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS EVIDENCE
DURING THE HEARING OR TRIAL; AND
C—. . .WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE
RESPONDENT."
The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior
knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance policy
from the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy,
and (b) if he had, whether he is precluded from recovering therefrom.
The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of
reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter was not
offered in evidence and thus should not have been considered in deciding the case. However, as
correctly pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's
complaint in I.C. Case No. 3340 as Annex "M" thereof and made an integral part of the complaint.12 It
has attained the status of a judicial admission and since its due execution and authenticity was not
denied by the other party, the petitioner is bound by it even if it were not introduced as an independent
evidence.13
As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the
previous two policies. The Court of Appeals disagreed and found otherwise in view of the explicit
admission by the petitioner in his letter to the private respondent of 18 January 1991, which was quoted
in the challenged decision of the Court of Appeals. These divergent findings of fact constitute an
exception to the general rule that in petitions for review under Rule 45, only questions of law are
involved and findings of fact by the Court of Appeals are conclusive and binding upon this Court.14
We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC. His
letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to
the contrary before the Insurance Commissioner and which the latter relied upon cannot prevail over a
written admission made ante litem motam. It was, indeed, incredible that he did not know about the
prior policies since these policies were not new or original. Policy No. GA-28144 was a renewal of Policy
No. F-24758, while Policy No. GA-28146 had been renewed twice, the previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law.
Its incorporation in the policy is allowed by Section 75 of the Insurance Code15 which provides that "[a]
policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of
an immaterial provision does not avoid the policy." Such a condition is a provision which invariably
appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is
commonly known as the additional or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the policy.16 However, in order
to constitute a violation, the other insurance must be upon the same subject matter, the same interest
therein, As to a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be covered by one policy, or each may take out a
separate policy covering his interest, either at the same or at separate times.18 The mortgagor's
insurable interest covers the full value of the mortgaged property, even though the mortgage debt is
equivalent to the full value of the property.19 The mortgagee's insurable interest is to the extent of the
debt, since the property is relied upon as security thereof, and in insuring he is not insuring the property
but his interest or lien thereon. His insurable interest is prima facie the value mortgaged and extends
only to the amount of the debt, not exceeding the value of the mortgaged property.20 Thus, separate
insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual
practice. The mortgagee may be made the beneficial payee in several ways. He may become the
assignee of the policy with the consent of the insurer; or the mere pledgee without such consent; or the
original policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as
his interest may appear" may be attached; or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and insurer, may be attached; or the policy, though by its
terms payable absolutely to the mortgagor, may have been procured by a mortgagor under a contract
duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon
the proceeds.21
In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his
interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by
the insurer but not made a party to the contract itself. Hence, any act of the mortgagor which defeats
his right will also defeat the right of the mortgagee.22 This kind of policy covers only such interest as the
mortgagee has at the issuing of the policy.23
On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the
terms of an agreement by which the mortgagor is to pay the premiums upon such insurance.24 It has
been noted, however, that although the mortgagee is himself the insured, as where he applies for a
policy, fully informs the authorized agent of his interest, pays the premiums, and obtains a policy on the
assurance that it insures him, the policy is in fact in the form used to insure a mortgagor with loss
payable clause.25
The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage
clause which reads:
"Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear
subject to the terms of this policy."
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved in General
Insurance and Surety Corp. vs. Ng Hua26 or in Pioneer Insurance & Surety Corp. vs. Yap,27 which read:
"The insured shall give notice to the company of any insurance or insurances already effected, or which
may subsequently be effected covering any of the property hereby insured, and unless such notice be
given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on
behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall
be forfeited."
or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co.28 which provided "that any
outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by
the insured in writing and he must cause the company to add or insert it in the policy, without which
such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss,"
Condition 3 in the private respondent's policy No. F-14622 does not absolutely declare void any violation
thereof. It expressly provides that the condition "shall not apply when the total insurance or insurances
in force at the time of the loss or damage is not more than P200,000.00."
It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor
of the insured and strictly against the company, the reason being, undoubtedly, to afford the greatest
protection which the insured was endeavoring to secure when he applied for insurance. It is also a
cardinal principle of law that forfeitures are not favored and that any construction which would result in
the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is possible
to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for
such forfeiture.29 Stated differently, provisions, conditions or exceptions in policies which tend to work
a forfeiture of insurance policies should be construed most strictly against those for whose benefits they
are inserted, and most favorably toward those against whom they are intended to operate.30 The
reason for this is that, except for riders which may later be inserted, the insured sees the contract
already in its final form and has had no voice in the selection or arrangement of the words employed
therein. On the other hand, the language of the contract was carefully chosen and deliberated upon by
experts and legal advisers who had acted exclusively in the interest of the insurers and the technical
language employed therein is rarely understood by ordinary laymen.31
With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally
free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude
that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to
the extent exceeding P200,000.00 of the total policies obtained.
The first conclusion is supported by the portion of the condition referring to other insurance "covering
any of the property or properties consisting of stocks in trade, goods in process and/or inventories only
hereby insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE
that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists
where the same person is insured by several insurers separately in respect of the same subject and
interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged
property are distinct and separate. Since the two policies of the PFIC do not cover the same interest as
that covered by the policy of the private respondent, no double insurance exists. The non-disclosure
then of the former policies was not fatal to the petitioner's right to recover on the private respondent's
policy.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance
in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to
assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to
discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in
fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property
owner obtains insurance policies from two or more insurers in a total amount that exceeds the
property's value, the insured may have an inducement to destroy the property for the purpose of
collecting the insurance. The public as well as the insurer is interested in preventing a situation in which
a fire would be profitable to the insured.32
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP
No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 is REINSTATED.
Costs against private respondent Country Bankers Insurance Corporation.
SO ORDERED.
Padilla (Chairman), Bellosillo, Quiason and Kapunan, JJ., concur.
Petition granted.
Note.—Contracts of insurance are to be construed according to the sense and meaning of the terms
which the parties themselves have used. (Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193
[1991])
——o0o—— Geagonia vs. Court of Appeals, 241 SCRA 152, G.R. No. 114427 February 6, 1995
Right of mortgagee
G.R. Nos. 128833, 128834, and 128866. April 20, 1998.*
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO, petitioners, vs. COURT OF
APPEALS and GOYU & SONS, INC., respondents.
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, ALFREDO C.

SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias
BETTY GO, respondents.
MALAYAN INSURANCE, INC., petitioner, vs. GOYU & SONS, INC., respondent.
Civil Law; Insurance Law; Mortgages; It is settled that a mort-gagor and a mortgagee have separate and
distinct insurable interests in the same mortgaged property, such that each one of them may insure the
same property for his own sole benefit; The intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to better serve the interest of justice
and equity.—It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may insure the same property for
his own sole benefit. There is no question that GOYU could insure the mortgaged property for its own
exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance
policies naming itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to better serve the interest of justice
and equity.
Same; Same; Same; It is basic and fundamental that the first mortgagee has superior rights over junior
mortgagees or attaching creditors.—Anent the right of RCBC to intervene in Civil Case No. 1073, before
the Zamboanga Regional Trial Court, since it has been determined that RCBC has the right to the
insurance proceeds, the subject matter of intervention is rendered moot and academic. Respondent
Sebastian must, however, yield to the preferential right of RCBC over the MICO insurance policies. It is
basic and fundamental that the first mortgagee has superior rights over junior mortgagees or attaching
creditors.
Same; Same; Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed
policies shall be applied exclusively to the proper interest of the person for whose benefit it was
made.—The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being
exclusively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled
to have the force and effect of an endorsement by GOYU itself, these 8 policies can not be attached by
GOYU’s other creditors up to the extent of the GOYU’s outstanding obligation in RCBC’s favor. Section
53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied
exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent
of GOYU’s obligation with RCBC, the interest of GOYU in the subject policies had been transferred to
RCBC effective as of the time of the endorsement.
Same; Same; For an insurance company to be held liable for unreasonably delaying and withholding
payment of insurance proceeds, the delay must be wanton, oppressive, or malevolent.—For an
insurance company to be held liable for unreasonably delaying and withholding payment of insurance
proceeds, the delay must be wanton, oppressive, or malevolent (Zenith Insurance Corporation vs. CA,
185 SCRA 403 [1990]). It is generally agreed, however, that an insurer may in good faith and honesty
entertain a difference of opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal
of an insurer to pay a claim should not be inflicted unless the evidence and circumstances show that
such refusal was willful and without reasonable cause as the facts appear to a reasonable and prudent
man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101
Ga. 331, 28 SE 853, 65 Am St Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR
189). The case at bar does not show that MICO wantonly and in bad faith delayed the release of the
proceeds.
Same; Same; Interests; The essence or rationale for the payment of interest or cost of money is separate
and distinct from that of surcharges and penalties; Court fails to find justification for the Court of
Appeals’ outright deletion of the payment of interest as agreed upon in the respective promissory
notes.—The essence or rationale for the payment of interest or cost of money is separate and distinct
from that of surcharges and penalties. What may justify a court in not allowing the creditor to charge
surcharges and penalties despite express stipulation therefor in a valid agreement, may not equally
justify non-payment of interest. The charging of interest for loans forms a very essential and
fundamental element of the banking business, which may truly be considered to be at the very core of
its existence or being. It is inconceivable for a bank to grant loans for which it will not charge any
interest at all. We fail to find justification for the Court of Appeals’ outright deletion of the payment of
interest as agreed upon in the respective promissory notes. This constitutes gross error.
PETITIONS for review on certiorari of a decision of the Court of Appeals.
Siguion Reyna, Montecillo & Ongsiako for petitioner RCBC.
Rodolfo P. del Prado for private respondent Goyu & Sons, Inc.
Manuel Melotindos for private respondent Go Song Hiap, Spouses Go Teng Kok and Betty Chiu alias
Betty Go, Jr.
Linda Eustaquio-Lim for private respondent Alfredo C. Sebastian.
MELO, J.:
The issues relevant to the herein three consolidated petitions revolve around the fire loss claims of
respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance Company, Inc. (MICO) in
connection with the mortgage contracts entered into by and between Rizal Commercial Banking
Corporation (RCBC) and GOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of P74,040,518.58, plus
37% interest per annum commencing July 27, 1992. RCBC was ordered to pay actual and compensatory
damages in the amount of P5,000,000.00. MICO and RCBC were held solidarily liable to pay GOYU
P1,500,000.00 as exemplary damages and P1,500,000.00 for attorney’s fees. GOYU’s obligation to RCBC
was fixed at P68,785,069.04 as of April 1992, without any interest, surcharges, and penalties. RCBC and
MICO appealed separately but, in view of the common facts and issues involved, their individual
petitions were consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. After due
evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao,
recommended GOYU’s application for approval by RCBC’s executive committee. A credit facility in the
amount of P30 million was initially granted. Upon GOYU’s application and Uy’s and Lao’s
recommendation, RCBC’s executive committee increased GOYU’s credit facility to P50 million, then to
P90 million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel
mortgages in favor of RCBC, which were registered with the Registry of Deeds at Valenzuela, Metro
Manila. Under each of these four mortgage contracts, GOYU committed itself to insure the mortgaged
property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the
insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. In February 1992, Alchester
Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance policies,
issued nine endorsements in favor of RCBC seemingly upon instructions of GOYU (Exhibits “1-Malayan”
to “9-Malayan”).
On April 27, 1992, one of GOYU’s factory buildings in Valenzuela was gutted by fire. Consequently, GOYU
submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on the
ground that the insurance policies were either attached pursuant to writs of attachments/garnishments
issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU
alleging better rights to the proceeds than the insured. GOYU filed a complaint for specific performance
and damages which was docketed at the Regional Trial Court of the National Capital Judicial Region
(Manila, Branch 3) as Civil Case No. 93-65442, now subject of the present G.R. Nos. 128833 and 128866.
RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over the proceeds of the insurance
policies, but said claims were also denied for the same reasons that MICO denied GOYU’s claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional Trial Court of
Manila (Branch 3), confirmed that GOYU’s other creditors, namely, Urban Bank, Alfredo Sebastian, and
Philippine Trust Company obtained their respective writs of attachments from various courts, covering
an aggregate amount of P14,938,080.23, and ordered that the proceeds of the ten insurance policies be
deposited with the said court minus the aforementioned P14,938,080.23. Accordingly, on January 7,
1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC.
In the meantime, another notice of garnishment was handed down by another Manila RTC sala (Branch
28) for the amount of P8,696,838.75 (Exhibit “22-Malayan”).
After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, Malayan
Insurance Company, Inc. and Rizal Commercial Banking Corporation, ordering the latter as follows:
1.For defendant Malayan Insurance Co., Inc.:
a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the amount of
P50,000,000.00 which is deposited with this Court;
b. To pay the plaintiff damages by way of interest for the duration of the delay since July 27, 1992
(ninety days after defendant insurer’s receipt of the required proof of loss and notice of loss) at the rate
of twice the ceiling prescribed by the Monetary Board, on the following amounts:
1) P50,000,000.00—from July 27, 1992 up to the time said amount was deposited with this Court on
January 7, 1994;
2) P24,040,518.58—from July 27, 1992 up to the time when the writs of attachments were received by
defendant Malayan;
2.For defendant Rizal Commercial Banking Corporation:
a. To pay the plaintiff actual and compensatory damages in the amount of P2,000,000.00;
3.For both defendants Malayan and RCBC:
a. To pay the plaintiff, jointly and severally, the following amounts:
1) P1,000,000.00 as exemplary damages;
2) P1,000,000.00 as, and for, attorney’s fees;
3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan obligations with
defendant RCBC in the amount of P68,785,069.04, as of April 27, 1992, with interest thereon at the rate
stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp.
14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to release
immediately to the plaintiff the amount of P50,000,000.00 deposited with the Court by defendant
Malayan, together with all the interests earned thereon.
(Record, pp. 478-479.)
From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied with the
amounts awarded in its favor. MICO and RCBC disputed the trial court’s findings of liability on their part.
The Court of Appeals partly granted GOYU’s appeal, but sustained the findings of the trial court with
respect to MICO and RCBC’s liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC.:
a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the amount of
P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and damages by way of interest
commencing July 27, 1992 until the time Goyu receives the said amount at the rate of thirty-seven (37%)
percent per annum which is twice the ceiling prescribed by the Monetary Board.
2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:
a) To pay the plaintiff actual and compensatory damages in the amount of P5,000,000.00.
3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING CORPORATION, UY
CHUN BING AND ELI D. LAO:
a) To pay the plaintiff jointly and severally the following amounts:
1. P1,500,000.00 as exemplary damages;
2. P1,500,000.00 as, and for, attorney’s fees.
4. And on RCBC’s Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan obligation with
RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any interest, surcharges and
penalties.
The Clerk of Court of the Regional Trial Court of Manila is hereby ordered to immediately release to
Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No. 3649285) deposited with it by Malayan
Insurance Co., Inc., together with all the interests thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. Nos. 128833 and 128866, respectively, seeking review and
consequent reversal of the above dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376, which case, by
virtue of the Court of Appeals’ resolution dated August 7, 1996, was consolidated with C.A. G.R. No. CV-
46162 (subject of herein G.R. No. 128833). At issue in said petition is RCBC’s right to intervene in the
action between Alfredo C. Sebastian (the creditor) and GOYU (the debtor), where the subject insurance
policies were attached in favor of Sebastian.
After a careful review of the material facts as found by the two courts below in relation to the pertinent
and applicable laws, we find merit in the submissions of RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to several related issues which are now
submitted in the petitions before us. This Court, however, discerns one primary and central issue, and
this is, whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the
mortgagor, in case of the occurrence of loss.
As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU, the latter executed
several mortgage contracts in favor of RCBC. It was expressly stipulated in these mortgage contracts that
GOYU shall insure the mortgaged property with any of the insurance companies acceptable to RCBC.
GOYU indeed insured the mortgaged property with MICO, an insurance company acceptable to RCBC.
Based on their stipulations in the mortgage contracts, GOYU was supposed to endorse these insurance
policies in favor of, and deliver them, to RCBC. Alchester Insurance Agency, Inc., MICO’s underwriter
from whom GOYU obtained the subject insurance policies, prepared the nine endorsements (see Exh.
“1-Malayan” to “9-Malayan”; also Exh. “51-RCBC” to “59-RCBC”), copies of which were delivered to
GOYU, RCBC, and MICO. However, because these endorsements do not bear the signature of any officer
of GOYU, the trial court, as well as the Court of Appeals, concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the same property for his own sole benefit.
There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the
present case, although it appears that GOYU obtained the subject insurance policies naming itself as the
sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The
Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy
in favor of any particular beneficiary or payee other than the insured had not such named payee or
beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily
and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any
other insurance company. Alchester would not have found out that the subject pieces of property were
mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been
for GOYU, Alchester would not have known of GOYU’s intention of obtaining insurance coverage in
compliance with its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not
have endorsed the policies to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor
of mortgagee RCBC. The basis and purpose of the doctrine was explained in Philippine National Bank vs.
Court of Appeals (94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice,
and its purpose is to forbid one to speak against his own act, representations, or commitments to the
injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel
springs from equitable principles and the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. It has been applied by this Court
wherever and whenever special circumstances of a case so demand.
(p. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she
prepared in quadruplicate on February 11, 1992 the nine endorsement documents for GOYU’s nine
insurance policies in favor of RCBC. The original copies of each of these nine endorsement documents
were sent to GOYU, and the others were sent to RCBC and MICO, while the fourth copies were retained
for Alchester’s file (tsn, February 23, pp. 7-8). GOYU has not denied having received from Alchester the
originals of these endorsements.
RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the
stipulation in the mortgage contracts. We find such reliance to be justified under the circumstances of
the case. GOYU failed to seasonably repudiate the authority of the person or persons who prepared
such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of
the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too
late for GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester
to prepare and issue said endorsements. If there had not been actually an implied ratification of said
endorsements by virtue of GOYU’s inaction in this case, GOYU is at the very least estopped from
assailing their operative effects. To permit GOYU to capitalize on its non-confirmation of these
endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in
good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance
grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the
Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to
recognize RCBC’s right to the proceeds of the insurance policies if not for the actual endorsement of the
policies, at least on the basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of
insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is
made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take
exception to the strict application of said provision, it having been sufficiently established that it was the
intention of the parties to designate RCBC as the party for whose benefit the insurance policies were
taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered
into between RCBC and GOYU in consideration of and for securing GOYU’s credit facilities from RCBC.
The mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have
the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less
than a sister company of RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICO’s underwriter, Alchester Insurance Agency, Inc.,
and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity of
said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended
by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to
cover the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of the endorsement documents
prepared by Alchester, GOYU, despite the absence of its written conformity thereto, obviously
considered said endorsement to be sufficient compliance with its obligation under the mortgage
contracts since RCBC accordingly continued to extend the benefits of its credit facilities and GOYU
continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the
beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have to
be given full force and effect in this particular case. The insurance proceeds may, therefore, be
exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or
entity for whose benefit the policies were clearly intended.
Moreover, the law’s evident intention to protect the interests of the mortgagee upon the mortgaged
property is expressed in Article 2127 of the Civil Code which states:
ART. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and
the rents or income not yet received when the obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue
of expropriation for public use, with the declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third
person.
Significantly, the Court notes that out of the 10 insurance policies subject of this case, only 8 of them
appear to have been subject of the endorsements prepared and delivered by Alchester for and upon
instructions of GOYU as shown below:
INSURANCE POLICY
PARTICULARS
ENDORSEMENT
a. Policy Number
: F-114-07795
None
Issue Date
: March 18, 1992
Expiry Date
: April 5, 1993
Amount
: P9,646,224.92
b. Policy Number
: ACIA/F-174-07660
Exhibit “1-
Malayan”
Issue Date
: January 18, 1992

Expiry Date
: February 9, 1993
Amount
: P4,307,217.54
c. Policy Number
: ACIA/F-114-07661
Exhibit “2-
Malayan”
Issue Date
: January 18, 1992
Expiry Date
: February 15, 1993
Amount
: P6,603,586.43
d. Policy Number
: ACIA/F-114-07662
Exhibit “3-
Malayan”
Issue Date
: January 18, 1992
Expiry Date
: (not legible)
Amount
: P6,603,586.43
e. Policy Number
: ACIA/F-114-07663
Exhibit “4-
Malayan”
Issue Date
: January 18, 1992
Expiry Date
: February 9, 1993
Amount
: P9,457,972.76
f. Policy Number
: ACIA/F-114-07623
Exhibit “7-
Malayan”
Issue Date
: January 13, 1992
Expiry Date
: January 13, 1993
Amount
: P24,750,000.00
g. Policy Number
: ACIA/F-174-07223
Exhibit “6-
Malayan”
Issue Date
: May 29, 1991
Expiry Date
: June 27, 1992
Amount
: P6,000,000.00
305
VOL. 289, APRIL 20, 1998
305
Rizal Commercial Banking Corporation vs. Court of Appeals
h. Policy Number
: CI/F-128-03341
None
Issue Date
: May 3, 1991
Expiry Date
: May 3, 1992
Amount
: P10,000,000.00
i. Policy Number
: F-114-07402
Exhibit “8-
Malayan”
Issue Date
: September 16, 1991
Expiry Date
October 19, 1992
Amount
: P32,252,125.20
j. Policy Number
: F-114-07525
Exhibit “9-
Malayan”
Issue Date
: November 20, 1991
Expiry Date
: December 5, 1992
Amount
: P6,603,586.43
(pp. 456-457, Record; Folder of Exhibits for MICO.)

Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted by MICO’s
witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record shows no endorsement for
Policy Number CI/F-128-03341 [(h) above]. Also, one of the endorsement documents, Exhibit “5-
Malayan,” refers to a certain insurance policy number ACIAF-07066, which is not among the insurance
policies involved in the complaint.
The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being
exclusively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled
to have the force and effect of an endorsement by GOYU itself, these 8 policies can not be attached by
GOYU’s other creditors up to the extent of the GOYU’s outstanding obligation in RCBC’s favor. Section
53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied
exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent
of GOYU’s obligation with RCBC, the interest of GOYU in the subject policies had been transferred to
RCBC effective as of the time of the endorsement. These policies may no longer be attached by the
other creditors of GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless
forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two
other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by
GOYU’s other creditors. To the extent of GOYU’s outstanding obligation with RCBC, all the rest of the
other insurance policies above-listed which were endorsed to RCBC, are, therefore, to be released from
attachment, garnishment, and levy by the other creditors of GOYU.
This brings us to the next relevant issue to be resolved, which is, the extent of GOYU’s outstanding
obligation with RCBC which the proceeds of the 8 insurance policies will discharge and liquidate, or put
differently, the actual amount of GOYU’s liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial court finding that GOYU’s total obligation
to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning the trial court’s exclusion of
Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91) and Promissory Note No. 420-92
(renewal of Promissory Note No. 952-91) on the ground that their execution is highly questionable for
not only are these dated after the fire, but also because the signatures of either GOYU or any of its
representative are conspicuously absent. Accordingly, the Court of Appeals speculated thusly:
. . . Hence, this Court is inclined to conclude that said promissory notes were pre-signed by plaintiff in
blank terms, as averred by plaintiff, in contemplation of the speedy grant of future loans, for the same
practice of procedure has always been adopted in its previous dealings with the bank.
(Rollo, pp. 181-182.)
The fact that the promissory notes bear dates posterior to the fire does not necessarily mean that the
documents are spurious, for it is presumed that the ordinary course of business had been followed
(Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 222 SCRA 486 [1993]). The obligor and
not the holder of the negotiable instrument has the burden of proof of showing that he no longer owes
the obligee any amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).
Even casting aside the presumption of regularity of private transactions, receipt of the loan amounting
to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the testimony of Go
Song Hiap when he answered the queries of the trial court:
ATTY. NATIVIDAD
Q:
But insofar as the amount stated in Exhibits 1 to 29- RCBC, you received all the amounts stated therein?
A:
Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?
WITNESS
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
A:
The promissory Notes they did not give to me but the amount I asked which is correct, Your Honor.
COURT
Q:
You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct?
A:
Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)
Furthermore, aside from its judicial admission of having received all the proceeds of the 29 promissory
notes as hereinabove quoted, GOYU also offered and admitted to RCBC that its obligation be fixed at
P116,301,992.60 as shown in its letter dated March 9, 1993, which pertinently reads:
We wish to inform you, therefore that we are ready and willing to pay the current past due account of
this company in the amount of P116,301,992.60 as of 21 January 1993, specified in pars. 15, p. 10, and
18, p. 13 of your affidavits of Third Party Claims in the Urban case at Makati, Metro Manila and in the
Zamboanga case at Zamboanga City, respectively, less the total of P8,851,519.71 paid from the
Seaboard and Equitable insurance companies and other legitimate deductions. We accept and confirm
this amount of P116,301,992.60 as stated as true and correct.
(Exhibit BB.)
The Court of Appeals erred in placing much significance on the fact that the excluded promissory notes
are dated after the fire. It failed to consider that said notes had for their origin transactions
consummated prior to the fire. Thus, careful attention must be paid to the fact that Promissory Notes
Nos. 420-92 and 421-92 are mere renewals of Promissory Notes Nos. 908-91 and 952-91, loans already
availed of by GOYU.
The two courts below erred in failing to see that the promissory notes which they ruled should be
excluded for bearing dates which are after that of the fire, are mere renewals of previous ones. The
proceeds of the loan represented by these promissory notes were admittedly received by GOYU. There
is ample factual and legal basis for giving GOYU’s judicial admission of liability in the amount of
P116,301,992.60 full force and effect.
It should, however, be quickly added that whatever amount RCBC may have recovered from the other
insurers of the mortgaged property will, nonetheless, have to be applied as payment against GOYU’s
obligation. But, contrary to the lower courts’ findings, payments effected by GOYU prior to January 21,
1993 should no longer be deducted. Such payments had obviously been duly considered by GOYU, in its
aforequoted letter dated March 9, 1993, wherein it admitted that its past due account totaled
P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of January 21,
1993, to wit:
309
VOL. 289, APRIL 20, 1998
309
Rizal Commercial Banking Corporation vs. Court of Appeals
Total Obligation as admitted by GOYU as of January 21, 1993:
P116,301,992.60
Broken down as follows: Principal1 Interest Regular 80,535,946.32 FDU 27,548,025.17 ____________
Total: 108,083,971.49 8,218,021.112 LESS: 1) Proceeds from Seaboard Eastern Insurance Company:
6,095,145.81 2) Proceeds from Equitable Insurance Company: 2,756,373.00 3) Payment from foreign
department negotiation: 203,584.89 9,055,104.703 NET AMOUNT as of January 21, 1993:
P107,246,887.90
The need for the payment of interest due upon the principal amount of the obligation, which is the cost
of money to RCBC, the primary end and the ultimate reason for RCBC’s existence and being, was duly
recognized by the trial court when it ruled favorably on RCBC’s counterclaim, ordering GOYU “to pay its
loan obligation with RCBC in the amount of P68,785,069.04, as of April 27, 1992, with interest thereon
at the rate stipulated in the respective promissory notes (without surcharges and penalties) per
computation, pp. 14-A, 14-B, 14-C” (Record, p. 479). Inexplicably, the Court of Appeals, without even
laying down the factual or legal justification for its ruling, modified the trial court’s ruling and ordered
GOYU “to pay the principal amount of P68,785,069.04 without any interest, surcharges and penalties”
(Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with much uncertainty deleted the
payment of additional interest, penalties, and charges, in this manner:
Regarding defendant RCBC’s commitment not to charge additional interest, penalties and surcharges,
the same does not require that it be embodied in a document or some form of writing to be binding and
enforceable. The principle is well known that generally a verbal agreement or contract is no less binding
and effective than a written one. And the existence of such a verbal agreement has been amply
established by the evidence in this case. In any event, regardless of the existence of such verbal
agreement, it would still be unjust and inequitable for defendant RCBC to charge the plaintiff with
surcharges and penalties considering the latter’s pitiful situation. (Emphasis supplied.)
(Record, p. 476)
The essence or rationale for the payment of interest or cost of money is separate and distinct from that
of surcharges and penalties. What may justify a court in not allowing the creditor to charge surcharges
and penalties despite express stipulation therefor in a valid agreement, may not equally justify non-
payment of interest. The charging of interest for loans forms a very essential and fundamental element
of the banking business, which may truly be considered to be at the very core of its existence or being. It
is inconceivable for a bank to grant loans for which it will not charge any interest at all. We fail to find
justification for the Court of Appeals’ outright deletion of the payment of interest as agreed upon in the
respective promissory notes. This constitutes gross error.
For the computation of the interest due to be paid to RCBC, the following rules of thumb laid down by
this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals (234 SCRA 78 [1994]), shall apply, to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
“Damages” of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date of the judgment of the court
is made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
(pp. 95-97.)
There being written stipulations as to the rate of interest owing on each specific promissory note as
summarized and tabulated by the trial court in its decision (pp. 470 and 471, Record) such agreed
interest rates must be followed. This is very clear from paragraph II, sub-paragraph 1 quoted above.
On the issue of payment of surcharges and penalties, we partly agree that GOYU’s pitiful situation must
be taken into account. We do not agree, however, that payment of any amount as surcharges and
penalties should altogether be deleted. Even assuming that RCBC, through its responsible officers,
herein petitioners Eli Lao and Uy Chun Bing, may have relayed its assurance for assistance to GOYU
immediately after the occurrence of the fire, we cannot accept the lower courts’ finding that RCBC had
thereby ipso facto effectively waived collection of any additional interests, surcharges, and penalties
from GOYU. Assurances of assistance are one thing, but waiver of additional interests, surcharges, and
penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of default partake of the nature of
liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof
provides:
ART. 2227. Liquidated damages, whether intended as an indemnity or penalty, shall be equitably
reduced if they are iniquitous and unconscionable.
In exercising this vested power to determine what is iniquitous and unconscionable, the Court must
consider the circumstances of each case. It should be stressed that the Court will not make any
sweeping ruling that surcharges and penalties imposed by banks for non-payment of the loans extended
by them are generally iniquitous and unconscionable. What may be iniquitous and unconscionable in
one case, may be totally just and equitable in another. This provision of law will have to be applied to
the established facts of any given case. Given the circumstances under which GOYU found itself after the
occurrence of the fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the
penalty charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates
to 2% and 3%, respectively. Furthermore, in the light of GOYU’s offer to pay the amount of
P116,301,992.60 to RCBC as of March 1993 (See: Exhibit “BB”), which RCBC refused, we find it more in
keeping with justice and equity for RCBC not to charge additional interest, surcharges, and penalties
from that time onward.
Given the factual milieu spread hereover, we rule that it was error to hold MICO liable in damages for
denying or withholding the proceeds of the insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance policies, RCBC
has the right to claim the insurance proceeds, in substitution of the property lost in the fire. Having
assigned its rights, GOYU lost its standing as the beneficiary of the said insurance policies.
Secondly, for an insurance company to be held liable for unreasonably delaying and withholding
payment of insurance proceeds, the delay must be wanton, oppressive, or malevolent (Zenith Insurance
Corporation vs. CA, 185 SCRA 403 [1990]). It is generally agreed, however, that an insurer may in good
faith and honesty entertain a difference of opinion as to its liability. Accordingly, the statutory penalty
for vexatious refusal of an insurer to pay a claim should not be inflicted unless the evidence and
circumstances show that such refusal was willful and without reasonable cause as the facts appear to a
reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211;
Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep 307; Kusnetsky vs. Security Ins. Co., 313
Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not show that MICO wantonly and in bad faith
delayed the release of the proceeds. The problem in the determination of who is the actual beneficiary
of the insurance policies, aggravated by the claim of various creditors who wanted to partake of the
insurance proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and as
now borne out by the outcome herein, justified MICO in withholding payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC cannot avail itself of
two simultaneous remedies in enforcing the claim of an unpaid creditor, one for specific performance
and the other for foreclosure. In doing so, said the appellate court, the second action is deemed barred,
RCBC having split a single cause of action (Rollo, pp. 195-199). The Court of Appeals was too
accommodating in giving due consideration to this argument of GOYU, for the foreclosure suit is still
pending appeal before the same Court of Appeals in CA G.R. CV No. 46247, the case having been
elevated by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of Appeals pre-
empted the resolution of said foreclosure case which is not before it. This is plain reversible error if not
grave abuse of discretion.
As held in Peña vs. Court of Appeals (245 SCRA 691 [1995]):
It should have been enough, nonetheless, for the appellate court to merely set aside the questioned
orders of the trial court for having been issued by the latter with grave abuse of discretion. In likewise
enjoining permanently herein petitioner “from entering in and interfering with the use or occupation
and enjoyment of petitioner’s (now private respondent) residential house and compound,” the
appellate court in effect, precipitately resolved with finality the case for injunction that was yet to be
heard on the merits by the lower court. Elevated to the appellate court, it might be stressed, were mere
incidents of the principal case still pending with the trial court. In Municipality of Biñan, Laguna vs. Court
of Appeals, 219 SCRA 69, we ruled that the Court of Appeals would have “no jurisdiction in a certiorari
proceeding involving an incident in a case to rule on the merits of the main case itself which was not on
appeal before it.”
(pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga Regional Trial Court,
since it has been determined that RCBC has the right to the insurance proceeds, the subject matter of
intervention is rendered moot and academic. Respondent Sebastian must, however, yield to the
preferential right of RCBC over the MICO insurance policies. It is basic and fundamental that the first
mortgagee has superior rights over junior mortgagees or attaching creditors (Alpha Insurance & Surety
Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil. 271
[1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of December 16, 1996
and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED and SET ASIDE, and a new one entered:
1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442 before Branch 3 of
the Manila Regional Trial Court for lack of merit;
2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking Corporation the
proceeds of the insurance policies in the amount of P51,862,390.94 (per report of adjuster Toplis &
Harding [Far East], Inc., Exhibits “2” and “2-1”), less the amount of P50,505,594.60 (per O.R. No.
3649285);
3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the interests earned to
Rizal Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking Corporation in the
principal amount of P107,246,887.90, with interest at the respective rates stipulated in each promissory
note from January 21, 1993 until finality of this judgment, and surcharges at 2% and penalties at 3%
from January 21, 1993 to March 9, 1993, minus payments made by Malayan Insurance Company, Inc.
and the proceeds of the amount deposited with the trial court and its earned interest. The total amount
due RCBC at the time of the finality of this judgment shall earn interest at the legal rate of 12% in lieu of
all other stipulated interests and charges until fully paid.
The petition of Rizal Commercial Banking Corporation against the respondent Court in CA-GR CV 48376
is DISMISSED for being moot and academic in view of the results herein arrived at. Respondent
Sebastian’s right as attaching creditor must yield to the preferential rights of Rizal Commercial Banking
Corporation over the Malayan insurance policies as first mortgagee.
SO ORDERED.
Regalado (Chairman), Puno, Mendoza and Martinez, JJ., concur.
Petitions granted, decision and resolution reversed and set aside.
Note.—Where both parties offer a conflicting interpretation of a contract then judicial determination of
the parties’ intention is inevitable. (China Banking Corporation vs. Court of Appeals, 265 SCRA 327
[1996])
——o0o—— Rizal Commercial Banking Corporation vs. Court of Appeals, 289 SCRA 292, G.R. Nos.
128833, 128834, and 128866 April 20, 1998

Insurance Case 1

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Insurance Case 1

Hochgeladen von

Copyright:

Verfügbare Formate

INSURANCE

SUPREME COURT REPORTS ANNOTATED

Development Bank of the Philippines vs. Court of Appeals

G.R. No. 109937. March 21, 1994.*

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Office of the Legal Counsel for petitioner.

We affirm the decision of the Court of Appeals with modification.

3. To pay plaintiff the amount of P10,000.00 as attorney’s fees;

Hence, this recourse.

Cruz (Chairman), Davide, Jr., Bellosillo and Kapunan, JJ., concur.

Reviewed decision modified.

No. L-27703. July 31, 1970.

Workmen’s Compensation; Where co-employee stabbed to death deceased employee.—Simeon Mallari

Same; Philosophy underlying compulsory insurance of workmen’s compensation liability.—The

APPEAL from a decision of the Workmen’s Compensation Commission.

The facts are stated in the opinion of the Court.

De Santos & Delfino for petitioner.

Ruben C. Ayson for respondent Maria P. Mallari.

“(a) 1.00 for the decision.................................. P 1.00

Resolution of these two issues presents no special difficulty.

ACCORDINGLY, the judgment appealed from is affimiied, at petitioner’s cost.

Provisional Remedies; Garnishment.—Garnishment has been defined as a species of attachment for

The facts are stated in the opinion of the Court.

Hector L. Fernandez for petitioner.

Domingo Quibranza and Vicente A. Quibranza for private respondents.

Rule 39, Section 15 provides:

Rule 57, Section 7(e) in turn reads:

xxx xxx xxx

xxx xxx xxx”

Narvasa (Chairman), Cruz, Griño-Aquino and Medialdea, JJ., concur.

Petition dismissed. Orders affirmed.

Note.—The garnishment of a property to satisfy a writ of execution operates as an attachment and

UBBERIMEA FIDES CONTRACT

No. L-24833. September 23, 1968.

REVIEW of a decision of the Court of Appeals.

The facts are stated in the resolution of the Court.

Jose S. Suarez for petitioner.

Eligio G. Lagman for respondents.

VOL. 20, MAY 29, 1967

Bonifacio Bros., Inc. vs. Mora

No. L-20853. May 29, 1967.

APPEAL from a decision of the Court of First Instance of Manila. Solidum, J.

The facts are stated in the opinion of the Court.

G. Magsaysay for plaintiffs-appellants.

Abad Santos & Pablo for defendant-appellee H. E. Reyes, Inc.

J. P. Santilla & A. D. Hidalgo, Jr. for other defendant-appellee.

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost,

Same; Contractual limitations in policies prevail over statutory limitations.—Contractual limitations in

The facts are stated in the opinion of the Court.

Santiago Ranada for plaintiffs-appellees.

Benjamin S. Valte for defendant-appellant.

Judgment set aside.

BASILIA BERDIN VDA. DE CONSUEGRA;JULIANA,PACITA,MARIA LOURDES,JOSE,JR., RODRIGO,LINEDA,

SUPREME COURT REPORTS ANNOTATED

Vda. de Consuegra vs. Government Service Insurance System

surnamed CONSUEGRA, petitioners and appellants, vs. GOVERNMENT SERVICE INSURANCE

The facts are stated in the opinion of the Court.

Bernardino O. Almeda for petitioners and appellants.

The Solicitor General for other respondents and appellees.

The contention of appellants is untenable.